Locks after China’s new Covid-19 outbreak impacting steel, iron ore

SINGAPORE – A new wave of Covid-19 cases in China’s Hebei province triggered transportation restrictions in the major steel-producing region.

Enclosures in Hebei include areas surrounding steel mills, which limits the ability to transport metal to customers. China is the world’s largest producer of steel and analysts say Hebei contributes more than 20% of the country’s total production.

Coronavirus cases in Hebei have been on the rise since the beginning of the year, prompting the province to close its capital, Shijiazhuang, and at least two more areas in an effort to contain the spread of the coronavirus.

The sidewalks are unlikely to affect steel production for now, but they could hurt demand by pushing the manufacturing sector to stop working earlier than planned for the major lunar New Year holidays, the data provider said. S&P Global Platts commodities earlier this month.

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

Steel deliveries by truck have been suspended in Hebei, leaving the railway as the only way to transport steel, the Chinese-based metal data provider reported on a Shanghai-based basis, in a note last week. The report indicates that blocked roads have caused the accumulation of steel in the main mills in the region.

“Partial closures have restricted freight transportation, leading to a more intense build-up of inventories from local steel mills rather than stockpiles during the first fortnight of January,” said Atilla Widnell, co-founder of Singapore-based Navigate Commodities. email CNBC on Monday.

“We have heard anecdotal evidence that some traders and traders are reluctant to link cash flow in the event of a prolonged or intensified ‘soft closing’.

S&P Global Platts said inventories are rising at Jingye Iron and Steel Factory in Hebei capital, Shijiazhuang. The firm cited a source at the factory, which produces 13 million metric tons of crude steel a year.

Manufacturing and construction sites in China will stop operating earlier than usual before the Lunar New Year holidays between 11 and 17 February. It is likely to affect the demand for steel, which is widely used in these sectors.

The government advised manufacturing and construction workers to return home before the maximum holiday period, S&P Global Platts said.

“According to market sources, Beijing has done so in (an) effort to reduce the possibility of an increase in COVID-19 cases during and after the Lunar New Year holidays,” the firm wrote.

The previous stoppage of work suggests that demand for steel will be reduced, leading to an increase in inventories elsewhere.

“Some traders said they were unwilling to increase their steel inventories as they plan to have to maintain them for much longer than usual and, with the continuation of steel prices, the construction of inventories will put pressure on their cash flows, ”added S&P Global Platts.

Daniel Hynes, chief strategist at commodities at Australian bank ANZ, told CNBC on Monday that the risks could extend to iron ore.

“There is concern that a further increase in coronavirus cases in Hebei could lead to the blockade of some steelmaking regions. This would obviously affect the demand for iron ore, as steel mills would likely see disrupted supply chains, which would affect steel production, ”he said. he said in an email.

Wood Mackenzie, an energy research consultant, already explains the effects of swell on the costs of the raw materials used to process steel such as coking coal.

Coking coal prices are rising and are about 450 yuan per ton higher than last year, according to Zhilu Wang, an associate researcher at the firm.

“This is due to restrictions on interprovincial transportation in Hebei provinces that have led to the increase in the transportation rate,” Wang said.

While this in turn could support steel prices, Wang predicted it could weaken slightly overall, as traders stock less of the commodity due to Covid’s uncertainty.