Swine flu fears spill beyond grains, across China commodities

Fears of a widening swine flu epidemic have rattled commodities markets beyond agriculture futures, as investors already skittish due to doubts about prospects for a quick economic recovery consider the potential financial toll of the disease.

"There's definitely a link between swine flu and what's happening in the metal markets today," said Gao Yanrong, futures analyst for Dalu Futures in Shanghai. "If the outbreak gets any more serious, it would have a large effect on global finances."

On the pessimistic end of the scale, the swine flu epidemic could cost the global economy more than US$3 trillion in lost output and cut 5 percent off global growth, Gao said, citing World Bank figures last year on the potential effects of a flu pandemic.

In a market already souring after a growth spurt, swine flu is adding "fuel to the fire," Gao said.

"The combination of a realization that there will be no quick recovery in the global economy, despite the recent rebounds in equities and commodities, plus new concerns about another potential pandemic with outbreaks of swine flu in Mexico, are rattling the markets," William Adams, analyst for BaseMetals.com, said Monday.

Copper futures posted losses for a sixth consecutive session Monday on the Shanghai Futures Exchange, taking aluminum and zinc contracts down as well.

Agricultural futures fell sharply on Dalian Commodity Exchange, with soy, soymeal and palm oil futures falling to their 5 percent lower limit in the morning session.

The benchmark soy contract eventually settled down 4 percent, and the rest of the agricultural complex on Dalian followed the beans south.

Swine flu cases have not been reported in China yet.

But along with some other Asian nations Monday, China banned imports of both hogs and pork from Mexico and the southern US states of Texas and Kansas, adding an extra layer of security despite assurances that consumption of meat isn't a source of infection.

Still, some analysts urged circumspection in tying swine flu to the wider financial markets outlook.

"Agricultural futures are more affected, and where there's a link to metals, it's only in investor sentiment, not fundamentals," said Liu Biyuan, of GF Futures.

Declines in metal prices Monday could be coincidental, Liu said.

Analysts in China, Asia's biggest pork consumer, said the outbreak will have limited impact on pork consumption as long as the new virus hasn't been detected on the mainland.

But the latest epidemic is a reminder for the Chinese of the avian flu outbreak in 2004, Gao said.

Investors are likely to watch closely to see whether the outbreak escalates, he said.