United States Metals Report Q2 2014
We maintain a modest outlook on the US metals sector throughout 2018. Our forecast for an improving US macroeconomic outlook underpins our view that metal production and consumption should see growth, though long-term declines in metal intensity lead us to believe any growth will be minimal. In the short term, we expect that refiners and metal producers will continue bringing production back online as the country's economic outlook improves, particularly in the construction, oil & gas, and automotive sectors. However, production and consumption will probably remain below pre-crisis levels for some time.
We forecast average yearly real GDP growth of 2.5% from 2014 to 2018, underpinning our view that the metal sector will see slow but steady growth over the period. Gains non-residential construction, automotive production, and oil and gas investment, should lead to steady, albeit low, demand growth for refined metal products. However, elevated inventories, weak foreign demand, and increased competition from cheap imports will cap production increases.
The US metals sector does rely somewhat on imports of some mineral inputs such as bauxite and tin. We forecast little change in the nature of US metals trade, but recognise that sharp changes to metals prices could affect this dynamic. We expect that the bulk of metals sector production will be supplied by domestic mineral resources to support US industries rather than for export abroad. We also note that domestic US companies will dominate production of their respective metals, although laws on foreign ownership of US based companies enables some foreign companies to operate as well, with various foreign steel firms maintaining US operations.
Industry Demand To Support Sector
We expect metals consumption in the US will be driven largely by growth in the construction, auto, and oil and gas sectors. The construction industry is forecast to grow by 0.6% on average per annum through to 2018, with the auto industry expanding 2.9% on average. Non-residential construction will increase demand for heavy machinery, as well as refined metal inputs. Our forecast for a recovering housing market on the back of continued positive data leads us to see steady demand of durable goods, which make heavy use of refined metals. Lastly, we also cite increasing investment in the US natural gas industry, which should support demand for pipelines, heavy machinery, and other industrial equipment, although it must be noted that the industry as a whole accounts for less than 10% of total US infrastructure investment. Despite these positive developments, we note the long-term trend of decreasing metals consumption, even when accounting for the 2008-2009 financial crisis. Metal intensity per unit of GDP has been falling across the developed world in recent years, with the vast majority of demand growth coming from China and other emerging markets. Thus, we note potential downside risks to our forecasts.