Singapore — Steel production, both inside and outside Shijiazhuang, the capital city of China's Hebei province which has been under lockdown since Jan. 7 due to a resurgence in COVID-19 cases, has so far not been affected by the latest restrictions, industry sources said. However, China's steel demand ahead of the Lunar New Year holidays over Feb. 11-17 is expected to decline earlier than usual as workers in the manufacturing and construction sectors have been advised by the government to "return home during off-peak period", way before the start of the holiday.
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According to market sources, Beijing has done this in a effort to reduce the possibility of a spike in COVID-19 cases during and after the Lunar New Year holidays.
While China's steel production has shown no signs of slowing, steel demand is expected to drop at a faster pace from mid-January onwards and remain low for a longer period than usual, traders said.
Steel inventories, both at the spot markets and steel mills, have rebounded at a fast pace since early January. Traders expect the increase in inventories, at the spot markets and steel mills combined, to accelerate from mid-January onwards.
The long steel inventories in the southern Guangzhou market and the northern Beijing markets increased 20% and 8% over Dec. 31, 2020 and Jan. 6, 2021, traders said, reflecting a 4% and 18% year-on-year increase, respectively.
Some traders said they were unwilling to increase their steel inventories as they anticipate having to hold on to these for much longer than usual, and with steel prices continuing to soar, building inventories will put pressure on their cash flows.
However, some steel mill sources were confident that steel prices, despite the fast rising inventories, will continue to increase in January-February on the back of the spike in iron ore prices, which is likely to push steel prices higher following the demand recovery post-Lunar New Year.
Shijiazhuang's transportation restrictions
Shijiazhuang is home to Jingye Iron & Steel's 13 million mt/year crude steel capacity and Shijiazhuang Iron & Steel's 2 million mt/year crude steel capacity.
A source with Jingye said steel production has continued as per normal, although steel inventories at the mill has been rising as restrictions have been placed on transporting outside of Shijiazhuang.
Some Shijiazhuang-based market sources expect the lockdown to ease soon as the city has vowed to complete full population nucleic acid testing within three days starting Jan. 6. As a result, steel production at local mills will be able to continue, they said.
Market sources, however, were more concerned that the seasonal lull in steel demand in the first quarter of 2021 might be prolonged.
Some sources said manufacturing factories in southern Guangdong province will gradually begin their Lunar New Year holidays in mid-January, three weeks ahead of the start of the official holidays. Manufacturers usually go on holiday one to two weeks ahead of the Lunar New Year.
Meanwhile, a source in the construction sector in eastern China said some workers will start heading home around 10 days before the Lunar New Year, six to seven days earlier than in previous years. The source said some of these workers have decided to leave earlier as they were concerned there may be travel restrictions nearing the holidays.
Moreover, some market sources expect part of these migrant workers to delay their return to the cities after the Lunar New Year holiday on COVID-19 related concerns.