The World Steel Association has forecast a slowdown in global steel demand growth mainly owing to the impact of the Russia-Ukraine situation and China’s softening economy. The demand is estimated to increase by only 0.4% to 1.84 TMT in 2022, and a further 2.2% to 1.88 TMT in 2023, according to its latest report. Further downside risks might arise from the continued rise in positive test cases in some parts of the world, especially China, and rising interest rates. The expected tightening of US monetary policy will hurt financially vulnerable emerging economies, the WSA stated. Recovery from the coronavirus backdrop turned out to be stronger than expected in many regions in the past year. 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 as the expectation of a continued and stable recovery from the pandemic has been shaken by the war in Ukraine and rising inflation. Chinese steel demand slowed significantly in 2021 after the government stepped up efforts in deleveraging domestic property developers. The demand in 2022 will remain flat despite remedy policies to boost infrastructure investment and stabilize the real estate market, the association said, adding stimulus policies being introduced this year are likely to support mild growth in steel consumption in 2023.

Atilla Widnell, managing director at mining and metal data analytics firm Navigate Commodities, however, expected global steel demand to contract 2-3% this year. He said construction steel trading volumes across China were already down 35% compared to last year’s highs between late February and early March. The transactions were decimated by Beijing’s property market crackdown, which includes the so-called Three Red Lines policy, a debt metric used by the government to set limits for developers seeking to borrow more. “Once you throw in battered consumer sentiment and logistical snarls caused by Covid-induced inter-city traffic restrictions and a lack of truck drivers, this has and will continue to encumber domestic steel distribution and consumption over the next few months,” said Mr Widnell. China managed to escape quite well from Covid in 2020 and 2021, during which its factories remained open while much of Europe and the US were in lockdown, resulting in strong export activity and resilient economic growth. “However, things are starting to look shaky in China now,” said Ralph Leszczynski, head of research at Banchero Costa. Steel output in China in the first two months of 2022 stood at 158 MMT, down 9.7% from the same period of 2021, and back to almost the levels of 2020, he noted. Iron ore imports into China so far this year have also been disappointing. The volume between January and March were down 8.5% year on year to 252.7 MMT, the lowest level since 2017. Apart from financial troubles of leading domestic developers, most notably Evergrande, China is also increasingly struggling to maintain its draconian “zero Covid policy” when tackling the more transmissible Omicron variant, and when most parts of the world are deciding to live with the virus, Mr Leszczynski said.

Over the past few months, the country has seen strict lockdown measures implemented in multiple cities, including Shanghai, Shenzhen, Qingdao, Xian, Changchun, Tianjin and even in Tangshan, a major center of steel production in the north. The critical downside risk for Asian steel demand is the frequency of fresh Covid outbreaks in China, which will continue to have a “stop-start” effect on the economy and steel consumption, Mr Widnell said. Other less prominent risks include excessively high steel prices in an environment with deteriorating demand and margin that might lead to stagflation, he said. Prospects about dry bulk shipping, however, is rather mixed. The impact of lower iron ore and coal trade volumes this year will be offset by longer tonne-mile demand as Europe will try to get more coal from far-away sources such as Colombia and Australia to replace Russian coal, Mr Leszczynski said. Russian coal meanwhile could find its way to destinations such as India and China. Freight rates can also be supported by increased port congestion in China if the lockdown situation continues, he added.

In its report, WSA noted that the Russia-Ukraine conflicts will cause higher energy and commodity prices, especially raw materials for steel production, and continued supply chain disruptions, which were troubling the global steel industry even before the war. Furthermore, financial market volatility and heightened uncertainty will undermine investment, it said. While the confrontation in Ukraine could come to an end in the course of 2022, sanctions on Russia are expected to largely remain in place. The geopolitical situation surrounding Ukraine will have significant long-term implications for the global steel industry, said the WSA. Among them are a possible readjustment in global trade flows, a shift in energy trade and its impact on energy transitions, and continued reconfiguration of global supply chains. Steel demand recovered strongly in the EU and the US last year, according to the association. However, the outlook for 2022 has weakened due to inflationary pressure, which is further reinforced by the events surrounding Ukraine, said WSA. The impact of the war will be particularly pronounced in the EU due to its high dependence on Russian energy and refugee inflows. Steel demand in the developed world is forecast to increase by 1.1% and 2.4% in 2022 and 2023, respectively, after recovering by 16.5% in 2021. Global construction activity continued to recover from lockdowns to record growth of 3.4%, despite a contraction in China in 2021. The recovery of the global auto industry in 2021 was disappointing as the supply chain bottlenecks arrested the momentum in the second half of the year, according to the WSA. The war in Ukraine is likely to prolong the issues, especially in Europe, it said.