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Steelmakers’ Worst Slump in a Decade Seen Getting Worse

Coronavirus idles plants, and future demand remains under threat from expected slowdowns in auto industry, construction and energy

By Bob Tita
April 19, 2020 8:00 am ET

U.S. steel companies are slashing production to match a sharp collapse in demand caused by manufacturers idling plants to slow the coronavirus pandemic.

The U.S. steel industry has fallen into its most severe downturn since the 2008 financial crisis. United States Steel Corp., X 4.30% ArcelorMittal MT 6.59% and other steelmakers are ratcheting back output and shedding workers, anticipating that orders and prices will fall further.

U.S. mills are operating at 56% of capacity, down from 80% in 2019, according to the American Iron and Steel Institute, and steel output across the country has fallen by a third in three weeks. The spot-market price for hot-rolled coiled sheet steel is $485 a ton, off 18% from a month ago and down nearly half from a recent high in July 2018.

“We’re in for a rough ride,” said Bill Douglass, a regional president for Lex Group, a steel distributor in Illinois. “There’s nobody who’s unaffected.”

Industry executives and analysts expect production to drop further, even as manufacturers reopen plants. High stockpiles at distributors will likely be drawn down before companies place new orders, said Credit Suisse, which expects sheet-steel demand to plummet 50% in the second quarter from a year ago.

When orders do pick up, executives expect that businesses will spend less and that high unemployment will weigh on demand for autos, construction materials and energy equipment. Those industries account for 82% of domestic sheet-steel consumption, according to market consultant Metal Strategies Inc.

“The big three markets have fallen flat on their face,” said David Stickler, chief executive of Big River Steel LLC in Arkansas. U.S. Steel bought a 50% share of Big River last year with a deadline of 2023 to purchase the remaining share for $700 million. U.S. Steel CEO David Burritt has described the acquisition as the company’s top strategic priority. A spokeswoman said there has been no change in the acquisition plan.

ArcelorMittal, U.S. Steel and Cleveland-Cliffs Inc., formerly known as AK Steel, are heavily dependent on auto-industry customers. A month of idled car production across the U.S. will cost the steel industry at least $1 billion in revenue, Metal Strategies estimated. Crashing oil prices are discouraging frack-drilling companies from starting new wells. The number of new wells started in the U.S. is down 48% from a year ago and 27% since the end of March.

U.S. Steel idled about two-thirds of its pipe business in March, closing plants in Texas and Ohio. During two weeks in March, customers of South Korea’s SeAH Steel Corp. canceled orders for 25,000 tons of pipe, said Kirk Murray, the company’s U.S. general manager.

https://www.wsj.com/articles/steelmakers-suffer-worst-slump-in-a-decade-11587297601