EU steel consumption to show marginal growth in 2023: EUROFER

Steel demand in the European Union (EU) in 2023 is expected to grow by a mere 0.3% because of decreased activities in the construction industry, informed Alessandro Sciamarelli, Director, Economic & Market Research, EUROFER, while speaking at a recent webinar organized by SteelMint.

However, EUROFER predicts that demand will rebound by a slim 1.3% in 2024, he iterated. It may be recalled that, in 2022, demand for steel in end-user industries grew 3.1%.

The Steel Weighted Industrial Production index (SWIP), which measures how much steel is being used in different sectors, is expected to grow marginally in 2023, he further said.

Factors that may influence EU steel demand in 2023

1. Weaker construction sector: The construction industry, which accounts for 35% share of EU's steel consumption, has seen a slow trend this year. In 2023, the amount of steel used in construction is expected to degrow because of a decline in investments in civil engineering and infrastructure on the back of monetary tightening, and high interest rates. Orders for construction have also been slowing down since April 2022. In 2022, the construction industry grew by 4.8%, but is expected to degrow by 1.6% in 2023 because of a shortage of construction materials and lower demand for residential buildings. A moderate recovery of 1.3% is expected in 2024.

2. Moderate recovery in auto segment: In 2021, the amount of steel used in the automotive industry increased by 3.3%. In 2022, the growth rate was similar but is expected to slow down to 1.2% in 2023 supported by some positive developments in supply and demand. However, it is expected to degrow by 1.8% in 2024.

Macro-economic factors impacting EU steel markets:

1. PMI contraction: The Composite PMI Output Index (May 2023) showed that the euro area economy recorded a further monthly expansion for the fifth consecutive month (53.3, above the 50-expansion level). However, manufacturing output contracted sharply in May 2023, dropping at the fastest rate for six months. However, services activity continued to grow, albeit at a slower rate, while manufacturing production declined at the sharpest pace since November due to the rapidly deteriorating order books.

As a result, GDP growth in the euro area for Q2 2023 is expected to be positive, essentially driven by services.

2. Inflation eases, but still remains high: Inflation has reached highs unseen since 1985 (peaking to 11.5% in October 2022) as a result of rising energy prices but has been easing since then, down to 8.3% in April. Moderation is expected for the coming months, but inflation will remain around historically high levels throughout 2023. Electricity inflation in the EU slowed to 13.2% in April 2023 (it was 52.6% in July 2022). Higher interest rates influence the cost of borrowing across the economy, making it more expensive to get a mortgage to buy a house or a business investment loan. This, in turn, reduces demand for goods, and drives inflation higher.

3. Fall in gas prices: One of the main drivers behind easing inflation is the continued decrease in the Dutch TTF Gas Price index (to around 25 EUR/MWh in early June), which is close to the historical average (around 20 EUR/MWh). The EU has reduced its energy use and diversified its suppliers, lessening its reliance on Russian imports. In anticipation of a potential energy supply cut-off by Russia, member states agreed to reduce their energy use in the months leading up to winter, resulting in a 20% reduction in fossil fuel use. The EU cut trade with Russia over the last year and increased trade with Saudi Arabia, the US, Colombia and South Africa to make up for the difference.

Outlook

Despite the biggest energy shock ever, the EU did not experience economic recession in 2022 and inflation has not reached 20% (as in 1979-80), nor is recession expected in 2023, unlike the two previous energy crises (1973 and 1979), Sciamarelli said. Energy supply in the EU seems secure at the moment.

As per Eurofer's latest outlook (April, 2023), apparent steel consumption is expected to dip by 1% in 2023 but show a growth of 5.4% in 2024.