Wood Mackenzie predicts 2022 to be a year of rebalancing for metals and mining industry

If 2021 was the year of rebound for metals and mining (M&M) commodities, then 2022 is shaping as the year of rebalance, predicts global commodity research firm, Wood Mackenzie,

Wood Mackenzie vice chair Julian Kettle said: “The most likely outcome is an environment where commodity prices can settle from the extraordinary highs of 2021. But there are plenty of risks to this outlook. The pandemic’s tendrils continue to ensnare markets for all mined commodities.”

Much of the evidence points to a year of lower demand growth. Government stimulus could wane, while fiscal and monetary policy will tighten. 2022 should be a year when supply chains refill and start to better meet the needs of consumers.

But there is plenty of uncertainty. With lockdowns out of favour in most places, the demand risks from new variants may be usurped by supply and logistics impacts, as workers isolate or refuse to vaccinate. Stimulus could be prolonged too, as governments, and central banks, fret more about the impact on growth than the looming inflation risk. China’s economy-versus-emissions dilemma will be critical to metals and mining markets.

Mine supply shortages and logistics constraints will remain a feature across the industry in 2022. The European and Chinese energy crises are unsolved, directly affecting coal prices, and keeping input costs higher across all products, particularly the energy-hungry base metals. Logistics bottlenecks, container and chip shortages, plus some unhelpful trade policies, will also keep regional price differentials and product premia skewed.

With COP26 fresh in the memory, and COP27 already looming, miners can expect mounting pressure to meaningfully align with a 1.5-degree warming scenario. Calls for comprehensive net zero plans, and more sophisticated disclosure, will increase this year as investors seek to rank assets on ESG metrics. Cost inflation was a global phenomenon in 2021, and for the second year in a row will continue to affect most miners and smelter-refiners. Wood Mackenzie’s 2022 mine estimates include modest cost rises in 2022 but the risk is to the upside. Labour, fuel and electricity costs remain elevated as supply struggles. Mine labour costs, in particular, could gather momentum due to a combination of lockdowns, sickness and worker movement restrictions that are exacerbated by vaccine mandates.

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