Moody’s blues: China-led global slowdown to materially impact metal prices

Following on the heels of a lower G20 economic growth forecast to 2.5% in 2022- down from its 3.1% growth estimate in May - credit rating firm Moody’s Investors Service has taken a scalpel to its commodity price forecasts on a basket of metals and mining commodities.

Lower price projections for aluminium, copper, gold, steel and metallurgical coal are now expected on the back of a China-led global slowdown in global demand.

Moody’s also notes that with supply remaining tight for most base metals during the coming 12 months, prices have held up relatively well.

The ratings agency expects a material slowdown in the country’s [China’s] economic growth to reduce demand across the metals and mining sector.

The price forecast for aluminium is lowered to US$1.20 per pound from $US1.30, while copper is down to US$3.50 per pound from $US4.

Supply to stay tight

Given that production has not kept pace with demand over the past two years, as supply chain issues and high inflation continue to impact, Moody’s expects supply to remain tight for most base metals during the coming 12 months.

"Prices, which have been volatile, are decreasing from the peaks of late 2021 and early 2022 but will remain historically high," noted Moody´s Investors Service senior vice-president Barbara Mattos.

Steel also affected

Moody's also lowered the medium-term price sensitivity range for steel in Asia and raised its 12-month price assumption and medium-term price sensitivity range for thermal coal.

The price assumption reflects Moody's expectations that G-20 economies will decelerate to 2.5% in 2022 and 2.1% in 2023, from 5.9% in 2021.

Cuts to Moody’s steel price forecasts include:

• Asia steel – China's domestic hot-rolled coil prices – down to US$600 per metric tonne from US$750.

• Brazil HRC down to US$800 per tonne from $US1000.

• Europe steel down to US$750, from US$1100, while US HRC is now set at US$800, down the previous US$1150 estimate.

Met coal

The Met coal price is expected to lower to US$220 per metric tonne, from US$275, while thermal coal is expected to be at $US250 per metric tonne versus the previous US$150.

Gold

Due to ongoing pressure from rising interest rates and a stronger US$, Moody's expects gold to trade around US$1700 per troy ounce down from US$1800 previously.

"Although gold is seen as an inflation hedge, higher US interest rates and bond yields raise the opportunity cost of holding bullion, which yields no interest,” the ratings agency noted.

Sector falls

The S&P/ASX300 Metals Mining Index (XMM) was down -2.22% today and finished the week -9.95% lower.

After going ex-dividend earlier in the week, one of the bigger price casualties this week was BHP (ASX: BHP) with the big miner down to $36.74 from the high of $42.41 at the start of the week.

BHP share price over three months.