Edward Blomstedt

Combi Works insights – market development towards the end of 2023


Welcome to our Combi Works insight report.

In a world still grappling with the shadow of the Russian war, our latest market report dives into the intricacies of raw materials, casting a spotlight on the markets in the EU, China, and India. While the Russian conflict continues to sow uncertainty, raw material prices have found equilibrium, returning to pre-war levels and maintaining stability throughout 2023. However, the construction sector faces a challenging terrain marked by market declines across EU and significant uncertainty with similar reports coming from China as well. In contrast, the machine building industry in EU stands resolute, yet subtle hints of dwindling order stocks prompt a closer look. Join us as we dissect the ever-evolving landscape of global markets.

For a look to our previous report, follow the link here.

Raw material and energy market development

After the turmoil of 2022, this current year has been positively tranquil in terms of cost development.



In 2022, the steel industry faced severe challenges leading to consumption decreasing with a -7.2% decline in apparent steel consumption. These challenges, including war-related disruptions, weak demand, surging energy prices, and rising production costs, are expected to persist until the second quarter of 2023 due to the ongoing impact of Russia’s war in Ukraine and economic uncertainty driven by inflation.

2023 Projection:

Steel consumption is projected to contract further in 2023, with a steeper decline than previously anticipated (-3%, revised from -1%). This would mark the fourth annual recession in the past five years. However, in 2024, apparent steel consumption is expected to recover at a faster rate (+6.2%, previous estimate +5.4%), contingent on more favorable developments in the industrial outlook and increased steel demand.

Uncertainty Continues:

High uncertainty is expected to persist, undermining real demand from steel-using sectors, at least through the first half of 2023. Quarterly positive developments in steel consumption are only expected to emerge from the third quarter of 2023.

EU Steel Market Overview:

In the first quarter of 2023, steel consumption in the EU continued to decline significantly (-11.7%), following another major contraction (-19.3%) in the preceding quarter. Although an improvement compared to the lowest levels in 2022, volumes remained relatively low compared to 2021 and early 2022. Domestic deliveries also decreased (-6.2%) for the fourth consecutive quarter.

Imports and Market Share:

Imports into the EU, including semi-finished products, sharply decreased in the first quarter of 2023 (-28%), reflecting weak demand conditions. The share of imports out of apparent consumption remained considerably high, even in the first quarter of 2023 (22%).

EU Steel-Using Sectors:

Despite challenges such as Russia’s invasion of Ukraine and rising energy prices, EU steel-using sectors displayed unexpected resilience, particularly in the automotive, mechanical engineering, and transport sectors, with the Steel Weighted Industrial Production index (SWIP) showing positive growth. However, some sectors, such as domestic appliances, tubes, and metalware, experienced declines. The construction sector which has been relatively stable, is facing significant recession in 2023.

Steel Price Forecasts (Forecast Accuracy Risks):

Steel prices are forecasted to exhibit varying trends. World average prices could decrease by approximately 5% by the end of the year, while EU prices are expected to remain steady. However, both world and EU steel prices are projected to rise by as much as 10% by the end of winter.

Energy prices

Energy prices in the EU have fallen to 2021 levels, with the volatility caused by Russia’s conflict having subsided in 2023. This is primarily attributed to the increased capacity of solar and wind power in the EU, along with nuclear power in Finland, which has bolstered overall generation capacity and stabilized prices. However, the EU has experienced a 3% drop in electricity demand, marking a 20-year low, due to both high energy costs and an economic slowdown. The Russia-Ukraine energy crisis also contributed to a 6% decline in the first half of 2023.

In contrast, global electricity demand is on the rise, driven by decarbonization efforts and growth in emerging economies, particularly China. China forecasts a 5.2% annual growth in electricity demand, although coal-fired generation has increased due to hydropower cuts. The International Energy Agency (IEA) anticipates a global demand rebound in 2024, with a growing emphasis on renewables.

To address these shifts, the EU is implementing market reforms aimed at ensuring stability and promoting renewable energy sources. These reforms encompass consumer rights and Contracts for Difference (CFDs), although a proposal to cap windfall revenue has faced opposition.

Globally, energy consumption is expected to slow to less than 2% in 2023 but is projected to rebound to 3.3% in 2024. Renewables are set to constitute over one-third of the global power supply by 2024, contributing significantly to emissions reduction. While hydropower is declining, emphasizing the need for climate adaptation measures, the EU leads in renewable energy adoption.

In terms of electricity prices, European wholesale prices have decreased but remain higher than those in 2019. Meanwhile, India has seen an 80% price increase, Japan a 30% rise, and the U.S. has returned to 2019 levels. China and India are experiencing demand growth, driven by cooling needs, with India poised to surpass Japan and Korea in consumption levels.


China’s economic challenges are compounded by its debt, which stood at three times its GDP in 2022. The property market, accounting for a significant share of economic activity, adds to concerns about growth prospects.

Economists suggest that China may be heading toward a prolonged period of lower growth, with some drawing parallels to Japan’s stagnation. Household consumption remains a critical factor, as it has historically been low as a percentage of GDP, hindering investment appetite in the private sector and contributing to deflationary pressures.

Recent interest rate cuts by major Chinese banks aim to ease pressure on profit margins and stimulate consumption. However, economists caution that these rate cuts may lead to a transfer of funds from savers to borrowers, emphasizing the need for policies that directly bolster household consumption. To revitalize the economy, experts suggest measures such as government-funded consumer vouchers, significant tax cuts, wage growth, and strengthening the social safety net. However, such steps have not been introduced, and the focus may shift to potential structural reforms at an upcoming Communist Party conference.

China’s economic transformation from a rural society to an industrial powerhouse, driven by debt-fueled investment, has led to a reliance on older policies, contributing to a massive debt pile and industrial overcapacity.

The path forward for China remains uncertain, with options including a swift crisis to address debt and excesses, a decades-long gradual adjustment, or transitioning to a consumer-led model through structural reforms. Avoiding a crisis through prolonged adjustment may still pose challenges, given rising youth unemployment and wealth tied up in property.

Revisiting ambitious reform plans, as proposed a decade ago, appears unlikely, with the government’s preference for stability and a cautious approach to potentially disruptive reforms. The key question remains whether China can navigate these challenges and find a sustainable path for its economy amid a shifting global landscape.

China’s industrial exports and imports showed signs of recovery in August, with exports falling by 8.8% and imports dropping by 7.3% in U.S. dollar terms compared to the previous year. While both figures remained in decline, they performed better than expected.

China’s exports to the U.S. fell by 9.5%, an improvement from previous months, while imports from the U.S. decreased by 7.9%.

However, economists remain cautious, emphasizing the persistence of headwinds despite marginal improvements. Key factors affecting China’s trade outlook include the property market, rising oil prices, and the exchange rate of the Chinese yuan against the U.S. dollar.

China’s imports of crude oil grew by 14.7% in the first eight months of the year, highlighting its status as the world’s largest crude oil importer.

While industrial exports are showing signs of recovery, China’s overall economic rebound faces challenges due to a property market downturn and lackluster consumer spending. China’s trade performance remains a critical factor in the global economic landscape.

The steel prices in China have remained steadily on the level which they reached in autumn of last year, meaning on pre-Covid levels.

China’s energy prices have dropped from the levels of a year ago but after dropping drastically during the summer of 2023, it has started climbing again.


Despite global economic challenges and a slowdown in certain sectors, India’s economy remains resilient and dynamic in the first half of 2023. A report by the Global Trade Research Initiative (GTRI) highlights India’s total exports and imports of goods and services crossing the USD 800 billion mark during this period.

While goods exports saw a modest decline of 8.1%, services exports experienced robust growth, rising by 17.7%. Key sectors contributing to India’s export growth include telecommunications, electronics, machinery, pharmaceuticals, and ceramics. Smartphone exports, in particular, showed a significant increase. However, challenges like weak global demand and increased competition in labor-intensive industries have impacted merchandise exports. The ongoing Ukraine conflict, high inflation, monetary policies, and financial uncertainties worldwide are contributing factors.

India’s manufacturing and industrial output paint a mixed picture. Steel production and consumption have risen, and the index of industrial production shows growth. Capital goods and infrastructure goods production are particularly strong, but consumer durables and non-durables have been sluggish.

Despite headwinds, India’s services sector remains robust, contributing significantly to GDP growth. The economy expanded by 7.8% in the April-June 2023 quarter, and India maintains its position as one of the fastest-growing major economies globally.

However, the economy faces potential risks, including the impact of a drier-than-normal monsoon season on agriculture and rising inflation. Policy tightening by the Reserve Bank of India, as well as global demand conditions, will also be critical factors to monitor in the coming months.

Overall, India’s economy shows resilience and potential for growth, especially in the services and manufacturing sectors, while addressing various challenges on the horizon.

Transport & sea freight

Since the last report, VLSFO (fuel) has come down to pre-war levels. The shipping container prices from Asia have dropped back to pre-Covid levels and are not predicted to increase in the near term although further decreases are also not expected.

Shipping Costs and Market Uncertainty

As we look ahead, forecasting the future presents its challenges. Currently, it seems that price levels won’t see significant increases by year-end, with larger rises expected in Q1 or Q2 of the coming year, provided market recovery remains positive. Nevertheless, price pressures are mounting, as export freight rates have notably declined, and the per-container cost for East Asia roundtrip journeys now exceeds the freight charge. Furthermore, new regulations taking effect in EU waters at the beginning of next year aim to reduce emissions and promote eco-friendly fuels for ships, but the exact price impact remains uncertain. On the flip side, if market momentum persists, shipping companies are likely to tighten capacity, swiftly affecting prices. In this era of unpredictability, market shifts occur abruptly, with pronounced effects.

Additionally, previously blocked capacity around congested ports, which reached as high as 15% at its peak in early 2022, is gradually being released as supply chain performance improves.

While some new orders may be canceled, the expectation is that this won’t be on a massive scale due to the desire to maintain efficiency progress per unit carried. Therefore, the critical factor now becomes effective capacity management. The key question is how container liners will respond. So far, liners have been eager to secure market share, leading to lower vessel occupancy levels (down to 75% in the first quarter) and fragile freight rates in the second quarter, which could continue to decline. Considering that many container liners are financially robust, these conditions could potentially escalate into a prolonged price war as they vie for dominance in the market.

Downturn Challenges Safety and Decarbonization Progress

The decline in freight rates poses challenges to safety and decarbonization initiatives. After the post-pandemic container shipping boom, economic and geopolitical uncertainties, coupled with falling demand, have driven freight rates down. The cost of shipping between Asia and the US or Europe in April 2023 was over 80% lower than the previous year. New vessels ordered during the boom are now arriving, adding to excess capacity. Projections indicate that over 700 ships are expected to be delivered in 2023-2024, with an additional 150 anticipated in 2025. Notably, Neo-Panamax size vessels (12,500-18,000 TEU) make up 45% of these orders, while the largest sizes (ULCV) account for another 20%. In contrast, feeder vessels (up to 3,000 TEU) comprise just over a third of the ordered vessels and a mere 8% of overall capacity.

BIMCO forecasts weak demand surpassing supply in 2023, putting pressure on rates and ship values. The global container fleet is set to grow, with 4.9 million TEU to be delivered in 2023-2024.

Justus Heinrich, Global Product Leader Marine Hull at AGCS, raises concerns about cost-cutting potentially affecting maintenance levels and risk management budgets during this downturn. Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS, emphasizes the risk to vital investments in fire safety and decarbonization.

Trend Towards Large Ships Intensifies

The downturn and decarbonization goals drive a focus on larger container vessels, but risk exposures grow too. Over two-thirds of fleet growth in the next two years will be in ships larger than 15,000 TEU, according to BIMCO. Captain Rahul Khanna notes that large container vessels are here to stay but need to become more efficient and eco-friendly. Smaller, older tonnage is being replaced by these large vessels, potentially increasing cargo accumulation and exposure risks.

Cefor’s analysis reveals that the container ship segment sees an increase in the claim cost per vessel and large loss frequency. The rise in large vessels may contribute to shipping incidents in South East Asia, impacting cargo delays and costs.

Scrapping to Turn Spotlight on ESG Issues

With the downturn in freight rates, ship owners are likely to scrap older vessels, influenced by stricter IMO climate regulations and decarbonization efforts. Scrapping older tonnage stabilizes freight rates but poses ESG challenges. The sustainability of ship recycling will face scrutiny as shipping companies publish ESG information, requiring responsible behavior even in vessel scrapping.

In conclusion, the logistics landscape faces uncertainties in shipping costs, capacity, and vessel investments, with the need for balancing economic pressures, safety, and environmental goals. The transit times have returned closer to long-term normal, but there are still occasional delays that hit as a surprise. The surprising nature of the delays can cause distress as the predictability is smaller.

The industry’s push for sustainability has significantly influenced the container vessel order book. Alternative fuels, particularly LNG and methanol ‘capable’ or ‘ready’ dual-fuel vessels, have gained prominence. Nearly half of the total order book for new vessels is dedicated to these alternative fuel vessels, a trend that accelerated in 2022. Major players like Maersk and others are actively investing in dual-fuel vessels, enabling them to run on methanol and making preparations for the necessary supply infrastructure in ports. LNG remains the dominant alternative fuel ordered, followed by methanol, with ammonia also considered despite its toxicity.

Dual-fuel capability enhances flexibility, allowing vessels to switch between alternative fuels and traditional fuel oil. Retrofitting vessels is generally unattractive, driving a surge in dual-fuel investment and further increasing capacity.

Labor costs and currency rates


In 2023, labor cost dynamics in Europe continued to exhibit significant variations compared to the previous year, highlighting several key aspects:

Inflation Impact:
In 2022, Eastern Europe witnessed high inflation rates, leading to substantial salary inflation ranging from 10% to 20%. In contrast, countries like Finland demonstrated restraint in labor cost increases during the same period.

Overall Labor Cost Growth:
The euro area experienced an overall labor cost development of approximately 6% in 2022, indicating a notable increase in labor costs throughout the region.

Central Bank Actions:
Both the European Central Bank (ECB) and the U.S. Federal Reserve (FED) continued their paths of interest rate hikes, impacting various sectors of the economy. Steep interest rate hikes had repercussions on the housing market within the European Union (EU), while the weakening of the US dollar against the euro contributed to shifts in economic dynamics.

Labor Cost Trends in 2023:
During the first quarter of 2023, hourly labor costs in the euro area rose by 5.0%, while in the EU, the increase was 5.3%, compared to the same period in the previous year. These figures, reported by Eurostat, underscore the sustained growth in labor costs within the region.

Components of Labor Costs:
Labor costs comprise two primary components: wages and salaries, and non-wage costs. In the euro area, hourly wages and salaries increased by 4.6%, with the non-wage component rising by 6.2% in the first quarter of 2023. In the EU, hourly wages and salaries increased by 5.0%, and the non-wage component by 6.1% during the same period.

Sector-Specific Trends:
Labor cost increases varied across economic activities. In the euro area, hourly labor costs rose by 4.4% in the non-business economy and by 5.2% in the business economy, with notable growth in industries such as manufacturing, construction, and services. A similar pattern was observed in the EU, with hourly labor costs showing growth across various sectors.

Wage and Non-Wage Costs:
In the EU, sectors like ‘Electricity, gas, steam and air conditioning supply’ and ‘Mining and quarrying’ recorded the highest annual increases in hourly wage costs. In contrast, sectors like ‘Public administration and defense; compulsory social security’ and ‘Education’ reported relatively lower increases in wage costs. The non-wage component witnessed significant growth in sectors such as ‘Accommodation and food service activities,’ ‘Arts, entertainment and recreation,’ and ‘Mining and quarrying.’

Country-Specific Variations:
During the first quarter of 2023, the highest increases in hourly wage costs for the entire economy were documented in Bulgaria, Romania, and Lithuania, surpassing the 10% mark. Additionally, several other EU member states, including Estonia, Croatia, Poland, and Belgium, reported substantial increases exceeding 10%.

These labor cost developments mirror the intricate economic landscape in Europe, shaped by factors like inflation, central bank policies, and variations in wage and non-wage components across diverse economic activities and individual countries. These trends emphasize the significance of monitoring labor costs as a critical indicator of economic well-being and competitiveness within the region.

The ECB and FED have continued on their interest hiking path, on a steep level which has affected the housing market in EU. USD has weakened against the Euro and returned to a level around 1,09. Forecasters have estimated that FED might be finished with its interest hikes which is predicted to keep pushing the USD slightly downwards.


China’s salary costs have continued their increase but according to some forecasts the increase level would have slowed down to on average about 5% per annum. While Europe is showing higher average salary growth, it would strengthen China’s competitiveness.

At the same time the RMB has dropped against the USD from the stronger winter position, the USD/RMB rate has moved to around 7,3 in September, the level it was at about a year ago.


Indian labor costs have continued increasing at between 5-10% over the gone year, but remain at a very affordable level compared to European or Chinese counterparts.

Forecast accuracy risks:

It’s important to note that these price forecasts come with inherent risks due to the volatile nature of the market. Factors such as geopolitical events, supply chain disruptions, and unexpected economic changes can significantly impact the accuracy of these forecasts.

Trading economics
Allianz Group
Peterson Institute for International Economics
MEPS steel review

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