Fitch Ratings announced on Friday that it has increased near-term price assumptions for iron ore, coking and thermal coal, nickel and zinc, citing stronger post-pandemic demand and supply disruptions, particularly from Russia.
The ratings agency said its increased 2022 iron ore price forecast reflects the strong average year-to-date price of $140 (R2 238) a ton.
"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," it said.
Fitch said that while lockdowns were easing, construction activities were slow to resume, and manufacturing companies were hesitating to re-open due to fear of new infections.
The agency said it raised coking coal assumptions for 2022-2023, reflecting record pricing year to date due to disrupted supplies from Australia and Russia.
"Prices moderated in second quarter of 2022 once some exports recovered. Russian seaborne supply will remain below pre-war levels, with (analysis provider) CRU estimating a reduction of 20 million tons in 2022 and a further six million tons in 2023, before some recovery. We expect global long-term demand to fall on lower Chinese consumption, offsetting growth in other regions," it said.
The agency also increased the zinc assumptions for 2022-2023, reflecting smelter disruptions due to high energy costs, partially offset by a modest decline in demand in China and flat global demand.
"Supply is price-elastic and highly fragmented, which should spur smelter restarts once energy prices stabilise at lower levels," it said.
The thermal coal assumptions were also increased for 2022-2023, reflecting 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.
"Australian supplies will eventually recover, while India and China have increased imports from Russia, helping meet recovering Chinese demand," the ratings gency said.
Fitch’s increased 2022 nickel assumption reflected strong year-to-date pricing.
Low inventories, disruptions at Norilsk Nickel and Vale, sanctions fears, stronger-than-expected, battery-driven demand and a speculative rally in March, have rebased short- and medium-term prices, it said.
"We have raised assumptions for 2023-2024 as inventories, while normalising, will remain below historical levels, while demand from stainless steel and EV (electric vehicle) increases. However, Indonesian supply additions will leave the market oversupplied, although fast-growing EV demand represents some upside," the agency said.
The gold price and aluminium assumptions remained unchanged.
"Gold price assumptions reflected its ‘safe haven’ investment status amid the Russia-Ukraine conflict and rising inflationary pressures."
Investec chief economist Annabel Bishop said Russia’s invasion of the Ukraine had lasted longer than initially expected and still showed no sign of abating.
"The effects of the war were initially felt mainly through price channels, as the combat has disrupted supply chains, pushing up commodity prices substantially," Bishop said.
According to Bishop, South Africa’s key export remains coal, which was still running at historic high prices. This, she said, has not boosted the rand this quarter.