Why rising metals prices don't benefit Brazilian mining projects

Fitch Ratings increased its estimates for copper, iron ore, gold, nickel and other prices on the back of continued pandemic impacts and the Russia-Ukraine war, although the price scenario is still not beneficial for some major Brazilian projects. 

"Copper is the only commodity where we increased our long-tern assumptions due its use in electrification [potential]. The revised short-term prices reflect very low global stocks, a balanced market and current and potential supply disruptions, particularly due to water stress in Chile and socio-political protests in Peru," Fitch said in a press release.

Source: Fitch Ratings

In Brazil, however, “major mining firms use a model called the long-term price mechanism to evaluate the feasibility of a project. Theses estimates comprise periods of at least five years, so short-term price volatility is not so beneficial to see big projects happening,” José Carlos Martins of Neelix Consulting Mining & Metals, told BNamericas. 

"The projects for which we can see the fastest progress in the current scenario are by junior companies, since these companies have, behind their shareholding structures, investment funds that try to anticipate market movements," added Martins, who also was a senior executive at mining giant Vale.

Rising freight costs resulting from pandemic-related supply chain disruptions have also impacted commodities prices. Despite high demand, many goods that were supposed to be delivered are now delayed in major ports.

"The imbalances in the supply chains started because of the pandemic and it is difficult to make a prediction about when the situation will improve. The logistical scenario is challenging," Marcus Mingoni, CFO of Brazil's Santos Port Authority (SPA), the operator of Latin America's busiest port, told BNamericas.

Mingoni underlined that the Russia-Ukraine war further exacerbates logistical challenges. "We will need more time to see global logistics more balanced."