Today we took our Price Momentum Indicator on flat rolled steel to Lower from Neutral.
We are clearly seeing an erosion in pricing, which is expected to continue over the near term. The economy is heading into recession. Key indicators are pointing toward a slowdown in construction as states and local municipalities mandate construction projects are “non-essential,” temporarily closing them down.
We already have automotive shut for at least two weeks, and many believe the idling of the auto OEMs could extend as the number of COVID-19 cases increases within their workforce.
The energy markets have been decimated by the drop in the price of oil. An executive with one of the domestic steel mills pointed to the significant drop in the rig count as evidence of the fallout of $20 per barrel oil due to the disagreement between Saudi Arabia and Russia, with U.S. drillers caught in the middle.
End users and service centers are reporting lower price quotes (the few who are actually buying) from the domestic steel mills compared to just two weeks ago.
Because of COVID-19 and the uncertainty surrounding the virus, it is unknown how long and to what depths prices could go. However, the mills have been acting proactively by shutting capacity in a dramatic fashion prior to a wholesale drop in pricing. When speaking to another mill executive today, he calculated that approximately 20 percent of the total flat rolled capacity is in the process of being removed from the market.
Later this week we will announce our latest SMU Steel Buyers Sentiment Index. Looking at the data earlier today, it appears we will report the first negative (below zero) number for Current Sentiment since November 2010….
Plate Price Momentum remains at Neutral pending a more complete analysis of the plate markets.
John PackardRead more from John Packard
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