EU recovery on the way, but rising imports may absorb steel demand growth, says EUROFER

The economic recovery in the EU is taking place, but growth is modest, claims a report from European steel lobbying group EUROFER.

According to the Economic and Steel Market Outlook 2014-2015, relatively robust indicator levels suggest that the recovery may gain traction over the remainder of 2014 and into 2015 as economic growth steadily becomes more balanced across growth factors.

EUROFER claims that 'rising investment will provide the main thrust behind the improvement in domestic demand expected for this year and next', adding that this will reduce the EU's dependence on exports as a driver of economic growth.

While the recovery in France and Italy 'struggles to gain some strength', there is evidence, claims EUROFER, that the recovery is broadening from a regional perspective and that the more vulnerable countries of the Eurozone have a brighter outlook ahead of them due to reforms designed to strengthen the export sector.

As for the steel, Gordon Moffat, director-general of EUROFER, commenting on how activity in the sector rose more robustly than expected in Q1 2014, said that although Q1 growth was flattered by the weak activity levels of Q1 2013, the 'underlying sector strength is clearly improving'. He said that automotive production was 'gaining traction' and that the construction sector was 'finally seeing somewhat better market conditions in several EU countries'.

And going forward, things are looking healthy with EUROFER reporting that activity for the remaining quarters of 2014 are 'steadily increasing further.' Growth of the steel using sectors this year and next are predicted to be in the regiona of 3% to 3.5%.

"A key factor in this growth scenario is the expected rebound of EU investment following underinvestment in the recent past. Especially investment in machinery and equipment is seen picking up, but also construction investment will rebound moderately," said EUROFER.

Steel demand growth for Q! 2014 was revised up to 7% year-on-year and the positive trend is likely to continue into Q2.

"The problem is that while demand is strengthening moderately, so far this year imports have been growing more rapidly than domestic deliveries, which means that they are taking a larger share of the market," Moffat said, adding that imports look set to remain high in the remainder of this year and in 2015 if third countries continue to aggressively offload overproduction on the international markets. "That would be a bad message for the EU steel sector which is already suffering from extreme margin pressure," he said.

Apparent steel consumption is forecast to increase 3.7% this year and by almost 3% in 2015.

EUROFER said that higher growth of third country imports this year and next may result in imports – at least partially – absorbing the expected rise in demand.