Commodities: Virus disruptions near term, fundamentals for the longer term – Westpac
|In the view of the analysts at Westpac, the near-term volatility in commodities, in light of the China coronavirus outbreak, will be replaced by medium-term fundamentals by end 2020.
Key Quotes:
“The coronavirus is having a mixed impact on commodities. Mostly it is downwards, with falling crude oil and iron ore prices. Chinese mining production has also been impacted, leading to rising coal prices.
These price movements will reverse as the disease is contained and Chinese activity returns to normal. Beyond that, while the government’s policy response to the slowdown presents upside risk, we still expect iron ore and coal prices to soften into end 2020 as supply conditions improve.
China dominates commodity demand in the 21st century, altering the way commodity markets behave. But this shift has had other dimensions – changing supply arrangements (China is also a major producer of many commodities) and the introduction of new pricing arrangements (there was no spot iron ore market in 2003) making direct comparisons to the SARS event of 2003 difficult.
Commodity prices should hold around current levels until Chinese activity and demand recovers heading into the second half. There is still, however, a high degree of uncertainty surrounding near term supply and demand conditions.”
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