Speaking at the 16th SteelOrbis "New Horizons in Steel Markets" annual conference, Alessandro Sciamarelli, EUROFER's director of economic research and market analysis, started his presentation by highlighting that ongoing challenges are casting a shadow of uncertainty on the global economic outlook. After the worst economic recession in the EU in 2020, there was exceptional growth in real GDP in Q2 2021, while the outlook is weaker for Q4 due to widespread uncertainty, namely supply chain issues, inflation and very high energy prices which are hampering the profitability of the industrial sector. The economic landscape is changing very quickly and uncertainty is also making investment decisions very difficult, which is why EUROFER believes its next forecast will reveal a more subdued outlook. The first quarter of 2022 will be impacted by the abovementioned issues, Mr. Sciamarelli said.
All steel-using sectors recorded declining outputs since Q3-Q4 of 2019 up to Q2 2020, while they recorded strong rebounds in Q3 and Q4. The automotive sector was the most exposed to the pandemic downturn - its output plummeted by 21 percent in 2020, while it increased by nine percent in 2021 and is expected to increase by 12 percent in 2022. According to Sciamarelli, the output is very uncertain due to the ongoing supply chain issues, subdued consumer demand and uncertainty regarding electric vehicle standard implementation. As for the construction sector, the output dropped by 4.5 percent in 2020, while it will rebound by 6.4 percent this year and by 4.2 percent next year. Sciamarelli underlined that the sector appears to be better placed than other steel-using sectors due to considerable public support, e.g., the NextGenerationEU and housing supporting schemes.
As for production, Sciamarelli observed that crude steel production in the EU has never recovered to the levels before the 2008-09 crisis, and that the production drop in 2020 was not the lowest ever: in 2020 crude steel output decreased by 12 percent, while in 2009 it had collapsed by 30 percent. For this year, a rebound of about 15 percent is expected by EUROFER. Now capacity utilization rates have returned to normal levels, he said.
Apparent consumption followed a similar trend with the decrease culminating in Q2 2020 with the pandemic. It had been falling since early 2019, well before the pandemic, reflecting the negative trend in steel demand, the manufacturing downturn and destocking. Apparent consumption fell by 5.2 percent in 2019 and by 10.6 percent in 2020, while a 13 percent rebound is expected in 2021, and a 4.7 rise should happen in 2022. Real consumption declined by 10.4 percent in 2020 and is set to rebound by 7.7 percent this year, Mr. Sciamarelli said.
The EUROFER official underlined that the steel trade balance in the EU has been negative in the past five years, with the most severe deficit recorded in 2018, as a consequence of the implementation of the US Section 232 measures. Sciamarelli said he believes that the recent agreement reached by the US and the EU on Section 232 measures is only the first step towards a normalization of exchanges. He definitely expects an improvement in the situation, although understanding how the new quota-based system works will take some time. As for the EU safeguard on steel, the European Commission is expected to conduct a comprehensive review by around June 2022. Sciamarelli underlined that the EU safeguard was introduced not only to mitigate the effects of the US Section 232, but also to compensate for the increase in production capacity in other countries worldwide, while in Europe production has been low in historical terms. Sciamarelli said that import penetration remains an issue, especially now that demand has started to pick up, given the increase in capacity in recent years by other major steel producers such as Turkey, Russia and India.
He reiterated that issues such as the pandemic, the ongoing global supply chain bottlenecks and disruptions, and skyrocketing costs are not expected to ease substantially before the first quarter of 2022. He also commented on inflationary concerns, saying that inflation has reached record highs in several advanced economies and this will probably not be a temporary phenomenon. This may trigger a serious concern if the European Central Bank wants to raise interest rates. A rise in interest rates should be avoided as public support schemes after the pandemic have created an enormous additional amount of public debt.
Finally, Sciamarelli said that the Green Deal entails very ambitious and demanding targets which imply high costs. “We need a lot of investment, there’s a lot of money at stake,” he said, adding that, as the green transition of the EU steel will take a long time, EUROFER hopes European institutions will offer adequate financial support.