Moody’s Investors Service forecasts the global metals and mining industry’s earnings will increase by about 30% through the first quarter of 2022 on the back of economic recovery, as well as rising demand and tight supplies for steel, iron-ore and copper.
This while aluminium, nickel and zinc will remain in surplus this year.
Moody’s says demand will recover more slowly for aluminium, a key metal for the global aerospace and automotive industries, while nickel and zinc supplies will increase as the constraints from 2020 ease and production returns to normal levels.
“We would change our outlook to stable if we believe consolidated global earnings before interest, taxes, depreciation and amortisation (Ebitda) growth will slow to between 0% and 10% over the next 12 to 18 months, and to negative if we expected consolidated Ebitda to decline.
“The February 2021 update of our global macro-outlook for 2021 and 2022 indicates that the Group of Twenty (G20) economies will collectively grow by 5.3% in 2021 and by 4.5% in 2022, after a 3.3% contraction in 2020.”
The investor service agency revised its 2021 estimate for China's gross domestic product growth to 7.5% – up from 7% previously – and to 5.5% in 2022.
Despite stronger-than-expected economic activity in the second half of 2020, the G20 recovery will remain uneven and incomplete this year amid limited activity in travel and tourism, Moody’s points out.
The transportation, hospitality, leisure and arts sectors continue to languish, but the information technology, consumer goods, pharmaceuticals and financial sectors are thriving, it adds.
Moody’s says persistent virus fears remain the main risk for a recovery in demand, with the risk of economic scarring higher in countries at risk of repeated outbreaks.
Meanwhile, the robust recovery of China's industrial activity has led to a surge in demand for metals. China accounts for about half of global consumption of metals, while economic recovery in the rest of the world will provide support for continued demand strength this year.
Purchasing managers indexes (PMIs), a strong indicator of demand for metals, are improving in major economies from low levels in the first half of 2020, exceeding 55 in the US and in Europe in early 2021.
China's PMI was around 51 in early 2021, with industrial activity expanding by about 7%.
Investors also use certain industrial commodities such as copper as a hedge against inflation.
“We have not changed our price sensitivities, which we use to help us evaluate a producer's credit risk. The high commodity prices of early 2021 were largely at or above the top end of our ranges,” Moody’s notes.
- [Editor:Catherine Ren]