Steel Markets

U.S. Automakers Suspend Production

March 19, 2020

U.S. automakers are suspending production for nearly two weeks to help stop the spread of COVID-19. Ford, General Motors and FCA announced on Wednesday that they will stop all production in North America starting Thursday evening and tentatively ending March 30.

“GM and the UAW have always put the health and safety of the people entering GM plants first, and we have agreed to a systematic, orderly suspension of production to aid in fighting COVID-19/coronavirus,” said GM Chairman and CEO Mary Barra. “We have been taking extraordinary precautions around the world to keep our plant environments safe, and recent developments in North America make it clear this is the right thing to do now. “

The companies have already restricted travel and personal contact for employees. Ford closed its Michigan Assembly Plant on Wednesday morning after an employee tested positive for COVID-19.

“Today’s action is the prudent thing to do. By taking a shutdown and working through the next steps, we protect UAW members, their families and the community,” said Rory Gamble, president of the UAW. “We have time to review best practices when the plants reopen, and we prevent the possible spread of this pandemic.”

The shutdown will be treated as other routine work stoppages with employees receiving supplemental pay to augment unemployment benefits.

Honda North America will close four U.S. plants starting March 23 for six days, reducing production by an estimated 40,000 vehicles. The company says it will continue to pay its 26,600 employees during the production suspension.

“As the market impact of the fast-changing COVID-19 situation evolves, Honda will continue to evaluate conditions and make additional adjustments as necessary,” said Honda NA in a statement. “In undertaking this production adjustment, Honda is continuing to manage its business carefully through a measured approach to sales that aligns production with market demand.”

Hyundai announced a suspension of production at its assembly plant near Montgomery, Ala., after a worker tested positive for COVID-19. Toyota will suspend production on March 23 and 24 and reopen on March 25. Nissan production in Tennessee and Mississippi will be shut down from March 20 thorugh April 6.

Key Banc analyst Phil Gibbs said the shutdowns will be felt by U.S. steel mills that supply sheet steel to the automotive sector. U.S. Steel, ArcelorMittal and Cleveland-Cliffs will bear the brunt of the impact as major suppliers to the industry. Gibbs told Bloomberg that automotive is 25 percent of steel demand and more than 40 percent of sheet demand. As a result, second and third quarters will likely see “heavy shipment ramifications” and “pricing degradation.”

Cowen Equity Research added, “Weaker prime scrap generation from lower automotive production has the potential to tighten prime scrap supply (~60% of scrap inputs for EAF based sheet production). Stickier raw material input costs, along with increasing spot market competition as automotive heavy blast furnace producers look to offset lower automotive contract volumes, can drive outsized metal spread compression for EAF sheet producers.”