China’s steel outlook alarm

  • Business
  • Friday, 07 Feb 2020

Cutting output: An employee working at a steel factory in Dalian, Liaoning Province in China. The country is lowering production due to the coronavirus crisis. — Reuters

SINGAPORE: The world’s largest steelmaker has sounded the alarm about the outlook as the coronavirus crisis rips through Asia’s top economy, with China’s premier industry grouping warning of transport snarls, weaker demand and a situation this quarter that “does not look optimistic”.

“Companies are facing restrictions in logistics and transport, trades have been muted and prices of raw materials and steel have slid, which is causing the market’s value to decline, ” the China Iron & Steel Association said.

The group, which represents the biggest suppliers, has given the green light for lower production, while flagging potential for stimulus-aided demand later in the year.

Commodities have been rocked by China’s health crisis, which has killed hundreds, sickened thousands, and hurt the outlook for raw material demand as company activities are suspended and transport barred.

The country is the top buyer of iron ore from shippers including BHP Group, Rio Tinto Group and Vale SA.

Conditions in China’s steel industry – which account for more than half of the global output – set the tone for producers and users around the world.

The virus’ impact on the steel industry will be concentrated in the first quarter, the association said in a statement.

“Steelmakers should appropriately adjust production schedules based on orders, finances, and the ability to transport materials, ” it said.

The sector should “avoid malignant competition, manage traders, and strictly not sell at low prices and disrupt the market”.

Iron ore has slumped this year amid the health crisis, which has escalated during an annual, nationwide vacation when mills and steel users scale back operations. Given the outbreak, most of China’s provinces – including areas where steel production is concentrated – have extended the break.

Iron ore has sagged 15% in Singapore in 2020, and was last traded at US$78.62 a tonne as most-active futures pared an intraday loss following a statement from China’s central government that it planned to halve tariffs on some US imports. Steel prices are also lower this year.

The steel association urged producers to analyse trends rationally, and flagged the possibility of an improving outlook in the second quarter on stimulus, according to the statement.

The steel sector’s performance this year would still improve compared with last year, it said.

In 2019, China’s mills churned out almost one billion tonnes of steel, and they accounted for about 70% of global seaborne iron ore demand.

A few hours after the statement from the China mills’ grouping, Luxembourg-based producer ArcelorMittal struck an upbeat tone as it reported earnings. “We believe the effect of the coronavirus would likely have a short-term negative demand impact in China and to a lesser degree elsewhere, ” it said. — Bloomberg

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China , steel , iron , production , coronovirus , impact , outlook , alarm , industry , caution


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