PMIs Hit Record Lows, as Steel Demand Declines

The global coronavirus pandemic has wreaked havoc on the world’s largest steel producing and consuming nations, as monitored by the MEPS World Steel Production & Consumption Outlook.

The economic effects of the virus were first felt by China, back in January, as the country battled to contain the spread within Wuhan. The China Caixin Manufacturing PMI fell to 40.3 in February, during the peak of infections. This is a record low since the survey began, in April 2004. Now, with the virus under control and containment measures lifted, business activity has resumed. However, end-user market requirements have yet to return to pre-Covid-19 volumes. China’s manufacturing activity remained in contraction, in April.

Manufacturing activity collapses

The scale of the economic impact, worldwide, is becoming apparent, as the virus continues to spread. The PMIs for the worst affected regions, started to slip in March, as government containment measures were introduced. The widespread lockdowns led to a collapse in manufacturing activity, in April. This is demonstrated by the record low PMI readings, for many countries. Several even surpassed the lows seen during the global financial crisis, most notably, in the Eurozone, India, Brazil and the United States.

The Nikkei India Manufacturing PMI plummeted to 27.4 in April – the lowest reading for 15 years – from 51.8 a month earlier. The IHS Markit Manufacturing PMI, for both Brazil and the United States, fell by 12.4 points, month-on-month, in April. Meanwhile, the Eurozone had a marginally lower level of contraction and fell 11.1 points to 33.4, in the same period.

With lockdowns extended in India and Brazil, MEPS anticipates that their PMIs will continue to show large contractions in activity, in May. However, for the areas where government containment measures are slowly being lifted, such as the Eurozone and the United States, we expect a marginal improvement in the May PMIs.

Steel consumption forecasts downgraded

The unprecedented contraction in manufacturing activity has resulted in a slump in steel demand, most notably, from the automotive and aerospace sectors, where many manufacturers suspended operations during the lockdown period. In a further blow to the steel industry, oil prices have sunk to historic lows, leading to reduced demand from the energy segment. Consequently, MEPS has downgraded its forecasts for apparent steel consumption, in 2020.

Many steel mills around the world are reducing output, due to the existing market conditions – some in response to the slump in demand, others as a direct result of government instructions during the lockdown period. Numerous electric arc and induction furnaces have temporarily halted production. Several steel producers have taken the decision to idle blast furnaces, whilst leaving other units operating, but at reduced rates.

Mills look to H2 2020

Steelmakers are hopeful that they will be able to recover some of the lost production, in the second half of the year. However, the current cuts will inevitably lead to an overall reduction in steel output, in numerous nations, this year.

As countries start to emerge from the coronavirus-related crisis, businesses are looking to their respective governments, for stimulus policies, to mitigate the long-term effects of the economic hardship. The scope of government initiatives will be instrumental in the rate and shape of the recovery. MEPS anticipates that steel demand will improve, moderately, during the second half of this year. However, a subsequent wave of infections would extend the period of recovery into 2021.