Road closures cause steel to pile up at major steel mills in Hebei.
A new wave of the Communist Party of China virus (Covid-19) outbreak in China’s Hebei province has imposed blockades in at least two areas, including the provincial capital Shijiazhuang, limiting the ability of steel producers to ship steel to customers and leaving steel piled up at mills. Hebei contributes more than 20 percent of China’s total steel production, analysts said.
Cases of the Chinese communist virus (coronavirus) have been on the rise in China’s Hebei province since the beginning of 2021, and Hebei has imposed a blockade on the provincial capital Shijiazhuang and at least two other regions, a move that has limited the ability of local steel producers to ship steel out of the country.
U.S. financial media outlet CNBC reported Jan. 20 that commodity data provider S&P Global Platt said earlier this month that the restrictions could lead to an early shutdown of manufacturing before the Chinese New Year holiday, hurting demand.
Demand and prices for raw materials used to make steel, such as iron ore, could also spike, analysts said.
Shanghai-based Chinese metals data provider Mysteel said in a report that Hebei has suspended steel shipments by truck, leaving rail as the only way to transport steel, leading to piles of steel at major steel mills in the region.
The partial blockade has restricted shipments, causing local steel mills to increase their inventories faster than stockists in the first half of January,” Atilla Widnell, co-founder of Navigation Commodities in Singapore, wrote in an email on Monday (Jan. 18). “
Inventories are rising at the Xinye steel plant in Shijiazhuang, Hebei province, which produces 13 million tons of crude steel a year, S&P Global Platts said.
S&P Global Platts added that some traders are reluctant to add to steel inventories, which they expect will be maintained longer than usual, and that adding to inventories will put pressure on cash flow as steel prices continue to soar.
Daniel Hines, senior commodities strategist at Australia and New Zealand Bank (ANZ), said the risk could spread to iron ore.
He said, “There are concerns that a further increase in cases of the CCP virus in Hebei could lead to some steelmaking areas being blocked. This would obviously affect iron ore demand and the supply chain for steel mills could be disrupted, which would affect steel production.”
Wood Mackenzie, an energy research consultancy, said the ripple effect is already being reflected in the cost of steelmaking raw materials such as coking coal. Coking coal prices are soaring, about $450 per ton higher than last year.
Part of the reason, Wood Mackenzie said, is that restrictions on inter-provincial traffic in Hebei province have led to increased transportation costs.
Wood Mackenzie expects steel prices may soften slightly overall as uncertainty over the CCP virus (New Crown Pneumonia) causes traders to reduce steel inventories.
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