The mining and metals industry is being deeply impacted by the Covid-19 pandemic, as the situation continues to evolve and the virus spreads throughout the world, reports financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research.
The firm notes that, in terms of minerals and metals production, Covid-19 restrictions and associated lockdowns during the first half of the year disrupted mining operations and mineral production growth globally as governments implemented strict measures.
Fitch Solutions is also expecting more disruption in the coming months before a vaccine is made available.
As such, the firm says these factors will result in a decline in global mineral and metal production for this year compared with 2019.
Fitch Solutions has therefore revised downward its production growth forecasts for many key mining countries and says global mine output is likely to decline in the case of copper, nickel and coal, besides other commodities.
The firm expects iron-ore growth to be stagnant. In terms of mining jurisdictions, Fitch Solutions says Peru, Chile, India and South Africa are among the most impacted in terms of production, while mine operations in other key players such as Australia, Russia and China continue to carry on without major hurdles.
Most mining companies continue to focus on workforce safety and implementing measures such as lowering the frequency of fly-in, fly-out arrangements. In addition to a number of companies completely halting production temporarily, some have announced that they are operating at reduced capacities to enhance social distancing of workers.
As a result of the disruptions, Fitch Solutions says the mining supply chain has been disrupted with localised mineral shortages for some metal refiners, as well as international export issues such as supply of copper ore from Latin America to China being restricted owing to the rising number of Covid-19 cases in Chile and Peru reducing output.
In terms of demand for minerals and metals, these will also be affected this year, with the firm pointing to global economic recovery from Covid-19 being uneven and challenging – factors which are materialising as the pandemic continues to spread in key demand markets. This could delay the pick-up in demand.
Fitch Solutions also says it expects the global economy to contract by 4.2%, leading to a significant decline in physical demand for minerals and metals this year as the consumer, automotive manufacturers and infrastructure sectors slow around the world.
However, the firm notes that strong recovery in Chinese demand for minerals and metals post lockdown will continue in the second half of the year. This will partially offset the decrease in consumption in other markets.
In terms of metal prices, Fitch Solutions states that these have performed strongly in recent months, with copper rallying and fully recovering the losses recorded earlier in the year as a result of the pandemic.
“Gold and iron-ore prices are the two outperformers in the year to date,” states Fitch Solutions.
In this regard, the firm says it remains bullish on base metals and gold prices, and expects ferrous minerals and metals (steel and iron-ore) prices to stabilise at their current elevated levels in the coming months.
In addition, the firm says the ongoing V-shaped recovery in China and special emphasis on infrastructure investment is leading to sharp acceleration in metal demand in the country.
In terms of a metal-specific impact, the firm forecasts a decreasing supply in the short term owing to closures as a result of the Covid-19 pandemic through involuntary operational disruptions (lockdowns) as well as voluntary capacity reductions.
A significantly weaker demand outlook means that Fitch Solutions now expects global oversupply to be more severe and persist for longer than it had previously anticipated. The worst of the disruption to global supply and demand from the pandemic was in the second quarter and there will be a slow recovery moving into 2021.
“The balance of risk to our price forecast lies to the downside due to uncertainty over the longevity of the Covid-19 pandemic,” the firm concludes.