
The impact of the coronavirus on the raw materials market

The coronavirus has spread rapidly in China in recent weeks. To date (February 5, 2020), 24,324 people have been infected and 490 deaths have been reported. In addition to the increasing health threat, the economic strength of the People's Republic has also been hit and is now resulting in a sharp drop in prices on the raw materials market.
The most important thing about coronavirus and the raw materials market in brief:
- Coronavirus 2019-nCoV has an impact on the Chinese economy
- The global economy depends on China
- The Chinese government is pumping economic aid into the economy
In 2016, the economic power of the People's Republic of China overtook the USA as the strongest economic power in terms of purchasing power parity. Above all, the numerous raw materials and rare earths that the Middle Kingdom imports, exports and produces are almost irreplaceable for the economic power of the rest of the globe.
The worsening health situation led to a fall in prices, especially for raw metals, with the average price for copper per ton falling by a whopping 10%. This may not seem impressive at first glance, but this drop took place in just 14 days and is a rarity for a steadily growing industry like copper.
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The spread of the disease in the logistics and transport sector in particular is causing supply fears in Europe, as a strong dependency has developed in recent decades, especially with regard to manganese products. Manganese is an important component in the steel industry and is used there as an alloy component, for hardening the steel and for rust protection.
The price of oil was not spared by the health crisis in China.
The Middle Kingdom is a busy buyer of the raw material. If oil is not purchased at all, this could cause a crisis on the world market. The price of oil has already fallen to $54.95 per barrel, and overall the annual balance is still in the red, this is the lowest level since the financial crisis of 2009, when the price of oil temporarily fell below $50.
The enormous purchasing power figures show how heavily the global economy depends on China.
China accounts for 14% of global oil consumption, 53% of copper consumption and 64% of global iron ore imports. Comparisons quickly come to mind with the outbreak of the SARS virus in 2002, with the clear difference that the global economy's dependence has increased significantly since then, as, among other things, oil consumption has doubled and trade in copper has tripled.
The production of rare earths is particularly drastic; China has a staggering 80% share.
Coronavirus: How is the Chinese People's Republic dealing with increasing economic tensions?
The People's Republic usually has a relatively strict approach to media reporting on economic problems, which means that usually either little information is released or leaked reports are downplayed. So far, every crisis has been countered with massive economic growth.
This year the forecast has slipped to below 6%, but this is far more than any European country in recent years (for comparison, in the third quarter of 2019, Luxembourg was the EU leader with 2.2% GDP growth).
The largely state-controlled economic system also allows China to pump almost unlimited economic aid into the financial system. In the last few days, the government has already made hundreds of billions of dollars available to calm the growing uncertainty on the markets.
The Chinese central bank has also lowered interest rates several times in order to keep the economy going.
Summarized
In summary, the year 2020 started off in a very bad way for the People's Republic. In addition to the pork shortage, which threatened the annual New Year celebrations and meat food supplies in some regions, the Middle Kingdom was also caught off guard by the coronavirus outbreak.
It is worth mentioning that communication with the markets and outside countries in particular has been made more open than before and the People's Republic is trying to stabilize the market by releasing immense financial reserves.
Similar to pork, where state reserves were thawed, China is currently still able to keep its economy going through state subsidies.
However, it is questionable how long the Chinese economy can survive on pure credit and whether China will quickly get the current health crisis under control.
via:
Author: Alexander Herberstein; Article image by junrong / Shutterstock.com
Notes:
1) This content reflects the current state of affairs at the time of publication
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The reproduction of individual images, screenshots, embeds or video sequences serves to discuss the topic. 2) Individual articles (not fact checks) were created using machine help and
were carefully checked by the Mimikama editorial team before publication. ( Reason )
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