EU steel market to remain in bear grip in CY'25 under US tariff threat

• Imports edge down by 3% y-o-y in Q2, exports fall by sharper 12%
  
  
• Consumption to recover in CY26, but growth rates revised lower
  
  
• CY'25 apparent consumption revised upwards to -0.2% from -0.9%
  
  

Morning Brief: The European Union (EU) steel market is on track for another recession in 2025, with de-growth continuing in apparent consumption and key end-user sectors, observed EUROFER in its latest Economic and Steel Market Outlook.

The EU steel market has been struggling since the outbreak of the Russia-Ukraine war, due to elevated energy costs, lacklustre steel demand, high interest rates, and manufacturing weakness. CY'25 is likely to see these conditions continue, with geopolitical uncertainties, led by the US steel import tariffs, adding further pressure.

Notably, an encouraging sign is that the apparent steel consumption forecast has been revised upward to -0.2% from -0.9%, suggesting relative stability y-o-y in CY'25. However, it should be noted that this goes against earlier projections released this February, which had indicated a 2.2% growth in CY'25.

Moreover, production from steel-using sectors is set to dive by a deeper 0.7%, against the 0.5% predicted earlier.

Apparent steel consumption

Apparent steel consumption, which refers to the sum of production plus imports minus exports, totalled 33.8 million tonnes (mnt) in the first quarter of CY'25. Volumes increased 2.2% y-o-y in Q1CY25 and 0.5% in Q4CY24 due to a low base effect, following declines in three consecutive quarters.

While apparent steel consumption is projected to decline by 0.2% to 128 mnt in 2025, recovery in 2026 is expected at 3.1% to 132 mnt, lower than the earlier forecast of 3.4%, though this would hinge on an improvement in industrial momentum and global tensions. Nonetheless, consumption will remain far below pre-pandemic levels.

Real steel consumption

Real steel consumption, by end-using sectors in their production processes, slid by 5.5% in Q1CY25, marking the eleventh consecutive quarter with a contraction. Real consumption is expected to continue shrinking, by 2.3% in 2025, driven by prolonged economic and industrial uncertainties and tepid business confidence. However, the presently expected decline is softer than the earlier projected 3.3%. A recovery is expected only in 2026, at a modest 0.8%.

Imports

Steel imports (including semis) edged down by 3% y-o-y in Q2CY25, following a 1% drop in the preceding quarter. Flats imports decreased by 9%, while longs were down by 2%. Despite the overall decline, imports remained elevated, accounting for 25% of apparent steel consumption.

Leading finished steel exporters into the EU were Turkiye (41% increase y-o-y), South Korea (-16%), China (+11%), Ukraine (+44%), India (-50%), and Taiwan (-17%).

Exports

The EU's steel exports to third countries fell by 12% in Q2CY'25 following a 1% increase in Q1. Exports of finished products dropped 10%, flats by 5% and longs by a sharp 20%. The main destinations for EU steel shipments were the UK (12% increase y-o-y in finished steel exports), the US (-18%), Turkiye (-14%), Switzerland (-4%), and Egypt (-41%).

Key end-user industries

EUROFER's Steel Weighted Industrial Production index (SWIP), a proxy measure of real steel consumption, declined for the fifth consecutive quarter in Q1CY25, by 3.2%, against 4.6% in the preceding quarter.

Construction: Q1CY'25 witnessed a marginal recovery (+0.2% growth) in the construction sector. Following minor growth of 0.4% in CY25 on the back of higher government spending, a stronger recovery, revised upwards to a 2.3% rate from 0.8% projected earlier, is expected in CY26 due to the impact of easing monetary policies.

Automotive: For the fifth consecutive quarter in Q1CY25, automotive production decreased, by 11.4%. Uncertainty over EV production standards, falling household real income, and heightened trade tensions, led by US tariffs, will dampen investment momentum, resulting in a 4.2% downtrend in CY25, steeper than the previously estimated 2.6%. A modest 1.3% rebound may be in store for CY26, though volumes will be far lower than 2019 levels.

Outlook

The EU steel market is set for another year of sustained decline in demand and, possibly, pricing, with escalating trade tensions being the primary driver. However, uncertainty abounds, and even projections of a recovery are conditional on improving clarity in the global geopolitical landscape, specifically with reference to the US, which is among the EUs largest export destinations.

The carbon border adjustment mechanism (CBAM) has added another layer of regulatory uncertainty, but EUROFER does not address this in its report. Recently, the European Parliament has approved a simplified CBAM framework for the administrative ease of small enterprises and occasional importers. Among other measures, a new import threshold has been implemented, while CBAM certificates will now be available for purchase from February 2027 instead of January 2026.