The European steel industry is facing a challenging period characterized by inflation, global shocks, and a weak manufacturing sector. Alessandro Sciamarelli, director of economic and market research at EUROFER, stated during his presentation at the SteelOrbis Italy Forum held in Milan on October 8, outlining the current situation and the outlook for 2024 and beyond.
Europe has managed to avoid a deep recession, Mr. Sciamarelli said, achieving what is termed a “soft landing”. Inflation, which soared to record highs in 2022 due to the energy crisis, has been tamed to a degree, and is projected at three percent in 2024 and 2.6 percent in 2025. However, growth remains uneven. While the EU economy is expected to grow by one percent in 2024, key countries like Germany continue to struggle. Germany’s GDP is forecast to rise by just 0.1 percent after experiencing a contraction in 2023. Meanwhile, Italy, France, and Spain have shown slightly better resilience, with Italy’s growth forecasted at one percent for 2024.
Despite this recovery, manufacturing sectors - central to steel demand - remain weak. The post-pandemic rebound has slowed considerably, with only the services sector driving significant growth. In contrast, manufacturing, particularly in Germany and Italy, remains below pre-pandemic levels, a concerning trend for the steel industry.
According to Mr. Sciamarelli, the steel sector in the EU has been hit hard by multiple crises, including the COVID-19 pandemic, the war in Ukraine, and the ensuing energy crisis. Steel production in the EU declined sharply by 11 percent in 2022 and by seven percent in 2023. Although a modest rebound of six percent is expected in 2024, this will still leave production levels significantly below those seen in 2019.
Demand for steel has also contracted significantly. Apparent steel consumption, which fell by 8.3 percent in 2022 and nine percent in 2023, is projected to recover modestly by 1.4 percent in 2024. However, this figure is likely to be revised downward, and consumption will remain 12 million metric tons below pre-pandemic levels. Imports continue to play a critical role, representing 27 percent of total steel consumption in early 2024 - an all-time high.
Steel demand largely depends on performance in key sectors such as construction and automotive, which account for 35 percent and 18 percent of steel consumption, respectively. Unfortunately, both sectors are facing downturns, said the EUROFER official. The construction sector has been in recession since the third quarter of 2022, with output falling for seven consecutive quarters. This trend is expected to worsen in 2024, driven by high interest rates and a slowdown in housing demand.
Similarly, the automotive sector, which had shown a strong recovery in 2021, has seen its output contract in 2023, and a further decline of three percent is expected in 2024. Although the sector remains above its pre-pandemic lows, uncertainty around consumer demand and global supply chain issues continues to weigh on growth.
Acording to Sciamarelli, the EU steel market is also grappling with increasing pressure from imports and global overcapacity. The region has run a steel trade deficit for seven consecutive years, a trend that shows no signs of reversing. Global steel overcapacity, estimated at over 600 million metric tons by the OECD, is a significant threat, exerting downward pressure on prices and margins for European producers.
While there are some signs of a recovery in the European steel market, particularly with inflation easing and production expected to stabilize, the outlook remains uncertain, Sciamarelli, noted. Weak manufacturing demand, high import levels, and global overcapacity are likely to continue affecting the sector through 2024 and into 2025. Recovery is expected only in the second half of 2025, but this is contingent on broader economic stability and an improvement in demand across steel-using sectors. He concluded by saying that the industry faces a long and uncertain road to recovery.