Alarm bells ring for metals, gas industries as China cuts orders

Steel, copper, gas producers have had shipments stalled as China’s manufacturing activity slows due to virus outbreak.

Chinese oil tanker in Saudi Arabia [Bloomberg]
China has turned shipments of liquefied natural gas away, telling suppliers it was invoking a clause known as a force majeure that would allow it to not fulfil certain contracts [File: Simon Dawson/Bloomberg]

The most influential metal workers’ association in the world’s largest steelmaker has sounded the alarm about the industry’s outlook, warning of transport snarls, weaker demand, and a situation this quarter that “does not look optimistic” as the coronavirus crisis rips through China‘s economy.

“Companies are facing restrictions in logistics and transport, trades have been muted, prices of raw materials and steel have slid, which is causing the market’s value to decline,” the China Iron & Steel Association said.

The virus’s effects on the steel industry will be concentrated in the first quarter, the association said in a statement.

“Steelmakers should appropriately adjust production schedules based on orders, finances, ability to transport materials,” it said.

The sector should: “Avoid malignant competition, manage traders, and strictly not sell at low prices and disrupt the market.”

Copper producers as far away as Chile are also affected, as China’s buyers ask miners to delay shipments due to port shutdowns.

While the suppliers have not reported any contract breaches, they have verbally agreed with clients to reschedule some deliveries, according to Victor Garay, market coordinator for Cochilco, the copper commission in Chile – the world’s biggest miner of the metal.

“Just like airlines don’t want to go to China, ocean freight companies don’t want to either,” Garay said in a Bloomberg interview on Wednesday.

Copper prices rose on Thursday, with three-month copper on the London Metal Exchange (LME) rising as much as 1.6 percent to $5,813.50 a tonne, the highest since January 27.

LME aluminium rose 0.3 percent to $1,722.50 a tonne and zinc increased 0.3 percent to $2,220 a tonne.

“Not only is the demand side impacted, but also the supply side. If the outbreak situation does not improve, some smelters may consider cutting production,” a China-based metals analyst told Reuters News Agency.

Copper is joining shipments of everything from oil to crops that have been disrupted by the spread of the deadly virus, which originated in China. The nation’s largest utility postponed plans for some purchases of the metal last month, and fears that the outbreak will dent industrial activity had exacerbated a record slump in prices recently.

China’s biggest buyer of liquefied natural gas (LNG) also rejected shipments, telling some suppliers that it would not accept delivery of cargoes because of constraints caused by the coronavirus.

China National Offshore Oil Corp (CNOOC) declared force majeure on some contracts, a clause that excuses it from fulfilling the contracts if it is affected by circumstances beyond its control, sources told Bloomberg.

Nobody answered several calls by Bloomberg to CNOOC, and its listed unit Cnooc Ltd. did not respond to a request for comment.

This is among the first cases of the contractual clause being invoked in the global commodity market as a result of the coronavirus. China said last week that it would offer support to its companies that are seeking to declare force majeure on international contracts.

CNOOC sent the force majeure notice to firms including Royal Dutch Shell Plc and Total SA, according to the people, who said it covers prompt shipments.

Shell declined to comment to Bloomberg. Woodside said it is “closely monitoring for potential impacts on the market”. Total did not immediately respond to a request for comment.

Source: News Agencies

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