To reflect stronger post-pandemic demand and supply interruptions, especially from Russia, Fitch Ratings has lifted its price forecasts for iron ore, coking and thermal coal, nickel and zinc.
Fitch increased its target for iron ore by $US10 to $US120 a tonne for 2022.
With demand from Chinese gradually returning on the back of the government’s renewed stimulus towards the infrastructure sector, and support from supply constraints, Fitch expects the annual average iron-ore price for 2022 and 2023 to remain above pre-covid levels.
“Supply concerns, the Ukraine-Russia war and seasonally lower Brazilian and Australian shipments have supported prices, despite lower steel production in China year-on-year due to policy requirements and lower demand, ”Fitch noted.
“While the government is committed to stimulus and monetary policy easing, there has not yet been a recovery in steel demand. There could be some price upside if steel consumption revives early in 2H22."
The US credit rating agency also expects low-cost iron ore supply to nudge the market into surplus in two-to-three years.
To reflect record pricing year-to-date, due to disrupted supplies from both Australia and Russia, Fitch has also raised coking coal assumptions for 2022-2023.
Fitch expects Russian seaborne supply to remain below pre-war levels, with CRU estimating a reduction of 20m tonnes in 2022 and a further 6m tonnes in 2023, before some recovery.
We expect global long-term demand to fall on lower Chinese consumption, offsetting growth in other regions.”
The rating agency’s increased thermal coal assumptions for 2022-2023 reflect high year-to-date prices, supported by tight supply due to the Australian wet season, strong Indian demand mitigating lower demand in China, and structurally higher prices of Newcastle 6000.
However, Fitch notes “Australian supplies will eventually recover, while India and China have increased imports from Russia, helping meet recovering Chinese demand.”
Fitch attributes a rebasing of short and medium-term prices to low inventories, disruptions at Norilsk Nickel and Vale, sanctions fears, stronger-than-expected battery-driven demand, and a speculative rally in March.
“We have raised assumptions for 2023-2024 as inventories, while normalising, will remain below historical levels, while demand from stainless steel and EV increases,” Fitch notes.
“However, Indonesian supply additions will leave the market oversupplied, although fast-growing EV demand represents some upside.”
Meantime, while aluminium and gold assumptions have not changed, Fitch’s increased zinc assumptions for 2022-2023 to reflect smelter disruptions due to high energy costs, partially offset by a modest decline in demand in China and flat global demand.
Hard coking coal was lifted by $US100 to $US400 a tonne
Thermal coal, or Newcastle, was lifted by $US50 to $US270 a tonne
Thermal coal, or Qinhuangdao, was lifted by $US16 to $US162 a tonne
Nickel was increased by $US5000 to $US25,000 a tonne
Zinc was edged $US100 higher to $US3600 a tonne
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