By Caribbean News Global
NEW YORK/MIAMI, USA – Following the spread of the novel coronavirus, commodities and oil declined on-demand expectations of global growth uncertainty; meanwhile, global travel restrictions compound market access.
The Bloomberg Commodity Index Total Return was lower for the month, with 20 of 23 constituents posting losses. Credit Suisse Asset Management observed the following:
- Energy declined 14.78 percent, led lower by Crude Oil and petroleum products, as improved US-Iran relations reduced crude oil supply risks in the Middle East while the coronavirus outbreak disrupted manufacturing and trade activity within China, and raised concerns of supply chain disruptions;
- Livestock decreased 10.96 percent, weighed down by Lean Hogs, after the USDA reported healthy pork production figures and lower-than-anticipated US pork export sales in January despite the US and China’s signing of a Phase One trade deal mid-month;
- Industrial Metals declined 7.32 percent as growing cases of the coronavirus worldwide spurred fears of lower global economic activity, decreasing base metal demand expectations;
- Agriculture fell 5.33 percent, led lower by Coffee, as favorable weather conditions in key production regions for Brazilian Arabica coffee raised supply forecasts, leading to estimates for a record harvest in 2020;
- Precious Metals increased by 3.22 percent as a new wave of uncertainty surrounding China’s economy and the ability for global growth expectations to improve supported safe-haven demand for Gold and Silver.
Nelson Louie, global head of commodities for Credit Suisse Asset Management, said: “Though the US and China signed a partial trade agreement on January 15, details surrounding when and how much trade will resume remaining unclear. However, the concern of food security amid China’s battle with African swine fever and a new outbreak of an avian influenza may accelerate China’s imports of US soybeans, wheat, and pork. Elsewhere, eastern Africa and parts of South East Asia face a growing locust problem, which may increase the region’s demand for agricultural goods and animal protein from abroad as well. The coronavirus outbreak has weighed on growth and crude oil demand expectations as industrial and travel activity in China remain hindered.
“OPEC and its partners may decide to cut oil output further, though their impact depends on how much demand is lost as well as the details on the timing and types of any cuts. Meanwhile, the potential for supply shocks in the Middle East remains as the US continues to enforce its sanctions on Iran, and most of Libya’s oil exports have been disrupted due to continued internal conflicts.”
Christopher Burton, senior portfolio manager for the Credit Suisse Total Commodity Return Strategy, added: “The US Federal Reserve kept short-term interest rates steady after its latest meeting in January, noting “cautious optimism” towards global growth expectations. However, there remains uncertainty on how the coronavirus outbreak will impact the global economy and if it will limit progress made with the Phase One trade deal as China’s economy is weakened and constrained.
“The People’s Bank of China already announced plans to inject liquidity into its markets to make up for the economic shortfall caused by the contagious virus. These actions demonstrate how carefully central banks are monitoring their respective economies and their willingness to act to support long-term growth.”
Global oil demand
Rystad Energy revising its annual global oil demand growth forecast down by 25 percent to 820,000 barrels per day (bpd) in 2020.
“Our current assessment implies that the impact of coronavirus will persist throughout all of February and March and will then gradually subside towards June 2020. We hence expect travel restrictions and extended holidays in China to significantly impair demand in 1Q20 and partially in 2Q20. Demand is forecast to start recovering in April and May,” said Bjornar Tonhaugen, Rystad Energy’s senior vice president, Head of Oil Markets.
Chinese oil demand accounted for 13 percent of the global total in 2019, standing at 13.6 million bpd, before the coronavirus outbreak.
“We see an additional downside risk to short-term oil demand growth also from a macro-economic perspective as we continue to see weak economic indicators from India – one of the main engines of demand growth – along with weak European manufacturing Purchasing Managers Index (PMI). Consensus GDP forecasts have recently put Indian GDP growth at just five percent this year, 0.5 percentage points lower than in the previous forecast. European manufacturing PMIs remain at 46, well below the inflection point of 50,” Rystad said.
Travel restrictions as a result of Coronavirus necessitated the suspension of cruise operations from ports in China, as was previously announced, and are now resulting in the cancellation of voyages in other parts of Asia. Significant events affecting travel typically have an impact on booking patterns, with the full extent of the impact generally determined by the length of time the event influences travel decisions.
As a result of Coronavirus, Carnival Corporation & plc believes the impact on its global bookings and cancelled voyages will have a material impact on its financial results which was not anticipated in the company’s previous 2020 earnings guidance.
Since the situation continues to evolve, the company is currently unable to determine the full financial impact on its fiscal year 2020. However, while not currently planned, if the company had to suspend all of its operations in Asia through the end of April, this would impact its fiscal 2020 financial performance by $0.55 to $0.65 per share, which includes guest compensation.
In addition, the impact on global bookings will further affect the company’s financial performance. The company is currently evaluating contingency plans to mitigate the impact and will provide an update with its first quarter 2020 earnings release in late March.