How do you view economic growth in the EU in 2015?
The rather brisk drop in oil prices and the sharp depreciation of the euro versus the US dollar are expected to provide a welcome stimulus to economic growth in the EU.
The combined impact of these factors on domestic demand and exports should be noticeable and compensate for the potential drag of other factors, such as the rather weak performance of some core euro zone countries and slower economic momentum in the large emerging markets. Particularly, investment and private consumption are expected to gain momentum, while the weaker euro will improve the competitiveness of euro zone exporters abroad.
While the financial markets apparently had already factored in that the ECB would start a quantitative easing program during 2015, the actual size of the liquidity injection surprised on the upside. Together with the investment plan of European Commission president Jean-Claude Juncker, this will provide a further boost to sentiment.
On balance, GDP in the EU is foreseen to grow by 1.6 percent in 2015 and 1.9 percent in 2016.
How do you see the steel supply-demand balance in Europe in 2015?
The EU steel market is foreseen to slowly but gradually strengthen further in 2015 and 2016, driven by the expected improvement of activity in the steel-using sectors and the related need for a modest stocking up of inventories in the supply chain and at end-users. However, within this framework of moderately expanding steel demand in the EU, growth perspectives for EU steel producers will remain rather muted owing to the anticipated continuation of high import volumes arriving into the EU market over the 2015-2016 period.
Apparent steel consumption in the EU is foreseen to grow by around two percent in 2015 and 2.5 percent in 2016.
In your view, which countries in the EU will stand out in 2015 in terms of steel production and/or domestic demand?
Regarding the dynamics of domestic demand, there is of course a relationship between growth of GDP, activity in the steel-using sectors and domestic demand. To what extent a country benefits from the current positive trends in the economy such as the weaker euro and lower oil prices depends on the export orientation and product mix in industry, which largely determine the competitive position in the international markets. From that respect, the outlook for Germany remains quite positive. Also, the UK shows good potential for growth, while Spain likewise will see acceleration of growth. In contrast, because of the slow pace of reforms, the outlook for France and Italy is less positive.
Do you expect an increase in steel exports from the EU in 2015? What is your view of the prospects for demand in the export markets?
EUROFER does expect a slight increase in exports from the EU to third countries, basically reflecting the positive impact of the weaker euro on the competitive position of euro zone steel producers. Nevertheless, international competition will remain fierce because of continued export pressure from Chinese steel mills.
How do declining oil prices and the weakening euro affect global steel demand in your view? And how does this situation impact steel consumption in the EU and/or steel exports from the EU?
Declining oil prices will generally benefit oil consuming countries while hurting oil producing countries. This implies that Russia - which is an important market for some EU countries such as Germany, Poland, Finland and the Baltic states - will fall into a recession in 2015 and buy less goods from the EU. It will also impact global demand for equipment and machinery used in the oil and gas industry. So some export sectors will be hurt by the fall in oil prices. The weaker euro will basically help euro zone exporters and their supply chain within the EU. The impact on global demand will be limited but in principle contribute positively to a slight growth of global steel demand.
According to the first quarter report of EUROFER, the threat from steel imports (from China and Russia in particular) continues to exist. What can you say about the situation of EU domestic steel producers? Are they going to increase their market share or continue to lose it?
We foresee that growth of both imports and domestic demand in the EU will be more or less similar. This implies that EU producers will not be able to regain a significant market share from third country suppliers.
What can you tell our readers about the situation regarding idle capacity in the EU?
Capacity utilization in the EU is around 73 percent when compared with nominal ("nameplate") capacity. However, EUROFER strongly believes that any assessment of unused or excess steelmaking capacity should be based on realistic effective capacity data rather than nominal capacity. Nominal capacity provides an inflated signal for potential steel production because it does not take into account existing obsolete capacity, the effect of planned maintenance stoppages and unforeseen production interruptions on output, and the need for having a certain degree of swing capacity.
Compared with the nominal capacity of the EU steel sector in 2014 of around 200 million metric tons, capacity utilization is around 85 percent. This means there is some 30 million metric tons of capacity currently unused in the EU.