Credit ratings agency Fitch Ratings has increased its copper price assumptions, among others, following “exceptionally” strong pricing conditions in the year-to-date.
The agency declared a new price assumption of $9 000/t for this year, up from its previous assumption of $7 200/t.
Fitch says the copper price has been supported by low inventories, economic recovery and stimulus packages in some parts of the world, and expectations of increased medium-term demand – owing to the global energy transition.
The agency expects the market to be largely balanced in 2021/22.
The agency did, however, warn that there may be price correction again in the second half of the year should demand slow, fewer supply disruptions occur or mine output rise.
Meanwhile, Fitch also increased its iron-ore price assumption for the year to $160/t, up from its prior assumption of $125/t.
The high iron-ore prices are being driven by strong Chinese demand, as the country increased its steel manufacturing after its Covid-19 lockdown early in 2020, Fitch notes.
Although iron-ore supply has marginally increased to date this year, the market remains in deficit. This is expected to continue until incremental supply growth starts to show from key iron-ore producers.
Fitch envisions a price correction for iron-ore later in the year, while it believes that the Chinese government raising concern over increasing steel and raw material prices will affect end-markets.
The Chinese government also intends to cut emissions from most polluting industries, including steelmaking, which could affect long-term demand for iron-ore.
Moreover, Fitch says that zinc inventories are running low, which is supporting short-term price assumptions.
The agency updated its price assumption for zinc for the year to $2 800/t, from $2 500/t previously.
Fitch also slightly raised its aluminium price assumption from $1 950/t to $2 200/t for this year and expects China to remain a net aluminium importer thanks to decarbonisation efforts.
This while modest increases in the agency’s gold price assumptions from $1 600/t initially to $1 700/t reflect stronger prices in the year-to-date and the potential for investment opportunities elsewhere as stimulus subsides.
“Strong demand from stainless steel still supports 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 from $15 000/t to $16 500/t for the year.
“Coking coal is the only commodity for which Fitch decreased its short-term price assumptions from $135/t previously to $130/t currently. Australian benchmark spot pricing has underperformed our previous assumptions, driven by China's ban on Australian supplies.
“However, we expect the market to somewhat normalise as either China will relax the ban or more non-Australian supply will shift to China as contracts expire. Therefore, we have kept price assumptions beyond 2021 unchanged,” Fitch points out.
Fitch further increased thermal coal prices for both the Newcastle and Bohai-Rim Steam-Coal Price Index benchmarks for 2021 to 2023.
Higher Qinhuangdao 5 500 kcal/kg short-term price assumptions reflect strong demand, constrained supply and low inventories at power generation companies.
This while increased medium-term assumptions are driven by the Chinese government's tolerance of high coal prices.
Additionally, local governments in coal-producing regions are motivated to keep supply relatively tight.
Stronger domestic prices in China and supply constraints will support export prices in the medium term, including Newcastle 6 000 kcal/kg, despite the ongoing ban on Australian coal imports.
“We expect the price to normalise after 2021 on declining transportation costs and continuous coal substitution in the energy mix,” Fitch says.