A continued slump in the European Union’s manufacturing sector due to weakened exports and investments, escalating trade wars, growing import distortions and a further deterioration in business has led to a fall in apparent steel consumption of 3.1% in the third quarter of 2019. Apparent steel consumption concerns the supply of all steel products delivered to the EU28 market by domestic producers in the EU and by third country exporters. This figure is a slight moderation when compared to second quarter figures of -6.7%, according to the European Steel Association (EUROFER).
EUROFER claims that no significant rebound is forecast before the second half of 2020 and the current downturn is not likely to bottom out in the short-term. Various factors are involved including Brexit and escalating trade wars between the USA and its main trading partners, notably China.
The situation may lead to a further deterioration in business sentiment, says EUROFER, and might seriously hamper investment growth.
“2019 was another challenging year for the steel sector, with declines in steel consumption and import levels which – while down compared to 2018 – were still very high compared to historical levels,” said EUROFER’s director-general, Axel Eggert.
He added that some growth is expected to return to steel markets in 2020, but if events take an unexpected turn ‘even these modest estimations could be upended’.
According to EUROFER, the current downturn in steel demand led to a fall of 4% year-on-year in EU domestic deliveries in the third quarter of 2019, following a decrease of 3% in the first quarter. After the exceptional drop of 19% year-on-year experienced in the second quarter, third country imports decreased by just 1% (to 8.8Mt) in the third quarter, accounting for 23.8% of EU steel demand. Monthly data continued to show high volatility.
The challenges facing the EU sector became more severe during the third quarter of 2019, having negative repercussions on market conditions. After falls in quarters one and two and an acceleration of the negative trend in real steel consumption, early indicators suggest a further year-on-year reduction in the final quarter of 2019; and this means a total decrease in real steel consumption of 1.1% over the whole year.
EUROFER expects real consumption levels to recover in the second half of 2020 and stabilise around low levels in historical terms. “The expected fall in apparent steel consumption in 2019 of 3.3% year-on-year and persisting import pressure is, in essence, expected to mostly have penalised EU steel producers in their business performance,” said EUROFER.
Market conditions are expected to improve slightly from the third quarter of 2020 and apparent consumption will recover with a growth rate of 1.2% as a result of modest re-stocking rather than a rebound in demand from steel using sectors. There are, however, risks related to import distortions and global overcapacity, which will continue to undermine the stability of the EU steel market and widen the gap between capacity and production.
EUROFER claims that business conditions have deteriorated since the end of 2017 and that the downward trend was steeper in the second quarter of 2019, particularly in the automotive sector. The construction industry, on the other hand, has reported record growth in output and has out-performed other steel using sectors resulting in a slowing of output growth since the first quarter of 2018.
The industrial downturn has had global repercussions, reflecting growing trade frictions and uncertainty, which have hampered business investment. While a substantial rebound is unlikely short-term, some recovery in EU steel-using sectors is expected in 2020.
The recent US-China trade agreement, signed on 15 January, has eased tensions, but had little effect on the serious downturn in EU manufacturing. Furthermore, a no-deal Brexit – which is still a possibility – plus continued trade protectionist policies and geo-political tensions in the Middle East, will curb business confidence, EUROFER believes.
Output in the EU’s steel using sectors will grow by 0.6% in 2020 and 1.4% in 2021.