EUROFER - EU steel market outlook for 2019 & 2020
The preliminary safeguard measures could not prevent third country imports from rising by 12.6% and, as a consequence, local steel producers being flattened by deflected and cut-price steel products from outside the EU. Meanwhile, the relaxation of the final safeguard measures, with an enlargement of 5% in February this year with another upwards revision of 5% scheduled for July, is completely out of step with the anticipated decline of the EU steel market in 2019. As such, the 10% increase in import quota allowed in the final safeguard measures risks squeezing the EU steel sector, as it will be exposed to rising import pressure in a depressed market.
In the final quarter of 2018 domestic deliveries from EU mills to the EU market decreased by 2.1% compared with the same period of 2017. This was the result of third country imports growing by 16.3% year-on-year within a context of flattening steel demand growth over that timeframe. Imports amounted to 9.6 million tonnes and accounted for 24.7% of EU steel demand.
Third country imports grew by 12.6% which contrasts sharply with a 1.7% rise in domestic deliveries. The preliminary safeguard measures imposed by the EU Commission in July 2018 were supportive to limiting import volumes in the second half of the year compared with the extraordinary high import volumes that landed in the EU in the first half. However, the sharp year-on-year rise in the second half of the year also illustrates that the threat of deflection of tonnage due to the Section 232 tariffs on steel imports imposed by the US and market distortions due to the global overcapacity and other countries’ protectionist measures is still very much alive.
The outlook for EU steel demand is subdued. The base case scenario for the development of final steel use shows only marginal growth in 2019 and 2020. Given the uncertainty that currently surrounds the EU steel market in terms of demand and supply fundamentals, steel inventories will be managed with care. With reportedly relatively high inventories in the steel distribution chain at the start of 2019, apparent steel consumption is forecast to fall by 0.4% over the whole year 2019. Apparent steel consumption may grow by 1.3% in 2020.
With only a few months of customs data available it is impossible to already see a clear pattern in trade flows. Nevertheless, with imports remaining at elevated levels and exports on a downward trend in early 2019, the justified conclusion seems to be that there is no evidence of an easing in competitive pressures in international steel markets. With global steel overcapacity still estimated to be 550 million tonnes by the OECD, it is of the utmost importance that individual countries and regions dismantle market-distorting subsidies and other government support measures. Additionally, they must share data and information on the process of capacity reduction in order to facilitate the process of cutting excess capacity where it is needed most and avoid a further proliferation of trade distortions.
Total production growth in EU steel-using sectors cooled further in the fourth quarter of 2018. The strongest slowdown was registered in the automotive sector, followed by the mechanical engineering sector, the steel tube industry and the metal goods industry. Meanwhile, production activity in the construction sector did not witness much of a growth deceleration, but continued to expand at a healthy pace.
Prospects for production activity in EU steel-using sectors in 2019 and 2020 are rather weak, with external and internal headwinds undermining the outlook. While private consumption and government expenditure will continue to grow, both exports and investment are at risk of falling behind expectations in case of a hard Brexit and an escalation in global protectionist measures. The significant degree of uncertainty the corporate sector is facing has clearly the potential to lead to a negative confidence shock and investment decisions being postponed until more clarity emerges on trade conditions and Brexit. On the other hand, a well-managed Brexit and settlement of US-EU trade disputes would pose an upside risk.
Output in the EU’s steel-using sectors is forecast to grow by 0.9% in 2019 and by 1.1% in 2020.
Source : Strategic Research Institute