US steel shipments at flat-rolled steel mills are expected to take a hit in the second quarter as mills lowered operating levels amid the coronavirus pandemic.
Steel Dynamics Inc, which is set to report Q2 earnings on July 20 after the stock market close, said in June it expected earnings from the company's steel operations to be significantly lower sequentially from the first quarter due to depressed shipments and selling prices as a result of the temporary closures of numerous steel-consuming businesses due to the coronavirus pandemic.
Automotive producers and the related supply chain paused operations in March as a result of the pandemic, pressuring demand and pricing for flat-rolled steel. At the same time, US oil and gas drilling activity fell by 67%, with the US rig count falling from 838 in the week of March 4 to 279 as of July 8, according to rig data provider Enverus.
The US rig count began to show signs of recovery over the course of the past week. After more than four months of weekly decreases, the US oil and gas rig count rose by nine to a net 288 the week ending July 15, Enverus said.
The persistent downturn activity, however, has led to a drop in US steel production and shipments.
Since the first week of March, US raw steel capability utilization at domestic mills has fallen from 81.6% to a low of 51.1% in the week ended May 2, according to data released by the American Iron and Steel Institute.
Raw steel capability utilization has been steadily increasing since the week ended June 6, however it remains far below pre-coronavirus operating levels at 57.5% as of last week, according to AISI data.
Shipments from US mills, meanwhile, were down 33% year over year in May at 5.46 million st, a decrease of 2.9% from April.
Hopeful for Q2 trough
US steel mills have been hopeful that Q2 would be the trough for steel demand and pricing as automakers have resumed activities.
"As states begin to reopen and steel consuming businesses resume operations, the company anticipates steel and recycled scrap volumes will improve," SDI said June 18.
SDI expects its Q2 earnings to be in the range of 29 cents to 33 cents/diluted share. This compares with net earnings of $194.3 million, or 87 cents/diluted share, on sales of $2.77 billion in Q2 2019.
Fellow electric-arc furnace producer Nucor in June said its second quarter performance was "better than expected," however overall market conditions remained challenged due to the coronavirus pandemic.
SDI and Nucor both noted that demand for long steel products in the non-residential construction market continued to be supported during Q2, however automotive production halts and the significant drop in US oil drilling activity were both negative factors contributing to lower flat-rolled steel demand.
Nucor, which will release its Q2 earnings July 23, expects its Q2 earnings to be in the range of 10 cents to 15 cents/diluted share, it said. This compares with earnings of $386.5 million, or $1.26/diluted share, on sales of $5.9 billion in the year-ago quarter.
Blast furnace producers, which rely heavily on automotive production to fill order books, were hit hard as a result of the coronavirus, with US Steel in June saying it expected to report a loss for the quarter.
US Steel in June said it expects its adjusted EBITDA to be a loss of approximately $315 million, which includes approximately $100 million of estimated restructuring and other charges. By comparison, US Steel reported net earnings of $68 million on sales of $3.5 billion in the year-ago quarter. US Steel is scheduled to release its Q2 earnings after the stock market close July 30.
"As expected, the second quarter is being significantly impacted by the effects of COVID-19 and the expected nonrecurring costs associated with a significant portion of our steelmaking operations being idled in the quarter," US Steel CEO David Burritt said in a statement at the time, adding the company expects Q2 to mark the trough for the year.
Steel prices pressured in Q2
US steel prices have remained under pressure since March. The daily Platts TSI US HRC index reached a record four-year low July 16 at $458.75/st, down $128.25/st, from $587/st on March 9.
US steel plate prices also moved lower July 10, as weak demand and lower scrap pressured the plate market. The daily Platts TSI US plate index was $3.75 lower week on week at $611.25/st on a delivered Midwest basis, and was 50 cents lower from July 9. Following two rounds of price hikes, plate prices have gained over $50/st since reaching a low of $563.25/st in late May, but have since begun to erode.
Prices for long steel products have also moved lower in recent months, despite the construction market seeing a more limited impact from the coronavirus pandemic.
Platts' weekly US Midwest rebar assessment was calculated at a midpoint of $590/st July 10, flat week on week, but down $40/st from a midpoint of $630/st in March, where prices had previously plateaued.
