CHINESE COPPER TRADERS DECLARE FORCE MAJEURE OVER CORONAVIRUS / THE FINANCIAL TIMES

Chinese copper traders declare force majeure over coronavirus

Buyers of commodity have cancelled or delayed shipments due to deadly outbreak

Sun Yu in Beijing


Multiple Chinese copper buyers said they had cancelled or delayed overseas orders © Reuters


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 earlier 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.

In 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 plunge 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 a bid 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.”