China’s growth rate was 6.1% in 2019, the lowest annual rate for 29 years, and economists said the outbreak was certain to hit growth in the first quarter of 2020.
The prospect of still lower economic growth in China has already hit the ‘‘hard’’ commodities; oil prices have fallen 10% since the outbreak.
Coal and iron ore, commodities directly linked to China’s economic growth, were expected to take a hit, and Australia’s big mining stocks BHP, Rio Tinto and Fortescue fell in response, later bouncing off their lows.
For New Zealand’s ‘‘soft’’ commodities — dairy and meat — the impact was likely to be less direct.
Nevertheless, those stocks with exposure to China — Fonterra, a2 Milk, Comvita, Tourism Holdings — all weakened.
In an update to suppliers on Tuesday night, Silver Fern Farms said its ability to continue processing at some plants during peak production would be affected if the situation continued for an extended period.
Chief executive Simon Limmer said it was a critical time of the season, having feed shortages and dry conditions, and it was doing everything it could to minimise the effect of the coronavirus outbreak.
Congestion at port meant movement of product into China was disrupted, and Silver Fern Farms was having to hold product in New Zealand which had already been produced for China.
That had begun to place significant stress on all cold storage facilities; if the situation continued for an extended period, those stores would become full, affecting the ability to continue processing in some plants.
Silver Fern Farms, which is half-owned by China’s Shanghai Maling, was working with its Chinese partners to monitor the situation daily. It had obtained additional storage space and was working with cold storage partners to secure more storage within its supply chain.
It was also diverting product to other markets.
‘‘While short-term, these markets deliver lower value returns and will unfortunately have an impact on upcoming livestock pricing, it will enable us to maintain our ability to process stock.’’
Beef and lamb products could be diverted, but there were very limited market options for mutton as China was the main global market for it.
Mutton production would be affected from next week, and there would be limited capacity nationally for processing until there was greater clarity about the situation.
Meat Industry Association chief executive Tim Ritchie expected the food service industry would feel the brunt of the outbreak.
Chinese authorities’ clamp-down on people congregating
would have an effect on Chinese hot-pot restaurants, which formed a big part of the success of New Zealand’s sheepmeat trade.
‘‘I hope the authorities get on top of this quickly and stop the contagion,’’ Mr Ritchie said.
China is New Zealand’s biggest market for both sheepmeat and beef.
Some economists had expected the Reserve Bank’s official cash rate (OCR) to level out at the present 1%, but the outbreak could change that.
ASB Bank economists said the New Zealand economy remained well placed, but that the Reserve Bank should remain vigilant.
In the near-term, the coronavirus represented something of a game-changer for financial markets, it said.
‘‘Already, the economic impact on China looks like it will be severe and the virus is far from contained,’’ the bank said.
‘‘Having gone off the idea of more OCR cuts over recent months, the market is now moving to price them back in, with a 25 basis cut close to fully priced in over 2020,’’ it said.
The already soft New Zealand dollar had dropped by about US1c over the past two days as international investors sought out safe haven currencies such as the Japanese yen.
Craigs Investment Partners head of private wealth research Mark Lister said the outbreak had possible flow-on effects for economic growth, tourism and consumer sentiment.
However, the response on sharemarkets here and around the world had to be taken against the background of record high levels last year, he said.
‘‘The market has been very fragile to any bad news.’’
BNZ economist Doug Steel said the lower currency would help to insulate the effects on the export trade to some degree.
‘‘We have got to see how things pan out. You would imagine that the news will get worse before it gets better.’’
— Additionally reported by Jamie Gray of The New Zealand Herald
