This time, the celebration of the Chinese New Year was overshadowed by the spread of the coronavirus and turned from a small local problem to a huge negative factor affecting the entire global economy. Depending on the situation, the consequences can be greatly increased.
China
According to analysts, the fact that the outbreak occurred shortly before the New Year holidays itself has slightly diminished its impact on the Chinese economy. After the holiday, the situation is only getting worse for now on.
Bloomberg reports that China, as a leading steel producer in the world, is currently not only fighting the spread of the virus, but is also having severe consequences affecting not only the balance of demand-supply, but also logistics and manpower in the country.
To control the situation in their economy, Chinese authorities have begun issuing force majeure certificates to their companies to protect themselves against sanctions for non-compliance with international treaties.
As you know, China has transformed its economy from export-dependent to domestic-demand oriented and is the largest importer of all commodities, including metals. In addition, the Government of the PRC has announced a course to combat the production and sale of low quality steel, and to do so, the country must eliminate obsolete production. So a sharp decline in domestic and foreign demand from China could bring down all global markets.
Experts believe that the effects of coronavirus will continue throughout March, and possibly in April this year.
East Asia
Shortly before the Chinese New Year, several large Asian companies focused on rising prices of hot-rolled coils. Now, these forecasts do not seem so obvious, and by the end of January steel products and scrap began to fall in price throughout the East Asian region. In the event of shocks on the Chinese commodity exchanges and possible fluctuations in the exchange rate of the Chinese currency, a sharp fall in these prices is possible.
Turkey
Turkey is experiencing the most serious difficulties in the Middle East, as the country has not yet overcome its own crisis and its construction industry cannot break from the bottom. At the end of 2019, Turkish companies are actively buying fittings and are now experiencing surpluses: the prices of fittings have fallen, along with the price of scrap, and demand for metal blanks has decreased.
EU
According to experts, the effects of Brexit will be quite negative for both the UK and the EU as a whole. By the end of January, the expected increase in demand for flat products has ceased and there is no reason to hope for better prospects for the European region. Moreover, the US’s intention to intensify trade negotiations with the EU after reaching an agreement with China means, in practice, further imposing its terms, and is not good for the European market.
The European Association Eurofer has already lowered its projection for increasing steel consumption in Europe by 2020 to 1.2% (compared to 1.4% at the end of 2019). The current downturn in the EU manufacturing sector is likely to continue, and according to some reports, growth is only possible in 2021, at 2.3%.
The situation in China, Brexit, trade relations with the US in 2020 may continue to worsen business sentiment in the EU, – concluded Eurofer.
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