Industry sources have sketched out a number of scenarios that may happen, especially if the situation becomes drawn out and restrictions on travel and transportation persist into the foreseeable future.

“If logistical restrictions continue to delay deliveries to domestic markets, then producers will have no choice but to shift their attention to exports,” a source at a Chinese steel mill said on Wednesday January 29.

This could be the case especially if domestic prices fall after the Lunar New Year and Chinese steel mills find better arbitrage opportunities overseas.

Rebar prices in eastern China were at 3,640-3,670 yuan ($525-529) per tonne, including 13% value-added tax (VAT), on January 23 – the last working day before the start of the country’s Chinese New Year public holiday. This is equivalent to about $464-468 per tonne without VAT.

Fastmarkets’ steel rebar index export, fob China main port was at $471.75 per tonne fob China on the same day, which suggests a small spread of $3-7 per tonne in favor of export prices.

As for hot-rolled coil, prices in eastern China were at 3,860-3,880 yuan per tonne, including VAT, on January 23 - equivalent to about $492-495 per tonne without VAT.

Fastmarkets’ steel HRC index export, fob China main port was at $495.95 per tonne fob China on the same day, indicating a small spread of $1-4 per tonne in favor of export prices.

China's Council of International Trade Promotion has started offering "force majeure certificates" for businesses affected by the virus outbreak, which would enable them to declare force majeure if they are not able to deliver on contracts.

"This may increase the chances of Chinese steel mills reducing their exports, which would force buyers around the world to look for alternative sources for steel," an industry source in Indonesia said.

The full scale of the situation will only be known when Chinese markets reopen after the Chinese New Year break, which ends on Sunday.

"The situation seems pretty bad now, but it will ultimately still depend on how many people are able to get back to their work stations after the Chinese New Year holidays end officially on February 2. There will be more clarity once Chinese steel market participants return from the holidays and there is more information,” the first steel mill source continued.

Chinese steel mills that continued to operate their blast furnaces throughout the break are expected to continue to do so.

“It is only a matter of whether the steel they produce can reach domestic end users eventually,” the same source said.

But exports could also become restricted due to transportation restrictions resulting in logistical delays for steelmakers and buyers.

“It’s not easy to find truck drivers to work inter-city routes in the current period. If they travel between cities, they will have to be quarantined for 14 days,” the source said.

Almost 20 cities in China have been placed on lockdown in an effort to contain the virus, which has spread rapidly during the country’s busiest holiday.

The effect is felt especially strongly in Hubei province, where the virus is thought to originate.

“Our steel mill has closed its port due to the virus outbreak and there are other logistical restrictions, so the situation is quite severe,” a source at a trading company linked to a major northern Chinese steel mill said, without disclosing more information.

A Chinese trader that deals in long steel said business activity would be limited when China returns from the holiday.

A source in the downstream railway sector said: “Inland transportation will be more restricted in some regions, and steel production will likely shrink in February to mid-March.”

“I heard that some Chinese cargoes have been rejected abroad because of the virus. In light of this, I do not think that the Chinese steel exports will recover in the first quarter,” he said, noting that exports from the country had already fallen in 2019 on a year on year basis.

But on a cost-competitiveness basis, a depreciating yuan and strengthening dollar will help Chinese exports, even if buyers pay lower amounts in dollars.

The Chinese yuan weakened steadily from 6.8587 yuan to a dollar on January 19 to 6.9358 yuan to a dollar on January 30, according to currency converter Oanda. The Chinese currency fell to its lowest so far this year on January 7, when the exchange rate was 6.9718 yuan to $1.

China’s official exchange rate - published by the State Administration of Foreign Exchange - also weakened to 6.8876 yuan to a dollar on January 23, from 6.8664 yuan to $1 on January 20.

No new rate has been released since January 24, the first day of the Chinese New Year break.

Other market sources around the world told Fastmarkets that it was still too early to tell whether Chinese mills would not be able to deliver their February- and March-shipment materials that were booked previously, with buyers not yet actively sourcing for alternative sources to make up for any shortfall.

“The mills have not declared a force majeure event yet, although such a situation could eventually materialize if employees cannot return to work and ports get locked down,” an Indian trader said.

A trader in the Philippines said that most buyers should still have sufficient inventories and could afford to wait to get a clearer picture of the situation in China.

A north African trader said that buyers on the continent have indicated a preference for European steel in current negotiations due to the uncertainties that have emerged as a result of the coronavirus outbreak.