Day: 8 April 2020

ArcelorMittal’s coking plant in Florange, France, will halt production at the end of April, with the aim of final closure as soon as possible. This is a consequence of the slowing output at the steelmaker’s Dunkirk site, which significantly reduces the company’s need for coke.

“Given the investment plan to reduce its CO₂ emissions by more than -30% by 2030, ArcelorMittal France’s coke requirement is set to fall and the Dunkirk site could become self-sufficient indefinitely,” ArcelorMittal says in a note seen by Kallanish. The company will reallocate the 170 employees of the Florange coke plant to other departments.

In recent weeks, the Covid-19 crisis has deeply disrupted ArcelorMittal France’s commercial and economic environment. Demand has slowed abruptly in many market segments, including the automotive sector and the construction industry. Demand for food packaging steel however remains strong, the company says.

Sweden’s SSAB tells Kallanish that it has completed negotiations with some of its employees in Finland concerning temporary layoffs as a result of the Covid-19 pandemic.

The negotiations applied to SSAB Group’s personnel in Finland, excluding subsidiaries Ruukki Construction and Tibnor. The negotiations have now ended and there will be a need for temporary layoffs averaging 3 weeks in April-June, the steelmaker confirms.

“The layoffs apply to all Finnish operations excluding the subsidiaries mentioned above. The exact timing of layoffs will depend on the workload situation of the various functions and production lines. Steel production capacity will be cut in line with weakened demand and one of the blast furnaces at the steel mill in Raahe will be temporarily idled in April,” SSAB says.

The Spanish authorities are not extending the deadline of the decree limiting industrial production due to the coronavirus outbreak. As of Friday this week, all activities in the industrial sector as well as in the construction segment are set to be able to restart operations.

The restrictions were imposed at the beginning of last week, with a number of exceptions amongst steelmakers, such as major producers Celsa and ArcelorMittal, for example.

Special steelmaker Sidenor, for example, is expected to restart operations at its mills in northern Spain as of Monday 13 April, Kallanish understands.

Austrian steelmaker Voestalpine Tuesday said is cutting more shifts at its sites as the coronavirus pandemic increasingly hits demand and called for swift restarts of the automotive and industrial sectors.

The company will increase the number of employees on reduced shifts in Austria to 20,000 in May from 18,000 now in response to shrinking demand. Also 6,000 of its 8,300 employees in Germany are already on reduced shifts while the company considers similar measures in Belgium and the Netherlands.

Voestalpine trimmed its outlook by Eur40 million ($44 million) for its 2019-20 fiscal year (April-March) and said it would make an operating loss of Eur135 million. The previous EBIT outlook was “just positive.”

“In view of the COVID-19 pandemic and its impact on our operating environment, naturally we have no other choice but to be much more critical than originally planned in our assessments of future market expectations. Therefore, we must further reduce our expectations for the 2020-21 business year and for the value of individual companies, and again implement non-recurring write-downs,” CEO Herbert Eibensteiner said.

The pandemic started to have an impact on Voestalpine’s operations in mid-March when it announced the temporary shutdown of a blast furnace at its main mill in Linz, cutting pig iron production capacity by 20%. The site has a pig-iron capacity of 5 million mt a year and produces hot- and cold-rolled coils as well as electrogalvanized, hot-dip galvanized and organic-coated steel strip.

In addition to measures taken last year due to a weak 2019, Voestalpine will now make non-recurring write-downs of Eur125 million in several business segments during 2019-20 at the foundries in Traisen and Linz, Seamless Tubes (Tubulars), Welding Consumables (welding sector), Buderus Edelstahl (Wetzlar, Germany), Cartersville and Texas.

“We are already preparing for the announced restart of the automotive industry and other sectors which are more important to our Group. Quickly getting back up to speed will be vital. The Austrian government has now taken the first step towards restarting economic activities and reviving consumption. Now further steps must soon follow in order to get industrial production back up and running as quickly as possible,” Eibensteiner said.

— Laura Varriale

Spanish long steel producer Sidenor said it will restart work from April 14 after the lifting of a layoff enforced in Spain March 30 for “non essential activity”.

The company said that the uncertainty over the restrictive measures meant it decided to temporarily idle staff within the bounds of a government decree that allows staff to work outstanding hours owed in the remainder of the year.

The company, which supplies specialized steel to the auto sector, said it expects to see some recovery of the sector during April.

Spain tightened measures for week three of its countrywide lockdown by halting all “non-essential activity”, while week four is expected to see reduced activity due to the national Easter Week holidays.

Following that, for the week starting April 13, those measures are to be reversed, Prime Minister Pedro Sanchez said Sunday, with activity potentially returning to that seen in week 2. However, legislation for this is not likely to be passed until later this week, pending the development of the health situation.

— Gianluca Baratti

The Italian steel market is on hold with the country still in lockdown due to the coronavirus outbreak as most steel mills are still not working and only few have been allowed to re-start sales and deliver their products, market sources told S&P Global Platts on Tuesday.

Italian prices for hot-rolled coil and rebar are being reported unchanged over the last two weeks. HRC is selling at around Eur440/mt base ex-works. Export rebar is at Eur435-440/mt FOB Italian ports with domestic rebar reported at around Eur420/mt ex-works.

“Market industries and associations are all asking to re-open gradually the factories and to slowly resume productions if the government will give the green light. There are expectations that from these levels prices will go down further if the demand and supply will be not balanced,” a senior market source commented on Tuesday, echoing other industry sources.

Assoferment, the Italian association of steel and scrap service centers and distributors, asked the Italian government to re-open all economic activities that were suspended. “Otherwise the effects on the general economic system will jeopardize the country’s social stability,” Tommaso Sandrini, president of Assofermet flat products, told Platts Tuesday.

The association echoed steel producers group Federacciai, which also asked for a re-opening. Both associations stressed nevertheless that the resumption of business should be gradual and take into consideration measures to keep workers safe and in agreement with unions.

Assofermet and Federacciai have different views on how to address imports, and in particular market safeguards. As reported Monday by Platts, European steel producers federation Eurofer and Federacciai last week asked the EC to make the safeguards more restrictive. Assofermet responded by asking the EC to keep them unchanged and said the changes proposed by steelmakers would be “detrimental.”

According to Assofermet, the market is “under pressure, not due the misrepresented import flows into the EU market, but to the weakness of the steel-consuming businesses within the European Union.

“The increasing protectionism is weakening our industries,” the association stated. “Forcing them to pay for more expensive steel is not the way to recover competitively. An additional level of protectionism would only create an artificial price increase of steel in the EU market, allowing EU steel producers to not follow the innovation path and to sit on granted profits.”

Assofermet and senior industry sources said that in order to address the disruptions caused by the halt in production due to COVID-19, the EC should grant additional credit lines to all EU companies that operate in the upper part of the value chain: raw material, steel production, steel distribution and steel processing.

— Annalisa Villa

World trade is expected to fall by between 13% and 32% in 2020 as the COVID 19 pandemic disrupts normal economic activity and life around the world.

The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09 (Chart 1).

Estimates of the expected recovery in 2021 are equally uncertain, with outcomes depending largely on the duration of the outbreak and the effectiveness of the policy responses.

“This crisis is first and foremost a health crisis which has forced governments to take unprecedented measures to protect people’s lives,” WTO Director-General Roberto Azevêdo said.

“The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”

“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic,” he said.

“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery. Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.”

Chart 1 – World merchandise trade volume, 2000‑2022
Index, 2015=100

Trade was already slowing in 2019 before the virus struck, weighed down by trade tensions and slowing economic growth. World merchandise trade registered a slight decline for the year of ‑0.1% in volume terms after rising by 2.9% in the previous year. Meanwhile, the dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion.

In contrast, world commercial services trade increased in 2019, with exports in dollar terms rising by 2% to US$ 6.03 trillion. The pace of expansion was slower than in 2018, when services trade increased by 9%. Details on merchandise and commercial services trade developments are presented in Appendix Tables 1 through 4 and can be downloaded from the WTO Data Portal at data.wto.org.

Outlook for trade in 2020 and 2021

The economic shock of the COVID-19 pandemic inevitably invites comparisons to the global financial crisis of 2008-09. These crises are similar in certain respects but very different in others. As in 2008-09, governments have again intervened with monetary and fiscal policy to counter the downturn and provide temporary income support to businesses and households. But restrictions on movement and social distancing to slow the spread of the disease mean that labour supply, transport and travel are today directly affected in ways they were not during the financial crisis. Whole sectors of national economies have been shut down, including hotels, restaurants, non-essential retail trade, tourism and significant shares of manufacturing. Under these circumstances, forecasting requires strong assumptions about the progress of the disease and a greater reliance on estimated rather than reported data.

Future trade performance as summarized in Table 1 is thus best understood in terms of two distinct scenarios⁽¹⁾: (1) a relatively optimistic scenario, with a sharp drop in trade followed by a recovery starting in the second half of 2020, and (2) a more pessimistic scenario with a steeper initial decline and a more prolonged and incomplete recovery.

These should be viewed as explorations of different possible trajectories for the crisis rather than specific predictions of future developments. Actual outcomes could easily be outside of this range, either on the upside or the downside.

Under the optimistic scenario, the recovery will be strong enough to bring trade close to its pre-pandemic trend, represented by the dotted yellow line in Chart 1, while the pessimistic scenario only envisages a partial recovery. Given the level of uncertainties, it is worth emphasizing that the initial trajectory does not necessarily determine the subsequent recovery. For example, one could see a sharp decline in 2020 trade volumes along the lines of the pessimistic scenario, but an equally dramatic rebound, bringing trade much closer to the line of the optimistic scenario by 2021 or 2022.

After the financial crisis of 2008-09, trade never returned to its previous trend, represented by the dotted grey line in the same chart. A strong rebound is more likely if businesses and consumers view the pandemic as a temporary, one-time shock. In this case, spending on investment goods and consumer durables could resume at close to previous levels once the crisis abates. On the other hand, if the outbreak is prolonged and/or recurring uncertainty becomes pervasive, households and business are likely to spend more cautiously.

Under both scenarios, all regions will suffer double-digit declines in exports and imports in 2020, except for “Other regions” (which is comprised of Africa, Middle East and Commonwealth of Independent States (CIS) including associate and former member States). This relatively small estimated decline in exports stems from the fact that countries from these regions rely heavily on exports of energy products, demand for which is relatively unaffected by fluctuating prices. If the pandemic is brought under control and trade starts to expand again, most regions could record double-digit rebounds in 2021 of around 21% in the optimistic scenario and 24% in the pessimistic scenario – albeit from a much lower base (Table 1). The extent of uncertainty is very high, and it is well within the realm of possibilities that for both 2020 and 2021 the outcomes could be above or below these outcomes.

Chart 2 – Ratio of world merchandise trade growth to world GDP growth, 1990‑2020
 % change and ratio

Two other aspects that distinguish the current downturn from the financial crisis are the role of value chains and trade in services. Value chain disruption was already an issue when COVID‑19 was mostly confined to China. It remains a salient factor now that the disease has become more widespread. Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products. According to the OECD Trade In Value Added (TiVa) database, the share of foreign value added in electronics exports was around 10% for the United States, 25% for China, more than 30% for Korea, greater than 40% for Singapore and more than 50% for Mexico, Malaysia and Vietnam. Imports of key production inputs are likely to be interrupted by social distancing, which caused factories to temporarily close in China and which is now happening in Europe and North America. However, it is also useful to recall that complex supply chain disruption can occur as a result of localized disasters such hurricanes, tsunamis, and other economic disruptions. Managing supply chain disruption is a challenge for both global and local enterprises and requires a risk-versus-economic efficiency calculation on the part of every company.

Services trade may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments. Services are not included in the WTO’s merchandise trade forecast, but most trade in goods would be impossible without them (e.g. transport). Unlike goods, there are no inventories of services to be drawn down today and restocked at a later stage. As a result, declines in services trade during the pandemic may be lost forever. Services are also interconnected, with air transport enabling an ecosystem of other cultural, sporting and recreational activities. However, some services may benefit from the crisis. This is true of information technology services, demand for which has boomed as companies try to enable employees to work from home and people socialise remotely.

The impact of the COVID-19 outbreak on international trade is not yet visible in most trade data but some timely and leading indicators may already yield clues about the extent of the slowdown and how it compares to earlier crises. Indices of new export orders derived from Purchasing Managers’ Indices (PMIs) are particularly useful in this regard. The JP Morgan global PMI for March showed export orders in manufacturing sinking to 43.3 relative to a baseline value of 50, and new services export business dropping to 35.5, suggesting a severe downturn.

Chart 3: New export orders from purchasing managers indices, Jan. 2008 – Mar. 2020
Index, base=50

Trade developments in 2019

Global merchandise trade stalled in 2019 under the weight of persistent trade tensions, with trade turning down toward the end of the year. This is illustrated by Chart 4, which shows seasonally-adjusted quarterly merchandise trade volumes as measured by the average of exports and imports. Trade in the fourth quarter was down by 1.0% year-on-year and by 1.2% compared to the third quarter of 2019. The latter is equivalent to a 4.6% decline on an annualized basis.

Chart 4: World merchandise exports and imports, 2015Q1‑2019Q4
Index 2015Q1=100 and year‑on‑year % change

Chart 5 shows seasonally‑adjusted quarterly merchandise export and import volumes by region. South America and Other Regions posted large declines in exports in the second half of 2019, while Europe, North America, and Asia experienced either minimal growth or mild declines. Import volumes for South America experienced a sharp decline throughout 2019, with Europe, North America, and Asia also ending the year lower. Only imports for Other Regions continued rising with year‑on‑year growth for each quarter of between 1.9% and 4.9% in 2019.

Chart 5: Merchandise exports and imports by region, 2015Q1‑2019Q4
(Volume index, 2015Q1=100)

Although services are not subject to tariffs in the way that goods are, world commercial services trade still slowed sharply in value terms in 2019 after recording strong increases in the previous two years. This is illustrated by Chart 6, which shows growth in the dollar value of services exports by major categories. The category of “Other commercial services” recorded the strongest growth with a 3% increase in 2019, followed by travel and goods-related services at 1%. A 0.5% drop in the value of transport service may have reflected weakness in goods trade as a result of trade frictions between major economies.

Monthly, quarterly and annual trade statistics can be downloaded from the WTO Data Portal at data.wto.org⁽²⁾.

Chart 6: Growth in the value of commercial services exports by category, 2015‑2019
 % change in US$ values

Table 1: Merchandise trade volume and real GDP, 2018-2021 ¹
Annual % change

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