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Gill: Recovery's Rate Tied to Treatment, Vaccine

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MCN Editor Dan Markham Our economic fortunes may hinge on the scientists.

Timothy Gill, chief economist for the American Iron and Steel Institute, offered a range of thoughts on the overall economy and the outlook for steel during a webinar with Steel Market Update in mid-August. His prognosis offered a legitimate mix of good and ominous signs in the global economy.

How well, and how quickly, the economy recovers, however, is intimately tied to the individuals working on treatments and vaccines for the novel coronavirus. 

“There’s a baseline view, then an optimistic view and a pessimistic view. The baseline is really predicated on continued improvements from where we are now, with occasional flare-ups in parts of the country over the next several months, but progress towards more effective treatments and a vaccine that begins to become more widely available probably by the middle of next year. 

“A faster timeline on those improvements, sooner rather than later, would be a real shot in the arm of the economy, no pun intended,” he said. 

When the coronavirus-directed shutdowns occurred in early spring, the steel industry was not saved despite its essential industry status. Nearly overnight, capacity utilization plummeted from around 80 percent to just over 50 percent. Since then, it has climbed about 10 percentage points to just over 60 percent. 

The increase in utilization tracks the direction of the broader economy. After languishing in April and into May, there was some noticeable rebound in June. In fact, by the time the National Bureau of Economic Research declared the U.S. in recession, the recovery had likely already started, he noted. 

This return happened a little quicker than experts anticipated. “There’s no doubt it’s going to be a challenging haul for a while, but the worst of it is in the past, and it is progressing toward a more fulsome recovery more quickly than we thought it would as recently as a couple of months ago,” Gill said. 

However, there may be a downside to that rapid bounce back, or at least a flip side. While the turnaround happened quicker than economists anticipated, the recovery in 2021 is looking a little slower than once anticipated. 

Putting numbers to those ideas, Gill said the U.S. is probably looking at real GDP down 5 percent this year, opposed to the 6 to 7 percent originally forecast. However, next year’s growth may just be in the 3 percent range as opposed to the 5 percent previously projected. 

Looking at major end markets, Gill said manufacturing suffered a deep downturn in April, but has rebounded quicker than other sectors. He pointed to the most recent New Orders Index from the Institute for Supply Management and some other metrics demonstrating a healthy rebound for the segment.

Auto production was virtually non-existent in April, as carmakers shuttered lines. "Light vehicle production is ramping up more quickly than was generally expected. It was essentially zero in April, but back up to more than 8 million units annualized in June. That's good news, and one of the significant factors underlining the slow upward movement in steel production and capacity utilization,".

It's a different tale for nonresidential construction. That segment held up very well through the height of the lockdown orders, but as a lagging indicator, will take longer to come back. And the segment's issues could be exacerbated by the work-from-home model adopted by many companies during the pandemic that may lead to a change in working conditions moving forward.

Finally, there's oil and gas. That's a market that was teetering coming into the year, and bottomed out in March. "I don't expect much boost to steel demand from that market at least through the end of next year," he said.