The outlook for the mining sector has become more clouded in recent months due to trade tensions between the US and China, says Fitch Ratings in its Global Mining Half-Year Update.
Trade tensions show no sign of easing and are likely to be the key influence on prices and the main industry factor to monitor over the remainder of the year.
Otherwise, underlying industry fundamentals in most mining sub-sectors remain generally positive.
A majority of ratings in the sector have stable outlooks.
Positive rating action remains possible, particularly for those companies that continue to prioritise debt reduction.
The short-term copper price fall below US$6,000/t during July was largely driven by geopolitical concerns and exacerbated by momentum-driven funds pushing prices down further.
However, trade concerns have not yet led to lost consumption.
In addition, medium-term market consensus remains unchanged with a global deficit expected to emerge in the 2020s due to a recent lack of investment in replacement copper projects.
Future copper demand and prices will benefit from the growth in electric vehicle demand.
Full battery-powered vehicles contain around four times as much copper as a conventional medium-size car.
Nickel price volatility since the beginning of the year has been caused by concerns that Norilsk Nickel, the world’s largest producer, may be at risk from US sanctions, and further impacted by the US-China tensions.
Despite short-term concerns regarding global growth, our previous expectation of continuing physical deficits in 2018-2021 remains intact, supported by continuing growth in stainless steel production from Indonesia and China.
The other source of demand for nickel is from electric vehicle batteries, which could rise to 221,000 t in 2022, the equivalent of over 8% of total nickel demand today.
Zinc prices have fallen sharply, by around 25% since the beginning of the year on the back of concerns over tariffs on galvanised steel – the key source of demand for zinc – and the realisation that new supply is reaching the market starting from the second half of the year.
Prices have fallen ahead of fundamentals – zinc concentrates remain in deficit – but CRU believes it would take a significant market shock to push prices higher.
Concentrate supply should start to comfortably exceed new smelting capacity after 2019, concentrate inventories will start to grow, and CRU forecasts that the refined zinc market will move to an annual surplus.