Hopes rest on fourth quarter as unfavourable conditions prevail
The first half of the year was as eventful as a full year for the global economy. A mild winter and tax incentives prevented an energy crisis in Europe; the Chinese economy has been recovering more slowly and hesitantly than hoped; a banking crisis in the USA and Switzerland did not escalate, as feared, into a global financial crisis; and there has been an unprecedented tightening of monetary policy by central banks and a gradual decline in inflation.
After a satisfactory first quarter for recycled steel trading, the environment deteriorated significantly in the second quarter, with international quotations falling by almost 20% since mid-March. There were increasingly clear signs of a slowing of steel demand. Weak industrial data and a continuing depressed real estate market dampened economic optimism in China, and measures taken by the central government failed to revive consumption. Nevertheless, the Chinese steel industry increased its production (+1.6% year on year in the January-May period) and sales of its steel products on the world market, which in turn increased the pressure on international steel prices and led to a reduction in steel production outside of China.
In Europe too, the situation is rather unfavourable. The Eurozone has been in a “technical recession” since the first quarter. The optimism at the beginning of the year seems to have given way to a greater sense of reality. Production expectations have weakened further, order books have become much thinner despite the recovery in May, and the build-up of inventories has not yet come to an end. Energy-intensive industries were hit particularly hard, with their output 12% lower than a year earlier.
Turkey’s steel segment has lost its competitiveness on the international steel market given the uncertainties created by the energy crisis, the impact of the Ukraine conflict on the supply chain and economic instability exacerbated by the earthquake in February. The outlook for the third quarter remains subdued in view of the multiple problems. The Turkish government faces a mammoth task: the necessary reconstruction of the areas destroyed by the earthquake requires substantial investment, and this is happening at a time when spending cuts and a move away from low interest rates are urgently needed to get a grip on inflation and the massive devaluation of the Turkish lira.
Meanwhile, the energy transition in Europe, rather stubborn inflation and geopolitical problems pose a major challenge for the EU and are likely to accompany the markets for a while.
Hopes rest on the fourth quarter. Positives could come from effective economic stimulus measures in China, a confident economic policy from the Turkish government and an end to the cycle of interest rate hikes by the largest central banks.