Zinc, aluminium at multi-year lows as coronavirus devastates commodities

Topics Base metals | Zinc | Coronavirus

Global equity selloff has had a ripple effect on the commodities markets with prices of major global commodities falling between 1 and 3.2 per cent on Friday. This is owing to the widespread coronavirus outbreak across the world which pushed the global economy into uncertainty.

The decline was sharper in India due to nearly 1 per cent depreciation in the rupee, which closed at Rs 72.17 against the dollar on Friday. All base metals on the benchmark London Metal Exchange (LME) reported a decline of up to 1.7 per cent. Energy, including crude oil and natural gas, slumped by up to 1.2 per cent in London.

Also, the global economic stimulus, started with Japan and China, is set to support the declining trend in interest rates. This may weaken demand for base metals and the energy segment.

“Commodities’ prices declined sharply on Friday due to global economic uncertainty following reports of new cases of coronavirus coming in outside China. While China has already made efforts to contain the virus, its widening spread in other countries has caused a worry among the trading class. Until the coronavirus is contained, recovery in global commodities looks difficult,” said Priyanka Jhaveri, assistant vice-president, Kotak Securities.

Crude oil led the steep decline in prices of global commodities on Friday. 

This outbreak has lowered trade with countries that reported increasing number of virus patients, pushing the entire world into uncertainty.

On the benchmark Multi Commodity Exchange (MCX), crude oil futures for May settlement contract declined by 3.06 per cent to trade at Rs 3,291 a barrel in late afternoon trade on Friday.

The previous day’s close was Rs 3,395 a barrel. In the international markets, crude oil fell by 1.2 per cent to trade at $50.20 a barrel.

Base metals on the LME declined to multi-year lows with three months forward aluminium prices plunging by 0.8 per cent to trade at $1,676 a tonne, the lowest in 40 months. 

Similarly, the three-month zinc prices fell by 2.1 per cent to $1,970.50 a tonne, its lowest since June 2016. The three-month nickel prices fell by 1.5 per cent to trade at $12,185 a tonne and copper slipped by 1.1 per cent to $5,552 a tonne on Friday. Lead was down 0.8 per cent at $1,795 a tonne in early Friday trade in London.

“Base metals have witnessed yet another session of bloodbath as fear regarding coronavirus has sent shock waves from equities to bullion and from energy to industrial metals,” said Naveen Mathur, director (commodities and currencies), Anand Rathi Shares and Stockbrokers.

In a major setback for global trade, many countries have issued travel-related restrictions to countries hit badly by the outbreak. Analysts expect its impact to be severe in the quarter between January and March 2020 and beyond in case the virus is not tamed.

Gold prices fell marginally by 0.20 per cent to close at Rs 42,354 per 10 g on Friday against Rs 42,442 per 10 g on Thursday. Silver declined 3.22 per cent to Rs 45,515 a kg on Friday compared to Rs 47,030 in the previous day.

Meanwhile, analysts expect the Federal Reserve to cut interest rates to support the economy. China has already pared its rates.

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