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Wuhan coronavirus dampens sentiment in China's steel markets

Singapore — The Lunar New Year holidays in China got off to a worrisome start with the onset of the Wuhan coronavirus dampening sentiment in the steel and iron ore futures markets.

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Concerns come as Asian markets consider the economic impact of the coronavirus that hit Wuhan in Hubei province, with the first cases reported to the World Health Organization on December 31, 2019.

Chinese authorities reported early Friday that there have been 25 deaths and 830 cases of the coronavirus, according to media reports.

People in the market are already talking about the potential impact on construction activity if the virus worsens over the holiday period.

Workers in Hubei province have requested to stay home and others are avoiding cities with rising numbers of people infected.

"If the situation can be brought under control in the coming critical three weeks. Overall steel production and sales will not be affected, in our view," Hong Kong-based metals analyst Helen Lau of brokerage Argonaut told S&P Global Platts.

"But if it lingers for months, then that may cause demand destruction. But there is not much being reported in China now because everyone is away on holidays and won't be back until the end of next week," Lau said.

Since the first cases were reported, overseas cases have emerged in Japan, South Korea, Vietnam and the US.

While the greatest immediate impact will be on travel, steel production could be affected as the center of the Wuhan coronavirus is the home of Wuhan Iron and Steel Corporation, or WISCO, whose mills are supplied with raw materials via the Yangtze river. Wuhan is an important transport hub along the Yangtze and Hanshui rivers in central China. WISCO is owned by steel giant Baowu Steel Group.

On January 23, China implemented travel restriction on Wuhan, Huanggang and Ezhou cities.

Although there is no ban on ships calling on Wuhan, reports are emerging that barge operators are seeing fewer ships calling. That could be due to the Lunar New Year holidays, which begin on Saturday.

Overall, Baowu imported about 70.76 million mt of iron ore in 2018, its annual report showed. WISCO produced about 25.8 million mt of steel in 2015, which also marked the last time separate data was available as Baowu and WISCO merged in 2016.

Hubei province in central China, where Wuhan is located, is among the provinces that produced less than 50 million mt of crude steel in 2018, compared to China's total crude steel output of 928.26 million mt.

Baowu has announced measures throughout China to prevent the spread of the virus, including the reduction of large meetings and gatherings in favor of the use of video conferencing.

Related factbox: China coronavirus outbreak puts spotlight on global demand growth concerns

Looking back at SARS

There have been comparison of the latest outbreak with the Severe Acute Respiratory Syndrome, or SARS, back in 2003. SARS likely had a greater impact in Asia as the region was recovering from the 1997 financial meltdown and SARS was not anticipated.

In 2003, China was not the steel behemoth it is now and had yet to begin exporting steel in any sizable quantity. The country produced 222 million mt of crude steel in 2003 out of global production of 970 million mt, according to World Steel Association data. China in 2019 produced 996 million mt of crude steel, according to the National Bureau of Statistics.

Japan produced 110 million mt of steel in 2003 and was far more internationally integrated. Back then, there was little usage of email and most business was done face to face.

As a result of SARS, Japan's Foreign Ministry issued travel warnings to China and advised Japanese students to return to Japan.

Japanese companies with Chinese operations, such as Matsushita Electric Industrial Co., were forced to close after workers were diagnosed with SARS.

It is estimated that SARS killed some 700 people in China and contributed to the Chinese economy shedding around 1% of gross domestic product. The government was criticized for its lack of transparency on the issue.

China, Hong Kong, Malaysia, the Philippines, Singapore and Taiwan saw a larger loss in GDP than other countries because of SARS.