Steel market rebound unlikely before start of 2021: Eurofer

European steel industry association Eurofer does not expect market conditions to improve before the fourth quarter of 2020 or early 2021, although much will depend on the length of the industrial lockdown in steel-using sectors, the European steel federation said Tuesday in its Economic and Market Outlook report.

Eurofer said that due to the uncertainty and the unprecedented nature of the disruption caused by the coronavirus pandemic it will temporarily not publish, figures quantifying its forecasts for 2020 and 2021 “uncertainty and volatility surrounding possible developments in the coming months means no forecast could be considered reliable.”

The consequences of the coronavirus-related shutdown for industrial activity has affected Europe, but also all the countries in the world. “They have reached a global scale, in terms of huge disruption to supply chains and supplies of input and raw materials. This will probably have unprecedented repercussions on output in the second and third quarters of 2020. Against this background, a substantial rebound is not in sight before the first quarter of 2021.”

Coronavirus not the only risk

According to Eurofer even after the end of the pandemic, external risks will continue to cast a shadow over steel-using industrial sectors, even in 2021 and it will likely hamper investment. “However, the extent remains difficult to predict, because much will depend on other, non-COVID-19 related factors that were already in place before the outbreak.”

Other sources of uncertainty exist, such as a no-deal Brexit — as the final agreement with the EU must be reached before the end of 2020 — and a new escalation in protectionist trade measures would contribute to a sustained negative outlook.

The early data for this year showed the dramatic impact of coronavirus, but in 2019 the steel market was showing struggling signs too, Eurofer said. Over the course of 2019, business conditions in the manufacturing industry have continued to deteriorate. This downward trend gained speed in the second half of 2019, particularly in the automotive industry, while the construction sector continued to outperform other major steel-using sectors. This resulted in a pronounced slowdown in output growth in steel-using sectors. Total output in steel-using sectors fell by 1.6% after 0.4% growth in Q3. In the whole of 2019 marginally decreased by 0.2% compared to 2018, against a growth of 2.9% in the preceding year, Eurofer said.

Prospects for the EU construction sector had been massively affected by the economic lockdown in some member states. It will have resulted in closures of construction sites, particularly in civil engineering. However, some EU countries have explicitly planned to restart public construction activity as quickly as possible to use it as a countercyclical tool during the unprecedented economic downturn.

Auto industry outlook

The automotive industry has almost completely shut down and production has been suspended all over Europe, with very few exceptions, although some production sites re-opened in late April. Huge disruption to the supply chain due to lockdowns and blockages in transport across EU countries have made it very difficult to ensure the supply of materials and components to the industry. According to Eurofer it remains to be seen if and when normal business conditions are restored in the course of 2020, however, even if from the third quarter on normal business conditions return and lockdown measures recede, it will take time before new orders will translate into new deliveries.

In 2021, provided that the industry has been able to restore its production at normal conditions, and with the worldwide harmonized light vehicles test procedure distortions having faded out by then, the launch of new models — many of them electric vehicles — could be a supportive factor, combined with some rise in real wages and labor market dynamics on the demand side. However, subdued car demand in major markets such as the US, China and Turkey would remain a challenge for EU car exporters, the association said.

According to Tuesday’s Eurofer data, EU-28 apparent steel consumption in the whole 2019 went down by 5.3% year on year, the worst drop since 2012. In Q4 last year the apparent demand decreased by 10.8% year on year to 34.1 million mt, after a drop of 1.6% in Q3. The negative trend seen in the last two quarters of 2019 is the result of the continued slump in EU’s manufacturing sector due to weakened exports and investment that has become more pronounced during the second half of last year, coupled with escalating trade tensions.

According to Eurofer’s report “equally, data for the fourth quarter of 2019 continued to show growing import distortions as well as higher volatility as a result of the increase of safeguard measures’ quota.”

The continued slowdown in production activity of steel-using sectors, coupled with reduced steel intensity, led to a fall of 7.7% year on year in real steel consumption in Q4 2019 to 37.6 million mt. This was the third consecutive year-on-year drop (2% in Q3). In the whole 2019 the whole drop was of 2.6%.

— Annalisa Villa