How the Pandemic has Impacted the Industrial Metal Supply
As the Covid-19 pandemic proliferated globally, several regimes had to shut down public congregations, travel, and key projects to suppress the spread of the virus. The virus compelled large economies such as China and India to close the bulk of their construction, infrastructure, and most other outdoor projects once the nationwide lockdowns were imposed, pushing steel inventories to climb. This increase in inventory, combined with declining demand led to falling steel prices. As the number of new infections grew, the metals market witnessed disruptions across both supply and demand.
Impact of the Coronavirus on Steel
Steel rates have been unpredictable globally as demand dropped significantly since the onset of the pandemic. The auto sector, which is one of the biggest end-users for steel, reduced production. The requirement from the construction segment, the largest end-user, continued to be sluggish and if this trend continues despite reducing the number of Covid cases, downstream users will also curtail operations.
Steel mills worldwide will have to modify their production to sidestep soaring inventories and dwindling prices. As demand dropped, integrated steelmakers are opting to idle blast furnaces and lower production. Major steelmakers such as Gerdau and ArcelorMittal also declared diminishing operations in the midst of plummeting steel demand from Covid-induced shutdowns, especially in the automotive segment, to protect themselves from escalating inventories. ArcelorMittal also ceased numerous blast furnaces in Europe due to the shutdowns.
Current Dynamics in the Metal Industry
Since the outbreak of the pandemic, the price of other metals like copper, zinc, and aluminium have also plummeted dramatically, ranging from around 10% to 25%. As a result of the abrupt drop in metal prices and the risk of a large-scale recession, many bulk users are not confirming supply agreements. Copper is also witnessing something similar as the pandemic has obstructed demand from the downstream segment. The effect was seen as LME copper prices plunged by roughly 15% in February 2020. To counterbalance the falling demand, Codelco, the world’s largest producer of copper revealed plans to decrease its operations.
As businesses reduce production, many are also lowering their workforce to cut costs. A lengthy period of dormancy will lead to more economic losses for steel companies, causing more layoffs. US Steel declared over 1400 layoffs because of idling at their plants in different parts of the United States. EVRAZ, a London-based global steelmaking and mining firm, revealed plans to let go 230 employees from its steel plant in Portland. Vallourec, a key producer of seamless steel tubes, auto parts, stainless steel, and expandable tubular technology cut 900 jobs, nearly a third of their staff across North America.
Industrial Metal Prices Recover Faster from COVID-19 than from Global Financial Crisis
According to this research done by S&P in March 2020, a comparison was made between the possible impact of COVID-19 with the impact of the Severe Acute Respiratory Syndrome, an epidemic that spread across a few nations in Asia in 2003. SARS cases were clustered in Asia, but COVID-19 turned into a pandemic.
The large-scale impact of the pandemic and the magnitude of economic consequence and government policy reactions to mitigate the impact and spur a recovery indicated a more suitable assessment with the impact of the recession in 2008. This crisis was sparked by the disintegration of the US housing bubble that cascaded into a global banking calamity.
Metals prices are expected to recover faster from the pandemic’s initial impact in comparison to the recovery during the financial crisis. The industrial metals prices bottomed a month after the peak pandemic outbreak in March 2020 and retrieved some of their losses after September 2020. During the financial crisis, metals prices bottomed three months after the peak of October 2008, but it was not until April 2011 that most metals prices recovered to their pre-crisis levels.
In 2018, China was the biggest exporter of steel, with a surplus trade of 54.4 million metric tons. In contrast, North America and Europe were key steel importers. That year, the trade shortfall of North American steel exports and imports was 31.3 million metric tons. That same year, Japan was the second-biggest exporter of steel, with roughly 36 million metric tons shipped to nations worldwide. Despite the huge trade flows of metals across nations, some nations enforce several trade limits to support local metal producers. We still do not know how these developments will continue to impact the light metal foundry industry.