Economy

We All Wonder About the "What If’s" Associated with Coronavirus & Business

March 17, 2020

Yesterday Steel Market Update received a note from USS/POSCO regarding their waiver from the mandatory “shelter in their place of residence” order within Contra Costa County in California. UPI received their waiver due to the “essential nature of UPI’s business and services.”

SMU anticipates there may be situations that arise where a mill, manufacturing company or distributor may be forced to cease operations temporarily in order to slow the spread of the coronavirus. We have not been the only ones wondering about the “what if” scenarios.

The following thoughts are from the general manager of a large service center group:

“I’ve been pondering what we might face in the event lockdowns/shutdowns spread and reach deep into the manufacturing sector.

decision “We’ve never experienced (in modern times), what might lie ahead: the strong possibility of a very swift and deep cut in manufacturing that cuts across many supply chains. 9/11 was in fact a very localized event, which hit certain industries very hard, but we saw a relatively quick recovery in those industries, and the vast majority of industries weren’t really affected. In recessions, there’s a process that occurs over time, but usually it is more gradual. Even the financial crisis of ‘08/09 and the GR that followed was at least a 12-18 month period, but of course was very deep and rough. Then, of course, there have been industry strikes/lockouts, etc., which sometimes rippled into other industries. However, with this event, we may face an abrupt halt in manufacturing that cascades extremely fast, and one where cancellations are all occurring nearly simultaneously (the opposite of the recent Toilet Paper craze).

“The resulting chaos arising from a swift and mass shutdown of manufacturing will have unknown implications. While we all realize that it will be a finite period, tied to the length of the virus cycle, it could be months. Imagine the delay or cancellations of mill orders coming more or less all at once. This made me think specifically about Integrated steel mills and how they will react to this situation. EAF mills have the luxury of basically being able to “unplug” and reduce or stop production as needed. The integrated mills aren’t so lucky and may find themselves faced with a complicated process of having to slowly ramp down steelmaking, running blast furnaces at minimums, and/or worst case, actually putting them on hot idle.

“Once the virus cycle is over, there will be re-starts, but who knows what the circumstances will be when the smoke clears? We all are assuming we’ll pick right up where we left off, but conditions may be quite different and a return to “normal” demand levels may take longer and/or be choppier than we think. For one thing, we may be returning back to business at the start of summer, normally a seasonally lower activity period. There will be the need to work off what will surely be excess inventories as well, since they will be too high by default once the shutdowns hit.

“Not trying to stoke fears or cry wolf, but we could be in for one crazy ride ahead…”