The coronavirus originating from Wuhan, China, is anticipated to negatively impact the global trade of raw materials in the coming months. According to market analytics company S&P Global Platts, the consumption and processing of commodities like iron ore and steel are likely to dip throughout the country and cause ripple effects in economics throughout the world. What’s not clear is how severe the situation will get.
In late January, China announced it would shut down over two-thirds of its economy due to the outbreak that started in Wuhan city. Since the Chinese Lunar New Year began as the virus spread, many companies across the mainland have halted production and construction crews have paused work as an extension of the holiday break. Fourteen provinces, including the major manufacturing hub of Hubei where Wuhan is located, and other metropolitan areas such as the port city of Shanghai, will be on lockdown until next week. Fortune noted that those regions make up 90 percent of the country’s copper smelting, 60 percent of its steel manufacturing, and 40 percent of coal output.
Normally during Lunar New Year, companies stop or reduce production, but the recent three-day extension of the holiday—largely due to transportation restrictions to and from quarantined areas and to encourage people to stay home—may cause an added riff in planned-manufacturing and eventually quarterly sales. Bloomberg noted that any changes in China’s steel industry, specifically, “which accounts for more than half global output, set the tone for producers and users around the world.”
Some experts say the impact won’t be felt until next month—S&P Global Platts said February is typically the weakest time of the year for metal output in China since demand is low due to the holiday. Construction is also normally slow because of the colder weather. London-based analytics organization Argus believes after the extended Lunar New Year break is officially over, the market for products like rebar and coil will drop while “the downstream market will be reduced, pushing back demand for finished steel products.”
Despite these fears, China’s most influential steel group, the China Iron and Steel Association (CISA), called for industry stability and asked steel companies not to inflate steel prices because of the declining demand. Reuters reported that CISA wants mills to “reasonably adjust their production rhythms” and “jointly safeguard hard-won ‘de-capacity’ results” in order to maintain profitability and reach levels of normalcy later in the year.
Both in China and worldwide, the long-term effects of the coronavirus are still up in the air. The World Health Organization reported this week that 24 countries have confirmed cases of the outbreak, though most resulted from contact with people who had come directly from China and Wuhan, where 563 people have died. Meanwhile, China is expected to lift its tariff on coking coal, which is used for making steel soon, leaving some U.S.-based mining companies ready to once again sell in the Chinese market.