In the wake of the aggravating coronavirus scenario, leading U.S. steel industry groups have called on Congress to include significant infrastructure investment in the next stimulus package to help the nation recover.
Urge for Infrastructure Spending
According to an American Iron and Steel Institute (AISI) report, five major U.S. steel industry groups, in a letter to Congress, said that while the recent $2 trillion stimulus package addressed the immediate crisis, a long-term, robustly funded infrastructure package will create a path forward for jobs and growth.
Such investment will not only meet the urgent transportation system requirements but will also create high-paying jobs, allowing businesses and families to recover from this “extremely difficult economic shock,” they added. The groups are concerned that social distancing and other measures will continue to slow economic activity in the manufacturing and construction sectors.
The industry groups also said that 38% of America’s 616,000 bridges were in need of either replacement or rehabilitation, per the Federal Highway Administration’s National Bridge Inventory. They noted that “With such a staggering backlog of substandard bridges, there is significant opportunity to put Americans back to work and back on the road to economic recovery.”
The letter further states that such infrastructure investment will put more Americans back to work and drive commerce and supplies across the nation by including Buy America provisions and using domestically produced and fabricated steel. “The infrastructure supply chain for steel products used in highway and bridge construction starts with American steel producers, who have revolutionized the industry by developing clean and efficient steelmaking processes at mills located strategically throughout the country,” the groups concluded.
President Trump, in his tweet, lent his support for the infrastructure spending. Trump has proposed a massive $2-trillion infrastructure plan to stimulate the U.S. economy rattled by the virus outbreak.
"With interest rates for the United States being at ZERO, this is the time to do our decades long awaited Infrastructure Bill. It should be VERY BIG & BOLD, Two Trillion Dollars, and be focused solely on jobs and rebuilding the once great infrastructure of our Country! Phase 4," Trump recently tweeted.
U.S. steel stocks, which have been in the dumps this year, got a lift on positive reactions to Trump’s tweet. The President’s support for the colossal infrastructure spending is a welcome news for struggling American steel makers as it is likely to have a beneficial effect on the U.S. steel industry given the expected increase in steel consumption.
US Steel Industry Reeling Under Coronavirus Crisis
Coronavirus has dealt a fresh blow to the U.S. steel industry, which bore the brunt of a sharp decline in domestic steel prices and damaging impacts of the trade war in 2019.
The U.S. steel industry witnessed some recovery in late 2019 on the back of an uptick in domestic steel prices driven by consecutive price hike actions by major domestic steel mills and supply-side actions. Shares of U.S. steel companies also gained some ground toward the end of 2019 on a recovery in prices and the de-escalation in trade tensions.
However, the lethal coronavirus outbreak has dashed hopes of recovery in the U.S. steel industry. Steel prices have again been under pressure over the past couple of months amid the virus crisis. The benchmark hot-rolled coil steel (HRC) prices have been on the downswing over the past couple of weeks on concerns over the fast-spreading pandemic in the United States and worries over demand slowdown amid production shutdowns by automakers.
U.S. automakers have announced production shutdowns in North America. Detroit’s big three automakers Ford Motor Company F, General Motors Company GM and Fiat Chrysler Automobiles N.V. FCAU have shuttered all their North American factories following pressure from the United Auto Workers amid the virus crisis. Ford recently said that it will not restart its North American operations on Apr 14 as previously planned as the outbreak continues to spread. Fiat Chrysler, last week, also said that it would extend shutdowns of its North American plants to Apr 14. Production shutdowns will impact steel demand in automotive, a major market.
Meanwhile, slowdown in steel demand in China, the world’s top consumer, amid a faltering domestic economy is a concern for the steel industry. Coronavirus has taken a heavy toll on China.
The pandemic has slowed down activities in the construction space, a major steel end-use market. Coronavirus is also hurting the automobile sector in China. Notably, automakers in China are operating significantly below their production capacity as shortage of labor and parts are delaying a recovery.
Moreover, crushing crude oil prices due to price war between Russia and Saudi Arabia, surging supply and ebbing demand amid the coronavirus-induced disruptions are expected to lead to a slowdown in demand for steel in the energy sector. Some of the major energy companies have also slashed their capital spending in the wake of the oil price crash.
In response to plunging oil prices and high import levels, United States Steel Corp. X recently said that it will indefinitely idle all or most of Lone Star Tubular Operations and Lorain Tubular Operations starting late-May. The company is witnessing challenging conditions in its Tubular business as oil prices remain considerably under pressure and rig counts continue to be low.
U.S. steel stocks have also been punished by the pandemic. Shares of major American steel makers such as U.S. Steel, Nucor Corporation NUE and Steel Dynamics, Inc. STLD have sunk roughly 69%, 41% and 40%, respectively, year to date. The current weak demand situation does not look supportive for higher U.S. steel prices over the near term, thus limiting prospects of a material rebound in steel stocks.
U.S. Steel and Steel Dynamics currently carry a Zacks Rank #4 (Sell), while Nucor has a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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