EU funds cushion construction slump, automotive hit: Bloomberg

European steel demand for construction could decline -10% on-year in 2020 but the EU’s €750 million ($842m) recovery fund should cushion coronavirus-driven effects to ensure it does not fall further, according to Bloomberg.

Constriction output fell sharply in March as lockdown measures hit. However, construction companies have maintained strong order books with book-to-build timescales in excess of 12 months. Civil engineering remains the least-affected sector, where Bloomberg’s scenario analysis points to a decrease of -7% in 2020 and a recovery in 2021 of 7% and 3.5% in 2022.

European steel demand from the automotive sector is likely to slump -20% in 2020. “The industry is facing a challenging recovery from the coronavirus lockdown, given demand was already on a downward cyclical path in 2019,” Bloomberg says in a research note sent to Kallansish. Analysis suggests steel demand from European automakers is likely to be down -40-50% in the first half of 2020, but could rebound 5% in H2.

German auto production and exports continue to lag the recovery in domestic sales, with both down about -66% in May.

Plant and Machinery is the third largest consumer of steel in Europe, where demand could decline -18% in 2020, Bloomberg says. “German plant and machinery orders were down just over -9% in 2019, hurt by the U.S.-China trade conflict, which spurred Chinese exports to fall,” Bloomberg adds. “China’s economy has since rebounded and may be the catalyst for a 2H recovery of 5-10% in plant and machinery steel demand.”

Bloomberg’s base case is destocking across the value chain exacerbating European steel demand weakness. However, apparent demand has not fallen to 2009 levels. The European steel industry already destocked about 4 million tonnes in 2019, but another 8mt is expected to exit this year. European steel producer commentary points to significant destocking.

“The reduction in finished steel inventories was 15 million tonnes in 2009,” Bloomberg says. “A sluggish demand pick-up could see this effect playing out in 2H, we believe, with any potential restocking delayed until 2021.”