What is the impact of the global epidemic on the steel industry? Deep analysis is coming!


On March 11, who designated NCP as a "global pandemic", the second "global pandemic" identified since 2009 H1N1 influenza. The complexity and diversity of national governance and regions have brought many uncertainties to the epidemic prevention and control, and the global steel industry is facing a more complex situation.

Iron and steel industry in "severe disaster area"

On March 14, there were more than 2000 new cases diagnosed in the world (see Table 1). The total number of confirmed cases accounted for 91% of the world, becoming the "severe disaster area" of the epidemic, especially Europe, which has become the "epicenter" of the "pandemic". The total GDP of these eight disaster areas is 47.8 trillion US dollars in 2019, accounting for 55% of the world's total; crude steel output is 1.808 billion tons (according to the world steel statistics, the latest data is 2018), accounting for 67% of the world. The crude steel output of China, the United States, South Korea, Germany and Italy respectively ranks 1, 4, 5, 7 and 10 in the world, accounting for 5 of the top 10 in the global steel supply system Occupy an important position in.

Table 1: GDP and crude steel production in severely affected countries

Data sources: IMF (GDP, trillion US dollars), World Steel Association (crude steel, million tons), baidu (unit: person)

The economic scale and steel output of the eight countries account for more than half of the world. The epidemic is bound to have a significant impact on the global economy and steel industry. The linkage between steel industry and economy can be considered from three aspects.

The first is the correlation with the local economy, which can be simply observed by the ratio of steel apparent consumption to GDP (tons / 10000 US dollars). The larger the ratio value, the greater the proportion of industry in economic activities, and the greater the impact of economic increase and decrease on steel. In 2019, the global value of this ratio is 0.2 (Note: steel adopts the data of 2018). Among these eight countries, China, Iran and South Korea are significantly higher than the global level, which are 0.58, 0.44 and 0.33 respectively. The correlation between local economy and steel industry is strong; the value of the other five countries is low, and the value of the United States and France is only 0.05, which is related to the post industrialization period of European and American countries, and the industry is mainly service industry. The economic fluctuation has little impact on the steel industry, which can also be regarded as the wave of steel industry The impact of movement on the economy as a whole is small.

The second is the correlation with global trade, which can be observed by the scale of import and export. In 2018, the contribution of the eight countries to global steel trade was 70%, including 40% of exports and 30% of imports. China's steel export is 68.6 million tons, accounting for 15%, mainly in Southeast Asia and South Korea; South Korea's export volume is also large, accounting for nearly 7% of 30.1 million tons, and the steel import and export of China, Japan and South Korea are intertwined. The annual import volume of the United States is 31.7 million tons, which is highly dependent on overseas countries. The global steel trade of the eight countries is intertwined and intertwined, and the out of control epidemic situation is likely to have a negative impact on the global steel trade, so it is difficult for the trading countries in the hardest hit areas to be alone.

Table 2: data of foreign trade and indirect import and export of countries in severe disaster areas

Data source: World Iron and Steel Association (crude steel, million tons)

Third, the relationship with indirect import and export products. Some of the steel products are directly exported, and some are imported and exported through finished products, such as mechanical and electrical products, automobiles, household appliances and other steel products. This is an important source of external demand for the steel industry. According to the data of the World Steel Association in 2017, the indirect steel import and export scale of eight countries reached 270 million tons, including 169 million tons of indirect export and 100 million tons of indirect import. China, Germany and South Korea have developed automobile and mechanical and electrical equipment manufacturing industries, with indirect exports of 136 million tons; the United States and Germany are major indirect importers, with steel consumption of nearly 70 million tons. The impact of the epidemic on the steel industry in eight countries will have a significant impact on the global supply chain of automobile, machinery and many other industries.

In general, the iron and steel industry plays an important role in the global economy and supply chain system in the "severe disaster area" which accounts for more than 90% of the confirmed cases of the new epidemic situation!

Key points affecting iron and steel industry

The iron and steel industry is a basic industry with large economic scale, long industrial chain and many related industries. Even without this epidemic, its operation will be affected by macroeconomic, financial market, raw materials, terminal demand and other factors, and the epidemic will increase the complexity of the industry operation. Combined with the operation of the domestic iron and steel industry in the previous stage, the impact of the epidemic on the global steel industry is mainly reflected in four aspects

Confidence is one. The reason why "confidence" is put in the first place is determined by the deep financial characteristics of the steel industry. In recent years, the relationship between steel industry and financial market is more and more closely, and the price is affected by futures more and more obviously. In 2019, the turnover of domestic iron ore futures was 19.87 trillion yuan, ranking the first among domestic futures commodities in terms of scale, with a year-on-year growth of 72.39%. It is the commodity futures variety with the largest turnover in China. The operation of the iron and steel industry needs stable market expectations. However, the global financial market is frequently disturbed by the epidemic, and the panic index VIX has reached a new high, which leads to drastic fluctuations in the global stock market and bulk commodities. There is still great uncertainty in the follow-up trend, especially the strong linkage between European and American stock markets and domestic stock markets, and Europe and the United States account for a large proportion of the eight countries. Fluctuations in the global financial market will affect the bulk commodities, and then affect the pricing of raw materials and finished products required by steel enterprises, which has brought prominent difficulties to the stable operation of the steel industry.

Second, demand. At present, the world is learning to implement China's epidemic prevention measures in varying degrees. The core is to press the "pause key" of people flow and logistics. The short-term decline of global steel industry demand is inevitable. On the one hand, the impact of steel industry demand comes from the shrinkage of orders, on the other hand, it comes from the "obstruction" of relevant supply chain. From the domestic steel industry end demand changes in the first two months, the impact is large, many of them are double-digit decline. According to the data of Industry Association and customs, from January to February, domestic automobile production and sales were 2.05 million and 2.24 million respectively, with a year-on-year decrease of 46% and 42% respectively, and the decline of new energy automobile production and sales was even greater; the cumulative sales of domestic excavators were 1.92 million, with a year-on-year decrease of 37%, among which domestic excavators were 1.47 million, with a year-on-year decrease of 46.5%, and export vehicles were 4555, with a year-on-year increase of 48% (which indicates that foreign demand or foreign investment in the first two months) The total volume of foreign trade import and export was 4.12 trillion yuan, down 9.6%, and the export showed a double-digit decline in February. In terms of supply chain, the global spread of the epidemic will also have a broad impact on the global supply chain of steel related industries. Taking the automobile supply chain as an example, the global characteristics of the supply chain are obvious, and they are mainly distributed in the eight disaster stricken countries. According to the report of Evergrande Research Institute, China, South Korea, Italy, Japan, France, Germany and the United States are important producers of auto parts. Affected by the epidemic, the total export volume of passenger cars and auto parts of the seven countries may decrease by 32.8 billion and 19.5 billion US dollars respectively. At present, the short-term impact of the epidemic on the iron and steel industry is gradually emerging. The key is to see the duration of the epidemic. If the order shortage and supply chain "obstruction" continue for more than half a year, the steel industry will face high production capacity shutdown costs and cash pressure.

Third, raw materials. The main iron ore production area is not currently the "disaster hit area", so global commodity logistics, especially Haiyuan, is of great importance to the stability of raw material supply for the steel industry. A report from McKinsey in February predicted that the impact of the epidemic on global logistics could last until the end of this year. Under the epidemic situation, the logistics may be limited by the temporary control policies of some countries, and the steel production enterprises need to consider the relevant impact. Affected by the epidemic situation, the global iron and steel production will decline. If the reduction rate of pig iron production is 3%, the global iron ore consumption will be reduced by about 50 million tons.

Table 3: supply demand of iron and steel raw materials in severely hit countries

Source: World Steel Association (million tons)

Fourth, "inventory". In the case of short-term demand is not smooth, inventory has a greater impact on the industry, and it is easy to bring "bloody" damage to the operation of iron and steel enterprises. At present, the domestic social inventory and steel mill inventory has reached a historical high, and the utilization rate of EAF steelmaking capacity remains low. According to the proportion of converter and EAF in eight countries, the proportion of EAF steelmaking in Italy, Iran, Spain and the United States is more than 50%, and the elastic space of capacity utilization is relatively large, while that in China, South Korea and France is relatively small. Subsequently, with the recovery of domestic economic activities, inventory digestion will be accelerated, but the steel industry in other countries may face the same inventory problem.

On March 9, the United Nations Conference on Trade and development said the new outbreak would reduce global GDP by $2 trillion. According to the global steel apparent consumption to GDP ratio of 0.20, 2 trillion U.S. dollars corresponds to a reduction of 40 million tons of steel consumption. In view of the main affected areas of the epidemic, the coefficient exceeds the global average, and the steel consumption reduction will be more than 40 million tons.

Confidence will mainly come from China!

At present, the end of the epidemic is still uncertain. On March 13, Zeng Guang, a member of the high-level expert group of the National Health Commission, said: "the end time of the global epidemic situation should be longer than that in June. When the end of the epidemic situation depends on the prevention and control situation of various countries. It is still impossible to determine the end time of the domestic epidemic, and no country can take the lead in ending the epidemic away from the world. " In the meantime, the epidemic is still increasing concerns about global economic growth expectations, and some institutions predict that economic growth may be the lowest level since the 2008 global financial crisis.

For the global steel industry, this has made it more difficult for enterprises to cope with the impact of the epidemic, but the good news is that the epidemic situation in China has been basically controlled. China has the largest manufacturing industry in the world and the largest, longest and complete industrial chain in the world. With the resumption of domestic work and production, the return of the economy to normal, the more relaxed fiscal policy and more flexible monetary policy, as well as the superposition of traditional and new infrastructure demands, China's steel industry, which has more than half of the world's crude steel production, will play an important role, The global steel industry demand pressure and supply chain challenges will be gradually eased, and the corresponding countermeasures to deal with the epidemic challenges will be explored to enhance the confidence of the global steel industry, help the global steel industry out of the impact of the epidemic and return to the normal operation track.