More turbulence on the way

Ferrous scrap prices held steady in the early March buying period, which closed before the COVID-19 outbreak began having a ripple effect on different sectors of the U.S. economy.

Scrap processors and traders at that time were reporting renewed interest on the Atlantic Coast from overseas buyers, and American steel mills were staying busy enough to keep some upward pressure on prices.

The March surveyed pricing published by Fastmarkets AMM showed East Coast export prices rising by about $10 per ton, with mills in Turkey and India needing feedstock. Pacific Coast exporters, meanwhile, faced a dimmer market that sank by about $10 per ton in March as economies in East Asia continued to cope with COVID-19 impacts.

“Some 50 percent of metropolitan areas are exhibiting growth rates that show signs of being late stage.” – Ed Sullivan, chief economist, Portland Cement Association

When the ConExpo-Con/Agg construction industry trade show convened in Las Vegas in mid-March, it became apparent that COVID-19 had migrated sufficiently to North America to begin looming as a dark cloud on the horizon.

At that event, Ed Sullivan, a vice president and the chief economist of the Skokie, Illinois-based Portland Cement Association, said preparing an economic forecast in early March was proving a fruitless task. Sullivan nonetheless presented recaps of his 2020 and 2021 forecast at a press conference at the event, and at the annual meeting of the Construction & Demolition Recycling Association (CDRA), held concurrently in Las Vegas.

In the 10 days leading up to ConExpo, Sullivan said several candidates dropped out of the presidential election, oil prices plummeted, the stock market in the U.S. and other nations lost significant value, the U.S. joined Asia and Europe with growing coronavirus cases and reactions and the Federal Reserve Bank in the U.S. reduced interest rates to try to stave off coronavirus impacts on the economy. “A piece of cake,” joked Sullivan regarding creating a forecast.

The presentation Sullivan devised therefore included three scenarios for how the coronavirus could affect the U.S. economy, ranging from a short-term impact to a longer, more severe set of effects.

He selected the least damaging scenario as the most likely as of Wednesday, March 11, but acknowledged conditions were changing rapidly. In his preferred scenario, Sullivan predicted six-to-eight weeks of economic disruptions, in particular to travel and leisure-time discretionary spending. In that scenario, “panic and fear” in the U.S. would be relatively contained to a short time frame and the leisure sector, and a combination of lower interest rates and oil prices would help spur a rebound by the third quarter of 2020.

Sullivan said that if virus concerns remained beyond April and May, the prolonged fear would more deeply hit the American household consumer, “who accounts for 2 out of every 3 dollars” spent in the U.S. economy. Preliminary polling already has shown, Sullivan said, that when coronavirus cases are found geographically close to people, they can quickly change their behavior.

Less than 24 hours after Sullivan’s comments, sports leagues were canceling or delaying their schedules, and, within a week, conventions and trade shows across all sectors (including the Institute of Scrap Recycling Industries’ 2020 annual convention) were announcing postponements or cancellations.

Underlying the coronavirus concerns, Sullivan said, is the notion that the U.S. economy is “due” for a recession after more than 10 years of steady growth. Dispelling that notion, he said, is the case of Australia, where economic growth has been ongoing for 27 years.

On the other hand, Sullivan said factors are pointing to the idea that the U.S. is “in the late stages” of an economic upcycle. Even though employment figures are good, some 50 percent of metropolitan areas are exhibiting growth rates that show signs of being late stage. When that figure hits 60 percent, he said, it often means a recession will hit 12 to 18 months later.

The U.S. economy has lost some of its “zip and vigor,” Sullivan said, and the extent of coronavirus reactions will play a role in determining whether the U.S. can maintain economic growth or if it experiences negative growth quarters.

On the infrastructure front, he said some 30 states have done what the federal government has refused to do—raise the per-gallon gasoline tax. This has helped some states boost highway spending, increasing concrete and steel consumption.

Perhaps falling into line with Sullivan’s contention that the U.S. economy was in the late stages of its growth cycle, steel output figures from the Washington-based American Iron and Steel Institute (AISI) pointed to a potential decline in melt shop activities.

In the week ending March 7, domestic steel output was just above 1.9 million tons. That was down a full 1 percent from the previous week, when U.S. steel output exceeded 1.92 million tons.