We did see a slight recovery in demand; PMIs in various countries started to show an uptick. Did you see any recovery in the December quarter and what sort of impact do you now see post coronavirus?

The protective masks are actually a very big factor at the moment because Chinese construction workers do not have enough masks. China cannot produce enough protective masks and as a result, people are very reluctant to go back to work. We do not see any real pickup in downstream activity until probably late March at the very best.

Yes, the last quarter of last year was pretty good. We have seen some of the miners like BHP up 29 per cent, metals again are very strong but that is a completely different story now. We now have the coronavirus crisis. Everybody is dealing with that. In a two-three week period, China will nominally get back to work. We have done surveys and half of the workers are still at home; half of my team is still at home; some of them are still in their hometowns and have not got back to Shanghai yet. We will probably know more about to what extent things are getting back to normal in March.

What inventory levels across various metals are we currently sitting on? What is the outlook going forward?

Let’s look at steel once, it is a big one. The steel mills continue operating during the Chinese New Year holidays but other Chinese New Year holidays have gone on for another two to three weeks and may even extend longer. Inventories have been piling up but there is no downstream demand because there are no construction workers or factory workers. Stock piles are not too bad. Some of the other metals are not too bad but everything is getting affected by the same dynamics. There are some logistical constraints, very hard moving material within China and there is a lack of people doing the actual work. People have not been out in some cases for 14 days.

No one is buying cars or washing machines. So, there will be some pent up demand but those high steel inventories, in particular, will result in some steel production cuts. We did a survey just last week to get a sense of what is going on and probably about a third of the market will see some kind of production cuts because they are going to get squeezed on margins. There is not enough downstream demand and inventory is still climbing. We will be very surprised if they do not cut steel production a bit which could have some impact on iron ore prices and things like that.

What is the average drop in capacity utilisation for some of the major global miners? Given the rising inventories and challenges in supply chain and logistics do you see steel mills, particularly in China, cutting production?

We do. Rio Tinto came out and said they might trim iron ore production a little bit but it is a very small amount, you know 6 million tons. We think there will be a bit of recovery in the supply of iron ore but this is the time when there are always seasonal aspects. They have cyclones in the part of Western Australia where they export iron from. Brazil also has some heavy rains as well. That has impacted supply and that is one of the reasons iron ore prices seem very high at the moment. It is just under $90 a ton and considering what is going on, they seem extremely high. I see them come off a bit.

I would be very surprised if the Chinese mills do not cut steel production. What they often do is carry out maintenance work which is a proxy production cut. A lot of them have plans to carry out maintenance work, the only problem is they do not have workers or the equipment to do the maintenance. They have to put that off so as a result, they are still producing more steel than they really want to at this stage. Whether that will cause some problems down the track is something that we will have to wait and see.

But everybody is waiting to know what the Chinese government is going to do in response and the kind of stimulus measures they might roll out. It is worth mentioning this is the final year of the 13th five-year plan and there are lots of targets the government needs to meet. So, they need the GDP to pick up again and get some hits of the targets by the end of this year. We at S&P have downgraded Chinese GDP from 5.7 per cent to 5 per cent this year so yes, quite a big chunk has been taken off in Q1.