Commenting on the outlook, Dr. Martin Theuringer, Chairman of the
worldsteel Economics Committee, said, “after two years of negative
growth and severe market volatility since the COVID crisis in 2020, we
see early signs of global steel demand settling in a growth trajectory
in 2024 and 2025.
The global economy continues to show resilience despite facing several
strong headwinds, the lingering impact from the pandemic and Russia’s
invasion of Ukraine, high inflation, high costs and falling household
purchasing power, rising geopolitical uncertainties, and forceful
monetary tightening. As we approach the end of this monetary tightening
cycle, we observed that tighter credit conditions and higher costs have
led to a sharp slowdown in housing activity in most major markets, and
have hampered manufacturing sector globally. While it seems the world
economy will experience a soft landing from this monetary tightening
cycle, we expect to see global steel demand growth remaining weak and
market volatility remaining high on lagged impact of monetary
tightening, high costs and high geopolitical uncertainties.”
We expect that steel demand in China in
2024 will remain around the level of 2023, as real estate investments
continue to decline, but the corresponding steel demand loss will be
offset by growth in steel demand coming from infrastructure investments
and manufacturing sectors. In 2025 we see China steel demand returning
to downtrend with a 1% decline.
This projection suggests that by 2025 China’s steel demand will be
significantly lower than the recent peak demand year, 2020. This
projection is also in line with our view that China might have reached
its peak steel demand, and the country’s steel demand is likely to
continue to decline in the medium-term, as China gradually moves away
from a real estate and infrastructure investment dependent economic
development model.
For 2023, our apparent steel use (ASU) estimate for China is based on
official statistics and suggests a 3.3% drop. This represents a
downwards revision of our 2023 steel demand growth rate estimate by
around 5 percentage points from our previous forecast made in October
2023. Chinese steel demand in Q4 last year had indeed been weaker than
what we expected back in October 2023. However, indicators of major
steel using sectors suggest that the actual steel demand was better than
the estimated ASU.
Our projections for the world
excluding China suggest a broad-based growth in steel
demand at a relatively strong level of 3.5% per annum over 2024-25.
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India has
emerged as the strongest driver of steel demand growth since 2021,
and our projections suggest Indian steel demand will continue to
charge ahead with 8% growth in its steel demand over 2024 and 2025,
driven by continued growth in all steel using sectors and especially
by continued strong growth in infrastructure investments. In 2025,
steel demand in India is projected to be almost 70 million tonnes
higher than in 2020.
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Other emerging
parts of the world such as MENA and ASEAN are
expected to show accelerating growth in their steel demand over
2024-2025 after a significant slowdown over 2022-2023. We observe
that mounting difficulties in the ASEAN region, such as political
instability and erosion of competitiveness, might lead to a lower
trend steel demand growth going forward.
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The developed
world is also expected to show a strengthening
recovery with 1.3% in 2024 and 2.7% in 2025, as we expect to see
steel demand finally showing a meaningful pick up in the EU in 2025
and continued resilience in the US, Japan, and Korea.
In our opinion the EU (and
the UK) remains the region currently facing the biggest challenges. The
region and in particular its steel using sectors are challenged on a
multitude of fronts – geopolitical shifts and uncertainty, high
inflation, monetary tightening and partial withdrawal of fiscal support,
and still high energy and commodity prices. The persistence of these
downside factors resulted in a major drop in the region’s steel demand
in 2023 to the lowest level since the year 2000 and to substantial
downward revisions of the forecast for this year. After only a technical
rebound in 2024, the region’s steel demand is expected to finally show a
meaningful recovery with a 5.3% growth in 2025. The forecasted steel
demand for the EU in 2024 is only 1.5 Mt higher than the pandemic trough
in 2020.
In stark contrast with the EU, US steel demand continues to show healthy
steel demand fundamentals. The country’s steel demand is expected to
quickly return to growth path in 2024 after a sharp drop led by housing
market slowdown in 2023 thanks to strong investment activity, which
received a boost from the Inflation Reduction Act and a gradual recovery
in housing activity.
Steel using sector trends
We observed that a residential
construction downturn driven by high interest rates and
high construction costs have dragged down steel demand across most major
steel using regions.
In 2023 we saw sharp drops in housing
activity in the US, China, Japan and the EU, and
weakness in housing activity is expected to stretch well into 2024 in
most major markets on the lagged impact of monetary tightening. A
meaningful recovery in residential construction is expected to begin
only from 2025 onwards.
Weakness in global manufacturing activity on
high costs and uncertainties, tight financing conditions and weak global
demand also hampered global steel demand in 2023. Leading indicators
suggest the start of a recovery in global manufacturing activity in
2024. Automotive was the notable exception to overall weakness in
manufacturing, as the sector finally showed the long-awaited strong
recovery in 2023 on pent-up demand and easing supply chain constraints.
Following a year of strong double-digit growth in all major auto
producing countries, we expect to see the sector showing weak growth at
best in 2024 in most of them.
Strong investment activity in manufacturing facilities and public
infrastructure have
underpinned global steel demand in 2023. Investment in manufacturing
facilities is driven by major economies’ ambition to develop strategic sectors and ensure
supply security for strategic components and materials against a
backdrop of increasing geopolitical tensions. We believe that the green
transition of the world economy, which requires an
economic transformation of unprecedented magnitude and scope, is one of
the major factors behind the strength in public infrastructure
investments. For example, a recent Economics Committee study estimated
that global steel demand for new wind energy installations will triple
by 2030 to around 30 Mt when compared with early 2020s. While the share
of steel demand for wind energy installations will remain relatively low
in total global demand, it may give quite a noticeable support to
overall steel demand in certain regions such as Europe.
We find it also important to note that public
infrastructure investments aiming to reinforce infrastructure against
rising climate change risks and reconstruction of areas
hit by natural disasters were major factors supporting steel demand in
some major steel using countries in 2023 (e.g. Japan, China, Korea,
Turkey).
We expect to see continued strength in investments in public
infrastructure and manufacturing facilities. However, we also observe
that high construction costs and labour shortages emerge as major
constraints for many major economies, and this might constrain further
growth in public infrastructure and manufacturing facility investments
in the short-term.
Risks
We observe that risks have moderated since our last update in October
2023 and are balanced.
On the upside, we believe that a faster than expected disinflation
accompanied by further monetary policy easing could provide a
significant boost to steel using sectors, particularly housing
construction. We also believe that an acceleration in global
decarbonisation efforts or in efforts to strengthen public
infrastructure against rising climate change risks are significant
positive risks that can support global steel demand going forward.
On the downside, we observe that further escalation in geopolitical
tensions, inflationary pressures proving more persistent than expected,
and high and rising public debt levels triggering fiscal consolidation
in major economies are significant risks that certainly have the
potential to slowdown the ongoing economic recovery or even derail it.
Source from Worldsteel |