Despite these unprecedented times, US sheet prices 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.

We maintain our expectations of a V-shaped recovery for the US steel industry. We remain confident that strong US economic growth in the first two months of 2020, particularly in key steel consuming end-use sectors including automotive and construction, will position the US for a strong recovery once extreme Covid-19 uncertainty is lifted. We also expect that significant pent-up consumer demand created during the lockdown period will boost consumer spending activity in the second half of 2020, lending support to US steel consumption.

Although the domestic steel industry is positioning well for the severe downturn in steel consumption expected in the second quarter of 2020 by taking proactive steps to reduce production and bring forward planned maintenance outages, we believe the vast uncertainty surrounding the duration of the current crisis, not to mention the loss of lives, will press steel prices down to levels on par with the recent crisis periods in 2008-09 and 2015-16, despite the swift supply-side response. By focusing on downtime for maintenance and repairs now, mills will be well-positioned for the market turnaround later this year, or certainly in 2021.

Coinciding supply and demand cuts could potentially help moderate steel price declines to a degree, while declining energy and raw material costs will help cushion producers in the face of reduced demand and declining prices. We expect to see declining costs enable producers to slash prices in an attempt to move material and cope with canceled orders in the near term, pressing US hot-rolled coil prices down to sub-$400-per-short-ton levels during the second quarter of 2020.

US long products were initially immune to the negative impacts of the Covid-19 pandemic, due to maintained demand from the construction sector in March. Given expectations of significant scrap price declines in both April and May, however, as well as lockdowns restricting construction activity, we expect to see long product prices declining in the coming weeks. We expect to see prices under pressure through the second quarter of 2020.

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