SMU: Pace of Recovery a Pleasant Surprise
In early April, steel producers and distributors were frantic. The coronavirus had shut down much of the economy, and many companies had no idea where their next order would come from. Since then, much of the panic has subsided. Just as the doctors now have a better understanding of COVID-19, steel executives now have better vision of the road ahead for the economy and steel market. And it’s not as bumpy as initially feared.
Even last month, steel buyers were beginning to express a degree of relief, telling Steel Market Update that business was returning to normal more quickly than expected. About 12 percent of those responding to SMU’s June 8 market trends questionnaire said their business had already returned to pre-COVID-19 levels. Another 33 percent anticipated a return to prior levels by the end of September. In general, about two-thirds expected the crisis to pass by the end of the year, while the other third were more pessimistic and said they believe it will be first-quarter 2021 or beyond before their sales recover.
Steel demand is trending in the right direction. The majority of those responding to SMU’s early-June poll said they see improvement in demand for their products and services. Only 10 percent said demand was still declining.
Steel prices also were on an upward trajectory as of last month. When the government announced the coronavirus shutdowns, the benchmark price for hot-rolled steel plunged from its mid-March high of $580 to its late-April low of $460 – a decline of $120 per ton, or more than 20 percent, in just six weeks. In the weeks that followed, however, spurred on by two price increases from the mills, the HR price had recovered by $55 to the $515 per ton level reported by SMU on June 8.
Steel prices are almost impossible to predict, especially in light of the unprecedented market conditions due to the pandemic. Not surprising, there was no consensus among steel buyers last month on where steel prices were headed. The majority, 54 percent, predicted prices would stall at the current levels, while 8 percent expected prices to backslide. Yet a significant number, 38 percent, said they expected prices to continue rising over the next 60 days.
Steel buyers’ sentiment, as tracked by Steel Market Update, saw dramatic improvement in the last three months. SMU asks buyers twice each month to rate their chances for success in the current environment and three to six months in the future. Shortly after the virus hit and the economy stalled, Current Sentiment plummeted into negative territory for the first time since November 2010, following the Great Recession. By the first week of June, it had recovered by 40 points to plus-32.
Future Sentiment was even more optimistic, rising to plus-47, a level comparable to the same time last year when the coronavirus was not a factor. Both Current and Future Sentiment remain below historically typical readings in the plus-50s and plus-60s, but the trend is undeniably favorable, barring a second wave of the virus.
Sentiment is tied to the health of steel demand and prices. The market’s recovery, while quicker than expected, is fragile and could easily suffer a setback. All eyes are on the producers, who to their credit were quick to curtail production when the virus undermined demand. Should the mills restart idled capacity too soon and oversupply the market, however, it could force down steel prices, devalue inventories and turn buyer sentiment pessimistic once again. Commented one service center executive: “Some big decisions have to be made on the idled blast furnaces. Restart them and maybe drag prices down or experience a lengthy shutdown. I don’t envy the mills’ position.”
Steel Market Update Updates
Due to the coronavirus pandemic, and out of an abundance of concern for the health and safety of attendees and employees, Steel Market Update has made its annual Steel Summit a “virtual” event. The conference will still take place Aug. 24-26, but in an online rather than an in-person format. For information and to register, visit the website.
Steel Market Update is once again seeking nominations for the SMU NexGen Leadership Award. SMU is dedicated to helping businesses recruit, train and retain the next generation of talent. Any motivated individual under the age of 35 who is currently employed by an organization that utilizes carbon steel as part of its core business function is eligible for this award, which is cosponsored by the Steel Manufacturers Association. Nominating is easy. Simply complete a Word document defining what distinguishes the nominee as a NextGen leader.
Steel Market Update hosts a Community Chat every Wednesday at 11 a.m., Eastern Time. Each webinar features a different guest – analyst, consultant, economist or industry executive – who shares his or her unique perspective on the coronavirus pandemic and advice on how to persevere through the difficult times. The webinars are free and open to all. All the SMU Community Chats are archived at www.SteelMarketUpdate.com
under the SMU Community Blog tab.[ Tim Triplett is SMU executive editor. Steel Market Update’s mission with its newsletters, website, conferences and educational programs is to inform, educate and motivate those in the flat-rolled steel industry. For more information, visit www.SteelMarketUpdate.com. ]