The global steel trade is facing an unprecedented threat. Despite its historic and robust nature, the world could be a very different place even for such a fundamentally core commodity.
In a country whose presence and influence across many industries is significant, coupled with its now infamous reputation surrounding the novel coronavirus, China steers the steel markets globally both short and long term.
China has long been the world’s dominant steelmaker, but the spread of coronavirus has exposed how dependent some global producers are on specialised Chinese raw materials to make and supply the metal, particularly on a short term basis. Some global steelmakers fear these materials will be in short supply if the impact from coronavirus on logistics and workforces continues much longer. Hubei Province, for example and after decades of sustained economic growth, has become the sixth largest producer of steel in China. It benefits from trade routes such as rail, from North to South, and river connections, from East to West. China’s East Coast boasts large steel producers which are suitably placed close to the shoreline.
Having sparked overwhelming and relentless ramifications across the employment industry, coronavirus has placed many companies within various steel consuming industries in hiatus. Production is low, if not dormant, and in turn the inventories of steel producing businesses are consequently high. Some major steel mills claimed that they were running out of space to house rebars and billets due to lack of demand. It is academic that the high inventory and low demand will put more pressure on steel prices. Global demand for stainless steel and special steel grades is expected, in isolation (pun intended), to rise due to the growing production of healthcare products such as ventilators, oxygen cylinders, hospital beds etc. The volumes will still be insignificant, however, in the context of the ‘typical’ total steel demand.
Based on previous observations both during and in the wake of events such as the 2007-2008 financial crash, there seems to be a fairly optimistic view amongst numerous entities of the industry that the steel market is likely to bear the brunt of this market turbulence and recover well. For example, US Steel’s recovery after the financial crisis of 2007-2008 was higher than that of the S&P 500. It is likely to perform similarly in the wake of coronavirus.
However, what remains challenging on the long term horizon on a global level, is the width and depth of the implications that the virus is having across global economies and the steel market. On a micro-level, construction continued for a time despite lockdowns globally but have subsequently been further curtailed. Automotive and aeronautical
markets will clearly also be affected as travel is eliminated during this current period, with significant household/consumer purchases declining. Consequently, the scrap markets haven’t been immune to the implications of the virus either. Demand for steel finished products, both domestically and abroad, has severely declined and thus a number of furnaces have seized production entirely in order to conserve cash and reduce, as far as feasible, pricing risks. An unfamiliar and scary time for many which really highlights the depths of the direct implications, wider economic uncertainty and the potential of a global recession.
“The steel and ferrous scrap markets are now in for a new world order of low prices and depressed margins where price leadership has shifted away from traditional leaders and toward new steelmakers in countries with increasing self-capacity and economical labor forces.”
The price of Iron ore, a necessary ingredient in the steel making process, has not yet been heavily affected by the impact of coronavirus. This also happens to be the case amongst other bulk commodities, such as coal, alumina, and bauxite. Steel producers have looked overseas due to transportation issues domestically and iron ore producers have been concerned with the increase of stockpiling in steel mills. Surprisingly however, this has not impacted the price of iron ore...yet.
OCI trusts in the ability of the global steel market to survive, recover and continue to thrive beyond this crushing and testing time for us all. We are continuously working with our suppliers, end users and logistics partners to react and navigate these challenging times. We expect trade routes and markets to open-up considerably in the coming weeks and months and will continue to play a crucial role in the trade of these materials globally. For further information on how OCI can support your business in these challenging times, please Contact Us.