Global stock markets and copper prices have already taken a hit as China struggles to control a new pneumonia-causing virus. Steel could be next.
The new coronavirus has killed more than 100 and infected thousands more. Unless the epidemic comes under control within the next month, quarantine measures and worries about contagion in central China seem likely to damp construction activity this spring. At the same time, steel output has been rising quickly and—so far—fewer people seem to be affected in China’s northern steelmaking heartland.
The virus first emerged in central China’s Hubei province and this remains the epicenter of the disease. The north, which produces most of China’s steel, had thankfully been spared an outbreak on the same scale as of late January, although the situation is evolving rapidly.
As of Tuesday Hebei province, which surrounds Beijing and accounts for about a quarter of the nation’s steel output, had several dozen confirmed cases, according to the state-owned Beijing News. Shandong province, the nation’s second-biggest steel province, had 130 cases by Wednesday. By contrast Hubei now has several thousand cases.
China’s steel output has grown much more quickly in recent months than measures of demand. This posed a risk to steel prices even before the threat to construction. Property investment grew just 7.3% year over year in December, its slowest since 2017, as home-price gains have been easing. Meanwhile, steel output rose 11.6% on the same basis, the fastest since last April.
When the Chinese housing market and Chinese steel production diverge, the result is usually big price swings. In 2017, a buoyant housing market paired with strict controls on steel output sent prices through the roof. Now, production has surged while the housing market is weakening.
Futures markets in Shanghai have been closed since Jan. 24 for the Lunar New Year holiday, masking the reaction of commodity traders to the virus’s spread. The hope is that tough measures now being taken to control the disease will be effective. Steel prices, though, could be in line to suffer.
Write to Nathaniel Taplin at [email protected]