2012-09-09 03:49:59 - Recently published research from Business Monitor International, "Canada Metals Report Q3 2012", is now available at Fast Market Research

While the Canadian metals market is set to be an outperformer, consumption growth will be insufficient to sustain output growth in 2012 with the US market set to determine production, according to BMI's latest Canada Metals Report. As such, some segments will see slower growth and even a contraction, particularly where plants are affected by labour disputes.

Canada is the world's sixteenth-largest steel producer. Canadian crude steel output decreased by 1.0% to 13.1mnt (million tonnes) in 2011, despite a 10% rise in apparent finished steel consumption to 17.3mnt. A deal between US Steel and the Canadian government could stimulate output, but in light of the deteriorating economic conditions and the potential for over-supply particularly in the US flat steel market, we

have revised down our output growth forecast from 10% to 4.9% for 2012 to reach 13.7mnt. A strong Canadian dollar during most of 2011 also likely spurred imports and decreased incentive for increased domestic production.


Full Report Details at
- www.fastmr.com/prod/456316_canada_metals_report_q3_2012.aspx


In January 2012, Rio Tinto Alcan announced that it would operate its 438ktpa (thousand tonnes per annum) Alma aluminium smelter in Saguenay-Lac-Saint-Jean, Quebec at one-third capacity. It is engaged in a dispute with workers over union demands to limit the use of subcontract workers and guarantees of a certain number of union jobs at the plant. Bringing 50ktpa of capacity back online at Shawinigan will be insufficient to make up for the loss of around 290,000tpa of capacity at Saguenay-Lac-Saint-Jean. This along with the impact of a more difficult operating environment with falling prices, weakening sales and rising costs will lead to a moderate 2% increase in primary aluminium output to 3.3mnt in 2012.

Nickel refining has been undermined by the effects of labour disputes on ore mining activities with 12.2kt (thousand tonnes) of planned finished nickel output lost due to a shut-down of a facility operated by Vale. We expect refined nickel output to increase by 4% in 2012 to reach 148kt. Production is projected to reach 162kt tonnes by 2016. A significant risk to this forecast comes from doubts over the commercial viability of Vale's complex in Thompson with 55ktpa (thousand tonnes per annum) refining and 60ktpa smelting capacities.

Construction Sector Still Positive

The situation is still positive in the construction sector. Having grown by 3.5% year-on-year (y-o-y) in real terms in 2011, we expect Canada's residential and non-residential building industry to maintain its status as an outperformer among developed markets in 2012. While not immune to external economic pressures, the relative strength of the Canadian economy allied to low interest rates and a highly attractive project financing environment have buttressed industry growth since 2009. That said, with residential construction growth showing signs of moderating we are pencilling in a modest slowdown in 2012 to 3% y-o-y. However, of greater importance is construction activity in the US, which remains uncertain and subdued.

The country's metal production has followed the overall strength of the economy as it returns to prerecession levels of industrial output, particularly in crucial metals consuming sectors such as the domestic car industry. We believe that with the economy getting closer to potential, and with capacity utilisation being eaten up, and corporate cash and profits still headed higher, there will be increased incentive to invest. Added to these factors are government tax breaks intended to spur investment, and the potential for yet further cuts in the corporate tax rate.

There are, however, headwinds to domestic consumption, including interest rate hikes, inflation reducing disposable income, and the potential for house price moderation or even a downturn. But the underlying fundamentals are still positive, with the labour market improving and, accordingly, real wages beginning to growth more robustly. The most significant risk would be a significant slowdown in the US, which could severely undermine Canadian business confidence, commodity prices and exports, adversely affecting exports of metals and manufactured goods.

In terms of upstream resources, Canada's mining sector continues to benefit from substantial natural resources, a stable political environment and sustained global demand for its minerals. As a large producer of zinc, nickel, uranium and potash, Canada's mineral production is diverse and will remain highly attractive for investment. Although many countries are increasingly shifting mineral exports away from the US and Europe toward Asia, Canada's longstanding trade relationships and close proximity to the US lead us to believe that changes in export patterns will be minimal.

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