Fitch Ratings' expects lower earnings in 2012 at base metals operations on lower prices and continued cost headwinds. Constrained recovery in developed markets and slower growth in emerging markets will weigh on volumes and prices in 2012 when compared with the first half of 2011.

Consensus expectations are for prices to be range bound at above current low levels but below 2011 peak levels. Fitch believes there can be significant volatility around these levels as a result of speculative demand, currency and the small size of the markets.

China's demand continues to dominate. China spent much of 2011 tightening its money supply to reduce speculation in its property market as well as to curb inflation. Fitch believes this has resulted in significantly reduced stocking and slower consumption growth which may stretch into the first quarter of 2012. Longer-term, continued urbanization and a halt to tightening should support healthy base metals demand growth.

Demand from developed nations has improved but is expected to remain below peak levels through 2012. The construction, automotive, and capital goods sectors key to consumption of base metals and steel remain weak in most industrialized regions. Should the sovereign debt crisis prompt further austerity measures and/or a credit crisis, construction spending will remain at risk. Persistent high unemployment will impede growth in the automotive and durable goods sectors.

The Ratings Outlook for the sector is Stable. Fitch expects the recovery for metals to stretch into 2013. First-half results should show strength, but third- and fourth-quarter results generally show seasonal weakness. Cash flows and liquidity are expected to remain healthy and support previously announced expansion plans.