US Steel Imports Drop Sharply in May Amid Coronavirus, Down YTD

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U.S. steel imports tumbled in May on a monthly comparison basis, and were also down year over year for the first five months of 2020 — according to the latest American Iron and Steel Institute (“AISI”) report.

The association of North American steel makers recently noted that total domestic steel imports dropped 35.5% from the previous month in May to roughly 1.79 million net tons. Finished steel imports, however, rose 13.2% to around 1.49 million net tons for the reported month.

Total and finished domestic steel imports fell 19.2% and 26.7% year over year, respectively, year to date through the end of May 2020. The AISI noted that these figures are based on preliminary Census Bureau data.

The decline in imports appears to reflect the impacts of the coronavirus pandemic and 25% tariff on steel imports, which the Trump administration had levied in 2018 under Section 232 of the Trade Expansion Act of 1962.

Meanwhile, finished steel import market share was estimated at 23% in May, per AISI. For the first five months of 2020, finished steel import market share was estimated at 18%.

For 2020, annualized total and finished steel imports are expected to be 26.4 million net tons (down 5.7% year over year) and 17.5 million net tons (down 16.7%), respectively, AISI noted.

According to AISI, biggest volumes of finished steel imports from offshore for May were South Korea with 229,000 net tons (up 42% from April), Japan with 103,000 net tons (up 50%), Turkey with 85,000 net tons (up 61%), Taiwan with 81,000 net tons (up 70%) and Germany with 65,000 net tons (up 1%).

Finished steel products that showed a significant rise in imports on a monthly comparison basis in May are oil country goods (up 71%), standard pipe (up 44%), heavy structural shapes (up 37%), tin plate (up 31%), hot rolled bars (up 28%), sheets and strip all other metallic coatings (up 18%), mechanical tubing (up 17%) and line pipe (up 15%).

Coronavirus Overhang Remains

Coronavirus has taken a big bite out of the U.S. steel industry. The pandemic, which has so far infected more than 10 million people globally, has squeezed demand for steel across major end-use markets such as construction and automotive.

The World Steel Association (“WSA”), the international trade body for the iron and steel industry, said earlier this month that it sees steel demand to drop 22.9% in the United States in 2020. The pandemic has led to a sharp manufacturing recession in the United States that is expected to hit the bottom in the second quarter. A decline in oil prices has put pressure on investment in the energy sector while lower income and confidence due to rising unemployment has impaired residential construction. Non-residential construction is also expected to decline in 2020, the WSA noted.  
Ebbing demand has also forced U.S. steel mills to scale down production with capacity utilization plummeting to multi-year lows. Capacity utilization rate — a major indicator of the health of the U.S. steel industry — slumped to 54.6% for the week ending June 20 from 80.1% a year ago, per AISI.

U.S. steel prices have also come under pressure this year amid pandemic-induced demand destruction. The benchmark hot-rolled coil (“HRC”) fell below the $500 per short ton level in April on demand slowdown due to production shutdowns by automakers. However, steel mills’ price hike actions have helped HRC prices to gain some ground and break above that level of late. However, the current feeble demand environment coupled with the deepening Sino-U.S. rift do not look supportive for a significant uptick in steel prices over the near term.

Meanwhile, the impacts of demand slowdown are expected to get reflected in U.S. steel companies’ second-quarter results. United States Steel Corp. X expects results in its Flat-rolled segment to be hurt by the impact of the pandemic on customer activity, mainly in automotive and energy end-markets. Moreover, weakness in underlying demand is expected to affect its Europe segment’s performance. Lower energy prices are also expected to weigh on performance in its Tubular unit in the June quarter.

A slump in crude oil prices has hurt demand for steel in the energy space. Some of the major energy companies have slashed their capital spending in the wake of the oil price rout.

In response to the oil collapse, United States Steel has decided to idle all or most of Lone Star Tubular Operations and Lorain Tubular Operations. A few other steel makers have also idled operations in the wake of falling demand across major end-markets.

Moreover, Nucor Corporation NUE recently said that the coronavirus pandemic has affected its sheet and plate mills business due to weak oil and gas market activity as well as customer production disruptions. While demand in non-residential construction market has been resilient, the overall market conditions remain challenging by the impacts of the virus outbreak.

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