JOHANNESBURG (miningweekly.com) – Ratings agency Moody’s believes 2018 will be a year of relative stability for the global base metals industry after some recovery was experienced this year.

In a 2018 outlook analysis, released on Wednesday, the agency noted that these improved supply/demand fundamentals would hold on the back of increased economic activity, supply disruptions, Chinese stimulus and curtailments in aluminium contributing to an improved supply/demand balance.

Global economic growth rates and industrial production levels, particularly in China, would further drive physical demand fundamentals for copper and aluminium and, despite some moderate downward bias, improved price levels from this year were also expected to hold in the coming year.

This upward trajectory could continue if purchasing managers indexes (PMIs) in the US, Europe and China exceed 55 for at least three consecutive months, paired with a gross domestic product growth outlook of greater than 4%.

Moody’s macroeconomic growth forecasts for 2018 are 2.3% for the US; 2% for the eurozone area; 6.6% for China; and 2.5% for Brazil.

However, the firm outlined that, should PMIs track below 50 for at least two consecutive months and should Moody’s global macro outlook for GDP growth be less than 3%, the outlook for base metals could change to negative.

Other factors, including Chinese production and demand levels, could hamper growth, while bank lending constraints could limit the continued upward movement for base metals.

Cost creeps could also limit upside gains from prices. “Increasing costs for freight, energy, alumina, carbon anodes, caustic soda and labour and the appreciation of currencies against the dollar relative to 2016 and 2017 levels will limit further earnings and margin improvement,” Moody’s outlined.

Mineral exports and mine development would also continue to be affected by political risk and resource nationalism, while the sector also continues to face environmental risks, including air pollution and carbon emissions, water availability, water supply contamination, waste disposal and security of infrastructure.

“Regulations in these areas are expected to become increasingly stringent and hence costly,” Moody’s said.