[Report]: Metals Retain Their Lustre: S&P Global Ratings Raises Metals Price Assumptions Again

According to the Metals Retain Their Lustre: S&P Global Ratings raises Metals Price Assumptions Again report, "S&P Global Ratings is modestly raising price assumptions for three industrial metals, the fourth such upward revision this year. The higher price assumptions are largely due to the prospect of stronger demand, combined with some short- to medium-term supply constraints.

Demand for metals is set to be sustained or strengthened by solid global GDP growth rates, including in China, which remains the largest global consumer of metals. At the same time, we expect still-muted supply growth for most metals in the next couple of years based on limited capital expenditure (capex) and exploration in recent years, and for some metals due to supply-side reforms in China. We currently expect capex for rated companies in the sector to be roughly half of that in 2012-2013. Similarly, according to the Global Exploration Strategies 2017 study conducted by S&P Global Market Intelligence, industry exploration budgets were declining for four years in a row and only started to recover in 2017. We also see management teams continuing to focus on cash flow, deleveraging, and shareholder rewards rather than growth--though this can change quickly, as it did in 2011-2012, for example. 

Though we believe that current spot prices and our price scenario for 2018-2020 could support the rates of return needed for higher capex in the sector, the supply-side response can't be immediate."