Steel sector set for more pain in China due to virus shutdown

Singapore/Hong Kong — The pain being felt across China’s behemoth steel sector from the coronavirus outbreak is far from over, according to a senior industry analyst, who expects further near-term declines in prices, bulging inventories, and weaker demand before a recovery kicks in after several months.

“The peak of the fundamental pressures has yet to come,” Wang Jianhua, chief steel analyst at Mysteel Research Institute, said in an interview. “While China is beginning to return to work, the rise in steel demand, activity is very limited, and it may take one to two weeks to even see a start in recovery.”

The Mysteel Research Institute is part of Mysteel.com, a market intelligence provider on the metals and mining industry. The group — which offers daily prices as well as industry news — has more than 3,000 data and news gatherers on the ground across China.

The world’s largest steel industry has been roiled by the crisis as an extended break, transport curbs, and quarantine policies threaten to hurt demand. While President Xi Jinping has vowed China will meet economic goals and win the battle against the epidemic, there are multiple signs that mills are struggling. The pace of construction — a key source of steel demand — has slowed, according to Wang, who has more than 15 years’ experience in the steel industry.

“Demand for construction steel is literally almost at a standstill,” said Wang. After China extended the Lunar New Year break, and with the need for some workers to be quarantined, consumption is set to be affected for a considerable period of time, he said.

Weaker prices

So far, steel prices have sagged, with mills’ groups including the China Iron and Steel Association warning of transport snarls and weaker demand. The spot price of reinforcement bar — a benchmark product used in construction — slumped to 3,835 yuan ($551) a tonne on Tuesday, the lowest since May 2017.

Plants are facing multiple challenges, with flows of people, products and raw materials impeded, Wang said. “Finished steel products cannot be dispatched, and the stocks are piling up massively at mills, warehouses, forcing mills to compress production.” 

Rebar inventories — which typically show a steep, seasonal build-up at this time of year — more than doubled in January, according to Beijing Custeel E-commerce. They are now at the highest level for early February since 2012.

Not everyone is convinced the outlook is quite as challenging. The worst is now over as China urged some regions to accelerate the restart of activity, according to Wu Wenzhang, founder and president of Shanghai SteelHome E-Commerce, a consultancy with about 250,000 registered members.

“It’s blown over now,” Wu said in an interview, highlighting the decline in the daily number of new virus cases. He even expects a shortage of iron ore when mills fully restart production.

China’s steel mills are the world’s leading importers of iron ore, with most shipped in from Brazil and Australia. Spot benchmark ore was last at $84.45 a tonne, after sagging as low as $79.90 on February 3, according to Mysteel figures.

Bloomberg