Fitch Ratings Raises Global Metals and Mining Price Assumptions

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-tern 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.

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. Our 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. 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.

We have increased our aluminium price assumptions for 2022-2023 reflecting high energy prices, which pushed up marginal costs of energy-intensive aluminium production. High energy costs have already led to some production curtailments in Europe, enlarging the forecast global deficit in 2022.

Our increased short and medium-term zinc price assumptions are driven by increased risks of European smelter disruptions due to the Russian crisis and higher energy costs, leading to a larger forecast deficit of refined zinc in 2022. Demand from construction, particularly in the US and other developed markets, will remain solid, while demand from autos will recover once supply-chain issues ease. However, supply is price-elastic and highly fragmented, leading to increased production and curbing prices in the longer term.

Our increased gold price assumptions for 2022-2023 reflect increased demand thanks to gold’s ‘safe haven’ investment status amid the Russia-Ukraine conflict and rising inflationary pressures. Long-term price moderation is unchanged as the interest-rate hiking cycle continues, ultimately increasing the opportunity cost of holding gold and putting pressure on its price.

Our increased 2022 Qinhuangdao 5,500kcal/kg thermal coal price assumption reflects our expectation that supply will remain tight due to potential disruption to Russia’s supply of coal, including buyers turning to other sources due to self-restrictions. Furthermore, Chinese authorities have increased the range for reasonable prices for their long-term contacts, which will influence spot prices in the medium term. We expect prices to subsequently align with earlier long-term assumptions. We have similarly revised our assumptions for the Australia Newcastle 6,000 kcal/kg benchmark.

The increase in nickel price assumptions for 2022-2024 reflects increased supply risks (Russia accounts for about 7% of total nickel production and 15% of class 1 nickel), while demand from battery production remains strong. Long-term supply should increase once new Indonesian facilities come onstream.
Source: Fitch Ratings