Ratings agency Fitch Ratings has revised some of its metals and mining price assumptions in line with what it sees as commodity prices being set to benefit in the short term from returning demand, as well as slow supply response and low inventories.
The agency’s revision of all iron-ore price assumptions – from its previous estimation of $75/t, to its new estimation of $125/t – is the most significant change and is driven by tight market supply, which Fitch expects will continue in the next couple of years, and the absence of material new projects over a long period that could offset depleting mines.
In addition, Fitch highlights that diversified mining major Vale has cut its production guidance for the year, resulting in no supply response to growing demand, despite all other large-scale iron-ore producers operating at almost full capacity.
Nonetheless, Fitch points out that inventories are running low, while the agency expects additional demand linked to US and European economic stimulus packages.
In terms of copper, Fitch has increased its short-term copper price assumption from $6 000/t to $7 200/t, owing to strategic purchases by the China State Reserve Bureau and supply risks this year, including renewals of labour contracts in Chile and Peru, which may result in strikes.
Medium-term prices of copper will be supported by a balanced market and energy transition trends as the commodity is used in electrical charging infrastructure, cabling, electric vehicles, wind generators and transformers.
For zinc, Fitch increased its price assumptions from $2 100/t to $2 500/t, for this year and next owing to growing demand in China. The agency notes that zinc production is price-sensitive and mine supply of concentrates will catch up relatively quickly.
Fitch has also raised its aluminium price assumptions from $1 650/t to $1 950/t, for this year based off of stronger demand recovery in China, particularly from the automotive and solar energy sectors, and re-stocking outside of China, particularly in Europe.
However, the agency expects a production surplus outside of China to persist, causing prices to soften once pent-up demand is satisfied. As such, Fitch Ratings forecast that aluminium prices will recover in the longer term as a result of incremental demand growth.
For this year and next, Fitch has elevated its gold price assumptions from $1 400/oz to $1 600/oz, on the back of increased demand resulting from investment flows and central bank purchases. The agency believes that gold prices will moderate in the medium term to an equilibrium of $1 200/oz.
A forecasted rise in this year’s coking coal price assumption from $130/t to $135/t is the result of robust demand from the steel sector, supported by recovering steel production in India, Japan, South Korea and Europe, as well as rebalanced flows of seaborne coal despite ongoing restrictions on Australian coal imports to China.
Further, Fitch expects coal demand to grow in the medium to long term, notwithstanding final decisions on new projects having been delayed in 2020. The agency notes that this translates into capacity expansions that were due to take place during 2021 to 2023 being delayed until 2024 or 2025.
As such, supply is forecasted to remain tight, supporting medium- and long-term price assumptions.
The upward revision of the 2021 Qinhuangdao 5 500 kcal/kg coal price assumption, from $79/t to $91/t, reflects strong prices at the start of the year, which Fitch Ratings expects to reduce as demand normalises in the rest of the year.
“We expect the price to align with our medium-term price assumption in 2022 owing to growing renewables and increased approvals for greenfield mines.”
In addition, Fitch has lowered the long-term price from $76/t to $74/t, reflecting China's ambition to achieve carbon neutrality by 2060, meaning that carbon emissions, including those from coal consumption, will peak by 2030.
The revision in the 2021 Newcastle 6 000 kcal/kg coal price, from $68/t to $72/t, reflects higher year-to-date prices. However, the agency says these will prompt operations at costlier mines to resume leading prices to moderate in line with its medium-term assumptions. The long-term price adjustment reflects a gradually normalising price gap with the Chinese benchmark.
Fitch has also raised its nickel price assumptions from $13 250/t to $15 000/t for this year as a result of strong spot prices and its expectation of increasing demand this year for stainless steel – a key consumer of nickel.
“We have increased our long-term assumption as we expect the increased use of nickel in batteries to lead to a market deficit from 2025,” the agency concludes.