Posted on 04 Feb 2020
The coronavirus outbreak in Wuhan has led to Chinese New Year holidays being extended and transportation restrictions introduced in order to contain the spread of the virus. Demand is normally weak during this period, but production continues as usual. Every day of lost activity across China could see demand fall by 2.5-3.0 Mt and transportation restrictions are likely to disrupt supply chains and production output in affected areas.
Background
In only 13 days from 16 January, the number of people infected with the coronavirus in China went from 45 to almost 6,000, plus over 9,000 suspected cases. On Wednesday 28 January, the death toll reached 132, with confirmed cases reported in 12 other countries, including the US, Japan, France and Singapore.
More than 60 million people in 13 cities in China have been fully or partially locked down since the virus outbreak. On top of this, the Chinese government has extended the Chinese New Year (CNY) public holidays, to delay the mass migration of people back to work. In Shanghai and nearby Suzhou in Jiangsu province, the holiday period has been extended further, until 9 February. The only industries still working are those on the exception list: gas, water, power, telecommunication industries, medical machinery, pharmaceuticals and necessaries including supermarkets, food manufacturing. In the last three days, more areas outside the Hubei epicentre are now taking steps to limit movement of people.
Steel demand is likely to be lower in the near term
Already weak seasonal demand is likely to slow further in China due to measures designed to reduce the spread of the virus, including an extension to the holiday period and the infrastructure restriction.
The spread of the coronavirus has coincided with CNY holiday, a period when steel demand in China is particularly weak as most people working in construction, manufacturing, infrastructure and logistics are on holiday. However, the effect on steel demand so far is limited as most construction activity does not restart until after the Lantern Festival, which this year is on 9 February. Construction is the biggest sector driving China’s 2.6 Mt of steel demand per day or 15-20 Mt per week.
Source:CRU
