Worldsteel sees stronger recovery in global demand

Global steel demand will fall this year, but by less than previously forecast, owing to a stronger than expected recovery in China, the World Steel Association (Worldsteel) said.

Worldsteel expects global steel demand to fall by just 2.4pc this year from 2019, to 1.72bn t, before increasing by 4.1pc next year to 1.795bn t.

The association has revised its 2020 demand forecast upwards from the 6.4pc decline envisaged in its June outlook. This means it anticipates an additional 72mn t of steel consumption this year, compared with its June forecast.

China's strong recovery from the Covid-19 pandemic is a major reason for the smaller-than-anticipated year-on-year fall in demand. The recovery elsewhere has also been quicker than expected, but still represents a deep contraction compared with last year.

Chinese steel demand will surge by 8pc this year, helped by government infrastructure stimulus and a strong property market. China has been a net steel importer for several months this year, propping up the supply and demand balance elsewhere.

Worldsteel forecast in June that Chinese demand would grow by just 1pc in 2020.

Demand in China could remain flat next year if the country's economy shows a full recovery and the government backtracks on its stimulus policy to cool the construction sector.

The automotive sector has begun to recover in China, although output was still down by 9pc in January-August compared with the same period of last year. In the developed markets of the US and Germany, car production was down by over 30pc during the same period.

Globally, construction has been more insulated from the pandemic as governments have used it as a means to stimulate economic activity. This continued after lockdown measures began to ease, aided by pent-up demand, low interest rates and a cheaper cost of borrowing.

Worldsteel anticipates that a repeat of nationwide lockdowns will be avoided, with selective measures used to contain the recent Covid-19 resurgence. But it did caution that there is uncertainty over how coronavirus will evolve during the flu season in the northern hemisphere winter, which may have a serious impact on demand next year.

Developed economies

The impact of Covid-19 on steel demand in developed economies this year is expected to be slightly less severe than Worldsteel forecast in June. But it will still be a double-digit fall, with demand slumping by 14.4pc from 2019, compared with a previous projection of a 17.1pc decline.

This is underpinned by a quicker than expected recovery in North America. Government support measures and a shorter manufacturing downturn in the US resulted in a quicker rebound, but the country is still struggling to contain the virus effectively. Demand in the US, Canada and Mexico (USMCA) is now expected to contract by 15.3pc, compared with a 20pc fall in Worldsteel's June forecast.

Demand in the EU is forecast to decrease by 15.2pc in 2020, narrowing slightly from the 15.8pc drop envisaged in June, underpinned by a stronger post-lockdown recovery. The sharp downturn in the automotive industry continues to weigh heavily on the region's demand.

Falling exports and weak market confidence will see demand in Japan and South Korea decrease sharply, despite a more successful containment of Covid-19.

Looking to 2021, demand in developed economies is projected to be in line with the June forecast at 7.9pc, underpinned by a bounce-back in growth to 11pc in the EU and 6.7pc in USCMA.

Developing economies

Developing economies have generally been less well equipped to handle the effects of the pandemic.

The impact of the virus in these countries has included rapidly falling domestic demand, declining exports and commodity prices, and the collapse of tourism with no immediate recovery visible.

India and Brazil in particular have suffered from an inability to control the virus. In India, where one of the most severe lockdowns was implemented, demand is expected to decline by 20.2pc from 2019, the steepest fall in decades. But a fast recovery is expected in 2021 supported by rural consumption and government infrastructure investment.

In Latin America, the impact of the virus has been high owing to structural problems and ineffective crisis management. Central and South American demand is expected to decline by 10.1pc this year — although that is a sharp improvement from the 17.3pc fall predicted in June — and interruptions to reforms and deterioration of the region's social stability owing to the pandemic suggest a slow recovery in 2021.

In Asia-Pacific, the pandemic's impact has been mixed. Some countries have not been required to implement lockdowns, while others, such as Malaysia and the Philippines, have been affected severely. Vietnam has been successful in containing the virus, and its steel demand will grow as a result.

Countries in the Middle East and north Africa (Mena) region have been hit by the dual shocks of the pandemic and falling oil prices. The region's steel demand is now forecast to be weaker in both 2020 and 2021 than predicted in June.

Demand from developing economies, excluding China, this year is expected to be weaker than forecast in June, at a 12.3pc decline, although the recovery in 2021 will be stronger than previously anticipated, with growth of 10.6pc. And demand in developing economies still outperforms that in developed economies in both years in relative terms, driven by strong infrastructure investment.

By Colin Richardson, Lora Stoyanova and Sam Angell