European steel under pressure

by Hans Diederichs

The preliminary safeguard measures in place since mid-2018 could not prevent third country imports from rising sharply over the year and, therefore, local steel producers are finding themselves squeezed by deflected and cut-price steel products from outside the EU.

“The impact of imports having surged over 2018 has squarely hit home. In an EU market that grew by 3.3% last year, imports grew by 12.6% and domestic deliveries by only 1.7%”, said Axel Eggert, Director General of the European Steel Association (EUROFER). “This represents yet further loss of market share for domestic producers”.

The ‘relaxation’ of the final steel safeguard measures – with an enlargement of 5% in February this year with another upwards revision of 5% scheduled for July 2019 and another in July 2020 – operates out of step with the anticipated decline of the EU steel market in 2019. As such, the 15% increase in import quota allowed in the final safeguard measures risks squeezing the EU steel sector, as it will be exposed to rising import pressure in a shrinking market.

“As apparent steel consumption is expected to fall by 0.4% in 2019, the situation for domestic producers will worsen”, emphasised Mr Eggert.

Total production growth in EU steel-using sectors cooled further in the fourth quarter of 2018. The strongest slowdown was registered in the automotive sector, followed by the mechanical engineering sector, the steel tube industry and the metal goods industry. Meanwhile, production activity in the construction sector did not witness much of a growth deceleration but continued to expand at a healthy pace.

Prospects for production activity in EU steel-using sectors in 2019 and 2020 are rather weak, with external and internal headwinds undermining the outlook. While private consumption and government expenditure will continue to grow, both exports and investment are at risk of falling behind expectations in case of a hard Brexit and an escalation in global protectionist measures. The significant degree of uncertainty the corporate sector is facing has clearly the potential to lead to a negative confidence shock and investment decisions being postponed until more clarity emerges on trade conditions and Brexit. On the other hand, a well-managed Brexit and settlement of US-EU trade disputes would pose an upside risk.

Output in the EU’s steel-using sectors is forecast to grow by 0.9% in 2019 and by 1.1% in 2020.

Slowing global economic momentum and the related deteriorating contribution from net trade has been the primary reason for the weakening of the EU economy in 2018. The slowdown was led by the industrial sector, bearing the brunt of global headwinds. Export orders gradually weakened, dragging on confidence.

Available forward-looking indicators and hard data seem to justify the conclusion that the weakness in industry will at least persist over the first half of 2019. The base-case scenario for economic growth in the EU suggests that – nevertheless fairly solid – domestic economic fundamentals could offset the weakness in trade. However, investment is particularly at risk of falling behind expectations if rising protectionism and a worsening global economic environment lead to a further deterioration in business confidence. – EUROFER’s second quarter 2019 forecast for EU GDP growth is 1.5% in both 2019 and 2020.

Source: EUROFER / Photo: Fotolia

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