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Fitch slashes metals and mining forecasts: Could worse be yet to come?

07:00, 21 September 2022

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Copper wires being produced in a factory
Copper forecasts were cut by Fitch Ratings in its latest September report due to falling demand and a slight expected surplus – Photo: Getty

Fitch Ratings has recently cut down its metals and mining forecasts, from its more optimistic view in its June report. Aluminium, copper, hard coking coal, zinc and nickel and iron ore have all had their forecasts cut for the near future. This is largely due to lower prices for these materials at the moment, as well as uncertainties about their demand in the near future.

However, gold has remained untouched in the new September report. This could be a ray of hope for investors, as it could signal that rising interest rates may not have as much of an impact on the precious metal as previously anticipated.

Furthermore, thermal coal has actually received an upgrade in predictions, which is unsurprising, considering the still-raging energy crisis affecting many parts of the world, especially Europe and China.

Copper prices were slashed from $4.3 to $3.9 per pound for the rest of the year 

Why has Fitch Ratings slashed its metals and mining ratings?

Fitch has revised its current metals and mining ratings largely due to the expectations of a global economic slowdown, and lower metal demand in the near future. This is mainly driven by China, which is still recovering from recurrent waves of COVID-19, as well as intermittent lockdowns creating havoc in manufacturing and industries.

This has mostly affected metals such as copper and iron ore, which are likely to see a minor surplus in the next year, due to falling demand, as well as limits on steel manufacturing. This is also fuelled by China’s construction sector not recovering as fast as expected.

Metals such as aluminium are also facing lower demand from top consumer China. However, soaring energy prices in China as well as key parts of Europe could potentially put a floor on prices. This is because aluminium is a very energy intensive metal to produce and rising energy prices have led to many smelters closing down, thus potentially boosting prices down the line.

However, China has recently announced a slew of new economic stimulus measures, which is expected to provide some additional support to the economy, with a special focus on construction, infrastructure and real estate. This will involve delegating additional budget to banks, as well as encouraging them to finance more construction projects.

This is part of the reason why the medium-term outlook is more stable than the short term for industrial and manufacturing metals such as copper, steel and iron ore. Another reason is due to metals such as copper expected to be in very high demand once the energy transition progresses further in the next few years, thus leading to higher prices.

In its previous June report, Fitch had raised metals and mining estimates, mostly due to supply constraints arising from the Russia-Ukraine conflict, water supply problems in Chile and worsening social tensions in Peru. A seasonal dip in Brazilian and Australian shipments were also expected to

Natural Gas

7.07 Price
+0.140% 1D Chg, %
Long position overnight fee -0.1232%
Short position overnight fee 0.0883%
Overnight fee time 21:00 (UTC)
Spread 0.005

Oil - Brent

86.58 Price
-1.080% 1D Chg, %
Long position overnight fee 0.0322%
Short position overnight fee -0.0535%
Overnight fee time 21:00 (UTC)
Spread 0.10

Silver

18.60 Price
-1.330% 1D Chg, %
Long position overnight fee -0.0038%
Short position overnight fee 0.0008%
Overnight fee time 21:00 (UTC)
Spread 0.020

Oil - Crude

80.45 Price
-1.040% 1D Chg, %
Long position overnight fee 0.0189%
Short position overnight fee -0.0369%
Overnight fee time 21:00 (UTC)
Spread 0.03

However, in the past few months, Ukraine has made significant headway in reclaiming a large amount of territory from Russia, leading to renewed hope that the end of the conflict may potentially be in sight.

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Fitch Ratings metals price forecasts

Commodity Name 2022 (old)2022 (new)2023 (old)2023 (new)2024 (old)2024 (new)2025 (old)2025 (new)Long term (old)Long term (new)
Copper (LME spot) (USD/lb)4.33.93.83.63.43.43.43.43.13.1
Iron ore (China import iron ore fines 62%, CFR)1201158585757570707070
Aluminium (LME spot) 2.9502,7002.6002,5002,5002,5002,2502,2502,0002,000
Zinc (LME spot)3,6003,4003,0002,8002,5002,5002,2002,2002,1002,100
Gold 1,8001,8001,6001,6001,4001,4001,3001,3001,3001,300
Thermal coal (Australia Newcastle 6000kcal/kg, FOB)270360120240879080836363

Which are the main metals and miners impacted?

One of the main metals impacted in this current Fitch report is copper, which has received a revised forecast of about $3.9 per pound for the rest of the year, down from about $4.3 per pound. Copper prices have been struggling for the last few weeks, falling about 7.5% from the end of August.

This is likely to impact copper miners such as Anglo American (AALI), which has fallen about 7.6% since the end of August as well. Furthermore, Antofagasta (ANTO), another prominent copper miner, has also dropped about 8.6% during the same time, pressured by struggling copper prices as well.

Iron ore, steel and aluminium manufacturers are also likely to be heavily impacted, as iron ore and aluminium forecasts have already been slashed, due to the metals being expected to be in slight surplus in the near term. However, rising energy prices are likely to keep the market tighter than anticipated, hopefully providing a boost to these metal prices as well.

What is the outlook for metals in the long term?

Fitch sees copper prices touch about $3.1 per pound in the long term, according to its latest report, which is quite a bit lower than current estimates of about $3.9 per pound. This could be due to the fact that although demand is likely to be significantly ramped up then because of the energy transition, by then, copper miners are also expected to have increased supply capacity.

Fitch also highlights that iron ore is expected to trade at about $70 per tonne in the long run, down from expectations of about $115 per tonne in the short run. This could potentially be due to the Chinese economy stabilizing somewhat down the line, and removing its current stimulus measures from the market, which are cushioning the construction sector at the moment.

Similarly, aluminium is also expected to trade at about $2,000 per tonne, in the long term, down from about $2,700 per tonne in the near term. This could likely be due to the energy crisis having improved down the line as well, as the energy transition speeds up and alternative renewable sources of energy are more affordable.

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