The New Normal: the Commodities Sector Post-Covid-19

September 2020 www.fitchsolutions.com The New Normal The Commodities Sector Post Covid-19 Report Summary

The New Normal | September 2020

Contents Introduction: Winners And Losers Of Post Covid-19 Commodities Trends...... 4 Commodities Sector Post-Covid-19: Winners And Losers...... 4

Oil & Gas Sector...... 9 Oil & Gas Outlook Post Covid-19...... 9 Covid-19 Destroying Long-Term Oil & Gas Demand ...... 14 Covid-19 Accelerating Corporate Strategy Shifts In Oil & Gas ...... 22

Mining & Metals Sector...... 28 Mining & Metals Post Covid-19: Six Rising Trends To Watch ...... 28 Post-Covid-19 Mining & Metals In China: Accelerating Key Trends...... 38

Agribusiness Sector...... 44 Agribusiness Post Covid-19: Trends And Opportunities To Watch ...... 44 Agtech Adoption To Slow In 2020, But Covid-19 Adds Impetus To Long-Term Trends...... 55

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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research. fitchsolutions.com 3 The New Normal | September 2020

Introduction: Winners And Losers Of Post Covid-19 Commodities Trends Commodities Sector Post-Covid-19: Winners And Losers

In this special report we explore the long-term implications that the pandemic will have on the oil & gas, mining & metals and agribusiness sectors. The Covid-19 pandemic is severely impacting the commodities sector, leading to weaker agricultural, oil and metal prices, clear operational hurdles and supply chain disruptions. While the industry is currently in a recovery mode, along with economic activity, Covid-19 will have a profound long-term impact on the commodities sector. Some structural trends will be altered, others accelerated and new ones will emerge. Covid-19 will amplify and accelerate many of the commodities sector's megatrends we have been highlighting in recent years. We will also identify countries that are most or least likely to experience those trends, as well as sub-sectors and companies that will most likely benefit or lose out from those trends.

Covid-19: Profound And Multi-Pronged Impact On Commodities Sector

The Covid-19 pandemic is severely impacting the commodities sector, leading to weaker agricultural, oil and metal prices, clear operational hurdles and supply chain disruptions. While the industry is currently in a recovery mode, along with economic activity, Covid-19 will have a profound long-term impact on the commodities sector. Industry players will need to adapt their assumptions and strategy to new and accelerated trends created by the pandemic.

In the oil & gas sector, the pandemic will reshape the long-term demand trajectory. Lockdown measures and the lasting negative impact on the aviation industry mean that fuel demandPage will return 1 to 2019 levels only by 2024, based on our updated 10-year forecast. The growth of total fuel demand will slow to well below historical averages. Looking at oil prices, crude oil is set to increase as fundamentals improve over the next several years if OPEC+ can manage to keep production levels moderated with oil prices rising as Covid-19 lockdowns ease and demand returns.

Looking at companies’ response to the coronavirus, we do not believe that corporate strategies will radically change in the wake of the pandemic, but rather that Covid-19 has added new impetus to the strategic shifts already underway.

In the mining & metals sector, the long-term price outlook remains relatively unaffected by Covid-19. However, the pandemic will prompt a re-think 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. Metal producers will also look into vertical integration. 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 agribusiness sector, the increased awareness of the vulnerability of food supply chains, as Covid-19 put food supply in the spotlight, coupled with the ongoing rise in protectionism will lead to a renewed emphasis on food security and to increased efforts to boost local food production. The coronavirus is also likely to accelerate the adoption of mechanisation in developing countries and of some agtech segments such as indoor farming, vertical farming and hydroponics. On the consumer side, the pandemic will lead to a new awareness and emphasis on local origin products as well as the acceleration of the 'healthification' trend.

Covid-19: The Great Accelerator Of Megatrends

Covid-19 will amplify and accelerate many of the commodities sector's megatrends that we have been highlighting in our flagship ‘Megatrends in Industry’ reports. Meanwhile, Covid-19 is also adding impetus to adjacent structural economic and geopolitical THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research. fitchsolutions.com 4 The New Normal | September 2020

trends, increasing domestic social and political risks, accelerating protectionism, raising further uncertainty regarding future international trade and investment regulations. Taken together, these trends will impact significantly the ommoditiesc 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, as forward-thinking governments tie post-Covid-19 stimulus plans to sustainable development in the commodities sector. Developed markets (DMs), and in particular the EU, will put a rising emphasis on this topic. Part of the economic recovery packages passed by the EU will be geared towards climate-friendly policies and funding. For example, 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. These initiatives will have deep implications for the agribusiness sector.

In the oil and gas industry, even before the advent of the global pandemic, companies had begun to reconsider their strategies in light of the low carbon energy transition. The strategies that are now under consideration have not, in our view, been radically altered by Covid-19. However, we anticipate that their adoption will be both more rapid and more widely spread.

This is also likely to happen in Europe’s mining and metals industry, as 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.

Post Covid-19: Winners And Losers

In the three tables below we explore sector-by-sector long-term implications from the pandemic and identify countries that are most or least likely to experience those trends, as well as sub-sectPageors and 2 companies that will most likely benefit or lose out from those trends.

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