How Does COVID-19 Impact the US Steel Industry?

November 30, 2020
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The coronavirus has hit the US steel industry. Even before the coronavirus fears hit US businesses, the metal and mining industry felt the pain from coronavirus after the initial outbreak in China.

From the supply chain to steel prices, how does the coronavirus change the equation for the US steel industry? We’ll discuss in this article.

US steel industry

The US steel industry felt coronavirus jitters before other US businesses. The deadly virus originated in China, which is the largest metal consumer, producer, and exporter in the world. The coronavirus has taken a toll on US steel demand. Leading end users, like the automotive sector, curtailed production. There have also been reports of buyers canceling their orders. Last month, the US steel industry asked the Trump administration to consider it as an “essential” industry. Since the demand has fallen, domestic mills have cut production.

US steel production falls

US steel production fell 12.7% year-over-year in the week ending March 28. The capacity utilization rate also fell to a multiyear low of 71.6%. Incidentally, the Department of Commerce intended to increase the domestic industry’s capacity utilization rate with the Section 232 tariffs. To be sure, the tariffs that President Trump imposed in March 2018 led to a sharp fall in US steel imports. After falling in 2018 and 2019, imports have fallen sharply in the first two months of 2020. However, these are extraordinary times and falling imports mean little for the domestic industry.

X’s stock price has fallen

US HRC (hot-rolled coil) futures have fallen. Currently, they’re near $450 per ton. The prices were last seen at this level during the 2015–2016 meltdown in metal prices. Before that, US HRC prices tested $400 per ton during the 2008 global financial crisis. Notably, steel prices were largely stable even as other industrial metals fell in early March. However, coronavirus fears have finally caught up with the industry.

U.S. Steel Corporation (NYSE:X) has been under pressure due to the coronavirus, falling crude oil prices, and a weak balance sheet. Even before the price deterioration started, the company announced plant shutdowns. The company’s stock price has fallen sharply this year. The stock fell in 2018 and 2019 as well. If the pricing environment doesn’t improve, we might see more capacity cuts in the domestic steel industry.

US steel industry’s outlook

The near-term outlook looks bleak for the US steel industry. However, there is a ray of light. China continues to limp back to normalcy. If normal or near-normal business conditions resume in China, it will help clear some of the accumulated steel inventories. The Chinese government might also increase its infrastructure investments in a bid to shore up the sagging economy. Several other countries might look at infrastructure investments as well as other fiscal measures to support their economies.

President Trump

The metals and mining industry would also benefit from the fiscal and monetary easing that was necessary due to the coronavirus. Lower interest rates support the demand for housing and automotive—the top two steel end users. Accommodative fiscal and monetary policies would help lift demand after the coronavirus fears subside. President Trump has also called for a $2 trillion stimulus for the infrastructure sector. If implemented, the stimulus would lift US metal demand. Read US Steel, Coronavirus, and Undoing Trump’s Tariffs to learn more.