According to recent reports, steel demand has dropped 44% causing a bullwhip effect. Meanwhile, automotive restart is looming.
As a result of the COVID-19 pandemic and the nationwide lock-down, the demand for steel dropped 44% since early February. Domestically, Workplace and public restrictions are limiting activities in the construction, automotive, and infrastructure industries. All of which are leading to a halt in demand for steel. In addition, the oil and gas industries are experiencing reduced activity due to the lack of movement via boats, cars, trucks, and airplanes. These industries demand steel piping and casing to obtain their product. Without the need to obtain more oil and gas, they are not buying more steel.
Globally, Chinese steel import demand has dropped as a result of the pandemic, and has greatly affected price levels. Furthermore, the lower demand negatively impacted companies’ price realization for their own products, causing a top-down bullwhip effect on the supply chain from the mills to the manufacturers. At the same time, industries that demand steel are slowly going back to work as more states reopen their business and industries are restarting their operations. As talks about the restart of the automotive industry increase, hopes are that the steel industry will bounce back quickly just like it did in 2008 during the great recession.
As industries start getting back to work, similar to the years following 2008, we believe that the agricultural and construction industries will consistently demand steel, while the sales from oil and automotive industries will still remain lower.
While it took the steel industry around 5 months to start to recover after the recession in 2008, this pandemic came about at a time when the economy was much stronger than it was in 2008. As such, we hope that this recovery will be more of a “v” shape. Nonetheless, we continue to monitor industry benchmarks to assess the state of the market and offer our customers and partners the service needed to ensure their success in these unprecedented times.
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