China's Worsening Virus Threatens Commodities Supply and Demand
Comment of the Day

March 25 2022

Commentary by Eoin Treacy

China's Worsening Virus Threatens Commodities Supply and Demand

This article from Bloomberg may be of interest to subscribers. Here is a section:

Almost 80% of the Chinese economy has been affected in some way by the worst outbreak of Covid-19 in two years, straining the supply of commodities and posing an increasing threat to demand.

China’s restrictions to contain the fast-spreading omicron variant have primarily hit travel over both short and long-distances, which is a direct drag on fuel consumption and a complication for supply chains.

The longer that Beijing persists with its Covid Zero policy, the greater the impact will be on the consumption of commodities as purchases are deferred -- think copper for electronic goods or steel for cars. Production is also at risk as inventories of raw materials dwindle and workers stay at home.

Widespread outages at metals processors, for example, could further lift markets that have already hit record highs in recent weeks because of the war in Ukraine. That would set the inflation-hawks at the central bank and economic planning agency on edge. Still, demand is also likely to shrink at some point, which would leave the net impact on prices uncertain.

Eoin Treacy's view

The coronavirus might be a medical issue, but pandemics are political. That is truer for China than most countries. They were the first country to experience it and adopted one of the most stringent quarantine regimes. That successfully contained the infection rate. Factories and ports remained open in 2020 because the problem was contained to Wuhan and the surrounding area.

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