Sentiment is bearish as the coronavirus crisis has affected the economy and reduced minor metals demand from most downstream sectors.
China, being one of the largest global producers and consumers of minor metals, is significantly affected.
Metals demand from the main downstream sectors, including automotive, real estate, lead-acid battery, air-conditioners and electronics, has been affected by the coronavirus crisis as many manufacturers have delayed resuming operations. The worsening coronavirus outbreak in South Korea and Japan is also weighing on potential demand for battery metals and materials.
Join Argus Media’s China editor for nonferrous metals, Ohmin Zhao, and Vice-President for Metals, Tim Hard, in an exclusive podcast discussing the potential impact for minor metals markets.
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Ohmin: Today's podcast is brought to you by Argus Media, which as many of you know, is a leading independent provider of energy and commodity pricing information.
Sentiment is bearish as the health crisis has affected the economy and reduced minor metals demand from most downstream sectors. I’m Ohmin Zhao, China editor for nonferrous metals at Argus, and is joined by Tim Hard, vice-president for metals, Argus Asia. Stay tuned as we discuss the potential impact for minor metals in an exclusive Argus podcast.
Ohmin: The coronavirus outbreak in China and the world is significantly impacting the global commodity markets, including metals. China is one of the largest producers and consumers of minor metals in the world.
Tim: Hello, This is Tim.
Let’s look at this from a supply angle. The coronavirus outbreak forced hundreds of metal smelters to either reduce or stop production when the situation was most acute. So Ohmin, how does that impact markets?
Ohmin: Spot prices for many minor metals rose sharply from late January to the first half of February driven by supply shortages following widespread production cuts and closures at smelters. For instance, manganese prices rose nearly 25pc during this period and antimony prices increased by 14pc.
The Chinese government imposed traffic restrictions and quarantine measures to contain the spread of the coronavirus. This caused a labour shortage as millions of workers were unable to return to their factories from home towns. Logistics services also stalled, which resulted in tight feedstock supplies for metal smelters.
Tim: So then you suggest that the epidemic has eased in China and over the last few weeks many metals manufacturers have obtained government permission to restart production. Do you see a relief to the supply shortages?
Ohmin: Yes indeed. Metal smelters gradually resumed operations since the second half of February following a recovery in logistics services. Local governments in many regions approved producers to resume output. For instance, general operating rates in the antimony industry have recovered to around 70-80pc, after more smelters in the key Lengshuijiang production restarted production in the past week. Operating rates in the cobalt industry have resumed to around 90pc, from only 30pc when the coronavirus just broke in late January. Rising supplies have reversed the trends in most metals markets to push down prices in the last few weeks. For instance, manganese prices have dropped by as much as 20pc since the second half of February.
Tim: Now the coronavirus outbreak really rattled the economy. The latest official data show that China's PMI manufacturing data in February fell to a historic low of 35.7 from 50 in January, much lower than expected. It really reflected the deep slump in manufacturing activity across the country. So, we talked about supply, how has demand been affected.
Ohmin: Metals demand from the main downstream sectors, including automotive, real estate, lead-acid battery, air-conditioners and electronics, has been affected by the coronavirus crisis as many manufacturers have delayed resuming operations. Take the automotive industry as an example, China's car sales in January-February fell by 41pc year on year, which is the biggest drop for at least 20 years.
Tim: Tell us a bit more about the impact on the automotive sector?
Ohmin: The auto industrial chain of Hubei, the epicentre of the coronavirus, has stalled as authorities have ordered all companies in the province to stay closed until 11 March. Many suppliers of auto parts and components are located in Hubei. Buying interest from consumers has weakened as the coronavirus crisis affected the economy and is likely to reduce income levels. Considering these factors, China's passenger car sales are forecast to fall by 8pc in 2020. The expected fall in this year's car sales is likely to impact demand for metals, in particular magnesium, rare earths and battery metals.
Tim: That situation sounds dire. In your view, do you see the Chinese government being forced to step in and provide support?
Ohmin: More Chinese local governments have begun to offer subsidies to aid the automobile market. The Guangzhou municipal government will offer a subsidy of 10,000 yuan/unit ($1,439) to buyers of new energy vehicles and a Yn3,000/unit subsidy to consumers of fossil fuel vehicles during March-December. Local authorities in Foshan city, also in south China's Guangdong province, started in February providing Yn2,000-5,000/unit subsidies to new car buyers.
Tim: Virus transmission within China no longer seems to be runaway, but there is no question that it is worsening outside of China. So, with Asia, Europe and the USA now showing problems, do you expect to see second-order demand issues being seen amongst export customers of China.
Ohmin: This is a topic of general concern. China is one of the largest suppliers of minor metals to the world. For instance, China's antimony exports to South Korea account for nearly 20pc of its total exports. China's rare earths exports to these regions accounted for around 90pc of total exports of 46,000t last year.
China is also dependent on imports of mechanical parts to feed the automobile, aviation, chemical and mechanical equipment industries. A potential fall in supplies from Japan amid the coronavirus crisis will reduce demand for cemented carbide and special steel, the two main consumption sectors for tungsten in China.
Tim: Battery metals have been a subject of intense market focus for the past few years. Do you see the coronavirus outbreak creating a secular impact to demand for battery metals?
Ohmin: The worsening coronavirus outbreak in South Korea and Japan is weighing on potential demand for battery metals and materials. More than 2,000 employees in Gumi city at South Korean main electronics manufacturers Samsung and LG are under quarantine measures following the coronavirus outbreak. A lack of labour is expected to affect operations at these firms in the short term. US technology firm Apple is also operating at only 50pc of capacity at its China plants. Global smartphone shipments are forecast to fall by 10pc in this year's first half because of the impact of the coronavirus outbreak.
The coronavirus outbreak has also affected the NEV market. China's major automaker BYD reduced its NEV sales by 81pc in February because of disruptions caused by the coronavirus outbreak.
Tim: Thank you Ohmin. Thank you, of course, for tuning in to our Argus podcast. If you are interested in reading more news stories about the impacts of the coronavirus outbreak on the world economy and commodity markets please log on to Argus Coronavirus hub: https://www.argusmedia.com/coronavirus
Ohmin: If you want further information about minor metals, including news, analysis and daily assessments, please check out the Argus Metals International services at https://www.argusmedia.com/en/metals/argus-metals-international
Thank you and take care.