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Factbox: Coronavirus hits steel, metals and mining with diverse price impacts

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Factbox: Coronavirus hits steel, metals and mining with diverse price impacts

  • Author
  • EMEA Metals Team
  • Editor
  • Tom Balcerek
  • Commodity
  • Metals
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  • Gold copper Nickel
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  • Coronavirus and Commodities

All steel and metals commodities have been impacted by the escalating coronavirus crisis, although their price behavior has varied as both demand and supply scenarios change.

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Prices of finished and semi-finished steel and of base metals have generally fallen and in some cases plunged in recent days and weeks on lower demand from construction and carmakers - typically their biggest consuming sectors - amid wide-ranging lockdowns. Prices of some upstream products in the production cycle - including iron ore, vanadium and platinum group metals - have meanwhile seen price rises due to supply side shocks as mining and port facilities are shut down. Lockdowns or curbs announced in India, South Africa and Canada ave reinforced this trend.

Even while parts of China are now emerging from lockdown, creating an upturn in demand for some raw materials, time will be needed to get through steel inventories amassed in China that reached three times normal levels mid-March. And as the crisis takes larger proportions outside Asia - with COVID-19 cases in the US at 85,762 cases now having overtaken those in China and the number of cases worldwide reaching 552,632 with deaths at 25,044 as of March 27, according to the World Health Organisation - the Chinese upturn is unlikely to offset the recessive downturn being glimpsed in Europe and expected to occur in the Americas and worldwide.

"The drastic containment measures in many countries mean the global economy is heading fast into recession. The recession will be deep but hopefully short-lived with activity picking up again later in the year," said Rupert Thompson, chief investment officer at Kingswood Investment, on Friday. "The massive monetary and fiscal stimulus now being implemented should help contain the economic fall-out. Ultimately, however, a recovery will depend on a slowing in infections and easing of containment measures."

PRICES

Steel prices have remained flat or have fallen, many to three-year lows, despite production cuts in many nations.

**The Asian hot-rolled coil market fell on Friday for a fifth straight session in line with lower offer prices from regional mills and traders, to $415/mt FOB China for SS400 HRC 3 mm grade, down $5/mt from the previous day, to its lowest level since early May 2017.

**Weak rebar export demand has seen Turkish export rebar prices fall to a three-year low of $390/mt FOB, as key markets implement lockdowns to prevent the spread of coronavirus, prompting order postponements and cancellations, market participants have said.

**Northwest Europe domestic rebar prices have seen an uptick, amid the absence of Italian rebar and restrictions on transport across borders as well as a shortage of drivers, with some end users in Germany and the Benelux region still requiring material and willing to pay a premium despite overall slowing demand

**In semi-finished steel, CIS billet and slab prices have crashed as only China is buying and the Russian ruble has devalued sharply. S&P Global Platts'billet assessment has dropped $45/mt (11.5%) since beginning of March. Slab has dropped by $80/mt (19%).

**Importers of CIS steel in Turkey, North Africa and Europe have paused purchases in the face of mill closures and looming logistical disruptions. Suppliers are facing a growing number of order cancellations.

**A sharp erosion in scrap, billet and slab pricing is putting pressure on Black Sea pig iron, in addition to already low interest from US buyers. Prices on an FOB Black Sea basis have fallen $26/mt (7.7%) since first week of March.

**The Turkish import scrap benchmark has dropped by around $45/mt within 10 days, while prices in Italy and Spain are down by as much as $30/mt despite limited supply.

**Stainless steel alloy surcharges in Europe are this week at 14-month lows as nickel prices slump.

Non-ferrous metals

**Major base metals prices on the London Metal Exchange were down the week ending March 27 by between 17% (aluminium) and 31% (copper) from 2020 highs.

**Aluminium and copper are at their lowest levels since early 2016.

**The London Metal Exchange has temporarily closed its open-outcry trading ring for the first time since WWII.

**Bank of America last week revised down 2020 average price forecasts for all base metals by as much as 12%.

Precious and platinum group metals (PGMs):

**Gold has seen renewed safe haven interest over the course of this past week, having initially been sold off to a low of around $1,485/oz, from a high of $1,700/oz, as investors dashed for cash. There is a lot of buying interest in gold globally, as the wider markets face continued threat from the pandemic. Some are calling for the metal to head toward $2,000/oz as we move through a turbulent 2020.

**Palladium saw a jump of more than 20% to around $2,400/oz Wednesday, marking the biggest daily increase since exchange trading began in 1986, on the back of the South African government's move to enforce a 21-day lockdown effective midnight Thursday to help curb the spread of COVID-1.

**The Johnson Matthey's (JM) palladium New York spot price, as of Thursday 09:30 EST, stood at $2,322/oz, up 12.8% day on day, and rising 41.5% since Monday March 23.

Alloys and ferroalloys

**European aluminium alloy prices halted their recent panic-buying uptrend to fall in the week beginning March 16 as most major auto manufacturers temporarily shut their European production plants. Market sources expected the shutdowns to have a major impact on the whole supply chain including secondary aluminum demand.

**Molybdenum prices this week fell through the $8/lb support level with ease as steel mills shut doors in Europe and Asians buyers remain nervous.

TRADE FLOWS

**Semi-finished steel: informed sources report only China is now buying CIS material as areas including MENA, Turkey and SE Asia are out of the market due to COVID-19.

**China has taken large volumes of CIS and Brazilian pig iron exports this week as other traditional outlets including the US, Italy and Turkey are out of the market due to virus-related uncertainties.

**Importers of CIS steel in Turkey, North Africa and Europe have paused purchases in the face of mill closures and looming logistical disruptions in shipments. Suppliers are facing growing number of order cancellations.

**The ruble slump, coinciding with the spread of COVID-19, has cut both way for Russian steel producers: the currency's 20% depreciation [from 65 to 78 Rubles/1$ between 26 February and 26 March] has made exports appealing and almost necessary [to offset weaker Ruble revenues] but exporting is being hampered by a slump in demand worldwide amidst COVID-19 sprawl prevention measures.

**According to several Moscow analysts, Russian steel consumption may decrease by anything between 1% and 10% this year versus 2019.

Scrap

European recyclers in the domestic markets have seen scrap flow into yards drop notably as scrap collection was severely restricted amid the latest lockdowns, with SIMS UK the most prominent example to suspend all domestic collection and scrap deliveries

INFRASTRUCTURE

**Steelmakers ArcelorMittal, Thyssenkrupp, Tata Steel and Liberty Group have stated in recent days they will further reduce output in Europe as demand falls amid the crisis. Blast furnace-based operations throughout Europe have so far been maintained as in Italy, where ArcelorMittal's Taranto plant was on Friday the only Italian steelworks still in operation. In the US however, US Steel announced Friday that it is immediately idling the No. 4 blast furnace at its flagship Gary Works in Indiana and to temporarily idle blast furnace A at its Granite City Works outside St. Louis. In India, 70% of private sector steelmakers have reportedly stopped producing.

**In Russia, president Valdimir Putin's decree on March 25 establishing a non-working week from March 28 to April 5 will not have an impact on the country's steel production as the decree does not apply to continuously running industries such as steelmaking, Alexey Sentyurin, the executive director of Russian steel industry association Russkaya Stal, told S&P Global Platts.

Palladium

Although South African producers are allowed to continue to process palladium material despite the mines lockdown, the supply outage is unlikely to offset lower demand in the auto catalyst markets, as car plant shutdowns worldwide will likely see a very significant fall in production, which not only will reduce the palladium supply deficit, but may even potentially lead into a surplus.

**Some Indian ports have declared force majeure as part of the country's nationwide lockdown which came into force this week, creating havoc in various raw materials markets.

Mining

Disruptions to Indian, South African and Canadian iron ore exports from lockdowns and other curbs are estimated by broker Jefferies International to temporarily take 8% of seaborne supply of iron ore off the market or 120 million mt on an annual basis, similar in magnitude to the peak of the 2019 supply shock following the Brumadinho tailings dam disaster and weather-related disruptions in Australia. This is seen partially offsetting some of the demand decline from lower steelmaking levels. Iron ore has remained fairly firm throughout the crisis, with the 62% Fe Iron Ore Index at $85.90/dry mt CFR North China Friday, down $0.05/dmt on the day. Iron ore on China's Dalian Exchange has risen 16% from near three-year lows seen in early February