The Raw Steels Monthly Metals Index (MMI) increased by nearly 4.7% this month.
High expectations for steel demand recovery
In late March, steel demand was hit hard by the decline in automotive sales amid the COVID-19 pandemic.
As automakers began to restart their operations in early May, steel prices have seen some slight improvement, as we reported last month.
Nevertheless, the industry is confident in the recovery of steel prices.
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On June 4, the World Steel Association released its Short Range Outlook (SRO) for 2020 and 2021, forecasting steel demand will contract by 6.4%, dropping to 1,654 million metric tons due to the COVID-19 crisis. However, the forecast says 2021 steel demand will recover to 1,717 million metric tons, an increase of 3.8% over 2020.
The SRO suggests Chinese steel demand recovery will be “more visible in the second half of 2020. It will be driven by construction, especially infrastructure investment, as the government has put forward several new infrastructure initiatives.”
Within the steel market, the automotive industry will feel the greatest impact or consequences of the COVID-19 crisis. The steel industry is expected to lose sales of 20% in 2020 alone, on top of the losses of the past two years. Moreover, recovery might take several years due to slow income growth and remote working. The only silver lining is that safety concerns with respect to public transportation might boost demand for passenger cars in the short term.
Reactivation signals in the steel sector
After a 10-day stoppage in mid-May, ArcelorMittal resumed its operations at its Bosnia steel plant. The plant was forced to shut down due to low steel demand. The Bosnian government imposed a countrywide lockdown in response to the coronavirus outbreak.
The plant employs about 1,400 employees. It was only able to open after cost-cutting measures were implemented, such as renegotiating gas and power prices with suppliers, particularly after union employees declined a proposed 10-20% pay cut for managerial positions.
Other positive signals have been seen at Cleveland-Cliffs, as the company plans to restart its Tilden iron ore mine in Michigan at the end of June and resume the construction of its hot-briquetted iron plant in Toledo, Ohio.
The mine operation was suspended in April while construction of the plant was halted in March due to the decline in steel demand.
Will Chinese steelmakers have a post-pandemic competitive advantage?
There are some concerns about the competitive advantage Chinese steelmakers might gain from the pandemic crisis. Nippon Steel executive vice president Katsuhiro Miyamoto said, “China has managed to bring back economic activity quickly while countering the infection, which will give a relative advantage for Chinese mills in boosting competitiveness and financial health.”
“Given the high volume of steel output, China continues to import iron ore when supply is tight due to the pandemic, which will keep prices of the raw material at high levels,”he added.
Miyamoto might not be wrong. iron ore supply is getting tighter.
The world’s largest iron ore producer, Vale, revised its iron ore production guidance for the third time this year. The current production guidance for 2020 is between 310 million metric tons and 330 million metric tons of fine and undetermined for pellets from their initial reported production guidance of 355 million metric tons and 340 million metric tons of fines and 44 million metric tons of pellets.
The revision comes as Vale’s operations have been impacted by the COVID-19 crisis. The Itabira complex, which provides pellet feed for the pelletizers of the Tubarão Complex was ordered to shut down by the local government..
Nevertheless, Vale is expected to supply more iron ore to China in 2020 than in 2019, according to the China Iron and Steel Association.
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Actual metals prices and trends
The Chinese slab price rose 3.1% month over month to $512.82/mt as of June 1 and the Chinese billet price rose 6.9% to $427.35/mt, both reversing last month’s trend.
Chinese coking coal rose 10.7% to $265.62/mt.
U.S. three-month HRC rose 7.4% to $535/st. U.S. shredded scrap steel fell 4.6% to $268/st.