Slowing economic growth around the world and weaker trade flows have had a negative impact on copper and zinc pricing, though the macroeconomic uncertainty amid ongoing Sino-U.S. trade tensions has made gold more attractive for investors.
The relationship between copper demand and the health of the global economy has earned it the nickname Doctor Copper, given the red metal's widespread use in many sectors.
S&P Global Ratings cut its commodity price forecasts for copper and zinc due to general weakness in demand for industrial metals.
In an Oct. 9 report, Ratings lowered its copper price estimate to US$6,000 per tonne for 2020 and US$6,100/t for 2021, from a July forecast of US$6,500/t and US$6,700/t, respectively.
"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," Ratings said.
Potential for weaker Chinese refined copper imports, as well as the depreciation of the yuan, are expected to maintain downside pressure on the metal for some time.
S&P Ratings cut its zinc price forecast to US$2,300/t for both 2020 and 2021, from its July estimate of US$2,500/t in 2020 and US$2,400/t in 2021, mainly due to an expected decline in demand, soft economic growth, and global trade disruptions.
Zinc prices in 2019 have been impacted by an increase in supply, which is expected to increase by about 15% in the next two to three years from projects in Canada, Australia and Mexico, putting further pressure on prices.
"We assume flat prices starting in 2020, because growth in demand would meet supply growth rates," Ratings said, noting that the new supply is likely to be lower-cost quartile.
S&P 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, helped by a recent rate cut by the Federal Reserve.
S&P significantly increased its nickel price assumptions to 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.
The decision of the Indonesian government to bring forward plans to ban nickel ore exports to 2020 has prompted a surge in nickel prices.
Elsewhere, RBC Capital Markets said Oct. 10 that the 2020 election cycle is one of the biggest "potential source of gold-positive uncertainty."
Meanwhile, the use of Twitter by U.S. President Donald Trump, seen as a significant source of event risk by RBC, will amplify the potential for gold-positive uncertainty.
"The nature of this view however means that gold volatility should rise, and while the price path may be flexuous, we still think that prices on a period average basis can move higher in a more measured manner than the potential volatility will lead you to believe on its own," RBC said.
In the current gold price environment, UBS prefers PJSC Polyus and Polymetal International PLC based on their superior asset quality and cost positions over most global peers, as well as the companies' sector-leading dividends of over 5%.
In an Oct. 11 note, UBS analysts retained a buy rating for both miners, as well as for Hochschild Mining PLC, saying that its valuation looks attractive after recent underperformance.
UBS is cautious on Fresnillo PLC, with a neutral rating, saying the stock is expensive and the consensus on costs in the second half of 2019 and fiscal 2020 is "too optimistic."
Forecast for nickel prices for the remainder of 2019 also jumped to US$17,000/t from US$12,000/t.
Ratings believes that the bullish impact will only have a short term effect and the market will even out through 2020.
This S&P Global Market Intelligence news article may contain information from S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.
