NEW YORK – No major commodity has felt the pain of the worsening coronavirus epidemic more deeply than copper.
The metal has tumbled for 12 straight sessions in London, the longest retreat in more than three decades of data. Since January 20 when the outbreak in China entered a new phase of severity, copper has tumbled 11%, making it the hardest-hit by the spreading pandemic among all the major commodities.
Copper’s slide underscores just how crucial China’s manufacturing engine has become to global commodities markets. The economic hit to the Asian nation could exceed that seen during the SARS outbreak of 2003, according to Nomura Holdings. The country’s share of global base metals demand has surged to 51% in the first 10 months of last year, from just 19% during the SARS pandemic, based on Bloomberg Intelligence estimates.
Traders have been warning that the short-term outlook for commodities could be upended if manufacturers in China are forced to stay closed for longer while authorities fight to contain the spread of coronavirus. Now, with several major provinces extending public holidays, those fears look like they could be realised.
“From a trading perspective, it makes sense to be cautious,” Xiao Fu, head of global commodities strategy at BOCI Global Commodities, said by phone from London. “There could be pent-up demand in the latter part of the year, but I wouldn’t be surprised to see prices moderately lower over the nearer term.”
Still, there are a lot of uncertainties, and markets have a tendency to overreact.
Chile, the biggest copper-producing nation, said investors may have overestimated the impact of the coronavirus on metal demand, echoing other comments that the outbreak won’t change the long-term growth picture. The nation’s currency weakened as much as 1.2% Thursday.
The biggest question is what will happen in the short term. Brief disruptions in the spot market could weigh on sentiment, particularly if the extended closure of end-user businesses forces producers to unload stocks.
“The delay in downstream consumers coming back to market in many provinces will likely lead to an extended build in inventory,” Colin Hamilton, managing director for commodities research at BMO Capital Markets, said in an emailed note. “Warehouse operations are also due to resume next week, though transport of material is still likely to be limited.”
The impact on copper demand may start showing in the auto industry. BMW said it’s halting production at three China sites until February 9, while Volkswagen’s joint venture in the country has taken a similar move.
Copper for delivery in three months fell 0.9% to settle at $5,587.50 a metric ton 5:51p.m. on the London Metal Exchange. The metal is down almost 11% since January 20, when reports broke that the disease that originated in central China was spreading from person-to-person and had sickened medical workers.