Shanghai, China’s most internationalized city and the largest steel-trading hub in East China, has been under strict lockdowns since March 28 to combat the worst COVID-19 outbreak ever in terms of infection numbers. The citywide lockdown has almost stalled steel delivery and consumption in Shanghai, and the impact has been permeating to other regions of the country, Mysteel Global learned from market sources.
COVID infections refresh record high, steel trading halted
Shanghai introduced four-day lockdowns on the eastern and western half of the city in succession since March 28, but they were soon extended and replaced with a general lockdown covering the entire city since April 5. When the lockdown will come to an end seems indefinite as daily new infections in the city are still refreshing record highs.
On April 7, Shanghai reported 824 local confirmed new cases and another 20,398 asymptomatic infections, according to the official data. The number brought the total COVID-positive cases in Shanghai during this wave to over 130,000, surpassing that in Wuhan in Central China’s Hebei province – the epicenter when the coronavirus first broke out in the beginning of 2020, though infectors with serious conditions are few.
The very strict lockdown – in accordance with China’s dynamic zero COVID policy – means that around 25 million residents in this most populous city are being quarantined – mostly at home while a few others at their workplace to maintain essential work or production – such as local steelworks.
Transportation, especially via trucks, has been banned except for those delivering staples and carrying the infectors to hospitals or other designated places for quarantine. Hence, steel and raw material delivery via truck has been halted, and steel trading warehouses have been closed. Outdoor construction activities have also been suspended amid the lockdown, according to market sources.
“The steel market here has almost been brought to a halt – there is no buying from end-users and even speculative trading remains quiet,” a steel trader who provides supplies to construction sites in Shanghai observed.
Baosteel maintains normal operation amid lockdown
Baoshan Iron & Steel Co (Baosteel) in Shanghai, a subsidiary of the world’s largest steel producer China Baowu Steel Group, is the only steel mill in Shanghai. Its steelworks, with finished steel capacity at around 16 million tonnes/year, has been producing as per normal by April 8, fending off the disruptions caused by the pandemic-incurred lockdown, according to two company officials.
“We have planned ahead by stocking up raw materials for up to 14 days of use before the lockdown. And essential work staff are also quarantined on-site to make sure that normal production will be maintained,” an official said.
Baosteel’s smart steelworks and its application of industrial robots allow the remote control of operations and it also requires fewer employees on-site, according to a post on the company’s WeChat platform.
Besides, Baowu’s own docks to unload and transport raw materials to plants are also in normal operations – with special licenses granted by the government – so as to make sure raw material supplement could be delivered on time, according to the company official.
Pic: Baowu’s raw materials dock; Source: Xinhua News
However, stagnated steel demand and transportation disruptions slowed the company’s delivering of steel products to the market, which had led finished steel stocks to pile up, according to another company official.
For other mills that heavily rely on trucks to transport raw materials, they are not as lucky as Baosteel, as various restrictive measures have also been introduced locally to prevent the virus spread, even though the number of infections was much fewer than Shanghai, Mysteel Global understood.
For example, Mysteel Global’s investigation found that two steel mills – Xusteel Group and Zhongxin Iron and Steel Group in East China’s Jiangsu which borders Shanghai – have both announced on April 6 to halt a 1,280 cu m blast furnace for maintenance, due to their thinning raw material stocks amid transportation disruptions.
Lockdown impacts more on steel demand than supply
Some Chinese analysts believed that the COVID-19 has been having a more direct impact on steel demand than on supply, but in the meantime, China’s domestic steel prices have mainly been supported by the upbeat market expectation and high production costs, rather than their actual fundamentals.
“Shanghai is one of the largest steel consumption bases in China, and its lockdown has been dragging down the country’s overall steel consumption,” an official from a steel mill in East China said.
“Construction activities here have all been halted. For manufacturers, their indoor operations have also been affected more or less,” observed Liu Huifeng, the chief ferrous researcher of Donghai Futures.
A Shanghai-headquartered automaker told Mysteel Global that production of some models that are manufactured at its Shanghai plants has been affected due to the supply shortage of certain auto components.
Mysteel’s latest survey showed that China’s daily trading volume of rebar, wire rod and bar-in-coil for construction use over March 28-April 8 during the lockdown averaged 174,423 tonnes/day, down a large 36% on year.
China’s daily sales of steel for construction use 2021 VS 2022 (t/d)
Source: Mysteel Data
“This year, the market focus is really on the demand side, as it is almost certain that Chinese mills’ production and the country’s steel supply will recover (from 2021), though it remains very much unclear how much demand will improve this year,” Liu said.
It is different to last year when the market focus was on the supply side, as participants in the entire steel market had wondered whether China’s order of cutting crude steel output in 2021 from the previous year would be realized, he pointed out.
For steel demand this year, there has been a stark contrast between “a strong expectation on steel demand with a series of stimulus policies being or to be introduced by Beijing” and “the dim reality that steel demand has still be largely restrained by the pandemic,” according to Liu.
“Such optimistic expectation may continue to support steel prices for now because it cannot be proved wrong with the lockdown still underway,” he added.
However, “should steel demand turns out to be not as good as expected or the lockdown lasts longer than expected – let’s say it runs till April or even May, the traditional peak season for steel consumption – the market may see some price corrections then,” Liu warned.
As of April 8, China’s national price of HRB400E 20mm dia rebar was assessed by Mysteel at Yuan 5,129/tonne ($806/t) including the 13% VAT, up for the sixth consecutive week by another Yuan 24/t, against the Yuan 115/t surge in the prior week.
Written by Olivia Zhang, zhangwd@mysteel.com and Nancy Zheng, zhengmm@mysteel.com
Edited by Zhenqi Yang, yangzhenqi@mysteel.com
This article has been published under an article exchange agreement between Mysteel Global and SteelMint.
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