As the spread of the coronavirus has not shown signs of slowing down in China, with official reports indicating that the number of deaths has jumped to 170, while confirmed cases of the coronavirus have exceeded 7,000, steel market participants have started to evaluate the impact on the market. The major scenario for the industry will be a sharp steel consumption drop in the local Chinese market next month, a drop in raw material prices (indicative prices for iron ore have kept going down on Thursday, January 30) and this will put pressure on international steel prices even if there will be a moderate increase in export offers from China, according to sources.
Demand-supply balance to be hit
The local authorities in the Chinese provinces of Guangdong, Fujian, Zhejiang and Jiangsu, as well as in large cities like Shanghai, Beijing and Chongqing have announced that companies are not allowed to come back to the work before February 10. This means that “construction activity will remain halted, while other industries will also be impacted,” a local trader said. Toyota has officially announced that its factories in Tianjin, Guangzhou, Chengdu and Changchun will remain closed until February 10. Other companies, Honda Motor in particular, are postponing their restarting time. The period may be extended, if needed, according to sources.
At the same time, the major Chinese blast furnace-based steelmakers are still going to restart normal operations from next Monday, February 3. Most market participants expect lower steel production for the whole of February as “mills will need to use raw material efficiently,” a source said. Nevertheless, the main point is still that the drop in steel demand will be sharper than production limitations.
Force majeure on export contracts
On Thursday, January 30, China’s Council for the Promotion of International Trade announced that it will issue force majeure certificates to the companies which will not be able to fulfil their obligations under international contracts because of some logistical delays or other problems connected with the current situation in China. The companies may apply for the certificates, providing the documents, proving the transportation delays and agreements that were signed previously, including export contracts for steel shipments.
The government support will help to support regular steel export operations and to prevent contract cancelations in the market and possible speculative price rises.
Only moderate rise in export allocation from China possible
Most sources believe that, despite the expected drop in steel demand in the local market, only a moderate increase in export volumes from China is possible, SteelOrbis has been informed. Firstly, some major traders will resume full work only in mid-February and have predicted “no sharp changes.” Moreover, “The situation is very uncertain. Some guess that prices will fall sharply because of the new virus in China, but it is unpredictable at the moment, as we don’t know for how long demand is China will be impacted,” a major Asian trader told SteelOrbis. The peak of the coronavirus is predicted to be next week, according to some experts.
The major price impact from the developments in China is expected to be on the flat steel products market in Asia, where sentiments were not so bad before the holidays started, while they have worsened recently. “Prices are flat, as everybody is waiting for Monday,” a source from Vietnam said, as the local HRC market will start to operate and some clarity regarding the price trend will appear.
Iron ore futures fall further, reflecting sentiments
Iron ore futures prices for February contracts at Singapore Exchange have resumed their downtrend on Thursday, losing $2.7/mt or 3.18 percent to $82.2/mt as demand concerns have been exerting pressure. Prices for iron ore with 62 percent Fe content have lost $2.5/mt to $84/mt CFR, according to SteelOrbis’ information. Ports in Hubei province will remain closed and they are unlikely to resume work until February 10. Shares of major Australian miners have fallen, but no news of delays from the supplier side has been heard.
Today, January 30, the World Health Organisation (WHO) voiced “grave concern” about the global spread of the coronavirus. “Although the numbers outside China are still relatively small, they hold the potential for a much larger outbreak,” WHO chief Tedros Adhanom Ghebreyesus said.