Steel production in China declines due to outbreak of Covid-19

Steel production in China will decline in the coming months due to the impact of the new coronavirus (Covid-19) outbreak in 2019, which will halt last year's strong results that lasted until January, analysts say.

Output from the world's largest steelmaker rose 7.2% year-on-year last month, despite Lunar New Year celebrations and coronavirus restrictions.

“Inventories of steel traders have increased to record levels and the profitability of a Chinese steel mill has fallen. We expect this to result in a cut over the next few weeks, ”said UBS analyst Myles Allsop.

China's largest steel company, China Baowu Steel Group, expects production to fall 5% in the first quarter of 2020 due to supply disruptions due to coronavirus, it said on Saturday.

China's steel production rose to 84.3 million tons in January from the same month last year, boosting the global total by 2.1% to 154.4 million tons, data from the World Steel Association showed on Tuesday.

In the rest of the world outside of China, production declined by about 3%.

One of the reasons China's steel shipments remained high in January, Allsop said, was that it takes time to get the blast furnace going.

Another driving force was the accumulation of raw materials such as iron ore, said Kieran Clancy, assistant economist for economics at Capital Economics.

“Transport restrictions within China have led to rapid depletion of reserves, and the cyclone in Australia has made it even more difficult for steel producers to extract steel,” he wrote in the note.

“Overall, there are many signs that steel production is set to drop in the coming months. China will be the hardest hit and production there may even contract in 2020 for the first time in five years. "

Other major steelmakers reported production declines, with India down 3.2%, Japan down 1.3% and the European Union down 4.9%.

US manufacturing is up 2.5%, aided by seasonal influences and mild weather, but there is also a risk of supply chain disruption due to the virus.