China Reneges on Commodity Deals, Worsens Global Trade Chaos

Global commodity trade plunged deeper into chaos as Chinese companies started walking away from purchase contracts because of the spread of the deadly coronavirus. A Chinese buyer of liquefied natural gas and a copper importer declared what’s known as force majeure -- meaning they are reneging on deals as the virus constrains their ability to take deliveries. The cancellations are among the first known cases of the legal clause being invoked in commodity contracts due to the epidemic. “Everything that we were afraid of, from trade wars or global growth, doesn’t compare,” said Jan Stuart, global energy economist at Cornerstone Macro. “This virus is an entirely different risk, especially in commodities where China’s role dominates.” China is the world’s biggest consumer of most raw materials, from energy products to industrial metals, and disruptions in its purchases create havoc across global supply chains. Now, while global markets bounce back from initial fears over the impact of the virus, the fallout in commodity trade is only worsening as Beijing keeps swathes of the country under lockdown and restricts travel. In a dramatic and rare step, China National Offshore Oil Corp., the nation’s biggest LNG buyer, invoked force majeure and told some suppliers it won’t take delivery of cargoes because of constraints caused by the coronavirus. French oil and gas giant Total SA rejected the declaration. Hours later, it emerged that Chinese copper smelter Guangxi Nanguo had also declared the same get-out clause, refusing to take delivery of raw materials. Meanwhile, copper buyers are requesting Chilean miners postpone shipments because of port shutdowns while China’s biggest oil refiner, Sinopec Group, is likely to ask Saudi Arabia to reduce crude supplies next month. Soybeans from Brazil and the U.S. are being held up on arrival in eastern China and Indonesian palm oil shipments are also being delayed...MORE