Trade in the Time of Coronavirus
As the situation surrounding the spread of coronavirus continues to develop, markets around the globe are feeling its impacts. Our researchers and reporters are analyzing the coronavirus’ effects on trade — from oil and commodities markets to freight and logistics and beyond.
Published: February 5, 2020
U.S. Exports
Improving U.S. export sentiment faces realities of coronavirus
U.S. business sentiment towards international trade improved in the latest ISM survey. A rebound in export sentiment to 53.3 (where a figure over 50 represents an increase) from 47.3% a month earlier was likely the result of the U.S.-China phase 1 trade deal. It should be borne in mind though that the dollar value of increased trade in 2020 versus the 12 months to Nov. 30 that China has committed to is a modest 4.6%. Delivery of that figure may prove challenging in the light of the spread of coronavirus in China and the resulting drop in consumer demand and closure of factories.
Key Takeaways:
- While the outlook for later in 2020 may be bright, there are challenges in the short-term. The spread of coronavirus has already taken a toll on factory activity and consumer in China, cutting the potential for increased exports of manufactured products in the near term.
- It also raises the prospect of an interruption in supplies to American businesses – that can be particularly sensitive for firms operating just-in-time supply chains.
- The pessimism in China can already be seen in the recent CFLP survey which showed a return to negative expectations for both exports and imports. The latter is likely as a result of the interruptions caused by the factory closures.
CNOOC
China's CNOOC declares force majeure on LNG contracts amid coronavirus outbreak
China's state-owned CNOOC has declared force majeure on LNG contracts, a source close to company said Thursday, as the country's largest LNG importer tackles disruptions in downstream markets in the wake of the coronavirus outbreak.
The coronavirus has sparked fears of a major economic slowdown in China, the world's second-largest LNG importer behind Japan, where quarantines and travel restrictions have caused a demand contraction.
Commodity Tracker: Coronavirus and commodity markets
The spread of coronavirus outside China and the WHO’s escalation of the outbreak to emergency status last week continue to stoke fears over weaker energy demand and disruption to key mineral resource supply chains. In this special edition of Commodity Tracker, S&P Global Platts editors take a look at the impact across a number of energy products and raw materials.
Global Autos
The coronavirus dashes recovery hopes for global autos
The new coronavirus, which has triggered lockdowns in some Chinese cities and several auto plant closures, will inevitably harm global auto industry production and sales in China. The World Health Organization (WHO) has recently declared the outbreak a public health emergency of international concern. This suggests that countermeasures available to the Chinese government could still extend beyond the epicenter and lead to restrictive measures on transportation to China or additional quarantine checks on goods imported from China by WHO member countries.
Fiat-Chrysler mulls closing European plant on parts shortage due to coronavirus disruptions
Fiat-Chrysler warned one of its European plants could be forced to halt production in the coming weeks if the coronavirus outbreak continues to affect the capacity of Italy's largest carmaker to source spare parts from Chinese suppliers.
Lower Demand, Lesser Freight
Freight rates may tumble on coronavirus outbreak: sources
The deadly coronavirus affecting China is likely to reduce the demand for oil and refined products dragging down freight rates worldwide, market participants said.
The general perception among the brokers, owners and charterers is that the epidemic may last several weeks or even months and the strain is already showing with several airlines cancelling their flights to several Chinese destinations.
Shipments of clean products such as jet fuel and gasoline will be hit as less people travel within, into and out of the world's most populous country and pull down freight, they said.
Key Takeaways:
- Gasoil and jet fuel are two commodities regularly moving on clean tankers from the West Coast of India, North Asia and the Middle East to Europe and Singapore. Trade in these along with gasoline and naphtha is an important barometer in determining the freight rates.
- Sluggish local markets will leave more surplus barrels for export from China but there is a limited demand elsewhere due to slowing global economic growth, said a tankers' broker in Beijing. This will leave Chinese refineries with no option but to reduce output, which in turn will drag down crude imports and hit the earnings of tankers.
Transportation
Coronavirus will take a big toll on China's transport operators
S&P Global Ratings said the novel coronavirus outbreak has already had a severe impact on the transportation infrastructure sector in China. We anticipate the ripple effects on transportation will be more significant and enduring than in the spread of the severe acute respiratory syndrome (SARS) outbreak in 2003.
"The new coronavirus outbreak will undermine the credit strength of many Chinese infrastructure operators in 2020," said S&P Global Ratings credit analyst Gloria Lu. "The impact on ratings depends on the extent to which government or parent support is provided, given the exceptional circumstances".
Passenger transport has plummeted in recent weeks. Over the 10-day lunar new year holiday that began this year on Jan. 24, passenger volumes on major means of transport combined dropped more than 70% compared with the holiday period of 2019. This includes air, rail, road, and water transport.
Coronavirus delivers a blow to the logistics sector
The spread of coronavirus has continued and reached nearly 25,000 cases, Panjiva’s analysis of Johns Hopkins University data shows. While predominantly still an issue in China – which represents 99.0% of cases identified – there’s already noticeable impacts on the global shipping industry. This is being driven in part by the extension of the lunar new year holiday factory shutdowns through Feb. 9 in many cases.
Further Reading
More of our coronavirus coverage
– Research from S&P Global Ratings – Insights from S&P Global Platts – All division coverage from S&P Global