Fitch Ratings says raising short-term global metals and mining price assumptions

Many commodity prices have been benefitting from pent-up demand in 2021 and Fitch Ratings said it was increasing most of its short-term metals and mining price assumptions, as it expects stronger pricing sentiment to spill over into early 2022. Long-term assumptions remain unchanged, it added.

“We have increased our copper price assumptions due to exceptionally strong pricing conditions year to date (YTD), supported by low inventories, economic recovery, stimulus packages and expectations of increased medium-term demand due to energy transition. We expect some price correction in 2H21 due to slowing demand, fewer potential supply disruptions and rising mine output. We expect the market to be largely balanced in 2021-2022,” Fitch said in a report.

High iron ore spot prices are driven by strong China’s demand, but Fitch said they expect some price correction later in 2021.

The Chinese government recently raised concerns over growing steel and raw materials prices, which may affect end-markets. Supply has marginally increased in 2021 but the market remains in deficit. China’s government also intends to cut emissions from most polluting industries, including steelmaking. While this has provided short-term support to steel margins and iron ore demand and prices, reduced Chinese steel output could affect long-term demand for iron ore.

“We also expect incremental supply growth from key iron ore producers, which should balance the market in the medium and long term,” the report added.

Demand for aluminium has been supported by the economic recovery and supply restrictions in China, and Fitch said they expect China to remain a net aluminium importer due to its decarbonisation efforts. Fitch has slightly raised our 2023 price assumptions as a result, in addition to increases in 2021 and 2022.

Zinc inventories are running low, supporting short-term prices that are reflected in our new assumptions. Nevertheless, we expect mine supply to catch up with demand in the longer term, Fitch said, adding that modest increases in gold price assumptions reflect stronger prices YTD and the potential for investment opportunities elsewhere as stimulus subsides.

Strong demand from stainless steel still supports our revised short-term nickel prices, which we expect to moderate in the medium term, Fitch said in the report.

Coking coal is the only commodity for which Fitch decreased their short-term price assumptions. “Australian benchmark spot pricing has underperformed our previous assumptions, driven by China’s ban on Australian supplies. However, we expect the market to somewhat normalise as either China will relax the ban or more non-Australian supply will shift to China as contracts expire. Therefore, we have kept price assumptions beyond 2021 unchanged,” it said in the report.

“Our mid-cycle metals and mining price assumptions are not intended as price forecasts. We do not expect any rating changes due to the revised assumptions. Some cost increases and exchange-rate fluctuations, including a weaker US dollar and stronger currencies in many economies with large mining sectors, moderate the positive impact of higher prices on producers’ cash flows. The prices assumptions we use are conservative in nature and typically below consensus levels during periods of rising prices, but remain above market prices during severe market downturns,” Fitch pointed out.

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