Steel Market Outlook 2025-2026: The Road to Recovery Amid Economic and Geopolitical Uncertainty
The steel market in the European Union is currently caught in a prolonged downturn, which started in the second half of 2022. After the significant disruptions caused by the Russia-Ukraine war and the subsequent energy price hikes, steel demand saw a sharp contraction. The situation worsened further due to higher production costs, global economic instability, and weak manufacturing output, leading to a recession in the steel-using sectors. 2023 and 2024 continued to reflect these negative trends, with apparent steel consumption projected to decline further.
A Declining Trend in Steel Consumption: Analysis of the Current Downturn
The decline in steel demand in the EU has been ongoing since the second quarter of 2022 and shows no immediate signs of reversal. The main contributors to this slump are:
• Russia’s invasion of Ukraine: The war has triggered severe economic disruptions across Europe, impacting energy prices and supply chains.
• Energy Price Shocks: Unprecedented rises in energy prices have led to significantly higher production costs for steel manufacturers.
• Global Economic Uncertainty: Increased interest rates, inflation, and weak manufacturing have compounded the issues facing steel producers.
As a result, EU steel consumption in 2023 fell by 6%, marking the fourth consecutive year of decline. The latest Q3 2024 data reveals a 0.9% drop in steel consumption from the previous quarter, continuing the negative trend observed since mid-2022.
EU Steel Market Overview: Impact on Domestic Deliveries and Imports
Domestic Deliveries of steel within the EU were significantly impacted by the decline in demand. In Q3 2024, domestic deliveries contracted by 2.3%, continuing the pattern seen in earlier quarters. Over the past year, EU steelmakers have faced a tough situation due to reduced local demand, leading to weaker production output and higher operating costs.
Interestingly, imports of steel products into the EU showed a slight increase of 1% in Q3 2024. While this appears to be a minor rebound, it is notable that imports now account for approximately 28% of total apparent steel consumption in the EU—a significantly higher share than historical norms. This indicates that EU steel producers have become increasingly dependent on imported steel, especially as their own production struggles to meet market demands.
Key Steel-Using Sectors Continue to Struggle
The Steel Weighted Industrial Production index, which tracks the performance of steel-consuming industries, has shown persistent weakness throughout 2024. The index recorded a sharp 4.1% decline in the third quarter, marking the third consecutive quarter of falling production in steel-using sectors.
Key industries that use steel have been hit particularly hard by this downturn:
1. Construction Sector: The construction industry, traditionally one of the largest consumers of steel, entered recession as early as Q3 2022. This trend has continued into 2024, and recovery is not expected until early 2025 at the earliest. High inflation, soaring energy costs, and a lack of skilled labor have all played a role in this downturn.
2. Automotive Sector: The automotive industry, another major steel consumer, has seen a decline in production due to weak consumer demand, especially in Europe and key global markets. In 2024, this sector is expected to experience a significant contraction, further contributing to the broader decline in steel consumption.
3. Mechanical Engineering and Metalware: These sectors, which rely on steel for manufacturing machinery, parts, and other essential goods, have also been affected by low consumer confidence and high production costs.
4. Domestic Appliances: The production of appliances such as refrigerators, washing machines, and stoves has slowed significantly, further reducing demand for steel.
Geopolitical and Economic Factors: A Web of Uncertainty
While 2023 saw some resilience in steel-using sectors, by 2024, the geopolitical environment took a further toll on the steel market. Notable contributing factors include:
• Energy Price Volatility: The ongoing volatility in energy prices, exacerbated by the war in Ukraine, has led to significant cost increases for steel manufacturers. Although some relief may come from efforts to increase energy efficiency and seek alternative energy sources, steel prices remain sensitive to fluctuations in global energy costs.
• Interest Rate Hikes: The European Central Bank’s decision to increase interest rates to combat inflation has made financing for businesses more expensive. Higher rates have dampened investment in steel-intensive sectors, including construction and manufacturing.
• Geopolitical Tensions: Beyond the Ukraine war, there are other geopolitical risks, including potential trade tensions and the impact of global supply chain disruptions, that continue to weigh on steel demand.
Steel Market Forecast for 2025 and 2026: A Modest Rebound Expected
While 2024 remains a year of caution, 2025 is expected to see a modest recovery in steel consumption. The forecast for 2025 has been revised to show an anticipated growth rate of 2.2%, down from earlier projections of 3.8%. Several factors will shape this recovery:
• Global Economic Stabilization: The easing of geopolitical tensions and improved global trade conditions could provide a boost to the EU steel market.
• Monetary Easing: The ECB's recent interest rate cuts should stimulate economic activity, although their impact will take time to be fully felt in the market.
• Increased Investment in Green Steel: The EU’s growing focus on sustainable production and the green transition could provide new avenues for growth, especially for producers of high-value-added steel products.
Steel demand in 2026 is expected to show a moderate growth rate of 2.1%, driven primarily by a rebound in the construction and automotive sectors. Although the growth forecast is relatively modest, it indicates that the steel market is on the path to recovery after several years of decline.
A Slow Path to Recovery: Challenges and Opportunities Ahead
The outlook for steel consumption remains fraught with uncertainty. Key risks to recovery include:
• Energy Price Instability: The unpredictable nature of energy costs could hinder growth in steel production, particularly for energy-intensive sectors.
• Rising Trade Protectionism: Ongoing trade tensions, both within the EU and internationally, could limit steel export opportunities.
• Internal EU Challenges: While monetary easing from the ECB may stimulate economic activity, the effects will take time to translate into higher demand for steel. Furthermore, challenges like labor shortages, construction delays, and supply chain disruptions may continue to impact steel production.
A Tentative Outlook Amid Uncertainty
Despite the gloomy prospects for the EU steel market in 2024, the forecast for 2025 and 2026 suggests a gradual recovery. However, this recovery is highly contingent on a positive global economic environment, stability in energy prices, and reduced geopolitical tensions. In the meantime, steel producers will need to navigate an increasingly complex and competitive environment, balancing the push for sustainability with the realities of the global economy.
