Moody’s cuts metals price calls amid slowing global growth

Credit rating firm Moody’s Investors Service has pared down its 12-month price outlook for a basket of metals and mining commodities, citing a global economic slowdown and softening demand.

Essential commodities affected include gold, silver, steel, aluminum and copper, as slack demand dents global growth momentum.

“China is a major consumer of base metals, coal and iron ore, and the largest steel producer globally,” said Barbara Mattos, senior vice-president with Moody’s, in a media release.

“A slowdown in the country’s economic growth would reduce demand across the metals and mining sector.”

The executive said volatile prices were “decreasing from the peaks of late 2021 and early 2022 but will remain historically high.”

Alongside the lowered price expectations, Moody’s said supply would remain tight for most base metals during the coming 12 months. Production has lagged demand, and supply chain issues have further disrupted production.

While gold is often seen as a hedge against inflation, Moody’s noted that rising interest rates and bond yields also increased the opportunity cost of holding gold, which yields no interest, reducing its value.

Silver is expected to face similar price pressures as gold, it noted, even though the demand for silver is about 60% driven by industrial uses.

In the base metals sector, Moody’s noted that prices had come down from their late 2021 peaks, despite remaining volatile, but will remain historically high. Moody’s expects metals supplies will stay tight for aluminum, copper, nickel and zinc during the coming 12 months because production has not kept pace with demand during the past couple of years. Supply-chain snarls have also disrupted production, while inflation is expected to remain high.

In the case of iron ore, Moody’s expects stable supplies of the steelmaking ingredient would not be enough to limit the potential weakness in iron ore prices, which reflect sluggish demand in China and developed countries. However, as prices fall toward the cost curve of high-cost producers, the market could expect to see supply cuts that could help rebalance the market.

Meanwhile, thermal and metallurgical coal prices reached record highs in the first half of 2022 as the Russia-Ukraine military conflict exacerbated already tight supply and demand conditions. But prices are diverging, with met coal prices falling more than 40% since June and thermal prices remaining near record levels, according to Moody’s data.

Moody’s announcement follows an Aug. 31 announcement outlining the agency’s economic forecasts, reducing its call for G20 growth to 2.5% in 2022 and 2.1% in 2023, representing a sharp slowing from 5.9% in 2021.