Fitch Ratings has raised its metals and mining price assumptions, reflecting increased post-pandemic demand, tight markets and short-term supply disruptions, particularly due to the Russia-Ukraine conflict. Some commodities also benefit from increased longer-term demand due to their role in global decarbonisation.
“Copper is the only commodity where we increased our long-term assumptions due its use in electrification. The revised short-term prices reflect very low global stocks, a balanced market, and current and potential supply disruptions, particularly due to due water stress in Chile and socio-political protests in Peru. Proposed new laws in Chile and Peru to introduce higher industry taxes could slow investments in copper mining, limiting supply in the medium and long term. Russia accounts for 4% of both mined and refined copper, so the Ukraine conflict and related sanctions may affect availability,” Fitch Ratings said in a report.
The increased iron ore price for 2022 reflects healthy demand, boosted by extended Chinese government support to infrastructure, and lower production earlier this year due to heavier-than-usual rains in Brazil, exacerbated by implications of the Russian-Ukraine conflict on iron ore exports, it said, adding that their assumptions for other periods are unchanged.
The revised metallurgical (met) coal price assumption for 2022 reflects supply risks due to the Russian crisis. Russian supply covers 16% of global and 23% of European demand, and many buyers have reportedly suspended Russian imports.
Market supply leading up to the conflict was already tight due to disruption to Mongolian railway exports and the rainy season in Australia, Fitch Ratings said, adding that these constraints should ease throughout 2022. We expect global seaborne exports to rise in 2022 despite Russian supply disruptions.
“Global met coal demand should peak by 2023, leading to a reversal in prices, driven by shifting supply-demand dynamics that will lead to a market surplus,” it pointed out.