While relations were already fraying between the United States and China as a result of the coronavirus outbreak, Beijing’s vote this week to end Hong Kong’s autonomy may serve as a key turning point in relations between the two economic powerhouses.
In response to China’s action, Secretary of State Mike Pompeo said that Hong Kong no longer warrants special trading status with the US. Implications for energy, metals and agriculture trading, as well as the broader global economy, could be significant.
In Europe, new-crop activity is struggling to get going as there is a lot of uncertainty about yields and demand. The European Commission cut sharply its forecast for the Union’s soft wheat harvest. Ukraine said it would not restrict wheat exports for the next two months, despite a quota being filled, while Russia is expected to increase its wheat shipments in 2020/21.
The big news of the week has been the locusts attack in India. union government is coordinating with states governments to restrict locust attacks. More than 200 locust circle offices and temporary camps are engaged in conduct in surveys and control operations.
However, not much damage to crops is reported as sowing has not taken place in most of the areas and harvest of winter crops is over. Cotton crops in some areas of Rajasthan and Punjab besides pulses and vegetables have been affected by locust attack. But the locusts have to be controlled completely before sowing of Kharif crops begins in June.
Meanwhile Telangana and Jharkhand are another two states to have opted out of the crop insurance scheme, saying the premium is too high. Premium increased 2-3% after the scheme was made voluntary for farmers. More than 6 million farmers from these two states had enrolled for the scheme.
West Bengal, Bihar, Punjab and Andhra Pradesh have already exited, and officials said Rajasthan and Maharashtra were debating whether to continue with the scheme. Under the crop insurance scheme, farmers contribute up to 2% of the total premium while the rest is shared equally between the state and the centre.
The migration of labour during the pandemic has started taking a toll on wages. Farm wages have doubled in many agricultural districts as farmers depend heavily on migrant labourers who have returned home. Farmers are trying to lure migrants back by offering them rail tickets and other incentives. Many farmers in Punjab, Haryana, West Bengal, Telangana and Andhra Pradesh are trying to mobilise local labourers to prepare nursery beds and sow paddy, which is a very labour-intensive task.
In India, steel sector output has shrunk by 83.95% in April 2020. The sector’s growth rate (-83.95%) was lower than the growth rate of the combined core industries output (-38.12%). Steel is among 8 of the total 8 sectors that contracted in April 2020. World crude steel production for the 64 countries reporting to the World Steel Association was 137.1 million tonnes in April 2020, a 13.0% decrease compared to April 2019.
China produced 85.0 million tonnes of crude steel in April 2020, an increase of 0.2% compared to April 2019. India produced 3.1 million tonnes of crude steel production in April 2020, down 65.2% on April 2019. Japan produced 6.6 million tonnes of crude steel in April 2020, down 23.5% on April 2019.
After slipping below US$1,700 mid-week gold has climbed almost 2 per cent to US$1,727. The yellow metal’s late week gains have been attributed to a weak US dollar and renewed anxiety over relations between US and China. Even with many economies reopening, the economic status is still quite weak. So with this new geopolitical tension it means that recovery in many parts of the world can take longer, which could lift gold prices.
In its monthly report for May, the World Gold Council noted that production was down 3 per cent during the first quarter of the year. The gold price has already climbed 11.4 per cent since January and has potential to move higher.
News that South Africa would move to begin reopening its economy supported platinum prices. The world’s largest platinum producing country announced plans to allow miners to resume operations. Sister metal palladium followed a similar trajectory on reports that South Africa’s mining sector had received the green light.
The US move to no longer recognise Hong Kong’s independence from mainland China could lead to new tariffs and a potential collapse of the Phase 1 trade deal that promised $50 billion in US energy purchases through 2021.
Rising US-China tension and Chinese reprisals from Washington’s response could have broad economic consequences on global oil. US crude exports to China have not picked up despite the Phase 1 deal. Only 17,000 barrels per day flowed to China in December, and no exports were recorded in January or February, according to the latest Energy Information Administration data. US crude exports to China peaked in March 2018 at 469,000 barrels per day.