This year’s reduction in global steel demand will be mitigated by an expected faster recovery in China than in the rest of the world.

The 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.

Commenting on the outlook, Mr Al Remeithi, Chairman of the worldsteel Economics Committee said, 

“The COVID-19 crisis, with its disastrous consequences for public health, also represents an enormous crisis for the world economy. 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. In many developed economies, steel demand was already at a low level, having still not fully recovered from 2008.  

Let me underscore that this forecast is presented at a time of high uncertainty. 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.”

Prospect of recovery

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, as well as to disruption in global supply chains. Changes in working procedures in the steel-using sectors to fulfil the requirements of social distancing have been carried out. This change in the working environment will potentially 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. Its economy is fast approaching normalisation, except for the hospitality and tourism sectors. The deep freeze in economic activity during February resulted in a decline of 6.8% in GDP and 16.1% in fixed asset investment in the first quarter. Industrial production fell by 8.4%, with the automotive sector showing the worst decline of 44.6% 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. Following the lifting of the lockdown in Wuhan on 8th April, the construction sector has already reached 100% productivity.

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

Recovery in manufacturing will be slower due to a severe recession in the global economy, but the automotive industry will get some support from incentive measures.

We expect Chinese steel demand to increase by 1.0% in 2020. We also expect that the benefit from infrastructure projects initiated in 2020 will carry over and support steel demand in 2021.

A substantial stimulus programme as seen in 2009 is not expected as this might work against the government’s desire to continue rebalancing the economy. However, if the global economic environment affects the recovery of the Chinese economy more profoundly, the government might need to provide a further boost to the economy, implying an upside risk to steel demand.