Overcast demand expectations, alongside continued evidence of continuingly high import levels, are stoking fears that EU producers will have to cope with another year of market distortions. EU apparent steel consumption grew 5.7% year-on-year in the fourth quarter of 2015. Year-on-year growth in apparent demand outpaced growth in real consumption. While end-users and distributors reduced their inventories over the course of the final quarter, the stock change was lower than in the same period of 2014.

Eurofer Director General Axel Eggert said, “The sharp rise in imports in the second half of 2015 is the key factor in the explanation of this trend. Imports grew by almost 30% year-on-year in the third quarter of 2015 and by almost 50% in the fourth quarter of the year. This distorted normal supply conditions in the EU steel market. Oversupply via the import channel could not be fully absorbed by the rise in final consumption and ended up in stocks”.

The outlook for the EU steel market in 2016 is overcast. Muted real steel consumption growth and the stock overhang at the start of the year will result in apparent steel consumption stabilising around the level of the previous year. Trade data for the first quarter of 2016 signals a further year-on-year rise in imports, stoking concern of another year of market distortions and EU producers losing further market share. In spite of the apparent improvement in global steel market conditions in recent weeks, downward risks continue to be high as the fundamental supply-demand imbalances in the world and in particular in China have not changed structurally.

Apparent steel demand in 2017 is forecast to grow, albeit mildly, supported by a more pronounced rise in real steel consumption and an overall more balanced stock cycle. However, global overcapacity and sluggish prospects for global steel demand could easily translate into continued supply distortions and derail this modest recovery.

Growth of activity in the EU steel using sectors strengthened moderately in Q4-2015. Output grew 2.9% year-on-year, bringing total growth over the period to 2%. Activity was boosted predominantly by sectors which rely on growth in private spending. Continued robust private consumption growth translated into strengthening demand for passenger cars and electric domestic appliances, as well as new residential housing. This compensated for an overall weak performance of the more investment-driven sectors such as mechanical engineering and the steel tube sector.

Total activity in the EU steel using sectors rose by 2% in 2015.

Prospects for 2016 and 2017 are relatively positive, with sustained but slower growth in the automotive and the electric domestic appliances sector. Construction activity is expected to gain momentum as the recovery in demand becomes more broad-based. Tube and mechanical engineering sector activity will stop acting as a drag on total growth in steel using sectors.

Early indicators and available data for 2016 point to diverging prospects on the most likely course of EU economy in the future. The key question is whether domestic tailwinds will be strong enough to offset external headwinds. Domestic demand appears to be holding up well, but stuttering global economic activity and particularly bleak prospects for demand from China and commodity producing countries in the emerging world will limit export growth and result in net trade acting as a drag on GDP growth.

Eurofer, Brussels