COVID-19 Impact on Metal and Mining in the Chemical and Materials Industry

INTRODUCTION
Metal and mining industry is one of those industries that have been severely impacted due to the outbreak of coronavirus globally. The prices of steel and other metals have shown different behavior due to demand and supply scenario change. In response to the spread of the virus, some governments have seized the borders and have imposed large scales quarantines and social distancing measures to minimize the spread of the virus any further. The safety and well-being of workers were rightly the top priority of any country, but now companies must consider the economic effects of the pandemic, which are now apparent.
To keep the well-being of employees in concern, companies have taken drastic measures such as asking non-operational staff to work from home to scaling back production; even many of the companies have reduced their operations and manufacturing capacities to get less impacted with the global pandemic. Such steps have resulted in reduced productivity and profits of many industries, including metals and mining precipitously. To come back on track, the companies need to make strategic choices for building their cost resilience to prepare themselves for the recovery, as well as even rethink on their new operating models
Some of the views presented by associations and company professionals are:
• “Companies are facing restrictions in logistics and transport, trades have been muted, prices of raw materials and steel have slid, which is causing the market’s value to decline”, by China Iron & Steel Association
• “ We believe the effect of the coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere,” by ArcelorMittal
• “We reviewed the situation arising in China due to the virus outbreak in the initial weeks. While we do not depend on China as a market for steel, we do source some of our consumable items from it. We are thus trying alternative supply sources in countries like Turkey and Brazil,” by TV Narendran, chief executive, Tata Steel.

IMPACT OF METAL AND MINING INDUSTRY
The outbreak of coronavirus started showing its impact mainly from March of 2020. The average share pricing of metal and mining industry dropped by almost 10% and many standalone companies have lost around 40-50% of their market value. The effect of COVID-19 has changed from moderate in March 2020 to high in April 2020 and is still aggressively increasing. Some of the major players in the mining market such as BHP Billiton, Rio Tinto, and Anglo American have so far reported partial shutdowns and due to this, the industry has almost reported a production loss of more than 30% till now.
It has been observed that the price of various commodities such as iron ore, copper, coal and zinc, fell by >5% due to lower-near term demand. The only exception to this trend is gold.
The above mentioned chart clearly states that as compared to last year (2019), the prices of almost all commodities have declined, except a few which have geared up recently.
China accounts for more than 20% share in the global supply chain of intermediate products which includes metal and metal products. Thus, the disruption which has been caused due to COVID-19 in China only is expected to repeat on the economy in various countries worldwide. It is expected that the metal industry of European Union will lose over USD 1 thousand million if China exports reduced by even 2%. The steel manufacturer in Europe are cutting production and idling factory lines in which the workers are not working as because of declining orders, a lack of available staff or as a safety precaution against coronavirus. As per the commodity consultant, James Campbell at CRU, “This is going to be a loss making year for the European steel industry.”
Due to the downfall in the metal and mineral industry, the other industries that are dependent on supply of ferroalloys and steel, such as automobiles, foundries, have been shutting down across global. As per some of the experts, it is not because of coronavirus spread that metal industry is facing dip in the demand; rather it is the quarantine or the shutdown that is eroding the demand. Ideally there are two aspects of looking into the problem of demand:
1. The quarantine
2. Economic crash on a medium-term horizon
Along with this, various countries are keeping track of Chinese activities that they did to bring back the industry on track. The Chinese steel consumption from January 2020 to February 2020 increased by almost 5.5%. The production in China grew by 3.1% in March and April. Also, the investment in the fixed assets has increased by 24.5% and the investment in the infrastructure has increased by 30.3%, which is even higher than the decline during the crises of 2008-2009.

IMPACT ON IRON ORE
The spread of coronavirus has impacted iron ore production and its pricing too. Though compared to 2019, there has been an increase of 0.5% in the pricing but it has faced a dip that no one has expected. The price in 2019 was USD 90.4/tons, and till March in 2020, it averages $83.5/tons. In terms of production, it is expected that iron ore may show a growth of 0.8% in 2020, as compared to 4.7% growth in 2019. The slow growth is due to government lockdowns around the global disruption in operations. The supply chain has also disrupted as many mines are forced to shut their operation in Canada, South Africa, Peru, and India. Till March 2020, the steel production in China is averaged 3.6% as compared to 7.7% in 2019. As China is also facing the logistic issue, which temporarily has increased China’s demand for seaborne iron ore post-April 2020.

IMPACT ON COAL
Coal is another commodity or metal that has faced the impact of COVID-19 harshly. The demand for coal is facing slowdown from past one decade due to competition from cheap natural gas and other expanded renewable energy sources. As the world is moving away from fossil fuels, the coal industry is in desperate need to revive. Along with this, the pandemic has added a big reason to its downfall and has made the situation worse. Most of the companies in Pennsylvania, Illinois and Virginia have temporarily suspended their operations to control the spread of virus.
By January, before the pandemic out broke in the U.S., the drop in coal production was forecasted to 14% in 2020. But as the coronavirus speeded in the country and the mild winter which requires less electricity at heat homes, the downfall is now expected to be more than 25% by the end of this year.
In April 2020, the coal exports from Indonesia hit lowest level since June 2009 due to the spread of coronavirus crises. Exports from Indonesia averaged around 32 MT during April 2015-2019 which dropped to almost 18 MT in April 2020. On the other end, import of coal has also suffered in many countries.
For instance,
• India’s coal import in March 2020 was at 15.74 million tons which were low by 27.5% as compared to import in March 2019. Though from April 2019 to March 2020, the total coal and coke imports stood at 242.97 MT (provisional), which is 3.24% higher than from April 2018 to March 2019, the major low will be reflected in the statistics of 2020 fiscal year. As per Vinaya Varma, managing director and chief executive of mjunction services, “The lockdown imposed across the countries due to novel coronavirus pandemic has had a cascading effect on this sector. There was a significant drop in India’s coal import volumes due to both demand and supply-side factors, i.e. offtake, consumption, logistics, and dispatches.” Moreover, as per the statement by Coal Minister Pralhad Joshi, to stop the substitutable import of coal in the next three to four years may further present a dip in the coal industry.

IMPACT ON STEEL
The steel industry has faced multiple hits this year due to reduced demand from its major consumers, automotive and construction, and infrastructure. Automotive accounts for around 15-20%. In the year 2020, steel production has declined gradually due to the outbreak of coronavirus. Steel industries in countries like India depend on China for various consumables include manganese, refractory products, and compounds, electrodes, and rolls for steel mills. Thus, any impact on the Chinese industry will have direct implications on all the countries that are dependent on China. Due to overdependence on imports, the price of raw materials shoots up by multiple folds and thus making the end product costlier. One of the biggest steelmaking companies, Tata Steel, has recently decided to reduce its dependence on China for the supply of steel making inputs. Along with Tata Steel, many other companies are trying to shift their supplies from China to other countries like Turkey and Brazil. This is one of the steps suggested by the government in discussion with the steel manufacturing companies to de-risk the supply chain.
As the demand for steel has gone down tremendously, government of various countries has forced the manufacturers to cut the production to almost 50% of the capacity. Along with this, the lockdown and movement restrictions have also impacted the timely delivery and dispatches of the finished goods. In countries like India, where almost 80-85% of trucks are not moving worsens the situation. Thus, officials are requesting government to allow movement of trucks for the industry as they are the major part of any industry.
As per the stats provided by Indian Steel Association (ISA), steel demand in India will face a contraction of 7.7% in 2020. ISA has estimated that in February 2020, the steel demand would grow by 5.1% and will reach 106.7 million tons. But after analyzing the impact and situation that is created due to COVID-19, the estimation has been revised to 93.7 million tons. The lockdown will impact the steel demand by nearly 13 million tons, as per Arnab Kumar Hazra, assistant secretary-general at the Indian Steel Association.

IMPACT ON OTHER COMMODITIES
COPPER: Since the beginning of 2020, copper prices have dropped by almost 15% due to a downfall in demand from various end-use industries. However, with most manufacturers/smelters in china and as the country is slowly getting rid of the pandemic, copper demand and prices are expected to bounce back.
ZINC: Through the prices zinc rose rapidly from 2015 to 2019 will almost an increase of 32%, now facing downfall of around 18% from 2019 to 2020.
NICKEL: Despite of economic downturn, the performance of nickel was better than other commodities. The prices are also showing positive signs along with the supply. It is expected that by the end of 2020, there will be around 3% rise in the demand of nickel.

POSSIBLE STEPS TO BRING METAL AND MINING INDUSTRY BACK ON TRACK
To manage this global crisis, mining and metal leaders are working mainly on three aspects: Respond, Recover and Thrive. Some of the important immediate steps that are advised to metal and mining leaders include:
• Maintain critical services by every possible way while keeping the safety of employees as the top most priority.
• Focus should be more on understanding the financial situation and accordingly release the cash maintain financial viability even through uncertainty.
• Rethink on strategies of work done, and improve the ability to collaborate by using automation and digitization.
Also to lift up the metal and mining industry, the role played by procurement leaders is also vital. There are responsible to mitigate supply-chain risks, covering and protecting cash with enhancement in the overall productivity by making strategic choices. The Chief Procurement Officers (CPOs) should work closely with the operational team and market players so that a strategic move can be taken towards the spending as in what can be stopped, which can be stalled, what can be shrunk and what must be sustained. A control-tower methodology has been suggested to monitor and challenge all of the company’s spending.
One of the major challenges that have appeared in front of almost every industry is over dependency on one or two suppliers. This is of utmost importance that manufacturers should mitigate their risk and lower their losses by increasing number of raw material suppliers so in case pandemic or crises, the operations will not get hit to this extent and situation can be controlled before it gets worsen.

CONCLUSION
The spread of COVID-19 pandemic around the globe has an immediate impact on the global economy and almost on all the industries including metal and mining. In the crises, some of the new players might get more affected than others because of the initial challenges that a business faces and then the challenges brought in by the pandemic. But, for a positive aspect, due to this pandemic, a real sense of togetherness has emerged among the players of the industry to stop the spread of this virus.
The spread of coronavirus has taught many of the players in the market how to better manage their business and always be ready for such situations too. In the mining industry, the impact has varied from commodity to commodity.
For instance,
• Where gold is experiencing high price along with thermal coal and uranium, iron ore is feeling pressure to sustain as it is more dependent as consumer demand.
So, the steps to bring back the economy should be based on commodity rather than entire industry. Also the slowdown has resulted in some new opportunities and has opened doors for new ways of doing business. Since, the metal and mining are working on the same old patterns without much exploring in the ways of doing business. Now, the manufacturers and suppliers are exploring other methods such as atominization, digitization and remote controlled operations. Not only the manufacturers, but also the consumers are welcoming the online delivery of their products and have resulted in reducing human efforts.
Slowly and gradually things are coming back on track. But within few years, by the mutual efforts of the government and manufacturers, the impact can be controlled to an extent. The goal for the players remains same which is to deliver the maximum customer productivity with minimum downtime and maintenance. The impact cannot be eradicated quickly, but will prepare people to say with it with no much impact on their lives.