COVID-19 could have a 'bullwhip' effect

COVID-19 could have a 'bullwhip' effect
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As of March 1, more than 87,000 cases of the new coronavirus, COVID-19, have been confirmed globally, according to the World Health Organization with at least 2,977 deaths resulting from the disease, the vast majority of which have taken place in China.

As of Wednesday, Feb. 26, new cases of COVID-19 had emerged in Iran (139 cases and 19 deaths), Italy (401 cases and 12 deaths), Japan (178 cases and two deaths) and South Korea (1,261 cases and 12 deaths).

Also on Wednesday, the Centers for Disease Control and Prevention (CDC) in the United States confirmed an infection with the virus that causes COVID-19 in California in a person who reportedly did not have relevant travel history or exposure to another known patient with COVID-19. The CDC says the patient’s exposure is unknown, and it is possible this could be an instance of community spread of COVID-19, which would be the first time this has happened in the United States. However, it also is possible that the patient may have been exposed to a returned traveler who was infected and does not know.

As of Friday, Feb. 28, the CDC says the total number of COVID-19 cases in the United States stood at 22, not including the 45 people who were repatriated from China and the Diamond Princess cruise ship docked in a port in Yokohama, Japan.

Possible effects on trade

Joe Pickard, the chief economist and director of commodities for the Institute of Scrap Recycling Industries (ISRI), Washington, says nearly $2 billion in scrap commodities were shipped from the U.S. to mainland China last year. That number grows to $10 billion when the broader Asian region, excluding the Middle East and Central Asia, is included. Therefore, reduced trade with the region arising from manufacturing slowdowns related to the virus could have a substantial effect on the recycling industry in the U.S., he says. 

He refers to slowdowns at some Chinese ports that are further affecting the flow of material into the region. This also is affecting container shipping fleets.

The JOC.com, citing maritime analyst Alphaliner, reports that the collapse of Hanjin Shipping in 2016 and the fallout from the global financial crisis “pale in comparison to the scale of removed capacity by carriers in response to the shock to demand caused by the coronavirus disease 2019 (COVID-19) epidemic.”

Hanjin’s bankruptcy took 1.59 million 20-foot-equivalent units (TEUs) out of service, while 1.52 million TEUs were withdrawn in 2009 in the wake of the financial crisis. “But Alphaliner estimates that carrier response to falling demand has left a record 2.04 million TEU currently idle, 8.8 percent of the global fleet,” JOC.com reports.

Pickard notes that shipping lines have been waiving demurrage fees, a charge payable to the shipping line if the load is not removed from the ship by the agreed time, which he says is extremely rare.

Pickard says the effects on scrap demand have the potential to extend beyond China. He cites India as an example, saying scrap consumers in that country buy scrap from the U.S. that they melt into ingot and sell into China. If producers in India are selling less to China because of reduced manufacturing activity there, they could pull back on their scrap purchasing from the U.S.  

He points to a potential demand boost from China, particularly for recovered fiber, in response to decreased domestic collections of recyclables there. While this could be good news for U.S. suppliers, the material will still be subject import quotas in place in China. Container availability also could pose a problem.   

“Markets tend to be resilient in the face of these shocks,” Pickard says. However, he adds productivity losses are likely to occur over a longer term. While China’s gross domestic product (GDP) is expected to decline sharply in the first quarter, it also is expected to recover quickly.

How the disease spreads

Cathy Troisi, an associate professor in the Divisions of Management, Policy and Community Health and Epidemiology at University of Texas (UTHealth) School of Public Health, says COVID-19 is thought to have originated in bats and likely spread to humans through another animal. She says it could have originated as early as early or mid-November 2019, which is earlier than the first case was reported in Wuhan in December.

The disease is not known to be airborne at this time, Troisi says, but instead is thought to be spread by droplets and fomites, which are objects that can carry infection, such as doorknobs and handrails. According to preliminary reports, she says, fomites could transmit virus for up to nine days.

The incubation period for the disease can be as long as 14 days, though the average appears to be five days. While 14 to 20 percent of COVID-19 infections are severe, the death rate from the disease is 2 percent, she adds.

While China’s mass quarantine appears to have been effective, Troisi says this approach is “less likely to be tolerated in more democratic countries.”

She adds that an “infodemic” is associated with COVID-19 in light of the misinformation and conspiracy theories that are circulating.

While the World Health Organization has not yet proclaimed COVID-19 a pandemic, she says, “I think that probably will happen.”

Still, Troisi says, the flu is responsible for more deaths than COVID-19.

The broader financial impact

Jason Schenker, president of Prestige Economics, Austin, Texas, and chairman of The Futurist Institute, says the uncertainty surrounding the outbreak was driving metals markets back in mid-to-late January, while the risks were only being priced into the equity markets in late February.

The Dow Jones Industrial Average fell by more than 1,000 points Monday, Feb. 24, in response to investors’ concerns that virus could weaken global economic growth. That was followed by another decline of 1,191 points, or 4.4 percent, in its worst one-day point drop in history Thursday, Feb. 27.

Schenker says the International Monetary Fund (IMF) has revised its global economic growth outlook downward by 0.1 percent because of the outbreak. The IMF forecasts a 5.6 percent growth rate for the Chinese economy this year.  

“From a business planning standpoint, there is a lot of uncertainty,” Schenker says.

He mentions the possibility of a “bullwhip effect,” in which “a small move of the wrist turns into a big crack extending beyond China.”

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Source: Recycling Today
COVID-19 could have a 'bullwhip' effect
<![CDATA[As of March 1, more than 87,000 cases of the new coronavirus, COVID-19, have been confirmed globally, according to the World Health Organization with at least 2,977 deaths resulting from the disease, the vast majority of which have taken place in China.As of Wednesday, Feb. 26, new cases of COVID-19 had emerged in Iran (139 cases and 19 deaths), Italy (401 cases and 12 deaths), Japan (178 cases and two deaths) and South Korea (1,261 cases and 12 deaths).Also on Wednesday, the Centers for Disease Control and Prevention (CDC) in the United States confirmed an infection with the virus that causes COVID-19 in California in a person who reportedly did not have relevant travel history or exposure to another known patient with COVID-19. The CDC says the patient’s exposure is unknown, and it is possible this could be an instance of community spread of COVID-19, which would be the first time this has happened in the United States. However, it also is possible that the patient may have been exposed to a returned traveler who was infected and does not know.As of Friday, Feb. 28, the CDC says the total number of COVID-19 cases in the United States stood at…