International. The Coronavirus has been affecting the entire world economy, impacting the security industry in the same way, as many companies in Latin America have already begun to have confirmations that their shipments from China may suffer delays of 30 days or more.
HIS Markti recently produced a global economic report showing how the Coronavirus is affecting the shipping industry. The analyst expects that the coronavirus could reduce Chinese GDP growth by up to 1% in 2020. Global real GDP would be 0.8% lower in the first quarter of 2020 and 0.5% lower in the second quarter before recovering progressively.
In the short term, shipping demand is expected to be severely affected, with the commodity shipping sector, such as dry bulk and tankers, feeling most of the impact. The degree of quarantines and restrictions on travel and trade in China is unprecedented. This could push overall demand further across commodities and affect shipping demand, further depressing rates and weakening sentiment. In recent weeks, dry bulk rates have fallen by 80% and crude oil tanker rates have halved.
Short-term demand crisis for the shipping industry
China is now the world's second-largest importer, accounting for 10.4% of global imports of goods, compared to just 4.0% of global imports in 2002. Unlike the SARS outbreak, Chinese demand now plays a huge role in global shipping and no other economy comes close. Compared to 2002-03, when China accounted for less than 7% of global crude oil consumption and 20% of iron ore consumption, the country now takes almost 14% of crude oil consumption and 65% of iron ore consumption.
Commodity shipping will be more affected
Among the commodity shipping sectors, dry bulk shipping is likely to be the hardest hit. The first quarter will likely see a significant drop, though a question remains about the extent of the demand recovery once dust settles in the second half of 2020.
The outlook for iron ore demand has certainly become low in the short and medium term and some factories in China have already begun to reduce steel production.
Construction and manufacturing projects, including car production, are also affected, further suppressing demand.
Oil markets are also experiencing an "instant demand shock."
IHS Markit estimates that oil demand in China is currently 1.4 MMb/d less than a year ago, and in the worst-case scenario, global oil demand could temporarily decline by around 3 MMb/d.
However, the data shows that maritime crude oil trade has not yet had a significant impact. The "oil in the water" heading to China still looks pretty strong, close to 290 million barrels in total, indicating that there are valid concerns about a rapid inventory buildup.
Prolonged factory closure to disrupt global supply chain
Container ports, logistics and shipping lines have so far seen only marginal disruption. If the quarantine is prolonged and the movement of people remains restricted, it will also be clearly negative for container shipping operators and port infrastructure, requiring close monitoring.
Source: IHS Markit.
