THE outbreak of coronavirus is likely to be a drag on resource demand in the immediate future, BHP vice president, market analysis and economics Dr Huw McKay believes.

Dr McKay recently prepared BHP’s market outlook for the second half of the 2020 financial year.

“On balance, we expect to see lower iron ore prices on average in calendar year 2020 than in the year just concluded, with considerable two–way volatility in prospect,” he wrote.

“On the other hand, we expect conditions in metallurgical coal to improve somewhat versus those experienced in the second half of calendar 2019.”

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He said the signing of the US–China “Phase One” trade deal meant a major drag on sentiment for much of calendar year 2019 had been neutralised.

“The caveat is that while we hope that the Covid–19 outbreak is speedily contained within the March quarter, no one can be adamant about the precise timing,” he said.

“While the world is forced to live with this unknown, there is likely to be a sentiment discount in the prices of these commodities.

“Looking beyond the immediate picture to the medium–term, we see the need for additional supply, both new and replacement, to be induced across most of the sectors in which we operate.”

Dr McKay said they continued to see emerging Asia as “an opportunity rich region”.

“China, India, ASEAN and the global impact of China’s Belt and Road initiative are all expected to provide additional demand for our products,” he said. “As the true economic costs of trade protection are progressively recognised by global consumers, we anticipate a popular mandate for a more open international trading environment will eventually emerge.”

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