How the Pandemic Affected the Steel Sector: Opinion

u.s. steel industry, steel warehouse, coilsIn March 2020, President Trump declared a national emergency under the Stafford Act. This freed up $50 billion in federal resources to combat the coronavirus outbreak.

On March 26, Senate unanimously passed the $2 trillion stimulus plan. This gave cash and assistance to U.S. citizens, small businesses, airlines, manufacturers, and more. It also gave an extra boost to unemployment benefits.

During the pandemic, businesses were being categorized essential or non-essential. Much of the manufacturing industry was deemed essential and were able to continue operations, as close to normal as possible.

The Pandemic’s Impact on Service Industries vs. Manufacturing

Although the U.S. manufacturing sector was deemed essential, this wasn’t the case for many other industries in the U.S., such as service industries, like foodservice and hospitality, retail industries, and several small businesses were shutdown. Many employees were laid off or furloughed resulting in job loss comparable to the Great Depression.

While the U.S. regained 2.5 million jobs in May, there are still so many Americans out of a job. And, unfortunately, the extra boost in unemployment benefits is scheduled to expire in July. It’s likely that there just won’t be enough jobs available by then. Service industry jobs are starting to open back up, but not at the rate necessary to get Americans back to work.

Business loans that were given to small companies with the requirement that they keep at least 90% of their workforce in order to be relieved of payment, are also going to run out and those businesses will most likely start laying people off to make up for the difference.

So, while employment rose more than expected in May, a second wave a decline is likely.

The Unpredictable Impact of COVID-19 Across Geographic Locations

While Metalwest, and companies similar to us, were able to continue operating during the pandemic, the impact was different across our locations depending on the local situations. The severity of the quarantine and isolation influenced the level of manufacturing activity.

Different states have different restrictions. The impact on our corporate branch in Colorado and their customers were impacted early but they have mostly returned to work compared to our customers supported by our New Jersey branch. Many of their customers have not returned to full operations or not operating at all right now.

Local rules have a much greater influence on if locations can return to regular activity or not. Companies with multiple locations across the U.S., and even the world, are not only facing the challenges of COVID-19, but the challenges of COVID-19 based on location.

Moving forward, as the nation opens back up, companies will have to learn to adapt.

So, what has this meant for the steel mills?

As the pandemic made its way to the states, several mills idled capacity or went into maintenance shutdowns, some indefinitely.

Why did this happen with manufacturing being deemed essential? Well, the demand just wasn’t there.

Signs of softening were already apparent with the pandemic looming. But, once the president announced the national emergency, it didn’t take long for businesses to close their doors or slow down their material requirements. This was quickly seen in their buying patterns, which in turn was seen in suppliers’ buying patterns, and then eventually in the mills’ material requirements.

So, production slowed. Drastically.

The supply was and still is out there, but the demand came to a screeching halt. Customers stopped needing material because consumers were not buying and many customers were forced to shut their doors.

Luckily, there are signs that facilities will be turned back on as the economy and demand show signs of improvement. And with that, some mills have begun to restart idled facilities.

Looking Forward

While the economy is showing signs of improvement with many states easing their restrictions and service industries opening back up, the increase will likely be gradual. Prepare for a long difficult summer.

Tony Hammes, VP supply chain, contributed to this post
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June 2020 Insight Guide: Market Indicators

The Economy

The U.S. economy added 2.5 million jobs in May, a surprising jump as businesses across the nation began to reopen from the COVID-19 shutdown. The unemployment rate fell to 13.3%; this is still high by historical standards, but much better than expected and still an improvement over April’s jobless rate of 14.7%.

With restrictions due to COVID-19 gradually being lifted on state by state basis, officials are looking for signs of an economic rebound. However, so far the rebound remains slow. Information collected by Goldman Sachs and the New York Federal Reserve showed the economy continuing near bottom with no sign of further decline, but no clear upward trend yet either.

Key Indicators

The Architectural Billings Index fell again in April, following the large decline in March. The ABI registered at 29.3, a new all-time low for the index.

The May Purchasing Managers Index registered at 43.1%, up 1.6 points from April’s reading. This indicates expansion in the overall economy after April’s contraction. The New Orders Index registered at 31.8%, an increase of 4.7 points from April’s reading of 27.1%. The Production Index registered at 33.2%, up 5.7 points compared to April.

The Consumer Confidence Index held steady in May, following a rather sharp decline in April. The index registered at 86.6, up from 85.7 in April. Short-term expectations moderately increased as the gradual re-opening of the economy helped improved consumers’ spirits. However, consumers remain concerned about their financial statuses.

The Steel Industry

Due to the effects of the COVID-19 pandemic lockdown, global steel demand is expected to decrease by 6.40% year on year in 2020 according to the World Steel Association. They expect steel demand to drop by 1.65 billion tonnes for June 2020, but to recover to 1.72 billion tonnes in 2021.

U.S. energy firms cut the number of oil and natural gas rigs operating to a record low of 301 in the week to May 29. Analysts expect U.S. firms to continue chopping rigs for the rest of the year and the count will remain low in 2021 and 2022.

Contact your local sales representative to learn more.

Metalwest Market Insight - June 2020