Brazil and China
Analysis

Coronavirus undermining commodities prices

Bnamericas Published: Thursday, February 13, 2020
Coronavirus undermining commodities prices

Coronavirus, now spreading around the globe after it first emerged in China, is already affecting the price of major commodities and is likely to cause significant impacts in sales volumes to the Asian nation this year.

Brazilian mining institute Ibram made a downward revision to their estimates for the average price of iron ore this year, due to the effects of the virus in China. Ibram now forecasts the average iron ore price to be US$70 per metric ton in 2020, compared with a previous estimate of US$80/t.

“There is an expectation that there will be a slowdown in consumption of iron ore by China, the largest importer,” said Flavio Penido, president of Ibram, when asked by BNamericas during a conference.

Iron ore prices are closely watched by Brazilian players, as it is the main mining commodity exported by the country.

Last year, of the US$32bn in mining commodities exported by Brazil, iron ore accounted for US$22bn, according to Ibram.

“It's still difficult to measure the economic impacts of coronavirus in China on the Brazilian economy, as it's an ongoing situation,” Alex Agostini, an economist at local ratings agency Austin Rating, told BNamericas. 

According to Agostini, he is considering making a revision to Brazil’s GDP growth forecast for this year to 2.2% from 2.4%.

This week, health authorities in China reviewed the methodology to count the number of people infected and deaths caused by coronavirus, officially named COVID-19, increasing the number of victims, heightening fears that the spread and mortality of the disease could be worse than previously thought. 

Amid the uncertainty about the spread of the disease and its potential economic impacts, Brazilian assets have been suffering. 

The local stock exchange has seen some losses, while the Brazilian real has depreciated somewhat against the US dollar, forcing the central bank to intervene in the foreign exchange market, selling dollars in order to avoid a more drastic depreciation. 

EFFECTS FOR BRAZILIAN COPPER

Despite the negative effects for the iron ore segment, some industries are seeing some short-term opportunities.

With China's decision to postpone copper deliveries this month as a result of the epidemic, Brazilian processors are likely to gain market share.

According to the president of the Brazilian copper association (Abcobre), Maria Antonietta Cervetto, manufacturers of finished products in the country, which generally import semi-finished products, will have to turn to domestic copper wire and local producers to meet demand.

With this extra demand alone, Brazilian production is expected to grow up to 10% this year. In 2019, according to data from Abcobre, the country produced 320,000t of semi-finished goods. 

“It's a window of opportunity. It's not a situation that will occur in the long term, but we believe that for at least six months we will have an increase in demand,” Cervetto was quoted as saying by daily Valor Econômico

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