A strong start to the year and robust economic and steel market outlook bode well for EU steel market conditions. Nevertheless, increasing protectionism and even isolationism may lead to the proliferation of disastrous global trade flow distortions.
EU steel market
EU apparent steel consumption grew by 3.1% year-on-year in Q1-2017, driven by robust gains in end-user consumption. The net impact of inventory build-up was slightly negative, because the actual increase in stocks was lower than in the same period of 2016.
EU domestic suppliers, as well third country exporters, gained from the increase in EU steel demand. The improved balance in the EU steel market’s supply-side fundamentals can largely be attributed to the positive influence of anti-dumping duties in stemming dumped imports.
European Steel Association (EUROFER) Director General Axel Eggert said, “Initial data and estimates for the second quarter signal that apparent steel consumption remained on a mildly positive growth trend. However, the rather sharp rise in imports over the April-May period suggests that EU mills most likely again lost ground to third country suppliers”.
EU apparent steel consumption is forecast to continue to improve over the remainder of 2017, although seasonal destocking will have a negative effect on consumption growth in the final quarter of the year. On balance, EU apparent steel consumption is forecast to increase by 1.9% over the year 2017. In 2018, steel demand growth is expected to moderate, on a par with the mild slowdown in real consumption growth.
Mr Eggert commented, “In spite of this mildly positive demand scenario, import distortions will remain the main risk for the stability of the EU steel market. With no structural solutions for the underlying problem of global overcapacity in sight, the number of protectionist and even isolationist measures look set to increase. In particular, measures potentially stemming from the US Section 232 investigation may lead to a proliferation of disastrous global trade flow distortions.”
EU steel consuming sectors
In the first quarter of 2017, the production activity of steel-using sectors in the EU rose by a healthy 5.8% year-on-year, visibly exceeding earlier expectations of a more moderate rise in activity. To a certain degree, this growth rate was flattered by the weak activity level in Q1-2016.
While all sectors performed remarkably strongly compared with the same period in 2016, it was the steel tube sector that showed the strongest rise owing to strong pipeline project activity. However, production activity in the automotive and construction industries also rose at a significantly faster pace than anticipated.
Prospects for the remainder of 2017 and 2018 are positive, although year-on-year output growth rates are forecast to slow down as base year effects and temporary stimulation factors are expected to fade in the future.
Strengthening domestic demand fundamentals – owing to a mild acceleration in investment growth – combined with healthy export opportunities, will likely boost activity in steel-using sectors. Total output in steel-using sectors in the EU is forecast to grow by 3.5% in 2017 and by 2.1% in 2018.
EU Economic Context
The healthy performance of the EU economy in Q1-2017, and the continued positive tone of both hard and soft data, supports the view that the economic recovery is strengthening and broadening.
Domestic demand will remain buoyed up by steady private consumption growth and public expenditure. Meanwhile, the investment climate appears to be brightening, particularly as internal political uncertainty in the EU has receded since the beginning of the year. Prospects for exports are positive as well, on a par with global economic growth gaining traction in 2017 and 2018.
On balance, EUROFER’s July 2017 outlook forecasts EU GDP growth at 2% in 2017 and at 1.8% in 2018.