S&P Global Ratings updated its commodity price assumptions to reflect shifts in economic and market conditions as well as futures curves. We also added assumptions for 2026.

We raised our 2024 estimates for both thermal and metallurgical coal, gold, and iron ore, and lowered estimates for nickel. Most of the revised prices differ from our previous assumptions only by about 10%, except for metallurgical coal.

Table 1

We continue to anticipate broadly supportive market conditions for most rated metals and mining companies. At the same time, macroeconomic uncertainties, not least in China; higher interest rates; and the challenges of finding and developing attractive large-scale mines don't give companies much incentive to expand. Many metals and mining companies' credit profiles benefit from two or three years of debt reduction from robust cash flow. We anticipate that most companies will still focus on debt repayment and shareholder remuneration at the expense of growth. We also foresee a continued focus on managing operating and development costs.

For our latest sector and economic views, see "Industry Credit Outlook 2024: Metals and Mining" published on Jan. 9, 2024, and "Global Macro Update: 2024 Is All About The Landing" published on Nov. 29, 2023.

For further information on our approach and use of these price assumptions, see "Credit FAQ: How S&P Global Ratings Formulates, Uses, And Reviews Commodity Price Assumptions," published April 20, 2023.

Aluminum

Our price assumptions in 2024 and 2025 are unchanged, and we now assume $2,500 per ton in 2026. Sluggish demand from manufacturers globally continues to hamper the near-term outlook. Industrial customers remained cautious during the year-end contracting season, electing to continue to draw down inventories as the near-term demand forecast remains uncertain. After declining across all regions in 2023, market premiums have inched upward, showing signs of a potential pickup in activity amid weak demand. However, at these prices, profits and cash flow are being squeezed for smelting assets that rely on market-based electricity.

We continue to assume prices will remain above historical averages for the next several years. Elevated energy and raw material costs have pressured the earnings of smelters globally. More than 1 million tons remains offline in Europe and the U.S. Furthermore, we expect supply growth from China will remain muted because local governments will continue restricting carbon-intensive capacity growth to under the production cap of 45 million tons per year. This globally constrained supply picture, and aluminum's role in the green economy and energy transition, should drive longer-term demand growth and support maintaining our longer-term higher price assumptions despite near-term weak macroeconomic sentiment.

Metallurgical coal

We raised our price assumption for 2024 to $270 per ton from $220 per ton. This reflects a strong rebound in Indian steel demand as the government expedites ongoing infrastructure projects ahead of general elections in April and May 2024. At the same time, we expect near-term supply to remain tight as disruption from port congestion in the Australian state of Queensland and recent Red Sea tensions will bolster prices.

Our assumptions are, however, lower than the current spot price of $315 per ton because we expect supplies from Australia to increase in the second half with the opening of several new mines, especially in Queensland and New South Wales.

India is set to add 15 million tons of steel capacity by mid-2024. We expect these new capacities to ramp up in early 2025, boosting demand for imported metallurgical coal. At the same time, increased steel output in markets excluding China will also support prices. As a result, we raised our price assumptions for 2025 by $60 per ton to $220 per ton. Beyond 2025, we maintain our view that prices decline toward market-clearing cash costs, consistent with our approach for most metal price assumptions.

Thermal coal

We assume prices will average $120 per metric ton for 2024 because we view the demand for Newcastle Australia thermal coal will stay soft. Japan and Korea are the main importers of Australia's high-grade thermal coal. Their thermal gap will continue to shrink as power generation from other energies, such as nuclear, picks up. China's demand will stay stable, although its thermal power generation growth will slow amid subdued industrial activities and high renewable growth. Despite higher domestic coal output, China still has an appetite for Australian imports to offset the declining quality of domestic thermal coals. India's strong demand outlook will support thermal coal prices, but the nation imports less high-grade coal. Furthermore, these countries diversified their coal supplies in 2023, including from South Africa. That trend will continue in 2024.

Competition from Russia and South Africa coal will be less intensive in 2024 as Russia's price discounts narrow and China's reintroduction of an import tariff on coal from January will be applied to Russia imports.

We assume thermal coal prices will moderate in 2025-2026 as demand in most Asian countries gradually declines, except for India. This reflects our expectation that the global transition from coal-fired power generation will regain its pre-2020 profile. Our price for 2026 is $90 per metric ton because we believe prices will ease as both demand and supply continue their decline in light of these countries' decarbonization targets.

Copper

Our price assumptions are unchanged despite recent market price drops toward $8,300 per ton. We expect the market for copper concentrate to be tight in 2024 after the Cobre Panama mine shutdown and other setbacks in supply.

Weaker demand from Chinese buyers is among the main factors that pushed prices down since mid-December 2023. Swings in demand patterns are likely to persist, which heightens price volatility over medium term. Despite that, we believe current prices are close to minimums considering expected growth in renewables infrastructure, the electric vehicle industry, and cost inflation.

Gold

We raised our assumptions by $200 per ounce to $1,900 for 2024 and to 1,700 for 2025. At the same time, we raised our longer-term price assumption by $100 per ounce to $1,600. Prices have trended higher than we previously assumed, with an average of about $2,000 per ounce during the fourth quarter of 2023 and a current spot price just above $2,000. Heightened geopolitical risks, including the Russia-Ukraine war and rising tensions in the Middle East, have supported gold prices despite higher U.S. interest rates. Furthermore, strong demand for gold from many central banks around the world persists, most notably in Asia, as they look to reduce their U.S. dollar exposure. In our view, these factors should limit the near-term decline in gold prices.

The gradual decline we assume in the price of gold through 2026 incorporates our view that 10-year treasury yields will remain higher than 3%, well above pre-COVID-19 pandemic levels, and that core inflation will decline to the low-2% area. As inflation declines and policy and market rates remain elevated, sustained positive real interest rates could put further downward pressure on gold prices. We assume prices will ultimately settle at about $1,600 per ounce in 2026, up modestly from our previous long-term assumption of $1,500. This stems from our view that higher costs will persist, particularly with respect to labor. A price below $1,500 would cause cash losses for some mines, considering the all-in production costs.

While our higher gold price assumptions will strengthen credit measures more than we previously forecast for most gold producers we rate, we don't anticipate imminent rating actions. Most of these issuers have benefited from several years of strong prices that increased cash flow sharply and improved their balance sheets, while they distribute excess cash to shareholders. In these cases, ratings upside is more constrained by business risk or financial policy considerations than gold prices.

Furthermore, given the volatility of gold prices and mining companies' high operating leverage, we continue to incorporate the potential impact of lower gold prices on these companies' credit measures. Cost inflation and in some cases project execution risk also remain notable factors that could pressure the ratings on certain issuers if they occur alongside lower prices and no meaningful curtailment of discretionary spending over the next couple of years.

Iron ore

We modestly raised our price assumptions for 2024 and 2025 by $10 per metric ton. This follows a bull run for iron ore prices as the IODEX 62% Fe fines benchmark rose to a 19-month high of $143 per dry metric ton on Jan. 2. Positive sentiment stemmed from China's newly announced stimulus fueled hopes for a revival in its steel demand. Restocking continued to support iron ore imports with port inventories in China lower than usual.

Despite the stimulus, China's property sector remains a drag. We project China's GDP growth to slow to 4.6% in 2024 (from 5.4% in 2023), edge up to 4.8% in 2025, and return to 4.6% in 2026 ("Credit Conditions Asia-Pacific Q1 2024: India, Southeast Asia Advance As China Slows", published Dec. 4, 2023). Combined with China's policy to constrain steel production as part of its efforts to decarbonize its economy, exacerbated by winter emission curbs, we expect some softening of iron ore demand beyond the seasonal restocking we typically observe in the first quarter.

In 2024, we expect limited additional supply from the three major iron ore producers based in Western Australia's Pilbara region. Brazil-based Vale S.A. recently signaled flat production guidance for 2024, further reinforcing the company's focus on profitability over production growth.

Nickel

Throughout last year, the expectations for nickel market balance gradually improved. Rapid expansion of Indonesian output to an estimated 1.65 million-1.75 million tons in 2023 from 1.16 million tons in 2022, 42%-51% growth, has ensured that the market will remain in healthy surplus in the next few years. Capacity in Indonesia already exceeds 2 million tons annually, more than half of global output, easily covering the expected growth in metal consumption, notably in battery production.

On the other side of the equation, the slowdown of Chinese and other major economies will likely constrain the growth of nickel consumption, leading to a more pronounced surplus. The sales of electric vehicles in China, the world's largest market, were uneven in the recent months, indicating some weaknesses. Nickel stocks are also rising with London Metal Exchange warehouse stocks almost doubling to about 69,000 tons from their lows at 37,000 tons in the summer of 2023.

As a result, nickel was one of the worst performing metals in 2023, losing about 40% of the price during last year. We therefore lowered our price assumption to $16,000 per ton for 2024, $17,000 for 2025, and $18,000 for 2026 and long term. We expect a more significant market surplus in the coming years. The longer-term price revision is more modest because we expect the energy transition to accelerate, driving demand for nickel and leading to a more balanced market with less surplus. Further slowdown of the Chinese economy and increased supply from smaller players could put further pressure on nickel prices.

Zinc

We maintain our price assumptions for 2024-2026 at $2,500 per ton. In recent months, zinc prices largely floated in the corridor of $2,400-$2,650 per ton. About half of the global zinc demand is generated in China, which has been implementing financial stimulus into economy, converting into supportive demand for base metals, though with some time lag.

For the next three years, we continue to see market balance as one of the drivers for zinc prices. Notably, the surplus was already shown in 2023, and we think it can even slightly increase in the next three years, reflecting oversupply. That generates some headwinds for zinc prices despite healthy global demand growth.

Related Research

• China Industrials Are Making Do With Less, Feb. 1, 2024
• Economic Research: China Deflation Risks Hinge On Growth Mix, Jan. 29, 2024
• Industry Credit Outlook 2024: Metals and Mining, Jan. 9, 2024
• Credit Conditions Asia-Pacific Q1 2024: India, Southeast Asia Advance As China Slows", Dec. 4, 2023
• S&P Global Ratings Has Raised Its Henry Hub Natural Gas Price Assumptions For 2024 And 2025, Nov. 7, 2023
• Credit FAQ: How S&P Global Ratings Formulates, Uses, And Reviews Commodity Price Assumptions," April 20, 2023