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STEEL PRICES COOL DOWN, IS THERE ANY FISCAL SPACE IN 2022?

The imbalance of global steel supply-demand causes steel prices to fall

Global steel demand is weakening

The Covid pandemic with the Delta variant is spreading rapidly all around the world. Economic production activities in most continents are affected. Steel demand of output manufacturing industries is showing signs of slowing down. The automobile industry, which suffered the sharpest decline in growth rate among steel-using sectors during the closing period in 2020, recorded a strong recovery in the second half of 2020 and in 2021. In the US, light vehicle production regained its pre-pandemic levels in Q3/2020 but has been on a downward trend since, in part due to supply chain disruptions.

 

In the EU, a strong recovery is underway and the EU automotive sector is expected to recover 15.3% in 2021. However, this growth is still far below the level when the manufacturing recession first began in 2018. The EU automobile industry has faced shortages of components and a weak demand outlook due to overall economic uncertainty. The common cause is mainly due to a shortage of semiconductor chips, leading to a decrease in demand for flat steel.

 

Supply chain disruptions are significantly undermining the global automobile industry’s recovery. With pent-up demand no longer available, automobile production growth in 2022 should decelerate. However, a large backlog of orders will provide some support to slow down that deceleration.

 

In addition, many policies promoting infrastructure construction by the US, Chinese, EU, and Indian governments are curbing the downward trend of global steel demand.

 

Steel supply becomes scarcer

Good news for the world steel supply when many regional countries are still growing their supply such as Russia (+8%), Germany (+17%), Turkey (+17%), etc. However, the steel supply in China is still tight until the end of 2021 and may continue to be lacking until next year.

 

 

In August, China’s crude steel volume fell 4% compared to July 2021 and 12% yoy,  which is the lowest level since April 2020. One of the factors that directly affect China’s steel production is the widespread lack of electricity (in addition to tightening energy consumption, but also due to the impact of the coal power crisis in this country).

 

In Europe, while tight supply is expected to ease at some point, that has not happened yet. The supply concerns in Europe have mainly related to Liberty Steel’s finances as well as the political problems of the Acciaierie d’Italia. If these two companies can not solve their problems, the European steel supply will fall further. In addition, some other steel factories in Europe encountered problems such as power outages, labor shortages due to the Covid-19 pandemic, etc. also contributed to increasing concerns about supply shortages here.

 

In addition, some news about the world situation also contributed to “squeezing” steel supply such as Russia’s tax on export of most steel products applied from August to December 2021. (except for goods exported to the Eurasian Economic Union); Prolonged sea freight, high logistics costs hinder transportation, etc.

 

Fiscal space for the steel industry in 2022

Outlook for steel demand in the world

The global construction sector is expected to show a strong recovery driven by low-interest rates and governments focusing on infrastructure projects as part of recovery plans.

 

However, the recovery of the construction sector was uneven across regions. In developing economies, ASEAN, for example, where vaccination rates are low, the rebuilding of construction shows fragility. In contrast, in India, where records a sharp increase in vaccinations recently, construction activity is recovering positively.

 

In China, the construction sector is facing a turning point. The real estate sector is likely to enter a period of adjustment as the government tries to solve the structural problems of the industry.

 

The outlook for global infrastructure projects is affected by the response of governments. On the one hand, many governments are trying to use infrastructure as a recovery tool in line with green initiatives, especially in developed economies. However, the financial position of governments, greatly weakened by the pandemic, especially in developing economies, is likely to reduce funding limits for infrastructure investment,

 

Outlook for Vietnam steel consumption

The disbursement progress for Government investment is at a low level. The public investment disbursement plan for 2020-2021 is at a historic high compared to the average of the previous 3 years. However, the disbursement progress of Government investment capital this year is much lower than in previous years due to the impact of the Covid-19 pandemic. Therefore, when the pandemic situation is gradually under control, the opening economy will accelerate disbursement. Much more construction will boost the demand for construction materials in general and steel in particular.

 

As the economy recovers, the real estate market will be prioritized to expand investment. Many real estate projects were postponed in the first 9 months of 2021 due to the impact of social distancing along with the continuous increase in the price of construction materials since the beginning of the year, making the implementation of real estate projects difficult. In the warm-up market scenario, residential real estate will be the most active market because the real demand for housing is still an urgent need of the people. From there, steel demand is expected to increase higher.

 

Outlook for Vietnam steel export

 

 

 

At the end of the year, with increased consumption demand, steel exports are expected to grow. Specifically, according to VSA, in the first nine months of 2021, Vietnam’s steel exports increased by 39.3% yoy in volume and 125.4% yoy in value. In which, the amount of steel exported to ASEAN took the lead, accounting for 36.37 % market share.

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