China's top steelmakers Baowu, Shagang see Q1 output down due to virus outbreak

[BEIJING] China's biggest steel producer, China Baowu Steel Group, expects output to fall 5 per cent in the first quarter of 2020 due to coronavirus disruptions, a company official said on Saturday.

The steel giant, which churned out 96 million tonnes of crude steel in 2019, sees its first-quarter output down by 1 million tonnes from the same period last year, Zhang Jingang, vice general manager of the group, told an industry news conference held by the China Iron and Steel Industry Association (CISA).

Baowu said its steel units are mostly operating normally, including Wuhan Iron and Steel Co, which needs to provide oxygen to local hospitals and guarantee household utilities. Wuhan, in central China, is the epicentre of the outbreak that has killed over 2,000 people and caused widespread economic disruptions.

But Baowu still expects profits for the first quarter to drop from year earlier by 2 billion yuan to 3 billion yuan (S$398.4 million to S$597.5 million), according to Mr Zhang.

"As affected by Lunar New Year holidays and the epidemic, market demand is dampened... inventories are piling up faster than expected," he said, adding that logistical difficulties were affecting production and shipments.

The CISA had asked the government to help resolve transport disruptions as stocks of steel products at mills had surged 94.2 per cent in early February from the beginning of the year, raising the risk of cash flow problems.

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While more factories, businesses and construction sites are slowly reopening, the limited data available so far suggests manufacturing is still running at levels far below those in the same period last year.

Some mills had adjusted their production plans due to high inventory levels and sluggish demand. A total of 73 blast furnaces had suspended production or arranged maintenance as of Feb 21, according to the industry association, reducing daily molten iron output.

Jiangsu Shagang Group, China's top private steelmaker, said its output will drop by around 9 per cent in February and 5 per cent in the first quarter.

Chen Shaohui, executive director with Shagang, said the company is trying to speed up export shipments, in an effort to offset domestic transportation issues.

The CISA said demand in the first quarter would fall sharply but would pick up rapidly in the second quarter backed by a raft of stimulus policies.

"(We) expect steel firms' performance to decline in the first half," said Luo Tiejun, vice-chairman of CISA. "But most firms will not occur default risks."

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