EU apparent steel consumption set to dip by over 2% in CY'24; near-term outlook remains bleak

• Output of steel-using sectors declines in Q3
  
  
• EU's steel imports rise by 13% in 11MCY'24
  
  
• CY'25 consumption growth revised downward
  
  

Morning Brief: The decline in apparent steel consumption in the European Union (EU) in CY'24 is set to deepen to 2.3%, according to the updated forecasts published in EUROFER's Economic and Steel Market Outlook 2025-2026, First Quarter.

Previously, projections had suggested a fall of 1.8% y-o-y. The value was adjusted, as (1) expectations of a recovery in steel demand have not yet been fulfilled, and (2) the impact of downside factors, such as global economic uncertainties and a weak manufacturing industry, continues unabated.

Additionally, although projections still indicate a rebound in apparent steel consumption in CY'25, the rate has been revised downward to 2.2% y-o-y versus 3.8% earlier. This rally, however, is contingent on a positive shift in industrial outlook and global geopolitics.

Downtrend in steel consumption moderates q-o-q

Apparent steel consumption dropped by 0.9% in Q3CY'24, extending the downtrend from the previous quarter. However, the decline in Q3 was more modest, given that Q2 saw a dip of 1.4%. Additionally, the total consumption volume in Q3CY'24 stood at 30.4 million tonnes (mnt).

Domestic deliveries contracted too, by a higher 2.3% compared to 1.6% in the preceding quarter.

Real steel consumption to drop in CY'24

The EU's real steel consumption is projected to fall by 3.8% in 2024 and recover slightly, by 1% in 2025. Considering that economic and industrial uncertainties are expected to continue and business confidence has yet to pick up, improved trade momentum will be possible only after 2025.

EU's steel imports rise 13% in 11MCY'24

During 11MCY'24, imports of all steel products witnessed an uptick of 13% y-o-y. Imports of finished products climbed up by 9%, with flats shipments rising by 10% and longs by 8%.

During the same period, leading exporters of finished goods to the EU were Turkiye (15% share), India (12%), South Korea (11%), Vietnam (10%), and Taiwan (9%), accounting for 57% of total arrivals.

While shipments from Turkiye skyrocketed by 87% y-o-y, those from Vietnam and India rose a robust 27% and 14%, respectively. Meanwhile, imports from Taiwan were up by 6% and from South Korea by 4%.

In contrast, imports of finished products plunged from Japan (18%) and China (10%).

Exports edge up in 11MCY'24

Over 11MCY'24, total exports rose by 4%. Shipments of finished products also rose by the same degree.

The main importing destinations were the United Kingdom (UK), the United States (US), Turkiye, Switzerland, and China. These five regions cumulatively received 57% of the EU's total finished product exports.

Shipments to the US shot up by 30%, while those to the UK climbed up by 11% and to China by 8%. Notably, exports to Turkiye declined by 8%.

Steel-using sectors remain subdued in Q3CY'24

In Q3CY'24, the Steel Weighted Industrial Production (SWIP) index eroded by 4.1%, the third consecutive instance of a downtrend.

Construction down despite interest rate cuts: In Q3CY'24, EU's construction output dropped by 2.2%, higher than the 1.2% decline in the preceding quarter.

The segment has been under pressure since mid-2022, with elevated tags of construction material prices, labour shortages, economic uncertainties, and high interest rates impacting output. Although recent times have seen interest rate cuts take place, their impact has not been potent enough to reverse the downtrend.

Additionally, although the government has poured significant state money into housing projects and construction schemes following COVID-19 pandemic, their impact has diminished of late.

In fact, the negative cycle may continue well into 2025, at least until Q1.

Automotive sector's woes continue: In Q3CY'24, the automotive sector's output decreased, a trend that has been in place since Q1. Output plunged by a steep 12.1%, compared to -7.8% in Q2. Factors that adversely impacted the segment include uncertainties surrounding electric vehicle (EV) production, declining household real income, high inflation, lacklustre consumer confidence, and supply chain issues arising from geopolitical tensions.

The sector's woes are likely to continue, and EUROFER projects a heavier contraction of 8.4% in CY'24, compared to 6.5% earlier.

Mechanical engineering remains subdued: Mechanical engineering output shrank by 4.1% in Q3CY'24, and the downtrend is expected to last throughout the remainder of 2024.

Factors such as the protracted Russia-Ukraine conflict, other cross-border disputes, and the persistent deterioration in the industrial landscape stifled growth in the mechanical engineering segment.

Domestic electric appliances face slowdown: Output from the domestic electrical appliances trade declined for the third consecutive quarter in Q3CY'24, by 2.4%. This sector has been on a downward trajectory since early 2021, and a turnaround is unlikely before Q1CY'25. A weak manufacturing industry and subdued economic outlook dampened consumer confidence and, ultimately, sales.

Beyond 2025, the growing usage of smart appliances may boost activity in this space, but this is a far-off possibility at the moment.

Outlook

Recessionary trends are expected to continue in the remainder of CY'24 and early CY'25, especially in the construction and automotive segments.

Notably, EUROFER predicts that the output of steel-using sectors will slide by 3.3% in CY'24, rather than 2.7% as forecast earlier, amid

"persistent geopolitical tensions and the lagged impact of monetary easing".

Additionally, the rate of recovery in 2025 is projected to be 0.9%, corrected downward from +1.6%, which may improve to 2.1% in 2026.

As per the EUROFER, other detrimental factors include uncertainties in energy prices, a weak manufacturing sector, inflation still above target levels, and trade tensions.