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Fitch Ratings Revises Global Metals & Mining Price Assumptions

Fitch Ratings has revised its metals and mining price assumptions reflecting evolving economic growth expectations and demand and supply dynamics.

Short-term assumptions for copper, aluminium, nickel, zinc, iron ore and hard coking coal have been cut, reflecting lower current prices and increasing uncertainties over short-term demand. At the same time short- and medium-term assumptions for thermal coal have been raised reflecting increased demand due to the energy crisis in Europe.

Our reduced copper assumptions for 2022-2023 reflect a global economic slowdown and expectations of weaker demand in the short term compared with supply prospects, which we anticipate to lead to a small surplus in 2023, although the market is likely to remain tight. We expect small demand increases in China in 2022-2023 due to periodic lockdowns and a decline in the country’s construction sector, while consumption growth in other regions is only marginally higher than that in China. Nevertheless, medium-term prospects remain solid due to the energy transition accounting for 50% of growth in global copper demand anticipated over the next five years. Our medium- and long-term assumptions therefore remain unchanged.

We have cut the 2022 iron ore and coking coal price assumptions reflecting ytd pricing on lower steel demand, particularly in China, which leads to steel production curtailments and lower demand for steelmaking inputs, falling steel producers’ margins and build-up of iron ore inventories. At the same time, met coal supply has improved as Australian production recovered and Russian producers redirected some of their output from Europe to Asia. However, the market prices for met coal have bottomed out, while some hard coking coal producers started diverting sales to the thermal coal market, which benefits from high demand and pricing. However, our medium- and long-term views of the iron ore and met coal markets remain unchanged.

The lowered aluminium assumptions for 2022-2023 reflect changing market sentiments that lead to reduced prices in the short term, while market fundamentals and our longer-term assumptions are unchanged. Lower demand, particularly due to weaknesses of the Chinese construction market, will weigh on aluminium prices in the short term. However, rising energy prices could turn production in many markets loss-making, leading to curtailment and shoring up prices from further decline.

We have reduced zinc assumptions for 2022-2023 as inflationary and recessionary pressures and energy issues weigh on demand, while mine production remains flat, leading to market surpluses in the short term. However, price-elastic supply should support market rebalancing in the medium term.

All gold price assumptions remain unchanged, reflecting the metal’s ‘safe haven’ investment status amid high geopolitical instability and inflationary pressures. The market price has been moderating during most of 2022 in line with our expectations of interest-rate hikes, while the strong US dollar will continue pushing the price down. We expect gold prices to moderate in the longer term once geopolitical risks abate and as the interest-rate hiking cycle continues.

Our increased 2022-2025 assumptions for both thermal coal price benchmarks reflect strong demand, particularly from China, against the backdrop of higher energy prices, particular high European gas prices, leading to increased reliance on coal-powered energy generation. The increased price assumptions for 2024-2025 also incorporate higher coal mining costs and limited expected new capacity in the main producing countries. However, our long-term assumptions remain unchanged as consumption in China should gradually decline.

We have cut our nickel price assumption for 2022 reflecting subdued demand from the stainless steel sector, while production levels remain healthy, particularly in Russia and Indonesia. However, long-term demand from electric vehicle production should support longer-term prices.
Source: Fitch Ratings

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