The number of new coronavirus cases outside of China has been escalating rapidly in recent days – reported cases around the world are at the 6,000 – 7,000 a day mark – but new case numbers in China have fallen to under ten a day. Metals production in China is resuming rapidly. White-fused alumina producers in Shandong province are reported to be back to normal levels with no restrictions on material shipments and over 80% of Chinese steel mills are back in operation.
China has recorded over 3,000 deaths as a result of Covid-19 and, whilst risks of a second round of the virus reappearing in the country should not be discounted, economic activity now seems to be getting back to more usual levels relatively quickly; although a full recovery is still not expected until May or June. The new risk to the Chinese economy appears to be from disruptions to external trade. Should that eventuate, the Chinese government is reported to be considering a set of significant stimulus measures. Meanwhile, a halving in the oil price since the start of the year is equivalent to a US$110Bn boost to the economy.
Global equity markets are now pricing in a major global economic downturn – US, European and Japanese exchanges are down 20–30% year-to-date and major mining stocks are down around 40% on average – but at the moment, trends in the Chinese economy are more consistent with a sharp “V-shaped” economic disruption. It remains notable that whilst a number of metals prices have fallen since the start of the year the extent of the declines has, to date, been relatively modest. Although some metal inventories may have accumulated downstream, there is little evidence of any build-up in raw material stocks.
Roskill is reviewing its short run economic assumptions to the new reality but the fundamentals impacting long run drivers do not appear to have changed.