Base metal prices are unlikely to recover within the next 12-18 months, Moody’s Investors Service says.
The recent precipitous drop in oil prices, if sustained, and domestic currency weakness against the dollar will benefit companies with operations in commodity-based economies like South Africa, Moody’s says in the report, Recovery Elusive: Downside Risk Developing on Slow Global Growth, which it released on Tuesday.
Nonetheless, base metal producers’ earnings performance overall will remain under pressure next year, BDLive reported Wednesday.
“We expect average prices for copper, nickel, zinc and probably also aluminum to stay within 2014 ranges over the next year or so and to continue to show a pattern of gains and retreats,” Moody’s senior vice-president Ms Carol Cowan says in the report.
“Prices will remain vulnerable to influences including global economic growth rates, Chinese export and import levels, production disruptions and currency movements.
“Fundamentals won’t support a breakout price recovery,” it said.
Copper, nickel and zinc are expected to trade within the price ranges seen this year over the next 12-18 months, while aluminum could exceed 2014 trading ranges. Prices will also continue to be volatile, with heightening concern over global growth factors tipping risk to the downside.
Moody’s outlooks reflect its expectations for fundamental business conditions in an industry over the next 12-18 months.
Uneven global growth and slowing growth in China, the world’s biggest consumer of base metals, as well as in Europe and Brazil, account for the subdued outlook for price recovery next year, despite the strength of the US economy, Cowan says. These factors have led to increasing risk to the downside for base metals. A strong dollar and geopolitical concerns will also continue to affect prices.
Next year base metal producers will remain focused on cost savings and capital discipline. Cost creep will continue, but at lower levels.
Base metal producers “will continue to focus on strategic projects, while cost savings achieved to date and ongoing initiatives will help ease some of the pain from lower prices”.
