Chinese copper traders declare force majeure

DNYUZ ^ | February 7, 2020 | Staff

[texas booster]

Copper traders in China, the world’s largest buyer of the metal, have asked miners from Chile to Nigeria to cancel or delay shipments as the deadly coronavirus outbreak hits demand.

Multiple Chinese copper buyers said they had scrapped or postponed overseas orders by declaring force majeure since the end of January, when Beijing began to report a surge in coronavirus infections.

Copper, a barometer for the health of the global economy, is the latest commodity to fall victim to the epidemic.

China’s efforts to contain the virus, ranging from restricting highway traffic to extending the lunar new year holiday, have affected industrial activity and raised concerns about growth in the world’s second-biggest economy.

Chinese buyers of liquefied natural gas have also considered declaring force majeure, a clause that identifies natural disasters or other unavoidable catastrophes as cause for not fulfilling a contract.

“Coronavirus has had a huge impact on copper demand as downstream users [involved in processing raw copper] have stopped acquiring raw material,” said a manager at Guangzhou Zhongshan Trade, a non-ferrous metal trading firm in southern China that focuses on copper and antimony.

Guangzhou Zhongshan this week asked suppliers in Chile and Somalia to delay shipments of 500 tonnes of copper worth about Rmb25m ($3.57m) for at least a week. It has also cancelled a preliminary contract with a seller in Somalia and has stopped placing new orders.

“The epidemic is not just a China issue, it is a global problem,” the manager said, adding that its customers had not objected to its decision.

Business activity at Guangzhou’s port, one of the biggest in China for commodities trading, has plunged with fewer than a third of workers on duty, the manager added.

[texas booster]

In the coming weeks at least a dozen other Chinese copper buyers could use force majeure to try to renegotiate copper import contracts, said traders in the city. Guangzhou is about 1,000km south of Wuhan, the outbreak’s centre.

Copper users, ranging from car companies to home appliance makers, face a sharp drop in sales if the outbreak continues to worsen.

Consultancy Wood Mackenzie said demand for copper-related products could suffer “further disruptions” after more than a dozen provinces imposed restrictions on people’s movements in an attempt to contain the disease.

That has prompted copper traders to embrace the use of force majeure, even if it comes at the expense of their business partners.

“Sellers have to accept our terms because the disease has made business contracts invalid,” said an executive at Shenzhen Yongfulu, a copper trader in southern China with annual revenues of about Rmb40m.

Yongfulu imported 4,000 tonnes of copper last year. The company asked its suppliers in Chile and Somalia to postpone shipments of 400 tonnes of copper for at least two weeks.

A plunge in Chinese purchases would send shockwaves through the global copper market. The nation accounts for half of global consumption of the metal, according to the International Copper Study Group. Copper futures traded in Shanghai have fallen 8 per cent since the beginning of this year.

The coronavirus epidemic, which has killed more than 600 people and infected thousands more, has rattled China’s supply chains. Local smelters have continued to operate, but the decision to shut down roads in cities across China has caused delays in them receiving raw materials.

The practice of force majeure is controversial. Dan Harris, a lawyer who has worked on force majeure cases against Chinese firms, said an overuse of the clause will hurt Chinese copper importers in the long run.

“Legally, these Chinese companies may be in the right,” said Mr Harris. “But [copper sellers] are going to remember that. A year from now they are not going to sell to those Chinese companies.”

[texas booster]

Not good for the economy.

Not importing copper and slowing down on LNG.

Hmmm ...

[grey_whiskers]

I knew I should’ve shorted the sh*t out of the Baltic Dry Index...

[Gen.Blather]

I don’t know the state of America’s strategic materials supply, but this seems like an excellent buying opportunity that will keep the lid on inflation for a decade to come.

[FtrPilot]

Every contract written should include a "force majeure" clause.

Declaring "force majeure" for the coronavirus epidemic seems reasonable. The Chinese copper buyers are seeking delays, not cancellation.

[null and void]

Bring Out Your Dead

Post to me or FReep mail to be on/off the Bring Out Your Dead ping list.

The purpose of the “Bring Out Your Dead” ping list (formerly the “Ebola” ping list) is very early warning of emerging pandemics, as such it has a high false positive rate.

So far the false positive rate is 100%.

At some point we may well have a high mortality pandemic, and likely as not the “Bring Out Your Dead” threads will miss the beginning entirely.

*sigh* Such is life, and death...

If a quarantine saves just one child's life, it's worth it.

[Red Badger]

Somehow, I sense that this coronavirus thing is waaaaaayyyy bigger than what we are lead to believe............

https://en.wikipedia.org/wiki/Force_majeure

[Jakarta ex-pat]

One thing for certain.
Every country in the world will be affected economically.

[rdcbn]

This is troubling.

What will be even more troubling is when shortages of raw materials once made in United States but where production has been off-shored to China and no US domestic supplier exists and alternate supplies from other Asian countries are also shut off.

Worst of all, many Chinese contractors have subcontracted production labor to even more third world countries like Cambodia or Bangladesh where contract and property rights for foreigners range from pretty sketchy to non existent and stuff just disappears

[texas booster]

Most contracts include some form of force majeure, even as a simple Acts of God statement.

That Chinese traders are calling for it does not mean that suppliers have to accept it.

From MSN, at 4:30 am CST:

China LNG Force Majeure Rejected as Virus Chaos Sparks Dispute

Two of Europe’s biggest energy companies rejected a Chinese force majeure on liquefied natural gas contracts in the latest twist to a drama that’s gripping global commodities markets.

Royal Dutch Shell Plc and Total SA didn’t accept the legal grounds for the move by China National Offshore Oil Corp. that would have freed it from its contractual obligations to take delivery of the shipments, according to people with knowledge of the matter.

While CNOOC is still likely to cancel delivery of the prompt cargoes, suppliers will probably seek compensation from the Chinese firm, ...

[Travis McGee]

Please watch this Wuhan video starting at 36 minutes until about 54 minutes.

The narrator is an idiot but the video is beyond belief.

Metokur (MIRROR): Celebrating And Incubating Stream (w/chat)

https://www.youtube.com/watch?v=4YbIl1Q-DYw

[Brilliant]

Exactly.

[Red Badger]

A cartoon?...................

[ameribbean expat]

CNOOC too on LNG:

https://www.worldoil.com/news/2020/2/6/cnooc-refuses-lng-cargoes-declaring-force-majeure-over-coronavirus

[alancarp]

"The coronavirus epidemic, which has killed more than 600 people and infected thousands more..."

"Somehow, I sense that this coronavirus thing is waaaaaayyyy bigger than what we are lead to believe............"

You're absolutely right. In a country of a billion people, 600 wouldn't be a crisis. Nor would this story be happening. There was a slip noted yesterday about the number of dead being around 25,000. I've got to wonder if it's not double that by now to have this kind of impact.

[Black Agnes]

It’s probably not too late to do that.

[grey_whiskers]

Will check on it, thank you.

[Steely Tom]

Tangerine Dream / Force Majeure

[Travis McGee]

The narrator is an idiot. Ignore his voice and the sides of the video pane. Just watch the video clips starting at 36.

[Gasshog]

Coppers been dropping before this virus was announced. Oil too.

I guess pretty soon China will declare it’s going to devalue it’s currency again and the tariff deal is off due to the Kung flu.