RECAST - REVIEW - Coronavirus Epidemic Takes Huge Toll On Businesses In China, Abroad

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RECAST - REVIEW - Coronavirus Epidemic Takes Huge Toll on Businesses in China, Abroad

MOSCOW (UrduPoint News / Sputnik - 22nd February, 2020) The deadly outbreak of the novel coronavirus, which has since been designated by the World Health Organization as the Coronavirus Disease, or COVID-19, has already taken its toll on many Chinese and global businesses, from transportation to luxury goods, with top managers and industry experts uncertain about what the final impact will look like.

The transportation and tourism sectors are expected to suffer biggest losses due to COVID-19 as airlines around the world continue to suspend their flights to China.

Global airline revenues are likely to plunge $29.3 billion in 2020, the International Air Transport Association (IATA) said on Thursday.

"Carriers outside Asia-Pacific are forecast to bear a revenue loss of $1.5 billion, assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to $29.3 billion (5% lower passenger revenues compared to what IATA forecast in December) and represent a 4.7% hit to global demand," the IATA said.

Airlines servicing the Asia-Pacific region will absorb most of the impact, with an expected revenue loss of $27.8 billion, it added.

Between January 20 and February 13, Chinese airlines canceled some 78,000 flights and returned about 13 million tickets, while their passenger traffic more than halved year-on-year, the deputy head of the country's state property control and management committee, Ren Hongbin, said.

Non-passenger transportation has also felt the consequences of the outbreak, experiencing delays due to the extension of the Chinese New Year holidays and emergency measures introduced to stop the disease from spreading.

"A closure of the world's manufacturing hub impacts container shipping at large, as it is a vital facilitator of the intra-Asian and global supply chains. This will affect many industries and limit demand for containerized goods transport," Peter Sand, chief shipping analyst at BIMCO, an international shipping association, told CNN Business on Thursday.

The world's largest container operator, Denmark's Maersk, expected lower freight rates due to dropping demand for containerized goods transportation.

"It is still early days to measure the overall impact, however, the weekly container vessel calls at key Chinese ports were significantly down compared last year during the last weeks of January and the first weeks of February," Maersk, which handles every fifth container globally, said in its 2019 annual report.

The tourism businesses in China and many neighboring Asian countries already have to deal with the outbreak's impact. Chinese tourists, who made 150 million trips abroad last year, will likely have to stay at home in the near future, forcibly or voluntarily.

According to estimates by the London-based think-tank Economist Intelligence Unit (EIU), global tourism should expect $80 billion in losses because of COVID-19, while Chinese outbound tourism will not return to pre-outbreak levels until the second quarter of 2021.

CONSUMER GOODS HIT AT SUPPLY CHAIN

Production and shipping disruptions pose risks for supply chains of many consumer goods, but electronics and car manufacturers may suffer more due to the complexity of their products and, consequently, the large number of component suppliers.

Apple, which heavily relies on Chinese manufacturing capacities, said in a February 17 update to its quarterly guidance that the coronavirus would hit the company's business harder than it had expected, even in late January.

"Worldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province and while all of these facilities have reopened they are ramping up more slowly than we had anticipated," the company said.

The iPhone-manufacturing plants of Apple's contractors, Foxconn and Pegatron, are located in Zhengzhou and near Shanghai, respectively, both over 300 miles from the epidemic's epicenter in the city of Wuhan, but the many facilities that supply components for Apple products are located across the country and employ several million people.

Also on Monday, Taiwan-based tech market researcher TrendForce lowered its first-quarter global shipment forecasts for cars and all main categories of consumer electronics, from smartphones to video game consoles, by millions of units due to coronavirus-related supply chain disruptions.

According to TrendForce, the 5G telecommunications company, which needs high-speed cables for its base stations, may have to slow down its development, since the quarantined Wuhan is home to quarter of the global optical fiber production capacity.

Many international automakers extended the Chinese New Year holidays at their Chinese plants, but the impact was seen in other countries as well. In early February, South Korea's Hyundai and Kia, as well as their Japanese competitor Nissan, suspended production on some of their assembly lines due to a shortage of Chinese parts.

Because of the shipment disruptions, some companies, like the UK's biggest carmaker, Jaguar Land Rover (JRL), have to use unconventional delivery methods.

"We have flown parts in suitcases from China to the UK just to make sure that we have got the right parts," JLR CEO Ralf Speth, said early this week, as quoted by the Financial Times.

The company was already missing 38 key components last week, and its UK-based plants are at risk of suspending production, Speth said.

The COVID-19 epidemic has also caused a slump in the sale of luxury good in China despite the Chinese New Year holidays, which were celebrated from January 25 to February 8 this year and usually ensure robust demand, Sergey Ivanov, CEO of Russian diamond miner Alrosa, said.

"The impact [is] already quite heavy. We understand that our clients are very cautious about what is happening, and they are also evaluating their strategies for the Asian market for the second quarter," Ivanov said on February 10, as quoted by the diamond industry's news agency Rapaport.

Pauline Brown, former head of North American division of LVMH, the world's largest luxury brand holding, called the situation a "disaster" for virtually every company in the sector.

"The problem with luxury is that if you don't buy it in a given quarter, it's not like you come back and all of a sudden there's excess demand the next quarter, so you're not going to get the sales back," Brown said in an interview with Yahoo Finance.

The UK-based luxury retailer Burberry closed 24 of its 64 stores in mainland China and reduced working hours of those remaining due to an 80 percent drop in the number of buyers.

"The outbreak of the coronavirus in Mainland China is having a material negative effect on luxury demand. While we cannot currently predict how long this situation will last, we remain confident in our strategy," Burberry Group CEO Marco Gobbetti said.

MINERS EXPECT DELAYED IMPACT, GOLD FLOURISHES

BHP, the world's largest miner, which profits largely from selling Australian iron ore to China's huge steelmaking industry, said it saw the outbreak as one of the main uncertainties affecting the commodities markets.

"If the impact of Covid-19 lingers, and construction and manufacturing have not been able to return to regular operation in April, then we expect to revise our annual forecast lower," BHP said in its report.

China, which produced nearly 1 billion tonnes of crude steel last year, which is over 53 percent of global output, consumes more than two-thirds of the seaborne trade of iron ore, the main steelmaking ingredient.

Industry veteran Mark Cutifani, CEO of diversified miner Anglo American, was optimistic about the recovery of Chinese demand but noted that his company was not very exposed to China due to a lower portfolio share and higher quality of iron ore.

"Obviously, China's growth will be impacted, probably in the first half, but we do expect it to recover very quickly and it should be business as usual," Cutifani told Bloomberg tv on Thursday.

The winning side in the commodities sector are gold miners. The price of the precious metal rallied to a seven-year high of over $1,640 per ounce on Friday.

Chinese citizens who are under mandatory quarantine the minimum time frame is two weeks are meanwhile forced to find ways fill their spare time. Games and educational apps have been the most favored choice, to delight of their creators.

Chinese users downloaded apps from Apple's online store over 222 million times from February 2-8, some 40 percent above last year's weekly average, the Financial Times reported, citing the AppAnnie analytics provider.

The analysts attributed the spike in app popularity to both the quarantine and New Years holidays, as there were no similar spikes registered in neighboring Japan or South Korea.

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