15th July 2016

Economic and Steel Market Outlook 2016-2017

Q3-2016 Report from EUROFERs Economic Committee 1)

EU macro-economic overview
(y-o-y change in %)

EUROFER Forecast
July 2016
EU
2014 2015 2016 2017
(f)
(f)

GDP

1.4

2.0

1.8

1.7

Private consumption

1.3

2.0

2.1

1.7

Government
consumption

1.1

1.4

1.5

0.9

Investment

2.5

3.1

2.7

2.5

Investment in mach.
equip.

2.6

5.0

3.0

2.7

Investment in
construction

1.5

2.4

2.1

2.2

Exports

4.0

5.4

3.4

4.0

Imports

4.8

6.2

4.5

4.1

10.8 10.0 9.5

9.2

Inflation

0.6

0.1

0.3

1.5

Industrial
production

1.4

1.9

1.6

2.0

Unemployment rate

= estimate (f) = forecast

1)

th

Based on information available as of 12 July, 2016

I.

EU Macro-economic overview

Indicators stable despite uncertainties

Positive data for industry and exports
Consumer recovery remains intact
Brexit seen dampening investment
Net trade supportive to growth again?
ECB adopts wait-and-see approach
Recovery to proceed despite Brexit
Will UK leave vote open Pandoras box?
In the first quarter of 2016, the
economic recovery in the EU held up
well with GDP rising by 0.5% over the
previous quarter in the EU and by
0.6% in the euro area. On an annual
basis, economic growth amounted to
1.8% in the EU.
Robust domestic demand continued to
support economic activity. Private
consumption growth strengthened to
0.6% quarter-on-quarter, whereas
gross fixed capital formation growth
slowed down to 0.8% coming from
1.4% in Q4-2014. Government expenditure growth weakened only slightly
compared with the previous quarter.
Net trade continued to act as a drag on
economic growth, albeit to a lesser
extent than in the second half of 2015.
At the country level, most EU member
states registered stable or improving
GDP growth in the first quarter of 2016.
Especially in Germany, economic
growth gained traction compared with
the previous quarter. The UK and
particularly Poland were the only major
EU economies that performed less
positively than in Q4-2015.
All in all, the EU economy got off to a
solid start in early 2016.

Indicators stable despite uncertainties

In the second quarter of 2016, surveybased confidence indicators for the EU
generally speaking stabilised or
improved slightly, following their initial
hesitation at the start of this year.

countries
brings
the
average
production growth over the first four
months to 1.8%. This is actually a
somewhat higher growth figure than
the PMI survey data for the EU
manufacturing industry had suggested.

The monthly business and consumer

surveys published by the European
Commission showed a slight improvement in economic sentiment since April
despite an economic and political
climate characterised by uncertainty. In
June, industrial confidence reached its
best level since October 2015.
Sentiment among consumers and in
the retail sector remained broadly
stable over the past few months.
Markits Eurozone manufacturing PMI
index moved sideways in April and
May, but gained some strength in
June, ending Q2 at a 6-month high.
However, increased political and
economic uncertainty following the
Brexit referendum may take its toll on
business confidence going forward. On
balance, the survey data still point to
sustained albeit unspectacular growth.

Meanwhile, the latest trade figures

signal stronger dynamics in Euro area
international trade in goods in April.
Owing to a sharp rise in exports
combined
with
a
rather
dull
performance of imports, the trade
surplus for the Euro area jumped to a
record high of 27.5 bn, compared with
a goods surplus of just under 24 bn in
March.
The steady levels of forward looking
indicators and rather solid data for
manufacturing activity and exports
suggest that the basis for the economic
recovery could become somewhat
broader as net trade may start
contributing positively to growth.

Positive data for industry and exports

Also others indicators such as actual
activity data underpin the steady
momentum of the economic recovery
in the EU.
Industrial production rose sharply in
April following two consecutive months
of decline. The1.3% year-on-rise in EU
industrial activity, with robust gains
across the main sectors and the key

Consumer recovery remains intact

The consumer recovery in the EU
looks set to proceed this year and in
2017. Uncertainty about the economy,
terrorism and the outcome of the Brexit
referendum failed to significantly dent
consumers' confidence in the past few
months. It remains to be seen however
to what extent consumer confidence
will be shaken up by the Brexit leave
victory over the coming months.
An important factor contributing to the
steady level of consumer sentiment is
the positive development of the labour

market. EU28 unemployment stood at

8.6% in May, down from 8.7% in April
and 9.6% in May 2015. Euro area
unemployment is at its lowest rate
since July 2011. In Q1-2016,
employment increased by 0.3% in both
the euro area and the EU28. Hiring
expectations in the manufacturing and
construction sector continued to
improve over the past few months. The
job vacancy rate in the EU28 was 1.8%
in Q1-2016, up from 1.7% in the final
quarter of last year. Improving labour
market conditions translate into
moderate wage rises across most EU
countries. At the same time, very low
inflation and still lower oil prices
support increases in real disposable
incomes. As the economic recovery in
the EU proceeds, consumers may
continue to spend rather than increase
savings, also encouraged by low
interest rates and relatively easy
access to credit. Going forward,
inflation may start picking up, primarily
driven by higher oil prices; this could
dampen private consumption growth to
some extent. Private consumption is
projected to rise by 2.1% in 2016 and
by 1.7% in 2017.
Brexit seen dampening investment
Slowing growth of investment in Q12016 did not come as a surprise as the
strong acceleration in the preceding
quarter had largely been driven by
temporary factors. Despite the current
low interest rate environment and
easing credit standards as a result of
lower risk perceptions and reduced
cost of funds in the banking sector, net
loan demand from enterprises remains
rather muted. Investment continues to
be held back by sluggish global growth
as well as economic and political
uncertainties.
Following its introduction in 2015 there
is little evidence that the Juncker
investment plan has led to a step
change in investment. So far, loans

from the European Fund for Strategic

Investment (EFSI) amount to only
12.8bn, whereas total lending from
the
European
Investment
Bank
appears not to have changed
substantially.
Although a stronger impact of the
investment plan cannot be excluded in
2017, the recovery in investment will
remain basically linked with the
financial performance of the corporate
non-financial sector and its assessment of current and future business
conditions. Undoubtedly, the leave
victory in the Brexit referendum will
have an impact on the EU and UK
economy, on the shorter term primarily
via weakening confidence levels.
However, it remains to be seen how
long and how deep business confidence will be affected following the initial
shockwave at the end of June.
In principle, underlying indicators of the
general propensity to invest are still
broadly positive. Capacity utilisation
and corporate earnings and profits
have gradually improved and look set
to strengthen further in the remainder
of 2016 and in 2017. Construction
investment is expected to benefit from
a further strengthening of private
demand for residential and commercial
real estate.
On balance, investment is expected to
grow by 2.7% in 2016 and by 2.5% in
2017.
Mild growth public expenditure
Public investment is forecast to remain
moderately supportive to GDP growth
in 2016 and 2017. After having been
hit by a multi-year sovereign debt
crisis, government finances in the euro
area are now slowly on the mend.
While some countries still need to
pursue fiscal consolidation, budgetary
conditions have improved in other
countries, allowing them to stimulate
their domestic economy via increased
public spending and investment. This

could be supportive to infrastructure

activity, particularly for those projects
aimed at facilitating economic expansion by removing transport bottlenecks.
In addition, public expenditure related
to the refugee crisis could boost
aggregate demand in the EU.
On balance, following several years of
tightening, the euro area aggregate
fiscal stance appears now to have
turned mildly expansionary.
Government consumption is seen
growing by 1.5% in 2016 and by 0.9%
in 2017.
Net trade supportive to growth again?
April trade data signal that the drag
from the external sector on economic
growth eased somewhat. Should this
trend have continued, net trade may
have contributed positively to GDP
again in Q2-2016. In 2015, GDP had
been only supported by domestic
demand.
However, particularly for 2016 the
outlook for international trade remains
rather subdued. Global economic
growth is expected to remain slow,
despite some signs of stabilisation in
several of the large emerging
economies, and vulnerable to risks.
Moreover, with the euro fluctuating
within a fairly narrow bandwidth since
the start of the year and limited scope
for a renewed significant weakening,
the boost from the euro depreciation as
seen in the 2014-2015 period will be
absent. For 2017, the global economic
scenario could brighten somewhat,
which implies that as the year
progresses global trade may improve.
In principle, euro area producers are
well positioned to gain from the
expected improvement in international
trade.
ECB adopts wait-and-see approach
In its June meeting, the ECB decided
to keep interest rates unchanged.
While the economic recovery in the EU

continues, the ECB still sees the risks

to the growth outlook as skewed to the
downside. As a consequence, the ECB
takes a wait-and-see approach, to
monitor the effectiveness of the new
monetary policy measures taken in
March aimed at providing an additional
stimulus to the recovery going forward
and at bringing inflation back to the
ECB target level of close to 2%.
The ECB also reiterated that it does
not exclude using additional unconventional - easing measures,
available within its mandate.
Meanwhile, euro area inflation (flash
estimate) rose to 0.1% in June, from 0.1% in May. While inflation is
expected to rise further in the second
half of the year, the key driver will be
higher energy prices rather than the
array of unconventional monetary
policies which are increasingly being
criticised as counterproductive to
economic growth and inflation.
In line with expectations, the euro
exchange rate hardly reacted on the
announcement of the ECB and
remained within a narrow bandwidth of
1.11-1.14USD up to late June. The
outcome of the Brexit vote resulted in
only a very slight depreciation of the
euro versus most other currencies.
Should the Fed decide to start raising
US interest rates during the second
half of this year on evidence of firmer
economic fundamentals in the US
downward pressure on the euro is
most likely to persist.
Recovery to proceed despite Brexit
Moderately positive economic fundamentals underpin the continuation of
the economic recovery in the EU.
Domestic demand prospects are
relatively healthy, owing to the
expected
strength
of
consumer
spending. Less rigid is the outlook for
investment and exports, reflecting
heightened uncertainties regarding
business conditions following Britains

vote to exit the EU and global

headwinds. From 2017, international
trade activity is seen picking up,
supported by the expected moderate
improvement in global economic
conditions. A relatively competitive
euro exchange rate against the US
dollar should keep euro area exporters
well positioned to gain from strengthening external demand, which in
combination with healthy domestic
demand conditions is seen boosting
business confidence and investment.
On balance, the July 2016 outlook from
EUROFERs Economic Committee
foresees EU GDP growing by 1.8% in
both 2016 and by 1.7% in 2017. As
such the recovery will proceed amid a
higher-risk economic framework.
Will Brexit yes vote open Pandoras box?
For the time being, Britains leave vote
overshadows all other internal EU
risks, with most likely at least
temporarily some negative impact on
confidence as well as on the economic,
political and financial stability in the
EU.
It is also clear that the outcome of the
Brexit referendum should be a wakeup call for the mainstream political
parties in the EU, which so far have not
come up with a satisfactory answer to
the challenge of increasing populism
and euro-scepticism across the EU.
The risk of contagion is real, given the
advance of radical right parties in
France, Denmark, Austria and the
Netherlands. As such, the EU faces
the difficult task to reinvent itself, by
finding a better balance between
deepening EU-wide cooperation and
returning decision-making to the
national level.
The problems facing Britain are
probably even more severe: it will lose
access to the EU's trade barrier-free
single market while it must negotiate
new trade agreements, not only with
the EU but also with other countries

around the world. Moreover, it will have

to deal with an internal leadership
crisis while facing the risk of the United
Kingdom being broken apart itself as
Scotland may call for another vote on
independence since almost two-thirds
of the Scottish voters wanted to stay in
the EU. The referendum reveals also
deep splits in British society, which will
be difficult to mend.
The leave vote will initiate at least two
years of separation proceedings
between Britain and the EU, the first
exit by any member state and therefore
unchartered waters. The EU leaders
are united in their view that the
proceedings should start on a relatively
short term, to avoid a prolonged period
of uncertainty.
Another key issue for the EU is the
internal management of the migrant
flows into its territory. Progress has
been made in recent months and
pressures have eased after the EUTurkey deal.
Terrorism and political violence is a
global problem and the events so far in
2016 illustrate a trend of increasing
regional instability and a growing
spectrum of potential risks.
As far as the global economic outlook
is concerned, there is some evidence
that the emerging markets are entering
a period of more stability, owing to
slight improvements in Latin America
(Brazil) and Eastern Europe (Russia).
The bigger picture, however, is still one
of stability rather than recovery. This is
in particular the case for China.
The outcome of the US presidential
elections poses another risk, because
of its impact on the political, economic
and financial stability of the worlds
largest economy.
On balance, risks to the outlook remain
significant, reflecting changing market
conditions, significant volatility and
constant uncertainty.

USA
Disappointing Q116 GDP growth
Consumer fundamentals remain
strong
Continued muted prospects for
business investment and exports
Increased likelihood of rate hike
in H2 but Fed to remain cautious
Q1-2016 GDP growth amounted to just
0.8% at an annualised rate; while
consumer spending continued to
provide the main boost to growth, there
was a drag from investment, net trade
and inventories.
Despite disappointing labour market
data for May - only 38,000 jobs were
added - consumer fundamentals
remain overall strong. Rising wages,
lower fuel prices and low inflation help
boosting real disposable incomes.
Retail sales rose strongly in May,
suggesting that even though higher
energy prices will result in a rise in
inflation, consumer momentum looks
set to remain strong going forward.
While residential investment also
benefited from robust consumer
confidence levels, business investment
suffered from weak global growth, the
strong US dollar, uncertainty regarding
the political and economic postelection framework and sluggish oil
and gas sector activity with mid-June
oil exploration activity in the U.S. 47%
down year-on-year.
It is expected that the US export
performance and business investment
will remain hampered by fragile global
economic growth, the strength of the
US dollar and weak oil and gas sector
activity. Concerns about the stability of
the business climate will deepen in the
run-up to the presidential election.
The Fed is expected to keep a very
cautious stance towards raising
interest rates, particularly if economic
conditions do not develop as
anticipated in their projections. On
balance, rising inflation and reduced
global financial market volatility have
increased the likelihood of a second
rate hike in H2-2016.
GDP growth is expected to slow to
around 2% in 2016 before accelerating
to almost 2.5% in 2017.

Key emerging regions

The first green shoots of stabilisation in the emerging markets?
Recession in Brazil and Russia
not over yet
China's economy expanded 6.7% at an
annualised rate in Q1-2016, slightly
slower than the previous quarter's 6.8%
pace. Growth was boosted by China's
monetary stimulus. Particularly the
construction sector benefited, owing to
rising real estate investment and
infrastructure activity. More recent data
for April and May suggest that growth
momentum moderated slightly as the
policy stimulus started to fade.
Investment hit an all-time low in May,
with specific weakness in private business investment, reflecting overcapacity
and weak exports. A gradual further
decline is on the cards for H2-2016 and
in 2017; the authorities will prevent a
sharper downturn by additional policy
measures if needed.
GDP growth is forecast to slow to 6.2%
in 2016 and to 6% in 2017.
India looks set to have another year of
robust growth supported by strong
domestic momentum, private consumption being the core growth driver. But
also investment and exports are expected to pick up some speed. Risks remain
on the downside, however, the key
concern being delays in the implementtation of the necessary reforms. GDP
could grow by 7.5% in 2016 and by 7%
in 2017.
Brazil remained stuck in a deep recession in Q1-2016 despite a slight
improvement in the rate of contraction
due to a rise in exports. Domestic
demand continued to fall sharply,
reflecting low confidence and continued
political uncertainty. GDP is expected to
fall by around 3.5% before returning to
growth (+0.8%) in 2017.
Russian GDP fell 1.2% in Q1-2016, a
milder contraction than expected thanks
to more supportive fiscal and monetary
policies. April data signal better
manufacturing and export activity,
underpinning the stabilisation signals.
GDP is expected to contract slightly in
2016 (-1.1%); 1.3% growth is currently
pencilled in for 2017.

II.

The EU Steel Market

Overview Steel Using Sectors

Development of the main steel using sectors EUROFER forecast July 2016
% change year-on-year in the SWIP (Steel Weighted Industrial Production) index1)
% share
Year
Year
Year
in total
Q116 Q216 Q316 Q416
Q117 Q217 Q317 Q417
2016
2017
Consumption 2015
Construction

35

1.5 1.1 0.3

2.8

2.9

1.8

1.0

3.4

2.5

2.4

2.4

Mechanical
engineering

14

0.1 0.7 0.2

0.9

1.2

0.7

2.7

2.5

2.5

2.7

2.6

Automotive

18

7.5 6.8 7.2

4.0

3.8

5.5

3.0

3.7

4.5

3.5

3.6

Domestic appliances

4.3 2.9 3.1

2.9

2.4

2.8

2.3

1.8

2.1

2.6

2.2

Other Transport

6.7 4.6 3.5

1.9 -1.3 2.1

1.9

3.1

3.2

3.2

2.8

Tubes

13

-5.5 -6.8 -1.6 5.7

8.1

1.1 10.8 8.5

2.3

0.8

5.6

Metal goods

14

2.2 2.6 3.1

1.7

1.4

2.2

2.3

2.2

2.9

2.5

2.5

1.4 0.9 1.7

1.1

1.2

1.2

1.6

1.1

2.3

2.1

1.8

100

2.0 1.8 2.2

2.8

2.9

2.4

2.9

3.5

2.9

2.6

3.0

Miscellaneous
TOTAL

Robust Q116 activity growth

Consumer-driven
rebound
continues in 2016
Investment and exports more
supportive to growth in 2017
The EU steel using sectors started
2016 on a positive tone: output
increased by 1.8% y-o-y. The mild
winter resulted in work on construction
projects continuing or starting earlier
than anticipated. Automotive activity
continued to grow vigorously. The only
sector that continued to act as a drag
on total growth of output in the steel
using sectors was the steel tube
sector.
First estimates for the second quarter
of 2016 are relatively positive and
signal the likelihood of a mild
acceleration in production growth of
the key steel using sectors in the EU.
As in the previous quarters, the
recovery will remain predominantly
consumer-driven, with again robust
support from growing activity in
automotive and residential construction
sector as well as the domestic
appliances industry. The negative
trend in output of the steel tube sector

is seen coming to an end in Q2-2016.

The outlook for the second half of this
year is rather healthy, with also
somewhat better support to growth
from the investment-led sectors such
as the mechanical engineering and the
steel tube sector. On balance, total
output in the steel using sectors is
forecast to rise by 2.4% this year.
In 2017, investment is forecast to
strengthen moderately further; this will
broaden the basis for activity growth in
the
steel
using
sectors.
Also
international trade is seen becoming
more supportive to growth.
The SWIP index is forecast to rise by
3% in 2017.

1) As of 2013, steel structures is no longer a separate sector but is included in the construction sector.
Shipbuilding activity is now included in other transport which includes all non-automotive transport equipment
such as railway material, air & spacecraft and motorcycles

Construction

Q116 activity grew 1.1% y-o-y,

bucking a seasonal slowdown
Housing activity remains key
growth driver in 2016 - other
sectors to strengthen in 2017
Overall healthy outlook
EU construction activity rose by 1.1%
y-o-y in the first quarter of 2016,
bucking the seasonally slowing trend in
output registered usually in this period
of the year. Thanks to mild winter
conditions, work on many projects
could continue during the first months
of this year, whereas also the number
of new project start-ups was higher
than usual. Output growth was
primarily supported by residential
construction activity gaining further
momentum, most notably so in
Germany, Italy, the Netherlands and
Sweden. France, the United Kingdom
and Poland were the only large EU
markets showing a decline in activity in
Q1-2016.
Preliminary data and estimates for Q2
activity signal that growth was
dampened by higher activity growth in
the previous quarter. Output growth is
currently pencilled in at just 0.3% y-o-y.
France, the United Kingdom and
Poland are expected to have remained
stuck in a downward trend. In most
other markets, activity continued to
grow at a moderate growth rate.
Prospects for the second half of this
year are rather positive. Activity growth

in the construction sector is expected

to accelerate to almost 3% y-o-y in the
third and fourth quarter. Rising demand
for new housing and renovation and
upgrading of the residential building
stock will continue to provide the main
boost to output growth in the sector.
Private property demand is supported
by attractive financing conditions and
the positive development of the labour
market and disposable incomes in
several countries. The increase in
publicly financed housing projects can
be explained by the recent migrant
influx. All in all, construction output is
forecast to grow by 1.8% in 2016.
In 2017, construction industry activity
will remain on an expansionary course
and supported by a broadening recovery across the different construction
sectors. In addition to continued
strength in the residential sector, also
demand for non-residential property is
expected to improve, owing to rising
demand for commercial offices,
hospitality and logistic property in
gateway locations across the EU.
Increasingly, international investors are
eyeing the EU market for core
investment opportunities.
Prospects for civil engineering projects
are brightening as well, thanks to
public investment to remove bottlenecks in EUs aging infrastructure.
Total EU output is forecast to rise by
2.4% in 2017.

Automotive

EU sales boom continues

Exports lack momentum
Q116 output higher than foreseen
Continued
growth
expected,
albeit slowing going forward
The EU automotive market remained
buoyant in the second quarter of 2016.
Car sales rose again strongly in April
and May, resulting in a year-to-date
rise of EU car registrations of 9.9% yo-y. Demand in France, Italy and Spain
registered double-digit growth over the
first five months of this year.
Also commercial vehicle demand
continued its upward trend in April and
May. Registrations are up by 13.5% yo-y over the first five months of this
year. All market segments posted
significant gains, but particularly sales
of heavy commercial vehicles rose
sharply over this period; particularly in
Italy, Spain and France growth was
robust.
As far as exports from the premium
segment manufacturers in Germany
and the UK are concerned, sales to
China appear to be holding up better
than expected, but the contracting
market in Russia acts as a drag on
overseas demand. Together with
continued albeit slowing demand from
the US, overseas exports increased
only moderately so far this year.
Automotive output grew by 6.8% y-o-y
in Q1-2016, twice the growth rate
previously foreseen. Production in the

United Kingdom and Spain posted a

double-digit gain compared with the
same period of 2015.
Based on healthy factory order books
and lengthening lead times also Q2
production looks set to exceed earlier
expectations. First estimates signal
again around 7% growth compared
with the same period of 2015.
The outlook for the second half of 2016
and for 2017 is for the continuation of
robust market fundamentals for EU
passenger car and commercial vehicle
demand. Rising employment and
household
income
will
support
confidence, whereas low interest rates,
manufacturers incentive packages and
still lower cost of fuel will be supportive
to car affordability. The ongoing
economic recovery in the EU will have
a positive impact on road transport
activity, which will be supportive to
commercial vehicle demand.
The outlook for car exports remains
opaque. Signs that the US market is
nearing a sales peak are getting
stronger. The purchase tax cut in
China will expire at the end of 2016,
whereas the Russian market looks set
to remain depressed. Also localisation
trends in emerging markets will limit
car exports from the EU.
Total EU automotive output - including
parts and components - is forecast to
rise by 5.5% in 2016 and by 3.6% in
2017.

10

Mechanical Engineering

Slight growth Q116 activity

mixed country performance
Demand held back by sluggish
global growth and uncertainties
Brexit may dampen confidence
Mild recovery on the cards for
2017
Activity in the EU mechanical
engineering industry rose by a modest
0.7% y-o-y in the first quarter of 2016.
Underlying country data signal that the
performance of investment goods
manufacturers remains mixed. While
output growth was positive in France,
Italy, Spain and some smaller EU
markets, production in Germany, the
UK, the Benelux and Poland remained
on a negative trend. Slow domestic
demand for machinery and equipment
and
continued
headwinds
from
international trade are the key factors
explaining the continuation of subdued
business conditions in the EU.
Also in the second quarter of 2016,
investment is expected to have been
held back by sluggish global growth as
well as economic and political
uncertainties. The lack of transparency
and predictability of the business
environment remains a drag on
demand
for
investment
goods.
Therefore, output growth in the
mechanical engineering sector is

expected to have been again sluggish

in Q2-2016.
Prospects for the second half of 2016
remain rather muted. It had been
anticipated that the main headwinds in
2016 would come from the weakness
in external demand, while EU capital
goods investment would see the start
of a modest rebound. However, due to
Britains vote to leave the EU, business
confidence could suffer an unexpected
blow-back and political, economic and
financial stability in the EU could be
undermined, crucial factors in major
investment decisions. As a consequence, the scope for an improvement
in business conditions in the second
half of 2016 remains limited. On
balance, output growth will remain
below 1% in 2016.
A mild recovery still seems a plausible
scenario for 2017. Sooner or later, the
dust will settle in the aftermath of the
Brexit, and lead to better levels of
confidence. The EU investment climate
will be also supported by rising
capacity utilisation and corporate
profits. The expected moderate upturn
in global demand combined with the
likelihood of continued downward
pressure on the euro exchange rate
will benefit euro area exporters. Output
is forecast to rise by 2.6% in 2017.

11

Tubes

Q116 output fell sharply

Indications for Q2 are less
negative
Business conditions for the
various tube sectors seen
improving going forward
EU steel tube production fell by 6.8%
y-o-y in the first quarter of 2016,
reflecting the continuation of difficult
market conditions across the key
market segments for steel tubes in the
EU as well as abroad. Production
activity contracted again sharply in
Germany, France, Spain and in almost
all smaller EU countries with tube
manufacturing sites. In contrast, output
in Italy and the Netherlands is reported
to have increased.
With oil prices still generally below
what producers need to generate
satisfactory returns on investment, oil
and gas exploration and production
activity
has
faltered.
As
a
consequence, international demand for
large welded and oil country tubular
goods remained subdued. Meanwhile,
global overcapacity in steel tube
production has resulted in fiercening
competition on most tubes markets.
Some tube markets benefit from stable
or even improving business conditions,
such
as
tubular
products
for
automotive applications.

First estimates for steel tube

production in the second quarter of this
year signal a moderation in the yearon-year decrease in production activity.
The upward trend in oil prices in April
and May helped to dampen the
downward trend in oil and gas sector
capital expenditure; growing global oil
supply disruptions, rising demand and
declining
US
crude
production
supported a price rise. Oil market
fundamentals appear not to be in
support of major further price rises
going on the relatively short term.
The outlook for the remainder of 2016
and for 2017 is for steel tube
production to gradually climb back to
somewhat higher production levels,
although even at the end of next year
output is forecast to remain some 30%
below the 2008 production peak.
Business conditions for large welded
tubes have started to improve owing to
several projects in the European region
demanding significant quantities. Also
worldwide project activity is improving,
thereby globally reducing competitive
pressures. Demand for smaller welded
tubes and seamless tubes will benefit
from rising activity in the automotive
industry, construction, metal goods and
mechanical engineering.
EU output is expected to rise by 1.1%
in 2016 and by around 5.5% in 2017.

12

Domestic Appliances

Output continued to rise in Q116

Private consumption growth and
housing rebound will continue to
support demand
Production activity seen expanding further in 2016-2017
Output in the electrical domestic
appliances sector in the EU remained
on a rising trend in the first quarter of
2016; total production activity grew by
2.9% y-o-y. Particularly in France and
Poland the increase in output was
significant. A negative performance
was registered in the UK and Spain.
Demand
for
electrical
domestic
appliances sector is boosted by the
continued
strength
of
private
consumption in the EU and the
broadening rebound in the residential
property sector. The latter translates
into several countries in the EU seeing
now an upturn in the residential
construction sector with both gains in
new work and in the modernisation and
upgrading of the existing housing
stock.
Improving
labour
market
conditions, moderate wage rises in
combination with very low inflation and
still lower oil prices support increases
in real disposable incomes. Low
interest rates and easing access to
finance have lowered financial barriers
to big ticket purchases.

First estimates for production activity in

the second quarter of this year signal
that growth remained around the 3% yo-y rate.
The outlook for the remainder of 2016
and for 2017 is for continued growth in
production activity of the electrical
domestic appliances sector in the EU.
The ongoing economic recovery in the
EU is expected to support a further
improvement
in
labour
market
conditions and some upward pressure
on real wages. Prospects for the
residential property sector are robust,
with rising new work and renovation
activity
stimulating
new
and
replacement demand for household
appliances.
Taking into account that most domestic
appliances are standardised products,
international competition is fierce.
Suppliers from Turkey and Asia are
looking to increase sales in the EU
market which offers rather attractive
price levels compared to other
markets. However, EU producers are
well positioned because of their insight
in regional consumer preferences and
focus on energy efficiency and product
design.
Production activity in the EU household
appliances sector is forecast to grow
by 2.8% in 2016 and by 2.2% in 2017.

13

Real Consumption
Forecast for real consumption - % change year-on-year
Period

Year
Year
Year
Q116 Q216 Q316 Q416
Q117 Q217 Q317 Q417
2015
2016
2017
1.3

4.0

1.5

2.0

2.0

Real consumption rose 4%

compared with weak Q115 level
End-use
sectors
registered
higher activity levels
Further growth in 2016 and 2017
In the first quarter of 2016, EU real
steel consumption grew by 4%
compared with the relatively low level
of end-user demand in the same
quarter of 2015. Despite this base
effect, it is evident that the positive
trend in year-on-year growth of real
steel consumption and the underlying
activity growth in the steel using
sectors in the EU remained intact.
Basically all steel using sectors
registered higher activity growth in the
first quarter of 2016 compared with the
same period of the previous year.
Particularly the automotive sector
performed strongly. The key exception
was steel tube manufacturing which
registered a deeper drop in activity
than in 2015; as such, it was the only
sector acting as a drag on total activity
growth and as a consequence on real
steel consumption.

2.4

3.5

2.8

2.0

1.7

2.5

For the remainder of 2016 it is

expected that real steel consumption
will continue to increase at an overall
moderate year-on-year growth, in line
with the anticipated positive trend in
production growth in the steel using
sectors. On balance, total real steel
consumption is forecast to rise by 2.4%
over the whole of 2016.
Prospects for 2017 are moderately
positive. Growth of production activity
in the steel using sectors in the EU is
foreseen to gain some momentum
compared with 2016, based on the
assumption
of
investment
and
international trade becoming more
supportive to growth. This implies that
the basis for end-user activity growth
and therefore steel consumption will
broaden. Steel intensity is forecast to
exert a negative impact on real steel
demand going forward.
As a consequence, EU real steel
consumption is forecast to increase by
2.5% in 2017.

1) steel intensity is the ratio of steel consumption to steel weighted production in the steel using
industries (SWIP)

14

Apparent Consumption
Forecast for apparent consumption - % change year-on-year
Period

Year
Year
Year
Q116 Q216 Q316 Q416
Q117 Q217 Q317 Q417
2015
2016
2017
3.5

3.1

0.5

-0.1

1.0

1.1

1.8

0.7

2.0

1.6

1.5

EU Apparent
Consumption
in million tonnes per
annum
2009
121
2010
148
2011
158
2012
141
2013
141
2014
147
2015
152
2016 (f)
153
2017 (f)
156

EU steel demand rose 3.1% in Q12016 - but only imports benefit

EU mills lost again market share
Key uncertainty going forward:
level of imports coming to the EU
Fairly similar conditions in 2017
EU apparent steel consumption grew
3.1% y-o-y in the first quarter of 2016.
Improving business activity at the enduser level and inventories in the
downstream steel supply chain having
been trimmed down at the end of 2015
fuelled steel demand. Improving
international steel pricing conditions
since mid-February and lengthening
lead times also explain the increase in
buying interest and related stockpiling
over the quarter.
Meanwhile, imports continued to rise
sharply in Q1-2016. The 24% y-o-y
increase signals that only third country
suppliers gained from the growth in
demand and continued to capture a
larger portion of the EU steel market.
Fairly similar market conditions appear
to have shaped the market in Q2-2016.
EU pricing and supply conditions

remained supportive to the purchasing

behaviour of EU steel buyers; bookings
have reportedly remained at overall
satisfactory levels. Demand remained
close to the level of the previous
quarter, while imports continued to
increase.
The outlook for the second half of this
year is for apparent consumption to
stabilise around the year earlier level.
While real steel demand is expected to
continue its pattern of moderate
growth, the seasonal stock cycle
suggests that inventories will be
reduced gradually over this period. The
key uncertainty with regards to supply
remains the level of imports into the
EU market. Steel demand is forecast to
rise by around 1% in 2016.
Demand-side fundamentals in 2017
are seen as moderately positive,
supported by s steady rise of real consumption and an overall neutral stock
cycle. Supply-side distortions pose the
key risk to steel market stability in the
EU as long as global overcapacity
persists.

15

Imports

Q1-2016 imports grew 24% y-o-y

Continued rise in April and May
China remained largest exporter
of steel products to the EU
But other countries are targeting
the still open EU market as well
So far this year, steel imports from
third countries into the EU continued to
rise at a pace which exceeds the rate
of improvement in domestic apparent
steel consumption.
Total imports in Q1- 2016 grew by 24%
y-o-y, with semis imports rising by
26% y-o-y and finished product imports
increasing by 23% y-o-y.
Customs data for April and May show
that finished imports continued to rise,
both in comparison with the same
period of 2015 and compared with the
previous quarter; the increase was
16% respectively 4%.
The year-on-year rise in long product
imports was much pronounced than
growth in flat product imports and
amounted to 33% respectively 11%.
A similar divergence could be seen in
the quarter-on-quarter comparison.
At the specific product levels, some
worrying trends can be observed.
Within the flat products group the yearon-year drop in hot-rolled and coldrolled imports was outpaced by the
massive increase in hot-dipped
galvanised sheet imports; following a

77% y-o-y rise in Q1-2016, imports

rose by 85% y-o-y over the April-May
period. Also imports of organic coated
material have been rising rather
sharply over the past few months.
While imports of all long products have
been on a rising trend so far this, the
increase over the April-May period in
wire rod (+54% y-o-y) and heavy
sections (+253% y-o-y) imports is also
a reason for concern.
As for the main countries of origin,
China remained the most important
exporter to the EU, followed by the
Russia, the Ukraine, South Korea and
Turkey. Together these countries
accounted for 69% of total imports over
the January-May period.
Over this period, imports from Taiwan
showed the strongest year-on-year
increase (+171% y-o-y), followed by
Turkey (+63%), Iran (+46%), South
Korea (+41%) and the Ukraine (+35%).
Despite anti-dumping duties already in
place or potential trade cases under
investigation
by
the
European
Commission, imports have continued
to absorb the improvement in domestic
steel demand in the EU. This
underpins
concerns
that
import
distortions will continue to hammer the
EU steel sector.

16

Exports

EU exports fell 19% over the first

four months of 2016
EU trade deficit in finished
products continued to widen
Global
steel
supply:
little
evidence of net reduction in
steelmaking capacity
The falling trend in EU exports which
started in 2015 proceeded over the
four months of this year. Customs data
for steel exports from the EU to third
countries show a 19% drop in total
exports over this period, with semis
falling by 65% and finished steel
products falling by 10%, due to a 11%
drop in long product exports and a 9%
reduction in flat product exports.
This negative development in EU steel
exports reflects overall weak global
steel demand conditions which in
combination
with
overcapacity
problems have fuelled competition and
unfair trade practices. The resulting
remedial measures against imports
distortions have exacerbated the fight
for tonnage in the remaining markets.
As a result of rising imports and falling
exports, the EU remained a net
importer of steel products.
The total trade deficit over the first four
months of 2016 amounted to 911,000
tonnes per month, compared with an
average monthly deficit in 2015 of

381,000 tonnes. The deficit results

from net imports of semis (681,000
tonnes per month) and flat products
(549,000 tonnes per month) and a
trade surplus in long products (318,000
tonnes per month).
With regards to the main countries of
destination of EU exports, Turkey is by
far the key destination for flat product
exports and Algeria for long products.
The available customs data for 2016
underpin earlier fears that market
conditions in international steel trade
would remain difficult.
There is no evidence that an
improvement is to be expected for the
second half of this year.
Prospects for 2017 are anticipated to
be slightly better, at least with regards
to demand-side fundamentals.
As far as the supply side is concerned,
the situation remains highly uncertain
taking into account that other than in
the EU there is no clear evidence of a
significant net reduction in steelmaking
capacity at a regional or national scale.
This fuels concerns of continued
distortions of the EU supply-demand
balance by third country exports.