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The crisis has been particularly challenging for developing economies

The crisis has been particularly challenging for developing economies



Steel demand decline less severe

Worldsteel’s latest review shows a much smaller demand decline than previously expected, as the sector recovers from the impact of the coronavirus pandemic

November 2020

The World Steel Association (Worldsteel) has released an update to its Short Range Outlook for 2020 and 2021, which shows a much more optimistic outlook than the previous SRO released in June.

Worldsteel forecasts that steel demand will contract by 2.4 per cent to 1,725.1 million tonne due to the Covid-19 pandemic. In 2021, the Brussels-based organisation that represents steel producers that account for nearly 85 per cent of global steel production, national and regional steel industry associations and steel research institutes said it expects steel demand to recover to 1,795.1 million tonne, an increase of 4.1 per cent over 2020.

In the June forecast, Worldsteel predicted that steel demand would contract by 6.4 per cent, dropping to 1,654 million tonnes. At that time, the association said it expected steel demand to reach 1,717 million metric tonnes in 2021.

Al Remeithi: the recovery is uneven

Al Remeithi: the recovery is uneven

According to the association a strong recovery in China will mitigate the reduction in global steel demand this year. The post lockdown recovery in steel demand in the rest of the world has been stronger than was earlier expected, but it still marks a deep contraction in 2020, both from developed and emerging economies, with only a partial recovery expected in 2021.

The forecast assumes that despite the current resurgence in infections in many parts of the world, nationwide lockdowns will not be repeated. Instead, selective and targeted measures will be able to contain this second wave.

“The global steel industry passed the lowest demand point for this year in April and has been recovering since mid-May,” Saeed Al Remeithi, chairman of the Worldsteel Economics Committee, and CEO Emirates Steel, said.

“However, the recovery is uneven across countries depending on their success in containing the virus, the national industry structure and finally economic support measures,” he noted.

Al Remeithi added that China’s rebound has been “surprisingly resilient,” which has led to Worldsteel revising its global growth forecast for 2020. “In the rest of the world, we will see a sharp contraction of steel demand, both in developed and developing economies,” he said.

“This crisis has been particularly challenging for developing economies as they continue to struggle with the uncontrolled virus, low commodity prices and falls in exports and tourism. The pandemic has accelerated megatrends which have been slowly transforming both our and our customers’ industries, leading to a lasting impact far greater than short-term demand consequences,” Al Remeithi added.

Since the reopening of most economies in mid-May, pent-up demand initiated a strong rebound of economic activities, suggesting a V-shaped recovery. However, to date, this has not been enough to offset the drop during the lockdown. Many steel using sectors remain below their pre-Covid-19 level, Worldsteel said. A recovery from the pandemic remains fragile due to the second wave of infections, continued social distancing measures, elevated unemployment and weak confidence allied with increasing concern on the timing of a demand recovery.

On the positive side, health systems are in a much better shape to tackle the pandemic now due to the lessons learnt from the first wave. The risk is tilted toward the downside. “A W-shaped recovery cannot be ruled out and a full recovery in 2021 is unlikely,” said Worldsteel.

 

The Mena region was also severely hit by the dual shock of the pandemic and falling oil prices

The Mena region was also severely hit by the dual shock of the pandemic and falling oil prices

Outlook for China

China's strong recovery since late February, which continues at a steady pace, suggests positive GDP growth in 2020 despite a -6.8 per cent contraction in the first quarter, the association said.

The association said China’s steel demand is expected to increase by 8 per cent this year, aided by government infrastructure stimulus and a strong property market. In 2021, steel demand is expected to stay flat supported by infrastructure and housing projects initiated in 2020.

 

Advanced economies

Manufacturing in the developed economies, which was only just beginning to recover from the slowdown in late 2019, was pushed back again by the pandemic. Even with a strong bounce back after the economies reopened, which has closed the gap with pre-pandemic levels, double-digit contraction over the whole year still seems unavoidable.

In the US, recovery from the lockdown has been strong, aided by substantial government support, the association said. The manufacturing downturn was shorter and less acute than expected. However, the US is still struggling to control the virus's spread, and the recovery momentum might taper off in the coming months.

Overall steel demand in the developed economies is expected to fall by minus 14.9 per cent in 2020 and increase by 7.9 per cent in 2021, WorldSteel predicted.

“The Covid-19 pandemic will exert a less severe impact on steel demand in the developed economies than the global financial crisis, bearing in mind that at the beginning of the pandemic, steel demand had not yet fully recovered from the [2008/2009] crisis,” Worldsteel said.

 

Developing economies

Generally the emerging economies have been less well equipped to absorb the pandemic shock, and the impact has been uneven. The impact has included rapidly falling domestic demand, the collapse of exports and commodity prices, and a free fall in tourism with no immediate recovery being seen. Worldsteel expects a double-digit fall in steel demand 2020 for the major emerging economies.

India is expected to see the deepest decline in steel demand in decades. However, a relatively fast recovery should take place in 2021, supported by rural consumption and government investment in infrastructure.

Malaysia and the Philippines were severely affected, while Vietnam will see positive growth in steel demand due to the successful containment of the virus.

The Middle East and North Africa (Mena) region was also severely hit by the dual shock of the pandemic and falling oil prices. In 2021, the recovery of steel demand in the developing economies is expected to be less than full but faster than the developed economies, driven by infrastructure investment. Steel demand in the emerging economies, excluding China, is expected to fall by minus 12.3 per cent in 2020 and recover by 10.6 per cent in 2021.




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