Wuhan coronavirus epidemic clobbers commodities

Global commodities trade is being thrown into chaos by China’s coronavirus epidemic, as the top user of raw materials receives the worst demand shock since the 2008 financial crisis, Bloomberg reports.

The flow of almost every major commodity is at risk: China’s oil demand has plunged by 20 percent and refineries are curbing operations, liquefied-natural-gas buyers are reneging on deals, coal mines are staying shut, copper smelters are mulling output cuts, and crop shipments are stuck at ports.

There is evidence of havoc across the commodities world.

A major Chinese refiner wants to offload West African crude cargoes it no longer needs, while demand for Latin American oil has stalled.

Australia will quarantine ships and Indonesia plans to stop food imports.

Miners Anglo American Plc and Rio Tinto Group have restricted travel, and OPEC is considering an emergency meeting.

The outbreak has dragged down raw material prices as well, with U.S. West Texas Intermediate crude on Monday dropping below US$50 a barrel for the first time in more than a year.

Industrial metals and agricultural commodities also declined.

“This could impact the entire global supply chain,” said Bart Melek, head of global commodity strategy at TD Bank in Toronto. “There are limitations in air transport already. In China, logistics are challenging and there are measures being taken. For some industries that means goods produced in China may not arrive to the United States.”

The disruptions show the far-reaching impact of the deadly coronavirus, which has dampened the outlook for growth in the world’s second-biggest economy. While industrial activity typically slows during the break, the epidemic is delaying the resumption of operations.

Additionally, gasoline and jet-fuel demand has been hurt by travel cuts.

Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz discussed the global energy market Monday as oil markets tumbled, the latest signal that the OPEC+ producer alliance is trying to build a consensus for an output cut to prop up prices. While the kingdom has been pushing for action since last week, it has met resistance from Russia.

Chinese commodity prices collapsed on the first day of trading after the Lunar New Year break yesterday, as investors returned to markets gripped by fear over the impact the coronavirus.

The country’s three major raw-material exchanges were hit by a wave of selling as Chinese traders got their first opportunity to catch up with losses inflicted on overseas markets while they had been on holiday.

Metals, energy and agriculture futures were all hammered, with iron ore, crude, copper and palm oil contracts all sinking by their daily allowable limit within seconds of markets opening. Shares in commodity producers also tumbled as stock markets resumed trading.