S&P Global Ratings Lowers Copper And Zinc Price Assumptions; Other Metal Price Assumptions Are Unchanged

S&P Global Ratings is lowering its price assumptions for copper and zinc following material pricing pressure over the past several months. At the same time, our assumptions for aluminum, gold, nickel, and iron ore for the rest of 2018-2020 are unchanged from our previous report ("Despite Trade Tensions, Metals Prices Remain Strong Amid Firm Global Economy," published July 5, 2018, on RatingsDirect). We're revising our price assumptions in accordance with our methodology (see "Methodology For Standard & Poor's Metals And Mining Price Assumptions," published Nov. 19, 2013). We do not expect many rating actions as a result of these revisions.

Periods of pricing volatility in the metals and mining sector are to be expected. However, the recent decline for certain commodities has been pronounced and, in our view, more likely to be sustainable. The weaker market sentiment for copper, and our expectation for higher zinc industry supply underpinned the respective revisions to our assumptions. Strengthening of the U.S. dollar since April 2018--an increase of about 6% on a trade-weighted broad dollar index--has weighed on the price of these base metals, and broadly across much of the sector.

Market fundamentals, in our view, remain supportive of our other price assumptions. We expect generally favorable commodity demand primarily linked to our GDP growth forecasts for the U.S., the eurozone, Latin America, and China. In addition, we expect China will continue to adhere to stricter environmental standards, thereby reducing higher-cost industry capacity. That said, we believe risks are building for increased future price volatility. Uncertainty regarding the impact of evolving U.S. and China trade relations, rising global interest rates, and relative strength of the U.S. dollar, in our opinion, are notable factors that could materially influence future prices.