Fitch Ratings expects worldwide demand for metals to increase its dependency on growth in developed markets during the next phase of global financial recovery as opposed to the recent period in which metals prices rose mainly on the back of usage and restocking by China.

According to a report by Fitch on world metals markets, in copper, recent price increases are due to a relatively balanced market in which China has been responsible for about 35% of global consumption this year to August, versus 28% in all of 2008.

Ms Monica Bonar analyst of Fitch said that although the World Bureau of Metals Statistics estimated a global copper surplus of 196,000 tonnes in January to October of 2009, much of this could be due to uncertainty related to how much inventory China has on hand versus how much the country is truly consuming.

On the other hand, the International Copper Study Group has estimated only an 11,000 tonnes surplus in September after seasonal adjustments and 161,000 tonnes shortage this year up until the end of that month. But regardless of which institution's numbers are more accurate, the bottom line is that supply is still fundamentally tight.

She added that therefore copper has the best fundamentals among its peers in the base metals complex.

According to the ratings firm, aluminium, however, is burdened with a vast surplus of about 1.42 million tonne this year up until the end of October, which makes its fundamentals much weaker.

The report said that "Fitch expects the marginal cost of production to be the floor on prices.”

Fitch said that it expects the supply side to produce under its capacity until the world economy recovers fully but on a long term basis constraints in output could trigger a return to tight markets.

According to WBMS, a sharp decline in output has managed to offset strong destocking of stainless steel in January to October, causing a 15,000 tonnes deficit in the period.

Finally in zinc, while there was a 4% output shrinkage in the first 10 months of the year, this was not enough to offset a 129,000 tonnes surplus during the period. It expects the surplus to continue for the next 24 months but supply discipline to result in fairly balanced markets, with any strength in demand to result in increased production.

(Sourced from Business News Americas)