Analysis: Coronavirus fears weigh on steel markets

  • Market: Coking coal, Metals
  • 28/01/20

Activity in the global steel and ferrous raw materials markets is on hold as market participants await clarity amid the extended lunar new year holiday in China, following the coronavirus outbreak originating in the Chinese city of Wuhan, Hubei province.

China's General Office of the State Council yesterday extended the national 24-30 January lunar new year holiday to 2 February. But some localities — Shanghai, Jiangsu and Zhejiang province — have extended the holiday to 9 February, and more such extensions could follow.

The effect of the virus outbreak on steel and related raw materials markets are still relatively muted. The lead-up to and the month following the first day of the lunar new year holiday in China are typically lull periods and any significant impact on the markets is only likely to emerge after the end of the official holiday period in the second half of February.

Most construction projects in China are idled for a month in winter. The national holiday lasts for a week, but migrant workers are often given a month or longer to travel to their home towns.

A major steelmaker in east China has indicated that its operations will continue as usual over the holiday and workers are returning from the break as scheduled, a mill official said.

Blast-furnace-based steelmakers maintain operations over the holiday to keep crude steel output from dropping significantly. This sends steel inventories soaring to annual peaks in late February and early March each year.

Scrap-based steelmaking from electric arc furnaces (EAFs) shut down over the holiday and the outages are likely to be extended. EAFs account for less than 10pc of overall crude steel output.

The Shanghai Futures Exchange (SHFE) is scheduled to resume trade after 2 February despite the holiday extension to 9 February in Shanghai.

Most participants that Argus spoke with said they are waiting for their companies to tell them when they will need to return to work and some have been asked to work from home.

The Chinese government has adopted traffic controls and quarantine measures in many cities to prevent the virus from spreading. Public transportation such as long-distance bus services and taxis were suspended in many cities. In Hebei province, 37 bus lines have suspended operations from today, state-owned news agency Xinhua said. This includes bus services in major steelmaking hub Tangshan, potentially affecting the ability of mill workers to get to plants. Railway services were halted in some regions, including Hubei province.

Post-holiday impact

While there is still little immediate impact on the market, most steel traders anticipate prices falling because the virus outbreak is expected to have a more severe impact on steel demand after the holiday.

Factories will suffer from a shortage of workers because of the extension of the holiday and traffic controls. Construction sites in many cities are not allowed to resume work after the holiday until further notice.

Demand will be weaker for rebar and coil, and the downstream market will be reduced, pushing back demand for finished steel products.

Trading activity in Europe, and the Middle East and north Africa (MENA) is on hold, as the market seeks to understand the extent of the impact the virus is having on the Chinese steel industry.

"The virus is bad news. People were thinking that the market would be better after the lunar new year holiday, but that is no longer certain," a trader said. "No-one wants to go to China or carry raw materials and finished steel, so it is negative for the market," a mill said.

But not all are as bearish. The virus outbreak and the extended holiday could have a negative impact on prices in the short term, as mills conclude fewer bookings for the local and export markets. But production will have to be lower in January and February as a result, a trader said.

Traders with coils, billet and rebar position cargoes are becoming more nervous and looking to offload the material now in case prices fall, which could see some lower bookings concluded in the market in the next few days.

"The virus is a huge risk — the potential impact and probability is getting higher every day. One week of extended holiday in China will have a big effect," a sell-side market participant said. Plunging iron ore prices are affecting sentiment, but not yet to the same extent as a sudden sharp drop in scrap prices would. The decline in iron ore prices, if sustained, would be reflected in basic oxygen furnace (BOF) mill iron ore prices with a few months' lag.

Uncertainty over raw material supplies

The import of iron ore and coking coal and the export of steel may be affected, depending on the length of port closures. Jingtang port and Caofeidian port in Tangshan city are closed from 28 January until further notice, market participants said. Only vehicles carrying medical supplies are allowed to enter and leave ports. The port authorities have not issued official notices on the closures or when they will reopen.

These closures would halt truck shipments of iron ore to mills. But with most mills having restocked ahead of the holiday and their existing iron ore inventories at high levels, a brief outage would not affect steel output.

"While the market impact of the coronavirus outbreak remains uncertain, there could be a delay in the resumption of domestic coal mines, which is expected around mid-February or even later depending on the seriousness of the outbreak," a Singapore-based trader said.

Jingtang and Caofeidian are major coking coal import hubs but these ports have already been subject to tighter custom clearances for Australian coking coal since mid-January.

Following the signing of the US-China interim trade deal earlier this month, the lifting of China's retaliatory tariff on US coking coal is highly anticipated by US mining firms. Some mining firms have suggested that China's 25pc tariff on US coal imports may be lifted as soon as 15 February and some have offers ready for the Chinese market. But port closures and the holiday extension mean there is now less certainty over how soon tariffs will be lifted, a mining firm said. Chinese buyers are unlikely to move to secure volumes until there is an official confirmation of tariff changes.

By Chris Newman, Xia Ji, Lora Stoyanova, Greg Holt, Dylan Wong and Siew Hua Seah


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
28/03/24

Europe plate: Imports weigh on EU prices

Europe plate: Imports weigh on EU prices

London, 28 March (Argus) — Plate prices in Europe tumbled this week on increased import activity, which has pushed European producers to adjust their offers down to remain competitive. The Argus fortnightly Italian plate assessment dropped by €22.50/t to €730/t ex-works today for S235 grades, while the northwest European plate assessment for the same specifications also dropped by €15/t to €765/t. In the south, for S275 material, re-rollers were heard quoting €740-750/t to small customers, with €720-730/t possible for larger volumes. The market remained split between suppliers willing to drop to the low €700s/t to collect orders, and others that preferred to remain firm at €740-750/t and wait for after the Easter holidays to see how the market develops. Two re-rollers confirmed this week that they are mulling extending their Easter break by a few days owing to weak purchasing activity in the market. The level of €710/t ex-works for S275 was also reported available for orders of 1,000t and above, but this could not be verified. Buying activity over the past two weeks remained poor, as market participants are purchasing what they need with no restocking activity occurring. A slight drop in slab prices has contributed to lower plate prices. Deliveries for the Italian domestic market remain for late April for commodity grades. To the rest of Europe, Italian producers were heard offering around €750/t on a ex-works basis for S235 material, without collecting any tonnage. One source said there were offers as high as €760-770/t ex-works Italy. In northern Europe, one mill was reported concluding sales to end-users working in the shipbuilding industry at €750-770 ex-works for S355 grades. The same producer tabled offers at around €780/t, but was quick to offer discounts. Orders from the supplier are expected to be delivered in six to seven weeks. One source estimated that for S235, integrated mills would be offering close to €780-800/t ex-works, while from re-rollers located in the Benelux area €750/t ex-works for the same grade could be easily achieved. One central European mill was also heard available to sell at €790-810/t ex-works for S235. Producers in the northwest are operating on April to May delivery depending on the mill and the product requested. Market participants agree that a rebound in market activity is only expected towards the latter part of April. On imports, over the past couple of weeks, Indonesian material was purchased by buyers across the continent, especially in southern Europe at €640/t cif levels for S275. One source estimated that sales from Indonesia totalled close to 60,000t over the past month. After this activity, Indonesian material was not reported available over the past seven days. One deal was also concluded this week at €710/t cfr north EU, for South Korean S355 material. From South Korea, offers for S275 were estimated over the €660/t cif Italy level this week, with no deals concluded. Indian material was offered at $710-720/t cfr Italy for S275, while one trader offered the same origin from port, free on truck at €730/t for S355. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read more
News

Turkey rebar: Market muted ahead of elections


28/03/24
News
28/03/24

Turkey rebar: Market muted ahead of elections

London, 28 March (Argus) — Turkish rebar prices were stable today, without a great deal of urgency shown by export buyers following a sustained uptick in scrap prices over the past few days. The domestic market remained subdued, as construction demand is still constrained by high borrowing costs and the ongoing depreciation of the domestic currency. Argus ' daily Turkish export assessment for rebar was unchanged at $590/t fob, with larger cargoes still available at this level. European, mostly Balkan, buyers have been making enquiries this week, with scrap prices inching steadily upwards over the past three weeks. But buyers have mostly been checking prices, and trade has remained thin. Rebar indications from suppliers were in a $590-605/t fob range, with most suppliers expecting at least $595/t fob. In the wire rod segment, material was available in a range of $605-625/t fob. The weekly wire rod assessment increased by $5/t to $600/t fob Turkey. In the domestic market, offers from most mills in the Marmara and Iskenderun regions were firm in a range of $610-620/t ex-works excluding value-added tax (VAT). But material remains available from Izmir mills and one Marmara mill at $595-600/t ex-works. While some buyers have made purchases in the run-up to the municipal elections on 30 March, restocking has been lacklustre, with a lack of firm signals from the construction sector. Argus ' daily Turkish domestic rebar assessment was unchanged at $600/t ex-works excluding VAT, with the lira equivalent also unchanged at TL23,4000/t ex-works including VAT. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Taiwan scrap imports fall 13pc on year in February


28/03/24
News
28/03/24

Taiwan scrap imports fall 13pc on year in February

Singapore, 28 March (Argus) — Taiwan's ferrous scrap imports fell on the year in February, reflecting rising prices, subdued activity during the holiday period and high stocks. Ferrous scrap imports totalled 218,887t, down by 21.3pc on the month and 13.2pc on the year, customs data showed. Trade sources attributed the decline to rising seaborne scrap prices in November and December. Trade sources said lower bookings were expected given the lunar new year holiday in Taiwan on 8-14 February, with mills likely to have been prudent in their procurement since November as delivery of containerised scrap usually takes 8-10 weeks from the signing of an agreement. The US remained Taiwan's top ferrous scrap supplier in February, providing 81,249t, although this was down by 32.6pc on January and 25.1pc on the year. Ferrous scrap imports from Japan fell by 10.3pc on the month and 15pc on the year to 55,510t in February. Imports from Dominican Republic rose by 7.1pc on the month and 16.9pc year on year to 17,563t. Scrap supply from Australia fell by 47.8pc year on year to 9,921t. Trade sources said underwhelming fundamentals in Asia meant Australian sellers focused on south Asia, where they could achieve stronger margins. Looking ahead, a slowing construction sector could mean lower scrap imports. "The shortage of manpower and rising building material costs have impacted the initiation pace of new construction projects," the Taiwan Institute of Economic Research said on 25 March. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Japan’s SMM eyes Li-ion battery recycling plant by 2026


28/03/24
News
28/03/24

Japan’s SMM eyes Li-ion battery recycling plant by 2026

Tokyo, 28 March (Argus) — Japanese battery cathode producer Sumitomo Metal Mining (SMM) plans to set up a lithium-ion (Li-ion) battery recycling plant in western Japan's Ehime prefecture by June 2026. The recycling plant is expected to have a processing capacity of around 6,000-7,000 t/yr of black mass, equivalent to batteries for around 60,000 electric vehicles, a company representative told Argus on 28 March. Black mass is the shredded remains of cathode materials such as nickel, cobalt and lithium. The company will start construction sometime during March-April 2025, but the timing for commercial operations was undisclosed. SMM has also entered into a partnership with nine domestic recycling partners to build a supply chain for collecting used Li-ion batteries, the company representative added. SMM produced cathodes using nickel and cobalt from recycled Li-ion batteries in June 2023. Domestic battery producer Prime Earth EV Energy proved the quality of SMM's used cathodes in performance testing. The recycled ratio of nickel and cobalt used in the test was more than 6pc and 16pc respectively. This exceeds the standard rates that EU battery regulations tentatively set as minimum recycling requirements for each material, a SMM representative previously told Argus . The EU regulation is expected to take effect from 2031 after approvals by member countries. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Centaurus' Jaguar Ni mine in Brazil eyes 2027 output


28/03/24
News
28/03/24

Centaurus' Jaguar Ni mine in Brazil eyes 2027 output

Singapore, 28 March (Argus) — Australian mining company Centaurus Metals said that its Jaguar nickel sulphide project in Brazil is undergoing a feasibility study and aims to start production in mid-2027. Jaguar, bought from Brazilian mining firm Vale in 2020 , is estimated to hold 109mn t of 0.87pc grade nickel for an estimated 948,900t of contained nickel. The nickel product will be largely targeted at the Atlantic market, with expectations that demand will strengthen in the region. "Demand for nickel we believe is not going away. And if you look at what's going to happen in the US and European markets in particular, nickel will probably be a bigger part of the battery composition than anywhere else," Centaurus' managing director Darren Gordon said at the Tribeca Futures Commodities conference held in Singapore on 26 March. "There's a huge amount of nickel that still needs to come into the market." Many Australian mining firms have struggled with a slump in global nickel prices earlier in the year because of a supply glut caused by increased volumes from Indonesia, coupled with a slowdown in demand. Several Australian mines have halted operations , while other processing facilities were placed on care and maintenance programmes . But Centaurus is hopeful that Jaguar will be able to compete on a cost and environmental basis with Indonesian supplies. "Nickel is going to continue be supplied out of Indonesia in very large ways so we are going to compete on costs. And we think that when we deliver the feasibility study, we will be able to demonstrate that we can compete on costs. But overlay on that, we have this very low carbon footprint associated with our project," Gordon added. Centaurus said Jaguar is one of the lowest carbon footprint nickel project globally, following a review done by a metals and mining ESG research company. Once operational, greenhouse gas emissions from the project are forecast to be 7.27t of carbon dioxide/t of nickel equivalent, which is assessed to be lower than 94pc of other global nickel production. By Sheih Li Wong Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more