It’s officially an international disaster: Traders globally are in a state of panic following news of a virus that broke out a few days ago in the world’s largest nation, China. Coronavirus has so far claimed 26 lives and left more than 800 others in critical condition.
China is a key player as far as commodities trading in concerned, and as it is, foreign investors have been withdrawing their operations following an outbreak of the deadly virus. Travel bans have been put in place, with more precautionary measures expected in the coming days.
While pharmaceutical stocks are reportedly surging, commodities have been taking a hit, thanks to disruptions caused by global fears.
The virus is said to have advanced as far as the United States, claiming lives by the day.
Experts now warn the outbreak in the world’s largest states could threaten demand for essential commodities such as jet fuel, steel, and the recently sealed US-China Phase One trade deal involving several other products.
Investors have been spooked by the virus spread even as the extent of the outbreak remains unknown. The last significant drop in raw materials experienced was in 2003, during the SARS crisis. If the virus curtails China’s growth, agriculture, materials and energy commodity prices could shed off recent gains following successful trade talks with the US.
With another challenge sliding into the markets, commodity prices could stall, yet again.
The escalation of the virus comes at a time when China’s peak travel period is around the corner. The situation is forcing traders to offload potential risks, piling pressure on raw material prices.
Necessary as it may be, the travel bans haven’t been helping the situation as analysts predict a sharp fall in individual commodity prices.
For instance, travel bans are expected to hurt fuel jet prices and rubber for tyres. On top of that, construction workers who will not be able to resume work after the Lunar New Year holiday may further trigger a dip in steel prices and related raw materials.
In a note, Goldman Sachs analysts warned that if the current crisis reached the SARS levels, it would slash about 260,000 BPD of crude oil demand from the markets.
According to one of the firm’s analysts, Damien Courvalin: “The initial uncertainty on the potential scope of the epidemic could lead to a larger price sell-off than fundamentals suggest. Such a move could, in fact, be exacerbated by both the current large net-long speculative positions in oil and the monitoring challenges created by the Chinese New Year.”