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Global Steel Recovery is Underway, but Slow and Uneven

Oct. 19, 2020
The World Steel Association issued a new short-range outlook, noting that at 1.725 billion metric tons 2020 global steel output will be better than expected following the COVID-19 pandemic – though demand growth remains uncertain.

The World Steel Association issued an updated semi-annual Short Range Outlook for 2020 and 2021, and now predicts that that steel demand will drop by -2.4% year-over-year for the current year, to 1.725 billion metric tons. For 2021, the group foresees steel demand then recovering 4.1% year-over-year, to 1,795.1 million metric tons.

In its June forecast, World Steel predicted 2020 global steel demand would shrink 6.4% year-over-year, to 1.654 billion metric tons, as a result of the COVID-19 pandemic, then rebound 3.8% in 2021 to 1.717 billion metric tons.

Although the 2020 output has been significantly reduced by "lockdowns" imposed to contain the pandemic, the new forecast assumes that nationwide lockdowns will not be repeated but that selective and targeted measures will be able to contain the "second wave" of the pandemic.

As is clear by recent monthly tonnage outputs, the rebound in Chinese steelmaking activity will moderate the pandemic's effect that on global steel output. "The post lockdown recovery in steel demand in the rest of the world has been stronger than was earlier expected," World Steel commented, "but it still marks a deep contraction in 2020, both from developed and emerging economies, with only a partial recovery expected in 2021."

According to Saaed Al Remeithi, chairman of the World Steel Economics Committee, “the global steel industry passed the lowest demand point for this year in April and has been recovering since mid-May. However, the recovery is uneven across countries depending on their success in containing the virus, the national industry structure, and finally economic support measures.

"China has shown a surprisingly resilient rebound contributing to a major upward revision of the global growth forecast for 2020," Al Remeithi said. "In the rest of the world, we will see a sharp contraction of steel demand, both in developed and developing economies.”

The forecasters peg Chinese steel demand to increase by 8% in 2020, supported by government infrastructure stimulus and a strong property market. It will then remain even through 2021, still supported by infrastructure and housing programs. But, if China's economic recovery continues the central government may be prompted to slow its stimulus policy, to stem inflation.

However, China's 2021 manufacturing demand is unlikely to recover in line with other sectors, given the outlook for a weak global economy in 2021.

Manufacturing in the U.S., Europe, and other developed economic regions has had a slow recovery from its 2019 previous recession, and now is further hindered by the pandemic.

The U.S. has recovered impressively following the Q2 lockdown, according to the World Steel outlook, with a shorter than anticipated manufacturing decline.

Still, the U.S. continues to combat the spread of the virus and the months ahead are economically uncertain for manufacturing. The 2021 outlook is less than positive for construction and automotive manufacturing.

European manufacturing has benefited from social programs subsidizing employment costs as well as fiscal stimulus. The economic recovery in the EU is stronger than had been forecast by World Steel in June, but the contraction in steel-consuming sectors, especially automotive, will ensure a double-digit drop in steel demand for 2020.

Likewise in Japan and South Korea, steel demand will decline a substantially for 2020, and the 2021 recover will be limited due to declines in exports and weak consumer confidence.

In emerging markets, the outlook for steel demand is also pessimistic, as most have been ill prepared to manage the economic shock of COVID-19, and the resolution of pandemic remains unknown. The effects have included falling domestic steel demand in India, Brazil, and ASEAN nations, falling exports and commodity prices, compounded by falling tourism which is an important source of revenue in many emerging economies.

As for steel consumption patterns, the global construction sector has been more resilient to the COVID-19 effect, thanks to numerous government infrastructure initiatives, low mortgage rates, and eased access to credit, as well as pent-up consumer demand.

Construction demand for steel will be slow during 2021, relying heavily on infrastructure investments, especially in developing economies. A less-than-positive outlook for oilfield activity likely means less steel demand from energy sectors.

Longer term, "structural changes" in construction sector activities are foreseen shifting demand away from commercial and residential developments and new patterns in urban design and building regulations.

The automotive sector suffered a marked decline due to the pandemic, and post-lockdown period has seen a slow return in automotive demand. Global automotive production was down by -34% year-over-year in Q2 2020, and Chinese motor vehicle production is still -9% compared to 2019.

The automotive-demand picture is even worse in the rest of the world. As well, the automotive industry is seeing as broad realignment of supply chains, to achieve better resilience, to address changes in urban mobility patterns, along an ongoing transition to EV development and implementation.

The industrial machinery sector felt a significant disrupting in its supply chains as well as declining demand for new equipment as a result of the lockdowns. The worst hit was China, followed by the EU, the U.S., and Japan in Q2. This decline has slowed since Q3, but industrial demand is still contracting, and lower profits and weak investor confidence are resulting in order delays and cancellations.

With unlikely prospects for rising investment in industrial activity, the recovery of the machinery sector in the mid-term is not likely.

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