The Impact of New Crown Outbreak on China's Iron and Steel Industry

Since mid-February, China's newly crowned epidemic prevention and control situation has rapidly improved. Most provinces in China have not reported any new cases of domestic infection for more than six weeks. However, due to the risk of imported cases brought to China by foreign travelers, it is not clear when the new crown epidemic will be completely contained. Under this background, life in China is gradually returning to normal. Although we are still very cautious, keeping social distance orderly and wearing masks at work and outdoors, most Chinese firmly believe that we have passed the most difficult period. With people's growing confidence, the Chinese government has pushed most industries to resume production and work quickly to slow down the economic downturn. By the last week of April, all construction and industrial sectors had resumed normal operations, but some service industries such as catering and tourism were still seriously affected by the sharp drop in demand. The impact on the production of steel enterprises is limited. In February, the supply of raw materials for most iron and steel enterprises was greatly restricted due to the restriction of the national transportation system, especially the highway and waterway transportation systems. Some provinces and autonomous regions have even completely closed road traffic, which means that truck drivers and workers are difficult to rework during February. Since mid-March, the bottleneck of transportation and logistics has gradually eased, and since early April, the supply of raw materials and delivery of finished steel products have basically returned to normal. Due to the reasonable stock of raw materials held by iron and steel enterprises, crude steel production in China in the first quarter of 2020 did not show the sharp drop expected by some people, but increased by 1.2% year on year. Demand for steel shrinks All steel industries in China have been severely affected by the new crown epidemic, with the construction industry being the most affected. Since the last week of January, construction of almost all construction projects has stalled. The massive disruption of the national public transportation system has further reduced the construction progress of the construction industry and increased the difficulty of resuming construction projects. From the beginning of March, with the gradual relaxation of inter-provincial travel restrictions, this situation has improved rapidly. However, the latest economic operation data released by the National Bureau of Statistics for the first quarter show that all steel industries have suffered serious losses. These include a 6.8% drop in GDP, a 7.7% drop in real estate investment, a 19.7% drop in infrastructure investment, a 17.2% drop in general machinery, a 44.6% drop in car production, a 28.5% drop in ship delivery and a 27.5% drop in air conditioning production.

According to information provided by the Chinese government, as of April 14, more than 94% of migrant workers had returned to work. As a result, by the last week of April, most construction and industrial sectors had begun to operate at normal production levels. However, in view of the gradual recovery of domestic steel demand and the reduction of foreign demand, the capacity utilization rate of some steel industries has not yet returned to the level before the new crown epidemic. Iron and steel stocks rose to a record high. Basically normal steel production and shrinking downstream demand have led to a sharp increase in steel stocks. According to the statistics of China Iron and Steel Industry Association and my iron and steel network, the total stock of steel products in iron and steel production enterprises and circulation links at the end of March exceeded 55 million tons, which was the highest stock on record, 160% higher than the stock at the end of December 2019. In order to solve the problem of warehouse capacity, many steel production enterprises have to seek social warehouses outside the factory. At the same time, starting from late February, most steel production enterprises began to cut production levels. From February 21, about 73 blast furnaces (7,700 tons/year) in 47 iron and steel production enterprises have suspended production. According to statistics, the daily average crude steel output in March decreased by about 7% compared with January. Due to the decrease in steel output and the increase in steel demand, the steel inventory in mid-April dropped by about 10% from the end of March. Iron and steel enterprises provide large donations In order to combat the new crown epidemic, China's iron and steel enterprises have also provided large amounts of donations to hospitals that treat infected cases and receive suspected cases. About 95 Chinese steel companies donated more than 1.6 billion yuan (US$ 229 million) in cash. In addition, iron and steel enterprises have also donated a large number of medical protection equipment and ambulances to hospitals in Hubei Province. As a result of these donations and the rapid delivery of hundreds of thousands of tons of urgently needed steel, the Chinese government built two temporary hospitals in two weeks. The government's economic stimulus plan Since the middle of February, the Chinese government has been urging enterprises from all walks of life to resume production quickly, safely and orderly. By the end of April, all state-owned enterprises had reached full capacity, but many small private enterprises had not yet returned to full capacity due to shrinking demand and lack of funds. In order to solve the economic downturn, the central government has launched a series of stimulus measures on a considerable scale. The measures include a more active fiscal policy and a moderately loose monetary policy, reducing the value-added tax burden on small and medium-sized enterprises, and continuing to reduce the purchase tax on new energy vehicles. One of the most direct measures is to reduce the contribution of enterprises in employee social security. Infrastructure construction (the so-called "new infrastructure") is the top priority of the stimulus measures and will promote the demand of the downstream steel industry. All the industry conferences scheduled to be held in China in the first half of 2020, including those planned by the World Iron and Steel Association, have been postponed or cancelled. We hope to see an improvement in the epidemic situation outside China. It is estimated that a large number of steel industry conferences will be held intensively in China from July 2020 until the end of the year.