Mining markets facing growing uncertainty as coronavirus spreads – ABC Rural


Australia’s multi-billion-dollar mining industry has taken a battering in recent weeks as the spread of coronavirus continues to stall construction in China.

Key points coronavirus commodities

Key points:

  • LNG markets are the most likely to be impacted by contracts not being filled due to unforeseen circumstances
  • The coal industry is under no immediate threat, says one analyst
  • Gold prices have spiked in the past four weeks, rising about 2 per cent

Some importers have declared a force majeure clause, meaning unforeseen circumstances are preventing them from fulfilling contracts.

ANZ senior commodities strategist Daniel Hynes said liquified natural gas or LNG markets were the most likely to be impacted by that type of activity.

“On the LNG side, we’re seeing a lot of those declarations come through,” Mr Hynes said.

“The LNG market has been weak and I think some consumers there in China are keen to cut back on their purchases.”

Base metals like iron ore, copper, and zinc have also taken a dive since detection of the virus.

The main reason given for these price falls is the lack of construction in China with entire cities effectively shut down.

Mr Hynes said the feeling in the base metal market had changed dramatically since it reached a 10-year high in mid January with a possible resolution to the US-China trade war.

“The market has completely forgotten about that and has obviously focused on what’s happening in China right now,” he said.

Stimulus package rallies prices slightly

Despite negativity in the market and forecasts as a result of the force majeure, metal prices did see an uptick this week.

Iron ore rose to $US88 a tonne, up from a low of about $US79 a tonne in early February, and copper is sitting at about $US2.60 a pound, up from $US2.51 a pound.

CBA commodity strategist Vivek Dhar said those price rises were driven by talks of a Chinese stimulus plan.

Mr Dhar said it was not clear what the stimulus would involve, but he understood it was related to infrastructure and logistics.

“Those new projects, on top of existing ones, are expected to boost demand for commodities, but particularly steel,” he said.

“But that’s still something that’s more hopeful.”

Mr Dhar said policy makers would meet in March to discuss the stimulus, but with current disruptions to the steel-making industry he did not expect it to have a profound impact straight away.

Coal exports remain strong

While the force majeure has stalled some sectors of the mining industry, coal seems to be trading as normal.

Fat Prophets resource analyst David Lennox said Australia’s coal industry was under no immediate threat.

“They can’t actually force majeure contracts because they do need to have the coal to actually feed to the power stations,” he said.

“Without the coal there’s no generation of electricity out of those coal-fired power stations and the country would come to a complete stop.”

Gold spikes as investors mitigate risk

While uncertainty has grown in many global commodity markets as a result of the coronavirus, investors have started putting money into gold.

Over the past four weeks, gold prices have risen about 2 per cent, to sit at $US1,574 per ounce.

Sandra Close from Surbiton Associates said gold was always considered “a safe port” in times of uncertainty.

“The gold price tends to thrive on uncertainty,” Dr Close said.

“Anything that usually upsets global markets financially and socially usually means the gold price goes up.”



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