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1、Q4 2011 insurance report issn 1750-5771 published by Business Monitor international Ltd. soutH Korea INCLUDES BMIS FORECASTS Business Monitor International 85 Queen Victoria Street London EC4V 4AB UK Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: Web: http:/ 2011 Business Monitor Inter
2、national. All rights reserved. All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic
3、, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher. DISCLAIMER All information contained in this publication has been researched and compiled from sources believed
4、to be accurate and reliable at the time of publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omission
5、s affecting any part of the publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained. SOUTH KOREA METALS REPORT Q4 2011 INCLUDES 5-YEAR FORECAST
6、S TO 2015 Part of BMIs Industry Report CFR Main China Port; Delivery Mid West short ton. Source: Metal Bulletin. Bloomberg According to Worldsteel, steel output came in at 127 million tonnes (mnt) in July, marking growth of 11% year-on-year (y-o-y), to a large degree driven by ongoing strong product
7、ion in China. We note that in the first seven months of the year, global steel output rose by 8.2% y-o-y, and while this is a strong growth rate, we note that it is a significant slowdown from the 25.7% increased recorded over the same period in 2010. The strong outturn in 2010 was largely the resul
8、t of base effects and a surge in North American and European output, and we see the pace of production growth continuing to slow over the course of 2011. Interestingly, while it was production in North America and Europe that led the rebound in 2010, it is Asian, and in particular Chinese production
9、 which is driving growth this year. According to the China Iron and Steel Association (CISA), Chinas crude steel output is expected to come in above 700mn tonnes in 2011, exceeding its previous forecast by around 40mn tonnes. It has been reported that steelmaking programmes are proceeding without of
10、ficial approval from the government, resulting in the recurrence of the overcapacity issue. South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 12 Rising Again Global Steel Output, January 2006-July 2011 (000 tonnes and % change y-o-y, RHS) Source: BMI, Worldsteel Asia Leading
11、Growth In 2011 Year-To-Date Growth In Steel Production By Region (% change y-o-y) Source: BM, Worldsteel South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 13 The still-strong rise in production, combined with somewhat slower global growth, suggests that overcapacity should re
12、main in place over the coming quarters. Moreover, despite the increase in production, Worldsteel data show that capacity utilisation has fallen in recent months, pointing to potential slack in the market. Indeed, despite growing consumption, capacity utilisation has fallen to 79.7% - its lowest leve
13、l since December 2010. Lots Of Slack Here Global Steel Capacity Utilisation Levels, February 2008-June 2011 (%) Source: BMI, Worldsteel Rising Costs Hurt Margins And Help Consolidation Rising input costs such as coal and iron ore have continued to hurt producer margins and we expect this theme to re
14、main in place. Indeed, as we have been highlighting for several months now, iron prices have risen by approximately 150% since 2009, compared with a 50% increase in steel prices over the period. This had resulted in three main dynamics. First, producer margins have come under pressure, particularly
15、in China, which accounts for approximately 45% of global output. According to CISA, the steel industry has been running the lowest average sales margins (2.9%)among all industrial sectors in the first five months, well below 6.0% for all industries across the country. Second, rising iron prices have
16、 forced steel mills to turn to ferrous scrap in order to obtain cost savings through lower input prices, as well as through lower levels of energy and water usage. Third, lower margins could force further consolidation and vertical integration of the steel sector. As Chinas steel sector will continu
17、e to consolidate - driven by government directive - smaller companies could be taken over. Similarly, we continue to note the trend of vertical integration in the iron ore and steel industry, whereby steel producers aim to control a large proportion of the supply chain in mining, power and shipping.
18、 Brazilian companies such as Vale and South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 14 Usiminas are two examples, but we have also seen evidence of this by Indian companies in recent months. Rising Input Costs Putting Pressure On Margins Iron Ore And Steel Prices, January
19、 2009-September 2011 (rebased 100 = January 2009) Source: BMI These cost pressures could continue to result in higher prices, as producers attempt to pass them along, although there is a risk that oversupply may limit broad-based gains. Indeed, we had previously reported that Japanese and Korean com
20、panies had started to pass on some of these costs by negotiating higher prices with their customers. In recent weeks, it was reported that some Chinese companies were either lowering steel prices, and/or developing flat price strategies for the coming months. In general however, we believe price pre
21、ssures should remain slightly to the upside, but much will depend on the demand picture. Recovery In Demand Continues: EM Increasingly Important In April, Worldsteel released its outlook for 2011 and 2012 and sees demand holding up. However, we would caution that the macroeconomic environment has si
22、nce deteriorated. The association forecasts apparent steel use rising by 5.9% to 1,359mnt in 2011, following 13.2% growth in 2010. Moreover, for 2012, the WSA forecast world steel demand will grow further by 6.0% to reach a new record of 1,441mnt. Furthermore, these forecasts suggest two key trends
23、emerging. Firstly, in 2012, steel use in the developed world will still be 14% below the 2007 level, while consumption in emerging and developing economies will be 38% higher. Secondly, emerging markets will account for an increasing proportion of global steel demand, rising from 61% in 2007 to 72%
24、in 2012. That said, these forecasts have not taken South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 15 into account the fallout from the natural disaster in Japan. A breakdown of WSA estimates show that it expects Chinas apparent steel use in 2011 to increase by 5.0% to 605m
25、nt following 5.1% growth in 2010. Moreover, the WSA suggests that, given the pace of steel production in the first quarter of 2011, Chinas apparent steel use could be even higher. Moreover, India is expected to show strong growth in steel use over the next two years on the back of large investments
26、in infrastructure and the expansion of industrial production, with demand forecast to grow by 13.3% in 2011 and 14.3% in 2012. Similarly, the US and EU are forecast to see demand growth of 13.0% and 4.9% in 2011, driven by government policy and a rebound in exports, respectively. That said, given th
27、e gyrations in global markets and policy making in both the US and the eurozone, we see significant downside risks to the WSA forecasts. Risks To Outlook We see neutral to downside risks to our price outlook, from upside risks previously. Indeed, while cost pressures may force steel prices higher, t
28、hese will be capped by rising overcapacity and falling utilisation levels. Moreover, a key risk arises from the demand side of the equation. Any sharp slowdown in developed market demand will likely lead to a slowdown in emerging market growth, which in turn, could see steel-related consumer demand
29、fall. That said, a clear upside risk to this is if emerging markets pursue fiscal expansions in an effort to offset the slowdown in demand, particularly if they boost infrastructure investment. South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 16 Commodities Forecast Metals U
30、pdate Gold Spot gold continued to surge higher in August as investors flocked to safe haven assets on the back of S trade figures include re-exports; e/f = estimate/forecast. Source: BMI, ISSB, World Steel Association South Korea Metals Report Q4 2011 Business Monitor International Ltd Page 31 Alumi
31、nium BMI view: South Korea has no primary aluminium smelting capacity and relies on imports and recycling for its aluminium supply. The countrys automotive industry should sustain strong rates of aluminium consumption growth, with demand reaching just under1.8mn tonnes by 2015, an increase of 44% ov
32、er 2010. South Korea possesses no primary aluminium smelting capacity and secondary smelters produce all domestic aluminium output. Australia is the largest source of primary aluminium on the Korean market, followed by Russia; together they typically account for at least two-thirds of supply. Noveli
33、s Korea is the largest secondary aluminium producer with a 430,000tpa smelter in Ulsan. The second largest secondary smelter is operated by Choil Aluminium with 160,000tpa capacity. Novelis is reportedly investing US$400mn on its South Korean operations at Ulsan and Yeongju with a view to raising it
34、s Asian aluminium sheet capacity to 1mn tpa. Dongyang Gangchul, South Koreas leading aluminium extruding firm with an annual production capacity of 54,000tpa, is planning to build a US$350mn aluminium smelter. In August 2011, it announced it would annually import 600,000 tonnes of alumina from Vietn
35、am. A successful completion of the project would help stabilise aluminium prices in South Korea. South Korean aluminium consumption is led by its automotive industry with 21.6% growth in production to 4.27mn units in 2010 leading to 20.0% growth in aluminium consumption to 1.25mn tonnes. In H111, 2.
36、3mn vehicles were produced in South Korea, an increase of 9.7% y-o-y. KAMA believes that automobile production can grow in the order of 3% over the course 2011, to 4.4mn vehicles. Beyond this year, we are currently envisaging growth in South Korean auto production of 7% per annum leading to total pr
37、oduction of 5.5mn units by 2015. This should sustain strong rates of aluminium consumption growth, with demand reaching just below 1.8mn tonnes by 2015, an increase of 44% over 2010. Copper BMI view: South Korea is Asias third-biggest consumer of copper, with consumption estimated at just over 1mn t
38、onnes in 2010 and a further 3.0% growth forecast in 2011 to bring demand to 1.04mn tonnes boosted by domestic demand in the construction and consumer goods sectors. In 2010, it imported an estimated 540,000 tonnes of refined copper, up 8% y-o-y, and imports are likely to grow by 2% to a record 551,0
39、00 tonnes in 2011. Coupled with the likely decline in growth in copper-consuming sectors, we anticipate annual growth in the region of 1.3-1.5% over the 2012-15 period. South Korea has very small reserves of copper, and the production of both mined and refined copper is insufficient to meet domestic
40、 demand. As such, the country has to rely on imports to supplement domestic production. Indeed, South Korea is the worlds sixth largest importer of refined copper and the worlds fifth largest importer of copper blisters and anodes, which are unrefined forms of copper. South Korea Metals Report Q4 20
41、11 Business Monitor International Ltd Page 32 The South Korean copper industry is dominated by LS-Nikko Copper, which possesses 630,000tpa of copper refining capacity at two sites at Onsan and Changhang. Its main customers are in the electric and electronic industries and further downstream produces
42、 electrolytic copper cathodes. The Changhang site also hosts South Koreas 430,000tpa smelter. Korea Zinc has 20,000tpa of copper refining capacity at its Onsan complex. Copper mining is negligible and the country is almost entirely dependent on ore imports. South Korea is Asias third-biggest consume
43、r of copper, with consumption estimated at just over 1mn tonnes in 2010 and a further 3.0% growth forecast in 2011 to bring demand to 1.04mn tonnes, boosted by domestic demand in the construction and consumer goods sectors. With refinery and smelting capacity well below domestic consumption, the cou
44、ntry is a significant importer of copper. In 2010, it imported an estimated 540,000 tonnes of refined copper, up 8% y-o-y, and imports are likely to grow by 2% to a record 551,000 tonnes in 2011. Slower import growth is partly due to the slowdown in metals consumption growth rates after a surge in 2
45、010, but also due to an increase in domestic refining capacity utilisation from 87% to 90% in 2011. There is doubt about the operational viability of LS-Nikkos Changhang refinery after its operational capacity fell to 16%. Whether the plant returns to full operating rates will influence import level
46、s. Reports indicate that South Korea is expected to step up overseas joint ventures (JVs) in the exploration and development of copper ore resources in Latin America, South East Asia and Africa in order to overcome its domestic mineral shortage. A deal by a South Korean consortium with the Democrati
47、c Republic of Congo (DRC) will boost output from the Musoshi copper mine, which has estimated reserves of 1.4mn tonnes. However, the DRCs business environment could hinder operations at the mine, which would affect raw copper supply to South Koreas copper producers. These positive developments, coup
48、led with the fact that South Korean exports of refined copper have declined rapidly in recent years, reflect the governments aggressive efforts in securing long-term supplies of raw materials for the domestic processing industry. As a result of strong demand, copper prices are holding up well in Sou
49、th Korea, despite declines in LME prices. The restocking process in combination with improved domestic demand has helped tighten the domestic market. In September, South Korea bought 2,000 tonnes of copper cathodes at a higher premium than its purchase in May, according to an official at the state-run stockpiling agency. The Public Procurement Service, which stockpiles strategic commodities, bought the grade-A copper with more than 99.99% of purit