EU apparent steel consumption dips over 3% in Q1CY'24. Uncertainly looms ahead

• India leads imports chart with 16% share
  
  
• Steel-using sectors see decline in Q1 output
  
  
• CY'25 may see rebound, albeit at slower pace
  
  

Morning Brief: Apparent steel consumption in the European Union (EU) decreased by 3.1% in the first quarter of 2024 (Q1CY'24) to 31.9 million tonnes (mnt), after a rise of 2.9% in the preceding quarter, but which was due to a comparison with the very low volumes seen one year earlier, as per Eurofer's latest Economic & Steel Market Outlook, 2024-25.

In the first quarter of 2024, real steel consumption decreased again by 6%, after the contraction seen in Q4CY'23 by 2.1%.

After a significant recession (-8.3%) in 2022, data reveals a more pronounced contraction of 9% in 2023, marking the fourth annual recession in the last five years.

This downward trend is also set to impact the anticipated rebound for this year.

The current downturn in EU apparent steel consumption, reflecting poor demand conditions, began in Q2CY'22, due to war-related disruptions, unprecedented rises in energy prices and production costs. Demand conditions worsened considerably during the second half of 2022, and this negative cycle continued until the fourth quarter of 2023, as a result of growing global economic uncertainty, high interest rates and overall manufacturing weakness.

Imports up 12% in Q1

In Q1CY'24, total steel imports (including semis) into the EU increased y-o-y by 12%, following similar developments in the fourth quarter of 2023 (up 11%). During the first four months of 2024, imports of all steel products rose 11% compared to the corresponding period of the previous year. Imports of finished products also increased 12% in Q1CY'24, following the 11% rise seen in the preceding quarter. During the same period, imports of flat products grew a significant 22% after the surge in the preceding quarter by 25%, whereas imports of long products slumped again by 15%, after the 20% decline in the previous quarter.

India leads EU imports chart: In the first four months of 2024, the main countries of origin for finished steel imports into the EU market were, in descending order, India (15.8%), Turkiye (12.6%), Vietnam (10.3%), South Korea (8.9%), Taiwan (8.7%), Japan (6.8%) and China (6.6%). The top five exporting countries in the first four months of 2024 accounted for 56% of total EU finished steel imports. India has maintained its role of leading exporting country to the EU.

According to Customs data, imports of flat products into the EU market increased 30%, whereas imports of long products fell 9% in the first four months of 2024.

Q1 exports dip

Total exports of steel products in Q1 to third countries dipped a slight 1%, after flat developments in the preceding quarter. However, exports of finished steel products increased 3%, after recording zero growth in the fourth quarter of 2023. In particular, exports of both flat and long products increased 2% and 5%, respectively. Over the first four months of 2024, total exports dipped 1% but finished products increased 3%, as a result of a moderate increase for both flat and long products (2% and 5% respectively).

Steel-using sectors

Construction activity impacted: The increase in construction material prices, coupled with labour shortages in certain EU countries, growing economic uncertainty and, notably, the rise in interest rates due to monetary policy tightening, impacted construction output for the seventh consecutive quarter in Q1CY'24, falling -2.3%, after -0.1% in Q4CY'23.

This negative trend is expected to persist throughout 2024, mainly due to the delayed impact of high interest rates-which are set to remain elevated despite an initial ECB cut and potential further monetary policy easing during the year.

Automotive demand slows down: In Q1CY'24, the automotive sector's output decreased for the first time by -0.9% after seven consecutive quarterly increases (up 3.1% in the previous quarter). This positive cycle had been ongoing since Q2CY'22, partly due to comparisons with the very low output volumes experienced in 2021 and 2022.

However, output has always remained well below pre-pandemic levels and even below those seen prior to the pre-Covid recession in 2019. Consumer resilience-despite subdued disposable income growth and uncertainty over electric vehicles (EVs) implementation-has somewhat fuelled demand over the previous seven quarters, leading to a rebound in output from Q2CY'22 till the end of 2023.

Despite supply chain issues causing order delays, war-related disruptions, low consumer confidence and squeezed incomes because of persistent inflation and economic uncertainty, there has been a consistent improvement in EU passenger vehicle demand throughout 2023, which continued into the first five months of 2024. However, in May 2024, car registrations in the EU decreased -3%. Despite the downturn, year-to-date car registrations over the first five months of 2024 increased to 4.6 million units, up 4.6%.

Mechanical engineering output falls: In Q1, output in the mechanical engineering sector fell for the second consecutive quarter (-3.1%, after -1.9%), after 10 consecutive quarterly increases. Driven by the post-Covid industrial recovery, the rebound seen in previous quarters in 2022 and 2023 had brought output back to absolute high levels, even above those recorded before 2019. However, the sector's growth had remained exposed to ongoing downside risks, including the prolonged impact of Russia's invasion of Ukraine, increasing global geopolitical tensions and the continued deterioration of the economic and industrial outlook. Consequently, the sector's output is expected to shrink throughout 2024.

Outlook on 2024

In 2024, conditional on an improved industrial outlook and demand, apparent steel consumption is projected to recover at a lower rate of 1.4% compared to the previously estimated 3.2%.

However, overall evolution of steel demand remains subject to very high uncertainty. Moderate quarterly improvements in apparent steel consumption are expected to continue throughout 2024, although volumes are still expected to remain below pre-pandemic levels.

The ongoing economic uncertainty is set to continue affecting steel market growth from the demand side over the upcoming quarters.

Despite EU industry proving quite resilient throughout 2023, the outlook for 2024 remains dominated by a worsening combination of uncertainties in energy prices, weak demand, inflation above target levels, severe geopolitical tensions and economic challenges driven by high interest rates, despite initial monetary easing.

In 2024, growth in steel-using sectors is projected to drop -1.6% (previously set at -1%), due to the second recession in a row in the construction sector, persistent geopolitical tensions, and the lagged impact of high interest rates on the overall manufacturing sector.

In 2025, apparent steel consumption is set to gain some speed, albeit at a slower pace than previously foreseen (4.1% versus 5.6%).