By: Christopher Sirota, CPCU
This post examines the potential impacts that various markets may experience as novel coronavirus continues to spread.
Some Potential Pharmaceutical Shortages in U.S.
Reuters reported that the U.S. Food and Drug Administration (FDA) has apparently been concerned about potential shortages in U.S. drugs that depend, in part, on Chinese-sourced ingredients. Per the article, the FDA has contacted 180 drug manufacturers to remind them of their requirement to report to the FDA "any expected supply disruptions." The article further noted that the FDA reached out to 20 manufacturers of drugs that source a majority of ingredients from China or are "finished" in China to ascertain potential interruption due to the outbreak. The article highlighted that in 2018, about 88% of Active Pharmaceutical Ingredients (API) for drugs in the U.S. were from non-domestic sources, with about 14% from China.
Potential Impacts on Some Electronic Manufacturing Sectors
TrendForce has reported that various phases of the electronics supply chain is expected to be impacted by the outbreak. For example, the OSAT (Outsourced Semiconductor Assembly and Test) market may reportedly be slowed down by the mobility restriction impact on workers in China who may not be able to travel to factories. This differs from the Memory Products industry, which reportedly relies more on automation and generally was well-stocked in materials before the outbreak. Also, Wuhan, reportedly considered the epicenter of the outbreak, is also the center for fiber optics, which are reportedly in demand for 5G implementations.
As such, the article noted that this market may be impacted negatively. Of interest, video surveillance companies that support IoT technology have reportedly shifted more production towards electronic thermometers—which are reportedly have been experiencing increased demand during the outbreak—and as such the supply of IoT video equipment may be impacted.
Lastly, the smartphone supply chain is reportedly labor intensive, and there are parts, such as camera modules, that are currently in short supply. Thus, the article highlighted how experts expect a decline in smartphone production in 2020 by about 1.3%, which is the "lowest output since 2016."
Outbreak May Disrupt Some Commodities
Mintec Global reported about the potential impacts on several commodities:
- Copper and Gold: Per the article, copper is highly utilized in many industries, like electronics and construction, that have been negatively affected by the virus outbreak. As a result, prices for copper have reportedly fallen. In contrast, the article noted that uncertainty in the marketplace often causes investors to seek the perceived financial safety of gold, and its price has increased.
- Oil: Oil production has reportedly decreased partly in reaction to the reduced demand for and sudden glut of jet fuel which is due, in part, to a drop in air travel in China and abroad.
- Pork and Chicken: Domestic production of pork and chicken in China-- which had been reportedly attempting to recover from the past effects of African Swine Fever (ASF) and H5N1 bird flu respectively--has reportedly been hampered by outbreak-related industry shutdowns, and as such imports to China have reportedly increased. That said, per the article, "ships carrying refrigerated cargo containers of chicken from the U.S. to mainland China are being diverted to ports in Hong Kong, South Korea, Taiwan and Vietnam which may cause delays and result in lower exports from the US to China."
- Salmon: China is reportedly one of the largest importers of Norwegian and Chilean salmon, but consumption of seafood is reportedly expected to drop significantly because of the outbreak.
- Garlic: China reportedly exports 80% of the world's garlic, with the greatest amount sent to the U.S. Disruption to this supply are expected and Mintec reportedly believes the other sources for garlic, like Spain, Argentina and the Netherlands will most likely find it challenging to meet the global demand.
- Pumpkin seeds, dried ginger, paprika, star anise, and chili are also reportedly expected to experience shipping disruptions from the outbreak which may also result in potential price increases in the marketplace.
U.S. Consumer Goods: P&G Concerned About Impact
According to a Forbes article, Procter & Gamble has expressed concern about potential disruption to its approximately 387 suppliers in China. The article noted that those suppliers provided 9,000 materials for about 17,600 finished products.
Global Footwear and Clothing Markets Need Chinese Factories at 100% by April
Also, per Forbes, about two-thirds of the world's footwear and roughly one-third of the world's clothing is sourced from China. In the U.S. about 70% of footwear is reportedly sourced from China. The article highlighted that an industry report predicted that if the factories are not back to capacity for these markets by mid-April, the industry expects a "supply chain breakdown." The article further predicted that, going forward, more companies will most likely seek to diversify suppliers to other countries over the next few years.
Some Potential impact on Sugar-free drink Ingredients
CNN has reported that Coca-Cola announced that the virus outbreak had delayed its suppliers of the artificial sweeteners used in some of their products, such as Powerade Zero and Diet Coke. Although the company did not reportedly specify which exact sweetening ingredient would be delayed, the article listed some of the primary ingredients used in Coca-Cola products, including "aspartame, acesulfame potassium, sucralose, saccharin, cyclamate and steviol gylcosides."