After a jarring suspension of automobile manufacturing in
response to the global Covid-19 pandemic, the restart of car
production will be less like the green flag at the start of a
race and more like a green light at a busy intersection:
everyone wants to go, but only a few will have a chance to
proceed at a time.
"Everyone has lost sight of inventory," said Peter
Neuberger, president of G&L Tube, a subsidiary of
O’Neal Industries. "Our suppliers
don’t know how many coils we have, and we
don’t know how many tubes all of our customers
have. I do know that we were still shipping to assembly plants
for a few weeks after they stopped, so we assume they have a
few weeks of inventory.
"We have excess inventory, too," he added. "And when the
assembly plants say they are restarting, that means just
getting back on site and preparing. We may not order steel for
three or four months."
For all the merits of enterprise-resource planning and
supply-chain management software, much of the system still
relies on shoe-leather and human expertise to report actual
levels. Generally, a mill or service center gets a blanket
purchase order (PO), covering as much as a year, which serves
as an agreement on price and total volume. Actual planning
begins two or three months in advance of a shipment or release
date, with fine-tuning possible until about a fortnight
"At two weeks out the PO goes hard," Neuberger said. "If
you’ve got 10,000 feet on order at that point,
you’re getting it."
He explained that most of the blanket POs in the auto sector
are still in force, but suspended by contractual force
majeure declarations. "We are not going back into
production until the FM is lifted, or at least we have a
commitment for delivery from a customer.
"That is why we are anticipating a slow restart," Neuberger
continued. "The second quarter was really depressed. We hope
the third quarter will get back to 50% of pre-pandemic
Unknown automotive demand
A key industry-wide unknown is what high US unemployment levels
will do to vehicle sales. Given all the market uncertainties,
companies throughout the supply chain are doing their best to
work together. The American Iron & Steel Institute said
that it "has continued our collaboration, through virtual
means, to develop efficient ways for applying the new grades of
AHSS with our producer members, OEMs, and suppliers. In
addition we have taken this time to provide training to enable
engineers to hit the ground running when production does come
back on line."
Several sources concurred that some model years will be
shuffled: some of 2021’s will be cancelled and the
current model run into next year. Conversely, some makers will
use the opportunity to retool and just start making 2021
models. Some types may be dropped entirely.
"I would not be surprised if the car makers have already
made those decisions," said one source. "I would also not be
surprised that they have not told any of their suppliers
US Steel announced operating reductions in late March and
during its first-quarter earnings call on April 30. "In several
instances, we moved up planned maintenance to coincide with the
change in demand," Anthony Ashe, vice president of sales,
marketing, and business development, told Metal Market
Magazine. "In adjusting our footprint to accommodate with the
changing Covid-19 landscape, one of the Gary Works blast
furnaces was banked, a method that can provide hot iron within
a week of restart. This provides flexibility to start, based on
The company has also realized benefits from its automotive
research center. "We spend a tremendous amount of time and
resources working with our customers in development of new
materials, such as our XG3 Advanced High Strength Steel
(AHSS)," he added. "Those same Qualification & Launch teams
in Troy [Michigan] are leading the engagement with our
customers and our internal support teams to efficiently manage
both the wind down and the ramp up that’s starting
just now," in mid-May.
"We see signs of strength in the automotive recovery," said
Ashe. "Reductions in April were not as large as expected and
there are indications of strengths in some geographies and
specific vehicle platforms. We have taken a balanced approach
to slowing production to balance OEM production, inventories,
and demand, yet provide flexibility to support the automotive
OEMs as they ramp back up."
Based on conversations with OEMs, service centers,
stampers, and analysis of market communications, "We believe
that there are different demand and inventory levels depending
on varied demographic factors," said Ashe. "While we are in the
middle of [overall] reductions of demand, there are some cities
and states where demand is relatively strong and car
inventories are depleted. That is largely a function of
financing deals, and that particular location’s
socioeconomic impacts from the pandemic."
Signs of resilience
Outside of automotive, some metals end-use segments have been
resilient. "We have a broad range of customers and markets,"
said Ashe, "such as appliance, electrical, industrial, and
packaging. [The latter] has been extremely strong and
we’ve been pleasantly surprised with the
resiliency in the appliances."
Phil Gibbs, metals and mining director and equity research
analyst at Keybanc Capital, confirmed "folks shipping auto
steel have not gone to zero. They have gone lower, but they
have not gone to zero because materials need to be procured
well in advance of manufacturing. Demand for cars has imploded,
but it is important to recognize that the supply chain has not
gone to zero. Inventories will be out of whack for a few
months, but mills have done a good job."
He counted ten blast furnaces down. "This is the most
domestic upstream steel capacity off line in my career. I
don’t even remember that many during the financial
crisis." Blast furnaces are the primary source for sheet steel
for automobiles. "Overall the auto segment is about 25% of
domestic steel demand," said Gibbs. "That is second to
construction at 40%. But for flat-rolled, auto is 40%. The
integrated mills are taking it the hardest because they have
the most exposure to autos and also energy. There is a
magnifier effect. If overall GDP is down 5%, steel may be down
20% or 25%."
In contrast, car making accounts for 36% of aluminium
consumption, at least in Europe, according to the trade
association European Aluminium. Noting the deep reduction in
car making, the association stated, "aluminium production in
Europe (alumina, primary, recycling, semi-fabrication and some
final production) is at risk." It advocates a three-part
program including a "scrappage premium" for older cars, similar
to what was called the "cash for clunkers," initiative in the
US. The European association also urges regulatory authorities
to resume operations quickly to approve new types, and that the
EU should support charging stations and other infrastructure to
expand alternative-fuel use.
Offering some positive news for North America, Gibbs said
that with the restarts in car making, even if slow, "things
probably don’t get any worse for steel. And the
early auto sales data for May show strong numbers, if off a low
point. "May could be 10 million units, and we could get to as
many as 13."
The challenges and vagaries of restarting the auto metals
supply chain were readily apparent for Jamie Hansen, director
of sales and marketing for the North American melt-shop
division of AMI Automation. "We have a customer running a trial
of our [EAF optimization] technology. For the initial trial
they were sold out, so the goal was to improve productivity. As
soon as the system was implemented, they switched to efficiency
to save costs."
One of the keys to AMI’s technology is remote
monitoring and collaboration with operators in the melt shop.
"Over the weekend the customer dialed in a different power
program," Hansen related. "So we called and asked. They told
us, 'yeah, we knew you’d notice. We are running
hard during off-peak hours when electricity is cheaper, then
dialing back during days.’ They can tell us what
the melt schedule is for today, but won’t know
about next week."
While giving credit to the blast-furnace operators for doing
what they can in such uncertainty, Hansen asserted that "in a
choppy market, the EAFs will benefit." And by choppy he noted
that "one client ran for five days in April, and if they run
nine days in May they will be doing well."
Hansen also lauds some mills for being innovative in adding
services and cutting lead times for automotive components. "One
client of ours installed a paint line. It used to be a
three-month lead on painted sheet from their mill to the
assembly plant. Now it’s two weeks because they do
the painting themselves. That is real value to the assembler.
The progressive mills are the ones taking the advantages."
He also noted that as the supply chain comes back to life,
some new calculations will be made about value. For years
inventory has been seen as a cost, rather than insurance
against supply-chain upsets. "The problem today is not waiting
for parts domestically. The problem is if you are waiting for a
part from Italy," he said.
Truck sales dented
Most of the attention in the North American road-vehicle market
has been about the consumer segment, passenger cars and light
trucks. While cars are an important segment, "trucks are the
backbone of the economy," said Steve Tam, vice president of
(American Commercial Transportation) ACT Research. "Trucks have
still been working."
Commercial-vehicle manufacture was largely unaffected in
March, but was shuttered for most of April. That includes
Mexico. The closures were strictly for worker safety, not
because of supply-chain or sales issues.
"Truck sales have declined," said Tam, "but not dried up
completely the way we saw in cars. Sales were dented but did
not disappear. The decline was about 25%, but that was still
12,000 to 13,000 Class 8 vehicles," which are the heavy
There had been a hope that truck manufacture would be able to
resume about the same time as light vehicles, but by press time
it seemed as though the soonest could be early June. As with
the car lines, "the restart will have some lag because the
supply chain will be starting at the same time," said Tam.
Most optimistically, those concerns are strictly logistical,
not in terms of supply. "In our conversations with OEMs they
have not expressed any concern about steel," Tam stressed. "The
expectation is that the manufacturing and logistics will be
slow walking, so the assembly plants are not worried about
There is also little long-term concern for structural
changes in the segment as have been expressed for car making.
"People have done a very good job in the past couple of months
finding substitutes for travel," said Tam. "But there is no
substitute for freight. There might be some change at the
margin but we don’t see much change.
"There may be some slowing as the economy slows," he added,
"but there may also be an increased need for trucks because new
public-health rules could slow the velocity of [each