base metals one year forecast november 2009 all metals

© Copyright GFMS Ltd - November 2009

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Base MetalsOne Year Forecast

November 2009

Date of release: 6th November 2009

Disclaimer Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd and

GFMS Metals Consulting Ltd cannot guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient or

organisation. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any commodities, securities or related financial instruments. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein. GFMS Ltd and GFMS Metals Consulting Ltd do not accept responsibility for any losses or damages arising

directly, or indirectly, from the use of this document.

Table of Contents

Introduction I1-I3

Economic Indicators E1-E2

Aluminium A1-A7

Copper C1-C8

Lead L1-L7

Nickel & Cobalt N1-N10

Tin T1-T7

Zinc Z1-Z8

I1Independent - Informed - International

Introduction - November 2009

Introduction

● Boosted by ongoing interest by investors,

base metals prices were resilient throughout

October, and currently stand somewhat up on

the level the started that month on.

● GFMS’ Base Metals Index averaged 262.8 in

October, up 3% on September and 31% year-

on-year. In early November, our index, at 268,

is more than 90% higher than its February low.

● Aluminium production in China reached an all-

time high in September and production outside

the country was also up slightly. Demand

remains muted outside China.

● Copper reached a cycle-peak above $6,600/

tonne in late October, underpinned by concerns

over supply tightness. An ongoing, and

protracted, strike at BHP Billiton’s Spence mine

has provided key support to prices.

● Chinese lead production figures in September

were higher than expected, despite concerns

related to the poisoning incidents.

● Nickel prices have come off their recent highs

of close to $20,000/tonne. Developments in

the key stainless market where base prices

are under pressure suggest weak demand for

nickel in the short term.

● The much discussed dominant position of tin

has reportedly declined from holding 90% of

all warrants to between 50-80%. Coupled with

ongoing fundamental weakness, this saw tin

prices retrace somewhat in October.

● Declining LME stocks as well as a suspension

of a concentrator at the Century mine

boosted zinc prices, resulting in the metal

outperforming the other base metals.

(000 tonnes) 2003 2004 2005 2006 2007 2008 2009

Aluminium

Consumption 27,887 30,285 32,040 34,366 37,953 38,120 35,138

Production 28,001 29,922 32,017 33,969 38,056 39,479 36,828

Metal balance 113 -363 -24 -397 104 1,360 1,690

LME Cash ($/tonne) 1,432 1,717 1,898 2,567 2,645 2,571 1,605

Copper

Consumption 15718 16838 16689 17045 18175 18007 18023

Production 15275 15928 16573 17295 17952 18272 18268

Metal balance -442 -910 -116 250 -223 264 245

LME Cash ($/tonne) 1,780 2,868 3,864 6,731 7,126 6,952 5,100

Lead

Consumption 6,823 7,295 7,783 8,062 8,181 8,665 8,852

Production 6,762 6,980 7,626 7,922 8,114 8,671 8,943

Metal balance -61 -315 -157 -140 -67 6 91

LME Cash ($/tonne) 516 888 976 1,288 2,600 2,085 1,710

Nickel

Consumption 1,248 1,251 1,296 1,366 1,353 1,294 1,232

Production 1,207 1,251 1,288 1,341 1,398 1,364 1,264

Metal balance -41 0 -8 -25 45 70 31

LME Cash ($/tonne) 9,640 13,850 14,733 24,287 37,181 21,029 14,800

Tin

Consumption 302 334 345 363 356 337 320

Production 276 343 350 351 349 333 343

Metal balance -26 9 4 -12 -7 -4 24

LME Cash ($/tonne) 4,896 8,513 7,370 8,763 14,580 18,499 13,475

Zinc

Consumption 9,851 10,646 10,612 10,972 11,276 11,483 11,108

Production 9,873 10,395 10,220 10,643 11,359 11,665 11,300

Metal balance 22 -251 -392 -329 83 182 192

LME Cash ($/tonne) 1,432 1,717 1,898 2,567 2,645 2,571 1,605

Source: GFMS, WBMS, LME

Base Metals Supply-Demand Overview

I2 Independent - Informed - International


Prices continue to defy fundamentals

In the aftermath of the recent LME week, field research

has further confirmed GFMS’ view that the recovery of

base metal prices has yet to be matched by a material

improvement in the underlying fundamentals. Although

orders have undoubtedly come off the lows seen earlier in

the year, a real recovery has yet to emerge and consumption

remains far below normal levels in most regions. The long

awaited restocking phase in the semis sector has not began.

Coupled with production increases being seen for some of

the metals, this suggests no real tightness of material has

materialised to-date or is expected in the very near-term.

Despite this fact, most base metals prices in early November

are up on their one month prior levels and anything between

50% and 135% up on their lows earlier in the year. The

GFMS Base Metals Index, which is constructed using equal

weights on the six main LME metals, in early November

stands at 269, up 5% on the 1st October level and 93%

compared to this year’s trough. Our index averaged 263 in

October, 3% up on September and 31% up year-on-year.

Investors remain positive towards the sector

The lack of a real improvement in the market’s fundamentals

has continued to be compensated by investor interest

in commodities, particularly those related to industrial

production, where much of the current and projected

recovery is expected to rely on. Essentially, investors

are front-running the improvement in the base metals

fundamentals and in doing so they have brought forward the

price recovery.

GFMS have often noted that the bulk of investor activity

on base metals tends to be part of a wider commodity

strategy, with base-metal specific players comprising only

a small niche portion of the market. By implication, over

periods of time, base metals prices tend to trend in a

similar trajectory to commodity prices in general, illustrated

in the accompanying graph. In October, base metals

underperformed the two main commodity indices we track,

a reflection of the sector’s lacklustre fundamentals as well

as strength in energy-related commodities seen over the

month. The chart, however, highlights that GFMS’ Base

Metals Index so far this year has outperformed broader

commodity indices, such as the GSCI.

Dollar weakness supports prices

Another factor that has boosted base metals prices since last

spring has been the weakness of the US dollar, particularly

against the euro, and this continued to support the sector

in October. For instance, looking at the latest data for the

GFMS Base Metals Index constructed using euro prices, and

making the same comparisons made above, our index is up

by a more contained 3% on the 1st October level and 65%

compared to this year’s low.

Base Metals & Other Commodity Prices

Fundamentals reflected in relative performance

Despite the aforementioned general mismatch of price

performance and supply-demand conditions, the individual

metals’ fundamentals continued to affect the relative

performance of the six main LME metals. For instance, the

exceptional performance of zinc from 1st October concurred

with a net decline in LME inventories, supply disruptions

at the Century mine and came against the backdrop of a

market expected to swing to deficit in the last quarter. In

contrast, aluminium and tin’s relative weakness reflected the

high inventories that weigh on both metals’ prices as well

as, in the case of tin, the partial unwinding of a major long

position.

Market outlook

In early November, GFMS remain of the view that base

metals prices remain at levels exceeding those justified by

their immediate fundamentals. Therefore we are slightly

cautious, at least for the very near-term. Nevertheless, we

appreciate the momentum in base metals investment that

has been in place ever since the trough of last spring and

acknowledge that the potential for what we would see as

a long-overdue correction to be avoided, or to be of very

limited magnitude.

In the longer term, we remain largely constructive towards

the wider base metals sector and this is reflected in our

projections outlined in the individual metal sections of

this report. This is by and large based on expectations of

ongoing attention by investors coupled with, eventually,

a noteworthy improvement in the metals’ demand-side

fundamentals as we progress into next year. This will most

probably be augmented in the first and second quarter

by the restocking cycle we expect will take place in many

relevant end-use industries, although healthy results are also

seen in the third and final quarter of next year. Our base

metals index is forecast to move within a range of 229 and

337 over the year, peaking some time in the final quarter.

50

100

150

200

Nov-09Sep-09Jul-09May-09Mar-09Jan-09

Index,2ndJanuary2009=100

GSCI

GFMS Base Metals Index

Dow Jones UBS Index

Source: GFMS

I3Independent - Informed - International


Prices US$/tonne % Change y-o-y

Al Cu Ni Pb Sn Zn Al Cu Ni Pb Sn Zn

Monthly

Oct-08 2,121 4,926 12,140 1,480 14,402 1,302 -13.1 -38.5 -60.9 -60.2 -10.4 -56.2

Nov-08 1,852 3,717 10,702 1,291 13,644 1,153 -26.1 -46.6 -65.0 -61.2 -18.3 -54.6

Dec-08 1,490 3,072 9,686 963 11,240 1,101 -37.4 -53.4 -62.7 -62.9 -30.9 -53.2

Jan-09 1,413 3,221 11,307 1,133 11,373 1,187 -42.2 -54.4 -59.2 -56.6 -30.4 -49.3

Feb-09 1,330 3,315 10,409 1,101 11,039 1,112 -52.1 -58.0 -62.8 -64.3 -35.9 -54.4

Mar-09 1,336 3,750 9,696 1,239 10,676 1,217 -55.6 -55.6 -68.9 -58.8 -46.1 -51.6

Apr-09 1,421 4,407 11,166 1,383 11,744 1,379 -52.0 -49.3 -61.2 -51.0 -45.8 -39.1

May-09 1,460 4,569 12,635 1,440 13,793 1,484 -49.7 -45.5 -50.9 -35.6 -42.7 -32.0

Jun-09 1,574 5,014 14,960 1,674 14,986 1,557 -46.8 -39.3 -33.7 -10.1 -32.6 -17.8

Jul-09 1,668 5,216 15,985 1,679 14,039 1,579 -45.7 -38.0 -20.7 -13.7 -39.3 -14.8

Aug-09 1,934 6,165 19,642 1,900 14,870 1,884 -30.0 -19.2 3.7 -1.2 -25.8 9.3

Sep-09 1,834 6,196 17,473 2,205 14,869 1,822 -27.4 -11.4 -1.8 18.0 -19.1 5.0

Oct-09 1,879 6,288 18,525 2,241 15,009 2,072 -11.4 27.7 52.6 51.4 4.2 59.1

Quarterly

2008 Q1 2,729 7,763 28,863 2,891 17,695 2,443 -2.5 30.7 -30.4 61.8 39.1 -29.1

2008 Q2 2,941 8,448 25,730 2,316 22,612 2,143 6.5 10.6 -46.4 6.2 60.3 -41.5

2008 Q3 2,792 7,693 18,987 1,915 20,522 1,773 9.4 -0.3 -37.2 -39.0 37.0 -45.0

2008 Q4 1,830 3,940 10,885 1,251 13,127 1,189 -25.2 -45.6 -63.0 -61.8 -19.7 -55.1

2009 Q1 1,360 3,435 10,459 1,160 11,024 1,174 -50.2 -55.8 -63.8 -59.9 -37.7 -52.0

2009 Q2 1,488 4,676 12,992 1,506 13,551 1,476 -49.4 -44.6 -49.5 -35.0 -40.1 -30.2

2009 Q3 1,806 5,840 17,614 1,925 14,576 1,757 -35.3 -24.1 -7.2 0.5 -29.0 -0.9

Annual

2002 1,432 1,558 6,772 453 4,062 779 -0.8 -76.9 13.9 -4.9 -53.6 -12.1

2003 1,717 1,780 9,640 516 4,896 828 19.9 14.3 42.4 13.9 20.5 6.4

2004 1,717 2,868 13,850 888 8,513 1,048 0.0 61.1 43.7 72.3 73.9 26.5

2005 1,898 3,684 14,733 976 7,370 1,382 10.6 28.5 6.4 9.8 -13.4 31.9

2006 2,567 6,731 24,287 1,288 8,763 3,273 35.2 82.7 64.9 32.0 18.9 136.8

2007 2,639 7,126 37,181 2,595 14,536 3,250 2.6 2.5 76.8 24.5 -21.4 73.8

2008 2,571 6,952 21,029 2,085 18,499 1,870 78.1 3.3 253.5 338.0 111.1 111.1

Source: LME & GFMS

LME Prices Overview

End-Period (000 tonnes) No. of weeks consumption

Al Cu Ni Pb Sn Zn Al Cu Ni Pb Sn Zn

Monthly

Oct-08 1,528 238 58 48 4 182 3.3 1.1 3.2 0.5 0.9 1.4

Nov-08 1,533 291 58 48 3 193 3.4 1.3 3.2 0.5 0.8 1.4

Dec-08 2,338 341 79 45 8 253 5.1 1.5 4.3 0.5 2.0 1.9

Jan-09 2,811 491 84 54 9 345 7.2 2.4 5.7 0.5 2.2 2.9

Feb-09 3,227 537 99 60 9 358 8.3 2.6 6.6 0.6 2.1 3.0

Mar-09 3,477 502 108 62 11 344 8.9 2.4 7.3 0.6 2.6 2.9

Apr-09 3,792 399 114 72 13 329 9.7 1.9 7.7 0.7 3.0 2.7

May-09 4,237 312 109 79 14 324 10.8 1.5 7.4 0.8 3.5 2.7

Jun-09 4,395 266 110 92 17 353 11.2 1.3 7.4 0.9 4.1 2.9

Jul-09 4,565 282 106 107 18 408 11.7 1.4 7.1 1.1 4.4 3.4

Aug-09 4,613 300 116 121 20 435 11.8 1.4 7.8 1.2 4.9 3.6

Sep-09 4,585 346 121 128 25 437 11.7 1.7 8.1 1.3 6.1 3.6

Oct-09 4,556 372 130 130 27 429 11.7 1.8 8.7 1.3 6.3 3.6

Annual

2002 1,241 856 22 184 26 651 3.3 3.8 1.1 1.8 6.2 4.8

2003 1,423 431 24 109 14 740 3.6 1.9 1.2 1.1 3.4 5.4

2004 693 49 21 40 8 629 1.7 0.2 1.0 0.4 1.8 4.4

2005 644 92 36 44 17 394 1.5 0.4 1.7 0.4 3.6 2.7

2006 698 191 7 41 13 90 1.6 0.8 0.3 0.4 2.8 0.6

2007 929 199 48 45 12 88 2.2 0.8 2.2 0.4 2.6 0.6

2008 2,338 341 79 45 8 253 5.1 1.5 4.3 0.5 2.0 1.9

Source: LME & GFMS

LME Inventory Overview

E1 Independent - Informed - International

Economic Indicators - November 2009

Economic Indicators

In spite of the aforementioned lack of material recovery

in consumption, in early November, the latest relevant

economic indicators remain by and large upbeat. Starting

with the OECD Composite Leading Indicator (CLI), in

GFMS’ view the best single gauge of future global industrial

production, August marked the sixth consecutive month-

on-month increase, with the figure reaching 99.2, a level

unseen since July last year. All but a handful of individual

countries’ indicators were up, with the majority of major

developed economies showing clear signs of recovery.

Confirming these improvements, it is worth noting the latest

revision by the European Commission of its forecast for

growth in the EU-27 region to 0.7% next year, compared

its May projection of 0.1%. Within the region, the latest

manufacturing Purchasing Managers’ Index (PMI) for the

Eurozone breached the important 50 mark, suggesting

positive growth in the sector, for the first time in 17 months

in October.

Moving to the United States, the ISM PMI rose to 55.7 in

October, marking the third consecutive month of growth.

Looking at the employment sub-index, this breached the

50 mark for the first time since July last year. Lagged by

one month, the latest data on housing starts in the country

saw September starts increase at the margin compared to

August. Finally, October vehicle sales kept to levels virtually

unchanged from the previous month, far below the August

figure boosted by the “cash-for-clunkers” scheme.

Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09

Manufacturing PMI

Eurozone 34.4 33.6 33.9 36.8 40.7 42.6 46.3 48.2 49.3 50.7

USA 35.6 35.8 36.3 40.1 42.8 44.8 48.9 52.9 52.6 55.7

China 42.2 45.1 44.8 50.1 51.2 51.8 52.8 55.1 55.0 55.4

Japan 29.6 31.6 33.8 41.4 46.6 48.2 50.4 53.6 54.5 54.3

OECD Composite Leading Indicators

OECD 92.6 92.4 92.7 93.5 94.8 96.2 97.7 99.2

Euro zone 93.2 93.4 94.2 95.4 96.9 98.5 100.2 102.0

France 95.5 96.1 97.1 98.3 99.6 101.0 102.4 103.7

Germany 89.9 89.9 90.6 92.0 93.9 96.1 98.4 100.8

Italy

UK 94.8 94.6 94.8 95.4 96.4 97.7 99.1 100.7

USA 91.3 90.8 90.9 91.4 92.8 94.3 95.9 97.4

NAFTA 91.8 91.3 91.5 92.1 93.4 94.9 96.5 98.1

Japan 92.4 91.5 91.4 92.0 93.0 94.3 95.7 97.0

Brazil 98.2 97.2 96.7 96.7 96.9 97.2 97.6 98.0

China 91.9 92.5 93.6 94.9 96.4 98.0 99.4

India 94.1 94.2 94.7 95.4 96.2 96.9 97.9 98.8

Russia 89.8 88.7 88.6 89.3 90.5 91.8 93.2 94.3

Industrial Production (m-o-m)

Euro-zone -2.7 -2.5 -1.1 -1.6 0.7 -0.2 -0.3 0.9

Germany -6.6 -3.6 0.0 -3.0 5.0 1.1 -1.0 1.5

France -4.3 -0.3 -1.3 -1.4 2.6 0.5 0.3 1.9

Italy -1.2 -4.2 -4.5 1.5 0.1 -0.2 2.4 7.0

UK -2.6 -0.7 -0.2 0.1 -0.6 0.6 0.3 -2.6 1.5

USA -2.2 -0.8 -1.6 -0.6 -1.1 -0.4 0.9 1.2 0.7

Japan -10.1 -9.4 1.6 5.9 5.7 2.3 2.1 1.6 1.4

South Korea (y-o-y) -25.5 -10.0 -10.5 -8.2 -9.0 -1.1 0.7 1.1 11.0

Brazil 3.0 2.3 1.2 1.2 1.4 0.5 2.2 1.2

China (y-o-y) n/a 3.8 8.3 7.3 8.9 10.7 10.8 12.3 13.9

India 0.0 -3.1 10.4 -10.9 4.2 3.8 -0.1 0.5

Consumer/Business Confidence indicators

Eurozone Economic Sentiment 67.2 65.3 64.6 67.3 70.2 73.2 76.0 80.8 82.8 86.2

USA Consumer Confidence 37.4 25.3 26.9 40.8 54.8 49.3 47.4 54.5 53.4 47.7

Japan Consumer Confidence 27.0 27.6 29.6 33.2 36.3 38.1 39.7 40.4 40.7

Brazil Consumer Confidence 100.3 96.3 99.2 97.6 102.1 106.4 108.4 110.3 111.5 114.5

China Consumer Confidence 86.8 86.5 86.0 86.1 86.7 86.5 87.5 88.0 88.1

Source: OECD, Thompson Reuters EcoWin, National Statistics, Dismal Scientist & GFMS

Main Economic Indicators

E2Independent - Informed - International

Economic Indicators - November 2009

October was also upbeat for Japanese manufacturing,

with the country’s PMI remaining comfortably within growth

territory at 54.3. Housing starts in the country were up at

the margin in September, although they remained down

notably on and year-on-year basis. Although vehicle

production in the country was once again down year-on-year

in September, the rate of declined slowed further and at 21%

it was the lowest this year-to-date. Industrial production in

the country was up in September month-on-month, for the

seventh consecutive month.

Looking at China, where base metals consumption has

grown rapidly so far this year, the latest economic data

remains uniformly positive. Real GDP growth accelerated

in the third quarter, to reach at 8.9% (compared to 6.1%

and 7.9% in the first and second quarter respectively) and

if the trend continues, the country seems set to comfortably

achieve its 8% target for the full year. Moving to industrial

production, growth accelerated to 13.9% in September

(compared to 12.3% in August), and this on a year-on-

year basis. Going forward, conditions seem set to continue

improving, as the country’s manufacturing PMI rose further

in October to 55.4, compared to 55 in the previous month.

Improvements were also noted for two of the other BRIC

countries recently, with manufacturing PMIs for both Brazil

and India, at 52.3 and 54.5 respectively, continuing to

suggest expansions in October. The index for Russia, in

contrast, saw a return below the 50 mark, largely as a result

of weak export orders.

China & Japan PMI & GFMS Base Metals Index Chinese IP Growth & GFMS Base Metals Index

OECD Leading Indicators & GFMS Base Metals Index US & Eurozone PMI & GFMS Base Metals Index

Note: The GFMS Basel Metals Index is an average of the six base metals indexed prices with equal weights. This is in

contrast to the LME index, which is heavily weighted towards aluminium and copper.

90

93

96

99

102

105

Jan-09Jan-08Jan-07Jan-06


OECD CompositeLeading Indicators

OECDIndex

Source: GFMS, Thomson Reuters EcoWin

GFMSIndex

100

150

200

250

300

350

400

25

30

35

40

45

50

55

60

65


PMIIndex

GFMSIndex


Eurozone PMI

USA PMI

Source: Markit Economics, GFMS

100

150

200

250

300

350

400


25

30

35

40

45

50

55

60

65


PMIIndex

Japan PMI

China PMI

Source: Markit Economics, GFMS

GFMSIndex


100

150

200

250

300

350

400


0

5

10

15

20

25



%year-on-yearIPgrowth

Source: GFMS, China National Bureau of Statistics

GFMSIndex

100

150

200

250

300

350

400

A1 Independent - Informed - International

Aluminium - November 2009

Outlook for the next 12 months

● The price outlook remains muted by the rapid

restart of Chinese capacity in the past six

months and the record overhang of stocks.

● Providing some comfort for the market at

present is the tied nature of much of the LME

stocks, which are in financing deals.

● Overall, our base case scenario foresees the

counterveiling forces of investment strength

and restocking in the OECD being largely offset

by the prospects for a continued, surplus during

the next year. Given our expected 900,000

tonne surplus prices under the base case prices

are averaging $1,850/tonne in 2010.

● Our alternative scenarios see substantially

different balances, but due to the overhang

of stocks the price outlooks do not vary as

much as other LME metals. Scenario B expects

prices to average $1,975 and in Scenario C the

average is $1,525 for the next year.

Aluminium

Recent developments

● In dollar terms, aluminium prices strengthened

slightly during October. However, this was

more a reflection of dollar weakness than any

improvement in the underlying fundamentals.

In particular, the dollar fell by 3% against the

euro between the start of the month and the

low point on 23rd October.

● Chinese output soared higher in data for

September from the CNI-A. This showed

output reaching a new all-time annualised high

of 14.8 million tonnes. Output on a daily basis

was 43% up from the March low.

● Indicators of Chinese demand continue to

provide support to the market, with the latest

industrial production data showing an increase

of 13.9% year-on-year.

● Outside China, demand remains generally

muted but signs of improvement are emerging.

Indeed, Japanese aluminium shipments were

up 13.1% month-on-month in September.

● Production excluding China registered the

second consecutive month-on-month increase,

although by still modest amounts. Aided by

rising output in India and Bosnia.

2010

Q1 Q2 Q3 Q4

Supply/Demand Forecast (Base Case)

Consumption 9,787 9,750 9,850 10,000

Production 9,946 10,050 10,100 10,200

Balance 159 300 250 200

Stocks 6,303 6,603 6,853 7,053

Price Forecast ($/tonne)

Base Case 1,850 1,800 1,850 1,900

Scenario B 1,950 2,000 2,050 2,100

Scenario C 1,550 1,500 1,450 1,400

Source: GFMS

Aluminium Supply-Demand & Price Forecast

Base Case, 40% Probability

Represents what GFMS consider the most likely outcome for the markets.

Scenario B, 35% Probability

Faster recovery than under our Base Case in the near-term and stronger growth thereafter.

Scenario C, 25% Probability

Anaemic recovery extends well into 2010 for mature economies while growth in China eventually slows, as the impact of the stimulus package wears off.

GFMS’ Forecast Scenarios

Quarterly Aluminium Price & Forecast

1200

1400

1600

1800

2000

2200

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

A2Independent - Informed - International


Aluminium Premiums

0

50

100

150

200

20092008200720062005

US$/tonne

99.7% ingot duty Paid

Cif Japan

99.7% ingot duty Unpaid

Source: GFMS

Chinese Primary Aluminium Imports

0

100

200

300

400

20092008200720062005

tonnes000s

Source: Chinese Customs, GFMS

Market background

October started with aluminium prices drifting lower and

testing lows, of just above $1,750/tonne, which had not

been seen since July. However, a broad based rally took

place across the base metals in the immediate lead up

to LME week before gently correcting during that period.

Thereafter, the price headed higher during much of the rest

of the month largely fuelled by a rapidly falling US dollar.

Indeed, as the dollar plumbed to levels not seen since

pre-Lehman Brothers collapse with the dollar going below

$1.50/euro, this pushed aluminium towards $2,000/tonne.

However, as the dollar strengthened prices ended the month

a touch softer, at around $1900/tonne.

Overall though, October’s average LME cash price of

$1,879/tonne was only 2% higher in dollar terms, and was

actually down in some producer countries currencies such as

Australia and Canada.

Strong macroeconomic background fails to inspire

aluminium

Even the official news that the US had exited recession,

with an above consensus growth of 0.9% for the July -

September period compared to the prior quarter, caused only

a minor rally above the prior trading range. This followed

US industrial production rising 0.7% in September, the

third straight month of improvement, although production

remained down 6.1% compared to a year before. However,

the troubles of the US housing sector remain, with new

home sales dropping 3.6% in September, from a downwardly

revised 417,000 units in August. A brighter spot came

from durable goods orders, which are a leading indicator of

industrial activity which climbed 0.8% on the prior month.

Earlier in the month, Chinese economic data had also been

positive for its implications for aluminium demand, even

though the 8.9% year-on-year growth in GDP was marginally

below market expectations. This marginal disappointment

was in contrast to the strong growth in the more important

industrial production data, which recorded 13.9% year-on-

year growth for September.

Tentative improvement in the mature economies

Our discussions during LME week merely reinforced our

belief that, with the noteworthy exception of China, demand

is improving but remains lacklustre through the developed

economies. Indeed, the hope of a rapid rebound in mature

economies in the fourth quarter, in large part to be fuelled by

restocking, has receded to the New Year with more modest

gains likely before that date.

This was further highlighted by cautious outlooks this month

from a number of the major integrated aluminium producers

with downstream operations in the latest quarterly results.

For example, Hydro stated that “underlying demand for

metal products (extrusion ingot, sheet ingot, foundry alloys

and wire rod) in Europe and North America improved slightly

during the third quarter 2009 compared to the previous

quarter but there is still uncertainty regarding the timing of

any significant recovery.” Indeed, when compared to a year

ago demand levels are still very poor, with latest Japanese

vehicle production still showing a 21.6% year-on-year fall for

September.

More specifically for aluminium, Japanese shipments of the

light metal are down 18.3% year-on-year in September

according to the Japan Aluminium Association.

On a brighter note, this did however, represent a double-

digit increase on the prior month and extruded shipments

were up particularly strongly. In part the latest data is aided

by government incentives over the past couple of months,

which aided sales of hybrid cars in particular.

More encouragingly, Taiwan’s biggest flat-rolled aluminium

products mill, C.S. Aluminium, is reportedly getting close

to full production of 180,000 tpy of flat-rolled products.

This contrasts starkly with operating at only 40% in the



LME Stocks vs Spot PriceAluminium LME Stocks & Price

Stocks (No. of Weeks Consumption)

US$/tonne

Oct 09

Source: GFMS, LME

0 2 4 6 8 10 121000

1500

2000

2500

3000

3500

Aluminium Daily Stocks vs Price

0

1000

2000

3000

4000

5000

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 02

Spot Price

Stocks

tonnes000s

Source: Thomson Reuters EcoWin, LME

US$/tonne

1000

1500

2000

2500

3000

3500

first quarter and 70% in the second quarter as a result of

the economic downturn. This improvement in utilisation is

aided by increased orders, mainly from Asia, in the second

half of this year as that region bounces back more robustly,

and earlier, than elsewhere. However, for 2009 as a whole

utilisation is only expected to be around two-thirds.

All time record Chinese production

Crucial to the underlying weakness of the fundamentals

in the market at present is the continuing and dramatic

rebound in Chinese primary output since the spring lows.

Chinese production data continues to support the view that

the vast majority of the capacity in China has restarted,

or is in the process of reaching full production. This is

unsurprising given the profitability of these operations and

the lower restart costs compared to the rest of the world,

largely due to lower labour costs.

Output in September rose month-on-month by an annualised

1.25 million tonnes to a new all-time record of over 14.8

million. In fact, this is more than 500,000 tonnes greater

than the prior record, set in June last year. Indeed, GFMS

believe that while further growth in output is expected the

rate of increases is set to slow considerably over the next

six months as the restarts stop and only a relatively limited

amount of new capacity comes on stream. Predominantly

due to these restarts global output is up 11% compared to

the April lows, although still 5% short of equalling world

highs set back in mid-2008.

Rest of the world raises supply, slowly for now

Outside China, the level of production has started to rise,

albeit marginally and remaining well below prior highs (it

is still below levels achieved as far back as 2005). The

International Aluminium Association (IAI) figures show world

(excl. China) output rose compared to the prior month for

the second consecutive month in September, but remains

10% down year-on-year. The growth that is occurring

is chiefly due to just one region - Asia (which excludes

China for these purposes). The chief cause of this is the

commissioning of the last portion of a delayed 115,000

tonne expansion at Nalco’s Angul smelter. Additionally in the

region the Indonesian smelter has marginally raised output

and while it is not captured by IAI statistics increased output

is also believed to be occurring in Iran.

Elsewhere, the Eastern Europe region is also showing

increased production in the latest data. This is chiefly due

to the restart of 30,000 tonnes of capacity at the Mostar

smelter in Bosnia since the start of September. Meanwhile

in Western Europe, output fell in the latest data due to the

closure of the 145,000 tonne Anglesey smelter in Wales at

the end of September. Accordingly another decline is likely

in the October data for this region.

There are also signs that US production may have hit the

bottom. Output rose, admittedly slightly, in September,

which was the first rise since May last year. Thereafter

Noranda’s restart of the third and final potline at its New

Madrid smelter from early October, which had been down

since an ice storm back in January, should trigger continued

increases in US output over the remainder of this year. In

aggregate, announcements of non-Chinese restarts though

remain few and far between, while typically being in very

small tonnages but closures are almost non-existent.

Market surplus shifts from LME and IAI to SHFE and

unreported

Given the previously mentioned restarts and only limited

upturn in non-Chinese demand the market remains

in surplus. Despite this LME stocks are drifting lower,

although very slowly when compared to the overall total.

Furthermore, IAI unwrought aluminium stocks fell to 1.191

million tonnes in September, compared with a revised 1.236

million in August. Compared to a year earlier these producer

stocks are almost half a million tonnes lower. The change is

partly reflected by rising stocks on the SHFE, particularly at

its Zhongchu Dachang warehouse in Shanghai.



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Global Production 29,922 32,017 33,969 38,056 39,479 36,828 40,296

% change y-o-y 6.9 7.0 6.1 12.0 3.7 -6.7 9.4

Consumption

Europe 7,560 7,554 7,945 8,297 7,912 5,849 6,664

Japan 2,319 2,276 2,323 2,197 2,250 1,485 1,770

USA 5,800 6,114 6,150 5,580 5,615 4,503 5,130

Total Mature 15,679 15,945 16,418 16,074 15,777 11,837 13,564

% change y-o-y 3.3 1.7 3.0 -2.1 -1.8 -25.0 14.6

Brazil 651 759 773 854 932 810 965

China 6,043 7,119 8,648 12,347 12,413 14,081 15,420

India 861 958 1,080 1,207 1,323 1,343 1,550

Russia 1,020 1,020 1,047 1,020 1,020 847 950

Total BRICs 8,575 9,856 11,548 15,428 15,687 17,080 18,885

% change y-o-y 16.4 14.9 17.2 33.6 1.7 8.9 10.6

ASEAN 917 964 1,063 1,070 1,155 1,028 1,167

% change y-o-y 15.0 5.2 10.2 0.7 7.9 -11.0 13.5

South Korea 1,118 1,201 1,153 1,081 965 869 1,065

Taiwan 497 412 422 368 362 286 385

Others 3,499 3,663 3,762 3,933 4,174 4,038 4,321

Global Consumption 30,285 32,040 34,366 37,953 38,120 35,138 39,387

% change y-o-y 8.6 5.8 7.3 10.4 0.4 -7.8 12.1

Metal balance -363 -24 -397 104 1,360 1,690 909

Reported stock change -639 -23 -245 197 1747

Reported stocks

Producer stocks 1,788 1,797 1,621 1,554 1,676

German 37 37 37 37 37

Japanese 421 422 362 327 442

Exchange stocks

Comex 28 62 21 15 10

Shanghai Exchange 60 46 19 98 203

Tokyo Exchange 6 2 6 1 3

LME 693 644 698 929 2,338

Total Stocks 3,033 3,010 2,764 2,961 4,709 6,398 7,307

Total as no. weeks consumption 5.2 4.9 4.2 4.1 6.4 9.5 9.6

LME as no. weeks consumption 1.2 1.0 1.1 1.3 3.2

LME cash ($/tonne) 1,717 1,898 2,567 2,645 2,571 1,605 1,850

% change y-o-y 19.9 10.5 35.2 3.0 -2.8 -37.6 15.3


Aluminium Supply-Demand Balance 2004-2010

The overall balance in China indicates a surplus at present

given the huge volume of restarts and in some cases the

inaugural commissioning of capacity that had remained idled

since completion. Further surplus is also being absorbed by

invisible stocks at present, especially from the arrangement

between UC RusAl and Glencore. Consequently, little

comfort for the price can be drawn from the relative

improvement in the LME stocks data in recent times, as it

merely reflects a change in the location of stocks rather than

a fundamental switch from surplus to deficit in our view.

Chinese imports hold up but at lower level

The balance in the domestic Chinese market has ensured

that Chinese imports have slowed substantially of late.

Imports in the past two months slowed to an average of just

above 120,000 tonnes compared to an average of almost

300,000 tonnes per month over the prior quarter. This is

a clear sign that the market in China is becoming more

balanced. Indeed current import levels now largely reflect

longer term deals, sometimes of an annual duration. The

reduced level of imports however now means more of the

surplus in the rest of the world needs to find a home in other

regions.



Market outlook

Our projections, as updated in our recently released Three

Year Forecast*, show that the aluminium market is set

to remain in a 900,000 tonne surplus over the next year.

Given this backdrop, it is difficult to be overtly bullish on the

price. Indeed given the latest record production data from

China and indications of still further increases in output to

come, it is hard to envisage a scenario whereby global stocks

(including unreported) are falling, no matter how positive we

project demand. It is in this light that the three scenarios

should be viewed, especially when supported by the massive

stock overhang and excess capacity outside of China.

Consequently we expect prices to average $1,850/tonne next

year, as the aluminium market is dragged higher in the wake

of the wider commodities complex and copper in particular.

Further support however, is likely from restocking in the

New Year. We had expected this trend to emerge in the

fourth quarter of 2009. However, the anecdotal evidence

suggests that this did not take place. However, relatively low

inventories at consumers (semis producers) suggest that a

restocking cycle should boost demand in early 2010.

Turning to the most bullish scenario, this is predicated on

investor flows largely ignoring the lack of tightness in the

physical market and alternatively following the wider rally

of the base metals complex, which is essentially what has

happened so far in 2009. However, even under this scenario

it is still difficult to expect a return to anywhere near prior

highs. This is due to the initially higher prices leading to

restarts of more idle capacity in Europe, USA and Russia as

prices are sustained at over $2,000/tonne. Consequently,

we expect prices to average $2,025/tonne on average under

this scenario.

2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Global production 8,760 8,838 9,430 9,800 9,946 10,050 10,100 10,200

% change y-o-y -9.3 -12.0 -7.1 1.9 13.5 13.7 7.1 4.1

Global consumption 7,748 8,600 9,200 9,590 9,787 9,750 9,850 10,000

% change y-o-y -20.9 -13.2 -3.3 7.8 26.3 13.4 7.1 4.3

Market Balance 1012 238 230 210 159 300 250 200

Reported Stocks 5,083 5,685 5,934 6,144 6,303 6,603 6,853 7,053

As no. weeks consumption 8.5 8.6 8.4 8.3 8.4 8.8 9.0 9.2

LME Cash $/tonne 1,360 1,488 1,806 1,770 1,850 1,800 1,850 1,900

% change y-o-y -50.2 -49.4 -35.3 -3.3 36.0 20.9 2.4 7.3

Trading Range

High 1,575 1,647 2,035 2,050 2,200 2,100 2,200 2,300

Low 1,254 1,337 1,532 1,650 1,700 1,600 1,700 1,700


Quarterly Aluminium Supply-Demand Balance - Base Case

Aluminium Price & Forecast Trading Range

If restocking does not take place in the New Year it

is likely that the surplus in the aluminium market will

become increasingly visible again and that stocks will rise

to over 5 million tonnes on the LME alone. Alternatively,

if the dramatic growth in Chinese output does not slow

substantially in the near future then we doubt whether other

markets will pick up the “slack”. Under this outlook prices

are set to head gradually lower through the next year and

could approach marginal costs by the end of the forecast

period. Consequently, Scenario C foresees prices averaging

$1,475/tonne in 2010.

1000

1500

2000

2500

Jul-10Jan-10Jul-09Jan-09

Source: Thomson Reuters EcoWin, GFMS

* In order to receive more information about GFMS’ Quarterly 3-Year Forecast on the aluminium market, please contact:

[email protected]



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

South Africa 864 851 887 898 810 802 790

Mozambique 547 554 563 560 530 538 530

Other Africa 302 344 416 358 369 350 388

Africa 1,713 1,748 1,867 1,816 1,709 1,690 1,708

Bahrain 524 708 872 860 865 864 864

China 6,689 7,150 9,358 12,559 13,176 12,775 15,611

India 861 942 1,105 1,222 1,308 1,485 1,656

UAE 683 850 789 890 940 913 1170

Other Asia 901 1,617 966 983 1,212 1,415 1,837

Asia Total 9,657 11,268 13,091 16,513 17,501 17,452 21,138

Germany 668 648 516 551 606 302 284

Norway 1,322 1,376 1,427 1,357 1,359 1,126 1,085

Russia 3,594 3,647 3,718 3,955 4,187 3,724 3,655

Other Europe 3,253 3,311 3,257 3,348 3,355 3,059 3,005

Total Europe 8,837 8,982 8,917 9,211 9,507 8,211 8,029

Brazil 1,457 1,498 1,605 1,655 1,662 1,539 1,534

Canada 2,592 2,894 3,051 3,083 3,118 3,005 2,982

USA 2,517 2,480 2,281 2,560 2,660 1,724 1,652

Other Americas 903 895 890 903 1008 979 982

Total Americas 7,470 7,767 7,826 8,200 8,448 7,246 7,151

Australia 1,895 1,903 1,929 1,959 1,974 1,951 1,960

Total Oceania 2,245 2,252 2,267 2,317 2,314 2,228 2,270

Global Total 29,922 32,017 33,969 38,056 39,479 36,828 40,296

Western World 18,674 19,583 19,898 20,513 21,148 19,668 20,420

Former Socialist 11,218 12,434 14,071 17,544 18,332 17,121 18,640


Refined Aluminium Production 2004-2010

Statistical appendix



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Africa/Oceania 840 877 840 887 1026 943 1022

China 6,043 7,119 8,648 12,347 12,413 14,081 15,420

India 861 958 1,080 1,207 1,323 1,343 1,550

Japan 2,319 2,276 2,323 2,197 2,250 1,485 1,770

South Korea 1,118 1,201 1,153 1,081 965 869 1,065

Other Asia 2,627 2,662 2,807 2,940 3,050 2,778 3,109

Total Asia 12,967 14,216 16,010 19,772 20,000 20,556 22,914

France 749 719 713 737 689 530 615

Germany 1,795 1,758 1,823 2,008 1,950 1,170 1,420

Italy 987 977 1,021 1,087 951 590 750

Russia 1,020 1,020 1,047 1,020 1,020 847 950

Spain 603 624 620 642 603 482 530

UK 439 353 362 364 350 263 300

Other Europe 2,988 3,122 3,406 3,459 3,370 2,814 3,049

Total Europe 8,580 8,574 8,992 9,317 8,932 6,696 7,614

Brazil 651 759 773 854 932 810 965

Canada 755 801 846 718 714 603 665

USA 5,800 6,114 6,150 5,580 5,615 4,503 5,130

Other Americas 691 699 754 825 901 1,028 1,077

Total Americas 7,897 8,374 8,524 7,977 8,161 6,944 7,837

Oceania 437 451 374 396 385 382 396

Global Total 30,285 32,040 34,366 37,953 38,120 35,138 39,387

Western World 22,392 22,964 23,617 23,544 23,729 19,404 22,116



Refined Aluminium Consumption 2004-2010

C1Independent - Informed - International

Copper - November 2009


● Supply disruptions (actual and potential)

may provide some support to this market.

However, the potential upward effect on prices

is capped however by the poor demand outlook

between now and the end of the year. This is

particularly the case given major restocking in

developed economies is not set to take place

until the first quarter of 2010.

● The prospects for prices in 2010 however are

strong, as demand is set to grow robustly,

finally supported by restocking in the early part

of the year and continuing supply problems.

● Our alternatives (see below) suggest fairly

limited downside from current inflated levels.

Given the price performance of copper so far

in 2009, we expect that buyers (both physical

and speculative) will be encouraged back into

the market on any correction. Our high case

scenario, given the on-going supply tightness,

suggests a fairly swift return towards the levels

seen in the recent bull market.

Copper

Recent developments

● Copper prices rose through the psychologically

important $6,600/tonne ($3/lb) barrier during

October, aided by a series of supply problems.

However, they have subsequently retraced

back below that level.

● An accident at Olympic Dam has led to

production at this mine being cut to just 25%

of capacity until the first quarter of 2010.

● An ongoing, and protracted, strike at BHP

Billiton’s Spence mine has underpinned the

copper price throughout the second half of the

past month. Importantly, there is the potential

for further industrial action in the coming

months.

● Demand concerns were a crucial drag on the

price, as discussions in LME week reinforced

the view that demand outside Asia still shows

few tangible signs of restocking.

● LME inventories continued their recent upward

trend and Shanghai stocks are also edging

higher as China continues to import in large

volumes.

2010

(000 tonnes) Q1 Q2 Q3 Q4


Production 4,700 4,785 4,865 4,969

Consumption 4,700 4,800 4,850 5,057

Balance 0 -15 15 -88

Stocks 1,262 1,247 1,262 1,174


Base Case 6,600 6,800 7,000 7,300

Scenario B 7,000 7,250 7,500 7,800

Scenario C 5,750 5,800 5,600 5,400

Source: GFMS

Copper Supply-Demand & Price Forecast








Quarterly Copper Price & Forecast

3000

4000

5000

6000

7000

8000

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

C2 Independent - Informed - International


Market background

After slipping below $6,000/tonne in early October prices

picked up strongly fuelled by the combination of a weakening

US dollar and a strike at the BHP Billiton operated Spence

mine. This led to prices breaking through the psychologically

important $6,600/tonne ($3/lb) level on October 24th,

to new 2009 highs. Overall though, the monthly average

price was only up 1% on the prior month and if the effect

of the dollar depreciation is stripped out, the price received

by many producers actually dropped, despite the supply

problems.

Strike takes centre stage

As highlighted in our earlier research the potential for strikes

to occur and consequently to impact the copper supply chain

is substantial in the last third of this year. This potential has

become a reality. On 13th October workers at the Spence

mine in Chile went out on strike, which is still on-going in

early November. Unavoidable therefore, this fairly rapidly

led to the majority of all production at the operation having

to cease. In 2008 it produced 165,000 tonnes of copper

cathode. Two questions naturally remain; how much longer

will it last and will strike action become more widespread?

Despite a recent successful conclusion of negotiations at

Escondida, there are other operations in Chile and Peru

which have not reached any conclusions regarding labour

contracts and both these countries exhibit a long track

record of strikes at mines. It is worth bearing in mind that

while disruptions are likely it is our opinion that a minor level

of disruption from such an event is already factored into the

price as the market has been apprehensive about such a

scenario for a long time.

Technical problems contribute to supply tightness

Even ignoring the strike, and further potential labour

disputes, there have also been other supply disruptions.

Most significantly the haulage system in the Clark Shaft at

BHP Billiton’s Olympic Dam mine was damaged. Hoisting

is continuing at the secondary Whenan Shaft, but at this

stage, we expect ore hoisting will be at approximately 25%

of capacity until full production resumes in the first quarter

of 2010. Olympic Dam produced 194,000 tonnes of copper

in the year ended June 30, 2009. This is therefore expected

to cause a loss of approximately 60,000 tonnes of production

over the next six months. Meanwhile Escondida, majority-

owned by BHP Billiton, said in a statement it produced

540,740 tonnes of copper in concentrates during the first

nine months of 2009, down from 812,605 tonnes in the

same period last year.

However, the company has officially confirmed that

the repairs to Escondida’s Laguna Seca SAG mill were

successfully completed in August 2009. Consequently,

Escondida’s production in the July 2009 to June 2010 period

is expected to increase by approximately 5-10% due to the

successful repairs to the SAG mill and higher average ore

grade. Additionally, Escondida produced 247,386 tonnes of

copper cathodes compared with 184,396 tonnes in the year

earlier period due to an increase in the level of activity and

ore accumulation in the process stockpiles.

Chile produced 464,560 tonnes of copper in September, up

from 428,280 tonnes in September last year. In the first

nine months of the year, copper production was down 1.1%

from a year earlier at 3.94 million tonnes. Codelco was

critical to this, as its copper production rose 16% to 1.21

million tonnes. The increase over last year’s output was

chiefly due to higher production at its Gaby and Codelco

Norte operation. The former was only starting production

during this period last year, while the latter raised output

by 11% year-on-year (although it still produced less than in

the same period of 2007). Slightly higher output was also

recorded at Salvador and El Teniente, while output at Andina

was unchanged. In fact, overall Codelco’s production was

their highest since their record year of 2004.

Copper Premiums Jan 05 - to Present

0

50

100

150

200

250

20092008200720062005

US$/tonne

Grade A European

High grade cathode

Source: GFMS

Chinese Copper Imports

0

100

200

300

400

20092008200720062005

tonnes000s




Higher prices start to lead to higher output

The sustained strength of prices in the past couple of months

has led to a market response. Most clearly this came from

Freeport McMoRan which is resuming work at its Miami

operation in Arizona. This project, was initially expected to

require a $100 million investment, and was deferred in late

2008. These activities will improve efficiencies of ongoing

reclamation projects associated with historical mining

operations at the site. During the approximate five-year

mine life the company expects to ramp up production to

approximately 145,000 tonnes of copper per year by the

second half of 2011. Elsewhere, the Zambian central bank

has raised its projected output due to restarts of some

operations due to higher prices.

Chinese imports surprise market

China’s imports of refined copper bounced back in

September, surprising many in the market. China’s imports

of refined copper increased by 28.7% compared to August

at 282,828 tonnes, after declining for two straight months

following a record high of 378,943 tonnes in June. Average

monthly imports of refined copper were just over 120,000

tonnes in 2008, as opposed to 286,000 tonnes this year.

Therefore, the increase in September took imports back to

marginally below the average level achieved this year. High

import prices are expected to have curbed further growth in

copper imports in October. Indeed, with SRB and national

grid purchases completed, it is expected that imports

will average less than 200,000 tonnes per month for the

final quarter of the year. This will largely reflect ongoing

contracts, particularly those that have regular monthly

amounts set to be delivered per month for the entire year.

Asian demand bounces back...

The past month has seen a degree of conflict between some

strong macroeconomic indicators and anecdotal evidence still

indicating weak copper demand across all of the developed

economies. Indeed, our discussions confirmed our thesis

that substantial restocking in the copper industry is not

set to take place until the start of next year as consumers

remain wary of end use demand and the price increase in

recent months. This has represented a key barrier in the

price sustaining levels above $6,600/tonne.

That said, Asian economies - especially outside Japan

- continue to rebound particularly strongly from the sharp

downturn experienced at the start of this year. This has

led the IMF to recently upgrade their projected growth

rates for these countries in both 2009 and 2010. Naturally

the strength of the Chinese economy is having an impact

across the region and industrial production surged higher

in the latest release to be up 13.9% year-on-year. More

specifically impacting copper, Chinese property market floor

space completed was up by 25% year-on-year in the year

to September 2009. In fact, copper semis output is now

up 28% year-to-date. This is substantially quicker than the

7.6% growth in refined production and is enabled by the

increase in imports so far this year. The production of power

cables increased by 14.6% over the same period of last year.

The production of power generating equipment is aided by

the government’s investment in the power sector.

In Japan, output of rolled copper product rose for the sixth

consecutive month in September aided by the recovery in

automobile and semiconductor sectors. The figure from

preliminary data released by the Japan Copper and Brass

Association were up 4.7% from August to 66,145 tonnes.

However, it was down 17.4% compared to a year earlier.

LME Stocks vs Spot Price Jan 03 - July 09Copper LME Stocks & Price

Stocks (No. of Weeks Consumption)

US$/tonne

Oct 09

Sources: GFMS, LME

0 1 2 3 40

2000

4000

6000

8000

10000

Copper Daily Stocks vs Price

US$/tonne

0

200

400

600

800

1000

1200

Jan 09

Jan 08Jan 06Jan 04Jan 021000

3000

5000

7000

9000

Spot Price

Stocks

tonnes000s

Source: LME

Jan 07Jan 03



...but mature economies are still weak

Meanwhile, in the US and Europe demand remains weak.

This was highlighted by General Cable stating for the USA

that “we expect continuing declines in non-residential

construction spending as well as a residential construction

market that will recover slowly.” The company further

highlighted the weakness of the Spanish market and

especially the troubled construction sector and hence the

knock on impact for copper use.

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010


% change y-o-y 4.3 4.1 4.4 3.8 1.8 0.0 5.8

Consumption

Europe 4,170 3,877 4,254 4,111 3,901 3,460 3,750

Japan 1,279 1,223 1,282 1,252 1,184 900 1,015

USA 2,415 2,274 2,130 2,137 1,952 1,740 1,900

Total Mature 7,864 7,374 7,666 7,500 7,038 6,100 6,665

% change y-o-y 4.1 -6.2 4.0 -2.2 -6.2 -13.3 9.3

Brazil 332 334 339 330 386 332 365

China 3,381 3,652 3,604 4,957 5,199 6,330 6,819

India 350 415 440 475 500 530 565

Russia 588 635 692 671 650 595 635

Total BRICs 4,651 5,036 5,075 6,434 6,735 7,787 8,384

% change y-o-y 11.9 8.3 0.8 26.8 4.7 15.6 7.7

ASEAN 707 731 780 772 758 742 770

% change y-o-y 10.7 3.4 6.7 -1.0 -1.8 -2.1 3.8

South Korea 937 864 812 821 780 795 820

Taiwan 690 638 639 603 582 470 500

Others 1,989 2,045 2,073 2,045 2,115 2,130 2,268


% change y-o-y 7.1 -0.9 2.1 6.6 -0.9 0.1 7.7

Metal balance -910 -116 250 -223 264 245 -88

Reported stock change -862 -22 264 -109 132

Reported stocks

Producer stocks 614 596 745 630 595

Consumer stocks 135 104 122 134 140

Merchant stocks 11 6 6 15 25

Exchange stocks

Comex 44 6 31 14 31

Shanghai Exchange 32 58 31 26 18

LME 49 92 191 199 341

Total Stocks 884 862 1,126 1,017 1,149 1,394 1,307

Total as No. weeks con 2.7 2.7 3.4 2.9 3.3 4.0 3.5

LME as No. weeks con 0.2 0.3 0.6 0.6 1.0 0.0 0.0

LME cash ($/tonne) 2,868 3,864 6,731 7,126 6,952 5,100 6,925

% change y-o-y 61.1 34.7 74.2 5.9 -2.4 -26.6 35.8

Source: GFMS, ICSG, LME

Copper Supply-Demand Balance 2004-2010



2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4


% change y-o-y -1.2 -0.1 0.4 0.8 7.3 5.1 3.7 7.0


% change y-o-y -5.4 -2.8 3.0 5.9 10.1 5.5 5.1 10.2

Market Balance 112 1 77 55 0 -15 15 -88

Reported Stocks 1,129 1,130 1,207 1,262 1,262 1,247 1,262 1,174

No. of weeks’ con 3.4 3.2 3.4 3.6 3.5 3.4 3.4 3.0

LME Cash $/tonne 3,435 4,676 5,840 6,465 6,600 6,800 7,000 7,300

% change y-o-y -55.8 -44.6 -24.1 64.1 92.1 45.4 19.9 12.9

Trading Range

High 4,078 5,266 6,490 7,000 7,000 7,750 8,000 8,800

Low 3,051 3,964 4,821 5,856 5,800 5,800 6,250 6,500


Quarterly Copper Supply-Demand Balance - Base Case

Copper Price & Forecast Trading RangeMarket outlook

Our projections for copper over the remainder of the year

are cautious since the uncertainty created by the labour

disputes rumbles on. The latest news is that discussions

have broken down again at Spence and the strike could

continue for some considerable time and if action were

also to take place at other major mines this would be very

supportive and is key to prices exceeding $7,000/tonne this

year. Indeed, under our most positive scenario for demand,

we see prices average over $7,000/tonne for every quarter

next year and average $7,800/tonne in the last 3 months of

the year.

Under our base case in 2010, the market appears set to be

tight and potentially tightening as the year progresses. This

is partly due to the restocking that is set to occur in North

America and much of Western Europe from the first quarter

of the year. Further support though is likely to come from

the continued lack of supply growth. This will be aided by

relatively little in the way of new mine capacity set to come

on stream and compared to many other base metals, and

aluminium in particular, very little in the way of idle capacity.

Under this base case the market is in a deficit of 88,000

tonnes, weighted to the end of that year. Consequently, we

expect prices to rise during the forecast period to average

in excess of $7,000/tonne for the second half of 2010 under

the base case.

On the flip side, with work commencing at Miami and

restocking not likely to occur in either North America or

Europe this year, the upward trend of copper stocks that has

been occurring for some weeks now could accelerate further.

If this is coupled with a speedy resolution at Spence then

the prospect of a marked correction in the price could well

become a reality in the short term. Under scenario C then

prices are set to remain below $6,000/tonne on average for

each of the quarters next year as the market is in surplus

during that year.

2000

4000

6000

8000

10000





(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

South Africa 87 89 90 97 109 109 112

Zambia 402 433 474 509 545 590 620

Other Africa 122 149 175 217 297 418 531

Total Africa 612 671 739 823 951 1,116 1,263

China 754 777 889 946 1,023 1,025 1,080

Indonesia 843 1,065 816 789 651 710 770

Iran 146 164 216 244 248 250 260

Kazakhstan 462 402 434 407 420 375 405

Mongolia 132 129 132 133 129 135 135

Philippines 16 16 18 22 18 45 75

Other Asia 172 203 228 241 279 299 315

Total Asia 2,526 2,756 2,733 2,781 2,767 2,839 3,040

Bulgaria 94 95 110 110 105 105 108

Poland 531 512 497 452 429 430 428

Portugal 100 100 100 100 100 100 100

Russia 510 510 510 510 510 510 510

Sweden 71 71 71 71 71 71 71

Other Europe 257 271 285 324 337 334 414

Total Europe 1,563 1,558 1,573 1,566 1,552 1,550 1,631

Argentina 176 187 180 180 157 180 185

Canada 563 596 603 596 607 600 615

Chile 5,413 5,321 5,361 5,557 5,331 5,100 5,250

Mexico 406 429 334 338 247 270 360

Peru 1,036 1,010 1,049 1,190 1,268 1,220 1,275

USA 1,174 1,157 1,222 1,194 1,328 1,160 1,050

Other Americas 101 133 144 200 212 217 224

Total Americas 8,868 8,832 8,893 9,255 9,149 8,747 8,959

Australia 854 916 859 871 885 800 860

New Caledonia 173 193 194 169 160 165 170

Oceania 1,028 1,109 1,053 1,040 1,045 965 1,030

Global Total 14,595 14,925 14,991 15,465 15,463 15,217 15,923

Western World 11,850 12,237 12,122 12,603 12,525 12,308 12,915



Copper Mine Production 2004-2010




(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

South Africa 87 99 100 111 93 107 110

Zambia 410 399 418 431 416 595 700

Other Africa 31 31 35 47 75 181 261

Total Africa 528 529 553 589 583 883 1,071

China 2,030 2,600 3,003 3,499 3,791 3,850 4,080

India 405 493 625 715 675 655 725

Indonesia 211 263 218 277 255 265 275

Japan 1,380 1,395 1,532 1,577 1,540 1,430 1,470

Kazakhstan 445 419 428 406 398 360 415

Philippines 176 172 181 160 175 180 185

South Korea 496 519 576 582 537 542 560

Other Asia 519 415 436 421 425 441 449

Total Asia 5,662 6,277 6,998 7,637 7,795 7,723 8,159

Belgium 393 386 391 394 396 280 270

Germany 653 638 662 666 691 682 705

Poland 550 560 557 533 521 510 550

Russia 919 935 951 949 862 800 860

Scandinavia 407 394 407 358 396 380 385

Spain 258 309 299 308 319 330 370

Other Europe 285 331 364 352 422 449 463

Total Europe 3,465 3,553 3,631 3,560 3,607 3,431 3,603

Brazil 208 199 220 218 226 225 235

Canada 527 515 501 454 444 450 465

Chile 2,837 2,824 2,811 2,936 3,061 3,070 3,130

Mexico 373 415 369 357 295 300 320

Peru 505 510 508 414 464 430 460

USA 1,306 1,255 1,250 1,319 1,270 1,240 1,350

Other Americas 26 26 26 26 26 26 26

Total Americas 5,782 5,745 5,684 5,724 5,785 5,741 5,986

Oceania 490 469 429 442 502 490 500

Global Total 15,928 16,573 17,295 17,952 18,272 18,268 19,319

Western World 11,594 11,825 12,139 12,350 12,425 12,448 13,109



Refined Copper Production 2004-2010 (000 tonnes)



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Africa 200 228 235 265 284 320 351

China 3,381 3,652 3,604 4,957 5,199 6,330 6,819

India 350 415 440 475 500 530 565

Japan 1,279 1,223 1,282 1,252 1,184 900 1,015

Malaysia 175 180 189 184 177 175 179

South Korea 937 864 812 821 780 795 820

Taiwan 690 638 639 603 582 470 500

Thailand 240 241 254 250 245 242 250

Turkey 281 316 320 358 360 358 382

Other Asia 720 731 838 859 930 955 995

Asia Total 8,053 8,261 8,378 9,759 9,958 10,755 11,525

Belgium 300 269 291 309 285 245 265

France 550 505 540 440 410 332 365

Germany 1,121 1,180 1,398 1,392 1,365 1,200 1,320

Italy 719 681 801 764 635 552 600

Poland 267 275 275 297 267 245 260

Russia 588 635 692 671 650 595 635

Scandinavia 297 255 266 259 237 211 230

Spain 331 321 319 330 354 332 350

UK 242 200 180 55 54 53 55

Other Europe 624 507 504 624 654 -3,765 -4,080

Total Europe 5,039 4,828 5,265 5,141 4,911 0 0

Brazil 332 334 339 330 386 332 365

Canada 297 290 301 206 195 177 193

Mexico 406 430 360 340 325 305 330

USA 2,415 2,274 2,130 2,137 1,952 1,740 1,900

Other Americas 206 202 208 205 203 200 206

Total Americas 3,657 3,530 3,339 3,218 3,061 2,754 2,994

Oceania 167 155 143 148 151 138 150

Global Total 16,838 16,689 17,045 18,175 18,007 18,023 19,407

Western World 12,361 11,886 12,161 11,862 11,473 10,446 11,268



Refined Copper Consumption 2004-2010

L1Independent - Informed - International

Lead - November 2009

● Under our base case, GFMS is projecting

a surplus of 60,000 tonnes in 2010. This

is a slightly smaller surplus than ILZSG is

forecasting.

● Although we believe that prices may have a

correction in the short term, we expect that

prices will trend higher in 2010, projecting an

average of $2,500/tonne in Q4. We forecast an

average price of $2,245/tonne in 2010, up by

just over 30% from this year’s likely outturn of

$1,710/tonne.

● Our high case forecast implies that any

correction in the lead market will be viewed as

a buying opportunity and any price weakness

will be short-lived. The tight concentrate

position and on-going investment interest in

the market could see prices exceed $3,000/

tonne next year and average $2,550/tonne.

● Even under our low case scenario, the

downside is fairly limited and we do not

envisage a return to the sub $1,500/tonne

level that prevailed for much of the first half

of this year. Our low case forecast for 2010 is

$1,790/tonne.

Lead

Recent developments

● Chinese production was stronger than expected

in September despite the poisoning scares.

Shutdowns are continuing to have an effect on

individual operations, with Henan Yuguang

Gold & Lead Co, reportedly shutting 4,000 tpm

of crude lead capacity.

● China continues to drive global demand,

buoyed by a strong auto sector. Imports have

however dipped.

● Elsewhere demand is weak, although should

improve on strong replacement battery demand

over Q4 .


● We are positive on the fundamentals of lead

going into the closing months of the year, but

this may not filter through to higher prices

from current inflated levels.

● Nevertheless Chinese supply disruptions will

continue to support the price level (i.e. above

$2,000/tonne) in the short term.

● Further forward, much will depend on the

willingness of the Chinese government to cut

production to contain pollution from smelters.

Recent developments suggest that any

reduction in Chinese output on environmental

grounds will prove to be temporary.

2010



Production 2,330 2,355 2,365 2,447

Consumption 2,300 2,325 2,325 2,487

Balance 30 30 40 -40

Stocks 394 424 464 424


Base Case 2,175 2,000 2,300 2,500

Scenario B 2,400 2,500 2,600 2,700

Scenario C 1,850 1,800 1,700 1,800

Source: GFMS

Lead Supply-Demand & Price Forecast








Quarterly Lead Price & Forecast

1000

1500

2000

2500

3000

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

L2 Independent - Informed - International


Market background

Prices have continued their upward trend, rising for the

eighth consecutive month to $2,241/tonne in September.

Prices in late October have been buoyed by the sector wide

bounce and further concerns over Chinese production, rising

to $2,411/tonne on October 22. The pace of inventory

accumulation has slowed significantly, rising to 129,600

tonnes on the last day of October, up a marginal 1.6% over

the month. In early November, LME stocks have barely

changed and prices remain close to recent highs.

The latest ILZSG data shows the global lead market in

surplus by 57,000 tonnes in the first eight months of 2009.

From both a historical perspective and compared to other

metals, LME inventories remain low and still only represent

1.3 weeks of consumption. ILZSG expects the lead market

to be in an 80,000 tonnes surplus in 2009, up significantly

from its 37,000 tonne projection made in April. It also

believes that the surplus will widen to over 100,000 tonnes

next year as an expected 7.2% increase in demand is

outweighed by a 7.4% increase in production. As detailed

on page L4, GFMS projects a surplus of 91,000 tonnes in

2009 followed by a surplus of 60,000 tonnes next year.

Global production supported by China…

ILZSG expects global production to rise by 3.4% to 9.0

million tonnes in 2009. Production is currently up 1.6% year-

on-year over the first eight months to 5.784m tonnes as

production cutbacks in the “West” this year have been offset

by rising output in China (prior to the poisoning related

cutbacks).

As noted in previous reports, announcements of restarts

outside of China remain limited. We noted in our last

monthly that Doe Run was optimistic over a restart of La

Oroya in “the next few weeks”. However, it has now been

revealed that operations at the smelter, stopped since June

because of financial and environmental troubles, might not

restart until 2010. The cause of the delay is unknown. As

a result, the Peruvian government is weighing whether to

eliminate the 9% import tariff on lead as the country’s only

smelter that processes the metal is shut, squeezing local

supplies.

…with the poisoning scares leading to only limited losses

output in September

Chinese production experienced a less severe decline than

expected in September, down just 5% month-on-month

to 335,153 tonnes from August’s record high of 352,797

tonnes. A much larger decline was anticipated by many as

numerous operations were believed to have closed in the

face of growing local protests over a spate of lead poisoning

cases. Likewise, GFMS anticipated losses to materialise

in the immediate aftermath of the protests, although we

highlighted our perception that the rally in early September

had overdone the scale of the expected cutbacks in supply.

The figures have nevertheless prompted speculation that

some of the smelters ordered to shut down last month

continued to operate. Cumulative production was up 20.2%

over the first nine months to 2.760m tonnes.

We stated in our last report that we expected October

production to also be lower than the August peak, and recent

developments have done little to suggest otherwise. In

addition to reportedly shutting some production through

September, Henan Yuguang Gold & Lead Co, China’s largest

producer, is believed to have shut 4,000 tpm of crude

lead capacity (located in Jiyuan, Henan province) as local

protests against lead poisoning continue. Also in Jiyuan,

Wanyang Lead and Jinli Lead also previously closed some

sintering smelting capacity, in addition to more than 30

smaller smelters in the same area. With Chinese authorities

desperate to keep the operations running, there have

been plans to relocate 15,000 residents of Jiyuan in Henan

province away from the plants.

Lead Premiums

0

50

100

150

200

250

20092008200720062005

US$/tonne

US high grade ingot

European warehouse Rotterdam

Source: GFMS

Chinese Lead Imports

0

10

20

30

40

50

20092008200720062005

tonnes000s

Source: Chinese Customs; GFMS



Increased Chinese concentrate availability restricts

decline on refined side

China’s spot treatment charges for imported lead

concentrates have surged to $120/tonne, from $90 before

the Chinese holidays, as domestic mines raise operating

rates in response to higher prices. We noted in our last

monthly that concentrate production had been improving,

and September production continued this trend reaching

a record 132,266 tonnes, up over a quarter year-on-year.

Chinese concentrate production was up 8.3% over the first

nine months to 915,422 tonnes. As a result of this greater

availability of local concentrate, the demand for imported

concentrate has dipped thus pushing up treatment charges.

We noted that concentrate availability could have previously

restricted operating rates at smelters, and this increase

in availability could be one reason for the smaller than

expected drop in refined lead output that was experienced in

September.

On a global basis mine production was down by a marginal

1.8% over the first eight months to 2.533m tonnes on

weakness in Australia, Peru and the USA. Over the year as

a whole, ILZSG expects global lead mine output to rise by

1.3% to 3.94m tonnes and by 5.8% in 2010 to 4.17 million

tonnes.

Chinese auto strength continues to support global

demand

The latest ILZSG statistics show global consumption up 0.1%

over the first eight months to 5.727m tonnes. The statistics

highlight the extent to which China has supported the rest of

the world, as excluding China demand is down a significant

14.2%. A bounce in demand is expected over the latter part

of the year as sales of replacement batteries rise over the

winter months. For the year as a whole, ILZSG is expecting

a 3% rise in lead usage to 8.9 million tonnes.

Chinese apparent consumption was up 22% over the first

nine months of the year, to 2.805m tonnes according to

the latest CNI-A data. In looking at underlying demand

conditions, significant strength from the auto sector remains

a key driver, as total automotive production over the first

nine months was up 32% to 9.612m units. Positive news

was carried through September as car production for the

month totalled a record 1.362m units, up 19.4% year-on-

year. Total vehicle sales also posted similar gains, up 17%

year-on-year for September leaving the cumulative figure up

34.2%.

However, we do believe that the apparent consumption

figure does overestimate the strength of underlying demand

and believe that a stockpile has been built in the country.

Cumulative net imports over the first nine months totalled

134,191 tonnes, a sharp reversal from the net export

position of 12,646 tonnes over the corresponding position of

2008. Net imports have however dipped from the 36,202

tonnes level seen in April, to 3,336 tonnes in September

- down 12.6% month-on-month and 44.9% year-on-year.

The strength of domestic production figures of late have

however compensated by-and-large for the recent fall in

imports, keeping the Chinese market well supplied and in

turn boosting the apparent consumption figure.

Demand elsewhere is weak, but hopes of improvement

into Q4

Elsewhere, US demand is down 10.6% over the first eight

months, and European demand was down 19.7%, and these

countries continued to struggle over the traditionally weak

summer months. US auto sales picked up from the 9.2m

annualised rate recorded units in September, to 10.4m units

in October. However, as expected the annualised rate was

still down notably on the 14 million rate seen in August,

which was inspired by the cash for clunkers scheme.

LME Stocks vs Spot Price

Stocks (No.of Weeks Consumption)

US$/tonne

Oct 09

Source: GFMS, LME

Lead LME Stcosk & Price

0.0 0.5 1.0 1.5 2.00

500

1000

1500

2000

2500

3000

3500

4000

Lead Daily Stocks vs Price

US$/tonne

0

50

100

150

200

250

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 020

1000

2000

3000

4000

tonnes000s

Spot Price

Stocks

Source: LME



This highlights the fact that consumers are still putting off

purchases of big-ticket items like new cars in light of a slow

economic recovery.

In addition, August replacement battery shipments were

down 1.4% on the July figure according to Battery Council

International, which does not bode well for the market. This

is particularly the case as August is typically a strong month

for the replacement battery sales as hot weather takes a

toll on car batteries. Having said this, shipments in August

2009 were up 8.5% year-on-year to 8.3 million units, on

distributor restocking and a slight improvement in economic

conditions.

European demand for lead usually picks up from the battery

sector in winter, which should combine with restocking to

provide some positive outlook for demand in the region.

ILZSG expects European demand to decline by 15.6% this

year to its lowest level in more than 50 years. Premiums

remain in the region of $35-50/tonne. The mature

economies of Asia also showed weakness, with Japan in

particular suffering a notable 34.6% decline.

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010


% change y-o-y 3.2 9.3 3.9 2.4 6.9 3.1 6.2

Consumption

Europe 1,920 1,920 1,893 1,877 1,778 1,519 1,602

Japan 292 291 303 279 261 200 210

USA 1,502 1,587 1,622 1,510 1,515 1,450 1,480

Total Mature 3,714 3,798 3,818 3,666 3,554 3,169 3,292

% change y-o-y 1.9 2.3 0.5 -4.0 -3.1 -10.8 3.9

Brazil 102 119 114 102 129 123 128

China 1,510 1,973 2,213 2,573 3,211 3,900 4,250

India 150 160 170 175 181 190 200

Russia 84 80 79 76 85 70 75

Total BRICs 1,846 2,332 2,576 2,926 3,606 4,283 4,653

% change y-o-y 19.9 26.3 10.5 13.6 23.2 18.8 8.6

ASEAN 376 347 375 356 359 324 341

% change y-o-y 8.0 -7.7 8.1 -5.1 0.8 -9.7 5.2

South Korea 376 384 337 342 312 290 305

Taiwan 162 115 123 93 70 80 90

Others 821 807 833 798 764 706 756


% change y-o-y 6.9 6.7 3.6 1.5 5.9 2.2 6.6

Metal balance -315 -157 -140 -67 6 91 60

Reported stock change -114 -5 -18 -4 40

Reported stocks

Producers 122 138 121 114 146

Consumers 130 104 106 106 114

Merchants 1 2 2 1 1

LME 40 44 41 45 45

Total Stocks 293 288 270 266 306 397 457


LME as No. weeks con 0.3 0.3 0.3 0.3 0.3

LME cash ($/tonne) 888 976 1,288 2,600 2,085 1,710 2,245

% change y-o-y 72.1 9.9 32.0 101.9 -19.8 -18.0 31.3

Source: GFMS, ILZSG, LME

Lead Supply-Demand Balance 2004-2010



2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4


% change y-o-y -0.7 0.1 6.2 5.0 7.1 7.0 4.6 6.0


% change y-o-y -3.1 2.1 7.2 10.1 8.2 6.8 4.5 7.0

Market Balance 50 23 35 -17 30 30 40 -40

Reported Stocks 335 346 381 364 394 424 464 424

No. of weeks’ con 2.0 2.1 2.2 2.0 2.2 2.4 2.6 2.2

LME Cash $/tonne 1,160 1,506 1,925 2,250 2,175 2,000 2,300 2,500

% change y-o-y -59.9 -35.0 0.5 79.8 87.6 32.8 19.5 11.1

Range

High 1,341 1,797 2,400 2,450 2,350 2,300 2,500 2,750

Low 992 1,242 1,567 1,900 1,900 1,800 2,000 2,150


Quarterly Lead Supply-Demand Balance - Base Case

Lead Price & Forecast Trading RangeMarket outlook

With continued investment buying and the disruptions to

Chinese output, we expected prices to hold on to much

of the recent gains in the short term. Going forward, the

relatively low level of LME inventories is tested by recovering

demand from the “West” with the onset of the battery

season. Also, on the supply side prices will benefit in the

near term from the reduction (or at least stalling) in Chinese

output which has been met with limited restarts elsewhere

across the globe.

Much will be reliant on whether significant capacity is

restarted in light of the higher prices and the extent to

which Chinese production is affected by the recent poisoning

scares. As the rise is more driven by investment buying

rather than overly positive fundamentals, any capacity

increase at this point would be detrimental to the market.

We forecast an average Q4 price of $2,250/tonne, leading to

an average 2009 price of $1,710/tonne.

In 2010, we expect prices will run out of steam over the

first half of the year, with a moderate declining trend being

in place and a second quarter average of $2,000/tonne.

Subsequently, as the market gradually moves to deficit, we

forecast prices to recover materially, averaging $2,300/tonne

and $2,500/tonne in the third and fourth quarter and we

would not be surprised to see prices above $2,700/tonne

before the end of the year. GFMS’ forecast for the full-year

average in 2010 is $2,245/tonne.

Given the extent of the economic downturn the level of

LME inventories at this stage of the economic cycle are

remarkably low. Therefore, any improvement in the

fundamentals will quickly filter through to further price

increases. The stimulus is more likely to come from the

supply than demand side either through continued tightness

at the concentrate stage of cutbacks at teh refined stage on

environmental grounds. Our high case scenario projects an

average annual price of $2,550/tonne in 2010.

Even under our low case scenario, prices are forecast to

remain high from a historical perspective and in relation to

marginal production costs. The most likely trigger for low

prices is continued gains in Chinese production (both primary

and secondary output is rising sharply). This in turn would

lead to further declines in Chinese imports. We forecast lead

prices retreating to around $1,800/tonne in our low case

scenario.

500

1000

1500

2000

2500

3000





(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 117 112 114 90 95 93 93

China 997 1,142 1,331 1,402 1,543 1,625 1,700

Other Asia 169 168 190 193 210 222 230

Total Asia 1,166 1,310 1,521 1,595 1,753 1,847 1,930

Ireland 64 72 62 57 50 50 50

Sweden 54 60 56 63 77 75 78

Other Europe 111 123 127 164 187 184 184

Total Europe 229 255 245 284 314 309 312

Mexico 118 135 135 137 141 145 150

Peru 306 319 313 329 345 315 325

USA 439 436 429 444 410 410 425

Other Americas 122 128 137 133 225 205 215

Total Americas 985 1,018 1,014 1,043 1,121 1,075 1,115

Oceania 642 715 621 589 594 535 600

Global Total 3,139 3,410 3,515 3,601 3,877 3,859 4,050

Western World 1,972 2,103 2,009 2,012 2,138 2,038 2,154


Source: GFMS, ILZSG

Lead Mine Production 2004-2010


(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 100 130 122 118 115 98 103

China 1,934 2,391 2,715 2,788 3,206 3,800 4,100

Japan 283 275 280 276 279 240 270

South Korea 243 256 240 260 270 280 290

Other Asia 542 541 573 574 644 649 664

Total Asia 3,002 3,463 3,808 3,898 4,399 4,969 5,324

Germany 411 418 379 405 415 360 400

Italy 202 211 191 212 200 175 200

UK 243 304 298 275 303 300 300

Other Europe 736 774 792 887 897 842 869

Total Europe 1,592 1,707 1,660 1,779 1,815 1,677 1,769

Canada 241 230 250 237 259 260 260

Mexico 242 256 253 255 255 240 255

USA 1,262 1,293 1,303 1,303 1,280 1,245 1,275

Other Americas 260 270 273 272 278 194 241

Total Americas 2,005 2,049 2,079 2,067 2,072 1,939 2,031

Oceania 281 277 253 252 270 260 270

Global Total 6,980 7,626 7,922 8,114 8,671 8,943 9,497

Western World 4,616 4,785 4,780 4,817 4,910 4,613 4,852


Source: GFMS, ILZSG

Refined Lead Production 2004-2010



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Africa/Oceania 154 141 136 128 134 122 130

China 1,510 1,973 2,213 2,573 3,211 3,900 4,250

Japan 292 291 303 279 261 200 210

South Korea 376 384 337 342 312 290 305

Other Asia 917 865 929 899 872 842 901

Total Asia 3,095 3,513 3,782 4,093 4,656 5,232 5,666

Belgium 60 42 55 53 54 50 50

France 215 215 210 210 190 165 175

Germany 395 407 387 409 369 310 320

Italy 272 269 285 269 276 225 245

Spain 246 270 272 260 248 205 215

UK 295 271 270 239 236 205 210

Other Europe 521 526 493 513 490 429 462

Total Europe 2,004 2,000 1,972 1,953 1,863 1,589 1,677

Mexico 262 267 271 235 215 185 200

USA 1,502 1,587 1,622 1,510 1,515 1,450 1,480

Other Americas 278 275 279 262 282 274 284

Total Americas 2,042 2,129 2,172 2,007 2,012 1,909 1,964

Oceania 41 31 30 27 26 23 26

Global Total 7,295 7,783 8,062 8,181 8,665 8,852 9,437

Western World 5,439 5,443 5,512 5,246 5,100 4,639 4,850


Source: GFMS, ILZSG

Refined Lead Consumption 2004-2010

N1 Independent - Informed - International

Nickel & Cobalt - November 2009

● In terms of prices, we believe that the

nickel market will cling on to the bulk of the

recent gains despite little support from the

fundamentals due to the general buoyancy of

the sector.

● There will eventually be support from firmer

demand growth as the year progresses, which

should enable the cash price to average

$18,700/tonne in 2010.

● If greenfield projects come onstream on

schedule, there is the potential for the

oversupply suggested by the INSG. Our low

case average for 2010 is $16,250/tonne.

● The restocking phase in both the nickel and

stainless steel sector has yet to emerge. If

this “kicks in” during 2010, then there is the

potential for further gains in prices. However,

even under our high case, the stock overhang

will cap the increase, and our forecast for next

year is $21,000/tonne.

Nickel

Recent developments

● Nickel prices in October rallied back close to

$20,000/tonne despite LME stocks setting new

records, and some bearish signals from the

stainless steel sector.

● Stainless steel prices have increased sharply so

far this year but this is almost solely down to

increases in the alloy surcharge rather than the

underlying base price. As alloy surcharges are

essentially fixed, this means that base prices

have come under pressure.

● A number of stainless producers in Europe and

North America have recently announced their

results for the third quarter. Generally they

are fairly cautious about short-term demand

prospects.

● Vale Inco has confirmed that the long-awaited

Goro project will be commissioned in January.

This provides an unwelcome remainder of the

fairly long list of new projects that the nickel

market will have to absorb.


● The latest bi-annual projections from INSG

paint a bearish scenario for the fundamentals

in 2010, forecasting a surplus of around

90,000 tonnes. Our analysis points to a much

smaller surplus next year of 20,000 tonnes (our

estimate of the surplus in 2009 is also below

that of the INSG).

2010



Consumption 320 330 340 371

Production 340 345 330 365

Balance 20 15 -10 -6

Stocks 207 222 212 206


Base Case 17,750 18,000 19,000 20,000

Scenario B 20,000 20,000 21,000 23,000

Scenario C 15,000 16,000 16,500 17,000

Source: GFMS

Nickel Supply-Demand & Price Forecast








Quarterly Nickel Price & Forecast

10000

15000

20000

25000

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

N2Independent - Informed - International


Market background

Nickel prices performed surprisingly strongly in October with

the cash quote at one stage approaching $20,000/tonne

despite a fairly lacklustre fundamental background. The

average price in October at $18,525/tonne was the second

highest recorded so far year. Prices have traded around

$18,000/tonne in early November as stocks on the LME

remain around 130,000 tonnes.

Also the market is having to absorb higher levels of

production, particularly in China, and the long-awaited Goro

project looks set to start output in early 2010. Although the

demand side of the nickel market has benefited from the

recent rise in stainless output, these increases are putting

the stainless market under some pressure, which could

constrain further increases to production and hence nickel

demand.

Lower output, now the exception rather than the

rule...

Refined production up to August was about 3.4% down on

year earlier levels. However, with prices now comfortably

above marginal costs, the focus of the market is generally

shifting towards the prospects for higher, rather than lower,

output moving forward. Nevertheless, Norilsk has recently

announced that its nickel output in 2009 should be 284,000

tonnes, just below the bottom end of its previous guidance

of 285,000-300,000 tonnes.

In the first nine months of this year, the company produced

207,454 tonnes of nickel compared to 218,474 tonnes a year

earlier. Output in the third quarter was 66,703 tonnes, down

from 75,067 tonnes in the same period in 2008.

...as greenfield capacity starts to come onstream

However, most other recent supply side developments have

tended to be bearish. The high level of nickel prices is

encouraging higher production even if many of the projects

that were closed, when prices were around $10,000/tonne,

remain idled. The commissioning of the Vale Inco’s Goro

project in early 2010 provides an unwelcome reminder to the

backlog of nickel projects that could potentially boost supply.

Vale Inco has announced it will start operations in January

and that production next year will be 20,000 tonnes. The

ramp up to full capacity of 60,000 tpy is a slow one, and

may not be complete until 2013. This should be followed by

the company’s Onca Puma project in 2011, which will have a

contained capacity of 58,000 tpy of ferro-nickel.

Output of ferro-nickel at PT Aneka Tambang should increase

by 42% next year with the restart of a 15,000 tpy smelter.

Production should increase from this year’s target of 12,000

tonnes to 17,000 tonnes.

Of more immediate concern is the potential for further

gains in the Chinese nickel pig iron production. Chinese

nickel ore imports more than doubled month-on-month in

September and were over 300% higher year-on-year at 2.81

million tonnes. According to the CNI-A, domestic nickel-

in-concentrate rose by 23.9% to end September to 62,425

tonnes. Refined output rose by 21.4% to 118,213 tonnes.

Market largely unaffected by lower Chinese imports

In common with most of the base metals, Chinese imports

of refined nickel have fallen sharply from the record levels

in the summer months. However, they are still running at

a rate (in August and September) of around 20,000 tonnes

Nickel Premiums

0

500

1000

1500

2000

2500

20092008200720062005

US$/tonne

Source: GFMS

US melting premium

Briquettes

4*4 cathode

99.7% uncut cathode

Chinese Nickel Imports

0

10

20

30

40

50

20092008200720062005

tonnes000s




per month. Given the weakness in the stainless steel market

and high nickel stocks for both concentrate and refined metal

within the country, we expect refined metal imports to fall

further in the final quarter of the year.

Strength in stainless proves to be short-lived…

A number of stainless mills have released their third quarter

results. They highlight a number of features, which on

balance are not particularly positive for the fundamentals

of the nickel market. In our earlier research, we noted the

24.5% quarter-on-quarter increase to global stainless output

in the second quarter.

Figures from Acerinox detail the on-going turnaround

in stainless output. Although cumulative output up to

September was down 21% at 1.385 million tonnes, output

in the third quarter was up 40% from the second at 610,900

tonnes.

The company stated that the improvement in demand seen

in the third quarter is likely to ease during the remainder of

the year. Nevertheless for 2010, it projects demand growth

in the range of 6-10%. Outokumpu is possibly even more

cautious about demand prospects. Underlying demand

is reported to be weak, and purchasing by distributors is

being dictated by changes in the alloy surcharge rather than

stronger consumption.

In North America, AK Steel reports that buying activity has

picked up; however it is mainly in ferritic grades going to

the auto sector. This trend is repeated in a number of other

regional markets. The various vehicle scrappage schemes

have been successful in slashing vehicle inventories, which

has in turn enabled manufacturers to raise output (and

hence boost metal demand).

The downside of these artificial incentive schemes i.e. they

merely bring forward purchases rather than create new

demand may not be felt until 2010. There has also been

some slight improvement in offtake from the consumer

goods sector, but capital goods and construction remain

weak.

…as some mills cut output

In response to weak demand conditions, some stainless

mills have been forced to reduce output. Tang Eng reduced

operating rates by 20% in October and the company raised

the possibility of extending these cuts. The company has the

capacity to produce around 30,000 tpm. Elsewhere in East

Asia, Posco has stated that it will keep domestic stainless

prices unchanged in November and will, importantly from a

nickel perspective, cut stainless output by 16% in November

to 15,100 tonnes.

Again we understand that demand for stainless in the

region is weak with some inventory build having taken place

following the increases in stainless output in the second

and third quarters. Stainless producers in China have also

been forced to trim output. A number of mills implemented

maintenance programmes in October and lower production

rates could remain in place in the last two months of the

year.

Trends in stainless prices encapsulate the relatively weak

conditions in that market. Base prices for 304 CR material

have barely changed so far this year, although the range has

widened. They are currently trading in a range of €1,180-

1,350/tonne compared to €1,180-1-270/tonne in August.

The alloy surcharge of this period has increased from €875/

tonne to €1,050.



US$/tonne

Oct 09

Nickel LME Stocks & Price

0 2 4 6 8 100

10000

20000

30000

40000

50000

60000

Source: GFMS, LME

Nickel Daily Stocks vs Price

US$/tonne

0

30

60

90

120

150

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 020

10000

20000

30000

40000

50000

60000

tonnes000s

Spot Price

Stocks

Sources: Thomson Reuters Ecowin, LME



Market outlook

The latest bi-annual projections from the International

Nickel Study Group (INSG) paint a bearish scenario for the

fundamentals in 2010. It forecasts consumption at 1.38

million tonnes (up 11.5% from 1.21 million tonnes in 2009),

while nickel production will be 4.3% higher at 1.44 million

tonnes, implying a surplus of around 90,000 tonnes.

Our analysis points to a much smaller surplus next year of

20,000 tonnes (our estimate of the surplus in 2009 is also

below that of the INSG). Although the stainless steel sector

is ending 2009 on a relatively weak note, GFMS believe that

demand will respond to the improving economic climate in

2010 given that pipeline inventories of stainless steel are still

low.

On supply side there are a large number of unknowns. In

the short term, there is uncertainty concerning the length

of the strike at Vale Inco’s Sudbury and Voisey’s Bay

operations. The future of the next generation of PAL projects

will be put to the test with the commissioning of the Goro

project. At this stage, we are assuming that Vale Inco’s

fairly conservative target of 20,000 tonnes next year will be

achieved. However, experience not only of the dire history of

the PAL projects but also the commissioning of new capacity

generally highlights the potential for lower than expected

output. Another potential contributor to higher nickel supply

in 2010 is the Ramu nickel project.

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010


% change y-o-y 3.6 2.9 4.1 4.2 -2.4 -7.4 9.2

Consumption

Europe 428 441 458 427 395 264 303

Japan 195 180 181 196 185 155 165

USA 128 135 145 119 121 96 110

Total Mature 751 756 784 742 702 515 578

% change y-o-y -2.5 0.6 3.7 -5.4 -5.4 -26.7 12.3

Brazil 24 26 25 22 25 24 25

China 144 195 234 328 305 460 500

India 16 16 18 19 21 15 20

Russia 27 26 26 26 26 28 30

Total BRICs 210 263 303 395 378 527 575

% change y-o-y -0.8 25.0 15.3 30.3 -4.4 39.5 9.1

South Korea 123 118 93 71 73 67 70

Taiwan 91 84 107 76 69 62 65

Others 29,109 30,820 33,079 36,669 36,898 33,969 38,099


% change y-o-y 0.2 3.6 5.4 -0.9 -4.3 -4.8 10.4

Metal balance 0 -8 -25 45 70 31 20

Reported stock change 0 14 -25 38 30

Reported stocks

Country stocks 77 76 80 77 76

LME 21 36 7 48 79

Total Stocks 98 112 87 125 155 186 206



LME cash ($/tonne) 13,850 14,733 24,287 37,181 21,029 14,800 18,700

% change y-o-y 43.7 6.4 64.9 53.1 -43.4 -29.6 26.4


Nickel Supply-Demand Balance 2004-2010



2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Global production 290 324 320 330 340 345 330 365

% change y-o-y -17.2 -7.6 -3.8 -0.2 17.2 6.5 3.1 10.6

Global consumption 265 320 320 327 320 330 340 371

% change y-o-y -23.1 -7.2 1.6 12.8 20.8 3.1 6.3 13.5

Market Balance 25 4 0 3 20 15 -10 -6

Reported Stocks 180 184 184 187 207 222 212 206


LME Cash $/tonne 10,459 12,992 17,614 18,100 17,750 18,000 19,000 20,000

% change y-o-y -63.8 -49.5 -7.2 66.3 69.7 38.5 7.9 10.5

Trading Range

High 13,420 16,010 21,070 20,000 20,000 20,000 21,000 23,000

Low 9,405 9,555 14,360 15,500 15,000 16,000 16,500 17,000


Quarterly Nickel Supply-Demand Balance - Base Case

Nickel Price & Forecast Trading RangeThe market will also have to absorb higher production in

Brazil from the move to full capacity at the 26,000 tpy Santa

Rita project, which was commissioned in August 2009.

Votorantim plans to commission its Niquelandia project in

late 2010. Our supply projections are based upon continued

supply restraint by existing producers together with a slower

than expected ramp up at new facilities. We have also

assumed that the rapid revival in Chinese nickel pig-iron

production will begin to slow.

Our quarterly supply-demand balance points to the market

being in surplus in the first half of next year. Not all the

surplus will end up on the LME and we believe that LME

stocks are at, or close, to their peaks, and that there will be

a build of unreported stocks in China, and a rise in consumer

inventories as stainless mills raise output. A small deficit

could emerge in the latter part of next year.

In terms of prices, we believe that the nickel market will

cling onto recent gains despite little support from the

fundamentals. In this regard, we view the nickel market in

similar vein to the aluminium market in that prices will be

supported by the general buoyancy of the sector rather than

necessarily by the individual fundamentals. There will be

support nevertheless from firmer demand growth as the year

progresses, which should enable the cash price to average

$18,700/tonne in 2010 compared to this year’s likely outturn

of around $14,800/tonne.

Over the course of the cycle, nickel typically displays much

greater volatility than the other base metals. However given

the massive stock overhang on the LME we expect that our

alternative projections will be fairly close to our base case.

The driver of our low case scenario is the potential inability

of the nickel market to absorb new projects (such as Goro) if

demand from the stainless sector weakens. However, even

under this scenario we believe that prices on a quarterly

average basis will not slip below $15,000/tonne. We believe

that the high cost Chinese nickel pig iron will provide a floor

for the market.

Our high case forecast next year of $21,000/tonne is

predicated on a sharp recovery in demand from the stainless

sector. Although inventories will still remain relatively high

from a historical perspective, it should be noted that nickel

prices have already briefly exceeded $20,000/tonne so far

this year.

5000

10000

15000

20000

25000



US$/tonne



Cobalt

Market background

The LME is already beginning to influence the cobalt even

before the end February 2010 launch of the contract.

Demand for Russian material (99.3%) has been strong

ahead of the launch. Russian material will be among the

lowest grade cobalt that will be deliverable into bonded

warehouses. So far, only Vale Inco has registered its brand

with the exchange, although Norilsk, Sumitomo, Jinchuan

and Votorantim are likely to register their brands in the near

future.

The market has been supported by a number of financial

institutions that have been in the market for physical

material prior to the LME launch. The price of 99.3%

material has increased from $15/lb at the beginning of

October to close to $20/lb in early November, while over

the same period 99.8% cobalt has gone up from $16.5 to

$21.5/lb.

The market has also been supported by the on-going strike

at Vale Inco’s Sudbury and Voisey’s Bay operations. At this

stage, there is no resolution in sight to the dispute that

began in July. The latest financial report for the third quarter

from Vale Inco highlighting the impact of the strike on

production levels. According to the company, cobalt output

up to September fell to 1,442 tonnes from 2,036 tonnes a

year earlier.

The sharp bounce in the cobalt price has in itself created

its own demand in the short-term. Consumers have been

taken surprise by the rally given still fairly lacklustre nature

of end use demand. We have noted buying interest from

Japanese and Chinese consumers in particular. In the Far

East, most of the improvement in demand is emanating from

the battery market. In Europe and North America, where

the superalloys sector has a greater share of consumption,

demand conditions are less buoyant.

The market will have to absorb higher supply

Chambishi Metals is in the process of restarting operations,

which were suspended in December 2008 due to low prices,

having secured sufficient concentrates. Initially the plant

had been expected to produce 3,400 tonnes of cobalt in

2009 compared to 2,500 tonnes in 2008.

The cobalt market will also have to absorb the much delayed

opening of the Goro project, which Vale Inco has now

confirmed for January of next year. Other projects, which

are scheduled for late 2010 including Ramu and (possibly)

Ambatovey.

There is still a huge amount of uncertainty concerning both

future levels of production in the DRC and the ownership

of the mining assets. Freeport McMoRan is reported to

be still producing metal from its Tenke Fungurume project

despite the dispute over the mining permit. The project

was commissioned in March last year and may eventually

produce 8,000 tpy of cobalt.

(tonnes) 2004 2005 2006 2007 2008 2009 2010


% change y-o-y 6.0 4.8 3.4 4.2 1.2 -4.1 8.3


% change y-o-y 12.2 5.2 2.8 1.8 8.2 -7.7 8.2

DLA Stockpile Sales 1,632 1,199 294 617 100 150 0

% change y-o-y -17.9 -26.5 -75.5 109.9 -83.8 50.0 -100.0

Global Supply 49,786 51,846 52,358 53,630 57,440 53,090 57,280

Market balance 1,225 954 -244 -1,187 1,986 -81 -278

Cobalt 99.8% $/lb 24.3 16.1 16.7 29.2 39.2 17.3 24.0

% change y-o-y 131.0 -33.8 4.0 75.0 34.1 -55.9 38.7

Cobalt 99.3% $/lb 23.2 14.8 15.7 28.0 36.7 15.8 22.0

% change y-o-y 151.9 -36.1 6.1 78.3 31.1 -56.9 39.2

Source: GFMS, CDI, WBMS, Metal-Pages

Cobalt Supply-Demand Balance 2004-2010

2010

(tonnes) Q1 Q2 Q3 Q4


Consumption 14,250 14,550 14,000 14,758

Supply 13,850 14,000 14,500 14,930

Balance -400 -550 500 172

Price Forecast (99.8%, $/lb)

Base Case 24.00 25.00 26.00 21.00

Scenario B 26.00 28.00 29.00 30.00

Scenario C 19.00 18.00 18.00 17.00

Source: GFMS

Cobalt Supply-Demand & Price Forecast



2009 2010

(tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Consumption 12,950 13,200 13,250 13,771 14,250 14,550 14,000 14,758

% change y-o-y -6.5 -5.7 -2.9 -1.3 10.0 10.2 5.7 7.2

Production 13,200 13,100 13,000 13,640 13,850 14,000 14,500 14,930

% change y-o-y -4.7 -6.4 -7.7 -5.2 4.9 6.9 11.5 9.5

DLA Stockpile Sales 40 50 50 10 0 0 0 0

Global Supply 13,240 13,150 13,050 13,650 13,850 14,000 14,500 14,930

Market Balance 290 -50 -200 -121 -400 -550 500 172

Cobalt 99.8% $/lb 15.40 15.30 17.90 20.50 24.00 25.00 26.00 21.00

% change y-o-y -68.4 -68.0 -49.1 -14.6 55.8 63.4 45.3 2.4

Cobalt 99.3% $/lb 13.30 14.40 16.50 19.00 22.00 23.00 24.00 19.00

% change y-o-y -71.3 -68.8 -49.5 -7.3 65.4 59.7 45.5 0.0


Quarterly Cobalt Supply-Demand Balance - Base Case

15

20

25

30

Q3 2010Q1 2010Q3 2009Q1 2009

US$/lb

Scenario C

Scenario B

Base Case

Source: GFMS

Market outlook

We have amended our supply-demand balance and price

projections for 2009 and have extended them out to 2010.

Despite sharply lower demand in 2009 there was a quick

supply response. Not all of this was market related, given

the crackdown on cobalt mining activities in Congo, which

in turn curbed Chinese metal production. Lower supply in

2009 saw the market return to a slight deficit, hence the

sharp rebound in prices. Although the market will have to

absorb the commissioning of Goro, and a number of other

large scale projects further down the line, we also expect a

sharp rebound in demand (+8.3% in 2009). As such, the

market should remain in a deficit position. In common with

most of the other non-ferrous metals markets, an improving

physical balance may not necessarily see significant

advances in prices. For 2010 as a whole, we forecast an

average price for 99.8% of $24/lb.

Cobalt Price & Forecast Trading Range (99.8%)Quarterly Cobalt Price & Forecast (99.8%)

10

15

20

25

30


Source: GFMS

US$/lb

GFMS forecasts that prices will peak in the third quarter

at around $29/lb. However, the higher output as the year

progresses will eventually weigh on the market and we

expect that prices will slip back below $20/lb by year end.

In terms of alternative scenarios, we believe that there

is greater upside than downside from current levels. The

introduction of trading on the LME should provide a boost

given the influence of funds elsewhere in base metals sector.

Also there are big question marks concerning the timing

about the new projects that are coming onstream, both the

HPAL projects and those in the African cobalt-belt. Under

high case scenario, prices could average $30/lb in the final

quarter of next year. The downside should be fairly limited

given that stocks are currently low. On a quarterly average

basis, GFMS does not expect prices to fall below $17/lb next

year.




(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

South Africa 40 42 42 38 32 32 32

Total Africa 56 58 55 52 43 42 43

China 76 95 132 160 160 180 195

Japan 169 164 152 161 156 145 148

Other Asia 8 7 15 19 20 35 38

Total Asia 253 267 299 340 337 360 381

Finland 50 39 47 55 51 55 55

Norway 71 85 82 88 89 86 96

CIS 266 281 290 288 285 260 265

UK 39 38 37 34 39 25 30

Other Europe 36 40 42 51 52 41 44

Total Europe 461 482 498 515 516 467 490

Brazil 26 30 31 32 31 32 38

Canada 152 140 154 163 176 145 150

Colombia 49 53 51 49 42 55 55

Cuba 42 44 42 44 44 44 44

Dominican Republic 29 29 30 29 20 0 0

Total Americas 316 312 324 332 323 288 305

Australia 122 122 116 114 108 112 112

New Caledonia 43 47 49 45 37 45 55

Oceania 165 169 165 159 145 157 167

Global Total 1251 1288 1341 1398 1364 1264 1361

Western World 867 869 877 906 875 780 857

Former Socialist 384 420 464 491 489 484 504

Source: GFMS, WBMS, INSG

Refined Nickel Production 2004-2010 (000 tonnes)



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 46 48 55 45 45 39 46

China 144 195 234 328 305 460 500

India 16 16 18 19 21 15 20

Japan 195 180 181 196 185 155 165

South Korea 123 118 93 71 73 67 70

Taiwan 91 84 107 76 69 62 65

Other Asia 15 17 14 13 17 15 16

Total Asia 583 609 647 703 670 773 836

Belgium 43 49 58 55 47 25 32

Finland 59 49 51 40 41 23 29

Germany 94 116 106 110 90 65 72

Italy 62 60 68 64 68 49 55

Spain 48 48 53 42 41 30 33

Other Europe 148 145 149 142 135 100 112

Total Europe 455 468 484 454 422 292 333

USA 128 135 145 119 121 96 110

Other Americas 37 35 33 31 34 31 33

Total Americas 165 170 178 149 156 127 143

Global Total 1251 1296 1366 1353 1294 1232 1361

Western World 1059 1055 1085 978 943 724 810

Former Socialist 192 240 281 374 352 508 550

Source: GFMS, WBMS, INSG

Refined Nickel Consumption 2004-2010



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Morocco 1,593 1,613 1,405 1,591 1,600 1,610 1,610

South Africa 300 214 257 275 280 280 260

Uganda 457 600 600 600 600 650 660

DRC 735 600 550 606 850 2,000 2,500

Zambia 5,791 5,422 4,665 4,435 4,600 3,000 4,000

Total Africa 8,876 8,449 7,477 7,507 7,930 7,540 9,030

China 8,250 9,750 11,500 13,250 17,000 14,000 15,500

India 545 1,220 1,184 980 1,000 1,050 1,100

Japan 429 471 920 1,084 1,100 1,050 1,000

Total Asia 9,224 11,441 13,604 15,314 19,100 16,100 17,600

Belgium 2,947 3,298 2,840 2,825 3,000 2,400 2,550

Finland 7,893 8,170 8,580 9,100 9,200 8,800 9,000

France 199 280 256 305 310 400 400

Norway 4,670 5,021 4,927 3,939 3,800 3,500 4,100

Russia 4,524 4,748 4,759 3,587 3,200 3,300 3,500

Total Europe 20,233 21,517 21,362 19,756 19,510 18,400 19,550

Brazil 1,155 1,136 902 1,148 1,100 1,000 1,100

Canada 4,787 4,954 5,023 5,604 5,700 6,000 6,200

Total Americas 5,942 6,090 5,925 6,752 6,800 7,000 7,300

Oceania 3,879 3,150 3,696 3,684 4,000 3,900 3,800

DLA Deliveries 1,632 1,199 294 617 100 150 0

Global Total 49,786 51,846 52,358 53,630 57,440 53,090 57,280


Cobalt Supply 2004-2010

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Africa 83 184 186 189 191 189 192

China 9,500 11,000 12,200 13,900 15,250 16,750 19,250

India 580 600 615 635 650 700 800

Japan 13,191 13,200 13,250 13,100 12,900 11,000 12,000

South Korea 665 685 700 725 730 650 700

Taiwan 1,050 1,100 1,150 1,160 1,000 800 900

Thailand 230 240 240 250 260 260 260

Other Asia 1,468 1,471 1,493 1,523 1,568 1,488 1,508

Total Asia 26,684 28,296 29,648 31,293 32,358 31,648 35,418

Benelux 815 835 860 875 875 810 850

France 1,330 1,375 1,400 1,460 1,475 1,350 1,400

Germany 1,610 1,650 1,665 1,700 1,650 1,500 1,550

Italy 1,200 1,250 1,275 1,315 1,300 1,200 1,250

Russia 700 725 760 790 840 800 800

Spain 1,400 1,400 1,400 1,420 1,400 1,325 1,350

UK 2,200 2,300 2,315 2,400 2,350 2,000 2,100

Other Europe 1,880 1,913 1,935 1,935 1,945 1,759 1,828

Total Europe 11,135 11,448 11,610 11,895 11,835 10,744 11,128

USA 8,250 8,350 8,500 8,750 8,400 8,000 8,200

Other America 1,780 1,805 1,849 1,885 1,865 1,790 1,820

Total Americas 10,030 10,155 10,349 10,635 10,265 9,790 10,020

Oceania 91 96 96 96 96 96 96

Global Total 48,561 50,892 52,602 54,817 55,454 53,171 57,558


Cobalt Consumption 2004-2010

T1 Independent - Informed - International

Tin - November 2009

● Restarts at operations in Indonesia will likely

be limited over the short term with the onset

of the rainy season. From a fundamental

standpoint, this is factor providing the majority

of the upside.

● Over the longer term tin’s prospects are

positive. A recovery in demand will likely be

coupled with continued supply problems and a

fundamental underinvestment in new capacity.

● GFMS project an average annual price of

$15,625/tonne in 2010. By year-end, prices

could be close to $20,000/tonne.

● In our alternative scenarios, risks are skewed

to the upside. The key feature is the limited

amount of new capacity, particularly at the

concentrate stage, being developed. If there

are further problems in China and Indonesia,

other producers will struggle to fill the gap.

● Our low case forecast, dubbed Scenario C, for

next year is $1,400/tonne, while our high case

Scenario B average is 1,815/tonne.

Tin

Recent developments

● Tin prices have largely fluctuated around

$15,000/tonne, although increased volatility

was seen as October came to a close.

● The much discussed dominant tin position fell

to 50-80% of the warrants on the LME, from

over 90% previously. This has been reflected

by easing spot prices, to as low as $14,700/

tonne, and a narrowing of the cash-to-threes,

to $55 from $570 at the start of October.

● Weak demand has resulted in continued

increase to inventories, although they have

increased at a slower rate than last month.

● Indonesian production continued to struggle in

the face of the police crackdown and expected

restarts have been hampered by bad weather.


● Over the short term, the focus will be on the

future intentions of the dominant warrant

holder. If the dominant position is sustained,

prices will find support; in contrast, a continued

unwinding of positions would put prices under

considerable pressure.

● Although set to improve, demand in the mature

economies will remain weak by historical levels

over the fourth quarter. China will continue to

provide much of the support to demand.

● Next year GFMS expects a sharp rebound in

demand, after three consecutive declines.

2010



Production 80 90 93 97

Consumption 85 88 90 98

Balance -5 2 3 -1

Stocks 50 52 55 54


Base Case 14,500 15,000 16,000 17,000

Scenario B 16,000 17,000 19,500 20,000

Scenario C 14,000 13,500 13,500 14,750

Source: GFMS

Tin Supply-Demand & Price Forecast








Quarterly Tin Price & Forecast

10000

12000

14000

16000

18000

20000

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

T2Independent - Informed - International

Tin - November 2009

Market background

Tin prices have largely been fluctuating around the $15,000/

tonne mark since our last report. The monthly average

totalled $15,009/tonne in October, up a marginal 0.9%

month-on-month. Tin has found some support from the

supply side as Indonesian production continues to struggle.

However, the demand environment remains weak and this is

reflected by the fact that LME stock levels continued to post

gains, with the end-October level of 26,575 being up 3.7%

month-on-month.

Significantly, the concentration of warrants to the dominant

holder has slipped to 50-80% over the past days, from over

90% at points over the past weeks. We had noted that

the future intentions of this warrant holder would be key to

future price movements, demonstrated by the increasing

volatility in prices as this warrant holder has unwound some

of its positions. After a sector wide bounce boosted the tin

price to $15,510/tonne on 27 October, prices slipped back

and are now recorded at $15,010/tonne on 5th November.

In addition, the backwardation has narrowed to $55, which is

its lowest level since July and is down from $570 at the start

of the month.

From a longer term fundamental standpoint, the WBMS

reported a 8,400 tonne surplus over the first eight months

on a significant 9% decline in demand, to 225,900 tonnes.

Production was also down 3.6% on problems in major

producers China and Indonesia. As detailed later in this

report, GFMS project a 24,000 tonne surplus this year.

Global tin production down as Indonesian problems

worsen

The WBMS sees tin production down 3.6% at 213,800 tonnes

over the first eight months of the year, with Indonesian

production accounting for much of this downside. Chinese

refined tin production has however recovered from problems

earlier in the year and is up 3.4% over the first nine months

to 93,079 tonnes. Recent weakness has nevertheless

materialised in the country in September, with output down

15.5% month-on-month to 10,334 tonnes according to the

CNI-A as a result of a tight supply of raw material.

In Indonesia, bad weather and continued police activity have

held back plans by the Bangka Belitung Tin Consortium to

resume production. The group, consisting of seven smelters

with a combined capacity of 2,800 tpm, had stated their

intentions to reopen in mid-October at around 20-30% of

capacity after shutting in late August due to a lack of ore.

This announcement came after Indonesia’s South Bangka

government, one of the main tin-mining areas in Bangka-

Belitung islands, allowed some mining activities to resume

after a one-day strike by miners.

As a result of the heavy rains, restarts have been delayed

and it is now thought that the group will operate at closer

to 10% capacity for the final quarter. At this stage last year

BBTS halted operations completely, citing weather problems

and the additional difficulty of low tin prices.

Tin Premiums

US$/tonne

Source: GFMS

100

200

300

400

500

600

20092008200720062005

US Grade A

European 3-month

European Spot

Tin Open Interest & Price

US$/tonne

0

10

20

30

40

50

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 02

0

5000

10000

15000

20000

25000

30000

contracts000s

Spot Price

Open Interest

Source: LME


Tin - November 2009

Production falls at PT Timah

The larger producers, including PT Timah and PT Koba

Tin have continued to operate in the face of the police

crackdown. Police are now reportedly planning to question

executives at PT Timah, the world’s biggest integrated tin

miner, over allegations that a small miner sent illegally

mined ore to the firm. Timah’s refined tin output fell 11.4%

over the first nine months to 33,765 tonnes, from 38,106

tonnes in the same period last year.

Sales volume rose by 7% to 36,453 tonnes in the first nine

months of this year and the company is maintaining its 2009

sales target at 45,000 tonnes due to steady demand from

its traditional buyers. Production at the major smelters may

also be affected during the rainy season, although to a lesser

extent than the smaller independent operations, and this has

already been factored in to production targets.

As a result of the crackdown, the country’s refined tin

exports were estimated to have fallen 30% year-on-year

in September to 7,755 tonnes. This level was the lowest

seen since April, and was down 8% from the 8,444 tonnes

shipped out in August. Having said this, the extent of the

decline could have been far larger considering the extent

of the disruptions and it is believed that some private tin

smelters may have exported from their stockpile.

Only 16 smelters exported the metal in September, as

against 22 smelters in the previous month. Cumulative tin

exports to September were however up marginally to 75,553

tonnes, compared with 75,535 tonnes in the same period

last year.

Demand weakness in Europe and Japan drives global

total down

As noted earlier, tin demand was down 9% over the first

eight months according to the WBMS, but has remained

steady for the last three months at around 28,000 tonnes.

Much of the weakness has materialised in Europe and Japan,

as highlighted in the latest WBMS data. In Japan, demand

was down 34.8% over the first eight months to 14,400

tonnes. Some improvement has been seen in the country

of late on recovering demand from the country’s electronics

sector.

A similar picture can be seen in Europe, with demand down

27.4% over the first eight months. Consumption remained

down considerably year-on-year in August, although a rising

trend can be observed when looking from a month-on-month

basis. In looking at end-use sectors, European tinplate

producers reacted quickly to the dip in demand for its final

products, including Corus who reduced output by 300,000

tonnes at its Bergen plant in Norway and Rova Group’s

150,000 tonne output reduction. ArcelorMittal also reduced

production.

Tin plate demand is usually strong in recessionary

environments, and less volatile than the end-use sectors

of many of the other base metals such as stainless and

galvanised steel. Having said this, the tinplate market has

not been immune from the adverse effects of the downturn,

although the quick response by producers has helped to

prevent a collapse in prices. As a result of the swift action,

European tinplate producers are set for a strong 2010.


Stocks (No.of weeks consumption)

Source: GFMS, LME

US$/tonne

Oct 09

Tin LME Stocks vs Price

0 1 2 3 4 5 6 7 80

5000

10000

15000

20000

25000

Tin Daily Stocks vs Price

US$/tonne

0

10

20

30

40

50

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 020

5000

10000

15000

20000

25000

30000

tonnes000s

Spot Price

Stocks

Source: LME


Tin - November 2009

Apparent consumption strong in China with further

underlying strength expected for Q4

The decline in global consumption occurred despite strength

in China, where apparent consumption totalled 110,115

tonnes over the first nine months of the year, up 14% on the

previous year according to the CNI-A.

China was a considerable importer of 17,643 tonnes over

the first nine months, up around 150% year-on-year. This

was largely due to the arbitrage opportunities offered by the

differences between the local and LME prices earlier in the

year. Although dipping from the highs earlier in the year,

imports have remained strong on a historical basis despite

the high LME price. This may be reflective of the fact that

Chinese buyers expect the LME price to continue to rise

and thus continue to stockpile the metal, but also reflects

improving underlying demand in the country which is likely

to see further growth in Q4. Some of the major electronics

sectors in the country do remain lacklustre, although the

majority of the electronic product markets are showing

improvement. Tin plate demand is reportedly faring even

better, with a strong quarter anticipated for Q4.

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Global Production 343 350 351 349 333 343 360

% change y-o-y 24.2 1.9 0.5 -0.6 -4.8 3.2 5.0

Consumption

Europe 64 62 68 66 63 53 59

Japan 33 33 39 34 32 24 30

USA 54 42 47 33 26 26 30

Total Mature 150 137 153 133 121 103 119

% change y-o-y 7.6 -8.5 11.6 -13.1 -8.9 -15.6 15.9

Brazil 9 6 6 6 6 6 7

China 93 116 115 134 128 142 155

India 5.9 8.4 8 8.5 8.8 9 10

Russia 3 3 3 3 3 2 3

Total BRICs 111 132 132 151 145 159 174

% change y-o-y 21.0 19.1 -0.6 14.7 -4.0 9.7 9.6

ASEAN 13 11 11 11 11 9 11

% change y-o-y 12.9 -13.2 1.8 0.0 -4.4 -14.7 16.1

South Korea 16 18 17 16 16 14 16

Taiwan 13 14 18 13 12 9 11

Others 612 631 659 655 618 596 670

Global Consumption 334 345 363 356 337 320 361

% change y-o-y 10.8 3.2 5.2 -1.9 -5.4 -5.1 12.8

Metal balance 9 4 -12 -7 -4 24 0

Reported stock change -10 10 -3 0 -3

Reported stocks

Country Stocks 19.8 21.6 22.8 23.2 24.7

LME 8.2 16.7 13.0 12.1 7.8

Total Stocks 28.0 38.3 35.8 35.3 32.5 56.0 55.5


LME as No. weeks con 1.3 2.5 1.9 1.8 1.2

LME cash ($/tonne) 8,513 7,370 8,763 14,580 18,499 13,475 15,625

% ch. y-o-y 73.9 -13.4 18.9 66.4 26.9 -27.2 16.0


Tin Supply-Demand Balance 2004-2010


Tin - November 2009

2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Global production 76 85 90 92 80 90 93 97

% change y-o-y -11.9 -1.5 11.1 16.5 5.3 5.9 3.3 5.4

Global consumption 75 76 80 89 85 88 90 98

% change y-o-y -16.2 -15.0 -2.4 17.1 13.3 15.8 12.5 10.1

Market Balance 1 9 10 3 -5 2 3 -1

Reported Stocks 33 42 52 55 50 52 55 54

No. of weeks’ con 5.8 7.3 8.5 8.1 7.7 7.8 8.0 7.2

LME Cash $/tonne 11,024 13,551 14,576 14,750 14,500 15,000 16,000 17,000

% change y-o-y -37.7 -40.1 -29.0 12.4 31.5 10.7 9.8 15.3

Range

High 12,200 15,850 15,700 16,000 16,000 17,000 18,000 19,500

Low 10,055 10,650 12,450 14,000 13,500 14,000 14,500 15,000


Quarterly Tin Supply-Demand Balance - Base Case

Tin Price & Forecast Trading RangeMarket outlook

Our outlook is largely unchanged from our last report. We

continue to believe that recent prices are above those

justified by current fundamentals, highlighted by a continued

rise in LME inventories (although the increase slowed from

September). The correlation between prices and inventory

levels had become considerably weaker due to one holder

controlling such a large portion of total warrants. We

have noted that the warrant holdings have become less

concentrated recently and, if this trend continues, then

investors could switch to the fundamentals for direction.

Consequently, the fragility of demand in the mature

economies, combined with declining Chinese import demand,

will point to easing prices over Q4. However, the continued

weakness in Indonesian production will restrict significant

gains to LME inventories and Chinese production has also

pulled back from the high seen in July, and this should limit

any downside

In addition, funds should continue to be attracted to the base

metals in general and tin will continue to benefit from this.

Consequently, this will provide a base to prices, and for the

last quarter we expect they will average at $14,750/tonne,

resulting in a full-year 2009 average of $ 13,475/tonne,

compared to $18,499/tonne in 2008.

In terms of the market balance, GFMS forecast that following

a surplus of 24,000 tonnes in 2009, the market will return

to balance in 2010. After three consecutive declines, we

project a double-digit rebound in consumption. However, it

should be noted that our forecast for global consumption in

2010 of 361,000 tonnes is still below the 2006 peak. Strong

demand growth should support steady gains in prices and

GFMS forecast an average of $17,000/tonne in the fourth

quarter of 2010. For the year as a whole, we forecast an

average of $15,625/tonne.

Given the ongoing supply problems and the lack of new

capacity in the pipeline, we believe that the downside in the

tin market is relatively limited. Our low case Scenario C sees

prices fluctuating in a narrow band based on $14,000/tonne.

Also, the relatively tight supply position can leave the market

vulnerable to sudden spikes in prices. We note that recently

a shortage of concentrate has held back Chinese output.

Under our high case Scenario B, we expect that prices will

exceed $20,000/tonne in the second half of next year.

9000

11000

13000

15000

17000

19000

21000




Tin - November 2009

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 6.8 13.0 11.9 19.0 16.2 15.0 16.0

China 118.2 121.6 126.3 147.3 121.2 130.0 145.0

Indonesia 78.4 120.0 117.5 102.0 96.0 90.0 100.0

Malaysia 2.7 2.9 2.4 2.3 3.4 3.5 3.5

Thailand 0.7 0.2 0.2 0.2 0.2 0.2 0.2

Vietnam 3.5 5.4 5.4 5.4 5.5 5.8 6.0

Other Asia 1.6 1.4 1.3 1.3 1.2 1.2 1.2

Total Asia 205.1 251.5 253.1 258.5 227.5 230.7 255.9

Russia 3.0 2.8 2.8 2.4 1.1 1.0 1.0

Total Europe 3.2 3.0 2.8 2.4 1.1 1.0 1.0

Bolivia 18.1 18.6 17.7 16.0 17.3 18.0 18.5

Brazil 12.2 11.7 9.5 12.6 13.0 14.0 14.0

Peru 41.6 42.1 38.5 39.0 39.0 39.0 40.0

Total Americas 71.9 72.6 65.7 67.6 69.3 71.0 72.5

Oceania 1.3 2.7 1.5 2.1 1.8 4.0 5.0

Global Total 288.3 342.8 335.0 349.6 315.9 321.7 350.4

Western World 162.4 211.8 199.2 192.9 186.5 183.3 196.8

Former Socialist 126.3 131.0 135.8 156.7 129.4 138.4 153.6

Source: GFMS, WBMS

Tin Mine Production 2004-2010


(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 0.6 0.6 0.6 0.6 0.6 0.6 0.6

China 115.3 121.8 132.1 148.8 129.1 135.0 142.0

Indonesia 86.9 78.0 77.4 77.6 69.5 69.0 75.0

Malaysia 33.9 39.2 23.0 25.5 31.6 33.0 35.0

Singapore 0.0 0.0 8.7 2.3 0.0 0.0 0.0

Thailand 20.7 29.4 25.8 17.9 21.7 22.0 23.0

Others 6.7 6.1 7.1 7.3 8.5 8.5 8.5

Total Asia 263.5 274.5 274.1 279.4 260.4 267.5 283.5

Belgium 8.9 7.7 8.0 8.4 9.2 9.0 9.0

Russia 3.7 3.2 3.2 2.5 1.4 2.0 2.0

Other Europe 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Europe 12.6 10.9 11.2 10.9 10.6 11.0 11.0

Bolivia 13.8 15.6 15.0 12.3 12.1 14.0 15.0

Brazil 11.5 9.0 8.8 10.0 10.8 11.0 11.0

Peru 40.6 38.3 41.0 35.9 38.0 39.0 39.0

Other Americas 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Total Americas 66.0 63.0 64.9 58.3 61.0 64.1 65.1

Oceania 0.5 0.6 0.6 0.1 0.0 0.0 0.0

Global Total 343.2 349.6 351.4 349.3 332.6 343.2 360.2

Western World 220.7 222.1 213.7 194.5 198.6 202.7 345.2


Source: GFMS, WBMS

Refined Tin Production 2004-2010


Tin - November 2009

2004 2005 2006 2007 2008 2009 2010

Africa/Oceania 4.5 4.3 3.9 3.3 2.7 1.8 2.0

China 92.9 115.5 114.8 133.9 127.7 142.0 155.0

Japan 33.1 33.2 38.5 34.2 32.2 24.0 30.0

South Korea 16.2 17.9 17.0 16.1 16.3 14.0 16.0

Taiwan 12.9 13.5 17.6 12.7 11.9 8.5 10.5

Other Asia 35.1 37.8 36.0 37.4 37.2 34.3 38.3

Total Asia 190.2 217.9 223.9 234.3 225.3 222.8 249.8

France 8.7 7.0 7.8 7.2 6.1 5.5 6.0

Germany 20.3 19.1 20.6 22.7 20.5 15.0 18.0

Russia 3.4 2.8 3.0 2.5 2.8 2.3 2.5

Other Europe 34.5 35.8 39.1 36.5 36.6 32.0 34.8

Total Europe 66.9 64.7 70.5 68.9 66.0 54.8 61.3

Brazil 9.0 5.7 5.8 6.0 5.5 5.5 6.5

USA 53.6 42.3 47.4 32.7 26.0 26.0 30.0

Other Americas 10.2 10.3 11.5 10.9 11.4 8.1 10.4

Total Americas 72.8 58.3 64.7 49.6 42.9 39.6 46.9

Global Total 334.4 345.2 363.0 356.1 336.9 319.0 360.0

Western World 232.9 221.5 233.7 207.7 194.7 162.5 190.5


Source: GFMS, WBMS

Refined Tin Consumption 2004-2010

Z1Independent - Informed - International

Zinc - November 2009

● GFMS expect a number of production restarts

as we enter the New Year. However, the

problem for zinc supply going forward is

tightness at the concentrate stage.

● This, coupled with strong demand should steer

prices higher. GFMS is forecasting a quarterly

average price of $2,110/tonne in Q4 2009,

while $2,165/tonne for next year as a whole.

● Both our estimate of the surplus in 2009 and

our forecast for 2010 is below those of ILZSG.

Therefore if demand does not pick up as

expected the price could fall sharply from the

levels seen in early November.

● Our low case forecast suggests a quick return

to around $1,700/tonne. GFMS has taken a

fairly positive stance on prices in our base case.

Therefore our high case price scenario based on

a sharp rebound in demand from the galvanised

steel sector is only slightly up on the base case

at $2,600/tonne in 2010.

Zinc

Recent developments

● ILZSG reports a 327,000 tonne surplus in

the first eight months of the year propelled

primarily by the still subdued demand-side.

● Chinese refined production continues its

upward trend in September, breaking yet

another record.

● Global consumption remains weak despite

the strong growth in China. This strength will

continue to be buoyed by an increase in the

galvanised steel sector once consumers start

restocking.


● In our Quarterly Supply-Demand balance GFMS

have highlighted a demand-side recovery at the

end of this year, which should strengthen in the

first quarter of 2010.

● The bulk of the recovery will come from the

mature economies as end-use sectors, notably

the non-residential construction and autos

sectors pick up.

● Our Annual Supply-Demand balance highlights

a 7.5% rebound in global zinc production in

2010, following a 3.1% decline in 2009.

2010

Q1 Q2 Q3 Q4


Production 2,980 3,006 3,050 3,110

Consumption 2,900 3,000 2,995 3,150

Balance 80 6 55 -40

Stocks 925 931 986 946


Base Case 2,100 2,100 2,150 2,300

Scenario B 2,300 2,400 2,500 2,600

Scenario C 1,750 1,650 1,700 1,700

Source: GFMS

Zinc Supply-Demand & Price Forecast








Quarterly Zinc Price & Forecast

1000

1500

2000

2500

3000

Q3 2010Q1 2010Q3 2009Q1 2009

US$/tonne

Scenario C

Scenario B

Base Case

Source: GFMS

Z2 Independent - Informed - International


Market background

Zinc was the best performer amongst the base metals over

October, with the average monthly price for the month up

10% on September to $2,072/tonne. Since mid-October,

prices have found strength above $2,000/tonne with prices

in early November of around $2,200/tonne despite demand

outside of China remaining weak. The $2,331/tonne level

seen on October 26 was the highest level seen since April

2008.

Similar to the other base metals, investment buying has lent

a large amount of support to prices. However, the recent

supply disruptions at Century have added some upside to

zinc which has seen it outperform the other base metals

over the past few weeks. In addition, it seems that some

restocking amongst consumers may be beginning to take

place as LME inventories have fallen from the 438,050

tonne high on September 1 to around 426,500 tonnes in

early November, despite Chinese import demand waning.

Future movements will be driven by the battle between the

expected pick-up in demand and the significant production

restarts that have emerged both inside and, more recently,

outside of China. The market was in a 327,000 tonne surplus

over the first eight months according to the latest ILZSG

figures.

Chinese stimulus package supports global demand on

weakness elsewhere

Global consumption was down 10.5% over the first eight

months, to 6.912m tonnes, according to the latest ILZSG

figures. This decline took place despite strength from China,

which saw its apparent consumption up 22% year-on-year

over the first nine months. Government stimulus packages

have encouraged the rise, however as we have consistently

mentioned we believe that this rise overstates the rise in

underlying demand in the country. Indicative of this fact

is the easing of net imports, which in September totalled

33,667 tonnes, down 72% on the March peak and are now

up only marginally on the 29,127 tonnes seen in September

of last year. The total was however up marginally month-on-

month. Cumulative net imports over the first nine months

totalled a significant 592,686 tonnes.

Having said this, apparent consumption rose in September

for the second consecutive month on rising production,

indicating that producers could be reacting to a pick-up in

underlying demand. We believe that underlying demand will

continue to improve, supported by an expected increase in

galvanised steel output as consumers restock, and as the

sector benefits from the stimulus package and the sharp

gains in vehicle output.

Underlying demand in Europe and the US remains

uninspiring

More recently, conditions have been improving tentatively

in Europe and the US although we await a considerable

pick up in underlying demand. In the US, although the

August consumption level weakened 8% month-on-month

as seasonal weakness kicked in, the year-on-year decline

narrowed significantly. Housing starts were up a marginal

0.5% month-on-month in September but remained down a

considerable 28.2% year-on-year. New home sales showed

weakness after registering five months of previous gains,

down 3.6% on an annualised basis to 402,000 tonnes, which

was far lower than widely anticipated. Finally, vehicle sales,

at 10.4m units annualised, were up at the margin but still

historically low in October.

This was reflected in US premiums which previously

strengthened above 3c/lb on a perceived increase in

market tightness and steel demand over the third quarter.

However, demand has shown little further encouraging signs

into Q4 as industrial activity remains slack, and the elevated

price levels mean that US consumers are not in any hurry to

start buying large quantities of zinc for inventory purposes.

This has been reflected in movements in the US spot zinc

premiums, which are believed to have softened to a range of

2.5-3.5 c/lb from 3-3.5 c/lb.

Zinc Premiums

0

50

100

150

200

250

300

20092008200720062005

US$/tonne

US high grade

LME warehouse Singapore

Source: GFMS

Chinese Refined Zinc Imports

0

25

50

75

100

125

20092008200720062005

tonnes000s

Source: Chinese Customs; GFMS



In Europe, the August consumption figure remained down

considerably year-on-year, although the 156,900 tonnes

does represent the fourth consecutive monthly increase.

Premiums are around $100-120/tonne for duty-paid zinc in

Rotterdam, up from $90-115/tonne in early September. We

note that mills which use the metal to galvanise steel have

begun to boost production, however, November is generally

a very busy month for orders as customers stock up ahead

of the December holidays. Thus the pick-up in zinc demand

could be due to restocking rather than due to a genuine pick-

up in underlying demand from end-users.

Production improving at major producers

Global production was 7.239m tonnes over the first eight

months, down 6.9%, however the improvement in prices has

meant that many producers have been tempted to restart

production. This trend has been occurring in China for

some time, which has led to a recovery in the global total of

late. Almost all of China’s previously idled smelting capacity

is believed to have been restarted, and we have noted in

previous reports the addition of considerable new capacity

over 2009. Indicative of this, Chinese production hit another

new record in September at 410,413 tonnes, up over 20%

year-on-year. Cumulative Chinese production was up 6.4%

over the first nine months at 3.109m tonnes. Elsewhere,

Nyrstar and Boliden are both in the process of bringing

considerable capacity back on stream.

Russia’s largest zinc producer, Chelyabinsk Zinc, saw its

output for the first nine months at 83,200 tonnes, down

29.6% on the 118,100 tonnes produced in January to

September 2008. However, it did see third quarter output

rise 15.5% to 31,000 tonnes from the second quarter. A

similar trend was seen at Nyrstar, which saw its zinc metal

production rise 6% in the third quarter to 207,000 tonnes

from the previous three months. However, cumulative

production over the first nine months was down 26%.

Whilst many producers are boosting output, it seems that

operations at Doe Run Peru’s smelter, stopped since June

because of financial and environmental troubles, might not

restart until 2010. The company had said in September that

work at its La Oroya smelter would likely resume within “a

few weeks.” The case of the delay is unknown.

Domestic mine production in China has been substituted

by rising imports

On a global scale, concentrate production was down

6.4% year-on-year over the first eight months of the year

according to ILZSG. Within China, domestic concentrate

production is down 12% year-on-year over the first nine

months to 2.038 million tonnes. Outside of China, the

decline in refined output has been far larger than the fall

in mine production, which has facilitated considerable

concentrate imports into China, up 62.5% year-on-year at

2.776m tonnes.

Refined production in China has however been recovering,

to 298,670 tonnes in September, up 10.9% month-on-

month but is down slightly year-on-year. However, despite

the rise, spot zinc treatment charges have fallen in China

ahead of annual talks due to start this month. Zinc TCs

dropped to $180-200 per tonne, down $10-20 per tonne

from mid-October, partly on an expected decline in domestic

concentrate output over the winter months.

Problems at Century highlight fragility of concentrate

supply

We anticipate that as refined production outside of China

continues to come back on stream, the focus will shift to a

shortage of concentrate. This is especially true as further

problems have materialised at mines outside of China. The

concentrator at Minmetals’ Century zinc mine, capable of

producing 500,000 tpy of zinc in concentrate, has been

suspended since October 5 due to a fault in the connected

LME Stocks vs Spot PriceZinc LME Stocks & Price


US$/tonne

Oct 09

Source: GFMS, LME

0 1 2 3 4 5 60

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Zinc Daily Stocks vs Price

US$/tonne

0

200

400

600

800

Jan 09

Jan 08

Jan 07

Jan 06

Jan 05

Jan 04

Jan 03

Jan 020

1000

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tonnes000s

Spot Price

Stocks

Source: Thomson Reuters Ecowin, LME



slurry pipeline. Repairs to the burst concentrate pipeline will

extend into next month as it awaits installation of a section

of piping. Mining has so far been unaffected, with ore being

stored at the mine until concentrating resumes.

The pipeline carries wet concentrate from the mine to a

storage shed in the port of Karumba, and consequently the

port stockpile has been shrinking, now at 30,000-35,000

tonnes from 70,000 tonnes prior to the incident. Much of

the concentrate produced at Century is shipped to European

smelters, including Belgium’s Nyrstar SA, the world’s biggest

refiner of zinc concentrate into metal.

Third quarter production from Century, the world’s second

biggest zinc mine, reportedly fell 9% year-on-year to

158,603 tonnes of zinc in concentrate. The drop was due to

a change in the mine plan to better access ore and reduce

costs, and did not take into account any lost production that

might result from damage to the pipeline, which occurred

after the numbers were compiled.

Contrasting news comes from Hudbay’s Chisel North mine

and Snow Lake concentrator, where operations are to be

restarted with immediate effect after being on care and

maintenance since the first quarter of 2009. Hudbay

expects the restart to provide about 30,000 tonnes of zinc

concentrate feed to its Manitoba-based Flin Flon zinc plant

annually, and is expecting full production from the mine to

be achieved by the second quarter.

(000 tonnes) 2004 2005 2006 2007 2008 2009 2010


% change y-o-y 5.3 -1.7 4.1 6.7 2.7 -3.1 7.5

Consumption

Europe 2,670 2,513 2,586 2,643 2,426 2,043 2,194

Japan 623 602 594 588 564 425 440

USA 1,247 1,078 1,153 1,016 1,003 930 980

Total Mature 4,540 4,193 4,333 4,247 3,992 3,398 3,614

% change y-o-y 3.8 -7.6 3.3 -2.0 -6.0 -14.9 6.4

Brazil 242 222 238 248 259 196 225

China 2,690 3,041 3,115 3,563 4,015 4,600 5,100

India 347 388 430 455 485 515 550

Russia 163 171 199 207 195 147 170

Total BRICs 3,442 3,822 3,982 4,473 4,953 5,458 6,045

% change y-o-y 18.5 11.0 4.2 12.3 10.7 10.2 10.8

ASEAN 1,156 1,123 1,136 1,079 1,095 962 1,012

% change y-o-y 0.0 -2.9 1.2 -5.0 1.5 -12.1 5.2

South Korea 446 476 534 512 504 435 460

Taiwan 342 306 282 226 220 200 205

Others 720 692 705 739 719 655 709


% change y-o-y 8.1 -0.3 3.4 2.8 1.8 -3.3 8.4

Metal balance -251 -392 -329 83 182 192 101

Reported stock change -118 -210 -280 31 185

Reported stocks

Producers 280 308 332 350 366

Consumers 116 111 114 125 128

Merchants 13 15 12 16 17

LME 629 394 90 88 253

Total Stocks 1,038 828 548 579 764 956 1,056



LME cash ($/tonne) 1,717 1,898 2,567 2,645 2,571 1,630 2,165

% change y-o-y 19.9 10.5 35.2 3.0 -2.8 -36.6 32.8


Zinc Supply-Demand Balance 2004-2010



2009 2010

(000 tonnes) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4


% change y-o-y -10.6 -4.9 -0.1 3.1 16.9 5.4 4.1 4.7


% change y-o-y -12.9 -7.3 -4.2 12.0 20.6 8.1 3.6 3.7

Market Balance 145 75 40 -68 80 6 55 -40

Reported Stocks 878 876 913 845 925 931 986 946


LME Cash $/tonne 1,174 1,476 1,757 2,110 2,100 2,100 2,150 2,300

% change y-o-y -52.0 -30.2 -0.9 77.4 78.9 42.3 22.4 9.0

Trading Range

High 1,309 1,673 1,967 2,335 2,350 2,400 2,450 2,600

Low 1,060 1,261 1,461 1,850 1,800 1,825 1,825 2,000


Quarterly Zinc Supply-Demand Balance - Base Case

Zinc Price & Forecast Trading RangeMarket outlook

Zinc stands to benefit significantly over the medium-long

term from any sustained economic recovery, due to its close

association to both the automobile and construction sectors.

However, with any significant recovery outside China over

the remainder of the year being tenuous, we believe that

immediate risks to the downside remain significant, as

a result of the still substantial stockpile weighing on the

market and, importantly, the fact that prices have already

posted significant gains this year-to-date.

The major concern over the very short term is the fact that

producers have been quick in bringing significant amounts

of capacity back on stream. Despite this fact, boosted

by Chinese demand, GFMS expect the market to swing to

deficit in the final quarter of the year. We would expect

this to be short lived and oversupply to return in the first

quarter of 2010, prompted by seasonal weakness in Chinese

consumption, and remain in place until the last quarter,

when demand finally catches up and exceeds production.

Overall, GFMS expect a global surplus of 101,000 tonnes

over the full year.

Although we expect the zinc market to be in surplus again

next year, we believe that investor interest will provide a

solid floor to prices. We thus see prices average around

$2,100/tonne over the first half of the year, only a little less

than current levels of $2,200/tonne. Later in the year, as

the market gradually moves to deficit, we see prices trend

upwards, peaking at $2,600/tonne before the end of the last

quarter, with an average of $2,300/tonne in that period. For

2010 as a whole GFMS projects an average of $2,165/tonne.

The sharp improvement in prices seen so far in 2009 has

come about despite a large increase in LME stocks. Higher

prices have also encouraged the restart of previously idled

capacity. Therefore if demand growth does not improve,

then the market could be liable to a correction. Under a

low case scenario, we forecast an average price of around

$1,700/tonne next year.

The high case scenario is predicted on a combination of

concentrate tightness and on-going investment interest.

The closure of the large Brunswick mine in last 2010 and

the change in the mining plan at Antamina will support the

market. Our high case forecast is $2,450/tonne for next

year.

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(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 352 411 340 281 285 292 299

China 2,391 2,547 2,844 3,048 3,186 3,200 3,625

India 355 472 503 558 616 655 685

Kazakhstan 361 364 410 446 482 490 505

Other Asia 366 440 478 437 393 471 502

Total Asia 3,473 3,823 4,235 4,489 4,677 4,816 5,317

Ireland 438 445 426 401 398 360 340

Russia 162 186 178 177 205 200 205

Sweden 197 216 210 214 201 205 220

Other Europe 216 210 208 242 262 238 303

Total Europe 1,013 1,057 1,022 1,034 1,066 1,003 1,068

Canada 791 667 638 630 716 700 720

Mexico 426 476 481 452 464 500 525

Peru 1,209 1,202 1,202 1,444 1,603 1,530 1,555

USA 739 748 727 803 779 755 775

Other Americas 411 436 455 503 679 725 791

Total Americas 3,576 3,529 3,503 3,832 4,241 4,210 4,366

Oceania 1,298 1,329 1,338 1,498 1,479 1,250 1,260

Global Total 9,712 10,149 10,438 11,134 11,748 11,571 12,310

Western World 6,515 6,774 6,740 7,184 7,626 7,431 7,717


Source: GFMS, ILZSG

Zinc Mine Production 2004-2010




(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Total Africa 259 274 257 279 262 267 279

China 2,720 2,776 3,163 3,743 3,913 4,200 4,560

India 272 302 415 459 606 660 675

Japan 635 638 614 598 616 530 595

Kazakhstan 317 357 365 358 366 340 365

South Korea 669 647 667 691 739 730 740

Other Asia 336 332 331 342 338 333 345

Total Asia 4,949 5,052 5,555 6,191 6,578 6,793 7,280

Belgium 257 222 238 240 239 60 120

Finland 285 282 282 306 298 292 300

Germany 358 335 317 295 292 170 170

Spain 523 500 507 509 466 500 500

Other Europe 1,297 1,220 1,170 1,166 1,176 1,045 1,095

Total Europe 2,720 2,559 2,514 2,516 2,471 2,067 2,185

Brazil 266 267 272 265 260 245 300

Canada 805 724 824 802 764 665 710

Mexico 337 336 285 320 320 320 350

USA 354 350 252 279 285 240 265

Other Americas 231 201 218 205 226 195 265

Total Americas 1,993 1,878 1,851 1,871 1,855 1,665 1,890

Oceania 474 457 466 502 499 508 512

Global Total 10,395 10,220 10,643 11,359 11,665 11,300 12,146

Western World 6,682 6,499 6,490 6,587 6,712 6,194 6,636


Source: GFMS, ILZSG

Refined Zinc Production 2004-2010



(000 tonnes) 2004 2005 2006 2007 2008 2009 2010

Africa 194 203 199 210 197 179 189

China 2,690 3,041 3,115 3,563 4,015 4,600 5,100

India 347 388 430 455 485 515 550

Japan 623 602 594 588 564 425 440

South Korea 446 476 534 512 504 435 460

Taiwan 342 306 282 226 220 200 205

Other Asia 786 758 744 775 801 721 763

Total Asia 5,234 5,571 5,699 6,119 6,588 6,897 7,518

Belgium 365 345 360 387 382 345 375

France 298 275 285 275 244 206 220

Germany 514 511 564 535 527 430 470

Italy 389 395 313 398 323 260 273

Spain 248 216 225 225 210 173 185

UK 185 175 172 174 158 125 130

Other W. Europe 335 314 343 344 319 286 303

Western Europe 2,334 2,231 2,262 2,338 2,161 1,826 1,956

Poland 103 79 100 103 86 71 77

Russia 163 171 199 207 195 147 170

Ukraine 57 44 44 45 44 39 42

Other E. Europe 175 167 167 145 124 93 104

Eastern Europe 498 461 510 500 449 350 393

Total Europe 2,833 2,684 2,785 2,850 2,620 2,190 2,364

Brazil 242 222 238 248 259 196 225

Mexico 240 244 250 250 247 222 240

Other Lat. Am. 204 182 200 196 198 170 184

Canada 189 175 181 173 164 134 145

USA 1,247 1,078 1,153 1,016 1,003 930 980

Other Americas 393 357 381 369 362 304 329

Total Americas 2,122 1,901 2,022 1,883 1,871 1,652 1,774

Oceania 263 253 267 214 207 191 200

Global Total 10,646 10,612 10,972 11,276 11,483 11,108 12,045

Western World 7,426 7,076 7,311 7,163 6,955 6,091 6,484


Source: GFMS, ILZSG

Refined Zinc Consumption 2004-2010

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