Eurofer’s Q1-2012 economic and steel market outlook shows that while the EU economy probably slipped into a shallow recession in the final quarter 2011, activity of downstream steel-users has remained rather firm.

The latest economic data confirm that the Eurozone’s debt crisis is eating its way into the real economy. Since mid-2011, economic sentiment has come down sharply on the back of the further intensification of the sovereign debt crisis. Risk aversion in the financial sector has led to a contraction in credit supply. While it is widely recognised that austerity is required to avoid the sovereign debt crisis from getting worse, it will also stifle economic growth and affect employment. Investment and private consumption will be subdued until confidence returns to the markets.

Eurofer director-general Gordon Moffat comments: “When confidence will return to the markets is still difficult to say, but it is encouraging that forward looking indicators such as industrial confidence and manufacturing PMIs appear to have taken a turn for the better in recent weeks. Companies will remain cautious for the time being, but there is no indication that industrial orders will fall off a cliff. Order backlogs are quite strong. The outlook for most steel-users is relatively benign”.

EU apparent steel consumption grew 7.2% in 2011. Steel purchasers waiting at the side-lines after the summer due to rising concerns about the economic situation, downstream business conditions and access to financing and credit together with destocking in the distribution chain, caused steel demand to weaken in the 2nd half of 2011.

In early 2012, reduced domestic and import supply appears to be balanced by softer demand. Rather low stock levels – particularly at distributors – will require some replenishment in H1-2012, which will ease later in the year. Buyers anticipating changes in prices and supply could exacerbate this seasonal pattern, despite the fact that inventories will continue to be managed cautiously.

Eurofer director-general sees the market strengthening again in 2013: “The market will take a pause in 2012, but we foresee only a very mild reduction in demand. Real and apparent steel consumption will strengthen again in 2013”.