ArcelorMittal Raises Coronavirus Red Flag
ArcelorMittal in its Annual Report for 2019 said that “"The recent increase in cases outside China is worrying and increases the risk of a global pandemic and a much larger negative impact on global GDP. The company is monitoring the situation closely and in particular in Italy, as should the virus spread more widely through Europe this will likely have a material impact on the Company’s sales and profitability in 2020. The company expects Chinese steel demand to grow in 2020 within a range of +0.0% to +1.0% (versus estimated growth of +3.2% in 2019) driven by robust real estate activity and given the company's current view on the Coronavirus. This may be revised downward due to the impact of the Coronavirus on Chinese demand and the knock-on impact elsewhere. However, demand is eventually expected to decline as infrastructure spending has been front loaded and real estate demand structurally weakens due to lower levels of rural-urban migration. If this does not coincide with renewed capacity closures, this is expected to have a negative impact on steel prices and spreads.”
It said “The precise impact of the Coronavirus is unknown but has had a negative impact on Chinese prices and spreads, and could continue to have a negative impact if inventories continue to rise at mills in China, putting downward pressure on pricing. While the Company expects a significant negative impact on industrial output and steel demand during the first quarter of 2020, assuming the disruption fades soon, employment and incomes are expected to be relatively unaffected, with most of the lost output expected to be recouped during the remainder of 2020, supported by fiscal and monetary easing. However, in 2020 both GDP and steel demand growth are still likely to be weaker than what was expected prior to the outbreak.Steel demand now expected to grow only 0 to 1 % in 2020. down from 1 to 2% previously expected.”
It also said “The Coronavirus is having a significant impact on Chinese demand during the first quarter of 2020 and is likely to have a negative impact elsewhere, mainly Asia, through reduced goods exports to China, fewer tourists from China and supply-chain disruptions due to shortages of Chinese produced intermediate goods. Although the impact on the Company's core markets is expected to be smaller, until the virus is under control, these cannot be quantified and our current forecasts for steel demand assume that the situation in China does not deteriorate materially. However, the recent increase in cases outside China is worrying and increases the risk of a global pandemic and a much larger negative impact on global GDP. The Company is monitoring the situation closely and in particular in Italy, as should the virus spread more widely through Europe this will likely have a material impact on the Company’s sales and profitability in 2020.”
ArcelorMittal believes that there are signs that the real demand slowdown is beginning to stabilize, and the supportive inventory environment means that the Company is more optimistic on the apparent demand outlook for 2020. This may be revised downwards due to the impact of the Coronavirus outside China.
In the US, ASC is expected to grow within a range of +0% to +1% in 2020 (versus an estimated -2% contraction in 2019), with stronger ASC in flat products offsetting an anticipated decline in ASC for long products.
In Europe, ASC is expected to grow within a range of +1% to +2% in 2020 (versus over -4% estimated contraction in 2019); although automotive is expected to remain weak, the end of destocking is expected to support improved ASC for flat products, similarly the end of destocking should offset the impact of the slowdown in construction activity for long products ASC.
In Brazil, ASC is expected to rebound in 2020 with growth expected in the range of +4% to +5% (versus estimated -2.6% contraction in 2019) following the pronounced destocking of flat products in 2019 and expected growth in construction activity.
In the CIS, ASC growth in 2020 is expected to slow but remain positive within a range of +0% to +1% (versus +4% estimated growth in 2019).
As a result, overall World ex-China ASC in 2020 is expected to grow within the range of +2% to +2.5% (versus estimated -0.8% contraction in 2019).
In China, that in 2020 both GDP and steel demand growth are still likely to be weaker than what was expected prior to the Coronavirus outbreak (Steel demand now expected to grow only 0 to 1% in 2020, down from 1 to 2% previously expected).
Source : Strategic Research Institute