Uncertainty and a near complete stop of economic activity in numerous countries around the world froze steel markets and seaborne trade. This has led to sharp price falls or created expectations that prices will drop as soon as markets reopen. The fast-moving nature of events made forecasting particularly challenging, and the shelf life of forecasts can be measured in days if governments swiftly change their approach to quarantine measures or introduce new economic policies.
The worldwide spread of the coronavirus has led to downward revisions of macroeconomic forecasts during the past month, changing our view on steel demand dynamics this year. Oxford Economics dropped its forecast for global industrial production in 2020 from 1% growth to a 2% decline, with the slowdown impacting the wide specter of advanced and emerging economies. The automotive sector has implemented temporary factory shutdowns not seen since the World War II; all major steel-users have been impacted by restrictions to travel and business activity. But the downturn is expected to be short-lived, with a rapid bounce-back once lockdowns are lifted.
A recovery in manufacturing activity in China was stalled by a slowdown in other parts of the world, hitting export-oriented goods manufacturers. This has negatively affected flat steel orders, already hampered by high stock levels in the supply chain and pushed prices lower. A revival of the construction industry and the government’s infrastructure investment plans provided some support to long steel prices and we expect to see a return of a premium of domestic rebar prices over HRC in China as was the case for the much of 2019.
Despite these unprecedented times, US sheet prices have moved in line with our expectations over the past month. While we maintain our view on the direction of pricing during 2020 and the length of the pricing downturn, as the Covid-19 crisis deepens, we have increased the magnitude of the price declines through the second quarter of 2020. Moreover, we maintain our expectations of a V-shaped recovery for the US steel industry, helped by swift action by domestic steelmakers of reducing production and bringing forward planned maintenance outages.
An introduction of countrywide lockdowns across the European Union brought steel markets in the region to a halt, while many producers announced output cuts. Steel price declines were limited, but the relative stability was underpinned by the lack of trading, and we expect that prices will tumble in Q2. Similar to the US, prices are forecast to rise in the second half of the year in line with the expected revival of economic activity.