Financial risk management, solutions and insights company Fitch Solutions Country Risk and Industry Research (Fitch Solutions) expects miners and metal producers to experience a more favourable pricing environment in 2021 with nearly all mineral and metal prices forecast to average higher on a year-on-year average basis in 2021.
The stark exception will be iron-ore prices, which Fitch Solutions expects to head lower in 2021, yet remain elevated after being the “clear outperformer” this year among the entire commodities complex, owing to the substantial increase in demand driven by China's infrastructure stimulus and constraints on supply growth.
In 2021, Fitch Solutions posits, prices will be supported by the broader and deeper global economic recovery as Covid-19 vaccines are made available. The weaker dollar forecast by the Fitch Solutions team in the medium term will also act as a tailwind for commodity prices.
Further, access to a vaccine will also help reduce disruptions to operations in 2021.
Fitch Solutions points out that widespread lockdowns and restrictions negatively impacted on many operations this year. This was particularly the case in the copper market.
In terms of demand, Fitch Solutions forecasts a sharp recovery in global mineral and metal demand in 2021.
“China’s metal consumption will remain strong as infrastructure projects continue to make progress supported by government policy. However, it will be difficult to find further upside catalysts for steel demand in the country given the strength of consumption showcased in 2020 with government stimulus.”
As far as demand for other metals is concerned, Fitch Solutions highlights that stronger growth this year could again be recorded in China including for aluminium as end-market sectors such as the automotive sector are revived.
Other countries that saw their mining and metal operations disrupted and impacted by lower end-demand will also likely see a sharper recovery in production, states Fitch Solutions. These include the US, the European Union, Japan and India in the case of steel and aluminium.
Although a longer-term trend, Fitch Solutions notes the ongoing acceleration of decarbonisation strategies and corporate environmental, social and governance (ESG) initiatives translating into demand for some metals used in renewables infrastructure and electric vehicle batteries (including copper, nickel and aluminium) could be supported in 2021 and beyond.
Further, as overall prices, production and consumption of minerals and metals improve in 2021, the outlook for miners and metal producers is positive for next year, says Fitch Solutions.
For example, the decline it forecasts in input prices for steel (iron-ore and coking coal) in 2021 will help profitability pick up in the sector.
Gold miners will continue to be helped by elevated prices, states Fitch Solutions.
The trend towards sustainability and the transition to a low-carbon economy will continue to gain significant momentum in 2021, which means that the environmental (decarbonisation) and social sustainability record in the mining and metal sectors will become top of mind, thereby boosting investment, Fitch Solutions adds.
Environmental regulations and ESG adoption have made progress this year on a number of fronts, and these factors will increasingly translate into mining and metal companies' strategies and the decrease of their corporate carbon footprints, states Fitch Solutions.
A number of countries, and, most notably, the European Union (EU), are aiming to invest in a green recovery from Covid-19, passing environment and decarbonisation-heavy Covid-19 stimulus packages.
As such, Fitch Solutions points out that the “Next Generation EU” recovery package, which also encompasses the EU’s Green Deal, leads, as 37% of the funds will be directed towards green initiatives. These initiatives involve reducing dependence on fossil fuels and enhancing energy efficiency.
Further, major Asian economies have pledged this year to reach carbon neutrality by 2050, including South Korea and Japan, and China by 2060.
In addition, US President-elect Joe Biden’s climate agenda targets carbon-free US electricity production by 2035 in addition to net-zero emissions by 2050.