Don't sneeze. Coronavirus is a threat to oil markets and global economies

[0R0 + 6,251]

The outcome of the recovery from the covid-19 is unlikely to be quick V type rise beyond the initial release of people to go back to work. 

1.Many service businesses are going out of business now and will only resume when economic conditions and epidemic conditions are long gone. Bars, sit down restaurants, events and their associated advertising and vendors are shutting down or shrinking down to take away and delivery only.  

2. Travel is permanently down. It will be a long time till Chinese travelers are accepted anywhere and even longer till people go touring China of their own accord. 

3. There is no reversal of the ongoing trend of no margin economic activity in the private economy in the aftermath of the shadow banking crack down. This was causing a sharp rise in NPLs and bond defaults in private firms. The SOEs are not any different. They are worse. But their unpaid interest is being rolled over by their "brother" SOE Banks so they can service debt from new borrowing. 

We can estimate the SOE NPL as at least as bad as the private market companies. Meaning 12% or worse. 

Authorities spent last year setting up funding mechanisms for them, but the system still isn't working to perfection. This is incredibly important. Chinese state media reported that in 2018, the private sector accounted for 50% of tax revenue, 60% of GDP, and 90% of new jobs and new firms.

https://www.businessinsider.com/china-economic-recovery-wuhan-coronavirus-long-difficult-2020-2

The Chinese authorities have failed miserably in replacing private shadow banking financing for the private economy. The SOE Banks just don't have the tools to analyze a private business and little incentive to do anything more than pitch the business to get incorporated into an SOE so that the bank can lend to it under its existing rules. 

Despite having let the shadow banking sector loose at the end of 2019, it is not obvious that it can thrive any longer. Many of its funding customers are going down the drain due to the Covid-19 quarantine. 

I am certain that the government will press banks to suspend creditworthiness and business model checks and just lend to private companies just as to SOEs entirely on the basis of how many paychecks they can keep going with the loans without regard to repayment or adequate assets for security. Good businesses will not take this kind of deal but cut what they have to. Those that take it will default in a matter of months, not years. 

4. Price inflation will rise sharply due to expanded money supply growth and shrunken production, particularly of food and much worse in meats eggs and dairy. 

5. Unemployment will rise sharply. 1st wave from the service economy that isn't functional in the post virus behaviors. 2nd wave from SMEs (small biz) from a lack of demand for non-food items, and lack of funding. 3rd from the decline in construction and likely housing crash as the covid-19 event is likely to convince folks to stay in low density rural areas rather than urbanize. 4th wave from an acceleration of supply chain migration out of China. 

6. Single sourcing out of China is a dead strategy. The CCP has flubbed the response so badly that it will take a whole generation of foreign industrial producers in China  to acquire sufficient confidence to resume expanding production there. Anything that is sole sourced out of China will be duplicated outside the country. The optic devices and materials industry in Wuhan will be duplicated elsewhere regardless of cost and China's control of key rare minerals. The carefully built global monopolies in China for pharmaceutical precursor chemicals will be broken by foreign competition due to the need to diversify supply sourcing regardless of cost. Vertical integration in pharmaceuticals and specialty chemicals is coming back. 

 

As the article suggests, there is no China "growth story" remaining. It is a slow recovery to less than the prior peak, and then a generational decline. The decline will come from a demographic inversion of demand vs. savings demographics and then the decline in savings to fund further growth after so much of the investments turned bad. 

China may continue growing LNG imports as part of the China virus problem is likely going to be traced not just to heavy smoking, but also low air quality from its infamous pollution problem. 

I would not be surprised if China will never resumes growth in oil demand again. At least 2.5 Mob/d less for Q1 2020, even 3 is likely if they can't get the half of the people that are quarantined back to work by March. Then 1-2 Mob/d likely demand deficit will be permanent. 

 

The supply chain disruptions will hurt all manufacturing everywhere. I can't even speculate how deep it will go. 

[0R0 + 6,251]

More from McMahon about China

https://www.youtube.com/watch?v=uT3PzJlVxb8

Edited February 17, 2020 by 0R0

[cbrasher1 + 272]

interesting...

https://www.justice.gov/opa/pr/harvard-university-professor-and-two-chinese-nationals-charged-three-separate-china-related

[Rob Plant + 2,756]

15 hours ago, BLA said:

Better than the North Korean way of stopping spread of caronavirus.

North Korea does extensive trade and commerce with China, yet Kim Jong In says that North Korea has zero cases of the virus. That's laughable and dangerous. 

Those traveling to China are told not to mingle with the local population. 

An employee that works for the North Korea train company came back from China.  The N. Korean government learned that this employ visited a bath house while in China.  As a precaution to make sure he doesnt spread the virus if he might have been infected  they executed him.  

A tad harsh!

[Ward Smith + 6,615]

10 hours ago, Rob Plant said:

A tad harsh!

At least he was in their government, so there's that…

[0R0 + 6,251]

SCMP

SOEs report 80% back at work. 

Things are still difficult as supply chains are in shambles. Provincial checkpoints stall traffic and what few truckers are available are checked at every stop. 

Materials are hard to come by and hog and chicken and duck farms are reporting big losses of livestock and birds due to lack of access and the shutdown of feed factories. 

“It really is death by a thousand cuts,” said John Evans, managing director of Tractus Asia, a company that has 20 years’ experience helping firms move to China, but which over the past two has had more enquiries from businesses looking to leave. “This is a black swan event and I don’t think we’ve seen anything like it in recent history, in terms of the economic and supply chain impact in China and across the globe.”

These results suggest that foreign companies might re-evaluate their relationships with China. For many, the virus comes after two long years dealing with trade war tariffs and has added to the sense of China fatigue. It is for some “the straw that broke the camel’s back”, said Evans, from Tractus.

Hetin Shah, the president of supply chain management company MES Inc, said that his US Fortune 500 clients “do not want anything to do with China right now”, with the supply chain risks deemed to be too severe.

Migrant workers have not come back. Most are on lockdown or fear going to town.

the outbreak has cut it off from suppliers and delayed the return of its migrant workers from their hometowns, following the extended Lunar New Year break. Only 15 per cent have come back,

“All supply chains are having trouble, it’s very serious,” he said. “Even if we declare force majeure [to avoid paying hefty damages for late deliveries], we will not be delivering and that means many of us will risk losing our customers. For many companies, this could mean bankruptcy.”

Dimitrijevic said he had to charter special buses to transport his workers  from other parts of China back to Suzhou, a city west of Shanghai. When they returned, he had to book hotel rooms to house them for another 14 days in quarantine as their neighbours “will not let them go home”. 

Based on the Baidu Migration Index, analysts at Nomura estimated that only 25.6 per cent of migrant workers had returned to work across 15 sample cities by February 19, compared to 101.3 per cent a year earlier.

Industrial pipe maker, no. 3 in China, Its plants in Hubei – the epicentre of the coronavirus outbreak – and Tianjin remain in total shutdown. A factory in the central Chinese city of Xian is operating at roughly 40 per cent, as is a plant in Foshan, part of China’s manufacturing heartland in Guangdong, 

Orders are at 20 mil yuan vs. 400 mil this time last year. 

the firm is routing domestic production from Hubei, Xian and Tianjin through the Guangdong plant, which it hopes to ratchet up to 80 per cent capacity next week, 

 

There have been reports of cargo ships being marooned at sea, with ports in countries with strict coronavirus quarantine rules such as Australia, Singapore and the United States not permitting shipping personnel to enter their ports if they have been in China over the past 14 days.

Australia had seized two ships from China, belonging to Singaporean line PIL and Chinese line COSCO, with the crew now undergoing a 14-day quarantine period before they can unload their cargo

https://www.scmp.com/economy/china-economy/article/3051534/coronavirus-chinas-manufacturing-supply-chain-pummelled-all

A survey by the American Chamber of Commerce in Shanghai released this week found that almost 80 per cent of respondents in the manufacturing sector were unable to staff their production lines.

 

Seems to me that the IEA is all wet. These reports and any semblance of normal operations resuming in March is wishful thinking. People need to shake out of their fear and go back to work. At 80% capacity in the 1/5 of China in the industrial North East, and everyone else at 40%, it would be a surprise if demand net of opportunistic storage isn't down  close to 6 mil barrels per day . Resumption is looking to take quite a while and even when it is nearing normal, quarantine procedures are going to slow shipping and trucking down for a month or longer, I don't know what to expect with the financial condition of some of the firms allowing them to survive it even with generous loan conditions. 

[Rob Plant + 2,756]

31 minutes ago, 0R0 said:

Resumption is looking to take quite a while and even when it is nearing normal, quarantine procedures are going to slow shipping and trucking down for a month or longer

This I think will be considerably longer.

Once things are "back to normal" there will be a huge backlog of orders for all products and the ports wont be able to cope.

I would estimate at 3-6 months before the ports are back to normal operating levels

[Guillaume Albasini + 851]

One way to measure the impact of the coronavirus on the chinese economy and energy consumption is to compare the current levels of CO2 and NO2 now and during the same period last year as done by this interestng  Carbonbrief analysis.

 

https://www.carbonbrief.org/analysis-coronavirus-has-temporarily-reduced-chinas-co2-emissions-by-a-quarter

As China battles one of the most serious virus epidemics of the century, the impacts on the country’s energy demand and emissions are only beginning to be felt.

Electricity demand and industrial output remain far below their usual levels across a range of indicators, many of which are at their lowest two-week average in several years. These include:

• Coal use at power stations reporting daily data at a four-year low.
• Oil refinery operating rates in Shandong province at the lowest level since 2015.
• Output of key steel product lines at the lowest level for five years.
• Levels of NO2 air pollution over China down 36% on the same period last year.
• Domestic flights are down up to 70% compared to last month.

All told, the measures to contain coronavirus have resulted in reductions of 15% to 40% in output across key industrial sectors. This is likely to have wiped out a quarter or more of the country’s CO2 emissions over the past two weeks, the period when activity would normally have resumed after the Chinese new-year holiday.

Over the same period in 2019, China released around 400m tonnes of CO2 (MtCO2), meaning the virus could have cut global emissions by 100MtCO2 to date. The key question is whether the impacts are sustained, or if they will be offset – or even reversed – by the government response to the crisis.

Initial analysis from the International Energy Agency (IEA) and Organization of the Petroleum Exporting Countries (OPEC) suggests the repercussions of the outbreak could shave up to half a percent off global oil demand in January-September this year.

However, the Chinese government’s coming stimulus measures in response to the disruption could outweigh these shorter-term impacts on energy and emissions, as it did after the global financial crisis and the 2015 domestic economic downturn.

 

There is further confirmation of the reduction in fossil-fuel use in satellite measurements of NO2, an air pollutant closely associated with fossil-fuel burning. In the week after the 2020 Chinese new year holiday, average levels were 36% lower over China than in the same period in  2019, illustrated in the right-hand panels below.

Average atmospheric levels of NO2 (molecules per centimetre squared) measured by the NASA OMI instrument.

[Rasmus Jorgensen + 1,169]

1 hour ago, Rob Plant said:

This I think will be considerably longer.

Once things are "back to normal" there will be a huge backlog of orders for all products and the ports wont be able to cope.

I would estimate at 3-6 months before the ports are back to normal operating levels

Not to mention cost increases in insurance premium premium due to real and perceived fears. 

We are only just starting to see the effects

[Rob Plant + 2,756]

12 minutes ago, Guillaume Albasini said:

All told, the measures to contain coronavirus have resulted in reductions of 15% to 40% in output across key industrial sectors. This is likely to have wiped out a quarter or more of the country’s CO2 emissions over the past two weeks, the period when activity would normally have resumed after the Chinese new-year holiday.

Over the same period in 2019, China released around 400m tonnes of CO2 (MtCO2), meaning the virus could have cut global emissions by 100MtCO2 to date. The key question is whether the impacts are sustained, or if they will be offset – or even reversed – by the government response to the crisis.

Who says Greta is doing nothing to reduce China's Co2 emissions??

I'm sure I saw her sneak into that Bio lab in Wuhan!

[Rob Plant + 2,756]

Sorry to hijack your post Guillaume (I couldnt resist), actually very interesting data you present!

The comparison is scary stuff if you are Chinese.

My colleague who has many dealings with factories in Zhejiang province in China informs me that the larger factories have 80% staff back working. The smaller factories are largely closed. So they are starting to get back to where they were in certain areas.

 

Edited February 20, 2020 by Rob Plant

[GunnysGhost + 157]

14 hours ago, Rob Plant said:

Who says Greta is doing nothing to reduce China's Co2 emissions??

I'm sure I saw her sneak into that Bio lab in Wuhan!

Well she was bored after her camping trip in the Australian Outback went awry  

Too soon? 

[Douglas Buckland + 6,308]

On 2/15/2020 at 11:08 PM, 0R0 said:

I followed the many tweets and videos and witness accounts. I suggest you do the same without the CCP blinders on. As far as I am concerned it was as I described.

The Chinese government and CCP have gone to the point of pressing Youtube and google to de-fund all videos and sources that mention the coronavirus outbreak in China. I would say that there is an outright lie and suppression campaign of unusual scale and ferocity by the CCP. Clear evidence that their "hair is on fire" and they believe that they are on the verge of losing all credibility among the global population and have lost it already among political leaders and government officials everywhere, and are facing sheer rage from the young adults within China. 

In my opinion, keep in mind that I am a drilling guy and not a medical professional, the Chinese medical community is essentially doing the best they can with the available facilities, medical supplies, understanding of the situation and their level of training in handling the situation which they find theirselves in. I applaud the Chinese people and medical personnel for their dedication and efforts.

That said, I do not believe that the Chinese government has been transparent and forthcoming with relevant information and data concerning this disaster and that in an effort to save face they hesitated to allow outside expertise into China to assist...even though they knew potential carriers had travelled abroad and that it was no longer simply a Chinese problem. This is inexcusable. 

[Rob Plant + 2,756]

Nice to see when Ukraine nationals are repatriated back from China they are welcomed back by their fellow countrymen /sarc

https://news.sky.com/story/coronavirus-ukrainian-protesters-hurl-stones-at-evacuees-from-china-11939152

Ignorance is a dangerous thing.

[Otis11 + 551]

10 hours ago, Rob Plant said:

Nice to see when Ukraine nationals are repatriated back from China they are welcomed back by their fellow countrymen /sarc

https://news.sky.com/story/coronavirus-ukrainian-protesters-hurl-stones-at-evacuees-from-china-11939152

Ignorance is a dangerous thing.

Oh brother... do these people not realize they're INCREASING the risk of infection by taking these actions? (Especially the risk to themselves and their families?)

And if you're really worried about the water treatment plant, you need a better water treatment plant!

[Wombat + 1,028]

On 2/2/2020 at 3:21 AM, Ward Smith said:

There may well be more concrete basis than you knew. 

This virus has HIV insertions. More fuel to the fire saying it's a bio engineered weapon

Good thing that Australia (University of Queensland), has just developed the worlds first vaccine. Needs testing of course, but there is 95% chance it will work.

[GeoSciGuy + 74]

I think this virus is much more deadly than what world governments and mainstream media outlets are leading you to believe.  
 

Out of 18 infected people, 4 have died in Qom, Iran.  That’s a mortality rate of 22.22% assuming all the remaining people infected recover.  

https://mobile.reuters.com/article/amp/idUSKBN20F1GU

Nowhere near the 2% or 0.02% some of you have been peddling.  

[Ward Smith + 6,615]

54 minutes ago, GeoSciGuy said:

I think this virus is much more deadly than what world governments and mainstream media outlets are leading you to believe.  
 

Out of 18 infected people, 4 have died in Qom, Iran.  That’s a mortality rate of 22.22% assuming all the remaining people infected recover.  

https://mobile.reuters.com/article/amp/idUSKBN20F1GU

Nowhere near the 2% or 0.02% some of you have been peddling.  

Other than a certain pro CCP contributor, we've mostly just been quoting the official numbers. Some different rates are bound to crop up due to different medical care. America's first case is fully healed and out of self quarantine. Will be interesting to see how the next 40 or so fare. 

[Tom Kirkman + 8,860]

2 hours ago, GeoSciGuy said:

I think this virus is much more deadly than what world governments and mainstream media outlets are leading you to believe.  

 

1 hour ago, Ward Smith said:

Other than a certain pro CCP contributor, we've mostly just been quoting the official numbers. Some different rates are bound to crop up due to different medical care. 

 

https://twitter.com/i/status/1230930135890776065

 

Also ...

 

When US Hospitals And Military Publicly Brace For A Pandemic, You Should Pay Attention

 

And ...

 

Chinese Coronavirus Patient Reinfected 10 Days After Leaving Hospital

 

And ...

 

Easily overlooked issues regarding COVID-19

 

And ...

 

Coronavirus risk for Asians, Africans, Caucasians revealed

 

"East Asians, Japanese, and Han Chinese are the most likely people to become severely sick by the coronavirus with a chance of more than 90% when exposed. Europeans only rank in the 50%, Africans in the 60% range, and considered low to medium. It also makes a difference if one is a smoker or non-smoker."

 

 

 

 

[J.mo + 165]

3 hours ago, GeoSciGuy said:

I think this virus is much more deadly than what world governments and mainstream media outlets are leading you to believe.  
 

Out of 18 infected people, 4 have died in Qom, Iran.  That’s a mortality rate of 22.22% assuming all the remaining people infected recover.  

https://mobile.reuters.com/article/amp/idUSKBN20F1GU

Nowhere near the 2% or 0.02% some of you have been peddling.  

I'm with you. I also noticed they changed the "official name" of of the virus to SARS-CoV-2 due to its striking resemblance to SARS. 

SARS mortality rate was somewhere in the 13.5% range I believe off the top of my head. Doesnt seem to settling in my opinion. 

[0R0 + 6,251]

https://www.worldometers.info/coronavirus/coronavirus-cases/

Only official cases. But significantly the outcomes section puts recoveries 90% and death 10%. Much improved from just a couple of days ago (over 14%) 

International spread looks bad and growing exponentially with the Diamond Princess petri dish experiment by Japan and the S. Korean church and hospital clusters. 

[0R0 + 6,251]

3 hours ago, Tom Kirkman said:

"East Asians, Japanese, and Han Chinese are the most likely people to become severely sick by the coronavirus with a chance of more than 90% when exposed. Europeans only rank in the 50%, Africans in the 60% range, and considered low to medium. It also makes a difference if one is a smoker or non-smoker."

 

So it is back to being a Han Chinese or Japanese Male Smoker being highest risk, 

Thanks Tom.

[Tom Kirkman + 8,860]

5 hours ago, 0R0 said:

So it is back to being a Han Chinese or Japanese Male Smoker being highest risk, 

Thanks Tom.

Statistically, it seems that way.  Those at highest risk of fatality (per Geonome Project stats) appear to be:

1) Asian

2) Elderly

3) Male

4) Smokers

Living in a badly air polluted area is likely another risk factor, as damaged lungs seem to greatly increase risk - which would explain why babies and young people are apparently not much at risk of dying from this.

[specinho + 470]

On 2/21/2020 at 10:20 AM, GunnysGhost said:

Well she was bored after her camping trip in the Australian Outback went awry  

Too soon? 

There might be a delightful turn for her .............. a new species of snail has been named after her ......... ttaaaddaaallaaaa........... please meet  Craspedotropis gretathunbergae

[James Regan + 1,776]

On 2/8/2020 at 4:27 PM, Gerry Maddoux said:

This virus is scary as all get out. Reminds me of the Marburg virus, which lives inside the African fruit bat without causing illness. When it first jumped lines, it didn't seem so bad in primates, but then it got meaner and nastier, now has a 50% mortality rate.

During the Marburg Virus outbreak I was offshore Luanda , Angola most of our workers came from close to where the epicenter of the outbreak came from. I personally never considered the risk as did not the company they allowed local crew changes as per normal. This caused major concern mainly for the majority US crew from the Southern States and first overseas postings. It’s was a bad situation that could have cause civil havoc onboard due to people refusing to shake hands or eat drink coffee etc with our Angolan brothers and crew. 
It goes to show you how these micro communities can give you a perspective on a global scale( similar to the cruise ship in Japan) and how it will get out of hand.

I left the rig and was on my way to Brasil via Lisbon, on arrival in Lisbon I was interviewed by Portugues TV asking how was the atmosphere in Luanda and replied I could not comment as I knew nothing about what was truly going on in Luanda but the press does carry a huge part on spreading false narrative about these things and we should not believe all we are fed, likewise the numbers out of China I would be surprised if they were not double being reported, so much at stake. Let’s see this virus spread west ( which it will) and then we will see the real reaction to global markets. Just my opinion and a little experience.