Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The forecast for world real GDP growth in 2020 is expected at 0.7pc as a result of the net effects from the COVID-19 outbreak. After weakening considerably to 2.6pc in 2019 from 3.2pc the prior year, global growth in the latest December forecast was expected to stabilize at a rate above the 2pc recession threshold to 2.5pc in 2020, before edging up to 2.7pc in 2021. But the spread of COVID-19 has drastically dampened these forecasts. US, Europe, and Japan specifically are headed for a recession according to HIS Markit’s latest forecast. 


China is now the world’s second-largest economy, accounting for 16.3pc of the world’s GDP. Therefore, any slowdown in the Chinese economy sends waves across the globe. The economic effects of COVID-19 are expected to reduce Chinese GDP growth in 2020. Growth is also expected to decline in major tier-one markets such as the US, Europe and Japan. Within the forecast model, active world cases of COVID-19 are assumed to continue into Q3 2020. The sharp reduction in short-term growth is expected to be followed by a slow recovery. 


Forecast risks are overwhelmingly on the downside but depend largely on government responses including fiscal, healthcare resources, and containment public policy efforts. The recent sharp drop in the oil prices is expected to net a relatively small negative effect on global GDP and overshadowed by COVID-19.


Containment efforts in the US geared up as cases began to grow across the country. Social distancing suggestions were followed by quarantine measures which may become compulsory. Automakers announced shutdowns as a few employees tested positive coupled with potential issues with the supply chain and workforce given the containment measures. The US steel industry is starting to feel the reverberations.


Automotive shutdowns

In the US, integrated mills account for more than half of automotive sheet production and will be seriously affected by plant shutdowns announced by automakers. General Motors (GM), Ford and Fiat Chrysler announced a deal with the United Auto Workers (UAW) that will close all US auto factories this week through the end of March. Closures are expected to affect 150,000 workers at 25 final-assembly factories. Automakers will evaluate the situation weekly and closures may be prolonged to ensure the safety of employees. 

Honda North America announced voluntarily that it is closing four US-based plants till the end of March. Toyota is expected to follow suit. 


Ford has also announced closings in Canada, Mexico, and Europe through the end of March. Tesla is expected to announce closure shortly. The net effect is expected to be large as the component supply chain will also come to a halt. 


Integrated mills’ high reliance on automotive

All US mills are expected to feel the financial impact of these temporary closures, but US Steel, ArcelorMittal, and Cleveland-Cliffs are expected to be affected disproportionately. Automotive is 25pc of steel demand in the US market and 40pc of flat steel demand. 

Nucor and Steel Dynamics (SDI) are expected to fare better given their reduced exposure to the auto market. Although, products such as rebar beams, plate, pipes, tubes, wire and the rest of steel products are expected to face weak demand while the economic activities recover. 


US mining may reduce output

Weak demand for steel by the integrated mills will, in turn, dampen demand from taconite mines and iron ore pellets plants. Integrated steel mills produce most of the country’s automotive sheet using pellets from northern Minnesota. US Steel, ArcelorMittal and Cleveland Cliffs are the three largest iron ore producers in Minnesota.

Amid the COVID-19 containment measures, mining has continued at near-full levels in the Iron Range of Minnesota as working conditions limit large groups and promote physical distance. But a significant drop in demand for ore would lead to reduced production or segment shutdowns.

US Steel, which owns Keetac in Keewatin and Minntac in Mountain Iron and a portion of Hibbing Taconite, has not made production changes yet but is expected to adjust according to demand. 

ArcelorMittal owns Virginia’s Minorca Mine and operates and owns the largest share in Hibbing Taconite. Production at ArcelorMittal has also not declined at the moment, but the company has announced that it will keep a pulse on COVID-19 and adjust to market conditions. 

Cleveland-Cliffs post the AK Steel merger is now 50pc exposed to steel buys by the automotive industry. Cliffs, which owns Northshore Mining in Babbitt and Silver Bay and at United Taconite in Eveleth and Forbes and a portion of Hibbing Taconite, has continued usual operations. Yet the fact remains that a US recession would reach its mines in the Iron Range later this year, too. 

US mining assets during the pandemic slowdown may be supported by public policies that view domestic sourcing as essential to decrease national security risks, international supply disruptions and fluctuating costs from transoceanic shipment.


Effect on raw materials

Steel mills have started preparing for potential slowdowns to extended shutdowns. Plants owned by Gerdau, Nucor, US Steel and ArcelorMittal are stopping or slowing scrap deliveries in different parts of the country. 


With social distancing and strict containment requirements, steel output is expected to drop if not completely stop at some mills during the period government agencies seek to dampen the curve, referring to the graphical depiction of virus growth, before a full pandemic outbreak, thereby, drastically slowing economic activity in late March, April, and possibly even May.


Cleveland-Cliffs announced a shutdown of its temporary construction site at HBI plant in Toledo, Ohio. The long-awaited HBI project was scheduled to be finished by late Q2 2020. The timeframe of the delay is unknown as COVID-19 safety guidelines from state and federal agencies develop, but the outlook is now into Q3 2020 at the earliest. 



Over 160 business organizations recently asked President Trump for a suspension of tariffs on Chinese-made goods and global steel imports to stimulate the US economy. The relief from duties is being requested as an emergency measure. Trump spoke against the request but left the door open for a potential review if China requests relief through diplomatic channels. It is believed that most tariffs will likely stay as the administration views the issue as a matter of national security.


The exact benefit of cutting tariffs has not been measured, although, most view the decrease in taxation on goods as helpful to the American consumer. The American Iron and Steel Institute (AISI) on Tuesday along with executives from the US’s largest mills, though, warned of the potential negative consequences from tariff cuts that could see a surge of imports into the US that would affect national security by weakening the domestic steel industry at a crucial juncture. 


The recession is expected to dampen finished steel prices as mills return to production. Prices across all finished steel products according to the IH Markit forecast, are expected to decline in Q2 2020 compared to Q1 2020, dip the most in Q3 2020, and then begin to recover. While price levels are forecast to begin recovery in Q4 2020, they are not expected to reach the price levels encountered in Q1 2020, until Q2 2021 as the economy improves slowly. Challenging price dynamics through the year are expected to further support the Trump administration’s rationale for maintaining import tariffs. 

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