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

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

Hebei locks include areas around steel mills, limiting the ability to transport metal to customers. China is the world’s largest steelmaker, and analysts say Hebei contributes more than 20 percent of the country’s total production.

Coronavirus cases in Hebei have risen since the beginning of the year, prompting the province to block its capital, Shijiazhuang, and at least two other areas, in an effort to limit the spread of the coronavirus.

Edges are unlikely to affect steel production at the moment, but it could affect demand, prompting the manufacturing sector to stop work earlier than planned before the big Lunar New Year holiday, data provider S&P Global Platts told earlier this month.

According to analysts, the demand and prices of raw materials used to make steel such as iron ore could increase.

Steel deliveries by truck have been suspended in Hebei, leaving the railway as the only way to transport steel, Chinese metal data provider Mysteel in Shanghai said in a note last week. According to the report, the blocked roads led to the completion of completed steel at major factories in the region.

“Partial blockages have restricted freight, resulting in a sharper increase in stocks held by local steel mills, rather than at traders in the first half of January,” said Atilla Widnell, co-founder of Navigate Commodities in Singapore. email to CNBC on Monday.

“We have heard anecdotal evidence that some traders and traders are reluctant to link cash flow if a ‘soft block’ is prolonged or intensified,” he added.

S&P Global Platts said inventories are growing at the Jingye Iron & Steel plant in Hebei’s capital, Shijiazhuang. The company cited a source at the factory, which produces 13 million metric tons of crude steel per year.

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

The government has advised production and construction workers to return home before the maximum holiday travel 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 monthly New Year holidays,” the company wrote.

Stopping work earlier suggests that demand for steel will fall, leading to rising stocks elsewhere.

“Some traders have said they are unwilling to increase their steel stocks because they anticipate that they will have to stick to them much longer than usual and, as steel prices rise, construction stocks will put pressure on steel flows. cash, “added S&P Global Platts.

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

“There are concerns that a further increase in coronavirus cases in Hebei could lead to a blockade of steel-producing regions. This would have a clear impact on iron ore demand, as steel mills would likely see supply chains interrupted, thus affecting steel production, “he said. he said in an email.

The corrugating effects can already be seen in the costs for raw materials used to process steel, such as coking coal, said energy research consultancy Wood Mackenzie.

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, which has led to an increase in the transportation fee,” Wang said.

Although, in turn, this could support steel prices, Wang predicted that it could weaken slightly in general, as traders store less of the goods due to Covid’s uncertainty.