Virus is prompting a rethink of forecasts

The prices of almost all commodities plunged this week amid fears that the coronavirus is morphing into a pandemic, with negative implications for global economic activity and commodities demand. Prior to the virus outbreak, we had expected a gradual pick-up in global growth to support most commodities prices. This week, we revised our metals forecasts to reflect our more bearish view on the outlook for China. In the next few weeks, as the global impact becomes clearer, we expect to revise our energy and precious metals forecasts.There could be some respite for oil prices if OPEC+ decides to deepen output cuts at the meetings scheduled for 5th-6th March. The chances of further output cuts have increased in the last week or so as the virus has spread rapidly outside China. That said, given the scale of risk aversion in financial markets, any OPEC+ action is more likely to stem further falls in oil prices rather than give them a lift. On the data front, China’s February PMIs (to be published this weekend) will give us some indication of the scale of the economic slowdown. But it may be that PMI data from elsewhere in Asia and from advanced countries will be watched more closely for signs that China’s woes were leading to disruption elsewhere.