On a brutal morning at the markets, almost $370bn in market capitalisation was wiped off the benchmark Shanghai Composite index in the first day’s trading since the Lunar New Year holidays with investors feeling the effects of the rapidly spreading coronavirus. Commodity prices also slumped, while shipping stocks took a battering – Cosco’s main share price down by close to 10%.
Oil, iron ore, copper and soft commodities traded in Shanghai all posted sharp drops. Shanghai crude oil, Dalian iron ore and Shanghai copper all fell by their daily down limits.
While the stock exchange was open for business, most Chinese employees were not at work today, with Beijing extending the holidays through to February 10 in a bid to contain the virus. The total number of deaths in China rose to 361 as of Sunday, and the number of infections to 17,205. Government officials have not ruled out extending the holidays in China – the manufacturing centre of the world – further if the virus’s spread has not been contained come next weekend. The province of Hubei, where the coronavirus started, has already extended holidays through to February 13.
Morgan Stanley economists have estimated that the Lunar New Year holiday extension could hit January and February industrial production by as much as 5 to 8 percentage points.
Tanker shipping is braced for the worst from the health contagion as China is the world’s largest oil importer. Bloomberg is reporting that Chinese oil demand has dropped by about 3m barrels a day, or 20% of total consumption, thanks to the coronavirus, making it the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009, and the most sudden since the September 11 attacks in the US in 2001.
Chinese refinery utilisation rates have been dropping over the past 10 days, limiting the need for crude oil imports.
“Dry bulk shipping remains heavily reliant upon robust Chinese imports and a prolonged shutdown of the Chinese economy is set to bring a significant slowdown of industrial production, which will inevitably deepen the seasonal slump that the dry bulk is currently stuck in. IMO2020 is also taking its toll,” BIMCO noted in a report.
On the liner trades, BIMCO suggested that a slowdown of Chinese manufacturing, induced by the virus, could lead to lesser container exports from China.
“Major carriers have already started to blank more sailings and the trend is expected to persist if the virus continues to spread,” BIMCO noted in a report published on Friday.
Law firm Reed Smith told shipping clients in a coronavirus advisory to anticipate delays as a consequence of the outbreak, arising out of scaled back operations at ports as increased quarantine measures are put in place. This may impact, among others, charter parties, bills of lading, shipbuilding contracts, and ship sale and purchase agreements.