Fitch asserts the pandemic will prompt a rethink of operational strategies, supply chain vulnerabilities and investment trends.
Mining and metal players are likely to accelerate the incorporation of technology and automation in operations and to explore their options to shorten and simplify supply chains, the analyst predicts.
Increased social and political risks
Meanwhile, covid-19 is also adding impetus to adjacent structural economic and geopolitical trends, increasing domestic social and political risks, accelerating protectionism, raising further uncertainty regarding future international trade and investment regulations, Fitch says.
“Taken together, these trends will impact significantly the commodities sector, from a demand, supply and investment perspective.”
“The ongoing shift to a low carbon economy and more sustainable manufacturing practices will be one of the megatrends accelerated by covid-19”
Fitch
The ongoing shift to a low carbon economy and more sustainable manufacturing practices will be one of the megatrends accelerated by covid-19, as forward-thinking governments tie post-covid-19 stimulus plans to sustainable development in the commodities sector, the analyst asserts.
Developed markets, and in particular the EU, will put a rising emphasis on this topic, Fitch forecasts. Part of the economic recovery packages passed by the EU will be geared towards climate- friendly policies and funding. Fitch highlights that the bloc is forging ahead with its Farm to Fork (F2F) and biodiversity strategies, two mutually reinforcing strategies that are meant to be at the heart of the European Green Deal.
In Europe’s mining and metals industry, players are increasingly looking at actively reducing their carbon footprint. This can be seen in the ongoing developments of new lithium extraction techniques in Western Europe and in the growing use of renewables in steel production in the EU, Fitch points out.
Metal producers will also look into vertical integration, Fitch says, adding that the mining sector will also be indirectly impacted by the economic and political aftermath of the pandemic.
The rise in international and local political risks will also boost the likelihood of protectionist trade and fiscal policies – including heightened risk of greater royalty and tax policies – as well as the incidences of social unrest, leading to potential mine disruptions.
In the mining and metals sector, Fitch predicts the long-term price outlook remains relatively unaffected by covid-19.
