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Kallanish Kallanish

Knowledge matters Knowledge matters

September, 30th 2020

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FEB 10

Epidemic affects profitability of Hebei steel companies: HBMIA


The Hebei Metallurgical Industry Association (HBMIA) has published a report saying that the Wuhan virus will have an impact on the profitability of local steel companies in Hebei in the first quarter of 2020.

HBMIA said that Hebei's steel output in January was relatively stable, but it is expected that production in February will be slightly reduced due to the late resumption of work. According to data from the China Iron & Steel Association (CISA), the average daily crude steel output of major steel companies in China in mid-January was 1.975 million tonnes. This is an increase of 0.35% from the previous period, Kallanish notes.

However, steel mill inventories rose sharply during the Spring Festival. Especially after the spread of the virus in Wuhan, market participants' expectations for steel demand have been reduced, and most traders have stopped active restocking. Restrictions on transportation across the country have prevented most labourers from returning to work as scheduled, which has also indirectly affected the demand for construction sites. As a result, inventories in Hebei steel mills are high due to weakened demand both locally and in other provinces.

Most importantly, the steel market fell sharply after futures restarted trading on 3 February as the spot market lost confidence. With the further development of the epidemic, HBMIA expects that prices will fall further in the near term. Steelmakers meanwhile have been using high-priced raw materials that entered plants in December, so sharply falling steel prices will lead to a decline in profits.

HBMIA believes that the market will fluctuate due to the impact of imbalanced supply and demand in the short term, but in the long-term demand is only delayed rather than having disappeared.