Given the scale of the economic shock, the impact of the novel coronavirus on the global shipping industry is clearly negative. IHS Markit’s economics team expects that the coronavirus could reduce Chinese GDP growth by as much as 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 progressively recovering.
In the short-term, shipping demand is expected to be severely hit, with the commodity shipping sector, such as dry bulk and oil tankers, feeling the brunt of the impact. The degree of quarantines and restrictions on travel and commerce in China are unprecedented. This could push overall demand even lower across commodities and impact demand for shipping, further depressing rates and weakening sentiment. In recent weeks, dry bulk rates have been dropping 80% and crude tanker rates have more than halved.
Near term demand crisis for shipping industry
China is now the second-largest importer in the world, accounting for 10.4% of global goods imports, compared with just 4.0% of the world’s imports in 2002. Unlike during the SARS outbreak, Chinese demand now plays an outsized role in global shipping and no other economy comes closer. 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 to be worst impacted
Among the commodity shipping sectors, dry bulk shipping is likely to be worst impacted. The first quarter will likely see a significant drop although a question remains on the extent of demand recovery once the dust settles and in the second half of 2020.
The iron ore demand outlook has certainly turned bearish over the short- to medium-term and some mills in China have already begun curtailing steel output.
Construction projects and manufacturing, including auto production, are also impacted, suppressing demand further.
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 worst case scenario world oil demand could temporarily decline about 3 MMb/d.
However, our data shows that seaborne trade of crude oil is yet to feel a significant impact. ‘Oil on water’ heading to China still look rather strong, close to 290 million barrels in total, indicating there are valid concerns about a rapid inventory buildup.
Prolonged factory shutdown to disrupt global supply chain
Container ports, logistics and shipping lines have so far seen only marginal disruption. If quarantine is extended and people movement remains restricted, it will be clearly negative for container shipping operators and ports infrastructure as well, which requires close monitoring.
*** You’re invited to tune in to the IHS Markit LIVE Webinar Thursday, 13 February 2020 at 5 p.m. Singapore time (9 a.m. London time), as we discuss the coronavirus impact on shipping. IHS Markit experts, including Rahul Kapoor, Daejin Lee, Fotios Katsoulas and Pranay Shukla, will discuss
• Macro Headwinds and Supply chain disruptions
• Dry Bulk Shipping Impact
• Oil markets and Tanker Shipping Impact
• Iron ore and Coal Flows to China
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