Minerals and metals demand recovery in 2021

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A more favorable market climate can be seen by miners and metal producers in 2021, as almost all mineral and metal prices (except iron ore) are predicted to average higher year-on-year (y-o-y) in 2021, Fitch Solutions forecasts in its latest study.

While metal prices have recovered impressively over Q2-Q420, following the decline reported at the beginning of the year due to covid-19, Fitch states that prices will continue to fall on average year-on-year basis in 2020.

In 2021, Fitch says that the wider and stronger global economic growth would boost rates when covid-19 vaccinations are made available. In some primary mining nations, such as Peru and South Africa, access to vaccinations would also help reduce the threats to operations seen in 2020.

According to Fitch, mining and metal activities would therefore increase in 2021, after the industry encountered massive disturbances in 2020 due to government-imposed lockdown steps and tighter procedures for health and safety.

This was especially the case for the copper sector, as the pandemic had a major effect on Peru and Chile, which account for a large share of the mine’s output. The resulting pickup in production is likely to retain something of a price limit.

Fitch, however, expects a sharp recovery in global mineral and metal demand in 2021. As infrastructure projects continue to make progress, China’s metal consumption will remain high, backed by the Covid-19 stimulus program.

Other nations, such as the US, the EU, Japan and India, in the case of steel and aluminium, which have seen their mining and metal activities interrupted and impacted by lower end demand, would see a sharper production turnaround.

Fitch states that the continuing acceleration of decarbonisation policies and corporate environmental, social and governance (ESG) programs, while a slow-burning and longer-term development in nature, suggests that demand for some metals used in renewable energy infrastructure and for electric vehicle batteries (including copper, nickel and aluminium) will be funded in 2021 and beyond.

Elevated rates will help to benefit gold miners. Compared with 2020, Fitch sees mines and metals capital spending improving in 2021.

Although 2020 forecasts began to decline marginally as the pandemic advanced from April to November, the budget forecast for 2021 changed as a result. This move is possibly attributed to businesses postponing expansion initiatives from 2020 to 2021 and in the wake of the pandemic, focused on saving cash in the interim.

The outlook for mines and metal producers is favorable for next year, Fitch maintains, as overall costs, output and demand of minerals and metals may increase in 2021.

The fall in input prices expected by Fitch for steel in 2021, due to increased supply (iron ore prices and coking coal), would allow the sector to achieve profitability.

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