Although it is being widely debated that the coronavirus pandemic seems to have inflicted a harsher blow to the services sector compared to manufacturing, stark facts stand out.
The World Steel Association (WSA), in its short range outlook for June 2020, has predicted that “steel demand will decline significantly in most countries, especially during the second quarter”.
Stark Forecast
WSA forecasts steel demand to contract by 6.4%, dropping to 1,654 MnT due to the COVID-19 crisis. In 2021, steel demand is expected to recover to 1,717 MnT – an increase of 3.8% over 2020, the report states.
In India construction activity was halted entirely at the end of March, and recovery is expected to remain slow due to the slow return of labour. Supply chain disruption coupled with slower demand recovery has hit the automotive sector hard. The machinery sector is expected to see a continued decline, with weak private investment and supply chain disruption.
India: Loss & Recovery…
As a result, India is likely to face an 18% decline in steel demand in 2020, which will rebound by 15% in 2021.
… & China, Obviously
Chinese steel demand will increase by 1% following recovery of steel demand in H2, driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives, the report states.
However, China’s spectacular rebound is highly unlikely to be replicated in the EU and US. Demand suffered a contraction of 5.6% in 2019 due to the sustained manufacturing recession in the EU which will be pushed back into a deeper recession as lockdown measures lead to massive fall in orders.
Gloom Pervades
Likewise, in the US, sharp manufacturing recession, which is expected to reach its nadir in the second quarter, doesn’t bode well fir steel.
The gloomy outlook shrouding the mechanical machinery sector has plunged the stressed Japanese steel industry into uncertainty while the MENA region and CUS countries battle out falling oil prices and acute demand contraction.
Battling Demand Dearth
While the decline in the construction industry is likely to be a little short of catastrophic vis-a-vis the 2008 financial crisis, thanks to governments pumping in capital to rev up sagging infrastructure, the wilting of the mechanical machinery sector, for the short term at least, seems nearly unstoppable, what with capital investments drying up in a season of austerity induced by harsh economic conditions.
The automotive sector, worst hit by the pandemic and the resulting lockdown, will take several years to reach pre-crisis levels “due to tardy income growth and remote working, but safety concerns might boost demand for passenger cars in the short term,” the report observes, striking a rare note of optimism.
Solace?
“It is possible that the decline in steel demand in most countries will be less severe than during the global financial crisis as the consumption- and service-related sectors, which have been hit hardest, are less steel-intensive,” the report states.
Perhaps, this the only solace for the world steel fraternity in this bleak moment of crisis.
~By Nirmalya Deb
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