The coronavirus pandemic has had a devastating effect on the global economy, and the steel industry has hardly been spared. That was the general theme of the CRU Annual New York Steel Briefing webinar held June 23.
“This year was setting up to be a pretty good year for the scrap industry. COVID-19 hits in mid-March and demand essentially disappears overnight,” said Ryan McKinley, CRU senior analyst, adding that the dip in April pricing illustrates this. “In June, [scrap] prices leveled off a little bit, so essentially, it was the supply side of the situation that kept prices from falling by as much as they could have and have started to normalize.”
According to McKinley, “Scrap demand fell rapidly during lockdown, but supply fell faster.”
Josh Spoores, principal analyst at CRU said, “The footprint of steel production in 2024 will look much different than it did for 2019.” He predicted that this is because EAFs will become more prominent in use over that of blast furnaces. “These EAFs are all pretty much going to enjoy a low flexible cost, they are going to be very well-placed geographically, and they’re going to target some value-added products.”
He added that some blast furnaces will encounter challenges in coming back online. He expects some will need to make changes in the near future, while others never come back online.
Approximately 16 million tons of blast furnace capacity was taken offline during the shutdown in the U.S. and Canada, which, in some ways, saved the domestic industry. “The speed of these outages has been unprecedented. I think the idling of these furnaces was really the only thing that kept hot roll coil prices from falling back to $350 a short ton or worse,” said Spoores.
Some furnaces that have been banked during the pandemic are starting to come back online, such as U.S. Steel Edgar Thompson No. 1. As demand continues to rise, he expects additional furnaces to be restarted, including AK Steel Dearborn and ArcelorMittal Indiana Harbor No. 4, particularly as automotive rebounds.
“As these furnaces start to come back online, as demand starts to return, what we’re going to see is those furnaces are going to face a new environment; that environment has changed. We’re going to see lower demand. What we have now in the forecast is that we’re not going to get back to 2019 levels [of demand] until 2023.”
Regarding sheet and plate production in North America, Spoores said that, compared to 2019, in 2020 “we’re looking at the largest year over year decline recorded since the global financial crisis. When industrial production and consumption rise at a rapid rate, sheet prices and plate prices tend to follow that.”
He added that sheet production will fall 12.5 million metric tons in 2020 compared to 2019, and he expected it to rebound by just over 5 million metric tons in 2021. He predicted that “plate and long products are set to fall by about 10 or 11 percent in 2020 and follow that same path going higher over the next couple of years. It’s going to take a couple of years just to get back to 2019 levels, which were slightly lower than 2018.”
“We do expect more volatility in the future,” said Spoores. “The coronavirus led to a sudden drop in economic and industrial activity. What’s been really breathtaking for me to watch is the overall speed of the economy shutting down and where we are with picking back up. Today I think we’ve seen market PMI data coming out for the U.S., and it’s looking pretty good because data right now is much better than it was a month ago.”