Bleak outlook for China car sector after February slump: sources

Chinese steel market sources are pessimistic about the post-COVID 19 outlook for the country's auto sector after sales and production slumped in February.

Non-existent demand for vehicles since before Lunar New Year due to China's virtual lockdown has hammered steelmaker margins to the point where some mills said they were barely breaking even.

Margins for domestic hot-rolled coil fell to $25.20/mt on March 13, compared with levels of around $70/mt before the holiday, S&P Global Platts data showed. A lack of downstream demand for HRC, combined with high iron ore prices, have eaten into steelmaker margins.

China's vehicle output and sales in February were 0.285 million and 0.31 million units, respectively, down almost 80% on year, data released by the China Association of Automobile Manufacturers showed. It was the biggest decrease in six years.

This was in line with separate data published by the China Passenger Car Association, or CPCA, which showed that retail sales in February were only 252,000 units, down 78.5% on the year.

Most car dealerships reported virtually zero sales in the first three weeks of February. A lack of customers due to China's quarantine period and supply chain difficulties were the major reasons for the slump in February.

Auto accounts for 5%-6% of China's steel consumption.

Cui Dongshu, CPCA secretary-general, estimated that China's vehicle sales would fall 8% in 2020. The number is 3% lower compared with a previous prediction.

Steel market sources said auto manufacturing operations would continue to be disrupted by supply chain issues in the short term.

Some forecast that there would be a rush to buy private cars once the virus has abated as people have been deterred from using public transport due to the virus. But others were more pessimistic because China already has high car ownership and with many jobs under threat due to the long layoff, buying new cars would be a low priority.