How is COVID-19 affecting commodities trading?

Danielle Moore March 17, 20203 mins read

Like all epidemics in history, Coronavirus brought with it a wave of fear and panic. But how badly did the fear of this outbreak set up obstacles in the way of trade routes?

This virus from the city of Wuhan first started making global headlines in December 2019, and since then, it has been all the rage. It has reportedly spread to more than 120 countries as well as a cruise ship. 

With the outbreak of coronavirus, China and its citizens have faced hostility from the world and these reservations have integrated themselves everywhere; from memes on the internet to the world of trade.

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WHAT COMMODITY MARKETS BEEN MOST IMPACTED?

The impact on commodity markets by coronavirus can be easily seen by looking at oil prices in the recent history; if we consider the last 3 months, oil prices have slumped to their lowest last week. This is because of how wide spread of this virus is in China, who are also the world’s top oil importers.   OPEC are also considering cutting oil production until June. Obviously, deep cuts in oil demands have a global impact on the economy. 

To make things worse, China is also the second-largest oil refiner and in turn has a critical impact on the global economy. Not surprisingly, the changes in material contraction in Chinese activity and the economy in particular are having severe repercussions across most trade and several industries. 

The aviation industry has been a highly documented casualty of the corona virus as numerous flights to and from China have been cancelled throughout this week.

Like a domino effect, Jet fuel prices and productions have dropped in Asia, seriously damaging business for exporters and refiners. 

Reduced mobility in China also hit great gasoline demand, causing benchmark prices for gasoline fall to their lowest in the last 4 years.

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Other commodity markets like base metals have also taken a huge hit as production factories like Toyota Motor Corp have decided to shut down their plants for the time being to assess the fallout from the virus.

Future Exchanges like Shanghai Futures Exchange (shFE) and Dalian Commodity Exchange (DCE) have announced extended closures.

Clearly, the coronavirus has impacted world dealings immensely both because of its severe threat to human life and the dent it has caused to world economy due to the growing trend to halting trade and assessing the effects of the virus.

Besides this, the industrial commodities were also dented hard as copper fell by 1% in the London metal exchange and rubber had hit even worse as it sank by 2% in Singapore.

Even Agricultural Commodities felt the viruses’ outbreak as the U.S wheat industry was seen to be the biggest losers. Furthermore, soybeans also fell as U.S agricultural officials accepted that due to the impact of coronavirus the purchases of American farm goods for agricultural growth has delayed, hence effecting production hugely! This has in turn placed pressure on President Donald Trump to release more farmer aid.

WHAT COMMODITIES ARE PROFITING FROM THE OUTSPREAD?

Investors now are looking for safety, sending gold prices to a 7-year high, with bonds also escalating. Generally, the prices have taken off this year and federal reserves of each countries are being safeguarded to ease monetary policy if the global impact keeps getting worse.

Shares of the largest commodities in the world have seen great unpredictability due to sharp changes in pricing. Investors hesitate to put in money to businesses; and have decided to have a wait and see strategy for the time being.
 

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Danielle Moore - R1987306's picture
Senior Consultant | Accounting & Finance Recruitment
damoore@morganmckinley.com

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