The steelmakers of China are facing their biggest crisis in years with a demand to shut down as industries and construction sites fall silent. Howsoever, they are still in the process of churning out metals.
The outbreak of coronavirus following a sudden fall in China’s economy results in very few buyers of steel, which witnessed a downfall in prices and immense pressure on margins. Though it seems to be most difficult for the steel manufacturers in China to cut down production as the blast furnaces are devised to run continuously, and diminishing it to zero usually kept as a last option, which would lead to piling up of material up in the factories.
“Inventories are at critically high levels. Most mills are still trying to keep running for now though for technical reasons,” stated Kevin Bai, an analyst at CRU Group.
Very few steel makers of China use electric arc furnaces or EAFs which helped them to remelt fragments and pieces from old cars and ruined buildings, turning them into new steel products. These all can be shut down soon. However, the rest of the other factories that use blast furnaces with iron ore, coking coal and other ingredients are hard to be shut down completely as it is an expensive and complex process.
“As far as we know, they’re all still making steel,” said Elizabeth Gaines, chief executive of Fortescue Metals Group Ltd, referring to those producers who buy iron ore from her company. As reported EAF mills have already stopped producing as reported by CRU Group and Kallanish Commodities Ltd.
China is considered to be the world’s largest steel manufacturers and contributes to maximum global production. Coronavirus has immobilised the industry’s supply chains, with migrant employees who are unable to return to work due to restrictions in movement and isolation measures.
Now the biggest question for managers of a blast furnace is how swiftly can the economy that has fallen be returned to normal which was running with a rate of 40% to 50% capacity last week? Usage rate for the same in Tangshan has decreased to about 74% from almost 81% last year, according to the data from Beijing Custeel E-Commerce Co. The last major downfall happened in the year 2015 and 2016 when a slowdown in China triggered worldwide crisis oversupply when markets were forced to shut down. The current situation has however witnessed an increase in steel offered for export as according to the report by CRU Group.
BHP has confirmed that if the virus effects are under control by the end of March, the consumers of steel and copper should recover fully from the second quarter and operate at a higher level than earlier, the demand in 2020 will remain unaffected.
“Obviously actual physical demand is pretty bad right now and we expect it to be bad in the short term,” said Tomas Gutierrez, an analyst at Kallanish Commodities. He believes that there is an expectation the government will look after the matter.