The outbreak of the coronavirus has forced downward revisions to our GDP forecasts from our (US, China, & Global) economists (2020e GDP growth -20bp to 2.9%). The downgrades have been most severe in 1) China & 2) Q1 2020. While uncertainty over the severity and duration of the outbreak remains, we expect growth to rebound sharply in Q2/Q3 2020 – as delayed consumption & additional China stimulus flows through to the economy. We continue to monitor new coronavirus cases, along with indicators like vehicle traffic & power consumption (as an indicator of activity levels), while also looking toward commodity-specific signals (i.e. steel margins, 10-day production levels, spot TC/RC’s), for developments in our sector.
We have adjusted our price forecasts given the expected downgrade to Q1 20 demand but also the anticipated lift in commodity demand from Q2 20 as a result of 1) pent-up demand & 2) additional stimulus. On an annual basis, we upgrade iron ore (20e: +9% to $87.50/t; 21e: +7% to $75/t), met coal (20e: +2% to $142.50/t) & manganese (20e: +9% to $4.90/dmtu), while also upgrading copper (20e: +2% to $2.80/lb; 21e: +2% to $3.00/lb). Conversely, we lower thermal coal (20e: -4% to $67.50/t) on weak fundamentals and lower nickel to market (20e: -13% to $6.75/lb).
The full text of this article is available to MacroBusiness subscribers
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
