Exactly how this impact differs across markets and commodities is difficult to pinpoint, but we have considered two scenarios: the first based on the pandemic persisting for 6 to 12 months and the second where the outbreak continues for more than a year. Each scenario considers factors that include how the global economic recovery may unfold and the pandemic’s effect on the demand and price of a broad range of commodities. We’ve included a focus on Asia, given the region’s impact on minerals and metals demand and China’s stimulus into infrastructure investment.
The outcomes of the scenarios are broad and uncertain, which is unsurprising considering that the impact of COVID-19 depends on complex factors, including the current reported infection rate, population density, strength of the health system, education levels and institutional capabilities.
In the first scenario, based on the pandemic persisting for 6 to 12 months, the impacts across commodity markets are likely to be mixed:
- Commodities reliant on a higher proportion of Chinese demand, for example, iron ore, coking coal and copper, will be more resilient.
- Copper markets, however, did experience an immediate impact as inventories surged on lower Chinese demand. Now, supply cuts in a number of countries, combined with a return to industrial activity in China, are likely to see a drawdown on inventories and improving prices.
- Base metals will feel the biggest impact due to a heavy reliance on downstream demand, though supply cuts may support prices.
- Thermal coal was struggling to access capital prior to COVID-19 as demand moved to greener energy sources. Declining power demand has put this market under further stress.
- Gold will remain in demand as a safe haven.
The second scenario, where the outbreak continues for more than a year, sees a much longer recovery varying across regions and creating more supply chain disruption. Here, we would expect to see more material reductions in demand and supply shortages, significant workforce disruption and the risk of reinfection. It’s likely that a large number of operations in the mining industry would close or be limited for a number of months and recovering from such an extended period of disruption would be challenging. We may also see the pandemic create a legacy of global protectionism that would create further barriers to international trade.