In its latest global industry overview, Fitch analysts maintain a bearish outlook on metal prices as trade tensions and a weak demand outlook remain “firmly in place.”
Fitch says among key themes for 2020 are ongoing macroeconomic risks and weak demand, which will keep prices suppressed over the year. The firm forecasts prices for most metals to weaken, as macro risks feed into poor sentiment for commodities.
The ongoing trade dispute is having a tangible impact on economic growth and demand for metals in key consumer China, leading to a loosening of fundamentals which Fitch analysts believe will materialise further in 2020. (Since the report was released, Phase 1 of a trade deal between China and the US was reached.)
With an increasing focus on sustainability among investors and host governments, Fitch expects miners will accelerate the shift to more environmentally sustainable business practices, which will work to counter greater social and regulatory pressure as well as to gain an advantage over lagging competitors.
Fitch expects capital restraint among miners to continue amidst the subdued price environment across metals, and maintains a subdued price environment will place pressure on miners’ profitability and inhibit miners’ appetite to significantly expand capital expenditures over the year, despite a lower interest rate environment.
On a more positive note, Fitch analysts expect more mergers and acquisitions (M&A) in the gold mining space in 2020, especially among mid-tier producers, following on from major deals announced in 2018 and 2019. Consolidation and risk sharing is forecast to continue despite the operating environment for gold miners being at its most positive since the 2012-2013 gold price collapse.
Demand for lithium and cobalt is set to improve next year following a disappointing 2019, as low prices attract purchases from EV battery manufacturers and Chinese EV sales hold strong.
Fitch expects to see minor growth in capital expenditure in 2020, but says growth will remain subdues due to a neutral-bearish short-term price outlook.