FF INSIDER

Effects of COVID-19 (Corona virus) on the steel industry

Steel is used everywhere as in today’s time, construction cannot be done without the use of steel. Global demand of steel is very high and producers are competing to match the demand. 1,869.9 million tons of crude steel was produced in the world in 2019. Production increased by 3.4% when compared to 2018. This clearly indicates the evalution of the steel industry with growth each year.

Asia produces 1,341.6 Million tons of crude steel. An increase of 5.7% in 2019 as compared to 2018. The highest crude steel production in the world is done in China wherein 2019, 996.3 Million tons crude steel was produced.

China’s consumption of crude steel was to surpass 930 million tons by the end of 2019 according to an industry information provider. The figure is 6% higher compared to the figure last year. This growth was mainly driven by a strong shift in the domestic demand curve. The increasing demand wasattributed to country’s gradual expanding economy. The export of crude steel fell by 5.8% from the previous year in 2019 because of the strong domestic demand and increased protectionism which dampened the steel export.

China is the leading exporter of steel in the world. It exports to the United States, Nigeria, Chile, Brazil, Uzbekistan, Pakistan and Russia. In 2017, 3% of the total steel products exported by China were to Pakistan. In 2019, Pakistan imported $1,390,561 million worth of steel products.

China’s steel industry faced great difficulties in steel production and sales since the beginning of the new lunar year. This difficulty was because of the novel coronavirus (COVID-19) which hascaused 3,292 deaths and 81,340 infections in the country up till date. Effects of this pandemic brought on China’s steel industry are:

Falling demand

Demand dropped as all the construction, machinery, automotive, shipbuilding and home appliances stopped functioning and delayed their resumption of work because of which demand declined sharply.

Steel inventories on the rise

Chinese steel inventories increased after the holiday due to low demand and restriction on transportation.

An increase in exports of steel

Since domestic demand had fallen, china’s exporters had cut prices to attract overseas. But there is great uncertainty about unloading at ports.

Uncertain steel prices

Steel prices dropped suddenly as soon as the Lunar Year holiday ended due to the bearish sentiment because of the coronavirus.

Lower profits

The price of raw materials is high as logistic disruptions are preventing delivery. At the same time,the steel mill’s profits are less as prices are already less.

Tight supply of steelmaking raw materials

Steelmaking raw materials are low as there is a restriction on transport which is limiting deliveries. Companies are unable to source for raw scrap because scrapyards are closed in China. Workers are at home due to the government’s restrictions to contain the virus.

Production cuts

Steel production had a 5.4% cut from early February as steel mills either cut production or closed down.

Restrictions on transport

To stop the spread of the coronavirus, domestic trucks and their drivers were stopped from working. That made transport of raw material impossible and steel mills dependent on trucking were hit hard.

Pakistan’s scrap steel imports.

From 2017 till 2020 all the raw material imported by Pakistan from China was done through container shipments and no bulk import of scrap/raw material was imported by Pakistani steel manufacturers. After restrictions on transportation of containers which increased the freight in mainland China, the only other option importers had was to import scrap in bulk. In February,22,555,000 PKR worthof steel products including scrap was imported by Pakistan. For the first time since 2017, bulk shipments of scrap steel were imported when Pakistan orderd a bulk shipment of deep-sea cargo containing 30,000tons of shredded scrap from the US. More bulk scrap is expected to be imported in the foreseeable future due to current world wide pendamic. The demand for scrap metal globally has increased in given circumstance and surely this will have a direct proportional effect on the price of scrap steel.

Conclusion

Looking at the current global situation, the supply of scrap by containers has fallen drastically whereas the demand for bulk shipments of scrap has increased and it is predicted that it will increase even more in the near future. Supply of containers face a lot of hinderences and uncertainity while corssing international borders due to which transportation costs have sky rocketed in Pakistan. The price of steel fell in the beginning as Chinese steel inventories were on the rise and they wanted to get rid of the cost of high inventories as soon as possible so they sold the scrap at minimum prices. Once bulk imports began, the prices hicked as the cost of transportation and import hindrences increased a lot, making steel producers catch up and increase their prices in the market. Lets hope the situation turns for the better in the future before the steel industry goes out of hand as the world cannot move forward without a stable steel market.