Production: Sharp fall ex-China due to COVID-19; China remains resilient
Global crude steel production fell -13% year over year in April with World ex-China down -29% due to COVID-19 related disruption while China is flat year over year. Global pig iron production (from blast furnaces consuming iron ore) is down -25%; we estimate global iron ore demand is down ~16Mt & met-coal ~6Mt in April. All key steel producing regions are curtailing supply with India -65%, South America -43%, North America -28%, Japan -24%, EU -23% & South Korea -8% year over year. We estimate global utilisation fell to ~68% in April (2Q19 ~85%).
Prices: HRC prices weaker than rebar due to auto disruption; spot margin down
Since end-April, hot-rolled coil (HRC) prices have lifted by ~5% in China, the Asean import markets & the US while in EU prices are down ~5%; rebar prices are more stable. The China increase is driven by accelerating demand while the US increase is driven by higher scrap price/ mill closures. Margins are depressed due to the strength in iron ore; we estimate gross spot HRC margins are at the lowest level since 2016 in the US & EU, and are still materially weaker vs 1Q20.
Outlook: Demand to pick up gradually as markets re-emerge from lockdown
Steel demand is expected to pick up as manufacturing activities & construction projects restart in May/June, but it is not expected to return to pre-COVID-19 levels for 12+mths due to the economic damage caused; higher unemployment is expected to impact consumer-driven end markets like autos & appliances. We think steel cuts need to stay in place for a while as inventories throughout the supply chain are high. Our autos team expects global car production to fall 19% in 2020; our construction team expects volumes in the EU & US to fall ~20% in 2020. In China, steel inventory at traders/ mills is falling as activity picks up which is encouraging; weather will likely impact activity in the South in June.