Theme of the Day: Fitch Ratings raises global metals price assumptions

Fitch Ratings has increased medium-term and mid-cycle price assumptions for aluminium and zinc due to higher demand and tight supply expectations. Higher short- and medium-term assumptions for iron ore and metallurgical coal, and our 2024 assumption for copper largely reflect supply-side constraints. Increased gold assumptions for 2024-2026 are due to the higher geopolitical premium. Our reduced 2024-2025 nickel assumptions reflect market oversupply. We have added price assumptions for 2027 to the set.The increased 2024 copper assumption reflects supply-side disruptions and lower production guidance from producers, which, together with a demand recovery outside China, will lead to a market deficit. Inventory levels remain very low. The unchanged assumptions for later years are based on our expectations that additional mine supply will come online in 2025-2026, while demand growth in China will moderate, most likely leading to small market surpluses.Our increased iron ore assumptions for 2024-2026 reflect operational issues at many major producers due to underinvestment since 2020 that now constrain their ability to ramp up production to targets, limiting supply. The market will remain tighter for longer, as our demand assumptions are broadly unchanged.A small reduction in the 2024 aluminium assumption reflects weaker pricing in the year to date, although we expect prices to gradually increase later this year, supported by recovering demand outside China. The increased medium-term and mid-cycle assumptions reflect future demand growth that will require restarting higher-cost smelters and capacity expansion outside China due to the 45 million tonnes capacity cap in the country. Many international producers have been reluctant to invest in expansion, partly due to the lack of commercially available inert anode technology. However, investments in new capacity in Indonesia and some other Asian countries should ultimately balance the market.Our increased medium-term and mid-cycle assumptions for zinc reflect the expectation that demand will gradually recover, supported by incremental growth in China, despite short-term challenges. Falling ore grades at some of the largest global producers and recent production curtailments will result in lower supply from 2027 even though several new mines will come onstream in the medium term, leading to market deficits.The reduced 2024-2025 nickel price assumptions reflect increasing global supply, particularly due to a rise in Class 1 nickel output in Indonesia and China, leading to large market surpluses and increasing inventory levels. We still expect demand to increase in 2024, supported by recovering consumption in the battery and stainless-steel sectors.