China's iron ore and steel futures fell by their daily limits on Monday on fears that a rapidly-spreading virus outbreak would curb demand and deliver a sharp blow to the economy. The death toll from the newly identified coronavirus and the number of confirmed cases has risen sharply since the country's financial markets began an extended Lunar New Year holiday on January 24.
The Dalian Commodity Exchange's most-traded iron ore contract ended the morning session down 8% - the maximum amount by which the price is allowed to drop for the day - at 606.5 yuan ($87.85) a tonne, the lowest since Dec. 2 last year.
On the Shanghai Futures Exchange, the most-active construction steel rebar contract shed as much as 8% to a near three-month trough of 3,233 yuan a tonne. It was down 7.5% by noon break. Shanghai hot-rolled steel coil futures were 7.5% lower, after earlier slumping as much as 8% to 3,246 yuan a tonne, the lowest since Nov. 14 last year.
"We see the main impact (on commodity markets) being through the restrictions on travel impeding demand, but expect this to permeate through to manufacturing if the movement of workers is restricted following the Lunar New Year holidays," said Daniel Hynes, senior commodity strategist at ANZ. Public transport in Tangshan, China's largest steelmaking city, has been suspended since January 28 to prevent further spread of the virus.
However, government stimulus to support the slowing Chinese economy could provide some boost to prices of iron ore, the main steelmaking raw material. Rohan Kendall, head of iron ore and steel at Wood Mackenzie, said the consultancy does not see any immediate need to revise its 2020 price forecast of $80 a tonne due to iron ore's vulnerability to supply side risks and potential for financial stimulus from Beijing.
Other ferrous raw materials also dropped, with coking coal down by 2.6%, while coke lost 4.2%. Stainless steel futures slid 7.3%. The Shanghai and Dalian bourses will suspend night-time trading sessions from Monday until further notice.
The virus has killed 361 people in China, prompting travel restrictions in large parts of the country. China's factory activity expanded at its slowest pace in five months in January, even as the virus outbreak added to risks facing the world's second-largest economy, a private survey showed.
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