Boston, MA -- (SBWIRE) -- 06/07/2013 -- While the Canadian metals market is set to be an outperformer, consumption growth will be insufficient to sustain output growth in 2013, with the US market set to determine production. As such, some segments will see slower growth and even a contraction, particularly where plants are affected by labour disputes.

Construction Sector Still Positive

The situation is still positive in the construction sector, which bodes well for steel and aluminium - the two largest components of Canada's metals sector. Having grown by 3.5% year-on-year (y-o-y) in real terms in 2011, we expect Canada's residential and non-residential building industry to have maintained its status as an outperformer among developed markets in 2012. While not immune to external economic pressures, the relative strength of the Canadian economy allied to low interest rates and a highly attractive project financing environment have buttressed industry growth since 2009. That said, with residential construction growth showing signs of moderating we are pencilling in a modest slowdown in 2013 to 3% y-o-y. However, of greater importance is construction activity in the US, which remains uncertain and subdued.

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The country's metals production has followed the overall strength of the economy as it returns to prerecession levels of industrial output, particularly in crucial metals consuming sectors such as the domestic car industry. We believe that with the economy getting closer to potential, and with capacity utilisation being eaten up, and corporate cash and profits still headed higher, there will be increased incentive to invest. Added to these factors are government tax breaks intended to spur investment, and the potential for yet further cuts in the corporate tax rate.

There are, however, headwinds to domestic consumption, including interest rate hikes, inflation reducing disposable income and the potential for house price moderation or even a downturn. However, the underlying fundamentals are still positive, with the labour market improving and, accordingly, real wages beginning to grow more robustly. The most significant risk would be a significant slowdown in the US, which could severely undermine Canadian business confidence, commodity prices and exports, adversely affecting exports of metals and manufactured goods.

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