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Metal Price Assumptions: Prices Stay Hot, But No Signs Of A Melting Point

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Metal Price Assumptions: Prices Stay Hot, But No Signs Of A Melting Point

S&P Global Ratings has once again raised its price assumptions for all metals covered for 2021 and for most of them for 2022. This is in line with our updated views of a stronger recovery worldwide, driven by government stimulus, vigorous spending on infrastructure and electrification, as well as the resurgence of trade and economic activity as the pandemic effects fade. Prices for metals such as iron ore and copper have reached all-time highs and will remain strong because suppliers can't keep up with the pace of demand in the short term. In the longer term, we remain more cautious with price trends for all metals in general, as demand would lose some of its current strength, but prices of some metals are likely to continue benefiting from inflation--clearly gold is used to hedge for that--while supply constraints and the de-carbonization trend would allow copper to shine.

Also, China's cuts to its steel production due to environmental problems are fueling iron ore and coal prices, because steelmakers favor high-quality raw materials to contain emissions. That may also occur to aluminum, although probably not to the same magnitude as for iron ore due to relatively larger stocks. In addition, production discipline and trade barriers continue to push steel prices up in the U.S. and Europe. For more info on economic outlooks please read "Economic Research Asia-Pacific's Recovery Regains Its Footing," published June 23, and "Economic Outlook U.S. Q3 2021: Sun, Sun, Sun, Here It Comes," and "Economic Outlook Europe Q3 2021: The Grand Reopening," published June 24, 2021 on RatingsDirect.

S&P Global Ratings Metal Price Assumptions
--Revised assumptions (as of June 29, 2021)-- --Previous assumptions (as of March 30, 2021)--
2021 2022 2023 2021 2022 2023
Aluminum ($/mt) 2,100 2,000 2,000 1,900 2,000 2,000
Copper ($/mt) 9,000 8,500 8,000 8,500 8,000 7,500
Nickel ($/mt) 15,500 15,000 14,500 15,000 14,500 14,500
Zinc ($/mt) 2,700 2,600 2,500 2,600 2,500 2,500
Gold ($/oz) 1,800 1,600 1,400 1,700 1,500 1,300
Iron ore ($/dmt) 190 120 90 130 100 80
Metallurgical coal ($/mt) 150 140 140 130 140 140
Thermal coal (Newcastle; $/mt) 90 60 60 70 60 60
mt--Metric ton (1 metric ton = 2,205 pounds). oz--Ounce. dmt--Dry metric ton. Prices for 2021 relate to the remainder of the year. Source: S&P Global Ratings.


Aluminum prices have continued to rebound strongly this year thanks to a robust recovery in aluminum demand across all regions and regional supply constraints, leading to record-high premiums. We have revised our price assumptions upwards by $200 per ton for the rest of 2021 and kept prices unchanged for 2022 and 2023. Recently, aluminum prices reached $2,500 per ton, which we haven't seen since 2014. However, we expect prices to decline from these levels for the rest of the year due to the remaining excess inventory overhang, given the disruption in downstream industries in 2020, particularly aerospace. We expect aluminum consumption to bounce back and rise 7% this year on a robust recovery in automotive and manufacturing demand in Europe and the U.S., as well as the healthy outlook for green energy infrastructure investment. However, the upside for prices could remain muted because it appears that there are sizable inventories of aluminum, unlike several other metals, as well as some latent capacity for a production resumption. Measures to curtail production and rationalize supply are still modest, leaving the industry with surplus capacity. China's announced production capacity limit of 45 million tons, which could lead to slower capacity growth and a cap on supply, may support aluminum prices over the long term. As the industry increasingly focuses on the carbon emissions intensity of aluminum production, producers may curtail additional capacity outside of China in the future.


During the first half of 2021, copper demand clearly outpaced supply. Although that gap narrowed a bit since the peak in May, we expect prices to remain strong for the rest of the year and beyond. We expect a deficit for 2021 of more than 200,000 tons, which should sustain prices of at least $9,000 per ton in the second half of the year. For 2022, we continue to expect a gradual softening as industrial demand would come down a bit, resulting in price averages of $8,500 in 2022 and $8,000 in 2023.

We continue to weigh on a gradual adoption of electric vehicles (EVs) that would secure at least 1% of additional demand starting in late 2022 and might rise 2.0%-2.5% in a rapid-adoption scenario.


We have raised our nickel prices by $500/ton for the rest of 2021 and 2022 because of continuing economic recovery and strong growth of EV sales, which will lead to tighter surplus in 2021 and 2022. Still, we expect prices to be under pressure from widening surplus in the market due to sizeable capacity additions in Indonesia as well as a ramp-up of battery-grade nickel production from nickel pig iron, which Tsingshan Group announced in March. Therefore, we maintained our long-term rice of nickel intact.


We have raised our assumptions for zinc prices by $100 per ton for each of the remainder of 2021 (to $2,700 per ton) and for full-year 2022 (to $2,600 per ton) and maintained them for 2023 at $2,500 per ton. The upward move in our assumption for the rest of 2021 takes into account the expectation of a cooling down in the second half of the year (mainly given a moderation in Chinese demand), albeit from a very high base --the actual average price of zinc in the first half of the year was about $2,850/ton and spot is traded around $2,880 per ton after a peak in early June at about $3,080 per ton. We expect any further upside in prices to be moderated also by the surplus position of the global zinc market for the remainder of the year (though much lower than in 2020). For 2022, we expect the surplus to tighten to the 20,000 tons region, providing support for zinc prices. That said, new supply can come to the market more easily than for other commodities like iron ore & copper. Therefore, our assumption for 2022 is now higher but by only $100 per ton at $2,600 per ton.


Gold prices have remained at historically favorable levels despite the post-pandemic rebound in macro-economic conditions. We slightly increased our gold price assumptions for the next few years, and this follows stronger-than-expected, year-to-date performance. We now assume $1,800 per ounce (oz) for 2021, dipping to $1,600/oz in 2022 and $1,400/oz in 2023, representing an increase of $100/oz relative to our previous annual assumptions. The price of gold has subsided from its peak in late 2020, but it remains well above historical average levels.

We continue to expect gold prices to decline in the next two years, but at a slower pace than our previous forecasts. In our view, gold prices have remained solid amid a much stronger global macro-economic backdrop, particularly in 2021. Trends that often negatively correlated with gold prices have persisted, including relative strength of the U.S. dollar, higher oil prices--and until recently--limited inflation. Equity markets have also continued to rally. However, despite a recent decline, gold trades close to its historical peak of just over $2,000/oz (currently at close to $1,800/oz).

We acknowledge that market sentiment can quickly change, and we expect short-term volatility to persist. In addition, the expectations for interest rate hikes in the U.S in 2023 could lend support to the dollar and temper future gold prices. Over the next couple of years, our gold price assumption trends lower and close to the long-term average levels currently assumed by many leading gold producers.

Iron Ore

Iron ore continues to surge, setting a new all-time record of $233 per dry metric ton (dmt) in May 2021. China's steel demand remains robust—thanks to its economic recovery and investments in the property and infrastructure sectors--has caused output rising to a new historic run-rate of close to 98 metric tons (mt) per month of crude steel in April 2021. Recent spot prices have remained above $200/dmt, as relatively minor supply disruptions add fuel to a market that's already struggling to keep pace with the overwhelming demand for the key steel-making ingredient.

We raised our assumption for iron ore price assumptions to an average of $190/dmt for the remainder of 2021, reflecting our view that the underlying strength of iron ore prices will continue into the second half of 2021. We also lifted our prices to $120 in 2022, and $90 in 2023 and afterwards. This reflects our view that the resumption of production at Vale S.A.'s disrupted mines may take longer than previously expected and this will continue to keep the seaborne market in supply deficit for at least the next one to two years.

At current prices, the vast majority of high-cost, fourth-quartile producers with cash costs of above $100/dmt are generating healthy profits. Still, over the long term, we believe that high-cost marginal producers will likely be forced out of the market as Vale's supply returns to normal levels, which will reduce prices toward the marginal cost of supply.

Metallurgical Coal

Seaborne met coal price has surged more than 60% since mid-May and reached nearly $180 per ton recently. This is due to both ongoing demand recovery and supply tightness. Global crude steel production grew 16.5% year over year in May. China's crude steel production reached a record high of 99.45 million tons in May, while other countries also registered high growth rates due to lower base last year. We expect steel demand to remain robust in the second half of the year as economies continue to recover. China's consumption recovery remains soft and we believe the its government will continue to curb the property market; therefore, infrastructure investment will support the economy. We raised our met coal price assumption for the rest of 2021 to $150 per ton from $130 to reflect the robust demand. We maintained our assumptions for 2022 and 2023 at $140 per ton because we expect price to retreat from the recent peak when growth normalizes. There seems no loosening of China's import ban of Australian coal. China's cost-and-freight met coal price has reached nearly $300 per ton. Any easing of its ban will bring the seaborne price and China price closer, as they used to be before the ban.

Thermal Coal

Newcastle thermal coal price has been rising from a low $48 per ton in September 2020 to nearly $130 per ton in June, as a result of ongoing recovery of thermal power generation in the Asia-Pacific region. Yet we believe such a price level may not be sustainable when growth starts normalizing. As a result, we raised our price assumption for the rest of 2021 to $90 per ton from $70 per ton in our previous forecast, while maintaining our assumptions for 2022 and 2023 at $60 per ton. These prices are below the 10-year average of $80 per ton, reflecting our more bearish view on thermal coal as countries reduce their carbon intensity.

This report does not constitute a rating action.

Primary Credit Analyst:Diego H Ocampo, Buenos Aires (54) 114-891-2116;
Secondary Contacts:Donald Marleau, CFA, Toronto + 1 (416) 507 2526;
Jarrett Bilous, Toronto + 1 (416) 507 2593;
Minh Hoang, Singapore + 65 6216 1130;
Ozana Breaban, London + 442071763302;
Mikhail Davydov, Moscow + 7 49 5662 3492;
Danny Huang, Hong Kong + 852 2532 8078;
Clara McStay, New York + 1 212 438 1705;
Elad Jelasko, CPA, London + 44 20 7176 7013;
Simon Redmond, London + 44 20 7176 3683;

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