According to Fitch Ratings, steel production in China will decline in 2022 and remain at more than 1 billion tonnes, as lower demand in the real estate sector will be partially offset by increased spending on infrastructure and production.
The recovery in demand in the rest of the world in 2021 was stronger than expected, with an estimated production of 870 million tonnes in 2021, exceeding the pre-pandemic level a year earlier than expected. This is thanks to deferred demand and stimulus measures, including a € 750 billion ($ 845 billion) EU recovery fund and a recent $ 550 billion US infrastructure bill, with strong support for the energy transition, Fitch notes in the report.
With the global recovery lagging behind the recovery in China, China's GDP growth is already declining to a more normal 4.8% by 2022, while other countries continue to see out-of-trend growth. This is also reflected in prices. Hot rolled coil in the US traded at $ 1,799 per short tonne in November, versus $ 1,119 in Germany and $ 756 in China.
“The decline in prices in 2021 during the recovery of the pandemic is unprecedented and is associated with trade barriers, lead times and logistics constraints,” notes Fitch. "The US and Europe will continue to benefit from substantially out-of-trend margins in 2022, while China has largely corrected."
The rating agency has identified the evolution of economic and environmental policy in China and its impact on the steel industry as one of the main factors to look out for. Attention should also be paid to government incentives in the regions and to recovery dynamics in key end markets, as well as to address supply chain bottlenecks, and the development of protective trade measures in the US and EU. In addition, political commitment and support for the decarbonization of steel from the largest economies will be critical.
“We have assessed the sector's outlook for the global steel industry in 2022 as neutral,” said Oliver Shue, senior director of metallurgy and mining at Fitch Ratings. “We expect production volumes to remain strong in 2022, but with declining margins, albeit exceeding the trend. High capacity utilization will continue to support a stable cash flow, especially outside of China. ”