Moody's: Global base metals industry: Prices to remain low, outlook stable

The outlook for the global base metals industry remains stable, Moody's Investors Service says in a new report. Copper, nickel and zinc are expected to trade within the price ranges seen this year over the next 12 to 18 months, while aluminium could exceed 2014 trading ranges. Prices will also continue to be volatile, with heightening concern over global growth factors tipping risk to the downside.

Moody's outlooks reflect its expectations for the fundamental business conditions in a given industry over the next 12 to 18 months.

"We expect average prices for copper, nickel, zinc and probably also aluminum to stay within 2014 ranges over the next year or so and to continue to show a pattern of gains and retreats," says Senior Vice President, Carol Cowan. "Prices will remain vulnerable to influences including global economic growth rates, Chinese export/import levels, production disruptions and foreign-currency movements. Fundamentals won't support a break-out price recovery."

Uneven global economic expansion and slowing growth in China, the world's biggest consumer of base metals, as well as in Europe and Brazil account for the subdued outlook for price recovery next year, despite the current strength of the US economy, Cowan says in "Recovery Elusive: Downside Risk Developing on Slow Global Growth." Further, these factors have led to increasing risk to the downside for the base metals industry. Market perception, the strength of the US dollar and geo-political concerns will also continue to affect prices.

Next year base metals producers will remain focused on cost savings and capital discipline. Cost creep will continue, but at lower levels. "In recent years base metals producers have more strictly managed capital investments, in particular projects and acquisition activity, after substantial spending in these areas," Cowan says. "In 2015 they will continue to focus on strategic projects, while cost savings achieved to date and ongoing initiatives will help ease some of the pain from lower prices."

The recent precipitous drop in oil prices, if sustained, and domestic currency weakness against the US dollar will benefit the cost equation for companies with operations in commodity-based economies, Moody's says. Nonetheless, base metals producers' earnings performance overall will remain under pressure next year.

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