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According to a special report on the Chinese metal market by analytic company SMM dated February 26, transportation in China recovered to 60-90% of normal levels, with the exception of Hubei Province, the epicenter of the outbreak of coronavirus (COVID-19). At the same time, the real efficiency of transport links to Jiangsu and Henan is less than 50% of the norm due to the delay in the return of personnel to jobs.
As of February 24, as a result of repair and maintenance work at the plants, the loss of pig iron production averaged 192 thousand tons per day, and the demand for iron ore decreased by 330 thousand tons per day. Northern China accounts for 72% of the total loss in demand. For example, in Hebei Province, strict environmental requirements by the authorities forced steel plants to switch to maintenance mode.
According to the latest SMM study, which covered 102 integrated steel mills, 52.94% of them work normally, and 47.06% carry out preventive measures or have reduced production volumes (with the exception of plants that have reduced production by adjusting the ratio of equipment utilization and raw material consumption ) End-user demand, which has not yet fully recovered, stock pressure and environmental restrictions have forced more plants in the sector to go into preventive maintenance this week.
Mainly repair and maintenance work affected structural steel manufacturing enterprises, while the production of flat products suffered little: 91.7% of steel plants that switched to maintenance had structural steel production capacity, and only 8.3% had rolling production lines products.
End consumers of steel in China continue to recover production, with the exception of Hubei Province, where the start of this process has been delayed until March 10. As of February 20, industrial enterprises with an annual income of more than 20 million yuan resumed work by 42.3% - 86% of the nominal level, with Shandong Province taking the lead.
The most serious activity was restored among machine builders. In the automotive sector, the recovery rate reached 75% as of February 18, the Chinese Automobile Association said. In the construction sector, which is heavily dependent on migrant workers, only a few projects have resumed work, while the rest of the activity should not be expected until mid-March.
Steel prices are expected to move sideways in the short term - an improvement in the state of fundamental factors supports them, while pressure from increased stocks can hold back price growth. Steel quotes recently rallied amid rising cost of futures and the process of replenishment of reserves have become the underlying links in production. On the one hand, fundamental market factors have improved due to reduced production at steel mills and the restoration of activity among end users. Market sentiment is also improving in the wake of some positive news. On the other hand, stocks have become high, and recovery in metal demand is slow.
