Demand in China is increasing and the U.S. industry is holding its own amid a bleaker global outlook and negative implications of possible new COVID closures.
Global maritime imports of metals and minerals fell by 8.3% this year, as of August, according to a recent report from Descartes. Yet steel volumes did not take a similar hit, with iron and steel structures and parts actually logging a 32.8% increase during the same period.
Numbers like these led the World Steel Association (WSA) to conclude in October that global demand for steel is decreasing less than it had originally expected. According to a Worldsteel report, steel demand is forecast to shrink by 2.4% this year, compared to its June prediction of a 6.4% contraction.
Increasing consumption in China, which is expected to see an 8% increase on the year, is the main cause of Worldsteel’s rosier outlook, although the steel industry in the United States has also fared better than some other industries during the pandemic. Worldsteel forecasts U.S. demand to drop 15.8% this year, before rebounding by 6.6% in 2021. Global demand is projected to increase by 4.1% next year.
Steel prices across the globe increased over 30% during the third quarter of 2020 from a second-quarter trough that saw economic activity tank across the board, thanks to the pandemic. Steel scrap prices likewise plunged in March and April, and then strengthened steadily through September. Domestic U.S. scrap price and demand trends during the third quarter were weaker than those that prevailed for exports, but they also rose sharply in September.
Steel capacity utilization in the United States increased during the third quarter, from 53% to 62% at the end of September, and was reported to reach 70% in October—still below the 81% utilization rate that prevailed pre-pandemic. The domestic steel industry also benefitted from some COVID-specific factors—including strength in construction, autos, and e-commerce.
“The global steel industry passed the lowest demand point for this year in April and has been recovering since mid-May,” said Saeed Al Remeithi, chairman of the Worldsteel economics committee. “China has shown a surprisingly resilient rebound.”
Australia, China and Steel
China’s strong recovery suggests it will see GDP growth by the end of the year—despite a 6.8% contraction in the first quarter—fueled by real estate and infrastructure investments and the machinery and automotive sectors. Retail sales in China also began catching up in August.
“The Chinese economy is rapidly approaching full normality,” said Al Remeithi. “In the rest of the world, we will see a sharp contraction of steel demand.”
A side show to China’s recovery has been its trade spat with Australia, which supplies the country with much of its iron ore and coal. In April, Australia’s government called for an investigation of China over its alleged role in spreading the coronavirus. In reaction, China instituted broad trade limitations, including restrictions on imports of Australian coking coal. There have been credible reports of Australian coal being held up in ports.
Australia’s iron ore industry also fretted about trade sanctions, until China steelmaker Sinosteel announced earlier this month that it agreed to purchase half the future output of Fenix Resources’ new Iron Ridge mine in Western Australia, suggesting that iron-ore import limitations are not in the offing. Australian iron-ore exports to China soared this year amid that country’s infrastructure and property boom.
China has also committed to ambitious carbon-neutrality goals, which, for the steel industry will involve sourcing high-grade, low-impurity ores, which Australia offers in abundance. “China continues to seek lower steel industry emissions while optimizing its production efficiencies,” said Cameron McCall, president of Macarthur Minerals, an Australian supplier of ores, a situation which accounts for the premium prices that high-grade iron ore is fetching in global markets. (Trade in metals, and steel in particular, will benefit from long-term environmental concerns and policies. (Read more: Green trends to benefit steel scrap industry.)
US Steel Rebound Buoyed by Construction
In the U.S., Steel Dynamics, a producer based in Fort Wayne, Indiana, reported third-quarter 2020 revenues that were 11% higher than the second quarter, reflecting the overall economic rebound, although the company’s quarterly operating income was 32% lower than prior-year results. Steel Dynamics’ third-quarter steel shipments were 7% higher than the second quarter, on par with the company’s 2019 third-quarter volumes.
“The construction sector remains resilient and related steel demand has been steady,” said Mark Millett, Steel Dynamics’ president and chief executive officer. “Residential construction has also been surprisingly strong, generating high demand for HVAC and appliance products.”
Volumes in Steel Dynamics’ structural division were robust, Millett added, and steel fabrication shipments set records during the third quarter. U.S. residential construction spending rose by 2.7% in September, according to U.S. Commerce Department figures.
Increases in auto manufacturing during the third quarter also rebounded positively for steel. Auto manufacturing attained “production levels of either close to or, in some cases, more than, pre-COVID levels,” said Millett.
The pandemic, and the stay-at-home lifestyle it has encouraged, also accelerated the trend toward e-commerce and with that, a boom in the building of warehouses, distribution centers, and fulfillment centers. The Steel Joist Institute reported that September 2020 bookings were the third-highest in history, posting a 10% year-over-year increase.
“You keep seeing that e-commerce is increasing,” said Millet, “The distribution channel is going to remain strong. Amazon is going to be constructing about 1,000 warehouses in the next year or two.”
Momentum at Rsk with Infections
Overall, Millett maintains a “very bullish” attitude, but he adds a caveat: “You can’t tell what may happen as the pandemic continues to unravel.”
That comports with Worldsteel’s assessment. “The U.S. is still struggling to control the virus’ spread,” the organization reported, “and the recovery momentum might taper off in the coming months.” Worldsteel also warned that its global “forecast assumes that despite the current resurgence in infections in many parts of the world, nationwide lockdowns will not be repeated.”
Although China appears to have dealt with the virus relatively successfully so far, a second wave could give Australian iron-ore exporters pause. Steelmaking could contract sharply with a second coronavirus outbreak in China, according to a report from Australia’s Department of Industry, Science, Energy, and Resources, or if Chinese government stimulus efforts fall short. If those negative eventualities materialize, the report warned, look for a “cooling” in Australia’s iron-ore exports toward the end of this year.