The Big Picture: 2023 Outlook for Metals and Mining

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Early 2022 was a robust period for the metals and mining sector, buoyed by record high prices for some commodities, supply chain constraints and rising energy transition-related demand. Macroeconomic conditions soured going into midyear, however, leading to weakening near-term demand expectations and declining commodity price trends. As 2023 approaches, we examine some of the key trends facing the industry, noting that near-term downside risks should only augment supply-side opportunities related to medium-term constraints.

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Deteriorating global macroeconomic conditions are expected to persist into early 2023, representing a downside risk to the metals and mining sector as many commodity prices slide and equity market support weakens. Producers will be impacted by narrowing margins, while the exploration sector will restrain activity amid tighter financing conditions. We anticipate conditions to improve during the year, however, as central banks gain the upper hand on inflation.

Lower activity levels in the second half of 2022 and through 2023 will reinforce the industry's importance to the global energy transition. We forecast supply constraints affecting commodities critical to the effort to emerge as early as 2024, with demand expanding markedly on rising electric vehicle sales and the shift toward renewable energy technologies.

As governments focus increasingly on meeting critical materials requirements through domestic and regional supply chains, the mining sector should gain additional support for project development in the near to medium term, buoyed by high prices through 2026 compared with pre-pandemic prices.

Macroeconomic concerns counter fundamentals

Macroeconomic events have dominated commodities markets for most of 2022, and with the increasing threat of global recession, they will likely weigh on fundamentals again in 2023. In addition to multidecade-high inflation driven by supply chain issues arising from the COVID-19 pandemic, the major economies have been grappling with other concerns that are not expected to ease going into 2023.

Energy transition to fuel medium-term demand

Global efforts to decarbonize are driving the rollout of technologies that are increasing demand for raw materials, bringing about near-term challenges in the commodities sector. For many commodities whose supply and demand we cover through 2026, we now believe that the increasing consumption will outstrip the mining industry's ability to ramp up supply, resulting in commodity deficits as early as 2024.

Difficult financing conditions amid recession fears to impact exploration

As we approach the end of 2022, all signs point toward a reversal of fortunes for the exploration sector. As 2023 approaches, global inflation, geopolitical instability and recession fears are taking their toll on exploration financing. With the increasing uncertainty, exploration budgets will continue to focus on lower-risk exploration at mine sites and advanced projects, a worrisome trend since the reduced focus on grassroots projects has resulted in a notable decline in new major discoveries.

Copper supply constraints

After almost a decade of limited copper-focused exploration and project development, the outlook for future mined supply faces significant headwinds as demand for metals related to the global energy transition accelerates over the coming years. Many potential new mines will also face rising environmental, social and governance scrutiny, which will likely limit the number of new projects available for the global mined copper supply pipeline.

Battery metals: Strong headwinds dampen near-term demand; resource security supports supply increases

The battery metals market will enter 2023 with lingering production-side challenges for passenger electric vehicles and weaker demand. China's zero-COVID policy could cause more disruptions to passenger electric vehicle-related battery metal supply chains in the coming year. More expensive vehicles could shift the passenger electric vehicle market from being supply-capped back to being demand-constrained. These factors are playing out under increasing energy transition commitments by global policy makers.

Mining mergers and acquisitions: Inflation could dampen momentum

Mergers and acquisitions activity in the metals and mining sector has been robust to date in 2022, capitalizing on high commodities prices. The souring macroeconomic environment and resulting market volatility will likely make for cautious buyers in 2023, although these same factors may expand the pool of assets available for purchase. Other drivers may also be at play, particularly the increasing demand for energy metals against the backdrop of the green energy transition and mobility electrification.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.