Australia’s troubled iron and steel manufacturing industry is expected to fall 15.6% in FY2012-13, new research predicts.
The industry has been in long-term decline due to reduced global demand for Australia’s high-priced manufactured steel, IBISWorld researchers note. Local steel has been further disadvantaged in the global market by the high Australian dollar.
According to IBISWorld general manager (Australia) Karen Dobie, the dollar is expected to remain high, resulting in a forecast export decline of about 45% over the coming year.
BlueScope's decision to exit the export market and reduce production capacity is indicative of this decline, the researchers add.
The study reveals the top five industries in Australia expected to soar and the five expected to sink in 2012-13 and why.
Industries on the rise: resources
Of those predicted to soar, diamond and gemstone mining top the list, with a combined forecast growth of 35.6% for 2012-13 and an expected revenue total of $509.3m for the period.
While the global financial crisis resulted in far lower demand for resources – including diamonds and gemstones – demand has started to recover globally. The rebound will be driven by higher production levels (up 39.5%), while prices are also expected to stabilise in 2012, the study reports.
Dobie points to India as the key export market for Australia's diamonds and gemstones, as India uses diamonds for industrial tools and jewellery.
The electricity generation industry, including renewable energy technology, is forecast to grow strongly over the coming year, largely driven by the flow-on effects of the carbon tax.
The researchers expect industry profitability to be compressed by the introduction of carbon pricing, meaning profit will rise, but at a much slower rate than revenue. Electricity generation industry revenue is forecast to increase 28.7% over the coming year to reach $19.1b.
The sector is the largest contributor of carbon dioxide in Australia at 32% of total emissions, the research states. Victorian electricity generators that burn brown coal will be hardest hit by carbon pricing, followed by generators that burn black coal (mainly in NSW and Qld).
"Trends in electricity demand, production and prices are expected to be broadly reflected in industry performance. Low-cost producers will be able to take advantage of short-term increases in demand and are anticipated to perform well in the coming year," Dobie says.
The remaining three of the top five
Other industries expected to experience rapid growth are preschool education, superannuation funds, and organic farming.
Industries in demise
Globally, cotton supply is expected to continue to outstrip demand over the coming year, resulting in a fall in global cotton prices.
IBISWorld forecasts that “decreased demand for cotton from China, coupled with steady, healthy cotton production levels, will result in a fall of 8.3% in industry revenue over the coming year to reach $2.5 billion.”
Recorded media manufacturing and publishing
Physical media manufacturing is inextricably tied to retail sales, the researchers note. “Over the five years to 2012-13, the number of CDs sold will drop by an estimated 11% annually to about 30 million – as consumers opt to digitally download everything from music, to movies and video games,” the study reports.
"To combat this, the industry is looking to reinvent itself by developing music and video players that play digital media files. However online file downloading and sharing still poses a huge threat for the industry", Dobie says.
In 2012-13, IBISWorld forecasts revenue for Australia's recorded media manufacturing and publishing industry will decline 6.1% to be worth $861.1m.
Pulp, paper and paperboard manufacturing
The increasing digitisation of media has had an adverse affect on a number of downstream industries, including Australia's pulp, paper and paperboard manufacturing industry.
"The increasing digitisation of media lowers the need for paper printing and publishing", Dobie says.
"Confounding this is the continuing high price of woodchips, which further encourages the trend away from paper products", she adds.
Delays in the development of several key production sites – due to uncertain economic times and strong lobbying efforts by protest groups – has further affected industry productivity and profitability. In the coming year, industry revenue is forecast to decline by 5.2% to reach $3.2b.
Gaming and vending machines manufacturing
Over the past five years, the number of poker machines in Australia has contracted as state government caps have come into play – limiting the potential purchases of gaming machines.
Like many of Australia's manufacturing industries, production activity has gradually relocated from Australia to countries with lower production costs. This trend is increasing import competition, which is supported by the strong Australian dollar – making imported goods less expensive for local buyers.
This trend is expected to continue over 2012-13, contributing to a forecast industry revenue decline of 5% to reach $417m.
Image source: Mokan'sSteelWorld (blog)
[This article first appeared on the Factory Equipment News (FEN) website, also published by Reed Business Information.]