Impact of U.S. stock market crash on steel industry
Impact of U.S. stock market crash on steel industry
The recent plunge in the US stock market is more a short-term effect caused by the public panic in the United States. The fundamental changes in the industrial structure and the competitive situation have not yet occurred, and the medium and long-term impact on the steel industry is still weak. However, if the epidemic promotes a continuous rise in unemployment and a prolonged downturn in consumption, it may also have a profound and long-term impact on the US steel industry.
The past economic crises in the United States have mostly started with stock market crashes. Every time a crisis occurs, the steel industry is in a "hardest hit area." Recently, U.S. stocks melted twice and fell sharply. Although the U.S. stock market is affected by the new crown epidemic, and China ’s epidemic prevention has verified the controllability of the epidemic, if the economic crisis caused by the sharp decline in U.S. stocks will affect the steel industry?
Performance of the U.S. steel industry under previous economic crises
In the history of the United States, there have been many economic crises of various sizes, the three major ones being the Great Depression of 1929, the Middle East Oil Crisis in 1973, and the 2008 Subprime Mortgage Crisis.
The Great Depression of the United States from 1929 to 1932. In 1929, the U.S. crude steel output hit a record high, with crude steel output reaching 57.23 million tons, accounting for more than half of global steel output. However, the US stock market collapsed in October of that year, the longest-lasting economic crisis in history. In 1929, the United States had $ 5 billion in gold reserves, accounting for more than half of the world's total gold reserves of $ 9 billion at that time. "In the United States, the richest country in the world, more than 15 million people look for work everywhere, but there is no job to do" (Glory and Dreams: A Record of American Society 1932-1972). After the crisis broke out, more than 5,500 banks closed down, 86,000 businesses were suspended, at least 130,000 companies went bankrupt, and the gross national product fell from 104 billion US dollars to 41 billion U.S. dollars. The manufacturing industry was severely depressed. At that time, the American automobile manufacturing industry was the largest industrial sector, with an annual output of 5.4 million vehicles. After the crisis, a large number of automobile manufacturers closed down, and automobile output decreased by 74.4%. The American Locomotive Company previously sold an average of 600 locomotives each year, and in 1931 only sold one. Demand for steel plummeted. In 1932, the output of crude steel in the United States was 13.9 million tons, a decline of more than 75%, and the output of pig iron decreased by 79.4%. Later, under the Roosevelt New Deal, the government built a large number of bases and engineering projects to solve the employment problem. For example, it absorbed more than 2.5 million young people and planted 200 million trees, and the steel industry gradually came out of the trough. Until the outbreak of World War II in 1939, "snow flake" orders during the war completely rescued the US steel industry. In 1940, the US crude steel output reached 60.77 million tons, which only exceeded the 1929 level. It took 11 years before and after. Without the external force of World War II, the recovery period of the US steel industry under this round of economic crisis may be longer.
The Middle East oil crisis of 1973. In 1973, the US Dow Jones Index reached a historical peak of 1051 points and crude steel output reached 137 million tons, which is the highest point in the United States so far. However, the oil crisis triggered by the Fourth Middle East War in October has evolved into a global economic crisis. The price of oil rose from US $ 2.48 to US $ 11.65 per barrel. Energy prices skyrocketed and supply fell sharply. Both the unemployment rate and market inflation rose sharply. Consumer prices rose 11.4% in 1974 and 11% in 1975. The Dow dropped to 577 Points, losing 45% of the market value, the unemployment rate hit a record high of 9%, and 7.8 million people lost their jobs. The number of corporate and bank failures has reached an all-time record since World War II. A large number of companies such as steel, automobiles, and chemicals have significantly reduced and stopped production, and the automotive industry has fallen by more than 30%. In just two years, the number of large U.S. combined iron and steel companies has dropped from 50 to 23, and electric furnace steel mills using scrap steel as raw materials have been reduced from 108 to 100, and crude steel has been reduced by more than 3,000 tons. From 1976 to 1979, the steel industry improved slightly. In 1980, it turned around again, dropping to 67.65 million tons, a decline of more than 50% compared with 1973. In 1982, the US crude steel output fell to 66 million tons, which was smaller than at its peak. In half, the number of steel employees dropped from 600,000 to less than 200,000 at the peak. The crisis has a long and rare history of impact on the steel industry.
The 2008 US subprime mortgage crisis. Since 1983, US steel output has not been able to return to the 1973 level, but in the process of gradual repair, crude steel output has increased to 100 million tons by 2000 and has fluctuated slightly around this level for many years. In 2008, the United States produced 91.35 million tons of crude steel, and the financial crisis that year broke out again with a severe blow to the global steel industry. From October 2007 to October 2008, the Dow Jones Industrial Average fell more than 40%, and European and Japanese stock markets fell more than 30%. In the first 10 months of 2008, the global stock market value shrank by US $ 16 trillion, and in October alone it shrank by 5.8 trillion yuan. In November 2008, the U.S. unemployment rate rose to the highest level in 15 years. In the third quarter, American companies laid off more than 1.2 million people. The total number of layoffs reached a new high of nearly 30 years, and consumer confidence fell to a low point. As with the last two crises, steel demand has shrunk sharply, and steel prices have fallen sharply. In 2009, US steel production fell to 58.19 million tons, a drop of 36%. The Obama administration has initiated the construction of the largest infrastructure, improved education, medical care, information and other conditions, implemented a $ 1 trillion fiscal stimulus plan, and a $ 300 billion tax reduction plan to boost the employment of 4 million Americans. In response to the steel industry, the US government implemented a stricter trade protection policy. In 2010, US crude steel quickly rose to 80.49 million tons. From then on to 2019, the average annual output of crude steel was about 85 million tons. Generally speaking, the impact of this round of crisis on the steel industry is relatively short, and the magnitude is not great.
Deep-seated reasons for the crisis in the U.S. steel industry
The steel industry is the basic industry of the national economy. Once the economic crisis occurs, the rising unemployment rate and falling purchasing power will cause non-rigid consumer goods to shrink, such as the demand for improvements in automobiles and housing. The shrinking demand for the steel industry will quickly transmit the steel production end, and the scale and continuity of steel production, It is easy to cause problems such as inventory backlogs and poor turnover for enterprises, which will bring greater impact to steel production enterprises. But the impact of each crisis on the steel industry does not stop at this superficial cause.
In the 1929 crisis, the large impact of the steel industry was due to overcapacity. In the 1920s, the American industry developed rapidly, and the Ford Motor Company's T-type car entered maturity. Prices continued to fall, which stimulated large-scale consumption of automobiles. At the same time, housing construction in civil construction almost stopped during the First World War, and housing demand increased explosively after the war. The two major industries have spurred the development of related industries such as steel, rubber, oil and glass. The rise of entities has also stimulated the expansion of credit, fueled the speculative boom in the securities market, and in turn stimulated steel and other basic industrial sectors to expand production capacity and Mergers and acquisitions, forming a capacity bubble. After the production capacity bubble could not hold up, industrial enterprises began to decline after the current June, which caused the securities market to plunge in October, a decline of more than 50% in just a few days.
The 1973 crisis was a steel industry crisis caused by stagflation. The root problem was that the US steel industry was facing a decline in its own competitiveness under the pressure of foreign competition and rising labor costs. Around the 1970s, American workers organized by industrial unions, especially the two powerful organizations of the American Automobile Workers 'Union and the American Iron and Steel Workers' Union, pushed wage costs far higher than industries without strong job organizations. The 116-day strike by steel workers in 1959 forced US domestic steel companies to resort to foreign imports of steel. For the first time, the United States became a country that imported net steel products. After that, exports fell and imports increased sharply. The United States imported 2.7 million tons of steel in 1960 and 15 million tons in 1968. At this stage, the United States' own industrial structure is also being adjusted, the proportion of the service industry is increasing, and capital no longer favors heavy industries, and it is shifting to information technology and service industries. From 1940 to 1980, the ratio of service industry personnel to total employment was changed from 46 % Rose to 82%.
Before the crisis in 2008, the US manufacturing industry structure was being adjusted and rationalized. Iron and steel companies continued to survive the fittest, and the industry began to re-integrate. Some companies, especially some steel conglomerates that did not adjust in time, went bankrupt or went into bankruptcy protection procedures. As a representative of Nucor, the short-steel steel mills with flexible production and operation, a system adapted to the requirements of the times, and strong competitiveness have matured their overall structure. After the crisis, the U.S. steel industry has been affected but is relatively short-lived.
Taking stock of the three crises, we can see that the past steel industry has been heavily affected. The economic crisis has superimposed industrial structure, competitiveness and demand matching. The recent plunge in the US stock market is more a short-term effect caused by the public panic in the United States. The fundamental changes in the industrial structure and the competitive situation have not yet occurred, and the medium and long-term impact on the steel industry is still weak. However, if the epidemic promotes a continuous rise in unemployment and a prolonged downturn in consumption, it may also have a profound and long-term impact on the US steel industry.
