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Metal Price Assumptions: Vaccinations To Restore Vigor In 2021


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Metal Price Assumptions: Vaccinations To Restore Vigor In 2021

Table 1

S&P Global Ratings Metal Price Assumptions
Revised assumption (as of Dec. 17, 2020) Previous assumption (as of Sept. 24, 2020)
2021 2022 2023 2021 2022 2023
Aluminum (US$/mt) 1,800 1,900 1,900 1,800 1,900 1,900
Copper (US$/mt) 6,700 6,800 7,000 6,300 6,400 6,500
Nickel (US$/mt) 15,000 14,500 14,500 13,500 14,000 14,500
Zinc (US$/mt) 2,400 2,500 2,500 2,300 2,400 2,500
Gold (US$/oz) 1,700 1,500 1,300 1,700 1,500 1,300
Iron ore (US$/dmt) 110 85 70 85 70 65
Metallurgical coal (US$/mt) 130 140 140 150 160 160
Thermal coal (Newcastle, US$/mt) 60 60 60 60 70 70
mt--Metric ton (1 metric tonne = 2,205 pounds). Oz--Ounce. dmt--Dry metric tonne. Source: S&P Global Ratings.

S&P Global Ratings has raised its metals price assumptions for iron ore, copper, and nickel, and slightly revised our views on zinc. We also lowered our price assumptions for coal. Our outlook for aluminum and gold remains unchanged.

The higher prices primarily reflect our view of stronger demand for industrial metals after the U.S. presidential election, as a global recovery gathers pace. Although the world is still grappling with the pandemic, and is far from resuming full-blown industrial production, we see a vastly improved outlook for most metals going into 2021.

China's Strong Economic Recovery Will Set The Tone For 2021

China's strong economic recovery continues to drive demand for industrial metals. Moreover, the weakness of the U.S. dollar compared with most of the commodity currencies should continue to support higher base-metal prices.

China's steel output was 87.7 million tonnes in November. This was below the peak of 94.9 million tonnes set in August, but it still represented 8% year-over-year growth, with full-year output on track for a record of about 1.05 billion tonnes. Robust demand combined with continued supply disruptions have seen iron-ore prices hit seven-year highs.

COVID Vaccines Fuel Optimism About Recovery.

Copper, nickel, zinc, and aluminum prices have all rebounded on the release of COVID-19 vaccines, fueling optimism for a fast market recovery. Indicatively, gold prices came off historical highs in August 2020, as news of a vaccine cleared some uncertainty about the pandemic, diminishing the flight to haven assets such as gold.

We still see risks. With the regions of the world at different stages of recovery, the pandemic's impact on commodity markets will vary. The possibility of prolonged economic weakness remains a key source of uncertainty. Any wobbles in Chinese demand will likely undermine growth, weaken sentiment, and add volatility to prices over the coming 12 months.

We also believe that rising U.S.-China tension could hit exports and manufacturing investment. Moreover, the inverse relationship between the U.S. dollar and metal prices could dampen prices if the dollar retraces its gains during the pandemic. Over the medium term, the transformation of the Chinese economy away from manufacturing could limit the demand for commodities (see "Industry Top Trends 2021 Metals and Mining," published Dec. 10, 2020).


Aluminum prices have had a strong rebound toward the end of 2020, underpinned by the potential for a weaker U.S. dollar, low interest rates, and a robust recovery in aluminum demand across all regions. Prices most recently reached US$2,000/tonne, a level not seen since 2018.

We remain cautious on the price recovery going into 2021. Our price assumptions remain unchanged at US$1,800 per metric tonne. 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, industry measures to curtail production and rationalize supply are still modest, leaving the industry with surplus capacity. Moreover, the supply balance in China remains a potential risk. China became a net importer of aluminum earlier this year. With prices at current levels, and given government stimulus measures that are creating demand for the metal, Chinese smelters may increase production in 2021. This could hit prices globally.


Prospects for a mild but increasing supply deficit in the market for refined copper are increasing, as Chinese imports grow firmly on the back of a surge in manufacturing and infrastructure development. The potential for a weaker dollar has also directed money flows to metal positions, which serve as a hedge on the greenback.

We are raising our copper price assumptions to US$6,700 per tonne in 2021, US$6,800 per tonne in 2022, and US$7,000 per tonne in 2023. We expect a modest but growing supply deficit in the market of refined copper for the next three years.

Our price assumptions remain below spot levels. Copper prices are volatile and we are cautious about the sustainability of current levels. Emerging pandemic risks for winter in the northern hemisphere or weaker demand from China could weigh on prices through 2021.

Asia--in particular, China--is the only region with growing demand for refined copper. Still, market indicators show an impressive strength: Chinese copper imports grew by 45% in the first 10 months of 2020 compared with the same period last year; global refined copper stocks fell toward the 400,000 tonnes-range, while Chinese industrial production was up by 7.0% in November 2020 year over year, the highest growth rate this year.

Table 2

Copper Supply-Demand Balance
(Thousand tonnes) 2018 2019 2020e 2021e 2022e 2023e
Production 24,570 24,716 24,608 25,694 26,230 26,665
Year-on-year change (%) 5.7 0.6 (0.4) 4.4 2.1 1.7
Consumption 24,489 24,455 24,628 25,781 26,343 26,815
Year-on-year change (%) 3.3 (0.1) 0.7 4.7 2.2 1.8
Balance 81 261 (20) (87) (113) (150)
Stock (no. of weeks' consumption) 11.0 11.6 11.5 10.8 10.3 9.9
e--Estimate. Source: S&P Global Market Intelligence.


Our gold price assumptions remain unchanged. We anticipate gold will average US$1,700 per ounce in 2021, US$1,500 per ounce for 2022 and US$1,300 per ounce in 2023, and thereafter. Levels have trended roughly in line with our previously revised assumptions and averaged close to US$1,800 per ounce in 2020. Historical peak levels of over US$2,000 per ounce were reached in August 2020 following a steady ascent through most of this year.

Gold prices have evened off over the past few months. We expect the news flow on COVID-19 vaccines--good for health, bad for haven assets--will take more momentum out of gold.

The correlation of gold prices with the U.S. dollar, interest rates, inflation, and oil partly explains the price moves. The decline in gold prices has tracked the decline in the U.S. dollar in the past few months. Rising oil prices serve as a barometer of the economic recovery. We anticipate that crude will resume its inverse relationship with gold prices--in line with historical norms. With gold likely falling in value over the next few years, we expect its relationship to the dollar, oil, rates, and inflation will normalize as the pandemic subsides.

Iron Ore

Iron ore prices set a seven-year high in December 2020, temporarily exceeding US$160 per dry metric tonne (dmt), as Chinese steel output reached an annualized run rate of about 1.05 billion tonnes in November. China's robust economic recovery--led by property and infrastructure--drove the rebound.

We have raised our assumption for iron ore prices to an average of US$110/dmt in 2021. This is in keeping with our expectation that strong Chinese demand will likely flow into 2021, and our view that a global seaborne supply deficit will keep iron-ore prices elevated in 2021.

We also raised our price estimate for iron ore to US$85/dmt in 2022, reflecting our view that the seaborne market will stay tight until 2023. China's rebounding economy generally and a ramp-up in industrial activity specifically should support iron ore prices.

A progressive rise in seaborne supply in 2021 and 2022 should keep prices on a downward path. This includes the gradual resumption of production from Vale S.A.'s disrupted mines and some new capacity coming to the market. We see iron prices sloping down over the next two to three years to US$70/dmt 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 1,837 1,936 1,992 2,035
Year-on-year change (%) 4.9 2.5 (1.4) 5.4 2.9 2.2
China crude steel production 928 996 1,049 1,066 1,079 1,090
Year-on-year change (%) 6.6 7.3 5.3 1.6 1.2 1.0
Global iron ore demand 2,334 2,359 2,360 2,463 2,527 2,550
Year-on-year change (%) 5.1 1.1 0.0 4.4 2.6 0.9
Global iron ore supply 2,328 2,307 2,272 2,381 2,457 2,486
Year-on-year change (%) 1.2 (0.9) (1.5) 4.8 3.2 1.2
Global balance (5) (52) (88) (82) (70) (64)
Total seaborne iron ore demand 1,491 1,467 1,514 1,583 1,627 1,660
Year-on-year change (%) 0.2 (1.6) 3.2 4.5 2.8 2.0
Seaborne balance (1) (12) (21) (12) 4 16
Mil.--Million. e--Estimate. Source: S&P Global Market Intelligence.

Metallurgical Coal

Robust steel demand in China has pushed up iron ore prices in the past three months. It is a different story for seaborne coking coal, with China restricting Australian coal imports. Free-on-board Australia coking coal price fell to US$100 per tonne recently from $135 per tonne at the time of our last publication in September, while the cost-and-freight China price surged to US$180 per tonne from US$145 per tonne over the same period.

We believe it is not in China's interests to halt Australian coal imports. We assume the country will loosen its restrictions in 2021. We have, however, pared our price assumptions for the benchmark Australia coking coal price by US$20 per tonne over 2021-2023, reflecting our expectation for a likely price moderation over the next two to three years.

Thermal Coal

The price of Newcastle thermal coal has risen to US$70 per tonne from US$50 per tonne in September 2020, driven by recovering demand in Asia-Pacific, particularly India. We expect this recovery trend to persist. We maintain our thermal coal price assumption at US$60 per tonne in 2021. However, we trim our assumptions for 2022 and 2023 by US$10 per tonne. We now assume a flattish US$60 per tonne over the next three years, which also reflects the view that countries and companies will reduce reliance on thermal coal while committing to net-zero carbon emission targets.


A strong recovery in nickel demand has seen prices rise almost 50% from the commodity's low point during the worst of the pandemic.

We have revised our assumptions upward to US$15,000 per metric tonne for 2021 and US$14,500 per metric tonne in 2022. We view prices as closely linked to the penetration rate of electric cars. The commodity is a key component of the batteries used in the vehicles. Given our expectations for a market surplus over the next two years, prices could remain volatile with shifts in demand.

Table 4

Nickel Supply-Demand Balance
(Thousand tonnes) 2018 2019 2020e 2021e 2022e 2023e
Primary output 2,229 2,375 2,391 2,515 2,638 2,739
Year-on-year change (%) 9.0 6.3 0.7 5.2 4.9 3.8
Primary use 2,327 2,402 2,288 2,435 2,597 2,759
Year-on-year change (%) 6.6 3.2 (4.8) 6.5 6.7 6.2
Balance (99) (27) 104 80 40 (20)
Total stock 753 720 764 844 884 864
e--Estimate. Source: S&P Global Market Intelligence.


Zinc prices rallied strongly after the U.S. presidential elections, in tandem with most other metals, and was further supported by supply-side constraints due to the temporary production halt at Vedanta Resources Ltd.'s Gamsberg mine.

We have raised our assumption for zinc prices by US$100/metric ton for 2021 and 2022, to US$2,400/metric ton in 2021 and US$2,500/metric ton in 2022. This reflects expectations of a recovery in the global economy. However, in the following years, we continue to believe that the potential for new supply coming to market may limit zinc's upside.

Table 5

Zinc Supply-Demand Balance
(Thousand tonnes) 2018 2019 2020e 2021e 2022e 2023e
Refined output 13,623 13,845 13,479 14,066 14,274 14,573
Year-on-year change (%) (1.3) 1.6 (2.7) 4.4 1.5 2.1
Refined use 13,694 13,726 13,430 14,045 14,307 14,579
Year-on-year change (%) (2.0) 0.2 (0.9) 4.6 1.9 1.9
Refined balance (71) 119 49 21 (33) (6)
Total stock 1,434 1,553 1,602 1,622 1,590 1,584
e--Estimate. Source: S&P Global Market Intelligence.

Related Research

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. While the early approval of a number of vaccines is a positive development, countries' approval of vaccines is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by mid-2021. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: As the situation evolves, we will update our assumptions and estimates accordingly.

This report does not constitute a rating action.

S&P Global Ratings Australia Pty Ltd holds Australian financial services license number 337565 under the Corporations Act 2001. S&P Global Ratings' credit ratings and related research are not intended for and must not be distributed to any person in Australia other than a wholesale client (as defined in Chapter 7 of the Corporations Act).

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