With fatalities from the Ebola outbreak at least 932 now the US Centers for Disease Control and Prevention (CDC) on Wednesday issued its highest alert for an all-hands on deck response to the Ebola crisis in West Africa. This is the first time since 2009 that the Level 1 alert had been issued, at the time it was in response to the outbreak of H1N1 flu. After spreading through many West African countries today brought the news of the first person to die in Nigeria as well as a number of people infected (see reports).
The West African region is host to a number of key commodity exporters. Ivory Coast and Ghana being the two largest cocoa exporters and Nigeria a significant OPEC oil producer and exporter. Other exports from the region include a range of agricultural commodities (mango, pineapple, groundnuts, cotton etc.) and to a far lesser extent metals (copper, gold) and diamonds.
Most mining companies in the worst affected areas (Guinea, Sierra Leone and Liberia) report that mine, port and rail operations are unaffected so far, although various precautions have been taken, including frequent medical checks, the imposition of travel restrictions and the evacuation of non-essential staff. Mineral exports, including iron ore and diamonds, are increasingly likely to face disruption if mining companies place local workers on leave. Given the regions relatively small proportion of overall supply of metals and minerals even sustained disruption is unlikely to have a significant effect on prices.
An outbreak in Nigeria could have implications for its oil and gas sector. However, like the small scale oil operations in other countries in the region that are infected the energy industry in Nigeria is likely to be largely insulated from any outbreak. Foreign oil companies will evacuate non essential personnel but given the relatively low labour intensity of the industry and the large off-shore production off the coast of Nigeria, the impact on production and exports is likely to be minimal.
Perhaps the biggest concern from a commodity supply point of view is cocoa production and exports. Although only a small supplier (estimated at 10,000 tonnes) the Ebola outbreak is forcing farmers and their families to flee cocoa plantations in Sierra Leone. Already international buyers of cocoa have refused to visit the producing regions to buy seed. What if a similar outbreak occurred in the Ivory Coast, the largest cocoa producer in the world with an output of 1.6 million tonnes? Already cocoa prices have risen by 19% this year due to strong demand and poor weather adversely affecting supply.
Perhaps the biggest potential impact on commodity prices is for a demand side impact. So far the only impact has been the negative impact on the worst affected economies and the cancellation of a number of airline carriers’ routes to affected regions. The bigger worry is the affect that a wider outbreak could have on confidence, particularly in air travel and the knock on effect this could have on demand for oil.