Lockdown affects steel, iron ore after China’s new Kovid-19 outbreak

This aerial image, taken on 6 June 2019, shows a steel factory in Chengde, North Hebei Province, China.

Fred Dufour | AFP | Getty Images

SINGAPORE – A new wave of Kovid-19 cases in China’s Hebei province led to a transportation ban in the major steel producing region.

The lockdown in Hebei includes areas around steel mills, which limits the ability of the metal to be transported to customers. China is the world’s top steel producer and analysts say that Hebei contributes more than 20% of the country’s total production.

Coronavirus cases in Hebei have been increasing since the beginning of the year, prompting the province to stop the spread of coronovirus to its capital Shijiazhuang and at least two other regions.

Commodities are unlikely to affect steel production yet, but they may be hurt by demand to influence the manufacturing sector to stop work planned before the region’s major lunar new year holiday, commodity data provider S&P Global Platts said earlier this month.

According to analysts, demand and prices for raw materials used to make steel such as iron ore may also increase.

Ban in hebei

Shanghai-based Chinese metal data provider Mystel said in a note last week that steel deliveries from trucks have been suspended in Hebei. The report said that due to blocked roads, the steel mills in the major mills of the area have been completed.

“Partial lockdowns have restricted the transportation of goods, resulting in a faster build in inventories made by local steel mills rather than stockists in the first half of January,” said Attila Widnell, co-founder of Singapore-based Naval Commodities , Emailed to CNBC on Monday.

“We have heard some evidence that some stockists and traders are reluctant to prolong or expedite ‘soft lockdown’ in terms of cash flow,” he said.

S&P Global Platz said the inventions are growing at the Jinghe Iron and Steel Mill in Shijiazhuang, Hebei’s capital. The firm cited a source in the mill, which produces 13 million metric tons of crude steel a year.

Manufacturing, construction sectors are stopping work

Manufacturing and manufacturing sites in China are set to stop work before the Lunar New Year holiday between February 11 and February 17. Demand for steel is likely to be affected, which is heavily used in those areas.

S&P Global Plates said the government advised manufacturing and construction workers to return home before the peak holiday travel period.

The firm wrote, “According to market sources, Beijing has done this (a) during the Lunar New Year holiday and later in an effort to reduce the possibility of a spike in COVID-19 cases.”

The work stopped before the steel demand indicated a decrease, leading to inventions elsewhere.

The S&P Global Platform said, “Some traders said they were not ready to step up their steel inventions because they were predicting to hold on to them longer than usual, and that steel prices would continue to remain stable.” The reason, building construction inventory will stress its cash flow, ”.

Impact on steel, iron ore

Daniel Hines, senior commodity strategist at Australian bank ANZ, told CNBC on Monday that the risk could spread to iron ore.

“There are concerns that coronovirus cases may further increase in Hebei resulting in the closure of some steelmaking areas. This will obviously affect demand for iron ore, as the supply chain to steel mills is likely to be disrupted , Thus affecting steel production. ” Said in an email.

Energy research consultant Wood McKenzie said ripple effects could already be seen in the cost of raw materials used for processing steel.

According to Xilu Wang, research associate of Coking Coal, coal prices are rising and are about 450 yuan per ton more than last year.

“This is due to the ban on inter-provincial transport in Hebei provinces, resulting in increased transportation fees,” Wang said.

However, this was in support of steel prices, with Wang predicting that it may weaken overall as traders reduce commodity stocks due to uncertainty.


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