Five things to watch out for in 2023

SMR has issued the last Stainless Steel Reflection of 2022. Markus Moll has listed five things the industry should keep an eye on in 2023.

Click to go “Reflection of the Month” section for the videos
Video is available for Austenitic, Duplex and Superduplex membership levels.

Energy crises

Gas supply for the upcoming year should be sufficient as the EU storages are full, and demand is expected to continue going down. Emergency plans in several countries are contributing to that. Rystad Energy predicted a 12-19% gap for 2023 based on the pre-crisis demand, but given that gas consumption will be lower, there are good chances for it to be less.

However, LNG cannot fully compensate for the loss of Russia's natural gas supply. The main problem lies not even in the lack of infrastructure but in the low availability of LNG in the spot market. In addition, all eyes are now on the recent bribery tensions between Europe and Qatar, hoping it will be resolved without Qatar playing an energy card.

The early end of the war in Ukraine could bring back the gas supply from Russia. But still, energy prices will indeed remain high in 2023.

Perfect storm for profitability

The 100-400% production cost increase, 10% higher labour cost, and doubled financing expenses combined with extensive destocking and halved base prices will create a perfect storm condition for profitability.

Supply discipline and continuous protection through safeguards are the only solutions to enable European suppliers to increase base prices substantially and maintain profitability.

Inflation and higher interest rates impact

With a purchasing power eaten up by the record high inflation and interest rate, consumer goods and ABC&infrastructure sectors will be particularly strongly affected. Automotive&heavy transport, as well as the chemical and petrochemical sector, will see a slight negative influence. Europe's automotive sector will even grow next year as the industry has a long backlog of orders. The energy sector will be the only winner in 2023, showing positive dynamics.

Overall, the actual stainless steel demand will decline by 6% next year, according to SMR estimates.

Raw materials driving forces

The two major drivers will be shaping all raw materials segments next year – the strength or weakness of the US dollar and the pace of China's economic growth.

In addition to that, the nickel market will be determined by four major factors – the growth of the EV market, the nickel actual supply situation, export restrictions from Indonesia and the ability of LME to maintain its role as a global price setter.

For the chromium segment, one of the things to follow is a potentially endangered ferrochrome supply for the EU producers due to capacity reduction at major sourcing destinations amid high energy costs. Another headwind is a lack of investments in the ferrochrome industry which could lead to undersupplied market as soon as 2023.

In the scrap segment, the game changer would be a decision in the EU and the USA to limit exports.

China's performance

Chinese industrial sectors are expected to perform better than in 2022 due to the easing of the country's COVID policies, stable energy prices, lower interest rates and no issues with inflation. The expected growth could be set back by the unknown magnitude of the further pandemic development, uncertainty about Chinese exports and tensions with the West. But there is a general expectation of Chinese GDP faster growth with implications in all markets.