Worldsteel predicts 2021 recovery in steel demand

The World Steel Association (Worldsteel), Brussels, has released its Short Range Outlook (SRO) for steel demand in 2020 and 2021, predicting that steel demand will contract by 6.4 percent, dropping to 1,654 million metric tons, because of the upheaval created by the COVID-19 pandemic. The association says it expects steel demand to recover in 2021 to 1,717 million metric tons, an increase of 3.8 percent compared with 2020.

The Worldsteel forecast assumes that most countries’ lockdown measures continue to be eased during June and July, with social distancing controls remaining in place, and that the major steelmaking economies do not suffer from substantial secondary waves of the pandemic.

Worldsteel says it expects China to recover more quickly than the rest of the world, mitigating the 2020 reduction in global steel demand.

“The COVID-19 crisis, with its disastrous consequences for public health, also represents an enormous crisis for the world economy,” Al Remeithi, chairman of the Worldsteel Economics Committee, says. “Our customers have been hit by a general freeze in consumption, by shutdowns and by disrupted supply chains. We, therefore, expect steel demand to decline significantly in most countries, especially during the second quarter. With the easing of restrictions that started in May, we expect the situation to gradually improve, but the recovery path will be slow. 

“However, it is possible that the decline in steel demand in most countries will be less severe than during the global financial crisis as the consumption- and service-related sectors, which have been hit hardest, are less steel-intensive,” he continues. “In many developed economies, steel demand was already at a low level, having still not fully recovered from 2008.” 

Remeithi stresses that the Worldsteel forecast is being presented “at a time of high uncertainty.” He adds, “As economies are reopening without a vaccine or cure in place, significant downside risks exist. If the virus can be contained without second and third peaks, and if government stimulus measures are continued, we could see a relatively quick recovery.”

Recovery prospects by country or region

As most countries have been gradually reopening from their lockdowns since mid-May, recovery of economic activities is expected in the third quarter.

Even though all steel-using sectors are affected by the lockdown measures, the mechanical machinery and automotive sectors are highly exposed to a prolonged demand shock and to disruption in global supply chains, the association says. Changes in working procedures in the steel-using sectors to fulfill the requirements of social distancing could lead to lower productivity and an extended production cycle. 

China. Coming out of the lockdown ahead of other countries, China’s economic recovery started in late February, Worldsteel says, and its economy is approaching normalization quickly apart from the hospitality and tourism sectors. The deep freeze in economic activity during February resulted in a decline of 6.8 percent in gross domestic product (GDP) and 16.1 percent in fixed-asset investment in the first quarter. Industrial production fell by 8.4 percent, with the automotive sector showing the worst decline of 44.6 percent in the first quarter.

By the end of April, all major steel-using sectors were back to near full productivity, even though the full operation of the manufacturing sector is hindered by the collapse in export demand, Worldsteel says. Following the lifting of the lockdown in Wuhan April 8, the construction sector has reached full productivity.

The recovery of steel demand will be more visible in the second half of 2020, Worldsteel says, and will be driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives.

Recovery in manufacturing will be slower because of the severe recession in the global economy, but the automotive industry will get some support from incentive measures, the association adds.

Worldsteel says it expects Chinese steel demand to increase by 1 percent in 2020, with the benefit from infrastructure projects initiated in 2020 carrying over and supporting steel demand in 2021.

While the association says it does not expect a stimulus program on the scale of the one the country introduced in 2009, if the global economic environment affects the recovery of the Chinese economy more profoundly, the government might need to provide a further boost, implying an upside risk to steel demand.

Developed economies. Steel demand in the developed economies is expected to decline by 17.1 percent in 2020, according to Worldsteel. Although the downturn is led by consumer and service sectors, massive dislocations in spending, labor markets and confidence are contributing to broad-based declines in steel-using sectors. A spillover from substantial job losses and bankruptcies, weak confidence and continued social distancing measures suggest only a partial recovery of 7.8 percent in 2021.

Worldsteel says European Union steel demand contracted 5.6 percent in 2019 from the sustained manufacturing recession. The manufacturing sector, which was forecast to enter a recovery phase in early 2020, was pushed back into a deeper recession as lockdown measures led to a massive fall in orders. The automotive sector is expected to be the worst hit, while the construction sector could remain relatively resilient, the association forecasts.

In the U.S., COVID-19 is causing a sharp manufacturing recession, which is expected to reach its nadir in the second quarter, according to Worldsteel’s SRO. The fall in oil prices has placed additional downward pressure on energy sector investment, which was already distressed prior to the crisis. Surging unemployment is leading to reduced income and confidence, impairing residential construction. Although nonresidential construction is faring relatively better, it is expected to face a decline in 2020 and a slight recovery in 2021, the association says.

Japanese steel demand has been weakening since the second half of 2019 and will continue to contract by double digits in 2020 as reduced exports and stalling investments weigh heavily on the automotive and machinery sectors, according to the association’s SRO. Despite the halt in some construction projects, construction will see a relatively small contraction arising from the continuation of public works.

In Korea, major steel-using sectors are expected to see a double-digit decline because of falling export markets and a weak domestic economy. The shipbuilding sector is expected to be the hardest hit, while the contraction in construction activity will record a milder decrease due to public infrastructure projects, according to the Worldsteel forecast.

Developing economies (excluding China). The developing economies are less well-equipped to tackle COVID-19 than the developed economies, with inadequate health care capacity leading to stricter lockdown measures in some countries, the association says.

Limited fiscal space to support the economy, a fall in commodity prices, capital flight and currency depreciation render the decline of steel demand in some developing countries as severe as that in developed economies. Steel demand in the developing economies excluding China is expected to fall by 11.6 percent in 2020 but will see a substantial recovery of 9.2 percent in 2021, according to Worldsteel’s SRO.

India has implemented the most stringent nationwide lockdown measures in the world, bringing industrial operations to a standstill, the association says. Construction activity was halted entirely at the end of March, and recovery is expected to remain slow because of the slow return of labor. Supply chain disruption coupled with slower demand recovery will hit the automotive sector hard. The machinery sector is expected to see a continued decline, with weak private investment and supply chain disruption.  

Supported by government stimulus, recovery in construction will be led by infrastructure investment, such as in railways, Worldsteel forecasts. The government’s support to rural income, as well as expected consumption related to the upcoming festive season, will help a substantial recovery of demand for consumption-driven manufacturing goods in the second half. As a result, India is likely to face an 18 percent decline in steel demand in 2020, which will rebound by 15 percent in 2021, according to the association’s SRO.

In the first quarter, the ASEAN (Association of Southeast Asian Nations) countries were hit hard by the lockdown in China and are experiencing extended disruptions in their supply chains and in tourism. Despite the lockdown, some infrastructure projects are continuing, making the fall in steel demand less acute, Worldsteel says. Growth in Vietnam is foreseen thanks to the early containment of COVID-19. In 2021, a renewed focus on infrastructure investment is expected to boost steel demand.

The COVID-19 pandemic will undermine the prospect of recovery in Latin American countries during 2020. Latin America is particularly vulnerable because of its accumulated domestic structural problems, political instability and high exposure to commodity prices, the association says. The region is expected to see a substantial decline in steel demand in 2020 and only a weak recovery in 2021. As the region seems to be lagging in the COVID-19 curve, the outlook may deteriorate further. The prospect of pushing forward with reform agendas and infrastructure plans is being hampered, pointing to a possible long-lasting impact from COVID-19 for the region, Worldsteel adds.

In the CIS (Commonwealth of Independent States), the economy will be slow to come out of recession. Combined with the collapse in oil prices, the COVID-19 crisis will push steel demand into a severe contraction in 2020, with Worldsteel predicting a mild recovery in 2021.

The oil-producing countries in the MENA (Middle East North Africa) region are among the hardest hit b because of the double shock of the COVID-19 outbreak and the plunge in oil prices, WorldSteel’s SRO notes.

Recovery prospects by industry sector

Construction. The construction industry in some countries suffered an abrupt halt of projects arising from supply chain disruptions and a shortage of workers during lockdowns. However, the decline in the construction industry will be less severe than during the financial crisis, Worldsteel predicts.

In the construction sector, social distancing measures seem to be more challenging to put in place, hindering post lockdown resumption of work. Prospects of new construction projects also have worsened because of the deteriorated balance sheets of consumers and businesses, the association says.

While governments could try to put a focus on new construction projects to support demand, Worldsteel says their balance sheets may restrict their ability to carry out public infrastructure investments.

Mechanical machinery. The mechanical machinery sector, where supply chains are some of the longest in manufacturing, has experienced significant logistical bottlenecks and supply chain issues, the association says. Additionally, mechanical machinery will experience a substantial decline in demand in 2020 as investment projects are put on hold or canceled.

The sector will face challenges in demand recovery in the longer term from a bleak investment outlook, Worldsteel adds. However, sectors like agricultural and construction machinery will recover faster.

Automotive. The automotive industry is the biggest victim of the COVID-19 crisis among the steel-using sectors, Worldsteel says. In 2020, the automotive industry is expected to experience a loss of sales of 20 percent on top of the losses seen in the past two years.

Recovery to precrisis levels will take several years in light of income growth and remote working, but safety concerns might boost demand for passenger cars in the short term, the association predicts.

The association adds that supply disruptions could continue even as areas reopen after lockdown as liquidity problems will deter the restart of car producers and auto part suppliers.

The transition to electric vehicles will continue and likely accelerate postpandemic, Worldsteel adds.

Visit www.worldsteel.org/steel-by-topic/statistics/short-range-outlook.html for an interactive map based on the association’s forecasts.