The Brussels-based World Steel Association (Worldsteel) has released its “Short Range Outlook” for 2022 and 2023, which forecasts that steel demand will grow by 0.4 percent this year, reaching 1,840.2 million metric tons, while 2023 will see additional growth of 2.2 percent, reaching 1,881.4 million metric tons. However, Worldsteel notes that the war in Ukraine creates a high degree of uncertainty.
World steel demand grew by 2.7 percent in 2021 compared with 0.1 percent growth in 2020, when pandemic-related restrictions were most acutely felt.
Máximo Vedoya, chairman of Worldsteel’s Economics Committee, says, “This ‘Short Range Outlook’ is issued in the shadow of the human and economic tragedy following the Russian invasion of Ukraine. We all wish for as rapid and peaceful an end to this war as possible.”
He says recovery from the pandemic in 2021 was stronger than expected in many regions, “despite continuing supply chain issues and COVID waves.” Vedoya continues, “However, a sharper than anticipated deceleration in China led to lower global steel demand growth in 2021. For 2022 and 2023, the outlook is highly uncertain. The expectation of a continued and stable recovery from the pandemic has been shaken by the war in Ukraine and rising inflation.”
Worldsteel says the magnitude of the impact of the Ukraine war will be varied by region based on the amount of direct trade and financial exposure to Russia and Ukraine. The effects on Ukraine are immediate and devastating, the association says, while Russia also is seeing consequences in the form of sanctions. Because of Europe’s reliance on Russian energy and its geographic proximity to the conflict area, it is experiencing immediate issues related to the conflict, too. Worldsteel adds that the impact will be felt globally via higher energy and commodity prices, especially raw materials used in steel production, and continued supply chain disruptions, which troubled the global steel prior to the war. Furthermore, financial market volatility and heightened uncertainty will undermine investment.
These factors plus low growth in China have reduced growth expectations for global steel demand in 2022, Worldsteel says. Additional downside risks take the form of continued surge in virus infections in some parts of the world, especially China, and rising interest rates. The expected tightening of US monetary policy will negatively affect financially vulnerable emerging economies.
The outlook for 2023 is highly uncertain, according to Worldsteel, which assumes in its forecast that the Ukraine conflict will end in 2022 but that the sanctions on Russia largely will remain.
Additionally, the geopolitical situation surrounding Ukraine poses significant long-term implications for the global steel industry, Worldsteel says, including possible readjustment in global trade flows, shifts in energy trade and its impact on energy transitions and continued reconfiguration of global supply chains.
Chinese steel demand saw a major slowdown in 2021 arising from government measures on real estate developers, Worldsteel says. Steel demand in 2022 will remain flat as the government tries to boost infrastructure investment and stabilize the real estate market. The stimuli introduced in 2022 likely will support small positive growth in steel demand in 2023, while upside potential from more substantial stimulus measures is possible if the economy faces more challenges from the external environment.
In the advanced economies, despite the sporadic waves of COVID-19 infections and supply chain constraints affecting manufacturing, steel demand recovered strongly in 2021, especially in the EU and the US, Worldsteel says. However, the outlook for 2022 has weakened in light of inflationary pressure, which is further reinforced by the events surrounding Ukraine. The impact of the war will be particularly pronounced in the EU because of its dependence on Russian energy and the arrival of refugees fleeing the conflict. Steel demand in the developed world is forecast to increase by 1.1 percent and 2.4 percent in 2022 and 2023, respectively, after recovering by 16.5 percent in 2021.
In many of the developing economies, excluding China, surging inflation prompted a monetary tightening cycle. After falling by 7.7 percent in 2020, steel demand in the developing world excluding China grew by 10.7 percent last year, slightly less than Worldsteel predicted in its earlier forecast. In 2022 and 2023, the emerging economies excluding China will continue to face challenges from the worsening external environment, the Russia-Ukraine war and US monetary tightening, leading to low growth of 0.5 percent in 2022 and 4.5 percent in 2023, the association forecasts.
Global construction activity continued to recover from the lockdowns to record growth of 3.4 percent, despite the contraction in China in 2021. The recovery was driven by an infrastructure push as part of recovery programs in many countries. These and investments related to the energy transition likely will drive the construction sector’s growth for years to come, according to Worldsteel. However, the construction sector faces some headwinds from rising costs and interest rates.
The recovery of the global auto industry in 2021 was disappointing as the supply chain bottlenecks arrested the recovery momentum in the second half of the year. The war in Ukraine is likely to delay any return to normal of the supply chain issues, especially in Europe, Worldsteel says. Despite the slump in global auto production, the electric vehicle (EV) segment grew exponentially during the pandemic, with global sales reaching 6.6 million units in 2021, almost double those of 2020. The share of EVs in total car sales increased from 2.49 percent in 2019 to 8.57 percent in 2021.