Hebei city closure control Steel supply and demand issues raise concerns

As a major steel producer on the mainland, the embargo measures in Hebei Province will likely lead to a damaging supply and demand situation for steel. (AFP)

The communist virus (Wuhan pneumonia) Epidemic in Hebei province continues to worsen, and authorities have taken severe measures to seal off cities and roads. The blockade in Hebei Province, a major steel producer on the mainland, will likely lead to damage to the supply and demand for steel.

So far, Hebei Province has blocked the area around steel mills, threatening to limit steel transportation capacity.

International rating agency S&P said in early January that Chinese Communist Party officials may ask local steelmakers to shut down work before the Chinese New Year holiday (Feb. 11 to Feb. 17), which analysts fear could hurt steel supply and demand conditions.

The mainland is now reported to produce the most steel in the world, with Hebei province accounting for more than 20 percent of the continent’s total steel production and 22 percent of its pig iron production.

The closure in Hebei province has already led to a trend of increasing steel mill inventories and retailers and traders could have cash flow problems if the closure continues or intensifies.

This risk could spread to iron ore if the outbreak in Hebei expands further and some local steelmaking areas are sealed off, affecting demand for iron ore, according to Daniel Hynes, senior commodities strategist at Aussie Bank.

So far, Hebei Province has entered a “state of war”, Shijiazhuang, Xingtai, Langfang city, the entire area closed management. Long-distance road passenger vehicles in Shijiazhuang and Xingtai have been suspended; several airlines have cancelled flights to Shijiazhuang Airport; the Beijing–Hong Kong-Macao Expressway (G4), the Beijing-Kunming Expressway (G5) and many other expressway sections have been closed.

Mainland media reported on January 17 that the transport control has been gradually expanded to Beijing, Tianjin, Inner Mongolia, Shandong, Liaoning and other places, with an unprecedentedly wide range of impact. Some steel mills’ product inventories are beginning to pile up, and inventories in yards around steel mills are gradually increasing. The high price of steel and the impact of the epidemic have caused customer demand to drop, and the supply and demand side of the situation is not optimistic in Hebei Province and even across the mainland.