2022 Outlook: Tight Supply Keeps Prices Elevated - Corrected Version
2021 was a stronger-than-expected year from a growth perspective and we expect the momentum to carry over into the start of 2022. The relative buoyancy of global demand against a complex and inelastic web of global supply chains has boosted inflation around the world. Fiscal and monetary stimulus has supported the elastic demand response. Many of these factors are expected to fade in 2022. That being said, TDS expects global GDP growth of ~4% y/y in 2022, which should be supportive for base metals consumption.
With slowing fiscal and monetary stimulus and likely some easing in supply- chain bottlenecks, we believe that there could be some headwinds for metal prices in H2/22, but we also do not believe that a rout in metal prices is likely. Negative supply shocks are unlikely to be fully resolved in 2022 due to what looks like continuing scarcities of labour, logistics, and other infrastructure resources. In conjunction, we also believe that resource nationalism could intensify in 2022, particularly in South America. A reversal of these issues will be required for a sustained and rapid pace of production increases. At this stage, available inventory of metals such as zinc and copper are quite limited, which is a situation that we do not expect to change very much this year. We are forecasting tightly supplied markets for copper, nickel, and zinc through at least H1/22.
We are maintaining our Market Overweight recommendation for the Base Metals sector. Ebbing fiscal and monetary stimulus, combined with inflation concerns, are likely to result in some headwinds for base metals in 2022, but mostly in the second half of the year. Heading into 2022, global demand remains strong, supply risks are high, and visible inventories remain very low by historical standards, all of which should combine to keep metal prices well-supported, in our view. Additionally, metals, particularly copper, are generally seen as an inflation hedge, and we expect to see additional investor inflows into the sector. Finally, although we expect better mine supply growth in the copper market for the next few years, primary supply beyond 2025 will be constrained by a weak project pipeline, which sets up a huge challenge in the second half of this decade as the metals-intensive transition to a low-carbon economy accelerates.
Teck Resources remains our top pick, with an ACTION LIST BUY recommendation and increased target price of C$56.00 (previously C$47.00). Our other preferred companies are First Quantum (BUY; revised target: C$44.00) and Capstone (BUY; revised target: C$8.00). Solaris Resources remains our top pick among the developers (SPECULATIVE BUY; target price unchanged at C$22.00).