Improvement in credit availability and implementation of fiscal stimulus programs could result in stronger base metals demand in the second half of this year, Fitch Ratings suggested in a recently issued analysis.

Although base metals demand is off substantially, Fitch analysts rated the majority of the base metals companies in their coverage as stable.

The analysts also suggested that declining energy, fuel and feedback costs should result in lower production costs. Unit costs likely will decline as high cost, marginal production is idled.

They noted that current copper prices are at about the marginal cost of production (estimated in the range of $1.15/lb-$1.60/lb) and some production is coming off-line. Meanwhile production costs are heavily influenced by by-product credits like gold and molybdenum.

Fitch expects copper supply to grow about 3% annually in the short run due to continued production disruptions. Should copper prices remain at current levels, more production could come off-line, the analysts advised.

Meanwhile falling stainless steel demand has taken its toll on nickel prices, according to Fitch. With the advent of new production, stocks are on the rise and prices have fallen.  Fitch anticipates surpluses to continue into next year as destocking will go slowly in the demand environment, the analysts said.

As zinc stocks have climbed higher, forcing the metal's price to decline, zinc producers are shutting production. Fitch expects curtailments to hold metal production growth to 1% in 2009. This should result in a fairly balanced 2009 but it is unlikely that significant destocking will occur in this environment.