Proudly sponsored by

Goldman sees virus as largest commodity demand shock since 2008

Oil is having the weakest start to a year in three decades.
Disruption to economic activity in China has resulted in an estimated 4m barrels a day of lost oil demand, compared to 5m barrels in the Great Recession of 2008 and 2009. Image: Bloomberg

The world is facing the biggest commodity demand shock since the global financial crisis as the coronavirus outbreak that’s already rocked Asia spreads to the US and Europe, according to Goldman Sachs Group.

Disruption to economic activity in China has resulted in an estimated 4 million barrels a day of lost oil demand, compared to 5 million barrels in the Great Recession of 2008 and 2009, Jeff Currie, the bank’s head of global commodities research, said in a February 28 report. With new cases being reported across Europe, the Middle East, and the US, economic impacts are likely to spread to the Atlantic over the next month.

To make matters worse, “finite storage capacity in China — though large — is filling up quickly, presenting further downside risk if storage is ultimately breached,” Currie said.

For oil and other energy products, any disruption in demand will be deemed as lost, while lower consumption for other commodities such as steels and aluminium could just be deferred until later, Currie said. Expectations of monetary and fiscal stimulus saving such deferred demand will likely create commodity price volatility going forward.

Gold, on the other hand, has “immunity to the virus” and has outperformed other safe haven assets like Japanese yen or Swiss franc, Goldman said.

Read: Gold stages fightback after haven status hurt in Friday’s slump

About 45% of scheduled Asia-to-Europe container ship sailings were canceled in the four weeks following the Lunar New Year holiday in late January, Currie said. That means the March ramp-up in Chinese activity could be slow given the physical realities of re-starting global supply chains.

© 2020 Bloomberg L.P.

COMMENTS   0

You must be signed in and an Insider Gold subscriber to comment.

SUBSCRIBE NOW SIGN IN

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
BTC / USD

Subscribe to our mailing list

* indicates required
Moneyweb newsletters

Instrument Details  

You do not have any portfolios, please create one here.
You do not have an alert portfolio, please create one here.
INSIDER SUBSCRIPTION APP VIDEOS RADIO / LISTEN LIVE SHOP OFFERS WEBINARS NEWSLETTERS TRENDING

Follow us:

Search Articles:
Click a Company: