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Downside fears remain despite increased stability

The second quarter of 2022 continued to be dominated by macroeconomic factors. The economic data of the leading industrialized countries weakened significantly in the reporting period and price pressure forced more central banks to tighten their restrictive monetary policies. As a result, leading economic research institutes have revised their growth forecasts downwards for this year.

Experts assume that, after a difficult first half of 2022, the economy in Europe will continue to develop only weakly in the next quarter and that the almost insoluble task of diverting from Russia’s natural gas could drag European economies further down than previously expected. The US dollar, as a safe haven, has been a major beneficiary of this development and reached its highest value against the Euro since the winter of 2002.

World crude steel production among the 64 countries reporting to worldsteel reached 158.1 million tonnes in June for a decrease of 5.9% compared to the same month last year. Some 949.4 million tonnes of crude steel were produced in the first six months of 2022, or around 5.5% less than in the corresponding period of 2021. In January-June 2022, crude steel production was lower in almost all leading countries when compared to the same six months of last year, with the notable exception of India where production of 63.2 million tonnes represented an increase of 8.8% over January-June 2021.

By contrast, production in China was 6.5% lower than in the same period last year at 526.9 million tonnes owing to new lockdowns as part of the country’s zero-COVID strategy. The mills of the world’s largest steel producer were experiencing massive pressure on their margins as a result of increased raw material costs.

EU crude steel production in the first half of 2022 amounted to 73.8 million tonnes, a decrease of 6.2% from January-June 2021. Germany recorded a year-on-year decline of 5.5% to 19.6 million tonnes while Turkey’s crude steel production fell 4.6% to 19 million tonnes in the first half of 2022.

Demand for steel in Europe, as well as among other major economies, has cooled noticeably. The European steel producers’ association Eurofer has lowered its forecast for European steel demand this year, with the previously-expected increase of just over 3% replaced by an anticipated decline of almost 2%. Eurofer attributes this to sharply rising energy prices, ongoing supply chain problems and the Ukraine conflict. Steel demand is expected to recover by some 5% next year although, according to Eurofer, this forecast is subject to great uncertainty and depends heavily on how the situation in Ukraine unfolds.

Traditional customers for Turkey’s long steel have been noticeably reluctant to make purchases in recent times. In the first five months of this year, exports fell by 11.3% to 2.7 million tonnes after reaching 3.05 million tonnes in the same period of 2021. Domestic demand was similarly subdued as devaluation pressure on the Turkish lira and galloping inflation (78.6% in June) significantly reduced the hunger for reinforcing steel.

Steel scrap prices were unable to escape this negative environment and the positive price trend in the first quarter of this year was turned completely on its head. Turkey’s import prices for HMS 1&2 (80:20) fell by just under US$ 340 per tonne or slightly more than 50% from a record high of around US$ 660, becoming the starting point for massive price corrections on the global scrap market owing to their signal effect.

In Germany, scrap prices peaked in April and have fallen by up to

Euro 200 per tonne in the last two months, depending on the grade. Similar developments have also been recorded in neighbouring countries.

Since the end of June, a stabilization of Turkey’s steel scrap import prices has been accompanied by a cautious revival of demand for Turkish steel and a decline in Russian exports of cheap steel billets and iron ore which had been finding their way into Turkey and many Asian countries following the imposition of sanctions. However, it remains unclear whether this is the end of the downward movement or only a temporary stabilization.

There is still hope for new infrastructure programmes in China which, to date, have only been announced but not yet implemented by the government. The biggest risk for the outlook remains a cessation of Russian natural gas supplies to Europe, further logistics problems and a resurgence of COVID waves in the autumn.