Outlook for the global steel sector deteriorates due to lower consumption

Fitch Ratings notes that the global steel sector will not be able to fully recover in 2023 after a shift in supply and demand in favor of end markets driven by reduced consumption in 2H22. We expect steelmakers' earnings to drop significantly as the slowdown in global economic growth ends a period of exceptionally high prices supported by post-pandemic pent-up demand. Steel markets will normalize in 2023 and volumes will be broadly similar to 2021 levels, with the exception of China.

We expect global steel consumption to decline by 60-65 Mt in 2022 and capacity utilization to fall from 80% to 77%. A targeted reduction in steel production in China will amount to 20-30 million tons of this volume, and the rest will come from a decrease in demand outside of China. Fitch expects additional growth in steel consumption in 2023 in markets such as India, Southeast Asia and the US, which will exceed the manageable decline in China by 25-35 Mt.

The outlook for steel companies in Europe remains bleak due to high and volatile energy prices, a looming recession, declining consumer confidence and an urgent need to reorganize supply chains for the steel sector and possibly its end markets. However, in some markets, including North America, India, Turkey and Brazil, sentiment remains more positive than our mid-cycle assumptions, thanks to protectionist trade measures, government support for infrastructure spending and price advantages in some markets.

Factors influencing short-term supply and demand in the steel market include the evolution of the Chinese real estate market associated with central government support measures and the timing of the easing of quarantine in the country. Geopolitics, including further pressure on trade due to the war in Ukraine and resulting sanctions against Russia, trade relations between the US and China or a potential escalation of tensions between China and Taiwan, as well as developing protectionist measures in major economies, can change the market .