Advance Base Metals Prices to Advance in FY25: Benefit From Green Energy
Ind-Ra remains positive on base metals and bullish on prices in FYE25. Metals are high on Ind-Ra’s list of sectors it believes can see a price uptrend amid a broader rebound globally, helped by ongoing growth in green energy adoption and narrowing demand from the world’s biggest consumer, China.
Market dynamics
The outlook for Ind-Ra remains cautiously positive, which is partly driven by adverse global economic demand against a backdrop of resilient green power. On the supply front, the ratings agency noted that new metal production capacity could face delays due to extended lockdowns in 2022, stalling the recovery. On a positive note, Shradha Saraogi Garg, Associate Director at India Ratings, expressed her optimism about the increase in consumption for India Inc. compared to its 2020 levels. Therefore, while overall consumption growth may face headwinds, green energy initiatives are projected to drive market momentum.
Copper: Leading the Charge
Increased investment in renewable energy infrastructure and electric mobility globally is forecast to favor higher copper prices in FY24 and beyond. The industry is currently amid a supply glut, and prices are expected to remain depressed in the short-to-medium term. However, the industry is poised for a structural deficit in 2024, which is likely to remain for the medium term, pushing prices skyward.
While imports will meet 50–55% of the total demand, the country’s ambitions to become self-reliant in the copper industry seem realistic. Net imports have hovered around 50% for the past several decades, coupled with enforced excise duties to help reduce import demand.
On the whole, this is positive for the domestic zinc, copper, brown goods, and wire appliance industries. In sum, market stability.
Base metals prices are expected to remain under pressure well into 2023 as demand continues to outstrip supply, with very little hope for improvement until 2024–2025.
For zinc, Ind-Ra forecasts prices to stabilize at around USD 2,500 per tonne in FY25, based on expectations that surpluses will persist while domestic demand grows at a moderate pace, largely supported by the automotive and industrial end-markets.
At the same time, aluminum prices are forecast to increase year-on-year due to supply restrictions and a weaker dollar, offsetting the global market surplus.
Coal sector
The coal sector is expected to get some relief as a result of the commercial mining scheme, which will help boost production levels from the 52 mines offered for commercial auctions.
The development of mine infrastructure has also been positively impacted by the increase in mining activity by these players. The auction of 23 coal blocks is a welcome step in the current scenario, where commercial coal mining is shaping future market dynamics, and a likely repatriation to global coal prices is better supported by market conditions.
This will gradually raise domestic coal import prices as more stable procurement practices re-enter the market.
The country imports around 150 million tn/yr of coking coal, a key raw material for steel production and hot metal processing. This adds to India’s vulnerability to international price fluctuations: import cost inflation is determined by international market dynamics.
Financial Landscape and Credit Outlook
Ind-Ra maintains a stable rating outlook for the base metals sector-rated entities, indicating that robust credit profiles are expected for FY25.
While it lost money on a free cash flow basis during this period due to short-term capital investments and leveraging size and flexibility on the balance sheet through baseload and trading, the balance of this cyclical strength should allow Solomon to stay out of the high-yield market for the foreseeable future.
Severity in Approach
Ind-Ra’s positive projections are subject to certain challenges and risks, as near-term bumps such as production disruptions, supply chain rebalancing, sourcing the necessary materials, etc. might impede more profitable margins for the industry. The broader economic climate, including developments in global geopolitics and changes in the regulatory environment, will be instrumental in shaping future market movements.
The 4 Key Themes: Copper, Zinc, Aluminum, and Coal
The downturn within base metals, hit by the spread and global coronavirus reaction, appears to be running its course.
A slowdown in demand from China in 2019 is being further exacerbated by reduced activity due to the coronavirus.
This study has examined the prospects for four key industrial minerals—copper, zinc, aluminum, and coal—that are vital to the economy.
Conclusion
India’s plan for FY25 is a smart, balanced strategy for the sustainable development of energy. 5 With the global economy in flux but shifting towards green energy solutions, what do you need to know about the base metals sector? The focus is on the outlook from Ind-Ra on copper, zinc, aluminum, and coal; these are not purely market-oriented but looking at the strategic thrust in the current scenario, where policy initiatives are in full throttle, from the global picture!
The industry has been amid a glut over the past several years, but that could be coming to an end shortly as mines deplete and supply growth stalls with the ability to run at below-normal capacity for an extended period. Due to the collapse in demand during last year’s lockdowns, mines have been running below capacity and have been restrained by stockpiled raw materials, causing the end-product price to exceed the value chain.
On balance, while challenges may continue, market discipline continues to improve, allowing the stronger balance sheets to survive for better opportunities in a gradually changing business environment in FY24.