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Chinese steelmaker Baosteel warns of weak post-virus market

Chinese steelmaker Baosteel said Thursday it had lost up to 15 days of orders for hot-rolled coil volumes as some cold-rolled coil customers had yet to restart operations after the Lunar New Year holidays.

During an update with analysts to discuss the current situation in China, the company warned that it may take longer for demand to recover after the coronavirus than was the case with SARS.


One reason for this is expected ongoing weakness in the auto sector, which is a key market for Baosteel. The Shanghai-based steelmaker is expecting a single digit growth decline this year in auto production, which would be the third consecutive year of contraction in the sector.


The company said orders for other steel products had been largely unaffected by the coronavirus.


S&P Global Ratings said in a report Thursday that Baosteel's parent company, Baowu Steel Group, was hit by high iron ore prices and weak auto sales in 2019.


"The aforementioned iron ore price spike affected China Baowu Steel Group Corp. Ltd.'s credit metrics, as did weak auto sales in 2019. Based on our assumptions that iron ore price will retreat as global supply recovers and auto sales resume growth, we expect Baowu's debt-to-EBITDA will improve," Ratings said.


Ratings forecast China's steel demand to grow by 3%-3.5% in 2020 on the back of real estate and infrastructure, though manufacturing is expected to remain sluggish.


"We expect growth in real estate investment will slow in 2020 from the 9.9% level seen in 2019, given tight fund flows into the sector. Growth in infrastructure investment, rolled out to support the economy, will accelerate from 3.8% last year," Ratings said.


Ratings has an average iron ore price "assumption" of $80/mt CFR in 2020.


S&P Global Platts assessed the 62% Fe iron ore index at $82.15/dry mt on Thursday, up $1.6/dmt on the day.


Source: S&P Platts

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