February 4, 2019 - The outlook for the global mining sector in 2019 is stable, Fitch Ratings says. While the long-term impact on the sector of trade tensions between the U.S. and China remains uncertain, this is currently offset by solid underlying industry fundamentals within most metal commodity subsectors.

China-U.S. trade tensions have led to concerns over global growth, and although there has so far been limited impact on metals demand, investor sentiment has been negatively affected, which has led to commodity prices weakening. This is offset, however, by solid supply-demand fundamentals within most subsectors. We do not expect commodity prices in the near term to fall to levels where ratings could be negatively affected.

We expect lower coking coal prices in 2019 compared with 2018 due to easing supply constraints and relatively flat demand. According to CRU, China’s annual metallurgical coal production peaked in 2014 and is expected to continue declining. China’s seaborne metallurgical coal imports represent about 15% of the global market. Lower-than-expected Chinese metallurgical coal production or higher-than-expected Chinese steel output could drive coal prices higher.

Growth in stainless steel production from Indonesia and China, as well as demand from electric vehicle batteries will lead to new nickel demand. This supports our expectation of continuing physical deficits in nickel, despite global growth uncertainty, with CRU forecasting a deficit of 34,000 tonnes in 2019 and 44,000 tonnes in 2020.

In the short term, the aluminium market faces a number of downside risks, most notably the China-U.S. trade war and associated uncertainty, and slowing demand in China that will continue to weigh on prices. The ending of U.S. sanctions on Rusal means CRU no longer expects any reduction in output from the company. In the longer term, however, the emergence of substantial physical deficits due to growing global demand and limited new supplies is a key development to watch. CRU forecasts a global primary aluminium deficit of 2.4 million tonnes in 2019 followed by a deficit of just over 1.0 million tonnes in 2020.

The gold price is expected to see support at Fitch’s USD1,200/oz price assumption for 2019 given positive trends, such as continued net central bank purchases, and geopolitical and trade risks remaining high.

Our medium-term view on copper remains unchanged, and we expect global deficits to emerge in the 2020s due to a lack of investment in new projects amid continued growth in consumption, including from electric vehicle demand. However, the nearer-term outlook has softened and CRU expects a small surplus in the refined copper market in 2019 and 2020. China’s existing and potential bans on copper scrap could alter global material flows, increasing demand.

We expect seaborne thermal coal markets to be Asia-driven and remain well-supplied over the next few years, owing to Indonesian supply increases, weaker Japanese demand, and the possible continuation of Chinese import restrictions.

The prospect of additional seaborne volumes entering the iron ore market, partly from the resumption of production at Minas Rio in Brazil, will be offset by lower production following the dam collapse in the Corrego do Feijao mine in Brazil. If production at the nearby Jangada mine is also halted, this would equate to production of around 16 million tonnes immediately being lost from the seaborne market. We expect Chinese iron ore demand to continue falling in 2019, as steel production cuts in China restrict hot metal production capacity by around 14%.

Zinc fundamentals will weaken in 2019 on approximately 1 million tonnes of new supply against demand growth of around 184,000 tonnes, leading to a further smelting bottleneck. CRU expects the smelting bottleneck will cap the size of metal surpluses generated over the forecast period, and contribute to a build-up of excess concentrate inventories amid slower demand growth.