(Bloomberg) – Commodities plunge as the Covid-19 outbreak in China worsens, and a series of concussion street protests in cities across the country threaten to derail economic activity. and reduce the need for energy, food and raw materials.
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The base metals fell early in the session, with copper futures falling as much as 2% in London before paring losses along with Chinese stocks. Iron ore in Dalian fell as much as 3.2%, while West Texas Intermediate futures fell as much as 3.5% in New York, falling to its lowest level since December 2021. Dalian fell as much as 3% due to pandemic concerns. threat to demand at restaurants and hotels already reeling from the lockdown.
The immediate cause of public anger in China is the restrictive government policies aimed at containing Covid-19, which is believed to be the cause of the deadly fire in Xinjiang last week. Beijing could respond by easing controls further – what it has signaled as its long-term plan – or tightening even more control as it seeks to quell social unrest. festival.
The return to stricter lockdown measures will further squeeze demand for some key commodities. China is the biggest importer of everything from oil to iron ore and soybeans, and buying activity has slowed this year due to a sluggish economy.
On the other hand, easing restrictions will boost the world’s No. 2 economy, support demand for fuels and metals, and increase industrial electricity consumption. Meanwhile, uncertainty has sent investors flocking to the safe-haven US dollar, which puts pressure on international commodities denominated in this currency, such as the US dollar. like crude oil.
“The coronavirus situation in China continues to weigh on the metals market, with record cases once again being announced,” said Colin Hamilton, managing director of commodities research at BMO Capital Markets. over the weekend, along with the widely reported protests.” “We think fresh closings will hurt market confidence later in the year, and thus delay some purchases of raw materials over the next month.”
Concerns about the worsening virus situation in China and government curbs have overshadowed the impact of the latest stimulus measures, according to a note from Shanghai Metals Market. Beijing – cutting cash reserves that banks are required to hold – was enacted on Friday. It said sales at manufacturers are falling as stricter Covid controls impact the real economy and copper consumption.
The protests follow a flurry of new measures that promise less disruption in containing the disease. But those policies were immediately put to the test by China’s worst outbreak since the pandemic began, with officials quickly turning to lockdowns to control the spread.
That is affecting factories, affecting demand for raw materials such as metals, coal and gas to power operations, as well as the diesel needed to transport goods. The risk is that commuter traffic and airline flights will also slow, adding to the burden on oil demand.
Congestion data from Baidu showed rush hour traffic in major cities on Monday morning plummeted from a year ago. In Chongqing, China’s largest city, traffic halved while in Beijing it fell 45% and in Guangzhou it was 35% lower. China’s oil demand could fall to an average of 15.11 million bpd in the fourth quarter, down from 15.82 million bpd, according to an estimate by Gregory Lackner, oil products analyst at Kpler. in the same period last year.
Harvest Impact
Weekly spot prices for coal shipped from top mining region Shanxi to the commercial hub Qinghuangdao fell 11% to 1,260 yuan ($174) a tonne, according to Cinda Securities. The drop comes as consumption from generators will increase as the first cold spells sweep through much of the country.
According to local reports, while power plants may need to burn less coal, increased infections in the country’s three major mining hubs Shanxi, Shaanxi and Inner Mongolia could also reduce output. The country’s boom in renewable energy installations is also likely to accelerate as workers are denied access to work sites due to virus prevention measures.
Meanwhile, corn futures in Dalian rose to a six-month high as supplies hampered by Covid control measures are preventing the new harvest from reaching the market. Chicago soybean futures fell as much as 0.9%, the highest in a week, before reducing losses to 0.6%. China is the world’s top crop importer, alongside a major buyer of corn and wheat.
Argentina also revived a monetary measure over the weekend aimed at boosting sales of its soybeans. Meanwhile, U.S. soybean net export sales for the week to November 17 fell to their lowest level since September, government data released Friday showed.
US Agricultural Exports Sales for the Week ended Nov.
Cotton fell as much as 2.6% to 78 cents/lb, a three-week low, as protests at the world’s top importer clouded the demand outlook. According to a report by Plexus Cotton Ltd.
The outlook for commodities largely depends on how China’s Covid Zero policies evolve from here. According to Bloomberg Intelligence, a widespread easing of rules may not emerge in 2023, slowing China’s electricity demand growth to just 5%, similar to the increase seen this year.
–With support from Winnie Zhu, James Poole, Sarah Chen, Mark Burton, Alex Longley, Megan Durisin and Mumbi Gitau.
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