IHS Markit Economist on Coronavirus: “Quit Being So Optimistic”

Anton said they missed the mark in 2008 as the economy was beginning to collapse beneath them. At that time, they did not do any favors to their clients when they made small adjustments to their forecast instead of being direct about the impact of the collapse of the financial markets. This time they are being more proactive in warning their clients.

He told the manufacturers and fabricators that they need to prepare now as the U.S. will soon be in a situation where there will be no large public gatherings, probable quarantines, factory closures and a dramatic impact on consumer spending. Because of what has been happening in China, companies should anticipate supply issues as China produces so many parts for manufacturing companies around the world.

He pointed to events in China as a possible precursor for what to expect here in the United States. In China, the government quarantined whole regions of the country. Many factories were closed to prevent the spread of the virus. Now those factories are reopening but are having problems getting workers to return because some are in areas still under quarantine or they are afraid of being exposed to the virus should they return to the job.

IHS Markit has cut its growth forecast for China by a full percentage point (from 5 percent to 4 percent). They have also cut their U.S. forecast and predict the U.S. will no longer have a quick “V” shaped recovery but rather a longer “U” shape extending into 2021 because the U.S. is not handling the threat of the virus as has been done in China (mass testing and quarantines of large segments of the population).

Chinese steel mills remain open and have been building inventories to the point there is no longer any storage space at the mills, he said. Inventories in China are 60 percent higher than at any time over the past five years. Customers are not taking the newly produced steel and, in Anton’s opinion, the Chinese mills will be forced to liquidate inventories onto the world markets in the coming months. Chinese benchmark hot rolled could drop to as low as $300 per metric ton, he added.

He then forecast U.S. steel prices to drop (not steeply) through the balance of 2020. IHS Markit continues to refine their forecast, and he told SMU they will get us their new numbers for 2020 and 2021 when they are finalized.

Speaking about the U.S., Anton said, “I’m the gloomiest I have been since 2008.” He went on to say “this is not the apocalypse,” but it’s impossible to know how bad it will become.

One manufacturer in the audience said his orders are “very strong” right now, and they normally are immediately affected whenever there is a downturn in the economy. Anton pointed to the straight-line decline in Chinese production, which fell off a cliff at the end of the Chinese New Year. When it happens, he said, it will be sudden and quick with virtually no time to react. “In the U.S. people will resist it, then they will panic when they have to do something.”

He gave out his cards and said, “I hope I am wrong.”

SMU has invited Anton to join with Timna Tanners, analyst for Bank of America Merrill Lynch, to provide their forecasts at this year’s SMU Steel Summit Conference. Anton told me after today’s trip he will not travel again until the end of August and our conference.