(The following statement was released by the rating agency) Fitch Ratings-London-November 06: Fitch Ratings has lowered aluminium and copper price assumptions on expectations of falling demand. We expect new aluminium production in China to grow in 2020, increasing pressure on prices and have introduced an assumption for thermal coal in China for the first time. /iframe
Aluminium faces a challenging outlook in 2020 due to weakened demand, primarily from the automotive sector, and increasing supply from China (expected to grow by 7.1% in 2020). New supply will come from capacity additions in the country, which are well progressed and whose development is unlikely to be deferred. However, aluminium producers' margins are supported by falling input costs, particularly of alumina. Whereas around 40% of the industry was lossmaking 12 months ago, only around 13% of aluminium producers globally are currently lossmaking, with the share of lossmaking smelters in China less than 5%. Falling demand will lower copper prices, even with no significant additions to supply. CRU has reduced its global refined copper demand forecast by 237,000 tonnes to 23.5 million tonnes in 2019 and by 424,000 tonnes to 23.9 million tonnes in 2020. CRU also expects mine production to contract by 0.8% in 2019 to 20.7 million tonnes. This is primarily due to a 50% reduction in the output from Grasberg, one of the largest copper mines in the world, and a high level of disruption in key copper-producing regions. Mine supply will grow by a modest 1.3% in 2020 with the copper market remaining essentially in balance for the next two to three years, with deficits only emerging in 2023. Our decision to raise the 2020 gold price assumption while keeping future years unchanged reflects the likelihood that the uncertainty around geo-political and trade issues will continue into 2020. Gold prices are significantly affected by investment flows and central bank purchases and sales as well as market supply and demand. Gold prices have been rising this year from the combination of increased geo-political and trade tensions. We introduced our new assumption for thermal coal in China. Historically, the Australian Newcastle price and the Qinhuangdao price in China had been correlated, but this dynamic has changed recently. Chinese manufacturers moving inland for lower labour and land costs is a big factor, as this puts pressure on demand for seaborne coal due to high inland transportation costs. Therefore the Qinhuangdao price is more relevant for rated Chinese coal miners, as well as Indonesian miners who commonly have a significant Chinese exposure. Click here for more information on how we use price assumptions: Using Commodity Prices in Corporate Projections /a . Contact: Peter Archbold, CFA Senior Director, Corporates +44 20 3530 1172 Fitch Ratings Limited 30 North Colonnade London E14 5GN Tatiana Kordyukova Senior Director, Fitch Wire +44 20 3530 1954 Media Relations: Adrian Simpson, London, Tel: +44 20 3530 1010, Email: adrian.simpson@thefitchgroup.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. 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