Global steel demand will contract 6.4% in 2020 as a direct result of COVID-19, according to the World Steel Association’s Short Range Outlook, but will bounce back in 2021.
The worldsteel forecast is that 1.65 billion tonnes of crude steel will be produced this year and that production will increase 3.8% to 1.71 billion tonnes in 2021.
The forecast assumes that most countries’ lockdown measures continue to be eased during June and July, with social distancing controls remaining in place. It is also dependent upon major steelmaking economies not suffering from substantial secondary waves of the pandemic.
Recovery of economic activities is expected in the third quarter of 2020.
His Excellency Saeed Al Remeithi, CEO of Emirates Steel and chairman of worldsteel’s economics committee, commented: “It is possible that the decline in steel demand in most countries will be less severe than during the global financial crisis as the consumption- and service-related sectors, which have been hit hardest, are less steel-intensive. In many developed economies, steel demand was already at a low level, having still not fully recovered from 2008.”
According to worldsteel, even though all steel-using sectors are affected by lockdown measures, the mechanical machinery and automotive sectors are highly exposed to a prolonged demand shock, as well as to disruption in global supply chains. Changes in working procedures in the steel-using sectors to fulfil the requirements of social distancing have been carried out. This change in the working environment will potentially lead to lower productivity and an extended production cycle.
Worldsteel says that China’s economic recovery started in late February and is fast approaching normalisation, except for the hospitality and tourism sectors. The deep freeze in economic activity during February resulted in a decline of 6.8% in GDP and 16.1% in fixed asset investment in the first quarter. Industrial production fell 8.4%, with the automotive sector showing the worst decline of 44.6%.
By the end of April, all major steel-using sectors were back to near full productivity, even though full operation of the manufacturing sector is hindered by the collapse in export demand. Following the lifting of the lockdown in Wuhan on 8 April, the construction sector has already reached 100% productivity.
The recovery of steel demand will be more visible in the second half of 2020 and driven by construction, especially infrastructure investment. Recovery in manufacturing will be slower due to a severe recession in the global economy, but the automotive industry will get some support from incentive measures.
Chinese steel demand is expected to increase 1% in 2020. A substantial stimulus programme is not expected as this might work against the government’s plan to rebalance the economy. However, if the global economic environment affects the recovery of the Chinese economy more profoundly, the government might need to provide a further boost to the economy, implying an upside risk to steel demand.
In developed economies steel demand is expected to decline 17.1% in 2020. While the downturn is led by consumer and service sectors, massive dislocations in spending, labour markets, and confidence are fuelling broad-based declines in steel-using sectors. A spill-over from substantial job losses and bankruptcies, weak confidence and continued social distancing measures suggest only a partial recovery of 7.8% in 2021.
EU steel demand suffered a contraction of 5.6% in 2019 due to a sustained manufacturing recession, which was pushed back into a deeper recession as lockdown measures resulted in a fall in orders. The automotive sector is expected to be the worst hit, while construction could remain relatively resilient.
In the US, the pandemic is causing a sharp manufacturing recession, which is expected to reach its nadir in the second quarter. The fall in oil prices has placed additional downward pressure on energy sector investment, which was already distressed prior to the crisis. Surging unemployment is leading to reduced income and confidence, impairing residential construction. While non-residential construction is faring relatively better, it is expected to face a decline in 2020 and a slight recovery in 2021.
Japanese steel demand has been weakening since the second half of 2019 and will continue to contract by double digits in 2020 as reduced exports and stalling investments weigh heavily on their automotive and machinery sectors. Construction will see a relatively small contraction due to the continuation of public works.
Major steel-using sectors in Korea are expected to see a double-digit decline because of falling export markets and a weak domestic economy. The shipbuilding sector is expected to be the hardest hit, while a contraction in construction activity will record a milder decrease due to public infrastructure projects.
Developing economies (excluding China)
Steel demand in the developing economies excluding China is expected to fall 11.6% in 2020, but will see a substantial recovery of 9.2% in 2021.
India has implemented the most stringent nationwide lockdown measures in the world, bringing industrial operations to a standstill. Construction activity was halted entirely at the end of March, and recovery is expected to remain slow due to the slow return of labour. Supply chain disruption coupled with slower demand recovery will hit the automotive sector hard. The machinery sector is expected to see a continued decline, with weak private investment and supply chain disruption.
Supported by government stimulus, recovery in construction will be led by infrastructure investment such as railways. The government’s support to rural income, as well as expected consumption related to the upcoming festive season, will help a substantial recovery of demand for consumption-driven manufacturing goods in the second half. As a result, India is likely to face an 18% decline in steel demand this year, which will rebound by 15% in 2021.
In the first quarter, ASEAN countries were hit hard by the lockdown in China and are subsequently experiencing extended disruptions in their supply chains and in tourism. Some infrastructure projects are continuing, making the fall in steel demand less acute. Growth in Vietnam is foreseen thanks to early containment of COVID-19. A renewed focus on infrastructure investment in 2021 is expected to boost steel demand.
According to worldsteel, the pandemic has brought a perfect storm to Latin America and will undermine the prospect of any recovery during 2020. Latin America is particularly vulnerable because of its accumulated domestic structural problems, political instability and high exposure to commodity prices. The region is expected to see a substantial decline in steel demand in 2020 and only a weak recovery in 2021. As the region seems to be lagging in the COVID-19 curve, the outlook may deteriorate further. The prospect of pushing forward with reform agendas and infrastructure plans is being hampered, pointing to a possible long-lasting impact for the region.
In the CIS, the economy will be slow to come out of recession. Combined with the collapse in oil prices, the COVID-19 crisis will push steel demand into a severe contraction in 2020, with a mild recovery in 2021.
The oil-producing countries in the MENA region are among the hardest hit due to the double shock of the COVID-19 outbreak and the plunge in oil prices.
The construction industry in some countries suffered an abrupt halt of projects due to supply chain disruptions and a shortage of workers during the lockdown period. However, the decline in the construction industry will be less severe than during the financial crisis. In the construction sector, social distancing measures seem to be more challenging to put in place, hindering post lockdown resumption of work. Prospects of new projects have worsened due to the deteriorated balance sheets of consumers and businesses. Governments might try to put a focus on new construction projects in an effort to support demand, but significantly worsened government balance sheets may confine the ability to carry out public infrastructure investments.
The mechanical machinery sector, where supply chains are some of the longest in manufacturing, has experienced significant logistical bottlenecks and supply chain issues. The sector will experience a substantial decline in demand in 2020 as investment projects are put on hold or cancelled. The sector will face challenges in demand recovery in the longer term due to a bleak outlook for investment. However, sectors like agricultural and construction machinery will recover faster.
In 2020 the automotive industry is expected to experience a loss of sales of 20% on top of the losses in the past two years. Recovery to pre-crisis levels will take several years due to income growth and remote working, but safety concerns might boost demand for passenger cars in the short term. Supply disruptions may continue beyond the lockdown period as liquidity problems will deter the restart not only of car producers, but also of auto part suppliers. The transition to electric vehicles will continue and likely accelerate post-pandemic.