Steel Global Steel: Production ex-China collapses 29% in April; margins depressed

Global crude steel production ex-China was down -29% in April. Demand is expected to pick up as manufacturing activities & construction projects restart in May/June, but we don't expect a return to pre-COVID-19 levels for 12+ months.

25 May 2020

The bar chart shows world (excluding China) steel production by month for the years 2017 through the present.

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.

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