EUROFER's October report on the Economic and Steel Market Outlook 2009-2011 shows that the decline in apparent steel consumption accelerated to almost 47% YoY in the second quarter as the drop in real consumption deepened and the inventory correction process in the steel supply chain intensified. It resulted in apparent consumption falling by 45% in the first half of 2009.
Estimates for the third quarter show apparent consumption remaining at an extremely low level and still falling by almost 32% YoY due to continued weak end user demand and further inventory reductions. However, as a result of several quarters of heavy destocking, the overall inventory situation in Q3 of2009 is better aligned with the current weak level of demand.
Drastic production cuts at EU mills and substantially reduced third country imports supported the process of balancing supply with demand. Significantly reduced steel inventories resulted in some customers cautiously returning to the market in recent months to fill gaps in their stocks. This led to the downward trend in orders and deliveries bottoming out.
The stock cycle effect is expected to be neutral in the final quarter of 2009. On balance, apparent consumption will fall by approximately 33% this year. The stock cycle will also set the stage in 2010. The supply demand situation is expected to be roughly balanced over the year while remaining vulnerable to supply side disruptions such as rising imports. The absence of severe destocking as registered in 2009 will lead to a technical recovery in apparent consumption which is forecast to rise by almost 12%.
Market fundamentals should improve in 2011, as rising end user activity will support a recovery in real steel consumption. This will also trigger the need to align stocks with higher downstream output. Apparent steel consumption could grow by 7.5%.
