Fitch Ratings-New York-22 July 2008: Fitch Ratings believes U.S. dollar declines, cost inflation, power shortages and other disruptions to production have resulted in copper and aluminum prices reaching new peaks in July, despite new supply and weakening demand from the United States and Europe. Demand from China and other developing nations continue to drive strong growth in consumption.
Constraints to earnings include: declining ore grades; rising energy and fuel prices; capital costs, consumable and labor costs inflation; and increasing governmental and non-governmental public action to curtail production. Fitch does not expect cost pressures to ease in the medium term. The overall Rating Outlook on the industry is Stable.
Fitch expects price volatility to persist over the short-to-medium turn 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 credit generally appears to be affecting trading and stocking activity and may lead to market distortion.
-- Declines in U.S. residential construction and automotive sales are translating to declines in U.S. demand for copper, aluminum, nickel and zinc.
-- China accounts for 20%-35% 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 affect metals demand.
-- China's production was hampered in February by extraordinarily heavy snows and again in May with the earthquake. Production cuts of 5%-10% for some metals are expected during August to cut pollution and conserve power. In all Fitch does not expect these disruptions to have a significant or lasting effect
The full report 'Base Metals: A Mixed Bag' is available on the Fitch Ratings web site 'www.fitchratings.com'. The report provides specific outlooks and analysis for each of the major base metal categories.
|
