Final Thoughts

The U.S. has hardly begun testing for the coronavirus (I happen to have a bad cold and my doctor did not even want to see me… never mind test me). Numbers are rising daily, but no one really knows how many are affected. The assumption is it is a lot more than what the government is reporting.

CRU analysts did a report on what it means to the steel industry when the northern segment of Italy was under quarantine. The next day the whole country is under quarantine.

The Wall Street Journal reported on the growth of inventories at the steel mills in China. Remember we reported on this last week from a direct participant in the Chinese market. That steel will have to be dealt with (as will the mills that continue to run).

One steel executive told me this afternoon that Timna Tanners’ “Steelmageddon” theory may well become a reality sooner than originally thought. It’s still early, but something to think about.

We continue to get mixed reviews when it comes to taking the coronavirus seriously by individual companies (or more appropriately I should say single executives at specific companies). Here are two examples as to the responses received to the question, “Is the coronavirus having any impact on your company?”

A very large service center responded, “Plans to deal with the virus kicked into high gear this week. Most travel stopped, all the health protocols were put in place at facilities, running scenarios on operating partially or closed with employees working from home, etc. (mainly servicing customers/suppliers, etc.). It’s very possible that shutdowns could be on a company-by-company basis, thus we could have large disparities in impacts all over.”

Another very large service center group told us, “Big time. Travel, visits, restrictions, buy patterns, outlook and forecast, generally a much more cautious approach to the next 90 days.”

A third large service center said, “So far just emotional nonsense.”

Most of the companies responding to the coronavirus question said, “not yet.”

Oil dropping to $30 per barrel could be an even bigger deal as a prolonged price war could force many of the small independent drillers out of business. The energy sector of the economy utilizes approximately 20 percent of the steel produced in the United States. Hot rolled would be the product hit the hardest. If HRC prices slide, you can bet that cold rolled and coated steels will follow.

Right now, we are seeing strong order books at most of the steel mills. While speaking to the president of a Midwest-based steel mill, we were told that some of the steel mill order books are essentially full. Quotes on HRC are around $620 per ton, and in some cases even higher. However, this executive told SMU, “The energy sector is going to be a bloodbath. Who is going to drill at these numbers?” The expectation being HRC numbers could be negatively impacted soon.

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John Packard, President & CEO