The steel sector is expected to drive trend shifts in the latter half of the year. Demand for steel has started to rebound, according to updated projections from Eurofer, the European steel industry association. Eurofer notes that the worst already occurred after the fourth quarter of last year, when apparent consumption fell by 19.3% due to the energy crisis, marking the second-worst quarterly showing since the 2020 pandemic.
Even so, the year is forecast to close with a slight 1% rise in demand. While last year delivered a steeper decline of 7.2%, the European steel industry is forecast to steadily recover, with higher apparent steel use anticipated for 2024. This would mark the fourth annual drop within the last five years, though the pace is improving at about 5.4% consumption.
The mid-year turning point highlighted by Eurofer aligns with remarks from Aditya Mittal, chief executive of the world-leading producer ArcelorMittal, who stated that “market conditions” have already “improved in the first quarter” after four quarters of fluctuation. He predicts a further rise in profitability in the second quarter.
The decision to reopen blast furnaces in Gijón and Dunkerque by late June hints at a strategy to capitalize on recovering demand, a trend corroborated by Eurofer. Recovery is evident in several sectors, including the automotive industry and the broader construction market, among others.
The improving signal contrasts with other indicators like the PMI (purchasing managers index), which, unlike services, remains largely stagnant in the manufacturing arena across most economies. Germany confirmed a second consecutive quarterly contraction in GDP, underscoring a mixed pace of improvement. Eurofer projects that growth in steel-using sectors will be modest this year, with a 0.6% uptick and a stronger 2.3% improvement anticipated for 2024.
Nevertheless, both Eurofer and AEGE, the association representing electro-intensive Spanish industries, warn of substantial uncertainty ahead. The sector group AEGE, which includes ArcelorMittal, Azsa, and Celsa, cautions that a robust recovery for 2023 remains far from assured.
Energy costs and the CO2 price continue to weigh on operations. Eurofer and Unesid, the Spanish steel employers’ group, emphasize that energy costs still stay above pre-Covid levels, though some moderation has appeared. Unesid notes that electricity prices in April are still roughly 40% higher than in 2019, while gas costs run nearly three times higher. By contrast, CO2 allowances have hit an all-time high and quadrupled, a situation deemed unsustainable by industry voices.
Jainaga, president of AEGE and re-elected this week, warned that electricity prices likely to stay above 100 euros per megawatt in wholesale markets would pose a clear disadvantage. He argues that power costs are now a leading factor in electro-intensive production costs, outweighing other inputs.
AEGE notes that other European countries have measures to shield their industries from energy shocks, helping to prevent production stoppages and job displacements.
Unesid reports that despite the electricity hurdle, the Spanish steel sector remains among the main exporters in its manufacturing cluster. International sales dropped to 8.1 million tonnes last year from 8.1 million tonnes; the prior peak was 9.5 million tonnes in 2021. The decline follows a strong rebound in 2021, when exports reached high levels.
Eurofer states that the European steel sector faces ongoing pressure from energy prices, higher production costs, and inflation. The association has urged policymakers to ensure affordable, non-fossil electricity to support decarbonization efforts across the continent.
In Spain, AEGE views the government’s electro-intensive industry framework as a viable policy tool that should be strengthened, including a possible extension of the 80% electricity cost relief into the second half of the year. Additional budgetary support to offset tolls and indirect CO2 costs would help shield these sectors from electricity price volatility.
Imports remain a major challenge. Eurofer notes that non-Community steel imports continue to hold a historically large share of the European market, around 23.4%, even as demand dips. These imports still fill the market and add competitive pressure for local producers. (Source: Eurofer industry outlook, 2024)