Happy International Star Wars Day. We’re focusing on the metals industry, not necessarily lightsabers, but outlook for the industry in 2023.
Eric Gorman, Atradius Risk Underwriter, gave us the industry break down on the metals industry, including current prices, the current outlook, and tech and renewable energy.
The metals industry covers base metals including iron and steel, aluminum, copper, nickel, lead, tin, zinc, among many others. There are various applications for all of these metals; Atradius covers businesses in many subsectors of the metals industry including mining and quarrying, iron and steel, and metal manufacturing. Overall, the industry is cyclical. In times of economic prosperity and expansion, the industry fairs well. However, in times of contraction it tends to do poorly. Understanding this, we pay close attention to macro-economic factors such as employment levels, inflation, and fiscal and monetary policy that are major influences on the success of the industry. They affect the price of base metals and semi-finished products, which then affects how businesses operate and manage inventory and price risk. In 2023, operators are most concerned with the continued high inflationary cost pressures and the ongoing Russia-Ukraine conflict that continue to exacerbate price volatility. Metal prices remained buoyant throughout 2022, but have shown signs of slowing in early 2023 due to weaker global demand.
According to S&P Global, the global metals and mining industry experienced record cash flows in 2021 and 2022, which contributed to lower debt leverage and improved credit metrics. While the credit quality in the industry has improved overall in recent years, persistently high input costs coupled with lower metal prices should result in softer earnings and cash flows in 2023.
Technology related to renewable energy is growing in demand with the world being focused on transitioning to renewable energy and sustainability as we’ve covered in some of our recent blog posts. Rare earth metals such as cobalt, lithium, copper, and nickel are essential to the creation of batteries, which supports renewable energy. In addition, copper is used in many renewable technologies including wiring for solar panels, hydro, and wind energy. Increased consumption for rare earth material and other base metals in the development clean energy technologies could create near-term challenges for the mining industry and outstrip its ability to ramp up supply.
Overall, there are many challenges the metals industry will face in 2023; however, there are also many opportunities for growth related to technology and renewable energy markets. The metals industry doesn’t seem to be going to the dark side in 2023.
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