South Korea Metals Report Q2 2012

South Korean metals consumption growth is set to moderate sharply in 2012 as the country's exports of manufactured goods are hit by a global economic slowdown and an expected contraction in the European market. The leading market of steel and aluminium consumption growth in Korea is the automotive industry, which saw production surge 9.2% y-o-y to 4.23mn units in the first 11 months of 2011. Despite an expected recession in Europe causing a slowdown in the global economy and the strength of the Korean won, the Korea Automobile Manufacturers Association (KAMA) is confident of a 3.1% rise in output to 4.7mn units in 2012 on the back of a 3.9% rise in exports to 3.2mn units.
On the downside, the deep contraction in South Korea's construction industry continues unabated, with the country having posted poor growth figures for 2011. However, we believe that the construction sector will recover in 2012, with our forecasts showing construction real growth to reach 3.1% due to the low base, as well as commercial construction activity. In the first 10 months of 2011, South Korea's crude steel output rose 18.9% year-on-year (y-o-y) to 56.71mn tonnes (mnt). The rate of growth was better than the 12.8% growth forecast by BMI and has prompted an upward revision in our output forecast for 2011 from 65.9mnt to 68.5mnt, an increase of 17.4% y-o-y.
There was a recent shrinkage of demand in markets at home and abroad in Q411 and BMI believes it is unlikely that demand for steel products will improve in H112 and consumption will be sustained at around Q411 levels. Recent growth in capacity at home threatens to create a situation of over-capacity, with BMI forecasting a slowdown in output growth to 2.9% and a 1.0% fall in finished steel consumption in 2012.
Steel-making capacity is set to grow over the medium term with Hyundai Steel planning a third 4mn tonnes per annum (tpa) blast furnace at Dangjin by 2013 as it seeks to ramp up its steel-making capacities in South Korea to meet accelerating demand from builders and automobile makers. Hyundai Steel's new steel works will also produce high quality automotive steel plates. POSCO and Hyundai Steel expect to reduce their HR steel export volumes in 2012, instead diverting production of 400,000 tonnes each to their own hot-rolled outputs for use as feedstock for the production of downstream products. South Korea is one of Asia's largest consumers of copper, with consumption estimated at 747kt ('000 tonnes) in 2011. Imports were 213kt in 2011 and are expected to fall to 193kt by 2016 due to the mediumterm decline in growth in copper-consuming sectors.
South Korea has very small reserves of copper, and the production of both mined and refined copper is insufficient to meet domestic demand. As such, the country has to rely on imports to supplement domestic production. Indeed, South Korea is the world's sixth largest importer of refined copper and the world's fifth largest importer of copper blisters and anodes, which are unrefined forms of copper.
Lead refining is forecast to rise 5.0% to 296,000 tonnes in 2012, close to full operational capacity, as consumption grows by 22.1% to 348,000 tonnes with growth slowing in line with a moderation in growth in automotive output. Meanwhile, trends in construction will influence the zinc sector with refining likely to see steady growth with refinery output of 851,000 tonnes (up 3.4% y-o-y) and consumption at 560,000 tonnes (up 4.0% y-o-y) in 2012, which will reduce exports by 3.7% to 334,000 tonnes.
Nickel refining increased 25% in 2011 as a new refinery in Gwangyang rose to full capacity. Further expansion of the refinery should help secure a further 50% rise in output by 2016. However, there are concerns about a disruption in ore supplies from New Caledonia, as well as reduced use of nickel in batteries for hybrid vehicles that could squeeze South Korean production. Nevertheless, production will be insufficient to cover domestic consumption, with annual nickel imports at 58,000 tonnes in 2016, up just 5% over 2011 estimates.