Chinese steel market recovery continues, amid global struggles

The coronavirus pandemic wreaked havoc on steel markets and economies around the world, during the first six months of 2020. China’s economy was the first to suffer the effects of Covid-19-associated lockdowns. The country’s industrial production plummeted, in February of this year. However, a quick recovery has been recorded since April.

The closure of manufacturing units, in China, resulted in supply chain issues being felt on all continents, across many steel-consuming sectors. None more so than in the automotive industry, which had already been struggling to cope with new testing protocols and the move to greener, more energy efficient, vehicles.

Output at global carmakers remains substantially below pre-pandemic levels, despite the easing of government-imposed restrictions in many countries. Demand from this segment is vital to many steel producers.

The revival in the steel market, in China, continues to gather pace, despite the onset of the rainy season. The pace of the recovery could give Chinese companies a head start when global consumers return to the market, after months of staying at home. However, growing domestic demand, in China, is likely to absorb a lot of the increased output.

Iron ore breaks US$100/t

The rise in Chinese steel production, recently, contributed to the cost of iron ore moving above US$100 per tonne. This is exerting negative pressure on mill profit margins outside of China, where demand remains muted and steel prices weak. Nevertheless, rising input expenditure could provide producers with the impetus to push through much-needed steel price hikes, in the coming months.

The recovery in the Chinese market could reveal the route out of the coronavirus-induced downturn in the global steel sector. The rest of the world is behind the curve. Although the revival in other countries appears to be much slower, there are positive signs to take from the upturn in China.

Steel prices are likely to remain volatile, in the second half of 2020, as the road to recovery is expected to be uneven. The situation in the global market may get worse before it gets better. It took many years for the steel sector to regain most of the lost ground, following the 2008/9 financial crisis.