Service Centers

Steel Cancellations the Order of the Day

March 29, 2020

Service centers polled by Steel Market Update this week reported layoffs and sales declines expected to range from 30-70 percent. Steel orders are being canceled or delayed at most companies as steps to fight the coronavirus take a toll on regional economies across the country.

Following are some executives’ comments:

“We have not had customers cancel orders on us; however, several are closed and therefore pushing orders back. Sounds like a lot of service centers are canceling on mills, and unfortunately some will take advantage of the circumstances to limit price/market risk. We have not really canceled anything, but we have pushed a few orders a month back due to customers’ temporary shutdowns.”
“We are delaying all mill orders for April/May production months. If things do not improve, we will cancel the orders. Business has dropped over 70 percent in the last week. It affects all our business centered around agriculture and oil/gas markets. We have already laid off upwards of 80 employees with more to come. We are reducing companywide hours to 32 hours a week with further reductions upcoming shortly.”
“We have seen a drop in shipments due to the fact that the auto plants are shut down. Yesterday we received information that another large company that services heavy equipment was suspending operations. Some of our customers in states with shelter-in-place orders have had to postpone deliveries. Surprisingly our appliance business is still going strong. We have canceled a few orders with mills and have pushed out a few, but we are not planning to do anything drastic. We are optimistic that things will ramp up quickly once the virus threat is over.”
“So far, we are not seeing customers canceling orders, but we are seeing more customers shut down. We do believe cancellations are coming. Mills are trying to work with customers on contracts, delaying on orders not produced, etc. The industry is rallying as much as possible. Some transactions, like locking commodity elements or hedging futures, cannot be helped, and those are causing the most issues. Most are looking at short-term shutdowns with an overall positive outlook, although that sentiment is likely to change. Markets most affected: oil, automotive, fabricators, motor homes.”
“Requests of mills for cancellations are accelerating from OEMs and soon from distributors as they get beyond the idea of being ‘essential’ and realize their customers will take time off as their sales decline. Obviously, auto and energy have collapsing demand. But also think about related businesses, like car carrying trailers or the rail car production backlogs. OEMs whose products go to consumers or whose sales are affected by lockdowns on capital spending are beginning to slow receipts of metal. That includes large ticket items like recreation vehicles and items used by businesses like skid-steer loaders, forklifts, etc. We are also seeing slowing of shipments related to commercial construction sites. Not materializing quite yet but expected next is construction equipment. While reducing new purchases and canceling open orders is an effort to correct inventory levels for a demand shock, there is also a price component to consider. May on the CME traded at less than $500. Receiving metal at prices $100 higher than the market, combined with a significant drop in overall sales, would create a cash flow storm few businesses could manage. Therefore, the cancellation vs. postpone idea is really a price consideration. The oil price developments alone would be a crisis for steel volumes and prices. Add in the collapse of car sales, and this is a record challenge to demand. But we are also managing businesses shifting to strict cash conservation, so we are not buying normal B2B goods made of steel. I think we could see a 30-60 percent demand reduction over the next 6-8 weeks.”
“It depends on the situation, but we have not yet received any outright cancellations. We’ve had customers advising us of an expected drop in normal levels, particularly for end-use items that are purchased directly by consumers vs. businesses or commercial end uses. Of the markets affected, clearly automotive and energy are leading the way with outright stoppages in open orders, etc., given what’s transpired in those sectors. On the other hand, some industries, like heavy equipment, are still moving along okay for now, but are warning that reduced schedules are coming in the immediate future. Some of this is due to an inability to obtain all necessary components, and some is due to the reduced demand they are seeing now. Certain parts of the ag market are expected to hold up, but bigger ticket items within ag (combines, etc.) will be very slow. In general, the expectation is that all/most sectors will eventually get hit as the broader economy continues to fold up. If locations are lucky enough to have escaped most of the lower demand and the pain thus far, an on-site infection or a more stringent government ‘stay put’ order that closes their door remains an ongoing risk.”
“Crazy times, like trying to do business in a mixing bowl. Lots of customers are canceling orders or pushing them back. We are canceling orders too. We can see the handwriting on the wall. We will not need this material. Order cancellations are focused on auto and recreational vehicles. Energy shipments and ag are still OK. There is some flexibility with the mills, depending on your relationship. We all realize we are in a commodity. The mills realize it too. A lot of customers who have essential businesses are reminding us that we are part of their supply chain and we need to continue to meet their needs. Dozens have called and asked for support. Steel goes into hospital beds and medical utensils, transportation, defense, energy, infrastructure. We have not hit the wall yet—our shipments are quite diverse—but we expect business to be off by 25-30 percent.”