India Ratings expects base metals prices in 2021 to be higher year on year (yoy), led by a robust demand recovery amid gradual supply increases. Increasing environmental concerns and emission targets are likely to lift the global cost curves across metals, the ratings agency has said. Geo-political relations and currency movements are also likely to be the key drivers for metal prices, it has observed. Here is a brief synopsis from the India Ratings report.
Demand Growth Momentum to Sustain
The current strong global commodity demand is stemming from a continued strong Chinese demand while other economies are also making a comeback from the pandemic-related impacts. China which has a lion's share of global consumption of key commodities is likely to witness a strong demand over 2021 on back of a continued government-led infrastructure spending.
Tight Demand-Supply Equation
The global commodity demand improvement will be balanced by gradual capacity additions, although intermittent lockdowns in certain producing nations would cause temporary disruptions. Also, sustainability and decarbonisation efforts are likely to lead to capacity curtailments. Logistical and supply chain management remains an issue and also supports cost inflation. However, the tight demand-supply equation in 1H21 is likely to ease in 2H21.
Copper Market, Marginal Surplus
The copper price assumption for 2021 is higher yoy due to the tight demand supply equation for concentrates, while supply-side risks persist with labour contract renewals due in Chile and Peru. As such, refined metal could remain marginally in surplus by end-2021. Over the medium to long term, copper prices will be supported by the gradual energy transition which would result in increased usage of copper in cabling, electric vehicles, transformers, charging infrastructure and wind generators.