Eurofer sees uncertainty for EU steel recovery: update

Adds detail on demand outlook and the effects of inflation in para 5

The outlook for EU steelmaking is uncertain, European steelmakers' association Eurofer's director of market analysis Alessandro Sciamarelli said at the Eurocoke summit on 6 October.

The industry is rebounding from last year's lockdowns, but steel production had been in long-term decline before the collapse and subsequent recovery in 2020-21, Sciamarelli said.

European steel consumption fell by an unprecedented 25.1pc in the second quarter of 2020 as economies went into lockdown to limit the spread of Covid-19. Demand and production then recovered sharply between October 2020 and March 2021. But crude steel production and apparent consumption has been in decline since 2018, and has never recovered from the 2008 financial crash, Sciamarelli said.

Eurofer forecasts that total output across construction, mechanical engineering, automotive and domestic appliances will recover by 9.3pc in 2021, having fallen by 10.5pc in 2020. Automotive output is on course to rebound by 15.3pc in 2021, and is expected to rise by 7.9pc in 2022, having fallen by 20pc in 2020. Eurofer expects construction output to rise by 5.5pc in 2021 and 4.5pc in 2022, after falling by 4.2pc in 2020.

Steel output will most likely soften in the fourth quarter of this year, according to Eurofer, as the bloc's economic recovery from the Covid-19 pandemic reaches a plateau. Eurofer expects that a continued recovery of steel output in 2022 will be primarily driven by the construction sector, accounting for roughly 35pc of steel consumption, which will continue to receive substantial public support from EU and national governments.

But global supply chain bottlenecks, including semiconductor shortages and rising energy and shipping costs, could weigh on manufacturing in the near-term, while the inflation that has resulted from these rising costs has added to the uncertainty around the steel industry's recovery, as has the spread of the Delta Covid-19 variant.

"Inflation erodes the purchasing power of consumers and the margins of producers, and may trigger a change in monetary policy in the euro area," Sciamarelli added. "A rise in government bond yield or in interest rates could have severe implications for the sustainability of public debt, and a great part of EU's post-pandemic support schemes rely on the issuance of additional public debt," he continued.

By Brendan Kjellberg-Motton