Posted on 14 Dec 2022
The global steel sector will not fully recover in 2023 from the supply-demand shift in favour of end-markets caused by reduced consumption in 2H22, Fitch Ratings says. We expect materially lower earnings for steelmakers as the global economic slowdown has ended the period of exceptionally high prices supported by post-pandemic pent-up demand. Steel markets will normalise in 2023 with volumes broadly similar to 2021 levels excluding China.
We expect global steel consumption to shrink by 60 million-65 million tonnes in 2022, with capacity utilisation dropping from 80% to 77%. China’s targeted reduction of steel production will account for 20 million-30 million tonnes of this, with the rest coming from demand destruction outside China. Fitch expects incremental growth in steel consumption in 2023 in markets such as India, southeast Asia and the US, which will exceed the managed decline in China by 25 million-35 million tonnes.
Prospects for steel companies remain gloomy in Europe due to high and volatile energy costs, the looming recession, waning consumer confidence, and the greater need to re-design supply chains for the steel sector and possibly its end-markets. However, in some markets, including North America, India, Turkey and Brazil, sentiment remains more positive than our mid-cycle assumptions, benefiting from protectionist trade measures, government support for infrastructure spending and cost advantages in some markets.
Factors affecting short-term supply and demand in the steel market include the evolution of the Chinese property market linked to the central government’s support measures, and the timing of lockdown easing in the country. Geopolitics, including further pressures on trade from the war in Ukraine and the resulting sanctions on Russia, the US-China trade relationship or a potential escalation of China-Taiwan tensions, and evolving protectionist measures in major economies, could shift the market.
Source:Fitch Ratings
