Economic contagion due to the coronavirus is underway. Hyundai halted production. Sony, Apple, and Ford issued warnings.
If you can’t get parts, you can’t build cars.
And due to a coronavirus-related manufacturing halt in China, Hyundai to Shut Down Some Production.
Hyundai, the world’s fifth-largest carmaker, announced Tuesday that it was suspending production lines at its car factories in South Korea, one of the first major manufacturers to face severe supply-chain issues because of the coronavirus.
Many auto plants in China have already shut down because of the virus, including factories run by Hyundai, Tesla, Ford and Nissan. Hyundai plants in South Korea would be the first to shut down lines outside of China, and comes as Hyundai has ramped up production in China over the past two decades.
The Wall Street Journal comments on China’s Economic Contagion
More than 20,000 coronavirus cases have been confirmed worldwide—an eight-fold increase over the last week—and experts say hundreds of thousands may not yet have been diagnosed. Two dozen or so countries have reported cases, and many have restricted travel from China to limit the contagion. Companies are evacuating employees from China.
U.S. manufacturers such as Ford, Apple and Tesla have temporarily halted production. One-sixth of Apple sales and nearly half of chip-maker Qualcomm’s revenues come from China. So do 80% of active ingredients used by drug-makers to produce finished medicines. Because China is the world’s largest manufacturer and an enormous consumer market, the economic freeze will disrupt supply chains and reduce corporate earnings.
China’s GDP growth was already almost certainly lower than the official figure of 6%, and it is likely to fall by a third or more.
It’s probably too much to ask Mr. Trump to lift his tariffs on Chinese exports, though it would help. At the very least he could give Beijing more latitude to meet its promise to buy $200 billion more in U.S. products over the next two years. The last thing the President should want when campaigning for re-election is an economic pandemic.
The New York Times reports SARS Stung the Global Economy. The Coronavirus Is a Greater Menace.
Apple, Starbucks and Ikea have temporarily closed stores in China. Shopping malls are deserted, threatening sales of Nike sneakers, Under Armour clothing and McDonald’s hamburgers. Factories making cars for General Motors and Toyota are delaying production as they wait for workers to return from the Lunar New Year holiday, which has been extended by the government to halt the spread of the virus. International airlines, including American, Delta, United, Lufthansa and British Airways, have canceled flights to China.
Companies Warn On Impact
MarketWatch discusses the Earnings Impact.
- Wynn Resorts Ltd. has among the highest China exposure, as the company derived about 75% of total revenue from Macau over the last 12 months, according to estimates based on FactSet’s proprietary algorithm.
- Sony Corp. CFO Hiroki Totoki, said the fallout from the coronavirus slowdown on the company’s manufacturing, sales and supply chain operations could wipe out its revised guidance for 2019.
- BP said current demand for the year is between 300,000 and 500,000 barrels a day, not the 1.2 million it had anticipated for the year. “There is no question coronavirus, I suspect, will impact demand this year,” a BP executive told investors.
- Jewelry retailer Pandora said it’s already struggling in China in 2020 but the virus is presenting other threats. “China is currently also challenged by the coronavirus that have left streets empty and forced store closures,” Pandora CEO Alexander Laxik said. “China is the biggest jewelry market in the world and we’re not going to walk away from this.”
- Royal Caribbean Cruises Ltd. estimated that cruise cancellations and itinerary modifications as a result of the coronavirus will have a 25-cents-per-share impact on earnings. The company has already canceled eight cruises out of China.
Major disruptions include Ford, Apple, Tesla, Qualcomm, Hyundai, Wynn resorts, Sony, BP, Pandora, Royal Caribbean, GM, Toyota, Nike, all the airlines, and many drug makers.
If it’s “Made in China” there will be an economic hit.
This is on top of the Trump-sponsored manufacturing slowdown. Trump’s steel tariffs have started a Rolling Cascade of Downstream Pain
Freight shipments have collapsed: Cass Year-Over-Year Freight Index Sinks to a 12-Year Low
And GDP Internals show business investment contraction: Ignore the Headline, Real GDP is Much Worse Than It Looks
So forget about Trump’s Trade War Ceasefire with China. All that did was halt escalations.
Due to the coronavirus China cannot possibly honor commitments. And it’s highly doubtful they could have or would have anyway.
Mike “Mish” Shedlock