Goldman sees virus as largest commodity demand shock since 2008
[SINGAPORE] The world is facing the biggest commodity demand shock since the global financial crisis as the coronavirus outbreak that's already rocked Asia spreads to the US and Europe, according to Goldman Sachs Group Inc.
Disruption to economic activity in China has resulted in an estimated 4 million barrels a day of lost oil demand, compared to 5 million barrels in the Great Recession of 2008 and 2009, Jeff Currie, the bank's head of global commodities research, said in a Feb 28 report. With new cases being reported across Europe, the Middle East, and the US, economic impacts are likely to spread to the Atlantic over the next month.
To make matters worse, "finite storage capacity in China - though large - is filling up quickly, presenting further downside risk if storage is ultimately breached," Mr Currie said.
For oil and other energy products, any disruption in demand will be deemed as lost, while lower consumption for other commodities such as steels and aluminum could just be deferred until later, Currie said. Expectations of monetary and fiscal stimulus saving such deferred demand will likely create commodity price volatility going forward.
Gold, on the other hand, has "immunity to the virus" and has outperformed other safe haven assets like Japanese yen or Swiss franc, Goldman said.
About 45 per cent of scheduled Asia-to-Europe container ship sailings were cancelled in the four weeks following the Lunar New Year holiday in late January, Currie said. That means the March ramp-up in Chinese activity could be slow given the physical realities of re-starting global supply chains.
GET BT IN YOUR INBOX DAILY
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
BLOOMBERG
BT is now on Telegram!
For daily updates on weekdays and specially selected content for the weekend. Subscribe to t.me/BizTimes
Energy & Commodities
Japan’s Mitsui to develop Vietnam gas field for US$740 million
Trafigura pleads guilty, agrees to pay about US$127 million to settle US probe
Oil rises more than US$1 a barrel on tighter supply outlook
Freeport warns copper export ban could cost Indonesia US$2 billion in lost revenue
More than 20% of global oil refining capacity at risk: analysis
China lifts tariffs on Australian wine, ends three-year freeze in trade