Sudden Shanghai Lockdown Snarls China’s Biggest Metals Hub

(Bloomberg) -- Shanghai's strict lockdowns are threatening production at hundreds of factories in nearby industrial regions that rely on a steady flow of metal from China's top commodities trading hub.

Trucking of base metals like copper and zinc in and out of warehouses in Shanghai, including those in the duty-free bonded zones, largely ground to a halt this week after the city's government imposed tight curbs on the movement of people and vehicles, according to traders and logistics managers.

The financial and commercial center on China's east coast ordered a two-stage lockdown to fight a wave of omicron cases. That's snarled up logistics by creating a shortage of truck drivers and warehouse staff, the people said. 

Shanghai is the main entry point for metals heading into the world's top importer, and its warehouses typically hold many hundreds of thousands of tons. The refined metals are trucked from the city's ports to the surrounding provinces where they are first processed and used in everything from the power grids to air conditioners to cars. It's also a locus for trading and storing domestic production, backed by China's biggest metals futures exchange and a sprawling warehouse network.

Six out of twelve copper-rod plants in neighboring provinces surveyed by Shanghai Metals Market said they either have halted or plan to halt output from this weekend, according to a note on the researcher's website.

The choke on metals supplies underscores how Shanghai's sudden move to step up the fight with omicron is adding headwinds for the country's fragile economic recovery, as well as causing turmoil for Shanghai's most vulnerable residents.

Read more: Shanghai Starts Lockdown of Western Half as Virus Fight Deepens

China's factory activity was already contracting in March, according to official data based on a survey that closed on March 25, three days before Shanghai locked down Pudong, the eastern district that hosts its container terminals. April PMIs will show a much more pronounced lurch downward, according to Bloomberg Economics. A private survey showed on Friday that China's factory activity dropped in March to the worst level since Feb. 2020.

East and West

Most warehouses in Pudong now only have a few skeleton staffs on site just for security, the people said. Covid testing requirements have slashed the number of truck drivers with valid certificates and many drivers are staying away from Shanghai, according to a report in local financial news outlet Caixin.

Puxi, the western half of Shanghai that hosts two thirds of its 25 million citizens, entered lockdown early Friday morning. Local buyers were already struggling to get metals from warehouses there too. Delivery services have been disrupted, making it almost impossible to send the original documents needed to pick up goods, the people said. 

China's coronavirus cases are rising, with dozen millions of people in or facing imminent isolation. Nationwide, there were 7,229 cases reported on Thursday, according to China's National Health Commission.

Getting Out

Several traders and logistics managers interviewed by Bloomberg said they hoped authorities will allow some road transport and warehousing operations to continue by clearly categorizing them as essential services. For now, the strict Covid testing and quarantine requirements for exiting Shanghai have encouraged most logistics companies to stop such business.

And metals traders are also watching case counts and curbs in other key cities.

Wuxi, a hub for aluminum and stainless steel trading near Shanghai, is ramping up its restrictions -- including lockdowns of some neighborhoods -- as cases rise. That adds to risks of tighter metals supply in coming weeks, the traders said.

©2022 Bloomberg L.P.