Greater govt involvement, sustainability in mining sector expected in 2021: Fitch Solutions

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Photo courtesy: Rio Tinto

As mineral and metal prices, production and consumption improve this year amid a broader and deeper economic recovery from the pandemic, the outlook for miners and metal players is positive, says research agency Fitch Solutions.

It notes that this year will see a mix of traditional trends playing out and the acceleration of some relatively new drivers for the industry, such as growing recognition of the need for tech integration and sustainability policies.

“The sustainability trend will continue to gain significant momentum in 2021, with stricter government regulations on the horizon and environmental, social and governance (ESG) investment becoming mainstream,” says Fitch commodities analysis head Aurelia Britsch.

The decarbonisation of the mining and metals sector will, therefore, become increasingly top of mind, while the shifts in the thermal coal sector will likely hasten.

Fitch also expects mining capital expenditure to recover this year, driven by the largest players, but financial restraint will remain the norm and mid-tier and junior miners will struggle to expand investment.

Technology adoption to boost efficiency and sustainability − investment in renewables in particular − will be key pillars of investment for miners.

In the background, political risks related to the mining sector will remain prevalent, and Fitch expects a rise in resource nationalism amid the race to access critical and strategic minerals for the green and digital economy, including lithium, cobalt, copper, nickel and rare earths, and as domestic political risk rises in the post-Covid-19 world.

Growing inequalities and larger fiscal deficits following the pandemic mean that risks of government intervention will be high this year.

In terms of commodity prices, Britsch is confident that metal prices will average higher this year than in 2020, on a year-on-year average basis, owing to Covid-19 recovery in many parts of the world.

The agency expects gold to average $ 1 850 per ounce, copper to average $ 6,300 per tonne and nickel to average $ 15 000 a tonne, while iron-ore may lag behind at $ 90 a tonne, down from its average price of $100/t.

Copper is currently trading at its highest level since 2013, despite being the commodity most impacted on by Covid-19 disruptions in 2020.

Britsch points out that the gold price is losing steam after two years of exceptionally strong performance, but says it nonetheless remains high. Moreover, Fitch expects an uptick in government intervention and resource nationalism amid the race to access critical and strategic minerals for the green and digital economy, and as domestic political risk rises in the post-Covid-19 world.

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