Deloitte has tipped big miners to be in a much better financial shape compared to the 2008 global financial crisis and the last commodity market downturn in 2015 once the coronavirus pandemic subsides.
The statement is from its Impacts of COVID-19 on the Mining Sector report, which predicts the drop in the global economy due to the coronavirus to be “as severe, if not more, than the GFC.”
Access economics partners David Rumbens and James Campbell-Sloan noted iron ore as the commodity at most risk of major disruption in Australia.
This is due to the sheer remoteness of the majority of the nation’s iron ore supply in Western Australia’s Pilbara region.
“In Australia, keep a close eye on iron ore developments,” Deloitte urged. “About 60 per cent of the world’s seaborne iron ore is produced in the Pilbara, a two-hour flight from Perth.
“Further delays to production around the world should provide some support to commodity prices, choking off some of that excess supply we’ve seen reflected in exchange inventories.
“With the number of operations announcing restrictions to production increasing, the risk to supply for several key commodities will ratchet up.”
The other main challenge for commodities such as iron ore will be the lack of investor confidence, according to Deloitte.
The firm has also noted the fall in industrial metal prices during the past month, including copper, nickel and zinc.
Copper has dropped by 20 per cent, while zinc and nickel have fallen by 13 and 14 per cent respectively, with Rumbens and Campbell-Sloan tipping the permanency of the declines to the duration of the coronavirus crisis.
According to Deloitte, precious metals are also tanking, with a 38 per cent drop for palladium, 35 per cent for platinum and 30 per cent for silver, with only the classic “safe haven” metal gold doing okay.
Even so, gold still lost ground with a six per cent price decline in the past month.
“Most companies should be able to weather the storm without having to tap shareholders for cash or fire sale assets,” Deloitte stated.
“The impact of COVID-19 (coronavirus) on supply and production operations may partially offset downward pressure on commodity prices.”
Deloitte specified that mines typically being in remote locations with fly-in fly-out (FIFO) workforces, which makes the sector “highly vulnerable” to a highly contagious illness like the coronavirus.
“Efforts to contain the virus by restricting the flow of labour and transport will inevitably have a production impact,” the firm stated.
“(This is) particularly for those commodities where supply is highly concentrated in a particular region and where transportation is a big part of the value chain like the bulk commodities.”
The current containment of coronavirus in China marks a sigh of relief for the mining sector, with China being the world’s major commodity consumer.
And with the Chinese government moving to restart the economy, this is promising for iron ore prices going ahead.