Recovery in steel demand in the third quarter exceeded expectations

Many countries have witnessed an unprecedented drop in steel demand in the second quarter of 2020, at the height of the first wave of coronavirus infections. During this time, the PMIs of several individual countries fell to their lowest levels on record. The biggest fall was the IHS Markit India Manufacturing PMI, which fell to 27.4 in April. However, in the third quarter, global steel demand improved as production activities resumed after the restrictions were lifted.

The rebound in steel demand after the lockdown in most countries was stronger than initially expected. As a result, PMI indicators for most countries showed significant improvement in the July /September period. Many have returned above 50, which indicates economic growth. The PMIs of some individual countries have even surpassed pre-pandemic levels, most notably Brazil. The IHS Markit Brazil Manufacturing PMI rose to 66.7 in October from a low of 36.0 in April caused by the coronavirus.

In China, the first country to be hit by the pandemic, activity began to resume by the end of the first quarter. The country’s Caixin Manufacturing PMI fell below 50 in just two months of this year, February and April. The ability of the Chinese authorities to quickly suppress and control the virus, combined with government stimulus measures, has resulted in a relatively strong domestic economic recovery.

Steel production remains below pre-pandemic levels

This significant drop in global demand led to a halt in steel mills and an unprecedented cut in production between March and June. However, with encouraging signs of a recovery in demand, manufacturers gradually began to increase production in the third quarter. However, production in most countries remains below pre-pandemic levels, especially in Europe, Japan and the United States, which saw one of the sharpest reductions in steel production in the second quarter.

The MEPS estimates that EU finished steel production fell 18.4 percent between July and September compared to the same period last year. Despite Japan’s ability to effectively control the virus, the country’s finished steel production is projected to decline to about 71.3 million tonnes in 2020, down about 17 percent from the previous year. In the US, capacity utilization has improved but remains at around 70 percent. Many steelmakers are reluctant to fully resume operations while the world is still struggling to control the virus. In contrast, in China, finished steel production continued to grow year on year in the first nine months of 2020. It is expected to hit a record high for the entire twelve month period.

Second wave impedes recovery. economy

The pace of economic recovery in the last few months of the year has been overshadowed by a renewed spike in coronavirus cases. Some countries have reintroduced or tightened containment measures, including new restrictions. As a result, the rate of recovery is expected to slow down while these measures are taken. However, it is unlikely that steel demand will fall to record lows recorded at the beginning of the year.

This time, manufacturing enterprises are more prepared for containment measures. Most companies have adapted well to dealing with Covid prevention methods, and governments are encouraging employees in the sector to keep going to work if they are unable to work from home. Therefore, it is unlikely that any major manufacturers and OEMs will shut down during this second wave.

The degree of failure in the industry is likely to be determined by the length of time it takes each country to regain control over the spread of the virus, and ultimately what happens to consumer confidence and spending during that time.

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