I stepped on a snake the other day.
It was near the woods at the back of our property, while I was gathering logs cut from a fallen tree. I’m sure the snake was frightened too, and he might be recounting now his close encounter with me to all of his reptile buddies.
That didn’t prevent me, however, from screaming like a maniac and dashing faster from the danger than I’ve probably moved in a long time.
While our interaction lasted less than five seconds before he slithered back into the underbrush, it was the suddenness of the threat that scared me. It took me by surprise.
In a weird way, the whole slippery scenario got me thinking about the US steel sector and how quickly the coronavirus pandemic struck and how potent its bite has been for demand.
As recently as March 13, the headline on one industry roundup read: “Coronavirus not yet impacting US steel production.” Just five days later, a follow-up story announced: “Big Three US automakers halt North American production.”
Ford, General Motors and Fiat Chrysler, among a number of others, slashed output, eliminating some 33,000 vehicles/day from production and an estimated 1.5 million mt of steel consumption between just March 18 and May 18, according to S&P Global Platts research.
Anticipating the impact of auto’s cutbacks and a further denting of downstream demand, producers from ArcelorMittal to US Steel announced a slew of blast furnace outages totaling more than 10 million short tons of lost annual domestic capacity.
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The Platts TSI hot-rolled coil ex-works Midwest assessment was at a four-year low of $460/st on May 1 and prices are likely to remain depressed until demand and confidence return.
The import tariffs implemented by the Trump administration in early 2018 – an antidote administered then to protect the American steel sector from foreign competition and sagging prices – have largely run their course.
Precedent for steel sector restructuringThis isn’t the first big downturn the domestic industry has faced, and it’s not the first time it was struck by an unexpected threat.
In 2001, the US industry – already reeling from the bankruptcy filings of some 30 steel companies – was shocked by the 9/11 attacks and economic fallout that followed.
Just as in 2018, the Bush administration implemented significant steel import tariffs in early 2002 to give domestic steelmakers a respite and time to restructure.
What followed was a shakeup that saw current US Commerce Secretary Wilbur Ross – then just an investor specializing in acquiring distressed assets and turning them around for re-sale – cobble together the likes of LTV Corp, Acme Metals and Bethlehem Steel at a discount, bringing them together under the International Steel Group banner.
Ross later sold ISG to Lakshmi Mittal’s Mittal Steel, which subsequently acquired Arcelor to form the world’s biggest steelmaker, ArcelorMittal.
If US assets become distressed during this downturn, it’s unclear who might step in to inject much-needed capital and which assets might not make it. That’s what many market participants fear.
Some say the capacity cut so far could remain idled beyond the time the coronavirus eventually passes, as there’s no telling how deep the economic impact will be from this sudden and potent bite.
The US steel market’s current danger won’t pass as quickly as my encounter with one of Pennsylvania’s reptile population.
If past performance is any indicator of future results, though, it will survive. It just may not be in the same form it’s been for the better part of two decades.