Airport staff in Cairo have been taking travellers' temperatures to check for the virus © AFP/Getty Images
Airport staff in Cairo have been taking travellers' temperatures to check for the virus © AFP/Getty Images

Coronavirus hits supply chains and commodity prices

4 February 2020

Oil-producing countries could cut production by 1m barrels per day in order to mitigate the impact of coronavirus on the sector. 

The Organization of the Petroleum Exporting Countries (OPEC) is holding an emergency meeting in Vienna over the next two days (4 and 5 February) to discuss the impact of the coronavirus on the oil market. 

Following the outbreak of the virus – which has killed over 400 people and infected more than 20,000 in China – the country’s oil demand is estimated to have fallen by 20%, according to Bloomberg. China is the world’s largest importer of oil, consuming up to 14m barrels each day. 

On Monday (3 February), Brent crude prices dropped by 4% closing at $54.45 a barrel, down 24% on a January high. 

As a result, analysts believe OPEC and its allies may look to cut oil production by up to 1m barrels per day. This is in addition to a 1.7m reduction announced last year.

Separately, Oman’s oil and gas minister Mohammed al-Rumhy said he expected traders to divert sales of the country's crude to other destinations if there is a slowdown in demand from China.

Al-Rumhy told S&P Global Platts: "We sell most of our export to traders, even refineries tend to trade too. They normally sell to China and I expect them now to divert some volume to other destinations which we don't restrict."

The virus, which originated in Wuhan, has impacted automakers and tech firms across China. Apple confirmed it would be closing offices and stores in China, while Toyota has suspended operations at production plants until 9 February. 

According to IHS Markit, if plants remain shut in Hubei – a major components hub for automakers – global car production could drop by 1.7m units in the first quarter of 2020.

Dozens of global airlines including British Airways, Emirates and Etihad have suspended flights to mainland China until the spread of the virus is under control. 

Meanwhile, analysts have warned other commodities will feel the impact of the coronavirus as disruption in China continues.

Kaho Yu, senior Asia analyst at Verisk Maplecroft, said: “While the closure of steel mills and restricted labour movement in Hubei province and many other steelmaking cities will likely hamper iron ore and coking coal imports, the suspension of construction sites has sparked concerns over lower copper demand, already reflected in falling global copper prices.

“Alongside a drop in demand for oil and metals, especially copper, if the pandemic outbreak continues to worsen, further travel restrictions and supply chain disruption would cause a de facto global isolation of China,” he said. 

Disruption caused by the virus also has global implications for supply chains, said Richard Wilding, professor of supply chain strategy at Cranfield School of Management.

“Air freight is already down 50% and we are seeing a backlog of shipping on the Yangtze River. The consequences are already taking effect, as we are hearing that a car plant factory in Germany has had to close because it does not have the raw materials. This is a trend that is likely to continue in the short-term.

“Companies need to urgently review their supply chain to find out how exposed they are. They need to ask the question as to where their suppliers and suppliers’ suppliers are located and review other sourcing locations, which although often more expensive can protect from disruptive events such as this,” he said. 

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