Financial Times Europe - 23.03.2020

8 ★ FINANCIAL TIMES Monday23 March 2020

CO M PA N I E S & M A R K E T S

F T R E P O RT E R S

How much damage will Covid-
wreak on the global economy?

In just a few months, coronavirus has bal-
looned into aglobal pandemic, leading
governments to closeborders and lock
downcities. Economists have struggled
to come up with estimates of the eco-
nomic damage but their projections,
such as they are, are becoming grimmer.
According to Ethan Harris, head of
global economics research at Bank of
America, global growth in GDP is set to
drop to zero this year with the US and
Europe sinking into a recession and
China growing at just 1.6 per cent.
At the end of January, Mr Harris’s
team had expected the global economy
to grow 3.1 per cent and China 5.6 per
cent.
Gregory Daco, chief US economist at
Oxford Economics, believes the US isin
recession and will experience a 12 per
cent contraction in output in the second
quarter before bouncing back to end the
year flat. Such an outcome could lead to
about one million job losses, he said.
“Thepandemic will lead to profound,
pervasive and persistent but not perma-
nent reductions in activity,”he said.
Policymakers have rushed to limit the
worst of the economic pain with central
banksannouncing road-based stimu-b
lus programmes and governments com-
mitting to multi-trillion-dollar fiscal ini-
tiatives. But given the uncertainty sur-
rounding just how many people will
become infected and how long busi-
nesses will stay shut, itremains unclear
if these measures will be sufficient.
As Michael Feroli, chief US economist
at JPMorgan, cautioned in a recent note:
“The current environment is one of per-
vasive ‘Knightian uncertainty’ — that is,
an unknown for which we cannot even
quantify the odds of various outcomes.”
Colby Smith

How quickly can China rebound

from its outbreak?

As the pandemic has moved from China
to Europe, some analysts have taken
heart in apparent progress made by
Beijing in containing the virus.
But the coming week is unlikely to
lend much comfort to investors hoping
the worst hasalready passed.
After apoor performance in 2019,
heavy industry in Chinalooks set for its
worst start to a year since the global

financial crisis. Industrial profits data for January and February, due to be released on Friday, will provideinsights into the depth of the nation’s economic gloom. Industrial output fell by 13.5 per cent in January-February from the same period a year earlier, which was the weakest reading on record. Profits atbig industrial firms were already on a downward spiral thanks to theUS-China trade war, dropping 6. per cent year on year in December, which helped drag profits for Chinese industry during2019 down 3.3 per cent. While industrial profits data may con- firm what many reasonably suspect was a terrible start to 2020, more frequently updated data do not provide much to cheer. TheFT’s own hina Economic Activ-C ity index — a weighted measure of six daily data series tracking the country’s economic recovery — has stalled at

about 60 per cent of pre-outbreak levels in recent weeks. Western investors banking on a quick recovery in Europe and the US may therefore want to think twice about buying the dip based on China’s recovery story. udson LockettH

What next for the Bank of England after rate cuts? Bank of England policymakers were una- ble to wait until a scheduled meeting this Thursday, instead announcing another interest rate cut ast week that took tl he UK’s key benchmark to 0.1 per cent. But this week’s meeting could still give clues to the central bank’s next steps. RBC Capital Markets strategistssay that, for now, the BoE is not likely to attempt to support the economyby pushing rates into negative territory. But while governor Andrew Bailey has said he is not a fan of negative

rates, he has not ruled out the option. Mr Bailey said last Thursday — a day afteroffering nlimited support to bigu companies through a new commercial paper facility — that the situation was “absolutely unprecedented” and that the government bond market was “bordering on disorderly”. Rates on gilts were swinging wildly and the pound appeared to be infreefall as investors sought to flee UK assets. Financial market turmoil couldforce theBoE into more unconventional areas, akin to the European Central Bank’s long-running negative rates policy. On Friday, sterling clawed backmore than 2 per cent against the dollar but it remained below $1.18, down more than 10 per cent over the previous fortnight. “Unless markets calm down, $1. can no longer be ruled out,” said Petr Krpata, a currency strategist at ING Bank in London.Eva Szalay

Market Questions. andemic falloutP

Global economic forecasts grim as China rebound

remains distant and BoE looks at negative rates

The US, which partially closed its border with Mexico on Friday in an effort to control the spread of coronavirus, is set to sink into a recession as a result of the pandemic Guillermo Arias/AFP/Getty

R I C H A R D M I L N E N O R D I C A N D B A LT I C C O R R E S P O N D E N T

Dozens of Nordic funds have suspended trading, blocking investors from pulling out in a reflection of the intense strain n high-yield corporatei debt markets during the coronavirus crisis and the challenge to funds in meeting redemption requests.

Danske Invest, the asset management arm of Denmark’s biggest lender, had 15 Danish funds suspended on Friday, most of them in high-yield bonds. Carnegie Fonder in Sweden gated 12 funds on Friday, mostly in corporate bonds, while Forte Kreditt, a Norwegian high-yield fund, was suspended all of last week. Other fund managers such as Spiltan, Cicero and Danske in Sweden and Jyske in Denmark all suspended funds last week. The moves come at a time of growing concerns thatfunds around the world will struggle to operate duringunprece- dented market pressure, trapping investors in lossmaking vehicles. “I get messages from people that are desperate,” said Peter Warren, aNorwe- gian private investor and expert on the local high-yield market. “They got advice from their private banker or fund manager that these were safe and they can’t believe they’re now down 20 per cent and they still can’t get out.” Regulators have grown nervous that

huge drops in the price of corporate debt and severe challenges in determining the market price of some corporate bonds make it hard for fund managers to produce a reliable measure of how much money their clients have lost or to fulfil requests to pull money out. The issue is not specific to the Nordics — several UK property fundshave taken a similar step due to difficulties in determining reliable prices for their underly- ing assets. “We understand that this can create inconvenience for those who planned to trade in the funds in those days,” Hans Hedstrom, chief executive of Carnegie Fonder, said on Saturday. “For us as a fund manager, this is a very regrettable decision but to act differently would be irresponsible.” Carnegie is hoping to reopen funds on Monday. Other local fund managers and industry bodies agreed that the suspensions were the best way to protect investors from the wild swings in the market. “Suspension is a temporary measure to protect investors in a situation where it is not possible to find a fair and accu- rate price of the fund,” said Birgitte Sogaard Holm, executive director of investments and savings at Finance Denmark, an industry body. Forte, a fund manager in Trondheim in central Norway, told its investors that it had been “very difficult” to trade the securities in its credit fund. Some are hoping that central banks will be able to offer some support by buying corporate bonds. The Riksbank, Sweden’s central bank,said on Thurs- day hat it would add corporate debt tot its bond-buying programme.

Financials

Nordic funds

shut gates to

avoid flood of

redemptions

‘For us as a fund manager,

this is very regrettable but to act differently

would be irresponsible’

JA M I E S M Y T H —SY D N E Y

The grounding of up to 80,000 aircraft
due to coronavirushas created a busi-
ness opportunity for remote desert air-
craft storage facilities, which are scram-
bling to meet a surge in demand.
This week Delta Air Lines began park-
ing planes at Pinal Airpark in Arizona
and American Airlines is diverting its
fleet to several locations, including the
Roswell International Air Center in New

Mexico — a former US military base that is now one of the world’s largest aircraft boneyards and storage facilities. In the Asia-Pacific region, Alliance Airlines, a Brisbane-based carrier, will this week beginparking lanes at Alicep Springs airportin the heart ofcentral Australia. “My phone hasn’t stopped ringing. Demand has exploded,” said Tom Vin- cent, founder ofAsia Pacific Aircraft Storage, which has secured funding to expand its 110-hectare site next to Alice Springs airport. “We are moving things around a bit on site so we can take at least 30 aircraft but we have the go ahead to start an expan-

sion before the end of the month so we can accommodate 70-80 planes.” Alliance will store six planesat the site, which at present hosts 10 planes, including several Boeing 737 Max aircraft that were grounded in March 2019. Mr Vincent said he was in talks with othercarriers over storage options. Airlines park planes in the desert when they think they will not be brought back into operation for at least three months. A lack of humidity, con- densation and salt in the atmosphere reduces the risk of corrosion. “The dry air is kind to the stored aircraft. Also, it’s cheaper than most airports,” said Peter Harbison, chairman of CAPA — Centre

for Aviation, an industry group. He added the coronavirus could ground 80 per cent of the world’s fleet,or about 60,000 jet aircraft. Europe has storage facilities in the UK, Spain and southern France but no desert facilities. For the moment, carri- ers are mainly parking planes at airports. The US has the world’s biggest

desert facilities. Delta airlines told the Financial Times it was planning to park about 600 aircraft as a result of theglo- bal pandemic. At least 20 Delta aircraft have already arrived at Pinal Airpark, a 200-hectare desert facility run by Ascent Aviation Services.“We have almost doubled to 200 aircraft over about two months,” says Scott Butler, Ascent’s chief commercial officer. It costs up to $30,000 to park a plane in the desert with additional fees depending on the type of upkeep programme required by the carrier. Additional reporting by Joe Miller in Frank- furt and David Keohane in Paris

Support services

Demand surges for plane storage facilities

Desert sites with dry air

reduce corrosion risk and

are cheaper than airports

‘My phone hasn’t

stopped ringing. Demand has exploded’

Tom Vincent

FastFT Our global team gives you the market-moving news and views, 24 hours a day ft.com/fastft

N E I L H U M E
N AT U R A L R E S O U R C E S E D I TO R

Fears of reduced supplies of key com-
modities are building as drastic meas-
ures to containthe spread of coronavi-
rus ffect operations at mines acrossa
the globe.

Over the past week, some of the world’s
biggest mining groups have announced
delays to production and development
projects because of travel and other
restrictions imposed in the battle
against the deadly global pandemic.
In Peru, which accounts for 12 per
cent of global copper production, a
15-day national quarantine has brought
its mining industry almost to a stand-
still, while Codelco, the world’s biggest
producer of the metal, has reduced
operations in Chile.
Analysts said reduced supplies could
become a problem when demand in
China and other parts of the world starts
to recover.
“As the number of operations
announcing restrictions to production
increases, so does the risk to supply for a
number of key commodities, which we

think hasn’t been properly priced in by markets,” said Edward Sterck, analyst at BMO Capital Markets. Concern is now focusing on emoter mines that are staffed by workers who often live thousands of kilometres away in big cities and fly in for shifts that typi- cally last one or two weeks.

Last week, Brazilian miner Vale announced operations at its Voisey’s Bay nickel mine on Canada’s east oastc would cease for a month as a precaution to protect the health of local residents. “Although none of our employees has tested positive for coronavirus at any of Vale’s global operations, Vale has taken this preventive action because of the unique remoteness of that area, with fly-in and fly-out operations,” Vale said. Australia’s Newcrest Mining has suspended fly-in, fly-out operations at its

Lihir Gold mine in Papua New Guinea. Iron ore, the key ingredient in steel- making, is one of the commodities at the greatest risk of disruption, according to analysts. Around 60 per cent of the world’s seaborne iron ore isproduced in the Pilbara, a remote part of Western Australia that is a two-hour flight from the state capital of Perth. “We believe that operations at the greatest risk of disruption are likely those that have a higher dependency on mobile [fly in, fly out] workforces or use local labour but are significantly reliant on [fly in, fly out] employees or contractors for higher skilled roles,” said Mr Sterck. Yesterday the Australian government advised against non-essential domestic travel. Qantas and Virgin have already reduced domestic flights which may impact on the availability of employees, the Minerals Council of Australia has warned. Remote mines are not the onlyopera- tions at risk from transport disruptions. Global travel bans could make it difficult for contractors to visit sites and repairprocessing equipment or plants.

Basic resources

Mining output hit by virus travel curbs

‘Operations at the greatest

risk are likely those that have a higher dependency

on mobile workforces’

N E I L H U M E N AT U R A L R E S O U R C E S E D I TO R

A former Rio Tinto employee who claims the global mining groupwas aware of problems t a key coppera project months before they were disclosed to investors has referred his allegations to financial regulators.

Richard Bowley said he had decided to report his concerns to authorities in the UK, US, Australia and Mongolia after his case for unfair dismissal was postponed because ofcoronavirus. He has also informed the UK’s Serious Fraud Office. “The powers of the regulators to seek full discovery will bring the full extent of the wrongdoing that has occurred to the attention of the authorities, investors and the government of Mongolia,” Mr Bowley said in a statement. The $5.3bn underground expansion of Oyu Tolgoi, acopper mine in Mongo- lia’s Gobi desert, is one of Rio’smost important growth projects nd willa increase its production of copper,as the shift to renewable energy drives demand for the metal for use in electric vehicles and wind turbines.

But the project has suffered etbacks.s In July 2019, Rio said the expansion was running 16 to 30 months behind schedule nd would cost $1.2bn-$1.9bn morea than originally forecast. Rio said ground conditions had been more challenging than expected and it would need to revise its plans. A final cost estimate and schedule is due to be announcedthis year. Mr Bowley, who worked for Rio’s copper business between 2017 and 2019 as head of strategic projects in Mongolia, claims he first alerted senior executives to problems with the project in Febru- ary 2018. According to Mr Bowley, he continued to express his concerns to senior executives until he was dismissed in March 2019 after making whistleblowing dis- closures. “I indicated [delay] to the schedule in the early part of 2018, which would lead to serious risk related to capital required to complete the project. This risk only grew throughout 2018, but was not disclosed to investors,” he said in the statement. “Clear evidence exists through the project reporting, email

correspondence and other documents [that] Rio Tinto were fully aware of the delays to the project and the effects these would cause.” Rio Tinto said it had “consistently complied with its disclosure obligations in relation to the Oyu Tolgoi underground development and any claim oth- erwise is completely misleading”. It added: “When Mr Bowley put these claims to Rio Tinto, we instructed Baker McKenzie to independently review the allegations, including that Rio Tinto had misled the market regarding cost over- runs and delays, and the claims were found to be unsubstantiated.” Mr Bowley said he would continue to pursue his unfair dismissal case in a UK Employment Tribunal. In court documents seen by the FT, Rio argued a UK Employment Tribunal did not have jurisdiction to consider Mr Bowley’s claim because he was based in Mongolia and employed by its Singa- pore business unit. Rio is also fighting civil fraud charges in the US over the timing of market dis- closures relating to a coal investment in Mozambique.

Mining

Ex-Rio worker takes concerns to regulators

MARCH 23 2020 Section:Companies Time: 3/202022/ - 18:19 User: jon.wright Page Name:CONEWS3, Part,Page,Edition:USA , 8, 1

Financial Times Europe - 23.03.2020

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