Steel glut concerns emanate from China

Steel glut concerns emanate from China

Blast furnaces keep producing steel as manufacturers struggle to restart amid virus-related lockdowns.

February 20, 2020

The words “steel, overcapacity and China” have long been pointed to with concern by steelmakers and recyclers in the rest of the world. With the ongoing COVID-19 virus-related factory shutdown in China, those concerns—and the low prices they entail—are currently front and center.

A Feb. 20 Bloomberg article portrays the impact that a largely dormant Chinese economy is beginning to have on the steel sector there. Most manufacturing plants shut down in late January for the Chinese New Year holiday but have yet to reopen in the wake of COVID-19-related travel and quarantine restrictions.

China’s central government, its provinces and many manufacturers seem to have essentially given up on the month of February in terms of major workplace restarts, aiming instead for a Monday, March 2 “normalization” date.

Steel mill blast furnaces and basic oxygen furnaces (BOFs), meanwhile, are not easily idled and have continued to operate during this same stretch, leading to reports of a widespread finished and semifinished steel glut. As China produces roughly half of the world’s steel, the impact on global steel and ferrous scrap prices seems inevitable.

In the Feb. 20 Bloomberg article titled “China keeps churning out steel that no one wants to buy,” reporters cite an analyst with London-based CRU who says steel inventories are at “critically high levels.”

China’s government is reportedly in the midst of injecting cash into the economy to get it restarted, but questions remain as to whether that money will circulate to small and medium-sized firms, and whether it will be used to jump start new construction and manufacturing efforts or instead be used to repay existing debts.