- Downstream industries to see production growth reducing by half
- Supply chain challenges causing obstacles
- High energy and commodity prices slowing growth
- Eurofer cuts EU GDP forecast for two years
Morning Brief: The European Union’s (EU’s) steel user-segment’s production growth is expected to continue to increase in 2022 but albeit at a 50% reduced rate, as per Eurofer’s previous forecast (2% versus 4% previously seen).
Total production activity has been increasingly impacted by the ongoing supply chain issues and high energy prices that took their toll in terms of production costs, component shortages and lower output. However, total output in steel-using sectors in 2021 rebounded by 7.3% after the sharp 8.4% drop recorded in 2020.
“Total steel using sectors’ output is expected to continue to increase in 2022 but its growth rate will be halved compared to Eurofer’s previous outlook (2% versus 4% previously forecasted),” as per Eurofer’s latest Economic Report.
- Non-residential segment hits construction has a leading 35% share among steel consuming segments. It rebounded in 2021 (by over 5.9% although this was revised downward from 6.7% in the previous outlook) after the fall experienced in 2020 due to Covid.
The outlook for 2022 shows moderate 2.3% growth, and which is expected to further slow down in 2023 to 1.5%.
The post -lockdowns confidence has been shaken by the supply chain challenges and economic outlook in the second half of 2021. Government housing and public infrastructure schemes should support the sector although the non-residential segment suffered the biggest blow due to work-from-home (WFH) trends. Subdued investment outlook in this segment is casting a shadow on construction in 2022-23.
- Bumps ahead for automotive – Automotive has the second highest share in steel consumption at 18%. The sector’s growth dropped for the second consecutive quarter in Q4 of 2021 to -14.6% compared to -15.3% in Q3, although there had been a rebound from Q3 of 2020, the year it was hardest hit amongst all steel-consuming sectors. Output recovered overall by a modest 3.8% in 2021.
However, semi-conductor shortage from the summer of 2021, rise in energy prices and production costs and the overall slowdown in global trade impacted automotive production and demand. Data reveals that car sales in the EU fell -12.3% in Q1 of 2022 and by -20.5% in March.
After the severe -16.7% decline in 2020, output is expected to revive by a modest 3.8% in 2021 and by a more robust 4.9% in 2022 due to an expected turnaround in some larger EU countries (mainly Germany).
The current severe supply disruptions brought on by the Russia-Ukraine war will likely persist in 2022 while 2023 will see weaker 0.8% growth in output on lack of consumer confidence and inadequate EV charging infrastructure. However, full EV adoption policy by 2035 will support demand, going forward.
Mechanical engineering may lose shine this year
This segment holds the third slot in terms of steel end-user demand with 14% share.
Output increased almost 11% in Q4 of 2021 for the fourth consecutive quarter driven by the post-pandemic recovery. The previous year had seen output falling by-8.3% but rebounded by 14.6% in 2021.
But the downside risks are emerging with slowdown in industrial activity. The sector is expected to see a slower 1.3% output growth in 2022 and a slightly higher 2.6% in 2023. Slowdown in industrial activity dented growth from August 2021. Covid dynamics and supply bottlenecks have turned the outlook dim.
Steel tubes slip on oil and gas
Steel tubes occupy fourth position with 13% demand share. It saw almost 7% y-o-y growth in Q3 and 6% in Q4 of 2021, rebounding by 11% last year after a -13% drop in 2020.
But it may see a moderate 2% growth in 2022 and even slower 1.4% in 2023. The Russia-Ukraine war-induced supply chain disruptions have delayed projects. Procurement from the oil and gas sector is not seen rising because of the war impact on this sector in particular.
Domestic appliances ride WFH
Enjoying a 3% share and the fifth-ranked end-consumer, the sector saw output growth decline in Q4, 2021 despite the positive trend started in Q3, 2020, thanks to the WFH trend. It fell a modest-2.1% in 2020.
Output rebounded by 6.7% in 2021 due to good demand in H1. But 2022 may see a -3.3% drop in production but recover to 2% in 2023. The war will continue to impact input supplies although work-from-home may continue for a couple of years more and support demand.
Outlook
Thanks to the Ukraine crisis and the ensuing supply chain issues, high energy and commodity prices, Eurofer has slashed the EU’s GDP forecast for 2022 to 2.9% and for 2023 to 2.4%. The previous forecast was at 4.1% and 2.8% respectively. This will have a dampening impact on steel consumption.
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