South Africa: stainless steel market is experiencing a slowdown in demand

South Africa. Stainless steel market suffers current economic downturn.
The stainless steel market is experiencing a slowdown in demand, on the local and international front, says Southern Africa Stainless Steel Development Association (Sassda) chairperson Sampie van Rooyen. “We have found that some of the smaller manufacturers are really far stretched with debt, and are taking strain. At that level of the market, one can see the effects of the slowdown,” he comments. Two key reasons are responsible for the demand decline, says Van Rooyen. The first reason is the interest rate uncertainty that has put pressure on consumer spending, in general. Reduced consumer expenditure has affected all industries to some degree. As consumers at the end of the value chain reduce their expenditure, so too do the retailers and, in turn, the suppliers and manu-facturers suffer reduced volumes and profits. “The minute there is talk of an interest rate reduction, people’s sentiments turn positive and we see the consumer starting to spend again,” says Van Rooyen. The second reason for the economic slowdown, he cites, is the international subprime, ‘toxic debt’ situation, which started in the US and has been making waves throughout the world’s financial markets. “We’re not sure yet to what extent it will really affect us down in South Africa, but everybody is waiting in anticipation,” he adds. Econometrix senior economist Rob Jeffrey says, “The impact of the US slowdown will be profound. Either way, the world will need to work through it and the excesses of the past. The economic cycle exists and we have just experienced a boom. Now we will have a slowdown, which will take a few years to work through the system. The problem may have started in the US, but there are global weaknesses in the financial system.” These same factors have helped cause residential housing projects to slow down this year. Through the housing market, the demand for stainless steel has been indirectly affected, as much of the alloy is used in such projects in the form of items such as counter tops, balustrades, light fixtures and kitchen sinks. However, Van Rooyen points out that larger industrial projects, such as new power stations, soccer stadiums, airports, and the Gautrain, are all are still going ahead uninterrupted, mostly owing to the long-term nature of such projects, which might span more than one economic cycle. “We are in a period now where the downturn is already evident. One can see there has been a slowdown in the demand for cars,” says Jeffrey. “A worldwide slowdown in economic growth is coming.” The automotive industry was hit hard this year, as record high fuel prices and interest rate hikes forced consumers to opt for cheaper, smaller, more fuel- efficient cars, or to simply refrain from buying new cars at all. This affects the stainless steel market too, as a significant part of the stainless steel market rests in the transport sector, in the form of products such as catalytic converters, flexible couplings, exhaust systems, bull bars, bus chassis, rail car bodies and coal wagons. Van Rooyen says that there has been talk of South Africa losing the catalytic converter market completely to the Chinese, but that such talk has abounded within the industry for about five years, with no resolution. “The fear is that the Chinese market will overtake the supply of the material because the Chinese market will ultimately be the biggest consumer of catalytic- converters,” says Van Rooyen. “However, I believe that for the next three to four years we’ll still manufacture catalytic converters for them.” He says the downturn, which began around the start of the second quarter, is simply part of the cycle. “My view is that we’ll see a slight upturn from the second quarter next year,” he states. He reasons that, with the 2010 FIFA World Cup on the doorstep of 2009, final preparations for the event will be made in South Africa and, in particular, in the catering industry. “We’ll definitely see an increase in demand for all cold-rolled, thin gauge stainless steel, because catering facilities are normally one of the last things to be upgraded prior to an event like that.” In spite of the downturn experienced in general, Van Rooyen says that the stainless steel market has become somewhat fragmented, as the tanktainer market booms in stark contrast with the rest of the industry. He says that this kind of trend is not uncommon in the stainless steel industry as well as in the carbon steel industry, because the materials have such a wide range of applications and the their uses span many potentially conflicting markets. “Certain sectors in the market show an upturn while others show a downturn, which is not necessarily a bad thing. It’s just harder to prepare for it,” he concludes.