Macquarie cuts EU forecast amid recession, manufacturing deterioration

Macquarie has cut its EU crude steel production forecast for 2023 to a 2.3% on-year decline, followed by a 5% on-year rebound in 2024.

A eurozone recession likely commenced in the third quarter, with the downturn in the manufacturing sector having broadened, plus consumer services activity slowing, the financial services firm observes.

The manufacturing PMI has fallen below the levels seen during the euro crisis in 2011/12 and indicates there is still further for manufacturing gross value added to fall in the months ahead, negatively impacting steel demand, Macquarie says in a report sent to Kallanish.

Import arrivals into Europe have also picked up, especially from Asia, putting pressure on domestic prices. In July, EU hot rolled coil imports were up 88% on-year.

Interest among EU buyers in making new import orders has however fallen in recent weeks due to uncompetitive offers, as well as expectations that new safeguard quota availability will be very limited in the fourth quarter of 2023 and Q1 2024 (see Kallanish passim).

Macquarie expects European steelmaking margins to remain weak into next year. Its forecast of a lower iron ore price should help margins of blast furnace/oxygen converter-based steel producers to an extent. However, the firm expects coking coal to fall from spot but average higher in Q4 than in Q3, and scrap prices to average flat from spot levels in Q4. Scrap is now cheap relative to hot metal, but a fall in iron ore prices should bring them back in line, Macquarie points out.

Adam Smith Poland