The coronavirus pandemic and lockdown measures across most major economies in 2020 triggered an economic recession of similar size to the 2009 financial crisis, with most commodity prices falling sharply in March 2020 as industrial activity halted.

However, according to a Fitch Ratings report, the outlook for base metals and iron ore prices is stable for 2021.

This article first appeared in Mining Review Africa Issue 1, 2021
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According to the report China has fuelled the recovery with a sizeable government stimulus. As such, commodity markets have since rebounded strongly, even though a full economic recovery will take much longer outside of China.

Iron Ore market remains tight

Iron ore prices have rallied in 2020, reaching a high of US$129/t in early September 2020. Demand has been supported by steady steel production in China throughout the pandemic, while iron ore supply was disrupted earlier in 2020 due to seasonal weather patterns and some pandemic-related curtailments.

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While Fitch expects the benchmark price to fall below $100/t going into 2021, the iron ore market will remain tight in 2021 and possibly 2022.

Copper an economic bellwether

In 2021, copper traded as low as $4 600/t at the height of pandemic-related uncertainty and rebounded to more than $6 500/t at signs of the economic recovery.

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Based on fundamentals, the price can fluctuate between $5 000 and $7 000/t, depending on the macroeconomic outlook, market sentiment and supply situation. Considering low stock levels of around two weeks, Fitch’s price assumption of $6 000/t for 2021 has little downside risk.

Stimulus drives nickel demand

China is the most important consumer of primary nickel globally with a consistent market share of around 55%. Fitch expects global nickel demand to rebound in 2021 as end-markets outside of China add to the momentum.

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The rating agency forecasts ex-China consumption growth of 10% and Chinese growth of 7% in 2021. This will be matched by supply and the market should mostly balance.

Zinc remains steady

A shortage of concentrate developed as zinc smelters continued to operate throughout the crisis, while mine supply declined by about 3.5% due to pandemic-related restrictions.

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Zinc prices recovered sharply due to the shortage in Q2, 2020 (after a massive fall in March, similar to that of other base metals), whereas treatment charges for smelters dropped.

Fitch expects the concentrate market to remain tight during most of 2021 as mine output recovers. Prices should begin to weaken in 2022 as new capacity comes online and concentrate follows the refined market into surplus.