(Bloomberg) — The turmoil engulfing global commodity markets deepened as Chinese companies started rejecting trades because of the coronavirus.
In a dramatic and rare step, China National Offshore Oil Corp. declared what’s known as force majeure, meaning it won’t take delivery of some LNG cargoes, because the virus is constraining its ability to import the fuel. It’s among the first known cases of the legal clause being invoked in commodity contracts as a result of the epidemic.
Hours later, it emerged that Chinese copper smelter Guangxi Nanguo had invoked the same get-out, refusing to take delivery of raw materials.
While global markets bounce back from initial fears over the impact of the virus, the fallout is only worsening in the world of raw materials, which is dominated by China’s enormous appetite. Beijing’s efforts to contain the disease by shutting down swathes of the country and restricting travel are disrupting supply chains and hammering demand in the world’s biggest consumer.
When God Appears in Contracts, That’s ‘Force Majeure’: QuickTake
The impact is reverberating around the world. Copper buyers are requesting Chilean miners postpone shipments because of port shutdowns while China’s biggest oil refiner, Sinopec Group, is likely to ask Saudi Arabia to reduce supplies of crude oil next month. Soybeans from Brazil and the U.S. are being held up on arrival in eastern China and Indonesian palm oil shipments are also being delayed.
For LNG, CNOOC’s force majeure hurts a market already buffeted by rising U.S. supplies and weak demand after a mild winter in Europe and Asia. Even before Chinese buyers walked away from supply contracts, spot prices have fallen to a record low, crippling the profitability of energy giants like Royal Dutch…
Source: FuelFix
