Base Metals Demand Could Pick Up in H2

Source:

". . .the recently announced Chinese stimulus should improve metals demand. . ."

Although growth in the global base metals sector was expected to slow over the next 12 months, ratings agency Fitch Ratings stated that improvement in credit availability and implementation of fiscal stimulus programs could result in stronger demand in the second half of 2009.

In its newly released base metals outlook report, Fitch stated that earnings were expected to decline in 2009 from the robust 2008 levels, however, runoff of working capital and active management of capital budgets should partially offset the impact on free cash flow.

Fitch Ratings director Monica Bonar said that demand from China and developing nations had previously driven strong growth in base-metals consumptions, but that growth would slow for at least the next 12 months. However, the recently announced Chinese stimulus should improve metals demand, as the country accounted for 20% to 35% of the world's consumption of base metals.

The U.S. dollar has strengthened as capital has been repatriated to the U.S. and as U.S. Treasury securities benefited from a flight to quality. An ease in risk avoidance or heightened perception of future inflation could put pressure on the dollar and result in higher dollar-denominated commodity prices.

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