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Fitch Ratings Forecasts Strong Global Steel Sector Production

Fitch Ratings believes global steel production will remain strong in 2022, while steel companies continue to benefit from overtrend, albeit declining, margins. The neutral outlook for the sector also reflects Fitch's view that high capacity utilization outside of China will support strong cash flow, while steel production in China is finally declining.

Steel production outside China surpassed pre-pandemic levels in 2021, according to the WSA, and an additional growth of almost 5% is expected in 2022. Consumption growth reflects deferred demand and stimulus measures, including a € 750 billion EU recovery fund and a recent $ 550 billion US infrastructure bill for durable goods, cars, construction and infrastructure, with strong support for the energy transition.

Fitch Ratings expects a slight decline in China's steel production in 2022 with a total production of around 1 billion tonnes, noting that lower demand from the slowing real estate sector will be largely offset by higher infrastructure and manufacturing costs.

The global recovery has lagged behind China due to the timing of the Covid-19 outbreaks and the speed and size of support for China's economy compared to other countries. As such, GDP growth in China will slow to a more normal level of 4.8% in 2022, while other countries continue to see out-of-trend growth. This results in significant differences in steel prices, with significantly higher prices in the US and Europe. US and European manufacturers will continue to benefit from well above-trend margins in 2022, while China has largely corrected.