Copper and Gold:
China accounts for roughly 53% of the global steel production, being a major importer of iron ore as well as a major supplier and consumer of base metals. Since the end of December, metal prices have dropped noticeably, with copper prices (a leading indicator of gross domestic product (GDP) due to its widespread use in industry and construction) falling by about 9.6% between December 31st and January 31st (LME).
The virus outbreak has also impacted trade and global supply chain dynamics following the restriction of people and goods amid an extension of the Chinese New Year holiday. Therefore, transportation within and from the country has been impacted, further pressurising copper prices.
If compared to the SARS outbreak in 2002-03, China’s copper consumption could possibly decline by 500,000 tonnes as a result of the coronavirus. At the time, China’s copper consumption represented 19% of the total world’s consumption, however, China currently makes up almost half. In 2003 copper prices fell by 6% between February (when it was officially recognised by the WHO) and April, just before the Chinese government decided to raise the investments in infrastructure, to offset some negative impact of weak consumer demand, which led to copper prices increasing. If the government follows similar measures, this should result in positive demand for metal leading to a recovery in copper prices.
On the other hand, with copper prices falling significantly, Mintec gold prices shot up, as uncertainties in the global market encourage buyers to invest in safe haven currencies such as gold. As a result, LME (6 months) gold prices were trending 7% higher than December 2019, as at February 12th.
The uncertainty in China could also hamper global oil prices, as China accounted for half of the world’s oil demand growth in 2019.
China is the world’s largest importer of crude oil, consuming approximately 14 million barrels of crude oil a day - that is 13 out of every 100 barrels of oil produced by the world. As the coronavirus outbreak resulted in travel restrictions, the country’s demand for jet fuel reduced. Just a few weeks after the outbreak, the daily Chinese oil demand was already down 20% due to dwindling air travel, road transportation and manufacturing. Millions of people have been affected by the travel lockdown in Hubei Province, the centre of the outbreak. This has been responsible for a glut of jet fuel and diesel on global markets at a time when petroleum supplies were already abundant, and prices depressed. As a result, the crude oil price has dropped 15% m-o-m at the end of January on the Intercontinental Exchange (ICE), its lowest level since December 2018.
In response to the shrinking demand impacting global oil producers, some manufacturers across the globe have been cutting back their oil production. Sinopec, Asia’s largest oil refiner, which is owned by the Chinese government, has slashed its oil processing volume by 600,000 barrels per day (-12%).