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Background
China has been hit by a Novel Coronavirus outbreak in the month of January 2020. This was a period when global economic recovery was looking positive with the phase 1 of the trade deal between the United States of America and China being agreed along with the Brexit deal, which collectively increased the confidence of both the consumers as well as investors globally. However, it was followed by the news of the sudden outbreak of Coronavirus, which caused major destruction, leading to a massive slowdown of the Chinese economy. This had an additional effect on the global economy because of Chinaâs impact on other countries due to its size as well as its trade relations with them. China is also one of the largest importers and exporter of various metals and their by-products, because of its large-scale manufacturing of heavy industry. Hence, the outbreak has led to a sharp movement in the price of various commodities.
Let us have a brief look at how this Coronavirus outbreak has been impacting various commodities and how this is expected to shape the future of these commodities across the globe.
Gold
Gold is considered to be a safe haven asset. Gold prices are considered to be least risky in nature and do not fall down the cliff as much as other assets, even at the time of a disaster.
Playing on this theme, Gold prices climbed above US $1570 per ounce level on 7th February 2020, at around 01:00 P.M GMT, which was followed by traders keeping gold bids at high levels. At the same time, April Comex gold futures were reported at a price level of US $1,571.50 per ounce, an increase of 0.1 per cent for the day, but a decline of around 1 per cent since the beginning of the week on February 3rd, 2020.
The gold prices have performed well in the month of January as well, and the other reasons behind this were reported to be the US Employment Data, which revealed that the United States of America created around 225,000 jobs in the Month of January.
On 11th February 2020, at the time of writing this report, at 07:30 A.M GMT, the price of Gold was reported to be US $1566.90 per ounce, a decline of US $4.90 or 0.31 per cent as opposed to the last days trading price. At this current price, Gold prices were reported to have gained US $4.80 or 0.31 per cent in the last 30 days and US $70.70 or 4.73 per cent in the last 6 months. At this price, Gold prices had also gained 19.81 per cent or US $259.10 in the last one year.
Commodity experts are of the opinion that with the coronavirus outbreak slated to prolong, as no definite solutions have yet been found to the virus, investors will keep leaning on Gold to avoid any market volatility and hence Gold prices will continue to be stable or rather will rise marginally. This will work as a safety net for the investors.
Till now More than 1000 deaths have been confirmed due to the coronavirus in China, scaring people all across the globe.
Copper
Copper is another commodity that has been deeply affected by the Coronavirus outbreak. The reason behind this is the fact that China is a Global Industrial Hub, and Copper is one of the main metals that is used in the production of various products, especially Smartphones and Laptops. These two products play a critical role in overall manufacturing activity, as some of the worldâs leading companies have their factories in China to produce these goods.
Copper prices generally follow the economic and business activity in and around China and in the middle of January, when Phase 1 trade deal was agreed and was in the process of implementation, Copper prices were soaring and even reached an eight months high price of US $6343 per tonne as per the London Metal Exchange. This was followed by a massive 10 per cent slump in the price of copper, as the industrial demand for the commodity fell followed by downfall in production and output in the country. On 31st January 2020, the copper prices were reported trading at a 1-month low price of US $5569 per tonne, a massive fall in the price of 12.20 per cent or US $774 per tonne as in the last 15 days since 16th January 2020.
Copper prices have since then shown signs of recovery, but if the commodity experts are to be believed, copper could lose more value as the global copper demand is expected to go further down in the coming weeks, and copper prices could suffer sharp fall.
Chinaâs huge construction sector relied heavily upon gradual return just coming from its vacation break then the curbs on movement confined the progression of work. The current and short-term possibility is for accentuation of ordinary seasonal patterns with continuous metals production hitting demand vacuum, prompting quick stock building. Some experts expect copper producers to react with aggressive smelter maintenance, another method for saying yield cuts. The market has gone from talking up China's demand possibilities to hypothesizing about the requirement for production cuts in the span of the next 15 days.Â
Performance of other Metals
International prices, as well as contracts of iron ore and base metals have tumbled because of the novel coronavirus outbreak in China, one of the worldâs largest consumers and producer of base metals and a large merchant of iron. This is an inversion after the US-China 'phase one' trade deal gave base metal prices an upward momentum close to the end of 2019.
LME Week Asia 2020 in doubt
LME Week Asia, which is a conference held by the London Metals Exchange (LME) in association with the Hong Kong Exchanges and Clearing (HKEX) has been currently put on hold, and the outbreak of Coronavirus is likely to keep the programme in limbo, as the HKEX is considering and evaluating options around all such events. The event was supposed to be held between 4th May 2020 and 8th May 2020 for the Metals and Mining industries from across the world in Hong Kong. The HKEX has said that the safety and security of staff and members is the utmost priority and any decision regarding the event will be taken in such consideration.
