In the spring, most steel buyers in service centers and manufacturing companies believe that by the end of the summer, business will return to levels before COVID-19. As the number of COVID-19 cases continues to grow, this optimism has diminished. Getty Images
The state of the steel industry is clearly mixed. In some end-use markets and certain parts of the country, demand is surprisingly strong, while in others, it is disastrously weak. What is dizzying is the specter of the surge in coronavirus cases, which may derail economic progress. In the past few months, people’s perceptions of the virus crisis have developed greatly.
The Steel Market Update (SMU) polls steel buyers (mainly service centers and manufacturing supervisors) twice a month. In early May, when SMU asked readers how quickly they could restore their business to pre-COVID levels, most people saw that the virus started operating at the end of July and was almost fully operational by the end of the year (see Figure 1) . . Only 7% believe that the crisis may continue into next year.
Since then, we have learned a lot about COVID-19, many of which are disturbing. When asked similar questions in mid-July, 43% of respondents said that they expected the virus to drag their business into the first quarter or even the second quarter of 2021 (see Figure 2).
Even if the authorities work hard to contain the spread of the coronavirus, sentiment in the steel industry remains positive. Before the pandemic, SMU’s steel buyer sentiment index was close to its level at this time last year.
Since the “Current Sentiment Index” reached -8 in early April (the lowest level since November 2010), the index has risen by 50 points. The reading in mid-July was +42, compared to +49 in the same period last year (see Figure 3).
SMU also asked steel buyers how they viewed the company’s chances of success in the next three to six months. SMU’s future sentiment index recorded +52 in mid-July, an increase of 42 points from the low point in early April. Future sentiment is 10 points higher than current sentiment, which shows that steel buyers are still hopeful about the prospects in the coming months.
Not surprisingly, steel demand and steel prices struggled to rise in July. The benchmark price of hot rolled steel fell to US$460/ton, a drop of US$120 or nearly 20% from the US$580/ton in mid-March before the virus crisis. Other steel products have similar declines. The average average price of cold rolled steel released by SMU on July 14 was US$660/ton. The average base price of galvanized steel is US$650/ton, and the price of plate is US$605/ton.
According to SMU’s proprietary survey, the delivery time for steel spot orders is relatively short, which indicates that steel mills are not so busy and are willing to negotiate prices to win orders. The average delivery time for hot rolling is about 3.8 weeks, the average delivery time for cold rolling is 5.8 weeks, and the average delivery time for galvanizing is 6.0 weeks, which is about one week shorter than the first quarter.
SMU President and Publisher John Packard (John Packard) commented on the fall in steel prices in the second week of July.
“Our sources suggest that the base price of HRC is quoted at a low price of US$400 per ton. With the recovery of integrated plant capacity, the base price of HRC for large orders may exceed US$400 per ton, and the price of HRC for small orders It may fall to the low and mid-end of $400. SMU still has price momentum for hot rolled, cold rolled and galvanized, indicating that prices will fall in the next 30 days.”
Figure 1. When someone asked steel buyers how quickly they could rebuild their business to the pre-COVID-19 level in the spring, they gave a very optimistic answer. Seventy percent believe that business will return to normal at the end of August.
SMU pays close attention to the purchase of steel distributors as the main indicator of commercial activities. According to SMU’s proprietary service center inventory/shipment index, it is reported that service center shipments are 60% to 70% of the same period last year. The July steel market update inventory data showed that the service center reduced its flat steel inventory by more than 3%, with an average supply day of 62.5. As prices continue to fall and demand growth is slow, service centers are still reluctant to place new orders.
The price of finished steel is largely affected by the price of scrap iron, which is the main raw material for electric arc furnace micro steel mills. As scrap supply increased faster than steel output, the transaction price of major scrap and scrap steel fell by US$10/ton to US$40/ton in July. Experts predict that scrap transactions in August may be sideways or lower, which will put further downward pressure on finished steel prices. As a scrap dealer told SMU: “When scrap prices will rise again significantly depends on the demand from the factory, it may take several months.”
Various steel mills are planning to restart idle furnaces. Adding capacity to an already oversupplied market will only further weaken steel prices.
Comments from the interviewees on the SMU questionnaire revealed widely divergent views about the virus crisis:
SMU has used its annual steel summit as a virtual event. The conference will still be held from August 24 to 26, but it will be held online rather than in person. The event will go far beyond a series of webinars. It will use an online platform that will simulate the meeting venue and allow participants to communicate and communicate in creative new ways. This year’s conference includes the CEOs of Nucor, U.S. Steel, Ternium, Cleveland-Cliffs/AK Steel and Steel Dynamics.
SMU again seeks to nominate the SMU NexGen Leadership Award. SMU is committed to helping companies recruit, train and retain the next generation of talents. Any motivated young person under the age of 35 currently employed by an organization that uses carbon steel as its core business function is eligible for this award, which is co-sponsored by the Steel Manufacturers Association. Qualified nominees will receive free admission tickets for this year’s SMU Virtual Steel Summit.
SMU hosts a free community chat every Wednesday at 11 am Eastern Time. Each webinar is hosted by different guests (analysts, consultants, economists or industry executives) who share their unique insights into the steel market and provide advice on how to get through difficult times. The webinar is open to everyone. Register for the next event by visiting the following website: www.steelmarketupdate.com/blog/smu-community-chat-webinars. All SMU community chat records are stored in steelmarketupdate.com under the SMU community blog tab.
John Packard (John Packard) is the founder and publisher of “Latest News on the Steel Market”, a newsletter and website dedicated to the North American flat steel industry. He spent the first 31 years of his career selling flat steel products to manufacturing and distribution communities.
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Post time: Aug-07-2020