The resources sector will face a major financial blow unless a deadly Asian virus is contained within weeks, a multinational mining company has warned.
BHP is very concerned the novel coronavirus outbreak (covid–19) could create a recession for the industry, if the disease continues to spread beyond March 31.
“If covid–19 is effectively and demonstrably contained within the March quarter, we expect that an accelerated run–rate in the construction and manufacturing sectors for the remainder of the year can make up for the loss of activity seen at the outset of the year,” the company said in its latest economic and commodity outlook. “If the outbreak is not contained within that timeframe, or it reemerges after a period of apparent containment, then that would be damaging for both real activity and market sentiment.”
‘Famine’ for iron ore
The impact of the outbreak so far has already started to affect demand for iron ore commodities.
“Intra year demand volatility is also covid–19 related,” BHP said. “The sprint required to meet the annual plans of public and private entities in China in nine months rather than 12 [to stylise] will amplify the normal seasonal swings in steel end use, potentially creating a shift from ‘famine’ to ‘feast’ for the iron ore market.”
The mining giant also blamed some of the Chinese Communist regime’s tough measures to shut down factories and prevent goods from being delivered for indirectly bringing major losses to the industry. This could force BHP to lower its profit forecasts.
“The range of responses by the Chinese authorities to contain covid–19, in tandem with the understandably risk averse response of the population, will undoubtedly cause a sharp decline in economic activity in the March quarter,” the company said. “[If] construction and manufacturing have not been able to return to regular operation in April then we expect to revise our annual forecast lower. This would then flow directly through to lower commodity demand and price expectations.”
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Even if the virus is contained before April the industry can still expect a difficult year ahead.
“For the 12 months ahead, we assess that directional risks to prices across our diversified portfolio are mixed, with the duration and intensity of the covid–19 a major source of uncertainty,” the proponent said. “This is arguably shrouding the impact of a patchy supply situation across many major commodity markets.”
The company expressed its support and solidarity for affected business partners, customers, colleagues, vendors and their families during this “difficult time”.