Boston, MA -- (ReleaseWire) -- 12/13/2012 -- The earthquake in Japan in March 2011 will have a significant bearing on the country's metals industry for years to come. In the short term, the disruption halted production at several copper and aluminium refineries. It is also set to hurt demand as the economy has now slipped back into recession. However, we expect demand and supply of metals to pick up as reconstruction efforts continue. Steel and aluminium are the two sectors most likely to benefit as much of Japan's infrastructure around the epicentre of the earthquake has been damaged.
Over the long term we expect production and consumption trends to fall back to low single figures, in line with growth forecasts for the Japanese economy as a whole. Japan remains one of the largest producers and consumers of these metals, but faces a declining share of world output and demand, as China and upand- coming India, rapidly increase production and consumption in most metals.
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Although steel prices have dipped since the start of 2012, we expect to see a rebound in Q412 (see our online service, 'Steel To Average US$360/tonne In 2013'), with BMI forecasting the average price for 2012 to reach US$435/tonne. Although we expect steel production to rebound on the back of increased demand as construction efforts get underway, it will be short-lived with production growth experiencing a steady decline from 2014-2016.
Despite seeing a staggering drop in iron ore prices from the start of 2012, we do not expect this to have a significant effect on steel production, as the price of steel has also dropped, with LME data for September 2012 showing an average price of US$325/tonne. Producer margins are likely to remain tight as producers continue to face electricity shortages due to the effects of the 2011 earthquake on the country's energy sector.
We expect a continuation of the long-term decline in primary aluminium production, with output falling by an annual average of 1.8% a year to 4.30kt ('000 tonnes) in 2016, from 4.70kt in 2011. We also expect secondary aluminium, which accounts for the vast majority of the country's refined aluminium output, to grow at an average rate of 2.6%, reaching 1.19mn tonnes (mnt) by 2016, from 1.06mnt in 2011. Primary aluminium consumption growth will be more modest, growing by an average annual rate of 2.3% and reaching 2.17mnt in 2016, up from 1.93mnt in 2011.
Refined copper production declined by 14.3% in 2011, in line with our earlier estimates for the year. We have maintained our long-term forecasts, as we expect demand and supply of refined copper to pick up as reconstruction efforts get under way.
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