Virus Jitters Spread to Steel Market as Worker Travel at Risk

(Bloomberg) -- The world’s biggest steel industry is facing pressure from the spread of a deadly respiratory illness that threatens to slow construction activity.

Concerns center on the ability of people to travel within China during and after the Lunar New Year holidays that start Friday, and whether the government may seek to deter movement to curb the spread of the disease. The country’s steel sector typically picks up after the week-long break as construction activity restarts.

“If construction workers are unable to return to the city from their hometowns after Lunar New Year, this would affect the restart of construction activity,” said Sarah Zhao, an analyst at Huatai Futures Co. While so far only travel to and from Wuhan, where the virus originally emerged, has been discouraged, there are concerns about similar advice for other regions if it spreads, she said.

Health officials are racing to assess the danger of the new SARS-like virus that emerged in China last month and has spread to five additional countries, including the first diagnosis in the U.S. The Asian nation will increase screening to tackle the growing outbreak, although it has acknowledged it’s still grappling to understand the pathogen. The illness has stirred memories of the SARS outbreak 17 years ago, though it isn’t yet as serious.

“Taking into account that Chinese authorities would have had the experience from SARS, prevention measures this time would be earlier, and more timely,” CITIC Futures Co. said in a report. “If the virus intensifies due to travel during the Lunar New Year holiday, measures would likely be strengthened in the following two to three months and would almost certainly have an impact on the movement of construction workers, affecting downstream steel demand.”

In addition to screening, Chinese officials are stepping up the monitoring of transportation links as the death toll increased to nine from six and hundreds of millions prepare to travel for the holiday. The World Health Organization will decide Wednesday whether to declare the virus an international public health emergency, a designation used for complex epidemics that can cross borders.

Even before the growing virus outbreak, steel prices were under pressure from elevated inventories, according to CITIC.

Steel rebar futures in Shanghai fell as much as 1.8% on Wednesday before closing down 0.3% at the lowest in a week. Hot-rolled coil futures declined 0.7%. Iron ore futures on the Dalian Commodity Exchange closed 0.3% higher after dropping as much as 2.3% earlier.

--With assistance from Ranjeetha Pakiam.

To contact the reporter on this story: Krystal Chia in Singapore at kchia48@bloomberg.net

To contact the editors responsible for this story: Phoebe Sedgman at psedgman2@bloomberg.net, Jason Rogers

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