By James Baxter-Derrington

September 20, 2022 - Fitch Ratings has cut the price assumptions of most metals and mining products on fears of revised growth expectations but has raised the predictions of thermal coal costs on the back of the growing energy crisis.

As European gas prices continue to rise, the ratings group has predicted that reliance on coal-powered energy generation will increase over 2022-2025.

Prices will rise even higher over 2024-2025 as expected new capacity in coal-producing countries remains limited and coal mining costs increase. However, long-term assumptions for thermal coal remain unchanged as Fitch predicts "consumption in China should gradually decline".

A global economic slowdown and expectations of weaker short-term demand have pushed copper assumptions lower over the next year, however medium- and long-term predictions remain buoyant due to anticipated demand for the metal as part of the energy transition.

Lower steel demand has forced the price assumptions down for a range of mining products, including iron ore, coking coal and nickel.

A build-up of inventories combined with falling steel production, producer margins and input requirement have damaged the short-term demand for iron, while a switch to thermal coal production has tempered prices of coking coal, but medium- to long-term views remain unchanged.

Subdued demand from the stainless steel sector, alongside healthy production levels from Russia and Indonesia have weakened the short-term case for nickel prices, but long-term demand from electric vehicle production should boost the investment case.

Similar impacts have driven the prices of aluminium and zinc lower over the short-term, with the former struggling due to a weak Chinese construction market and the latter suffering from inflation and recessionary pressures stifling demand while supply remains flat. Both should benefit over the medium- to long-term as markets rebalance.

Safe haven gold remains unchanged as high geopolitical instability and inflationary pressures continue to weigh but a strong dollar dampens prices. Fitch analysts expect the price of gold to moderate in the long-term as risks abate and the interest rate cycle continues.