Japan Metals Report Q3 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, to a lesser extent, India, rapidly increase production and consumption in most metals.
We expect steel production to rebound on the back of increased demand as construction efforts get under way. However, producer margins are likely to remain tight as iron ore and coal prices continue to rise, only some of which can be passed onto the consumer. We expect a continuation of the long-term decline in primary aluminium production, with output falling by an annual average of 2.3% a year to 4.33kt (''000 tonnes) in 2016, from 4.70kt in 2010.
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 3.1%, reaching 1.19mn tonnes (mnt) by 2016, from 1.01mnt in 2010. Consumption growth will be more modest, growing by an average annual rate of 0.6% and reaching 2.17mnt in 2016, up from 2.03mnt in 2010.
We expect refined copper production to decline by 14.1% in 2011, based on figures for the first nine months of 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. Finally, we forecast nickel production to reach 180kt in 2016, marking an average annual rate of growth of 1.6% from 164kt in 2010, with Sumitomo Metal Mining leading growth as it increases output at its Niihama refinery, the country''s largest, from 41ktpa to 63ktpa in 2013. In addition, we forecast consumption growth to average 1.8% a year, reaching 198kt in 2016.
Overall, we expect production of refined metals to outpace growth in demand, leading to an output surplus over the coming years. Indeed, we expect Japan to become a larger net nickel exporter from 2013. We therefore expect Japan''s exports of refined metals to increase, with the primary export market being China, a market we expect to remain reliant on imported metals, at least in the short to medium term.
Our forecasts are based on the premise that the Japanese economy will slowly recover from recession and the March 2011 earthquake and continue its pre-crisis trend of slow growth. Consequently, there are downside risks to our forecasts depending on the performance of the wider economy. If the country shows signs of a slower than expected recovery we will consider revising down our forecasts.