LONDON/SHANGHAI -- Global demand for oil and iron ore is falling as the coronavirus epidemic has brought industrial activity to a standstill in China, the manufacturing hub of the world.
Global oil demand is expected to shrink by 435,000 barrels a day on the year in the three months to March, the first quarterly decrease in more than a decade, the International Energy Agency said in a report on Feb. 13. The IEA also slashed its 2020 growth outlook by 365,000 barrels a day from its January forecast to 825,000 barrels a day, the lowest since 2011.
China accounts for 14% of worldwide oil demand. Global demand has been "hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China's economy," the latest report said.
The virus outbreak will likely weaken global demand by 1.1 million barrels a day, or a little over 1%, in the first quarter and by 345,000 barrels in the second quarter, the IEA predicted. These forecasts are based on the assumption that demand will gradually normalize starting in the second quarter. But the energy watchdog warned that the epidemic is ongoing and an accurate analysis is difficult.
The jet-fuel market has been hurt by suspension of China flights. Singapore's jet fuel, the benchmark for Asia, is trading at around $65 a barrel, down 10% from before the Lunar New Year holiday in late January and the lowest in about two and a half years.
Crude oil futures are trading around $52 a barrel in New York, sliding more than 20% from early January -- when tensions heightened between the U.S. and Iran -- to the lowest level in a year.
Producers are growing wary. The Organization of the Petroleum Exporting Countries on Feb. 12 slashed its 2020 global demand growth forecast to 990,000 barrels per day, down 230,000 barrels per day from its January projection.
The downgrade came after a technical committee of the OPEC members and their allies -- a group known as OPEC Plus -- recommended a production cut of 600,000 barrels per day at the end of their Feb. 4-6 meeting. This followed a reduction of 1.7 million barrels per day that the group had agreed to implement starting in January.
Russia, a member of OPEC Plus, has not indicated its support for the recommendation.
"A suspected lack of the group's unity might push prices down further," said Tomomichi Akuta, chief researcher at Mitsubishi UFJ Research and Consulting.
As for iron ore, China imported 1.06 billion tons in 2019, an estimated 70% of worldwide imports.
Chinese demand had been expected to stay flat in 2020, but the virus epidemic has thrown this prospect into doubt. Spot prices on Australian iron ore heading to northern China have fallen to $85-90 a ton, down 8% from before the Lunar New Year break.
Iron-ore brokers are growing cautious, anticipating a slowdown in China's steel output.
Hunan Valin Steel says many of its business partners remain closed while it continues to run blast furnaces. This makes it impossible for the steelmaker to decide on the scale of a production cut, a company official says.
"The current situation forces steelmakers to adjust output, which loosens the supply-demand balance for iron ore," said an official at a trading company.
Additional reporting by Yoshinobu Ono in Tokyo.