Steel demand is showing resilience despite weak GDP growth, but a sustained recovery will depend on investment moving from project announcements to actual construction and steel consumption, according to an opinion in the South African Iron and Steel Institute Steel Matters.
South Africa’s economy remains in a low-growth environment, with the latest national accounts pointing to weaker momentum. Real GDP grew by 1.1% in 2025 and increased by 0.4% quarter-on-quarter in Q1 2026, before contracting by 0.2% in Q2. The contraction was broad-based, with trade, manufacturing and mining among the largest negative contributors. While household and government consumption each increased by 0.4%, this was more than offset by a deterioration in net exports as imports rose 4.9%, compared with 0.9% growth in exports.
For the steel industry, however, the more important indicator is fixed investment. Gross fixed capital formation was equivalent to approximately 13.7% of GDP in 2025 and declined a further 0.2% quarter-on-quarter in Q2 2026. Investment in construction works fell 4.0%, transport equipment 3.4% and transfer costs 7.9%, partly offset by higher investment in machinery and other equipment.
This remains a key constraint on the steel demand outlook. Infrastructure development, electricity transmission, renewable energy, logistics and industrial projects offer the strongest potential sources of incremental steel demand.
The critical issue is execution. Announced investment only translates into steel demand once projects move into procurement, construction and physical implementation. The continued decline in fixed investment suggests that this transmission has yet to gain sufficient momentum.
Steel consumption indicators are nevertheless more encouraging. Apparent steel use (ASU) increased 2.5% in 2025 to 4.55 million tons and is forecast to increase a further 4.9% in 2026 to 4.78 million tons. Real steel use (RSU), a stronger measure of underlying consumption, increased 4.3% in 2025 to 4.58 million tons and is expected to rise by a further 4.5% in 2026 to 4.78 million tons.
The inventory cycle also provides some support. Steel stocks declined in 2025 and are expected to fall further in 2026, indicating that consumption is drawing down inventories rather than generating significant stock accumulation. If end-user demand remains firm, depleted inventories could eventually require replenishment, providing an additional lift to steel orders.
The medium-term outlook is therefore more constructive than the weak GDP environment suggests. ASU is projected to grow at a compound annual rate of 3.7%, while RSU is forecast to expand by 4.4%. Faster execution of infrastructure and industrial projects could provide further upside to these projections.
However, the market remains exposed to high electricity and logistics costs, import competition and potential trade diversion. These factors will continue to influence the competitiveness of domestic steel producers and downstream manufacturers and could limit the extent to which improving demand translates into higher domestic production.
The key message for 2026–27 is that steel demand is improving, but investment execution will determine whether the recovery becomes sustained. Infrastructure and industrial projects provide the clearest upside, while the Q2 contraction in GDP and fixed investment highlights the continuing gap between announced investment and actual economic activity.
