Steel pricing among emerging coronavirus questions

Steel pricing among emerging coronavirus questions

Reduced steel consumption could outweigh production cutbacks in China.

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January 31, 2020

Based on nonferrous sector information emanating from China, copper and aluminum traders seem to have concluded that reduced consumption of those two metals in China will outweigh any effects on pricing from reduced production there. Steel and ferrous scrap traders are likewise trying to draw their conclusions regarding China’s impact on their global market.

China-based Shanghai Metals Market (SMM) gave its assessment Jan. 30 with a writeup titled “Coronavirus to delay steel demand recovery while production goes on.” As in the nonferrous sector, it points to the likelihood that furnaces that cannot be easily idled will keep producing metal while parts of the construction and manufacturing markets that consume it appear poised to stay on a lengthy hiatus in China.

“A potential demand recovery delay is set to weigh on prices of steel in the short term, as steelmakers have kept their blast furnaces running during the holidays,” writes SMM. The news service points to Chinese New Year holiday extensions to Feb. 2 in all of China and until Feb. 9 in several major population centers.

In Hubei province, where the virus epidemic is centered, as well as in other regions where “lockdown” conditions have caused a “a low degree of population mobility,” manufacturing and construction will be muted indefinitely.

SMM has conducted its own survey of readers “to assess the impact of the holiday extension on the whole steel industry,” finding in part that “most blast furnace steelmakers will follow the nationwide holiday extension, fully recovering operations on Feb. 3” while “operating rates at electric arc furnace (EAF) steelmakers and re-rollers are likely to take a hit from the coronavirus outbreak.” The EAF sector, while growing in China, likely represents less than 10 percent of capacity currently.

In terms of consumption, most construction sites had not anticipated resuming operations until or after Feb. 8, according to SMM, but the “demand for steel from manufacturing is more likely to take a hit from the holiday extension.” Manufacturers of home appliances, cars and other products had planned to resume work Jan. 31, but now many are in a wait-and-see mode until at least Feb. 8.

A Jan. 29 Wall Street Journal article says “China’s northern steelmaking heartland” has had fewer coronavirus cases, meaning steel output in the nation could stay largely on track.

That could create a supply glut in a situation where even before the virus, “China’s steel output has grown much more quickly in recent months than measures of demand,” according to Wall Street Journal writer Nathaniel Taplin.

Taplin cites property investment levels rising in the 7 percent range in China at the same time steel output has been growing by 11 percent. If the property market suffers further in the wake of the coronavirus and the steel sector is slow to respond with scaled back production, global steel (and ferrous scrap) pricing will almost certainly be affected.