The eruption and subsequent spread of the coronavirus (COVID-19) has taken a toll on the Chinese economy as data for the first two months (January-February) of 2020 show. Demand in all the critical sectors is likely to remain muted for 6-9 months and iron ore demand likewise will be hurt, Hongmei Li, Head of English Editorial, Mysteel, indicated during an exclusive webinar, organised by SteelMint Events on April 3, on the pandemic and its impact on the Chinese steel industry.
“Sales of engineering components, automobiles and home appliances have been affected,” stated Li, adding that demand is likely to remain muted for 6-9 months and iron ore demand likewise will be hurt. “At the current juncture, all steel mills are concerned about cash flows and the Chinese government would have to introduce stimulus measures if Q1 results remain in a challenging zone,” she informed.
Bumpy start
Contending that the year 2020 witnessed a rather bumpy start for the steel industry in China, Li presented January-February data to drive home the point that all the critical sectors of the economy are in the doldrums. Crude steel output in China in 2019 was a staggering 996 MnT, up 8.3% Y-o-Y and finished steel output stood at 1,200 MnT, up 9.8% Y-o-Y. However, total finished steel output in January-February, 2020 stands at 167 MnT, 3.4% less compared to the year-ago period.
Zeroing in on the larger macro-economic picture and steel consumption in general, Li pointed out that the infrastructure and construction sector, the largest consumer of steel, has registered a sharp decline of 30.3% in demand in January-February, 2020 compared to the year-ago period. Another striking fact is that property sales and land leases during the said period have declined 39.9% and 29.9% respectively.
Among the core steel consuming sectors, Li put particular emphasis on automobiles, contending that total production and sales of auto units in the January-February, 2020 period have dwindled by an alarming 45.8% and 42% respectively compared to the same period last year. Meanwhile, sales of new energy vehicles dropped by an eyebrow-raising 59.5%, with production falling by over 63%.
Similarly, domestic sales of excavators recorded a sharp plunge of 46.5% in the two-month period under review.
Inventory
As demand remained subdued after the coronavirus outbreak, steel mills in China had to grapple with the pressing problem of rising inventory. Rebar stocks at China’s 137 producers in 35 cities peaked in mid-Mar and the total steel inventory is pegged at 30-40 MnT. Moreover, HRC stocks with producers and traders in 33 cities reached a pinnacle in the late February-mid-March period.
Indirect sales
The analyst highlighted the fact that Chinese exports were evolving into indirect sales. Machinery exports, which accounted for 60% of total Chinese exports value in 2019 and control a sizeable global market share, are turning away from the direct sales model.
Both HRB400 200 mm rebar and 4-75 mm HRC prices were “under pressure”, said Li, adding that prices are below 3,500 RMB/tonne. Imported iron ore stocks at 45 ports were under 120 MnT and SEADEX 62% Australian iron ore CFR Qingdao was a little over 80 RMB/tonne on March 25.
Relief measures
Dwelling on the short-to-medium term outlook, Li averred that the government is pushing is to resume operations at most industrial and commercial enterprises in accordance with feasibility parameters, especially with regard to infrastructure and construction works.
Tax, rental relief and delayed loan repayment facilities have been given to small and medium entrepreneurs who contribute to the country’s exports and subsidies have been extended for consumers of new energy vehicles.
~By Nirmalya Deb
Leave a Reply