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Falling steel demand from COVID-19 may hit raw materials demand: sources

The indiscriminate spread of COVID-19 hurting global economies may severely lower steel output and lead to weaker raw materials prices and demand, sources said.

As the coronavirus outbreak hit China and later afflicted steel users and mills in Europe, the US and India, the scale of disruption to steel markets and mining is starting to mount up.

“The virus is hitting the steel market drastically,” said one executive at a steel group.

Any comparisons to the financial crisis of 2008-2009 may be forgotten as billions of people get locked down, limiting flexibility for trade and pushing steel consumption down.

Blue chip steel mills supplying automakers and other industries are seeing long-term steel orders hit and prospects for a swift recovery ebb away.

One major mill in Europe expects crude steel output this year will end up below 2008-2009 post financial crisis levels, a source with knowledge of the plans said.

The year-on-year decline may be in the region of a couple of million tons.

Steel mills may be looking to adapt production plans down, but the relative inflexibility of adjusting blast furnaces and metallurgical coke production may be holding up activity for now.

Several steel mills in Europe, including in Germany, are already operating blast furnaces on technical optimal minimum levels.

Future potential for shutdowns and maintenance works when plans and personnel are ready have not been not ruled out.

In Eastern Europe, mills with less of a footprint in supplying steel for high-end manufacturing, may see operations already accustomed to weaker demand since 2019 stabilize.

They may have less to fall from COVID-19’s impact, while companies reliant on spot raw materials may buy less.

US tariffs on Turkish steel imports led to oversupply in Europe and Middle East, limiting some demand for commodity grade flat steel and longs.

In Western Europe, marginal steel production is targeted for elimination again, as iron ore prices remain high, a source said.

Global traders expect Chinese spot iron ore demand may see weakening in the near term with the coronavirus impact.

China has been left holding steel product inventory equivalent to over a month of total steel production, with weaker global growth and potential for supply chain disruptions hurting China’s growth prospects.
Iron ore rangebound

“Chinese mills want to only buy low and medium iron ore grades because they are concerned about steel demand,” a trader said.

Current spot price support is seen in the 62% Fe IODEX fines benchmark, ranging at $80-90/dry mt CFR China this month.

The tail end of seasonal disruptions to Brazil and Australian iron ore supplies, and temporary South African iron ore mine idling, may fizzle out, as demand is weaker, especially outside China.

The risk to tighter supply of bulk ferroalloys from South Africa into Europe on mine idling is for lower steel rates, an industry source added.

Similar to the second half of 2019, productivity-led iron ore and coking coal products may see limited demand at current prices and premiums, especially with global steel margins still low.

High-grade feedstocks and direct charge iron ores reduce carbon emissions and may benefit operations, leading to some stability in consumption rates, although a shift to sinter could be preferred to save costs.

“I’m looking at all the financial and commodity markets, and the only products which still see high prices are iron ore and coking coal,” said a source at a steel mill.

With steel demand softer and ferrous scrap, crude oil and natural gas prices already weaker this month, a decline is long overdue in iron ore and coking coal, based on deterioration in global demand, the source said.

Idling and maintenance stoppages may be just around the corner.

Raw materials buyers are more than ever focused on costs — reassessments on steel output and feedstock requirements around lower productivity targets can be expected.
Source: Platts

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