At the Eurometal Steel Day & YISAD Flat Steel Conference held at Istanbul Marriott Hotel Asia on Tuesday, March 5, in cooperation with SteelOrbis and with nearly 300 participants, Professor Roland Döhrn, independent researcher at the University Duisburg-Essen, shared his evaluations regarding European economic and steel trends.
The macroeconomic environment
Prof. Döhrn’s assessment of the global economy painted a picture of ongoing fragility, with growth remaining below long-term averages. Notably, world trade experienced a significant decline, attributed to factors such as the in-sourcing of services, rising trade restrictions, and escalating shipping costs. Moreover, inflation is still above target in many countries, and the inflation forecast for 2024 has been revised upward steadily.
Despite some optimism surrounding the US economy, characterized by a stronger-than-expected performance and robust job growth - and the absence of recession even in a year with presidential elections - challenges persist, said Roland Döhrn, particularly in China, where issues in the real estate sector and demographic concerns loom large. Moreover, China is witnessing a re-direction of trade by major trading partners, and it can benefit less from the adaptation of technologies.
“Geopolitical risks continue to exert pressure on global economic stability, as evidenced by the Matteo-Iacoviello geopolitical risk index” commented Prof. Roland Döhrn, “but it can still experience some surprises (as happened with the Russian war in Ukraine).” Within the European Union, modest growth and a slow recovery are anticipated, with GDP projections indicating a marginal uptick after a period of decline in several member states. However, uncertainties surrounding monetary policy and lingering doubts about economic prospects remain prevalent. Therefore, forecasts for 2024 have been revised downward and currently the European Commission seems to be more optimistic than professional forecasters.
The euro area grapples with less favorable monetary conditions, marked by multiple interest rate hikes by the European Central Bank (ECB) to combat inflation. Consequently, borrowing costs have risen, contributing to declines in property prices and an uptick in bankruptcies. GDP forecasts show a positive revision for Spain, while a negative one for Italy, France and - above all - Germany.
Inflation remains, according to Prof. Döhrn, a critical issue in the current economic landscape. Despite some signs of moderation, inflation persists at an elevated level. The European Commission exhibits in this case a more skeptical outlook compared to professional forecasters, suggesting potential heightened concerns regarding price stability. High inflation is increasingly translating into higher wages, with potential implications for economic and social dynamics.
The steel demand and the steel market
In the EU, while production in steel-using sectors has experienced only a moderate decline so far, recent trends in leading indicators paint a less promising picture. The economic environment for the steel sector is expected to remain challenging, with leading indicators suggesting a continued deterioration in the first quarter of 2024, particularly in steel demand within the construction sector, which is anticipated to contract.
Moreover, Prof. Döhrn explained how the global steel market experienced a mixed start to 2024, with production declining, remarkably in China, while showing modest growth elsewhere. In the EU, trends indicate a downward trajectory in crude steel production, coupled with volatile imports and a decline in apparent consumption for the second consecutive year. EUROFER’s forecasts offer a somewhat optimistic outlook, anticipating a rebound in steel consumption, interpreting the difference between growth of steel weighted production and apparent consumption as a stock cycle, but, according to Döhrn, the change goes beyond that.
One of the key challenges facing the steel industry is the decline in specific steel consumption, attributed to various factors such as advancements in energy-saving technologies and changing production patterns among steel users. “Distinguishing between cyclical and fundamental drivers of this decline remains a subject of ongoing inquiry” concluded Prof. Döhrn, “highlighting the complexity of the current economic landscape.”