Steelmakers will still generate historically strong earnings and cash flow in 2023, if not at the record levels of 2021-22. Economic growth and steel demand will likely weaken as the year progresses and higher interest rates mute growth in steel-consuming sectors such as autos and construction, although this will vary by region, says Moody’s.
“Demand improved in early 2023 from a 4.2% decline in 2022, with increased final sales and replenishing inventories at a time of resilient economic growth, reduced supply-chain disruptions, and China ending its Covid restrictions,” Moody’s says in a report seen by Kallanish.
Chinese demand will likely stabilise or slightly increase in 2023 after a low single-digit percentage decline in 2022, mostly based on the government lifting Covid restrictions. China’s manufacturing purchasing managers index returned to expansion mode in January, signifying the end of a contraction in manufacturing.
However, “lingering challenges in China’s economy make it less clear that the recovery will last throughout 2023, based on such risks as weaker export demand, a margin squeeze from higher commodity prices, and ongoing geopolitical tensions,” Moody’s says. Leading producers will continue to consolidate China’s steel industry, giving them additional bargaining power, especially with suppliers of iron ore and met coal.
In India, big infrastructure spending will boost the steel sector by 5-7% through mid-2024, on top of an 8% on-year rise in 2022, based on strong domestic demand and a revival in regional steel prices. Urbanisation and the proliferation of urban housing will keep steel demand solid, while improving semiconductor supplies will fuel demand for cars. However, costly met coal will weigh on steel margins.
“Consolidation and new US government investment in steel-consuming sectors will help steelmakers there maintain their historically high commodity prices and metal spreads despite significant new capacity,” Moody’s observes. “Demand from private-sector construction will ease amid much higher interest rates than in recent years, but easing supply-chain disruptions for the auto sector, significantly stronger aerospace sector demand, and recent legislation supporting economic growth offer some benefits.”
Europe’s steel consumption will contract by around 2% in 2023, which would mark the continent’s fourth drop in steel demand in five years. High energy prices and the continuation of the war in Ukraine and its related disruptions will drag on growth prospects for European steelmakers, especially in the first half of 2023, the credit rating agency concludes.
Adam Smith Poland