Most metals markets are expected to move into a surplus this year, says research firm Fitch Solutions, noting that consumption is likely to decrease more than the decreases in production capacity, as a result of the spread of Covid-19.
Although some operational hurdles, owing to government lockdowns, are affecting global metals production, the firm believes these will be “far outweighed” this year by the demand destruction from consuming sectors as a result of the global recession that is anticipated owing to the fall-out from the pandemic.
Taking this into account, Fitch now broadly expects demand for metals to show a recovery over the second half of this year and into 2021, driven by the ramp-up of the Chinese economy.
Nonetheless, the firm laments that the “coronavirus situation” remains fluid and warns that there are risks to its forecasts.
“We continue to monitor the Covid-19 situation closely and are revising our metals and mining forecasts as more economic data becomes available and announcements from companies and governments are made across the globe.”
Simultaneously, Fitch Solutions expects the global recession this year to hamper metals demand as end-use sectors, including the automotive, construction and home appliances sectors, enter a lull.
Turning towards specific metals, Fitch Solutions notes that it now expects global copper production to grow by 0.6% year-on-year in 2020, compared with its previous forecast of 1.9% year-on-year growth, as lockdowns in multiple producing countries across the globe have, and continue, to hamper production.
Specifically, Chinese copper production declined by 2.5% year-on-year in March to 771 000 t, according to the National Bureau of Statistics, owing to coronavirus-related disruptions.
While the lockdown in China has been lifted, Fitch Solutions expects supply chain disruptions affecting copper concentrate imports, as lockdowns in Latin America tighten the seaborne market, to hamper Chinese refined copper production further in the second quarter of 2020, before a slight recovery in the second half of the year.
Fitch Solutions has revised its copper production forecasts in three of the top producing countries – China, Chile and Japan – to register no growth in production this year.
On the other hand, the firm now expects global copper consumption to decline by 1.1% year-on-year in 2020, compared with its previous forecast of a 1.6% year-on-year growth, as a result of severe global demand destruction in copper from consuming sectors.
Fitch revised its 2020 copper consumption down for the two largest consuming countries, China and the US, from 2.5% and 1.5% growth year-on-year to declines of 1.5% and 4.5% year-on-year, respectively.
This is mainly owing to Fitch’s infrastructure, automotive and consumer teams revising down the firm’s US and China forecasts for construction, vehicle sales and household spending significantly this year.
As a result, Fitch Solutions now expects the global copper market to fall into a large surplus of 344 000 t this year, compared with a deficit of 63 000 t in 2019.
As the global economy recovers and copper demand follows in 2021, Fitch expects the surplus to narrow to 162 000 t before shifting into a deficit of 51 000 t again in 2022.
Meanwhile, the construction sector is expected to buoy steel demand this year.
Aluminium production, in particular, is forecast to grow by 1.2% year-on-year in 2020, compared with the previous forecast of 3% year-on-year growth. Globally, owing to Covid-19, Fitch expects some disruptions to aluminium production and has revised down its forecasts across a number of countries including China, India, the US and Germany.
On the other hand, Fitch now expects global aluminium consumption to decline by 2% year-on-year in 2020, compared with the firm’s previous forecast of 1.5% year-on-year growth, as the firm expects similar global demand destruction for aluminium, just as with copper, from consuming sectors including automotive, home appliances and construction.
“We have revised down our 2020 consumption forecasts for China, the US and India mainly, from year-on-year growth rates of 2%, 1.5% and 16% to year-on-year declines of 2%, 5% and 8%, respectively.”
As a result, Fitch now expects the aluminium market to be in a surplus of three-million tonnes this year, compared with one-million tonnes in 2019. Similar to copper, the firm expects the surplus to narrow to 2.5-million tonnes by 2021 as the global economy improves.
Meanwhile, global steel production is expected to grow by 3.2% year-on-year in 2020, compared with a previous forecast of 3.8% year-on-year growth.
According to the National Bureau of Statistics, Chinese steel production declined by 1.7% in March 2020. As such, Fitch has reduced its 2020 crude steel production forecast for the US from 1% year-on-year growth to a 4% year-on-year contraction, and for China from 5% year-on-year growth to 2% year-on-year growth.
In terms of demand, Fitch now expects global steel consumption to grow by 1.9% year-on-year in 2020, compared with its previous forecast of 3% year-on-year growth.
“The notable factor for steel is that we still expect consumption to grow positively in 2020 compared to the declines seen for other metals, as we expect Chinese construction projects to keep steel demand buoyed, albeit at a much smaller magnitude than we expected pre-Covid-19.”
The firm adds that, “while our view for the construction sector's recovery is more positive than automotive and manufacturing, we do acknowledge that many projects have postponed their completion dates as a result of the halt in activities during January to March 2020, and have thus mitigated our forecasts accordingly.”
Fitch has revised its 2020 consumption forecasts down for China, the US and India mainly, from year-on-year growth rates of 5%, 1% and 3% to year-on-year rates of 2%, -6% and -1%, respectively.
As a result, the firm now expects the steel market to be in a slight surplus of 12.6-million tonnes this year, compared with a deficit of 11.9-million tonnes in 2019.
The surplus is anticipated to narrow to 12.1-million tonnes and 4.7-million tonnes by 2021 and 2022, respectively.
Further, the nickel and tin markets are also likely to suffer owing to the economic effects of Covid-19.
Fitch revised its 2020 global production growth forecast downwards for both nickel and tin from 0.3% and 6.3% year-on-year previously to -0.3% and -2.6% year-on-year, respectively.
With regard to tin, production cuts among leading producers, whether through voluntary ramp-downs owing to the low tin price environment or through government mandates, have placed a dent on refined tin production over recent months.
Fitch has also revised its 2020 forecasts for nickel and tin consumption growth downwards from -2.7% and 5.7% year-on-year previously, respectively, to a decline of 4.6% each year-on-year, owing to the impact of Covid-19 on the global economy and sectors consuming these metals.
In terms of nickel, the metal's main use is in the production of stainless steel, which is heavily used in the automotive industry, and the firm’s view on the global automotive sector is downbeat.
For tin, Fitch expects reduced demand from the consumer electronics industry on the back of lower consumer discretionary spending. As developed and emerging economies temporarily shut down, the resulting economic hardship of rising unemployment will weigh on consumer purchasing power, underpinning a broad-based decline in consumer electronics products, Fitch laments.
The firm now forecasts combined consumer electronics sales across 58 markets globally to contract by 0.6% year-on-year this year, compared with a 3.4% year-on-year growth forecast in early January.
Additionally, a decline in consumer electronics sales will undercut the incentive for consumer electronics manufacturers to maintain previous output levels thus weighing on demand for tin.
“Our revised forecasts now show the tin market balance to be zero in 2020, and the nickel market to be in a surplus of 38 000 t, after both markets registered deficits in 2019 of 8 000 t and 58 000 t, respectively.”
While the nickel surplus is expected to decrease to just 4 000 t in 2021 as stainless steel production gears up, the tin market is likely to be in a surplus of 4 000 t as it will take longer for consumer spending to pick up.