China has found itself in the rare position of being an active buyer of steel in the spot market since mid-March as the nation emerges from the worst of its coronavirus outbreak – just as the major buyers of its steel exports grapple with what has evolved into a global pandemic.

In its cautious return to business as usual, China’s recent binge in steel procurement – including cargoes diverted from original buyers who could no longer take delivery – may support the market in the second quarter, buying time that the rest of Asia needs to flatten the curve in the outbreak.

China has bought from the spot market billet and hot rolled coil – things it has better been known to export – as domestic construction work resumes, while conversely, demand elsewhere in the region has plummeted due to lockdowns and other measures to staunch the spread of the virus.

China took a breather from buying billet last December and resumed buying only on March 10, spot market data compiled by S&P Global Platts showed. That was when work at 58% of China’s construction sites had resumed after coronavirus restriction measures were eased, according to the housing ministry.

Of the billet transactions done on a CFR China basis, Platts observed 21 deals in Q1, compared with 18 in Q4 2019 and none in Q1 2019, with underlying volumes at about 760,000 mt and 710,000 mt for the two quarters in which trades were seen.

As of April 1, construction activity in China had recovered to above 85%, signaling that imports could be sustained into Q2. In the first 10 days of April, Platts tracked two further CFR China billet trades amounting to 50,000 mt.

The billet purchased is due to arrive in Q2 and will be discharged mainly at Jiangyin port in the eastern province of Jiangsu for processing into construction steel like rebar and wire rod. It likely replaces billet that used to be sourced domestically from northern Jiangsu and Tangshan in Hebei province, market participants said.

Some was also likely to have been diverted from original destinations in Southeast Asia like the Philippines, where re-rollers in Luzon have shut due to a lockdown and had to request delays to shipments.

The swift revival of demand from China’s construction sector has made domestic rebar prices and margins more resilient than those for HRC, whose fortunes are tied more to the manufacturing sector.

While rebar prices in Beijing fell 5% over Q1 to Yuan 3,475/mt ($493/mt) ex-stock, HRC prices in Shanghai slumped 16% over the same period to Yuan 3,285/mt, Platts data showed.

Margins for rebar narrowed 40% over Q1 to $34.07/mt on March 31, while HRC producers ended Q1 making a loss of $3.77/mt compared with $73.95/mt at the start.

China’s early emergence from the worst of the outbreak has also seen it become an attractive destination for HRC, with the first offers and indicative bids on a CFR China basis surfacing in the spot market at the end of March. The offers were mainly for material from South Korea as well as India, which had reduced exports sharply in Q1.

Platts observed 54 deals, bids, offers and indicative values for Indian HRC in Q1, down 66% from 160 in the previous quarter and down 68% from 167 a year earlier.

India’s exports, which are primarily re-rolling grade coil, could see a return in Q2 as steelmakers continue operating during the nationwide lockdown that began March 25. But given that many trimmed output by up to 70% on weak downstream demand, the volume of exports could shrink.

While India’s government mulls allowing some manufacturing like steel processing and automotive units to resume with heightened safety measures in place, the lockdown, which has been extended until May 3, adds to pressures that steelmakers face in seeking buyers overseas.

India’s increased reliance on exports in Q2 will also reflect the likely slow pace of recovery in domestic construction activity, which accounts for 60% of steel consumption, as migrant workers have returned to their hometowns.

Unlike for long steel, China’s ability to cushion an extended decline in flat steel prices by absorbing surplus output from other countries may be limited, as a substantial portion of what it manufactures – automobiles, machinery and home appliances – is for export and needs to be corroborated by an uptick in overseas orders – which aren’t forthcoming – in order for steel demand to pick up.

As of March 28, 98.6% of China’s industrial enterprises above a designated size had resumed work, according to the industry ministry. In the major industrial provinces of Guangdong, Jiangsu, Zhejiang, Shandong and Fujian, it was 100%.

In the first 10 days of April, offers and deals for re-rolling grade HRC on a CFR China basis from India, South Korea and Russia continued to emerge in the spot market. If early April’s uptick in domestic HRC prices were to last, China could remain the destination of choice for cargoes in Q2, reversing its long-held role as exporter.

Whether China continues to import steel and for how long depends largely on how quickly and successfully others in the region contain the outbreak.

The measures China took in Wuhan, the initial epicenter of the outbreak, put the city under lockdown for 76 days from January 23. In Shanghai, which was less affected and didn’t undergo a lockdown, the public health incident status was raised to the highest level on January 24 and some companies started resuming operations under enhanced safety measures from February 24.

All the net steel-buying ASEAN-6 economies – Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – have imposed regional or nationwide lockdowns, the longest lasting 46 days on the Philippine island of Luzon and the shortest, 14 days, in Indonesia’s capital Jakarta.

Potential exporters India, Japan and South Korea are reviewing restrictions, from the most stringent lockdown lasting 40 days in India to a month-long state of emergency across seven areas in Japan, and no lockdown in South Korea.

If the timelines from lockdown to cautious release that applied in China could serve as a guide for the rest of Asia, the soonest we can expect to see any resumption of activity in the rest of the region would be a month from when lockdowns were implemented, assuming that measures of a similar degree were deployed.

Already, the Philippines, Malaysia, India and Thailand have declared lockdown periods lasting beyond a month, indicating that local manufacturing and construction may have to endure a standstill for much longer, and that China, if it manages to hold up domestic consumption and lower bulging inventories, may see more room to continue buying steel.