Posted on 19 Sep 2023
Fitch Ratings has raised all of its metallurgical coal price assumptions on higher costs and rising global steel consumption. We have cut our aluminium prices for 2023-2025 due to weak demand, the strong US dollar, expected market surpluses in 2023-2024 and healthy global inventories. Our 2023-2024 and mid-cycle gold assumptions have been increased due to the metal’s price resilience. We have cut our zinc price assumption for 2023, but increased those for 2025-2026 and mid-cycle. Our copper mid-cycle price assumption and the 2023 iron ore price have been raised. All other price assumptions remain unchanged.
Fitch Ratings-London/New York/Hong Kong-14 September 2023: Fitch Ratings has raised all of its metallurgical coal price assumptions on higher costs and rising global steel consumption. We have cut our aluminium prices for 2023-2025 due to weak demand, the strong US dollar, expected market surpluses in 2023-2024 and healthy global inventories. Our 2023-2024 and mid-cycle gold assumptions have been increased due to the metal’s price resilience. We have cut our zinc price assumption for 2023, but increased those for 2025-2026 and mid-cycle. Our copper mid-cycle price assumption and the 2023 iron ore price have been raised. All other price assumptions remain unchanged.
The uptick in our mid-cycle copper price assumption reflects long-term fundamentals for the metal, supported by the energy transition. We continue to expect prices to be volatile, although the market will remain tightly balanced and supportive.
The higher 2023 iron ore assumption reflects year-to-date price performance. Demand from Chinese steelmakers has been better-than-expected, despite their low margins. Our view on fundamental supply and demand balance stays unchanged.
We have moved all metallurgical coal price assumptions up. The higher 2023 figure reflects year-to-date prices, although we expect the spot to decline from its peak in 2023 as new capacity, mainly from Australia, comes online. Our raised 2024-2026 and mid-cycle assumptions reflect higher production costs and a fairly steady rise in global steel consumption that will offset a decline in China. This also reflects our expectations that the energy transition will not materially affect the demand for coking coal over the next decade.
The lower aluminium assumptions for 2023-2025 reflect our expectations of market surpluses in 2023 and 2024 due to weak demand (particularly outside China). Curtailed capacities are reversing due to improving power supply as energy costs fall and reservoir levels in China prove adequate. The revised assumptions also incorporate the effect of the stronger dollar. Still, aluminium demand is benefitting from the energy transition, including greater use in the transport sector to reduce the weight of cars, planes and rolling stock, and as a substitute for copper in certain electrical applications.
Our lower 2023 zinc price assumption reflects weaker-than-expected global demand, particularly from China and Europe, as well as ongoing smelting debottlenecking as energy prices fell, which has led to a market surplus in 2023. The higher 2025-2026 and mid-cycle assumptions are supported by our expectations of demand increases shifting towards the longer term as the cost curve rises.
We have raised our gold price assumptions for 2023-2024 and mid-cycle, reflecting higher year-to-date prices and the metal’s resilience against the backdrop of volatility in investment markets and interest rate hikes. The changes also reflect more buying by central banks and some re-allocation from exchange-traded funds.
All thermal coal assumptions have stayed the same. The state of the global seaborne market has remained largely the same, with the EU, Japan and Korea, importing less than they did last year, while China’s imports remain high. India’s power consumption is rising strongly but the incremental demand for coal can be largely covered by its domestic production.
China’s weak hydropower generation supports demand for thermal coal, despite overall weakened power consumption. Domestic supply seems to have responded to weaker prices. All-industry inventories have reduced slightly but remain well above 2022 levels.
Our nickel price assumptions are unchanged. Spot market prices are moderating and we expect the 2023 average to remain in line with our previous expectations. The nickel market balance is set to remain in surplus over the longer term, with capacity additions from Indonesia offsetting the rapid rise in battery demand and leading to an ongoing decline in prices.
Source:Fitch Ratings
