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Metals Markets 2021 — Key Themes and Outlook

By: Kevin Murphy | March 15, 2021


End of pandemic growth prospects

Global economies to continue recovery — Shuttering of major economies in 2020 saw a 4% decrease in global GDP year over year. With vaccines beginning to roll out and many nations moving toward reopening or at least resisting full lockdown, S&P Global Economics expects global GDP to increase 5% in 2021. While this could put downward pressure on gold prices, industrial commodities will see support from this and from economic stimulus packages such as Canada's planned infrastructure spending and the Biden administration's stimulus plan in the U.S.

China GDP growth — China's GDP grew by an estimated 2% in 2020, one of the few nations to post growth and the primary driver of the metal price recovery following the March 2020 crash. Chinese GDP is forecast to increase by 7% in 2021 and will be one of the key drivers for demand of industrial metals.

Demand recovery underway — While demand is expected to recover through 2021, the timing will vary. In China, the recovery will be weighted toward the first half as tighter lending restrictions are expected to impact the property sector, cooling demand growth in the second half. Outside China, demand will ramp up as vaccines roll out and stimulus packages continue to be implemented. The slower-than-hoped-for vaccination programs in many countries, however, will push the bulk of the recovery into the second half.



Supply prospects

Demand growth to outpace supply in near term — Most commodities will see stronger demand growth compared with supply, leading to tighter balances.

* Zinc supply growth in the Americas, primarily from the reopening of Trevali Mining Corp.'s Caribou mine in Canada, will fall short of demand increases from the eurozone and China. Supply is expected to be constrained at Vedanta Ltd.'s Gamsberg mine as it continues to recover from a geotechnical accident in November 2020. The zinc supply surplus will decrease to 17,000 tonnes in 2021 from 25,000 tonnes in 2020.

* Copper mine production is forecast to rise 4.3% in 2021, boosted by recovering supply at existing mines and new capacity, notably the ramp-up of Freeport-McMoRan Inc.'s Grasberg Block Cave mine in Indonesia, the startup of Minsur SAs Marcona in Peru and expansions at BHP Group's Spence mine in Chile and Aluminum Corp. of China Ltd.'s Toromocho mine in Peru. The prevailing tightness in the copper concentrate market, however, looks set to persist in the first half at least, constraining refined supply growth and moving the market into a deficit.

* Nickel supply will continue to lag demand despite strong growth from Indonesia. Additional downside risk for production exists should ERAMET SA's SLN complex in New Caledonia enter liquidation as a result of ongoing protests, and recent safety-related stoppages continue at PJSC Norilsk Nickel Co.'s Oktyabrsky and Polar Division mines. The nickel market will remain in surplus at 55,000 tonnes, compared with a surplus of 126,000 tonnes in 2020.

* Iron ore markets will remain tight despite forecast supply increases from Rio Tinto and BHP Group as Vale SA's ongoing difficulties in reopening shuttered tailings dams at its Brazilian mines are expected to constrain 2021 production. Also, recovering demand ex-China will deepen the market deficit as supply from Ukraine, Russia, Sweden and India is diverted away from China in 2021 and back to Europe.

* Lithium and cobalt are both expected to see production exceed demand growth over the near term as a host of lithium assets are forecast to begin production over the next several years, and further cobalt demand growth is required to consume existing production.

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Financing and exploration

Financing levels to build on 2020 — Financings started 2021 on a high note with $1.5 billion raised by junior and intermediate companies in January alone. While down from December 2020, January marked the eighth consecutive month above $1 billion, a feat not seen over the course of our tracking of financing levels since 2008. With metals prices remaining strong and supported by demand, we are cautiously optimistic that 2021 financings by junior and intermediate companies will exceed the $12.1 billion raised in 2020.

Exploration to recover strongly — With regional lockdowns less likely to impact miners and explorers in 2021, financing levels remaining strong and balance sheets supported by financing activity in the second half of 2020, we forecast that exploration budgets will increase by around 20% year over year in 2021. Those areas hardest hit by pandemic-related reductions in 2020, notably Chile and Peru, will likely have the strongest growth this year. Although all commodities will gain, we expect copper to outperform due to current prices and a recovery from 2020 lockdowns. Earlier stages of exploration, which were far more constrained in 2020 due to travel restrictions, should gain strongly this year but will likely remain below later-stage exploration totals.

Shifting geopolitical focus

US green shift — President Joe Biden's term is expected to shift U.S. policy toward clean or renewable energy. While this has negative implications for coal, industrial commodities will benefit from the transition. Uranium will also be boosted should nuclear power be one of the preferred alternatives to coal generation.

China and global relations — Tensions are rising between China and several other nations. Australia continues to face restrictions on exports of certain resources as relations between the two countries deteriorated during 2020 following a series of defense, trade and foreign policy disputes. These restrictions should ease in 2021 as demand recovery outside China diverts some of metals it is using to replace Australian sources to other destinations. The U.S. renewed trade pressure on China in 2020, although how the Biden administration approaches relations remains unclear. In addition, domestic Chinese policies have also been condemned by various nations, which could further impact trade relations.

S&P Global Inc.'s economics group is separate from, but provides forecasts and other input to, S&P Global Ratings analysts.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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