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Fitch revises metals prices on 'tight market supply,' warns gold price to fall to $1,200 by 2023

Kitco News

(Kitco News) Metals prices will see a significant boost in the short-term as the global economic recovery squeezes the limited available supplies, Fitch said in its updated outlook.

"Fitch Ratings has revised some of its metals and mining price assumptions as prices for many commodities will benefit in the short term from returning demand while the supply response remains slow and inventories are running low," the company said in a report.

The biggest short-term beneficiary will be iron ore due to its tight market supply, which is expected to persist for the next couple of years.

Fitch said it projects iron ore prices to trade at $125 versus its previous forecast of $90.

"Vale has cut its production guidance for 2021, resulting in no supply response to growing demand, with all large-scale iron ore producers operating at almost full capacity. Inventories are running low, while we expect additional demand linked to US and European economic stimulus packages," Fitch said.

Copper is next on the list due to the metal's supply risks, with Fitch projecting $7,200 a tonne from its earlier forecast of $6,000. This is still a conservative estimate, considering that copper already traded above $9,000 in February.

"We have increased the short-term copper price assumption due to strategic purchases by the China State Reserve Bureau and supply risks in 2021, including renewals of labor contracts in Chile and Peru, which may result in strikes. Medium-term prices will be supported by balanced market and energy transition trends as copper is used in charging infrastructure, cabling, electric vehicles, wind generators and transformers," Fitch said.

Zinc prices will also see substantial gains due to rising demand in China. But Fitch sees production catching up "relatively quickly." Zinc is projected to rise to $2,500 a tonne in 2021 before dropping to $2,100 in 2023.

Aluminum's estimate for 2021 was also raised from $1,650 to $1,950 for 2021.

However, for gold, the outlook is much more bearish despite the upward revision in prices, according to the report.

Fitch has increased its price forecast for 2021 from $1,400 to $1,600 an ounce. But the projection is still $133 lower than current trading levels, which some analysts already consider oversold. At the time of writing, April Comex gold futures were trading at $1,733.60, up 0.62% on the day.

On top of that, Fitch sees further gold weakness in the next few years, projecting $1,400 for 2022 and $1,200 for 2023.

"We have raised gold price assumptions for 2021 and 2022 on increased demand due to investment flows and central bank purchases. We believe that prices will moderate in the medium term to an equilibrium of USD1,200/oz," the report noted.

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