Henry Lazenby | May 6, 2022
Fitch expects relatively persistently high metals prices should help cushion the credit effects of cost inflation and generally lower production amongst senior miners. (Image courtesy of Consejo Minero.)
Enduring covid-19-lockdowns in the world’s largest metal consumer, China, is negatively impacting demand from end-use industries and sentiment towards the complex, resulting in lower metals prices, a new report by Fitch Solutions Country Risk & Industry Research notes.
Nevertheless, the market analyst maintains its 2022 metal price forecasts as prices remain above levels seen before the Russia-Ukraine conflict in general.
It also expects Chinese demand to eventually pick up in the second half, which will bring more stability to metals prices. Additionally, Fitch sees lockdowns in China as also acting to restrict supply. China is the world’s largest producer of metals, which will eventually drive prices to a balance in the coming months.
Fitch’s macro team expects further contractionary readings in both Chinese manufacturing and nonmanufacturing purchasing managers’ indexes in the remaining two months of the current quarter.
“Further lockdowns, either district-wide or full, have been imposed in more than two dozen cities around the country, with the capital Beijing having undergone three rounds of mass testing since late April. We continue to see downside risks to our 4.5% growth forecast for 2022, depending on further developments around lockdowns,” said Fitch.
The analyst expects continuing loose fiscal and monetary policy in China through 2022 to help stimulate economic activity and growth, which should underpin demand for metals, particularly from the construction sector.
Fitch expects the Russian invasion of Ukraine to keep gold in the range of $1,900 to $1,800 per oz. in 2022 and 2023. The analyst notes the deepening war situation has sparked an uptick in demand for the safe-haven asset as investors adopt a risk-off sentiment. While gold prices are hovering near their all-time high of $2,075 per oz. and will be mainly dictated by the war in the coming months, Fitch expects US dollar strength and recovering bond yields to cap gold’s rally.