Owing to unprecedented lockdown in much of Europe, the US and across the globe, the world is currently experiencing considerably lower economic activity, which, in turn, significantly reduces commodity consumption, says ratings agency Fitch Ratings.

As a result, it expects global gross domestic product (GDP) to contract by 1.9% this year and says this will translate into a 6% year-on-year decrease in global copper demand.

Although production disruptions in Peru, Chile, Mexico and Canada will remove significant volumes from the market, Fitch Ratings still expects meaningful copper oversupply during the year.

The consultancy has, therefore, reduced its price assumptions for the metal to $5 300/t in 2020 and $5 800/t in 2021.

The aluminum market is also expected to be oversupplied owing to weaker automotive production and construction and the growth of low-cost Chinese primary aluminum capacity.

Low energy costs and the devaluation of local currencies will enable aluminum producers to compete more aggressively, thereby putting pressure on short-term prices, which Fitch Ratings has cut to about $1 560/t in 2020, and $1 600/t in 2021.

Further, nickel prices are sensitive to weaker demand from sectors that consume stainless steel (such as home appliances, construction, the chemical industry, oil and gas facilities) and the spread of the coronavirus.

Fitch Ratings’ price assumption for nickel, taking this into account, is reduced to $11 500/t in 2020 and $13 250/t.

Short-term zinc prices are also under pressure from growing inventories, while global demand is dropping and creating a larger-than-anticipated oversupply barring any major mine disruptions.

Fitch Ratings has cut its 2020 price forecast to $1 900/t zinc to reflect these short-term market imbalances.

Thermal coal assumptions for 2020, meanwhile, have been trimmed for both Newcastle and Qinhuangdao benchmarks owing to lower-than-expected energy demand.

Although South African and Indonesian producers will temporarily halt or reduce their production of thermal coal, Fitch Ratings says these supply cuts will not be enough to offset declining demand. The Chinese market still remains oversupplied, but its coal consumption is gradually recovering.

Assumptions for gold, hard coking coal and iron-ore are unchanged, as supply and demand remain in line with previous expectations.