Metal markets eye auto restarts

Next week's expected restart of some automotive production in Europe should begin to shed some light on the vehicle industry's immediate appetite for spot or previously contracted steel and metal as it emerges from an abrupt month-long shutdown forced by Covid-19.

But the real metals demand picture will take time to emerge. Shortages of car parts could hamper production restarts in all regions, while further up the chain bottlenecks in primary metal supply and difficulties securing sufficient scrap to produce alloys are also likely to bite. Inventory levels across the supply chain could take months to stabilise.

And vehicle production rates are likely to be significantly down on pre-coronavirus levels once manufacturing is back on line. New vehicle registrations in the EU in March were down by 55pc year-on-year, the European Automobile Manufacturers Association said today.

Germany's Volkswagen plans to restart production at its Zwickau plant in Germany and at its Bratislava plant in Slovakia from next week, while its other plants in Germany, Poland, Portugal, Spain, Russia, South Africa and in North America and South America will reopen the following week. Toyota plans to restart production at its plants in France and Poland from next week, while Hyundai restarted some operations at its plant in St Petersburg, Russia, and its facility in the Czech Republic earlier this week.

In the US, Volkswagen could restart its plants in the US and Mexico as early as 27 April. US-based Fiat-Chrysler Automobiles (FCA), Japanese automaker Toyota, and South Korean automaker Hyundai expect to restart some of their North American plants beginning on 4 May.

Bumpy road ahead

Steel and non-ferrous markets this week were not pricing in any immediate spot demand. There was talk in ferro-alloy markets of more enquiries from the foundry sector and other segments of the market, partly on the back of restarts at some Italian steel mills. Italy has extended its general lockdown until 3 May but some steel producers appear to have gained authorisation to restart under certain exemptions.

European prices for hot-rolled coil, arguably the market with the biggest direct exposure to automotive, remained under heavy pressure as the market awaited clarity on car makers' near-term demand. The Argus Northwest Europe HRC index fell by 2pc this week despite the promise of automotive restarts. The index is down by 7pc since mid-March. Cancellations and postponements of orders were said to be on the increase.

Elsewhere in the automotive supply chain, Argus price assessments for aluminium alloys, also highly reliant on demand from the automotive sector, especially component makers, were mostly flat this week as producers remained off line. Availability of scrap feedstocks will be an issue for the alloy producers as they restart. "The lockdowns have dramatically lowered the generation of new scrap," a source at an alloy producer said. "scrap prices fell at the start of the pandemic, but now no one is offering scrap and it is very hard to buy."

Argus metals staff