Coronavirus and the Chinese Mining Market: Who’s Impacted; Who Isn’t?

coronavirus

The coronavirus is spreading across the globe; it has killed more than 130 people and infected more than 6,000 in mainland China. Almost 60 million people are in lockdowns in cities across the country, and there’s a public bearishness spreading, like the virus, about the direction Chinese mining markets are heading in as a result.

Coronavirus and the Bearishness Brewing Over Chinese Mining Markets

Of course, it’s not surprising it’s a bear market out there right now: the stock market always has strong reactions during virus emergencies. We saw it when the Zika outbreak caused a 12.9% pullback in the duration of 66 sessions.

The same thing happened in 2003 when outbreaks of severe acute respiratory syndrome (SARS) occurred in China. It lasted 38 trading days and caused a 12.8% sell-off in the S&P 500. And the market is, most definitely, having a strong reaction to China’s most recent outbreak, the coronavirus.

The market is on edge because China accounts for roughly 15% of global GDP. It’s also the largest buyer of commodities in the world. If we’re looking at the commodities suffering the most, the Chinese copper industry particularly stands out.

Investors are worried traders with shipments won’t get to China for the first two weeks of February. That fear has resulted in the London Metal Exchange’s copper price dropping by around 10.1% (as of January 29, 2020) since reaching its latest milestone: on January 16, the London Metal Exchange’s copper price reached a peak of $6,343 per tonne.

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Similarly, on Monday, January 27, Glencore saw a 4% drop in its price; the Anglo American price saw a 4.8% decline. Glencore is trading down again Thursday at 1.73%.

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We Don’t Know the Future

The uncertainty of the disease has created bearishness, but that’s what it is: uncertainty. We don’t know how long the coronavirus will last, nor do we know the full extent of the market’s reaction to it. Copper prices may be suffering, but gold prices are on the rise (as they usually do during times of crisis). We’d expected the vanadium market to feel the impact of China’s most recent turmoil too, considering China is the world’s largest producer of vanadium, producing an output of 84,000 tons in 2017.

Yet companies like Delrey Metals (CSE:DLRY) (OTCPK:DLRYF), which focus on vanadium, appear neutral. As of 9:51 AM, DLRY stock is unchanged on the Canadian Securities Exchange. Maybe that has to do with investor faith: the company had a productive 2019, announcing flow-through and non-flow through private placements in July. That announcement came only a few days after Delrey finalized its drill plans for its four corners project, which it received its drill permit for at the beginning of that month.

With that being said, several vanadium stocks are trading down at the time of writing. Largo Resources (TSX:LGO) (OTCQX:LGORF), for instance, is among them. As of 11:20 AM, LGO stock is down 0.93%.

So, it seems like, at least with Delrey Metals, some investors aren’t prepared to panic. Yet. Nor is Trump, though. According to the President’s advisor, Peter Navarro, the United States will keep tariffs on China, regardless of whether the coronavirus profoundly impacts the Chinese economy.

The Market Needs Clarity

Copper is suffering, gold is rising, and vanadium stocks like Delrey Metals appear unchanged. And that might remain until investors have more clarity about the disease. We must warn, though, that investors should expect volatility to occur in either direction until we get that clarity. So, just as it’s crucial to remember to wash your hands and avoid touching your face, it’s also essential for investors to keep an eye on the stock market over the next few weeks. Will the bearishness continue? Only time will tell.

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