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Fitch: Solid Results Expected for Base Metal Producers in 2008

Posted on: Monday, 17 December 2007, 12:00 CST

Fitch Ratings expects solid results for base metals producers in 2008 even though metals prices will trend lower. Robust demand from transitional economies, in particular China and Russia, will offset weaker consumption in North America and some other industrial economies. New supply should alleviate the extreme tightness in the copper, zinc and nickel markets while cost factors should encourage disciplined supply in the aluminum market.

These fundamentals underpin a strong pricing environment for base metals over the next 12-18 months although Fitch views the pricing as having peaked in 2007. The overall ratings outlook on the industry is stable.

Volatility should persist as well given the size of the markets and increased speculative volumes. Reaction to unexpected disruptions or new supply surprises has been swift and dramatic albeit short term in nature.

KEY 2008 THEMES/EVENTS:

Tighter lending markets in the United States are expected to dampen consumer spending, which could reverberate through exporting economies, in particular, China.

Deeper cuts in U.S. residential construction are translating to declines in demand for copper and aluminum. A recession in the U.S. could prolong or deepen the downturn.

China accounts for 20%-30% of the world's consumption of base metals and continued fixed-asset investment underpins strong demand growth. Efforts to slow down the economy to rein in inflation may have an impact on metals demand.

The full 'Base Metals Outlook 2008: Are we there yet?' is available on the Fitch Ratings web site at www.fitchratings.com. The report provides specific outlooks and analysis for each of the major base metal categories.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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