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Economic and steel market outlook 2023-2024, first quarter
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The picture emerging from the data of the third quarter of 2022 confirms and deepens the negative trends observed in the second quarter of 2022. Ongoing war-related disruptions, poor demand outlook and severe rises in energy prices and production costs, impacted apparent steel consumption, ending the post-COVID positive dynamic. All these downside factors are expected to continue weighing heavily until the end of 2022 and up until the second quarter of 2023 included, as a result of the prolonged effects of Russia’s war in Ukraine. Subsequently, in the third quarter of 2022 apparent steel consumption fell markedly (-11.2%, after a drop of -4.7% in the second quarter), totalling a volume of 32.2 million tonnes. This is the lowest level seen since the post-pandemic peak period.
In 2022, apparent steel consumption is going through its third annual recession over the last four years (-4.6%, revised downwards from -3.5%), mostly as a result of quarterly drops over the third and fourth quarters of 2022. Apparent steel consumption is set to decrease also in 2023, albeit at a lower rate (-1.9%), as demand from steel-using sectors is predicted to remain severely undermined, at least until the second quarter of 2023. In 2024, subject to more favourable developments in the industrial outlook and improvements in steel demand, apparent steel consumption is expected to recover, albeit modestly (+1.6%). These developments are conditional on the future evolution of energy prices and the Russia-Ukraine war – unforeseeable at the time of writing – and its impact on global supply chains.
EU steel market overview
In the third quarter of 2022, apparent steel consumption fell (-11.2%, after a drop of -4.7% in the second quarter), totalling a volume of 32.2 million tonnes. This is the lowest level seen since the third quarter of 2020.
In 2021, apparent steel consumption had rebounded (+16.3%) after plummeting dramatically due to the COVID-19 pandemic in 2020 (-10.7%). The heavy consequences of the conflict in Ukraine on steel-using industries and the worsened overall economic outlook are set to take their toll on apparent steel consumption resulting in a deeper-than expected recession (-4.6%, previously estimated at -3.5%), as a result of quarterly drops over the second, third and fourth quarters of 2022. Due to continued downside factors (war, energy prices, high inflation) and to a worsened economic outlook for 2023, apparent steel consumption is also set to drop in 2023, albeit slightly less than previously estimated (-1.6% vs. -1.9%). This would represent the fourth annual recession in the last five years. In 2024, subject to more favourable developments in the industrial outlook and improvements in steel demand, apparent steel consumption should experience a modest recovery (+1.6%).
The overall evolution of steel demand remains in any case subject to very high uncertainty, which is likely to continue to undermine demand from steel-using sectors at least for the first half of 2023.
Domestic deliveries mirrored weak demand over the third quarter of 2022 and saw a sharp decrease (-10.5%). This was the third consecutive drop (-7% in the second quarter, -0.1% in the first). In 2021, deliveries had significantly rebounded (+11.9%), following 2020’s sharp drop (-9.6%) that marked the second consecutive decline in yearly terms after 2019 (-4.2%).
Paralleling the continued and quick deterioration in steel demand, imports into the EU – including semi-finished products – sharply decreased (-17.2%) over the third quarter, after an increase in the preceding quarter (+1.6%).
EU steel-using sectors
Despite the persisting supply chain issues affecting the automotive sector in particular and the war in Ukraine, steel-using sectors have displayed resilience. In the third quarter of 2022, they marked the seventh consecutive year-on-year quarterly growth (+4.0%, after +3.1% in the second quarter). Having started in the third quarter of 2020 after the removal of the COVID-related lockdown measures, this positive trend has continued ever since, despite the negative impact of increasing supply chain issues and rising energy prices on total production activity in steel-using sectors.
The war in Ukraine has had a limited impact on output so far, but a considerable worsening of the situation is expected for the fourth quarter of 2022. This is due to persistently high energy prices despite the recent sharp decline in the TTF gas price index, and to the steady deterioration of the general economic outlook.
In the first three quarter of 2022, the positive evolution of all sectors’ output was a combination of very strong developments in the construction, mechanical engineering and transport sectors on one hand, and a drop in domestic appliances output on the other. Notably, output in the automotive sector recorded its second, remarkable rebound (+20.7%, after +1.8%), inverting the negative trend of the preceding quarters, which was due to supply chain disruptions and lack of components, among others.
Total output in steel-using sectors in 2021 rebounded (+6.8%) after the sharp drop recorded in 2020 due to the impact of the pandemic (-10.2%). Steel-using sectors’ output is expected to continue to expand in 2022 at a slightly higher rate than previously predicted (+2.1% vs. +1.9%). On one hand, developments in the second and third quarters were stronger than expected, as output growth proved robust and resilient despite the war in Ukraine and its related disruptions. On the other hand, the rapid deterioration of the global industrial and economic outlook coupled with the long-lasting effects of the rise in energy costs is expected to yield a drop in output over the last quarter of 2022.
As a result of a likely continuation of these downside factors into the first two quarters of the current year, output is expected to contract in 2023 (-0.6%). This would be the second SWIP recession since 2013, after the one experienced in 2020 due to the pandemic. Output was flat in 2019. Based on the current scenario, the economic and industrial outlook is presupposed to gradually recover only starting from the second quarter of 2023, before achieving a moderate growth in 2024 (+1.6%) thanks to improved economic confidence and some recovery in the industrial cycle.
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