Consequences of coronavirus outbreak will lead to lower steel prices

According to analysts at brokerage Jefferies, a temporary drop in steel production and demand in China due to the outbreak and related restrictions could lead to increased steel production elsewhere and increased inventories, which could lower global steel prices.

Research by S&P Global Platts also suggests that steel prices may fall after the iron ore price fell 8% on Tuesday.

"The concentration of the virus in China, strong growth in Chinese steel production /exports since 2003, are likely to create a demand vacuum across the region," said Australian Jefferies analysts Simon Teckray and Abraham Acre. “We believe that the world's steel stocks are likely to rise and offset the fall in China's steel production, which is affecting world steel prices. Likewise, the demand for non-ferrous scrap is likely to decline. ”

Trakray and Acre said the 2003 SARS outbreak is the wrong benchmark against which to gauge the impact of the coronavirus on steel markets due to the huge growth in steel production and exports in China since 2003.

“The period of the coronavirus outbreak is likely to affect the output and entry of steel prices. This is likely to apply to scrap metal, as China is a major consumer of non-ferrous scrap in the global export market, ”analysts say.

Steel prices are likely to fall at a faster rate than iron ore prices, and steel production is temporarily declining in Chinese cities, they said.

China is the world's largest steel producer, producing 996.3 million tonnes of steel in 2019, 8.3% more than in 2018 and accounting for 53.3% of global production, and that share is growing, the Monday World Steel Association.

It is also the world's largest consumer of iron ore, accounting for more than half of its shipping. S&P Global Platts rated the key 62% Fe iron ore index at $ 84.70 /t CFR for North China dry oil on Tuesday, down 8% from the previous market estimate last Friday. due to concerns about the impact of the virus.