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

Steel production and prices in the US have not been impacted by the spread of COVID-19 yet and mills have not slowed operations to date. However, as a precautionary measure, several steel plants in the US are allowing employees to work from home, prohibiting visitors, and curtailing employee classes or training. 


Mills haven’t experienced supply disruptions or delays in receiving necessary raw materials and are relying on the existing strength of the domestic steel industry and supply chain. Stopping and restarting operations at integrated steel mills is costly and may be unsafe although levels of steel being produced may create a surplus of metal during this time of weak demand. 


The domino effects

Steel producers will be affected by a slowdown of their major customers, such as the Big three Detroit automakers, that were asked to shut down production for two weeks per UAW announcements on Tuesday and Wednesday.


Midwest shredders in the Ohio Valley, Chicago, and Detroit markets are dropping intake feed buying prices by up to $40/gt and may also utilize TBD pricing, considering the unknowns in upcoming price fluctuations. Shredders in the western region have expressed they are starting to take on TBD pricing and are receiving scrap offers from new suppliers they have not traditionally purchased from.  


US East Coast exporters dropped prices by as much as $40/gt this week, in addition to prior decreases, as reported on March 17.


The East Coast export yard collection price drops followed reports of a North American bulk cargo sale on Wednesday to Turkey at a price level of around $248/mt cfr Turkey. The deal represents a $27/mt drop from the last US bulk sale to Turkey, which was booked on March 11, at a price level of $275/mt.


US West Coast and Houston exporters are also faced with market uncertainty through declining prices and demand in relation to the pandemic. 


When China floods the market

US Mills have already faced struggles to earn profits within the past year, because of declining prices and weaker demand from manufacturers. Now, as steel orders decline in the wake of COVID-19, China and other global producers could experience further price pressure from their excess steel inventory. 


Some market participants have expressed concern over the possibility of China’s steel stockpile making its way into Canada and Mexico at low prices. A metal excess in China means increased supply which will affect prices globally. It could also cause competition in the US for steel exports or make its way in, secondarily, from Canada or Mexico. 


Globally, countries are unable to take in excess shipments from China now that it is strained by diminishing industrial activity amid the spread of COVID-19 and its related concerns unfolding every day.


Difficulties ahead

Market participants that spoke with Davis Index are anticipating a tough market for steel and scrap in the near- and mid-term. The global crisis will pass but it’s difficult to forecast a true state of the industry until we have more clarity on the nation’s health, steel supply concerns, demand, and see a resumption of export activity.

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