India Ratings and Research (Ind-Ra) has published the Metals and Price Deck 2021 report. It expects base metals prices in 2021 to be higher year on year (yoy), led by a robust demand recovery amid gradual supply increases. Increasing environmental concerns and emission targets are likely to lift the global cost curves across metals. Geo-political relations and currency movements are also likely to be the key drivers for metal prices.
The current strong global commodity demand is stemming from a continued strong Chinese demand while other economies are also making a comeback from the pandemic-related impacts. China which has a lion’s share of global consumption of key commodities is likely to witness a strong demand over 2021 on back of a continued government-led infrastructure spending, the rating agency said.
The global commodity demand improvement will be balanced by gradual capacity additions, although intermittent lockdowns in certain producing nations would cause temporary disruptions. Also, sustainability and decarbonisation efforts are likely to lead to capacity curtailments. Logistical and supply chain management remains an issue and also supports cost inflation. However, the tight demand-supply equation in 1H21 is likely to ease in 2H21.
The copper price assumption for 2021 is higher yoy due to the tight demand supply equation for concentrates, while supply-side risks persist with labour contract renewals due in Chile and Peru. As such, refined metal could remain marginally in surplus by end-2021. Over the medium to long term, copper prices will be supported by the gradual energy transition which would result in increased usage of copper in cabling, electric vehicles, transformers, charging infrastructure and wind generators, it said.
Zinc prices for 2021 are projected higher yoy, led by a strong recovery in global demand for galvanised steel. However, the mined zinc concentrate supply will gradually improve and marginally impact the prices over 2H22. Ind-Ra opines the refined metal is likely to be either flat or in a slight surplus situation as the global auto and infrastructure demand improves while supply is also improving commensurately amid high inventory levels.
The aluminium price assumptions for 2021 are higher, on account of the continuance of a strong demand from China while other countries are gradually increasing the usage over 2021 yoy. While China is likely to be in deficit in 2021, the global aluminium market is likely to be in surplus elsewhere. However, metal prices are likely to be supported by a high demand from auto and packaging end-user segments.
The thermal coal price assumptions for 2021 are higher yoy, on account of the strong Chinese demand amid low domestic inventories, gradual demand recovery ex-China, and supply constraints. Indonesia, the largest exporter of thermal coal, is exporting higher volumes to China, considering the Chinese ban on Australian imports. Increased ex-China demand is now being catered by Australia, the second-largest exporter of thermal coal, having limited supplies and thus leading to a price surge, the rating agency added.
