Coronavirus Impacts the global metal Industry / 2020-5-27
Besides the Canceled events and closed foundries – The Coronavirus pandemic and its disruption to industrial production has begun to impact the world’s metals production.
The current situation regarding the further spread of the Coronavirus SARS-CoV-2 is still quite unclear. According to the World Health Organization (WHO), There are 5,406,282 confirmed cases globally, 2,041,705 cases in Europe, 2,454,452 cases in America, 175,397 cases in the Western Pacific, 438,900 cases in the Eastern Mediterranean and 83,044 cases in Africa.
According to the survey from the metal industry, “Financial impact (including effects on results of operations, future periods and liquidity and capital resources)” , “Potential global recession” and “The effects on our workforce/reduction in productivity” are the top 3 concerns respect to the current Coronavirus crisis.
As this crisis plays out, metals manufacturers will need to improve forecasting related to the potential for slackening demand among downstream steel consumers — especially industries that may be classified as “non-essential.” For instance, the automotive industry, a major consumer of US steel, may already be slowing down production in numerous plants.
The engineering and construction industry may experience its own slowdown — with some construction sites locked down — which could also contribute to reduced demand for steel products. Additionally, aluminum producers and makers of specialty metals such as titanium should look closely at the aerospace and defense industry for possible signs of market demand, both on the upside and downside. However, the operational nature of the metals industry — with long leads required to idle and then restart mills and smelters — presents challenges that require nimble and swift reactions to market dynamics.
A misalignment of supply and demand could trigger an over-supply of inventories that could lead to sudden price drops. Going forward, the decision on whether metals manufacturing companies (particularly steel producers) and their major end-users are nationally classified as “essential industries” may determine the level of impact on the industry. Meanwhile, metals companies are shoring up their cash liquidity and looking to short-term borrowing to help cover operating costs.
Currently, about 80% of manufacturers expect that the pandemic may have a financial impact on their business, compares to 48% of cross-industry companies that expect the same, according to a recent survey. The majority (53%) of those in the sector expect Coronavirus to impact their operations, according to the NAM survey. Indeed, we’re already seeing these dire expectations materialize in the sector, amid plummeting oil prices, supply chain bottlenecks, recession fears and spending slowdowns. Plant closures (even partial) at downstream, steel-consuming industrial manufacturers could be necessary for manufacturers in hard-hit regions for a prolonged period.
Indeed, uncertainty surrounding the duration (or even a deepening) of these conditions can make it difficult to see how a recovery could play out directly for steel customers and indirectly for the steel industry. Though many customers in the sector could be eligible for government stimulus support, there is a real possibility that the crisis may result in debt restructuring or bankruptcy for some downstream end-users, as declining demand, production, revenues and debt obligations take a cumulative toll.