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S&P Global Ratings Lifts Price Assumptions For Most Metals


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S&P Global Ratings Lifts Price Assumptions For Most Metals

Table 1

S&P Global Ratings Metal Price Assumptions
Revised assumption (as of Sept. 23, 2020) Previous assumption (as of July 1, 2020)
Rest of 2020 2021 2022 2023 Rest of 2020 2021 2022
Aluminum (US$/mt) 1,700 1,800 1,900 1,900 1,600 1,700 1,800
Copper (US$/mt) 6,500 6,300 6,400 6,500 5,900 6,100 6,200
Nickel (US$/mt) 13,500 13,500 14,000 14,500 13,000 13,500 14,000
Zinc (US$/mt) 2,200 2,300 2,400 2,500 2,000 2,100 2,200
Gold (US$/oz) 1,900 1,700 1,500 1,300 1,650 1,400 1,300
Iron ore (US$/dmt) 110 85 70 65 85 70 65
Metallurgical coal (US$/mt) 130 150 160 160 130 160 160
Thermal coal (Newcastle, US$/mt) 60 60 70 70 60 70 70
mt--Metric ton (1 metric ton = 2,205 pounds). Oz--Ounce. Dmt--Dry metric ton

S&P Global Ratings has again raised its price assumptions for most metals for the rest of 2020. In particular, we increased the price assumption for iron ore by more than 20% for the rest of 2020, after the recent rally over the past few months.

The price changes are mainly due to China's stronger economic recovery than we previously expected after the initial effects of COVID-19, as well as the weakness of the U.S. dollar compared with most of the commodity currencies.

Although the Western world is still attempting to contain the pandemic, and in some countries a second wave of lockdowns are being considered, we see a continued recovery trend for the global economy in the second half of 2020 and in 2021. This is a further improvement to what we observed when we published the previous price deck on July 1, 2020 (see "Metal Price Assumptions: Gold Shines, While Slow Recovery Flattens Other Metal Prices"). We continue to assume that the path to recovery will be slow and volatile, causing commodity prices to fluctuate within wide ranges. The potential volatility also explains our more prudent approach in using slightly lower price assumptions for the rest of the year compared with current spot prices.

A better-than-expected recovery of the Chinese economy is good news for miners in the short term

In May, the Chinese government announced a $500 billion fiscal stimulus package to offset the economic fallout of the coronavirus pandemic. This resulted in strong demand for infrastructure and vehicle production. We view the recent positive economic indicators coming from China as good news for the mining industry. For example, China's retail sales increased in August, the first uptick since the pandemic, and the Chinese Caixin Purchasing Managers' Index (PMI) rose to 53.1 in August from 52.8 in July.

In addition, the Chinese auto industry, which was one step behind the comeback of the Chinese economy, is also making progress. In our recent publication, "China Auto's Recovery Path Is Accelerating," published Sept. 22, 2020, we outlined improved sales assumptions for 2020 and 2021. We now assume auto sales will decline 6%-9% in 2020 and recover 4%-6% in 2021, compared with our previous assumptions of a drop of 8%-10% in 2020 and a modest pickup of up to 4% in 2021.

That said, there are some risks in the horizon. We believe that rising U.S.-China tensions could hit exports and manufacturing investment. In addition, over the medium term, the transformation of the Chinese economy away from manufacturing could limit the demand for commodities.

Forty days to go till the U.S. elections

The unprecedented measures by the Trump administration to support the economy have resulted in a sharp decline in the value of the U.S. dollar against the main currencies, translating also to higher commodity prices. The potential for a change of leadership may result in further risk of U.S. dollar currency weakness due to higher taxes and less aggressive trade protection policies.


The recovery in the global economy resulted in a rebound for aluminum prices, but not to the same extent as for other metals. The appetite for new cars in Europe and the U.S., a key driver for aluminum growth in the coming years, is still low. Moreover, unlike the tight balance between supply and demand for other metals, the aluminum industry has sizable inventory levels. In addition, curtailments announced pre-COVID-19 and supply rationalizations in aluminum production are still modest, leaving the industry with surplus capacity. As a result, material upside to aluminum prices is rather limited.


We have raised our near-term copper price assumptions to reflect stronger momentum for the metal, fueled by the strength of the industrial bounce back in China and a weaker U.S. dollar. We now see a more balanced demand-supply situation in 2020 and higher demand in the short term. This latter dynamic, without an increase in supply, could lead to prices climbing close to $7,000/ton or more. Looking into 2021, we expect a more pronounced recovery to result in a supply deficit that should support higher prices.

Given the volatility in prices and the uncertainty, we took a prudent approach, assuming only gradual increases in copper prices in the coming years. In practice, we can envisage an optimistic scenario in copper prices, boosted by much higher demand coming from electric vehicles (EV). For example, EV sales in China grew 22% in July, year over year, reaching 2.2 million units.

Meanwhile, sizable greenfield projects are unlikely to be commissioned in the coming years, in our view.

Table 2

Copper Supply-Demand Balance
(Thousand tons) 2018 2019 2020e 2021e 2022e 2023e
Production 23,679 24,130 23,632 24,659 25,654 26,480
Year-on-year change (%) 3.19 1.90 (2.06) 4.35 4.03 3.22
Consumption 23,723 24,042 23,595 24,746 25,752 26,672
Year-on-year change (%) 3.24 1.34 (1.86) 4.88 4.06 3.58
Balance (45) 88 37 (87) (97) (193)
Stock (no. of weeks` consumption) 12.4 12.4 12.7 12.0 11.3 10.5
e--Estimate. Source: S&P Global Market Intellegence.


Gold prices have risen sharply in 2020 and briefly exceeded $2,000 per ounce (/oz)--a historical peak. As a result, we have increased our gold price assumptions for the rest of 2020 through 2022. In addition, we now include an assumption for 2023 of $1,300/oz, consistent with our view of the long-term average gold price. Underpinning the assumption is our expectation for close-to-zero interest rates to persist in the U.S. for the next few years, which is consistent with the market consensus, as well as the overall general financial market uncertainty related to the pandemic.

Looking beyond the next six to 12 months, we believe that a recovery of the economy and expectations for an increase in interest rates will result in lower gold prices. In addition, abnormal gold prices could push more companies to increase their capacity, in turn leading to more sustainable price levels.

Iron Ore

Iron ore continues to outperform market expectations, due to resurgent Chinese steel demand from the ramp-up of industrial activity post-COVID-19. Iron ore prices reached a six-year high in August-September 2020. According to data from World Steel Association, China produced 93.4 million tons of crude steel in July 2020, an increase of 9.1% compared with that in July 2019. We expect the healthy demand to remain for the rest of the year, and will likely flow over into the first half of 2021.

While the ramp-up of industrial activities and stimulus policies in China and in other countries can support iron ore prices over the coming six to 12 months, we continue to see that the transformation in the Chinese economy will set a cap on future demand for iron ore. In addition, the ramp-up of Vale S.A.'s currently idled capacity and some new capacity coming to the market are likely to squeeze iron prices over the next two to three years, bringing prices to $65 per dry metric ton over the long term.

Table 3

Iron Ore Supply-Demand Balance
(Mil. tonnes) 2018 2019 2020e 2021e 2022e 2023e
Global crude steel production 1,817 1,863 1,780 1,868 1,916 1,951
Year-on-year change (%) 4.88 2.48 (4.45) 4.96 2.56 1.87
China crude steel production 928 996 1,014 1,031 1,043 1,053
Year-on-year change (%) 6.59 7.33 1.80 1.60 1.20 1.00
Global iron ore demand 2,334 2,359 2,311 2,395 2,452 2,487
Year-on-year change (%) 5.10 1.10 (2.06) 3.65 2.39 1.43
Global iron ore supply 2,328 2,325 2,343 2,436 2,517 2,539
Year-on-year change (%) 1.22 (0.14) 0.79 3.95 3.35 0.86
Global balance (5.4) (34.4) 32.6 40.8 65.0 51.6
Total seaborne iron ore demand 1,491 1,467 1,478 1,537 1,572 1,593
Year-on-year change (%) 0.19 (1.63) 0.78 3.98 2.26 1.34
Seaborne balance (1.4) (12.3) (3.5) 3.2 18.9 36.2
e--Estimate. Source: S&P Global Market Intellegence.

Metallurgical Coal

The price of seaborne coking coal has recently recovered to about $130 per ton, from a low of $105 per ton in mid-August, stemming from the gradual improvement of steel production of major producing Asia-Pacific countries. Similar to iron ore, China's strong demand for steel is the main driver for the recent recovery of metallurgical coal. Our assumption of $160 per ton from 2022 is similar to the 10-year average price.

Thermal Coal

Lower demand for electricity in the first half of the year put pressure on thermal coal prices. However, the picture will likely change in the coming quarters as Asia-Pacific returns to normal operation levels. We note that our price assumption for the entire period remains below the 10-year average of $80 per ton, reflecting reduced reliance on coal in the long run.

We note that financing providers are increasingly wary of funding coal projects, a consistent theme we have observed globally. This has led to rising difficulties for coal companies to access capital, which will consequently affect their credit quality. Yet, we believe that coal will remain an important source of energy in emerging markets in the next five to 10 years, given its relatively lower costs, if no environmental costs are factored in, and its abundance.


After the sharp decrease in nickel demand in the first half of 2020, we expect a material recovery of about 9% in 2021 and close to 6% per year over the medium term, which will outpace new capacity growth. Future demand is closely linked to the evolution of EVs and their penetration rate, which may result in volatile prices.

Table 4

Nickel Supply-Demand Balance
(Thousand tonnes) 2018 2019 2020e 2021e 2022e 2023e
Primary output 2,229 2,369 2,323 2,510 2,633 2,746
Year-on-year change (%) 9.01 6.31 (1.95) 8.04 4.89 4.31
Primary use 2,327 2,402 2,243 2,445 2,588 2,751
Year-on-year change (%) 6.59 3.20 (6.62) 9.00 5.85 6.31
Balance (98.6) (32.9) 80.3 64.8 45.0 (4.7)
Total stock 753 720 800 865 910 905
e--Estimate. Source: S&P Global Market Intellegence.


China's steel demand is better than we expected, boosting demand for zinc. However, unlike copper and iron ore, we believe that new supply can flood the market more easily, as witnessed in the past. As a result, we believe that upside potential to zinc prices is relatively limited.

Table 5

Zinc Supply-Demand Balance
(Thousand tonnes) 2018 2019 2020e 2021e 2022e 2023e
Refined output 13,623 13,845 13,432 14,005 14,282 14,490
Year-on-year change (%) (1.32) 1.63 (2.99) 4.27 1.98 1.46
Refined use 13,694 13,726 13,372 13,965 14,306 14,516
Year-on-year change (%) (2.00) 0.23 (2.58) 4.44 2.44 1.47
Refined balance (71.1) 119.4 60.0 39.5 (24.0) (26.2)
Total stock 1,434 1,553 1,613 1,653 1,629 1,603
e--Estimate. Source: S&P Global Market Intellegence.

Related Research

  • Coal Sector Faces Tightening Access To Capital As Demand Dynamics Weaken, Aug. 17, 2020
  • Economic Research: Global Growth Suffers As Secondary Trade Effects Go From Risk To Reality, July 2, 2019
  • Trade Casts A Shadow On Global Credit Conditions, Report Says, July 1, 2019
  • Global Corporate Capex Survey 2019: Curbed Enthusiasm, June 19, 2019
  • The Top Five Global Miners Remain Sensitive To Environmental And Social Risks, June 18, 2019
  • Sector Review: Signposts Marking Corporate China's Road To Default, June 3, 2019
  • Global Trade At A Crossroads: U.S. And China Exchange Tariff Blows, May 14, 2019
  • Trump's Tariffs Could Hurt EU Carmakers--Not The Economy, March 26, 2019
  • Issuer Ranking: Global Metals & Mining Companies, Strongest To Weakest, Jan. 29, 2019
  • FAQ: How S&P Global Ratings Formulates, Uses, And Reviews Commodity Price Assumptions, Sept. 28, 2018

This report does not constitute a rating action.

Primary Credit Analyst:Elad Jelasko, CPA, London (44) 20-7176-7013;
Secondary Contacts:Diego H Ocampo, Buenos Aires (54) 114-891-2116;
Simon Redmond, London (44) 20-7176-3683;
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