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Steel demand bouncing back

Global steel demand is expected to grow by 5.8% this year, and by a further 2.7% next year, more than offsetting the 0.2% decline in demand in 2020. In real terms this means an extra 102 million tonnes will be needed this year, with a further 50.6 million tonnes anticipated in 2022, according to the World Steel Association’s (worldsteel) Short Range Outlook.

Saeed Ghumran Al Remeithi, chairman of the worldsteel Economics Committee, commented: “Despite the disastrous impact of the pandemic on lives and livelihoods, the global steel industry was fortunate enough to end 2020 with only a minor contraction in steel demand. This was due to a surprisingly robust recovery in China, with growth of 9.1%. In the rest of the world steel demand contracted by 10.0%. In the coming years, steel demand will recover firmly, both in the developed and developing economies, supported by pent-up demand and governments’ recovery programmes. However, for most developed economies a return to the pre-pandemic levels of steel demand will take a few years.”

As with any forecast being produced at the moment, this one comes with the caveat that the forecast is built on the assumptions that the ongoing second or third waves of infections will stabilise in the second quarter and that steady progress on vaccinations will be made, allowing a gradual return to normality in major steel-using countries. “While it is hoped that the worst of the pandemic is passing, there is still considerable uncertainty for the rest of 2021,” said Al Remeithi. “The evolution of the virus and progress of vaccinations, withdrawal of supportive fiscal and monetary policies, geopolitics and trade tensions could all affect the recovery envisaged in this forecast.”

In the coming years, steel demand will recover firmly, both in the developed and developing economies

China’s bounce back

The positives of the worldsteel forecast are heavily cemented on China’s rapid economic recovery from the pandemic, where almost all economic activity had been fully resumed by May 2020. The country’s construction sector bounced back from April 2020, propped up by infrastructure investment. While there was only “mild growth” in investment in infrastructure projects in 2020, government funded projects designed to support economic recovery will lead to increased steel demand this year and next. However, government moves to slow down growth in the real estate investment sector could have a stabilising effect. Overall, China’s steel demand is expected to grow by 3% in 2021, but will likely decelerate to 1% in 2022 as the effect of the 2020 stimulus subsides.

Elsewhere in the world, advanced economies also benefitted from substantial fiscal stimuli, leading to a rebound in economic activity in the second quarter of 2020. But levels were still below the pre-pandemic level at the end of 2020 which led to a drop of 12.7% in steel demand from the developed world in 2020.

While recovery of steel demand is expected in 2021 and 2022 in advanced economies – with growth of 8.2% and 4.2% respectively – steel demand in 2022 is expected to be short of 2019 levels.

The US’ fiscal proposal for substantial infrastructure investment over a multi-year period will be considered by Congress in the second half of 2021 and “may have upside potential for steel demand in the longer term”, said worldsteel.

In the EU, a similar picture can be seen and the recovery here is expected to be healthy in 2021 and 2022, driven by an uplift in all steel-using sectors, especially automotive and construction.

In contrast, recovery for steel demand in Japan is expected to be “moderate” while South Korea will lean on its auto and shipbuilding sectors to aid its recovery, although steel demand in 2022 is not expected to return to pre-pandemic levels.

Of the developing countries covered by the report, India suffered a hard blow from an extended period of severe lockdown with steel demand falling by 13.7% in 2020

Developing outlook

While China forges ahead with its robust recovery, other developing countries have less fortunate. “Generally speaking, developing economies excluding China suffered more from the pandemic relative to the developed economies, with inadequate medical capacity, a collapse in tourism and commodity prices, and insufficient fiscal support,” noted worldsteel. As a result, steel demand in developing economies excluding China declined by 7.8% in 2020 with India, Middle East & North Africa and Latin American countries suffering the most. worldsteel does, however, expect a quick rebound from developing countries as government infrastructure initiatives take hold. Steel demand growth from developing countries is expected to be 10.2% and 5.2% respectively 2021 and 2022.

Of the developing countries covered by the report, India suffered a hard blow from an extended period of severe lockdown with steel demand falling by 13.7% in 2020. While a double-digit rebound of 19.8% is expected this year, the latest wave of infections may put that robust recovery prediction in doubt.

ASEAN countries, meanwhile, have felt the sting of disruptions to construction projects which hampered steel demand in 2020. “Malaysia and the Philippines were the most severely hit, while Vietnam and Indonesia saw only a modest decline in steel demand,” worldsteel said.

Elsewhere, Mexico’s steel demand was stunted by reduced auto production and investment, although a fast recovery in the automotive sector and a strong US economy will support the recovery of Mexico’s steel demand in 2021. In Russia, hopes are that its National Projects initiatives will support a moderate recovery of steel demand in 2021-22.

In the Middle East and North Africa region, cancelled construction projects and a drop in oil prices combined to reduce steel demand by 9.5% in 2020. Recovery here is expected to be moderate.

Sector demand

Looking at the sectors that demand steel, construction, automotive and machinery were all decimated by the pandemic. The automotive sector took the hardest beating from the pandemic with a “nosedive” in the second quarter of 2020. But this is a sector that is expected to recover strongly in 2021 with the US leading the way. However, the global automotive industry is not expected to return to 2019 levels until 2022. “Despite a faster than expected recovery in demand, the sector is encountering another supply chain bottleneck in early 2021 with a shortage of semiconductors and other parts, which could constrain the recovery potential,” worldsteel noted.

Global construction output in 2020 fell more than in 2009 after the global financial crisis, 3.9% and 1.9% respectively, worldsteel said. The Philippines, India and Mexico suffered the most from construction declines. Global construction is also not expected to reach the 2019 level again until 2022.

Meanwhile, the global machinery sector did suffer from a fall in investment in 2020, but the decline was much less than in 2009. And while recovery is expected to take place at a faster pace as well, “a lack of confidence and uncertainty is still a constraining factor”.

The pandemic has prompted a long, hard look at the processes in these sectors which could lead to significant innovation in the future. Flexibility, reliability, digitisation and automation are the keywords that could encourage faster recoveries and propel steel demand. Likewise, green initiatives and investment in renewable energy sources could further support steel demand growth.

“For the future, structural changes in a post-pandemic world will bring about shifts in steel demand shape,” Al Remeithi concluded. “The steel industry will see exciting opportunities from rapid developments through digitisation and automation, infrastructure initiatives, reorganisation of urban centres, and energy transformation. All at the same time as the industry is responding to the need to produce low-carbon steel.”
Source: The Baltic Briefing

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