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S&P Global Ratings updates metal price assumptions amid ongoing trade tensions

S&P Global Ratings has cut its commodity price assumptions for copper and zinc due to general weakness in demand for industrial metals.

The rating agency noted that ongoing tensions between the U.S. and China have resulted in slower economic growth in the U.S., China and the EU, while weighing on global trade flows.

Meanwhile, chances of a global recession in the near term are at 30% to 35%, the rating agency wrote, adding that the forecast is "relatively moderate" though the chances are twice as high as a year ago.

Ratings said Oct. 9 that it estimated a copper price of US$6,000 per tonne in 2020 and US$6,100/t in 2021, compared to the previous July forecast of US$6,500/t and US$6,700/t, respectively. For the rest of 2019, it estimated a price of US$5,900/t.

"The U.S. decision to impose tariffs to a large portfolio of Chinese exports into the U.S. has triggered a large sell-off in copper positions that made the price dip deeper," the rating agency wrote.

Zinc prices were estimated at US$2,300/t in both 2020 and 2021, compared to US$2,500/t in 2020 and US$2,400/t in 2021 previously, reflecting "greater chances for a slowdown in demand" for the rest of 2019 and 2020 amid trade tensions and slower economic growth forecasts, in addition to new supply entering the market.

Reductions in interest rates by the banks in response to sluggish economic growth has had a positive effect on gold prices, with Ratings noting the interest rate cut by the Federal Reserve in September in response to a persistently weak global industrial demand as well as the ongoing trade war.

The rating agency increased its gold price assumptions for the second time this year, estimating US$1,400 per ounce in 2020 and 2021, compared to the previous forecast of US$1,300/oz. It expects gold to average US$1,450/oz for the rest of 2019.

Ratings significantly increased its nickel price forecast, with the price for the rest of 2019 increasing to US$17,000/t from US$12,000/t, after Indonesia recently accelerated plans to ban ore exports starting in 2020.

Nickel prices were estimated at US$15,000/t in 2020 and US$15,500/t in 2021, compared to the previous forecasts of US$12,500/t and US$13,000/t, respectively.

Ratings noted that it will keep adjusting the price assumptions as "geopolitical tensions are likely to keep undermining growth prospects and adding volatility to commodity prices."

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.