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London — Demand for industrial metals is likely to remain under pressure over the next couple of years, against the backdrop of ongoing trade tensions between the US and China, with gold prices well supported as a result, S&P Global Ratings said in a report Thursday.

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S&P Global Ratings said the probability of a near-term global recession is "relatively modest", around 30%-35%, although this metric has doubled from a year ago.

It added that geopolitical tensions are likely to continue to dent growth prospects, and fuel volatility in commodity prices.

"We've revised down our assumptions for copper, given demand softness in the context of faltering global economic growth," Simon Redmond, senior director, sector lead, extractive industries, at S&P Global Ratings said. "Political and trade tensions are hitting investment plans and confidence -- this is in spite of likely supply deficits for copper in the coming years. Gold, on the other hand, is benefiting from both these trade uncertainties and the 'lower for longer' expectations for interest rates."

S&P Global Ratings forecasts the copper price to average around $6,000/mt for the rest of 2019 and 2020, and $6,100/mt in 2021.

The London Metal Exchange three-month spot price was bid around $5,740/mt in Thursday afternoon trading. The contract hit a year-to-date high of $6,608.5/mt in April, having started the year at $5,970/mt.

Ratings is forecasting an average 2019 gold price of $1,450/mt and $1,400/mt in 2020/21. Bullion was spot bid around $1,500/oz Thursday afternoon.

"Our assumptions are modestly below prevailing prices; we incorporate the potential for market sentiment to quickly change and lead to short-term volatility," the report said. "We also believe prices beyond 2021 will average $1,300/oz, trending toward what we consider a long-term average level."

LIMITED NICKEL GAINS

S&P Ratings said the upside to nickel could be limited. The metal has been supported throughout 2019 following revised export regulations from Indonesia, one of the world's biggest suppliers.

"We currently believe the major bullish impact is likely to be relatively short term, with market stabilizing through2020," the report said. "The demand stemming from the stainless steel industry, though showing supporting healthy statistics recently, is susceptible to fluctuations driven by trade tensions, and we deem the current level of nickel prices to be unsustainable for the steel producers."

S&P Ratings sees nickel prices averaging $17,000/mt for the remainder of 2019, $15,000/mt in 2020, $15,500/mt in 2021and $16,000/mt in 2022.

The three-month LME nickel spot price was bid around $17,620/mt Thursday.

Nickel's main usage is in the stainless steel sector, which S&P Global Market Intelligence says could be under pressure in 2020 and correct lower.

"In 2020 we expect Chinese stainless steel output to subside as a result of falling PMIs and volatility in the macroeconomic environment caused by the trade dispute between China and the US," Market Intelligence commodities analyst Thomas Rutland told Platts.

-- Ben Kilbey, ben.kilbey@spglobal.com

-- Edited by James Burgess, james.burgess@spglobal.com