EU apparent steel consumption falls in Q2, decline to continue into CY'23

• Q2 real steel consumption grows 2.2%, but slower than 2.8% in Q1
  
  
• Imports up 1.6% in Q2 but sharply lower than 28.5% in preceding quarter
  
  
• Inflation, energy prices a growing concern
  
  
• Recession in Steel Weighted Industrial Production expected till Q2CY23
  
  

Morning Brief: The European Union's (EU's) apparent steel consumption in 2022 is expected to see its third annual recession over the last four years, (revised downward to -3.5% from -1.7%) as a result of quarterly drops forecasted also for the third and fourth quarters of 2022, says Eurofer's Economic Report, October 2022.

The positive trend seen in apparent steel consumption in 2021 came to an abrupt end in the second quarter (Q2) of 2022 due to the ongoing disruptions linked to the Russia-Ukraine war, poor demand outlook and severe rises in energy prices and production costs.

All these downside factors are expected to weigh even more severely in the second half of 2022 and up to the second quarter of 2023.

Q2 apparent steel consumption down
In the second quarter of 2022, apparent steel consumption fell by -4.8% after an increase of 6.1% in Q1, totalling a volume of 38.6 million tonnes (mnt).

The heavy disruptions due to the ongoing supply chain issues are set to be reflected in the apparent steel consumption levels in 2022.

Domestic deliveries mirrored weak demand in Q2 and markedly dropped -7.1% after a marginal dip in the preceding quarter (-0.1%). In entire 2021, deliveries had sharply rebounded by 11.9% following 2020's -9.6% drop that had marked the second consecutive year's drop of -4.2% in 2019.

Real steel consumption rate slower
Real steel consumption in Q2 continued to grow by 2.2% albeit at a lower rate than 2.8% in Q1. The growth is expected at a modest rate in 2022 at 0.7% - revised downward from 1.5% in the previous outlook, due to the continued negative demand scenario.

The two consecutive recessions of 2019 and 2020 were caused by the considerable slowdown in the steel-using sectors (due to manufacturing and trade downturns and Covid).

Imports slow down
Imports, including semi-finished products, into the EU continued to increase also over Q2 of 2022 at 1.6%, despite weak demand, albeit at a much lower rate compared to 28.5% in the preceding quarter. Imports of finished products alone increased 2% in Q2 against 34% in Q1. This resulted in a persistent high import penetration in historical terms over the last four quarters even in a context of significantly weakened demand.

Imports of finished products over the first eight months of 2022 increased 8% compared to same period last year with +2% in Q2. The same trend was seen in flat products, growing 6% in first eight months with -1% drop in Q2. Longs grew 14% YTD with 16% increase in Q2.

Volatility in imports seen from 2020, continued in H12022 with import volumes remaining high in historical terms.

Because of the EU sanctions and war disruptions, Russia and Ukraine were no longer among the top five exporting countries to the EU in the first eight months (8MCY22) of 2022 (-59% and -79% respectively). The top exporters were Turkey, India, South Korea, China and Taiwan . The top 5 represented 51% of total EU finished steel imports. Turkey and India continued to be the largest exporters with 15.4% and 10.6% share respectively.

Customs data shows that both flat and long products imports increased 6% and 16% respectively in 8MCY22. The share of longs in the total was 23%. In Q2, imports of flats dropped -1% but longs rose 14%.Within flats, all categories showed an increase with organic coated recording the highest, at +43%. This was followed by CR sheets (+23%), coated sheets (+ 11%) and hot dipped (+5%).

All long products rose too with rebar up the highest at (+32%).

Exports drop
In 8MCY22, the EU's total steel exports dropped -17% and finished steel by-14%. Flats dropped -10% and longs by -22%.

In Q2, exports of finished declined -21% including both flats (-11%) and longs (-27%).

Exports to all major destinations declined except to Brazil (+47%), the US (+9%) and Norway (+5%).

The largest decrease (-63%) was seen in Russia, which is no longer among the EU's seven largest destinations. This was followed by China (-34%), the UK (-22%), Turkey (-9%), India (-8%), Egypt (-4%).

Exports of both flats and longs dropped -10% and 22% respectively in 8MCY22. Flats accounted for 68% of total finished exports.

Outlook
Steel-using sectors' output is expected to continue to expand in 2022 at a slightly lesser rate of 1.9% against the previously estimated 1.1%. On the one hand, developments in the first half of the year were stronger than initially expected as output growth was robust and resilient despite the war and related disruptions. On the other hand, a rapid deterioration of the global industrial and economic outlook to the unprecedented rises in energy costs over summer, coupled with worsening war-related disruptions, is expected to yield either very modest growth or even drop in output in the second half of the year.

Inflation has become a growing concern. The inflation rate recorded in September (10% in Eurozone, 10.1% in EU in August) was the highest since 1985 in many countries. As a result, central banks reversed their accommodative monetary policies. Impact of the energy crisis will be high in countries where reliance on Russian gas is high. However, a worst-case scenario with a full rationing of Russian gas supply appears to be less likely. Therefore, the recession in the EU in 2023 should be moderate.

Apparent steel consumption is set to decrease in 2023, at least till Q2CY23, albeit at a lower rate of -1.9% as demand from steel-using sectors is expected to be subdued. These developments are conditional on the evolution of energy prices.

Recession in Steel Weighted Industrial Production (SWIP) is expected between Q4CY22 till Q2CY23, as per the report.