The rating agency Fitch Ratings has increased its copper price assumptions, among other things, following âexceptionallyâ strong pricing conditions since the start of the year.
The agency has declared a new price assumption of $ 9,000 / t for this year, up from its previous assumption of $ 7,200 / t.
Fitch says the price of copper has been supported by low inventories, an economic recovery and stimulus packages in parts of the world, and expectations of increased demand over the medium term – due to the global energy transition.
The agency expects the market to be broadly balanced in 2021/22.
The agency warned, however, that there could be a price correction again in the second half of the year if demand slows, fewer supply disruptions or an increase in mining production.
Meanwhile, Fitch also increased its iron ore price assumption for the year to $ 160 / t, up from its previous assumption of $ 125 / t.
High iron ore prices are due to strong demand from China, as the country increased its steelmaking after its Covid-19 lockdown in early 2020, Fitch notes.
Although the supply of iron ore has increased slightly so far this year, the market remains in deficit. This is expected to continue until further supply growth begins to emerge from major iron ore producers.
Fitch is considering a correction in iron ore prices later in the year, while believing that the Chinese government, which fears rising steel and raw material prices, will affect end markets.
The Chinese government also intends to reduce emissions from most polluting industries, including steelmaking, which could affect long-term demand for iron ore.
Additionally, Fitch says zinc inventories are low, which supports short-term price assumptions.
The agency updated its zinc price assumption for the year to $ 2,800 / t, from $ 2,500 / t previously.
Fitch has also slightly raised its aluminum price assumption from $ 1,950 / t to $ 2,200 / t for this year and expects China to remain a net importer of aluminum thanks to decarbonization efforts.
This, although modest increases in the agency’s gold price assumptions, from initially $ 1,600 / t to $ 1,700 / t, reflect higher year-to-date prices and the potential for further development. investment opportunities elsewhere as stimulus wanes.
“Strong demand for stainless steel continues to support our revised short-term nickel prices, which we expect to moderate in the medium term,” the agency explains, after increasing its price assumption for the base metal by $ 15,000. / t at $ 16,500 / t. for the year.
âCoking coal is the only product for which Fitch has reduced its short-term price assumptions from $ 135 / t previously to $ 130 / t currently. Australian benchmark spot prices underperformed our previous assumptions, due to China’s ban on Australian supplies.
“However, we expect the market to normalize somewhat as China either relaxes the ban or more non-Australian bids move to China when contracts expire. Therefore, we have maintained the unchanged price assumptions beyond 2021, âunderlines Fitch.
Fitch further increased thermal coal prices for the Newcastle and Bohai-Rim Steam Coal Price Index benchmarks for 2021 to 2023.
The higher short-term price assumptions for Qinhuangdao 5,500 kcal / kg reflect high demand, limited supply and low stocks at power generation companies.
This while the increased medium-term assumptions are driven by the Chinese government’s tolerance for high coal prices.
In addition, local governments in charcoal-producing regions are motivated to keep supplies relatively tight.
Higher domestic prices in China and supply constraints will support export prices in the medium term, including in Newcastle 6,000 kcal / kg, despite the current ban on imports of Australian coal.
âWe expect the price to normalize after 2021 due to lower transportation costs and the continued substitution of coal in the energy mix,â says Fitch.