This aerial double taken on June 6, 2019 shows a steel factory in Chengde, China’s northern Hebei province.
FRED DUFOUR | AFP | Getty Spitting images
A new wave of Covid-19 cases in China’s Hebei province triggered transport restrictions in the major steel-producing region.
The lockdowns in Hebei incorporate areas surrounding steel mills, limiting the ability to transport the metal to customers. China is the world’s top steel fabricator and analysts say Hebei contributes over 20% of the country’s total output.
Coronavirus cases in Hebei have been push since the start of the year, prompting the province to lock down its capital, Shijiazhuang, and at least two other areas in an pains to contain the spread of the coronavirus.
The curbs are unlikely to affect steel production for now, but they could hurt demand by urging the manufacturing sector to stop work earlier than planned ahead of the major Lunar New Year holiday, commodity statistics provider S&P Global Platts said earlier this month.
Demand and prices for raw materials used to make sword like iron ore could also shoot up, according to analysts.
Restrictions in Hebei
Steel deliveries by truck take been suspended in Hebei, leaving rail as the only way to transport steel, Shanghai-based Chinese metal data provider Mysteel said in a note survive week. The report said blocked roads have led to completed steel piling up at major mills in the region.
“Finding enjoyment in lockdowns have restricted the transportation of goods, resulting in a sharper build in inventories held by local steel work rather than at stockists in the first half of January,” said Atilla Widnell, co-founder of Singapore-based Navigate Commodities, in an email to CNBC on Monday.
“We suffer with heard anecdotal evidence that some stockists and traders are reluctant to tie up cash flow in-case a ‘soft lockdown’ is protracted or intensified,” he added.
S&P Global Platts said inventories are rising at the Jingye Iron & Steel mill in Hebei’s first-class city Shijiazhuang. The firm cited a source at the mill, which produces 13 million metric tons of unrefined steel a year.
Manufacturing, construction sectors stopping work
Manufacturing and construction sites in China are set to stop exploit earlier than usual ahead of the Lunar New Year holiday between Feb. 11 and 17. That’s likely to hit insist on for steel, which is heavily used in those sectors.
The government advised manufacturing and construction workers to return household before the peak holiday travel period, said S&P Global Platts.
“According to market sources, Beijing has done this in (an) elbow-grease to reduce the possibility of a spike in COVID-19 cases during and after the Lunar New Year holidays,” the firm wrote.
Enkindle stopping earlier suggests steel demand is set to drop, causing inventories to rise elsewhere.
“Some traders said they were unwilling to lengthen their steel inventories as they anticipate having to hold on to these for much longer than usual, and with steel rewards continuing to soar, building inventories will put pressure on their cash flows,” S&P Global Platts added.
Meaning on steel, iron ore
Daniel Hynes, senior commodity strategist at Australian bank ANZ, told CNBC on Monday that hazards could spread to iron ore.
“There are concerns that a further rise in coronavirus cases in Hebei could fruit in some steel making regions being locked down. This would obviously impact demand for iron ore, as nerve mills would likely see supply chains disrupted, thus impacting steel production,” he said in an email.
The splash effects can already be seen in the costs for raw materials used to process steel like coking coal, said lan research consultancy Wood Mackenzie.
Coking coal prices are surging and are about 450 yuan per ton higher than endure year, according to Zhilu Wang, research associate at the firm.
“This is due to the restrictions on inter-provincial transportation in Hebei provinces which has issued in the increase of transportation fee,” said Wang.
While this could in turn support steel prices, Wang augured it could mildly weaken overall as traders stock less of the commodity due to the Covid uncertainty.