The Impact Of The Covid-19 Outbreak On China’s Steel Industry
2020年5月13日
The impact of the covid-19 outbreak on China's steel industry
Since mid-February, China's COVID-19 prevention and control situation has improved rapidly. Most provinces in China have reported no new domestic infections for more than six weeks. However, it is unclear when COVID-19 will be fully contained due to the risk of imported cases from foreign travelers to China. Against this background, life in China has gradually returned to normal. While we are still very cautious, methodically maintaining a social distance and wearing masks at work and outside, most Chinese are firmly convinced that we are over the worst. Amid growing confidence, the government has pushed most industries to resume work quickly to slow the economic downturn. By the last week of April, all construction and industrial sectors had resumed normal operations, but some service industries, such as restaurants and tourism, were still suffering from sharply reduced demand.
The impact on steel production was limited
According to several media reports, China iron and steel enterprises in China, there are more than 130 people infected, according to incomplete statistics), of which about 90% of the infections occurred in the iron and steel factory, Hubei province (Hubei province is the birthplace of China's epidemic), and 5% of cases occur in Tangshan (China's largest steel production area).That means there are few confirmed cases in China's main steel-producing regions. In February, the supply of raw materials for most steel enterprises was severely restricted due to the restrictions on the national transportation system, especially the road and water transportation system. Parts of the province were even completely closed to road traffic, meaning truck drivers and workers could not return to work during February. Since mid-march, this traffic and logistics bottleneck has gradually eased, and since early April, the supply of raw materials and the delivery of finished steel products have returned to normal. China's crude steel production in the first quarter of 2020 rose 1.2 percent year on year, instead of falling sharply as some had predicted, as steelmakers held reasonable inventories of raw materials.
Shrinking demand for steel
All of China's steel industries have been severely affected by the COVID-19 outbreak, with construction the worst affected, with almost all construction projects coming to a standstill since the last week of January. The large-scale interruption of the national public transport system further reduces the construction progress and increases the difficulty of resuming construction projects. Since the beginning of March, the situation has improved rapidly with the gradual easing of restrictions on inter-provincial travel, but the latest first-quarter economic performance data released by the national bureau of statistics show that all steel industries suffered heavy losses. These included a 6.8 percent drop in GDP, a 7.7 percent drop in real estate investment, a 19.7 percent drop in infrastructure investment, a 17.2 percent drop in general machinery, a 44.6 percent drop in auto production, a 28.5 percent drop in ship deliveries, and a 27.5 percent drop in air conditioning production. By April 14, more than 94 percent of migrant workers had returned to their jobs, according to the Chinese government. As a result, most of the construction and industrial sectors were operating at normal production levels by the last week of April. However, with domestic steel demand still recovering and foreign demand declining, capacity utilization in some steel sectors has yet to return to pre-COVID-19 levels.
Steel stocks rose to record highs
Normal steel production overlapped with shrinking downstream demand, resulting in a sharp increase in steel inventories. At the end of the march, the total steel inventory in steel production enterprises and circulation was 160 percent higher than that at the end of December 2019. To solve the problem of warehouse capacity, many steel production enterprises have to seek social warehouses outside the factory. At the same time, most steel producers began cutting production levels in late February. From February 21, some 73 blast furnaces (77 million tons/year) in 47 steel production enterprises were suspended. According to statistics, the average daily crude steel production in March decreased by about 7% compared with January. Steel inventories in mid-April were about 10 percent lower than at the end of March, due to a decline in steel production and a rise in steel demand.
Steel companies have made large donations
To combat COVID-19, China's steel companies have also made large donations to hospitals that treat infected patients and receive suspected cases. Some 95 Chinese steelmakers have donated more than 1.6 billion yuan ($229 million) in cash. Also, steel companies have donated a large number of medical protective equipment and ambulances to hospitals in Hubei province. Thanks to these donations and the rapid delivery of hundreds of thousands of tons of badly needed steel, the Chinese government built two makeshift hospitals in two weeks.
The government's economic stimulus plan
Since mid-February, the Chinese government has been urging companies from all walks of life to return to work quickly, safely, and in an orderly manner. By late April, all state-owned enterprises had reached full capacity, but many small private enterprises have yet to resume full capacity due to shrinking demand and lack of funds. To address the economic downturn, the central government has launched a series of stimulus measures of considerable scale. The measures include more proactive fiscal policy and moderately easy monetary policy, reducing the burden of value-added tax on small and medium-sized enterprises, and continuing to reduce the purchase tax on new-energy vehicles. One of the most direct measures is to reduce employees' social security contributions. Infrastructure, or "new infrastructure", is the top priority of the stimulus and will drive demand in the steel downstream sector. All industry meetings scheduled to be held in China in the first half of 2020, including those scheduled by the world steel association, have been postponed or canceled altogether. We hope to see an improvement in the epidemic outside China. It is estimated that a large number of steel industry conferences will be held in China from July 2020 to the end of the year.
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