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Could Europe’s manufacturing PMIs indicate devastation for metal demand?

According to argusmedia, Europe’s manufacturing Purchasing Managers Indexes (PMIs) for March was released on 1st April and indicated a potentially devastating outlook for metals demand as the COVID-19 pandemic wipes out industries across the world.


PMI disaster for metals

IHS Markit headline PMI for the eurozone dropped considerably from February’s one year high of 49.2 to 44.5 in March, the lowest reading for 92 months and below the earlier flash reading. 

Latest data indicates that market groups registered a decline in operating conditions compared to the previous month, led by the investment goods category.

Towards the end of March, many European countries introduced lockdown measures, meaning weeks of manufacturing was normal. April is expected to be considerably worse as the crisis is supposed to peak at this time.

Germany’s manufacturing PMI slipped from February’s 13-month high of 48 to 45.4.

Commenting on this, Principal Economist at IHS Markit, Phil Smith said:

“Manufacturing production in Germany took a considerable hit in March, falling to the greatest extent for nearly 11 years. Furthermore, there’s scope for the numbers to get even worse before they get better, as most containment measures and factory shutdowns happened either during or after the survey data were collected [12-24 March].”

He added:

“When trying to gauge the severity of the impact of the COVID-19 crisis on manufacturing, it’s important at the moment not to read too much into the headline PMI, which is still being supported by rapidly increasing supplier delivery times.”

Some steel mills in Germany are currently operational, and traders said they were still delivering material on long-term contracts for ferroalloys and other steel alloying elements. Germany benefits from having large ports which means that material does not need to cross borders into the country, in any case, many of which have closed or introduced checks within the EU.

Europe’s worst impacted country so far, Italy, recorded the fastest-ever decline in output and its PMI score dropped to 40.3 from 48.7 in February. In the last two weeks, traders have found it difficult to find trucks to send material to Italy. Steel mills and foundries started closing two weeks ago and were fully closed last week when the government ramped up lockdown measures.

The region most affected by the outbreak, in Northern Italy, is vital to automotive supply chains in Europe. Several aluminium alloy producers in the area have closed, reducing demand for silicon metal and magnesium from suppliers in other parts of Europe. Several steel mills also closed, and traders said deliveries of ferroalloys on contracts were cancelled.

Spain’s headline PMI number fell to 45.7 and France’s to 43.2. Both countries have introduced strict lockdowns, although Spain has exempted most large power consumers, including metal smelters. But they will still have to reduce output, because of a lack of downstream demand in key markets such as the construction and automotive sectors. Some steel producers, like Sidenor, shut down completely from the start of the lockdown.

Chris Williamson, Chief Business Economist at IHS Markit said: 

“Even the slide in the PMI to a seven-and-a-half-year low mask the severity of the slump in manufacturing as it includes a measure of supply chain delays, which boosted the index. Supply delays are normally seen as a sign of rising demand, but at the moment near-record delays are an indication of global supply chains being decimated by factory closures around the world. 

“We need to look at the survey’s output and new orders gauges to get a better understanding of the scale of the likely hit to the economy that will come from the manufacturing sector’s collapse, and these indices hint at production falling at the sharpest rate since 2009, dropping an annualised rate approaching double digits. 

“The concern is that we are still some way off-peak decline for manufacturing. Besides the hit to output from many factories simply closing their doors, the coming weeks will likely see both business and consumer spending on goods decline markedly as measures to contain the coronavirus result in dramatically reduced orders at those factories still operating. Company closures, lockdowns and rising unemployment are likely to have an unprecedented impact on expenditure around the world, crushing demand for a wide array of products. Exceptions will be food manufacturing and pharmaceuticals, but elsewhere large swathes of manufacturing could see downturns of the likes not seen before.”