Moody’s revises global outlook for base metals to stable from negative

Moody’s has changed the outlook for the global base metals industry to stable from negative, as demand has improved following the early recovery and reopening of the Chinese economy.

The world’s No. 2 economy accounts for half of the world’s production of copper, aluminium and other base metals and remains an important consumer as well across the metals complex.

“The stable outlook for the global base metals industry reflects improvement primarily in the Chinese economy in the wake of pandemic-related business disruptions,” said Carol Cowan, a Moody’s
Senior Vice President.

“Recovery may however be uneven based on supply-demand fundamentals
for each respective metal and on the health of its end markets.”

Prices for base metals are off bottom, with higher prices evident particularly in the third quarter of this year on improved demand Cowan says. Prices of most base metals saw a robust recovery in September, though has faced volatility again in October.

Moody’s said that absent a broader economic recovery, prices are likely to remain around current levels. 

Copper demand up

Demand for copper, one of the most actively traded base metals, has rebounded strongly, but upward price movement could still be tempered by restarts of capacity idled or curtailed during the pandemic or production increases from mine expansion, the ratings agency said.

At the same time, purchasing manager indexes (PMIs) in major consuming regions have risen from the lows seen in the first four months of this year and point to expansion, particularly as the automotive and manufacturing industries pick up, while building construction remains relatively resilient. 

Moody’s Macroeconomic Board forecasts 5.3% GDP growth for G-20 economies next year, while many regions that are important to metal consumption will follow a similar pattern, with the exception of China,
which will see GDP grow by 1.9% in 2020 and by 7.0% in 2021.

The need for investment in new mines, increasing political risk and resource nationalism, and rising environmental risks will be key themes for the base metals industry in the future, Moody’s said.

The industry has elevated exposure to environmental issues such as emissions, water shortages and soil and waste pollution, leading companies to implement new technologies including autonomous vehicles and robots.

New market opportunities will emerge over the medium to longer term, however, with demand for battery electric vehicles, for example, benefiting producers of nickel, copper and aluminium.

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