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Moody’s expects most commodity prices to remain high over short term

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Financial research firm Moody’s Investors Service says in its latest outlook for metals and mining that most commodity prices will remain high for the time being, supporting increases in earnings for many companies.

Particularly, base metals prices will remain high and volatile, as prices for copper, zinc, nickel and aluminium, in particular, are reflecting low inventories and supply risks related to Russia.

Moody’s explains that supply of base metals was tight even before Russia invaded Ukraine.

Looking at steel, Moody’s expects prices to lower from 2021 peaks, but believes these will remain high.

“In addition to steel producer earnings decreasing from unsustainably high levels, owing to high energy and other input costs, steel and raw material prices have begun to soften as panic buying recedes and supply chain issues reduce global demand.

“Chinese steel consumption has reduced owing to Covid-19-related lockdowns and inflationary cost pressures and, coupled with higher interest rates, are also weighing on sentiment,” the firm notes.

Iron-ore will also retreat from peaks seen in 2021, as supply and demand are coming closer into balance. Moody’s says the Russia/Ukraine conflict has disrupted iron-ore exports from those countries; however, suspended iron-ore production capacity is starting to resume in Brazil.

The firm is confident that iron-ore demand will remain solid, but says this will depend largely on Chinese steel production going forward.

Meanwhile, Moody’s also envisions coal prices remaining high, with strong demand to boot, but below recent peaks, as supply constraints are easing.

The firm further states that the uncertain times are supportive of precious metal prices, as high inflation and gold and silver’s safe-haven status will keep prices high.

Moody’s outlook for the global metals and mining sector is “stable” and will only improve to “positive” if companies’ earnings growth could exceed 10% in the coming 12 to 18 months.

However, the firm would consider a “negative” outlook if earnings were to decline because of weakened sector fundamentals.

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