SMU Market Trends: Buyers Ponder Their Prospects in the Virus Crisis

Written by Tim Triplett

Steel prices saw further declines this week, but not a dramatic collapse. The benchmark price of hot rolled now averages around $560 per ton, down $5 from last week and down $50 from the mid-January high of $610.

Most of the steel buyers responding to Steel Market Update’s check of the market this week expect steel prices to move lower in the next month as demand suffers from the disruptions to commerce over the coronavirus. Ferrous scrap prices are expected to move lower in April, which will add downward pressure to finished steel prices.

Most service centers said they are exempt from government-mandated closures as part of an essential industry and they are doing their best to maintain operations while safeguarding the health of customers and employees. Some report business almost as usual, while others have seen many customers shut down and send employees home to stem the spread of COVID-19. Several said they are forecasting that business for April will be down at least 30-50 percent.

As one executive commented: “Pricing is expected to be lower, but it’s going to be a moving target and difficult to find a ‘market number.’ The reality is that with demand so suspect, no one is going to want to buy, regardless of the pricing, unless they really need it.”

Following are steel buyers’ comments on market conditions, demand, lead times, prices and whether they expect their companies to emerge from this crisis “whole”:

  • “We expect prices to move lower. Reduced supply will offset blast furnace closures. Our business is up slightly [despite the virus]. We are fortunate to be in an essential industry.”
  • “Who knows anything right now?  Sideways to lower, best guess on prices. We’re optimistic about being whole at the end.”
  • “Pre-paint dropped by a dollar for May compared April. We are hearing mill order books are filling up amongst fear of mill production shutdowns, but we have not seen it yet. I expect pricing to jump a bit as inventories are reinforced, but I also expect a slide as the shutdowns come. We still feel good about the potential for the year once we can put some of this behind us. We just hope that happens timely enough to allow us to salvage 2020. Our phones have been very slow for a few days now.”
  • “Prices will go lower; there’s no demand due to COVID-19 and lower consumer spending. Customers are shutting down. Not optimistic the company will be whole when the virus is behind us.”
  • “We’re not buying steel other than on contract. We’re cancelling orders. Lead times are dropping by the day. Prices will move much lower. Customers are closing across the board. We’re reducing head count to prepare for a long and difficult recession.”
  • “Lower prices are inevitable. Demand will contract, and we would need supply to do the same to limit the hemorrhaging. It looks like domestic mills are already working to scale back production, and imports should be subdued in the declining market. If both of those things happen, then prices will probably move pretty close to scrap, which will most likely be down due to reduced demand. It’s a little too soon to tell on customer shutdowns. I know the mills have had some cancellations from COVID-19, but they are probably more tied to the slaughter happening in the oil markets. There will be a financial impact, but so far we have no plans to reduce workforce or the number of our operations. We hope to bounce back in a positive way, but revenue will suffer considerably during this crisis.”
  • “It’s too early to understand the market impacts from the myriad moving parts. If CME Futures are any indication of the potential severity, then we should all be bracing for a very rocky road ahead and through year end. Entire parts of the market are shuttered and the situation is literally changing by the minute depending on what state you live in. Even places like Montana are considering shelter-in-place orders, with a population density of very literally only seven people per square mile. Until the geographical closures are completely defined and the panic behavior subsides, it will be very difficult to grasp the extent of or timing for recovery.”
  • “Lead times are shorter by 1-2 weeks overall. Expect lower prices due to the dramatic loss in demand from the automotive and energy sectors. Customers are not affected as of yet, but there is high likelihood they will be in the coming days. There is an expectation that some manufacturers will have difficulty obtaining certain components/parts, which may hamper their ability to keep running. Any consumer-driven items that contain steel/aluminum face dramatic shocks to demand, including autos, appliances, recreational goods (campers, RVs, ATVs), as well as non-consumer sensitive goods such as Class 8 trucks and trailers, railcars, barges and other marine items. There are reports of an absolute collapse of demand for metal goods in the energy sector, including some pipelines. It would appear that at least 50 percent of steel demand may be temporarily halted for now. We are a very large organization and can supply from multiple locations. So, yes, we are optimistic. In fact, we believe we may be in an advantageous position given our size/strength and excellent balance sheet. Weaker competitors may face serious outcomes depending on how long the virus shutdowns last.”
  • “We are not quoting any steel. We have stopped all buying and are pushing out mill contract orders. Prices will move lower as demand falls. A number of our customers have shutdown. We have reduced forecasts by 50 percent from the planned norm this time of year. We are already laying off people and going to mandatory reduced hours companywide to keep as many people employed as we can. But we remain optimistic we will weather the storm like our great nation will and come back stronger than ever.”
  • “Lead times are holding steady. We expect prices to move lower based on demand, raw material prices and COVID-19. We are starting to see some issues with trucking due to the virus.  Only one customer so far has taken a shutdown for two weeks.”
  • “A few jobsites have shut down, but most are still operational. Stock orders are non-existent as our customers are worried about where pricing will be when the COVID-19 pandemic ends. If asked to shut down, we will lay off most employees. Not optimistic about being whole at the end.”
  • “Optimistic we’ll be whole? No, it will get worse before it gets better.”
  • “Scrap will help facilitate a $50 ton drop in April, even taking more furnaces to hot idle. We believe we will test $500 HR by early May. Many customers are curtailing or temporarily closing their operations. We all are hopeful the supply chain remains flowing, including trucking. We have some concerns that logistics could be an issue soon. We will remain whole if this disruption is contained before the end of the year. We are watching our customers’ payments closer than ever. There is concern many will start to experience cash flow issues.”
  • “I don’t see how prices cannot be lower with challenges on the demand side, energy, auto, construction. Don’t even know how to discount demand based on COVID-19 with several provinces and U.S. states closing non-essential businesses. Will construction continue?  Who knows? We are prepared to shut down. We are cutting cost, salaries, and reducing raw material buys. We are optimistic that the economy will turn around given time to recover. Not betting on a V-shaped recovery at this point, though.”
  • “We expect prices to move lower and we are reducing our inventory as a result. Demand in all the major steel consuming sectors is decreasing. We saw a limited amount of panic buying.  A few customers wanted to protect against any supply disruption. We will salvage a decent March, but our expectations are that April could be off 30-40 percent from year-ago levels.”
  • “Customers are being affected, but not necessarily by steel. Various non-steel components seem to be the worst offenders to large OEM production.  They will keep working until they run out of “X” and then will be done until that comes back.  We expect to see this more and more over the next couple of weeks, but hope that it is pent-up demand and not lost demand. We are optimistic that this continues, and that the supply chain opens back up within a few weeks, albeit at lower levels.”
  • “We’ll see lower prices because of the insane panic in our country that is destroying our economy. Let’s all continue to beg our government to take total control of the private sector. Does that really make sense?”
  • “Is it really worth potentially destroying the economy over this virus?”
  • “We are optimistic that we will be whole when this is over, although we will need to be creative in order to get there. We need mills to be stable and run effectively. We need everyone to be smart and manage their business for profitability as well as cash generation, and keep a long-term perspective to do what’s best for customers and the industry as a whole. Our industry will be successful, but it will take everyone doing the right thing—for customers, suppliers, distributors and mills.”

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