SMM Hot News: China Metal Special Report 2: Impact of the coronavirus outbreak on China metals market

SMM has undertaken further surveys covering the impact of the current issues in China on physical metals markets. While processors and end users remain offline expecting to come back next week, albeit at reduced operating rates given the uncertainty on order books, so far production impacts at the smelter/mill level are minimal while producers continue to assess the evolving situation. Our teams will continue to monitor the situation as it evolves and will have more updates. You can also get our latest updates at www.metal.com or through our social media pages on Twitter and Linkedin.

Iron Ore

Major production areas of iron ore in China have seen limited impact of the epidemic outbreak beyond the usual seasonal CNY reductions in output, though many have delayed their post-holiday resumption due to personnel and/or transportation issues.

Miners in many regions are aiming to resume production on February 10, but resumption of operations is still dependent on the developments of the coronavirus epidemic. Besides, there is some time lag between the mining, dressing of the raw ore and the production of final concentrate products. SMM gives a update of the operation status at various Chinese provinces.

Hubei province (<5mt effective capacity)

All miners in Hubei, the epicentre of the coronavirus epidemic, have been ordered to suspend operations, with a few personnel on duty. It remains unclear when the restrictions will be lifted.

Henan province (<5mt effective capacity)

A state-owned large-scale mine in Henan is currently running 70% of its capacity, limitedly affected by the epidemic outbreak. Workers that returned to their hometown outside Henan for the Chinese New Year holiday have not yet returned to work, and the resumption date is tentatively scheduled on February 10. Shipment of raw materials is primarily by railroad, due to restrictions on automobile transportation.

Guangdong province (<5mt effective capacity)

Mines are expected to resume operations on February 10. Reduced prices of seaborne iron ore have weighed on local concentrate prices by 50 yuan/mt from January. As the coronavirus epidemic affected the manpower availability, ore dressing plants may only be able to recover half of their capacity when the extended holiday ends on February 10, despite sufficient supply of raw ore.

Liaoning province (c. 60mt effective capacity)

Local government prohibits the recovery of mining operations due to virus impact, as some mining works have been outsourced to other companies. Near-term insufficient supply of raw ore may trigger suspension of ore dressing mills.

Mines that stopped production before the CNY holiday are banned from recovering before February 10 or subject to restrictions on explosives supply, in response to the local government’s call to reduce population movement.

Even if some mines would be able to resume on February 10, the ore dressing plants may unlikely to return normal operations before February 15, on the back of severe epidemic situation in South China.

Hebei province (c. 70mt effective capacity)

Ore dressing plants have maintained normal production as the virus outbreak limitedly hit the major production areas of iron ore in Hebei.

However, in other Chinese provinces whereby the epidemic situation is more serious, there will be further delays for the return of mining workers who are out-of-town and away for the CNY holidays. This will tighten raw ore supply and drove dressing mills to shut down, affecting the local supply of iron concentrate.

Shandong province (c.16mt effective capacity)

The coronavirus outbreak delayed the resumption of local mines from the originally planned January 30 to February 10. Local miners said the probability of returning to work as the updated scheduled is high, but it requires at least 10 days for all employees to get back to work, which may cause a significant impact on concentrate production in February.

Inner Mongolia (c. 25mt effective capacity)

Mining operations at large-scale companies are basically normal, but the daily operating rates have declined. The coronavirus outbreak has a greater impact on some private-owned mines, since they are invested by firms from South China with employees also from the south. Resumption of those miners will be postponed.

Anhui province (c. 20mt effective capacity)

Mines in the Huoqiu area of Anhui are currently under normal production, while mines in the Lujiang area near the provincial capital Hefei feel a larger impact from the epidemic. According to the current policy, the recovery of mines in Lujiang area is tentatively set on February 9.

Shanxi province (c. 33mt effective capacity)

State-owned mines in northern Shanxi are in normal operations. Underground mining workers are mostly from other provinces and have yet to return from the holidays, leading to lower output of raw ore by 50%. Open-pit mines remain shut due to the extended holidays. However, ample stocks of raw ore sustained production at ore dressing mills.

Explosives supply limits during the CNY holiday drove private mines to shut down as early as before the holidays, and the resumption was delayed to February 15. Iron ore production in Shanxi has been suspended for more than 7 days, and the process of applying for resumption was complicated.

Southwest China (c 50mt effective capacity)

State-owned mines and large private firms in the southwestern region are in normal production, while a small number of mines have been shut down due to the coronavirus epidemic. All mines near the Tongan Town, Huili County of Sichuan province have been ordered to suspend since end-January as the area was severely affected by the virus. The resumption schedule remains unclear.

Some mines that are shuttered for the CNY holiday will not recover before February 10 as the spread of virus hinders the procurement of necessary goods and the return of employees.

Steel

Spot steel markets in China were muted after the extended Chinese New Year holidays amid the novel coronavirus outbreak, which kept participants sidelined.

As of Wednesday February 5, spot prices of hot-rolled coil in Wuhan, the epicenter of the coronavirus outbreak, fell 150 yuan/mt before the CNY holiday (January 23), according to SMM assessments. Quotes for construction steel were mixed.

In addition, Hubei province has announced that businesses are not to resume work earlier than midnight February 13, which is three to five days later than other regions in China. SMM conducted a survey on steelmakers and downstream consumers in Hubei to assess the impact of the epidemic on the steel sector.

Steel production in Hubei

The current capacity of blast-furnace in Hubei stands at 28.37million mt. Blast-furnace producers are maintaining normal production, as they have raw materials stockpiles that can ensure production for about one more month and as rail transport still works. Steel production from BF mills is likely to shrink significantly if the outbreak has yet to be effectively curbed in March

All electric arc furnace (EAF) producers are closed, and the EAF capacity in Hubei stands at 12.72 million mt. The shutdown of EAF steelmakers is likely to continue after February 14, when companies in Hubei are allowed to resume work, as current spot prices are putting them in deep losses.

Steel consumption and in Hubei

Outlook for Q1 2020 for the steel sector is expected to be bearish. According to market participants, spot prices of outside Wuhan has declined sharply since the coronavirus outbreak. For instance on February 6, prices of screw thread in the Shanghai spot market has fallen by 230 yuan /mt since January 23 (before CNY), and the prices of hot coil is 300 yuan /mt lower from January 23.

SMM believes that the sharp decline of the domestic market prices will weigh on the international market prices to a certain extent. However, prices might receive some positive support on the back of macro-economic stimulus from the government. Moreover, with the control of the epidemic and the gradual recovery of demand, prices are expected to rebound in March.

Recovery of construction sites is expected to be delayed to mid-March to end-March, which is later than the expected dates of end-February or early March. For manufacturers, operations are unlikely to gradually recover till after February 20, as workers should be quarantined for 7-14 days after enterprises can resume work on February 14. This is much later than the previously expected dates of end January.

As for the manufacturing sector (especially automobiles), most of the producers are likely suffer a heavy impact from the coronavirus epidemic outbreak as these firms remain closed for the foreseeable future.

Further Reading

SMM Webinar Series: Coronavirus Special – Impact on the China metals market (Feb 7, 2020)

Hubei lockdown could lead to steel production plunge or suspension in central China (Feb 5, 2020)

Raw material supply troubles underpinned nickel prices (Feb 6, 2020)

Jiangxi implemented stabilisation measures to support economy during coronavirus outbreak (Feb 6, 2020)

Pent-up demand amid virus outbreak to support near-term alumina price rally (Feb 6, 2020)

Logistics issues to grow sulphuric acid stocks, affecting smelters operations (Feb 5, 2020)

SMM Hot News: Impact of the coronavirus outbreak on China metals market (Feb 4, 2020)