Raw Steels MMI: Steel sector eyes demand pickup as automakers prepares to restart production

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The Raw Steels Monthly Metals Index (MMI) held flat this month.

Steel production suspensions continue amid COVID-19 crisis

The steel sector has taken a major hit as a result of the COVID-19 crisis, with firms adjusting for lighter order books and demand and, in many cases, opting to suspend production.

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For the week ending May 9, U.S. domestic raw steel production totaled 1.20 million net tons at a capacity utilization rate of 53.7%.

Production for the week marked a 36.0% decline from the same week in 2019, when the capacity utilization rate was 80.8%.

However, production for the week ending May 9 rose 5.2% from the previous week, when production reached 1.14 million net tons at a capacity utilization rate of 51.1%.

For the year to date, production through May 9 was 30.86 million net tons at a capacity utilization rate of 72.2%, which marked a decline of 12.4% from the same period last year (when the capacity utilization rate hit 81.4%).

Among the closure announcements, ArcelorMittal announced the idling of two blast furnaces at its Indiana Harbor plant. U.S. Steel announced two idlings of blast furnaces at its Gary Works, in addition to maintenance work on a third.

U.S. Steel Tubular announced it would idle its Lorain and Lonestar facilities indefinitely, while Liberty Steel Georgetown announced it would shut down for three months.

AK Steel, which was acquired by Cleveland-Cliffs earlier this year, announced its Dearborn, Michigan steel plant will close in July.

Auto sector restarts key to demand recovery

Steel demand has been hit hard by the decline in automotive sales amid the COVID-19 pandemic.

In late March, automakers suspended production around the world.

However, automakers have begun to restart their operations this week. Detroit’s Big 3 has set a target date of May 18 for the restart of North American operations, which should serve as a demand boost for steel (parts suppliers have already restarted production this week).

With steel supply being squeezed — as noted earlier — steel prices should begin to bounce back; however, it should be noted that any economic recovery related to the damage caused by the COVID-19 pandemic is not likely to be swift.

Cleveland-Cliffs President and CEO Lourenco Goncalves was optimistic about the recovery during the firm’s first-quarter earnings call.

“We are going to start seeing numbers normalizing early in June,” Goncalves said of the auto industry, as quoted by the Duluth News Tribune.

Cliffs recorded a first-quarter net loss of $49 million in the first quarter, compared with a net loss of $22 million in Q1 2019.

“Our actions in the early days of the pandemic included, among other things: enacting strict social distancing on the job; continuous cleaning of all facilities; enhanced safety procedures at all operations; closing or idling facilities, and extending outages at several operations; cutting capital, operating, and overhead costs; instituting temporary executive and salaried pay decreases throughout the organization with disproportionately high contribution from the top of the organization; temporarily suspending the construction of the HBI plant; discontinuing the payment of dividends; and raising additional capital as insurance,” Goncalves said in the firm’s earnings report.

“As we start the path to return to normal levels of business in the second half of the year, we are confident that we have the ample liquidity and all other means to remain comfortable through whatever uncertainty that remains.”

Global crude steel production falls 6.0% in March

According to the World Steel Association, global crude steel production in March fell 6.0% compared to March 2019 production.

In the first three months of the year, global crude steel production reached 443.0 million tons, down by 1.4% compared to the same period in 2019.

Asian production totaled 315.2 million tons of crude steel in the first quarter of 2020, down 0.3% over the first quarter of 2019. E.U. production totaled 38.3 million tons, down by 10.0% compared to the same quarter of 2019. North American crude steel production declined 4.0% to 29.5 million tons.

China’s production fell 1.7% to 79.0 million tons, while India produced an estimated 8.7 million tons, down 13.9% from March 2019.

U.S. steel imports reach 1.59M tons in March

U.S. steel imports totaled 1.59 million tons in March, according to the U.S. Census Bureau, down from 2.06 million tons in March 2019.

“The March change in steel imports based on metric tonnage reflected increases in oil country goods; blooms, billets, and slabs; and cold rolled sheets,” the Bureau reported. “Decreases occurred in heavy structural shapes, hot rolled sheets, and reinforcing bars. Increases occurred primarily with Russia, Korea, and Canada. Decreases occurred primarily with Turkey, Brazil, and Japan.”

Imports of oil country goods saw the largest decline on a year-over-year basis, reaching 177,458 tons in March compared with 220,079 tons in March 2019.

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Actual metals prices and trends

The Chinese slab price fell 1.9% month over month to $497.50/mt. Chinese coking coal rose 6.6% to $239.96/mt.

U.S. three-month HRC rose 3.8% to $498/st.

U.S. shredded scrap steel rose 8.1% to $281/st. Chinese steel billet fell 12.9% to $399.70/mt.

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