Mainland China’s biggest coronavirus outbreak in months – in the northern steelmaking hub of Hebei province – has triggered curbs on transport, including truck deliveries of steel.
But analysts expect the price of the metal to drop in the short term after a strong rise supported by the nation’s economic recovery.
“As Hebei enters a state of war [with the coronavirus], together with a deep plunge in the temperature, the [steel] demand cannot be wholly met,” said Fubao Information, a data-analytics company based in Shanghai that focuses on metals, in a research note published on Wednesday.
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But given the already-high prices of steel and production, “downstream demand is relatively weak, so there is no major driver to support a price jump”.
“In the short term, the market will be in a state of shock and will correct,” the analysts said.
Hebei reported 51 new locally transmitted coronavirus infections and 69 asymptomatic cases on Wednesday, after 63 infections were reported on Tuesday, local health authorities said.
Among the 51 new infections, 50 were recorded in Shijiazhuang, the capital city of Hebei, and one case was in Xingtai, a neighbouring city.
Larger steel mills are still operating, but Fubao Information said that there would be disruptions in the logistics supporting production and delivery of finished products, because Hebei has closed major highways leading into Shijiazhuang, where some of the province’s major steel factories are located.
“The restrictions of people movement in certain districts [in Hebei] will further influence transactions and purchases, putting pressure on steel prices,” Zgw.com, a website specialising in steel-trading information for buyers and suppliers, said in a note on Thursday.
Analysts said the surge in new infections has not had a major impact on Hebei’s overall manufacturing and trading capacity.
Metal-data provider Mysteel reported that the iron ore trade has remained active at the port in Tangshan, despite more restrictions on truck drivers.
Demand for steel, which shot up earlier this year as a result of strong infrastructure and property investment in China, is also expected to ease in the coming weeks, as the cold snap in the nation’s north and the upcoming Lunar New Year holiday in February slow construction activity, according to analysts.
The China Meteorological Administration on Tuesday issued its first cold-weather alert for 2021, warning of further temperature drops this week in much of the country, including parts of northeast China and northern China.
To rescue its coronavirus-hit economy, China has provided substantial financial support for infrastructure investment, boosting demand for iron ore and steel. Steel and iron ore have been the best performers in the commodities market this year, largely due to strong demand from China.
China is expected to produce 1.065 billion tonnes of crude steel in 2021, up 1.4 per cent from a forecast of 1.05 billion tonnes in 2020, the China Metallurgical Industry Planning and Research Institute said this week.
Steel demand from the construction sector – the nation’s biggest consumer of steel – is expected to grow 1 per cent to 580 million tonnes in 2021, after growing 13.4 per cent to 574 million tonnes in 2020, the government consultancy said.
Additional reporting by Reuters
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