HARDI: 'Projecting the coronavirus’ impact on wholesale distribution is incredibly hard'
Comparing the past SARS outbreak to the recent coronavirus outbreak.
If the news cycle and procedures to contain the recent outbreak of the coronavirus seem familiar, it's because it happened before with the 2003 outbreak of SARS.
Although coronavirus infection rates have already surpassed the SARS outbreak, the disease is having similar effects on the steel market, according to Wood Mackenzie, is a global energy, chemicals, renewables, metals and mining research and consultancy group with an international reputation for supplying comprehensive data, written analysis and consultancy advice.
"During the SARS outbreak, Chinese construction activity slowed due to shortage of workers and a slump in consumer demand. SARS led to China’s economic growth slowing in the second quarter of 2003 by around 2.2 percent quarter on quarter. There was a clear decline in Industrial Production and Fixed Asset Investment in property between March and May 2003 before a modest recovery later in the year.
"Steel prices were negatively impacted. Chinese rebar prices were held flat during the SARS outbreak in what should have been a peak period for construction, in a country enjoying enormous economic growth rates. The epidemic delayed the springtime peak for steel demand until the summer."
Whatever the impending impact, if history is to be repeated, it may be short lived on the US and Chinese economies. "China’s headline gross domestic product growth rate hit 10.0 percent in 2003, accelerating from 8.3 percent in 2002."
HARDI team leader of market intelligence Tim Fisher sees it as a predictable cycle factor in hurting supply and driving up prices.
“Projecting the coronavirus’ impact on wholesale distribution is incredibly hard given how little we know about the scale of the threat. The number of recorded infections have skyrocketed in China, but the fatality rate is still relatively low compared to other related illnesses – SARS being a good example," he explains. "The falling price of steel and other commodities is a predictable consequence of the widespread shutdown of Chinese mills and manufacturing plants, but how seriously those closings affect the production and prices of HVAC final goods depends on how long the Chinese plants are closed and the degree to which manufacturers adjusted their supply lines to avoid tariffs."
He adds, "Nevertheless, if the current pace of the virus’ spread continues, Chinese plants will certainly remain closed or at a reduced capacity right into the late winter timeframe when manufacturer shipments and wholesale orders increase, hurting supply and driving up prices.”