Metal prices, which have been on an uptrend since 2020, are expected to continue their strong performance this year and next Fitch Solutions, a unit of Fitch Group, noted during a webinar on January 26.
Following a year of record profitability and revenue in 2021, the outlook for miners and metals producers remains positive for this year, with no return to previous lows predicted for this year.
Global mineral and metal production is likely to rise and capital expenditure will remain on its recovery trend, Fitch Solutions said.
Although it forecasts most metal prices to average slightly lower this year than in 2021, it says these will remain very elevated by historical standards.
Fitch Solutions senior commodities analyst Sabrin Chowdhury said China had been the biggest driver of prices in 2020 to 2021, and that the country is set to remain the main influencer of metal prices going forward.
She said Fitch Solutions expects some carryover of Chinese metals demand into this year that was lost owing to electrical shortages last year. While most metals are averaging low this year compared with the highs of the previous year, they are still considerably elevated compared to pre-Covid-19 levels, she added.
Chowdhury said consumption growth was set to remain above trend, despite weakening from last year in general.
There is still a positive outlook for this year across end-markets, she stated.
Chowdhury highlighted that China was a major risk generator for metal markets and prices. She mentioned government support to heavy industries as being likely to increase as growth remains on a slowing track.
Monetary easing is expected to support investment this year in the country; however, a zero-Covid-19 strategy poses risks, she said.
Chowdhury said mining companies were set to remain highly profitable this year.
Revenues are expected to fall by a small margin, as metal prices stabilise while production remains on an uptrend.
Operating margin is also set to remain strong this year after record profitability last year.
Chowdhury highlighted that a cautious increase in capital expenditure (capex) is under way.
She noted that capex expectations for the year have increased as of late as confidence among miners improved.
Chowdhury said capex in the sector has been on a strong recovery trend in 2021, which is likely to continue into this year.
There are some risks that could constrain capex, including a sharper-than-expected slowdown in global economic growth and renewed Covid-19 cases that could have knock-on effects.
Investments in green metals will, nevertheless, rise considerably, with coal set to lag behind.
She highlighted investment in green transition metals, with gold and base metals picking up. Moreover, the ongoing investment in battery minerals, including lithium, is set to continue.
In terms of the great coal exit, Chowdhury said this was largely being executed by big miners, with the sector now mainly in the hands of smaller players, or State-owned companies.
Chowdhury said pressures surrounding the green transition would ensure major miners do not return to coal.
Coal prices are expected to remain elevated this year, and consumption is also expected to hold up.
Therefore, Chowdhury said miners who still have some coal in their portfolio are likely to rethink their exiting strategies as coal prices remain elevated, and demand from emerging markets is likely to remain high for at least a decade from now.
New coal power projects that were approved in the last decade will mostly continue operating; while new coal-fired projects that have already been approved or begun construction will continue to come online in the coming year, especially in Asia.
In terms of funding, coal players will now be mostly self-funded or will obtain funding from mainly State banks, as private and international banks step away from financing of energy assets, Chowdhury pointed out.