World production was in decline for most of last year due to weak demand in key consumer segments amid continuing trade tensions and slowing economic growth.
Countries such as Japan, South Korea and Germany, which rely on exports, have found it harder to sell to overseas buyers, while the slump in car sales in the United States illustrated what was happening to the sector internationally. When the coronavirus outbreak hit in early 2020, it felt like a dive in production when it had already stopped.
While the full weight of COVID-19 hit the manufacturing sector in April, with many countries around the world stranded, China has already begun to rise to its feet.
Manufacturing activity in Japan, Europe and the United States fell sharply the last time during the global financial crisis of 2008-2009; Indian production fell to a 15-year low. In China, the Manufacturing Purchasing Managers Index released by the National Bureau of Statistics fell slightly in April from March, but showed that the sector continues to grow.
Hot rolled coil prices, or HRC – the main steel product used in manufacturing – have already declined in major markets prior to COVID-19 due to cool demand in the sector. S&P Global Platts estimates show that between the beginning of last year and the end of April this year, HRC prices in the United States fell 30%, HRC prices in Europe fell 16%, and China prices fell 15%.
In contrast to metal prices in general, marine iron ore prices have been remarkably resilient even in the worst months of the coronavirus outbreak, as steel production in China has remained flat.
Manufacturing has become particularly vulnerable to the coronavirus outbreak. The sector relies on global supply chains and is therefore prone to disruption. In many countries, port and transport links have been affected by measures to suppress the coronavirus outbreak. Some Chinese steel mills were unable to accept shipments of iron ore in February because truck drivers did not return to work. Factories could no longer deliver finished products to their customers.
Japanese and South Korean automakers were forced to stop assembling cars when they were unable to locate vital parts from their operations in southwest China during a lockdown there in February. South Korean carmakers with manufacturing facilities in China had to cut production as they were unable to import steel from their parent companies in South Korea.
New export orders for manufactured goods have all but dried up due to logistical problems and the lack of demand. As most people around the world take shelter indoors, the appetite for new cars, refrigerators and washing machines has plummeted.
Surveys show that it takes a long time to regain consumer confidence, even after the lock is lifted. Additionally, despite pent-up demand for manufactured goods, many people have lost their jobs due to the virus and may not be able to afford these new cars and refrigerators.
With its relatively stable market, China is in a rare position to be targeted for steel exports from countries such as India, Japan, Russia and Turkey. According to the Chinese customs service, in January-April, imports of finished steel to China increased by 7.4% to 4.18 million tons, while its exports were almost 12% lower and amounted to 20.6 million tons. Most other countries are at least 2-3 months behind China in the fight against the coronavirus outbreak and are unlikely to recover as strongly.