Commodities producers and importers in the first line of fire of sell-offs on the Warsaw stock exchange.
Even if there have not been any confirmed coronavirus cases in Poland, there will be effects of jitters in the Chinese economy on Polish trading partners after the Asian outbreak.
Poland has a massive trade deficit of around USD 28 bn in 2018, as imports reached USD 30.97 bn, while exports were to China were only 2.5 bn, so it is primarily importers who are affected by a slowdown in China, as well as raw materials producers.
The knock-on effect is most immediately visible on retailers who rely on Chinese imports, including the shoe chain CCC, an article on bankier.pl explains. the company normally agrees its orders for the year before Chinese New Year and any delays in production could have a knock-on effect on their supply chain.
As one of Poland’s major exporters, copper giant KGHM was also among the early victims of the sell-off, as a fall in demand for copper in China affects global prices of the commodity. The same is true for steel producers such as LSE-listed Mittal, which has two main sites in Poland, and coal firms such as Warsaw-listed JSW whose fortunes are heavily reliant on customers in the smelting industry.
Meanwhile, as China is a major oil importer, fears of a drop in demand knocked 3.5 percent off the price of a barrel of Brent on world markets. If there is a long term effect, this may be a boost for Polish motorists, but the main winners will be the big oil firms, Lotos and Orlen, for whom the drop in crude prices raises margins significantly. JP Morgan suggested prices may drop 5 percent if we have a repeat of the SARS outbreak in 2003.
Unexpected winners of the virus outbreak according to Bankier, include Mercator, the surgical glove manufacturer, whose value surged by 22 percent yesterday. The company produces in Thailand and has seen sales in China rise by PLN 9.6 mln (EUR 2 mln in the first three quarters of 2019. Should demand for gloves increase they will be well-placed to profit.
Quick return to business as usual
Indications suggest that China has taken containment of the spread of the virus very seriously, shutting down towns in Wuhan and extending holidays. The international information supply has also been much better than with previous outbreaks and so there is a suggestion that the economic effects will not be as widespread as with SARS. The economist pointed out that six months after the bird flu and SARS, markets had grown by 10 percent, suggesting that after this blip prices will return to normal. And with US President Trump promising a major breakthrough in trade talks, China’s exports may gain a further boost.