Construction, automotive recovery to drive global steel demand growth 4.5% this year

Global steel demand is projected to increase by 4.5 per cent this year compared with 2020, even as the Chinese offtake is expected to drop one per cent with economic recovery in the Communist nation slowing.

India's steel demand, which suffered a minor downward revision due to the second wave of Covid pandemic, will show a strong recovery in 2021 and reclaim the 100 million tonnes mark this year, according to the World Steel Association or worldsteel (WSA).

No Chinese growth next year

Demand for steel is projected at 1,855 million tonnes (mt) after a meagre 0.1 per cent growth last year. Next year, the demand will likely increase by 2.2 per cent to 1,896.4 mt, according to WSA’s “Short Range Outlook” for this year and next,

Next year’s demand growth is projected lower than this year since no growth is seen in offtake from China.

WSA said the projections have been made assuming that with the progress of vaccinations across the world, spread of the Covid pandemic will be less damaging and disrupting than during the first and second waves.

Al Remeithi, Chairman of the WSA Economics Committee, said global steel demand outside China is expected to return earlier than expected to its pre-pandemic level this year. “Strong manufacturing activity bolstered by pent-up demand is the main contributor for demand. Developed economies have outperformed our earlier expectations by a larger margin than the developing economies, reflecting the positive benefit of higher vaccination rates and government support measures. In the emerging economies, especially in Asia, the recovery momentum was interrupted by the resurgence of infections,” he said.

Indian recovery resumes

Supply-side constraints have led to a levelling off of the recovery in the second half of the year, preventing a stronger recovery in 2021, Remeithi said, adding that recovery in steel demand will continue next year.

The association said the Indian economy got another shock from the second wave of Covid-19 during April-June this year, causing production in all sectors to decline. “However, the economic impact of the second wave was much less severe compared with the first wave, due to more localised lockdowns. Since July, a healthy recovery has resumed for all sectors,” it said.

There was a strong uptake in vaccinations in India, where a positive rebound in construction activity is taking place, the WSA said.

According to WSA, the Chinese economy has slowed since June and there are marked signs of deceleration in the steel using sector's activity since July. This led to a steel demand contracting by 13.3 per cent in July, 18.3 per cent in August and 21.2 per cent in September.

Chinese growth impediments

The sharp demand deceleration is attributable to factors such as adverse weather and small waves of infections through this summer. But major reasons include a slowing of the growth momentum in the real estate sector and the Chinese government cap on steel production.

“Real estate activity has weakened due to tough government measures on developers' financing introduced in 2020. At the same time, infrastructure investment has not picked up in 2021 (in China) due to a depletion of investment opportunities and limited local government financing ability. Furthermore, the strong manufacturing recovery across the world has reduced the export market,” WSA said.

With a continued negative trend in the real estate sector, Chinese steel demand will have negative growth for the rest of 2021, it said, adding that no growth in steel demand is expected in 2022 as the real estate sector remained depressed in line with the government policy stance on rebalancing and environmental protection.

Pent-up demand

In developed countries, more targeted and localised lockdowns helped to minimise the impact of the pandemic on economic activities this year. “However, supply chain bottlenecks and the services sector still lagging behind are preventing a more robust recovery,” the association said.

In the US, the economy continues its robust recovery, driven by pent-up demand and a vigorous policy response. The level of real GDP exceeded its previous high in the second quarter of this year, it said.

In the EU, the recovery in steel demand that started in the second half of 2020 is gathering pace, with all steel-using sectors exhibiting a positive recovery despite continuing waves of infection.

Also read: China’s steel production drops for 3rd consecutive month in September

In Asia, the Covid situation worsened in 2021, exacerbated by slower vaccination progress, but steel demand recovery was not interrupted and the forecast has been revised up, helped by the strong rebound in global trade and government infrastructure programmes.

In Japan, steel demand is recovering gradually with increasing exports, investment and consumption with the manufacturing sector, especially automotive and machinery, leading the recovery.

Resilient construction sector

Referring to sectors using steel, the organisation said the construction sector has remained more resilient than the manufacturing sector to the pandemic shock. “In 2021, the global construction sector is expected to show a robust recovery fuelled by low interest rates and governments focusing on infrastructure projects as part of their recovery plans,” it said.

However, the recovery in the construction sector is uneven with developing countries particularly lagging behind mainly since vaccination rates are low.

In China, the construction sector is facing a turning point and the real estate sector is likely to enter a correction period as the government tries to tackle the sector's structural problems.

On the other hand, global infrastructure projects are affected by two conflicting forces. One, many governments are trying to use infrastructure as a recovery tool aligned with green initiatives, especially in the developed economies. Two, the fiscal position of many governments in developing economies has worsened due to the pandemic, reducing their ability for financing infrastructure investment.

Auto growth to decelerate

The automotive sector, which saw the sharpest decline among the steel-using sectors during the 2020 lockdowns, saw a strong recovery in the second half of 2020. Although supply chain disruption is still evident in some markets, the recovery is driven by pent-up demand and increased household savings, the organisation said.

However, the disruption in the supply chain is significantly undermining the global automotive industry’s recovery. “With pent-up demand dissipating, the growth in auto production in 2022 will decelerate, though high order backlogs will provide some support,” WSO said.

Next year, as vaccinations progress, conditions in the developing economies are expected to improve. But the pandemic will leave a lasting impact on these economies through weakened financial positions and accumulated structural challenges, the steel body added.

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