Base Metals Monthly

Commodities Research

10 November 2009

Short term price risks to the downside

In general, base metals prices have held up at high levels so far in the fourth quar-
ter. Indeed, zinc prices have run off to set new multi-month highs in recent weeks,
and other metals have attempted to push higher too. Overall, however, prices are
now struggling on the upside, and the uptrends that have been in place for most of
the year now appear to be rolling into sideways trading ranges.

We maintain our view that the markets may end the year on a weaker note and at
lower price levels. For most, stocks are still rising, China is well supplied and buying
interest from this source, temporarily at least, has largely dried up. Meanwhile the
demand pick-up in the West remains subdued and patchy, and investors are likely to
be squaring their books into the year-end.

Therefore, fundamental support and investor appetite for higher prices seems to be
Table of content
fading, at least in the short term. Meanwhile, dip buying has been a prominent and
Economic trends 2 recurring presence in the market all year, and we think this will remain the case,
Aluminium 3 especially on dollar weakness, as long term commodity bulls are likely to continue to
Aluminium alloys 5
view lower prices as good buying opportunities on a 2-3 year horizon.
Copper 6
Lead 8 In aluminium, prices have struggled to breach $2,000/tonne, though it is becoming
Nickel 10 apparent than the market is now in balance. While there seems no stopping Chinese
Zinc 12
production growth, the key to a further revival in prices is a clearer pick-up in Euro-
Tin 14
pean and North American demand, something we expect to emerge next year.

In copper, although the risks to the short-term price outlook are to the downside, in
the medium to longer term the risks are firmly to the upside. We reiterate that copper
Walter de Wet* CFA could be at new record highs in the 2011-2012 period.
+44 (20) 7815 2759
In nickel, we had forecast at the start of the year that the nickel market would be
Walter.DeWet@standardbank.com
much tighter in the second half of the year, even returning the deficit, after a large
Leon Westgate* surplus in the first half. This transition to balance/deficit been confirmed by the latest
+44 (20) 7815 4090 INSG data and we believe a generally balanced market is likely both for the remain-
Leon.Westgate@standardbank.com der of 2009 and for the duration of 2010.

Manqoba Madinane* In zinc, we remain concerned about the abundance of smelter restarts that have
+27 (11) 378 7220 been announced in recent months, and whether the fragile demand recovery in the
Manqoba.Madinane@standardbank.co.za West can absorb the extra supply yet.

LME Cash Price Analysis and Forecasts

Actual Prices Forecasts
$/tonne Oct 09 Ytd Ave. Ytd Range 2007 2008 2009 2010 2011
A luminium 1,879 1,595 1,254 - 2,035 2,639 2,576 1,635 2,190 2,390
Co pper 6,288 4,871 3,051- 6,676 7,126 6,969 4,982 6,175 7,700

Lead 2,241 1,624 992 - 2,448 2,595 2,090 1,671 2,200 2,450

Nickel 18,525 14,319 9,405 - 21,070 37,181 21,074 14,802 19,500 23,200

Tin 15,009 13,303 10,055 - 15,850 14,536 18,539 13,560 16,825 20,200

Zinc 2,072 1,549 1,060 - 2,331 3,250 1,873 1,592 2,150 2,550

A luminium A llo y 1,693 1,399 1,011- 1,820 2,192 2,375 1,447 1,640 1,804

NA SA A C 1,727 1,363 902 - 1,845 2,183 2,384 1,419 1,590 1,749


Economic trends
12 months on…
Twelve months on from the banking crisis that precipitated
the global economic downturn, the economy is continuing
to stabilise, albeit propped up by a bewildering array of
fiscal and monetary stimuli. Central banks remain ex-
tremely reluctant to tighten monetary policy for fear of its
impact on deleveraging consumers, while many govern-
ments are continuing to run huge deficits in an effort to prop
up consumption and, by extension, industrial output.
…risks abound
The effectiveness of these measures is best illustrated by
what happens when they are removed. In the US, new car
sales plunged during September after the government-
backed ‘cash-for-clunkers’ incentive was wound down at
the end of the previous month. October sales were better,
but concerns remain.
Worryingly, a similar incentive measure in the US housing
market – the federal tax credit of $7,500 for home buyers –
is scheduled to finish in November, which could nip this
sector’s recent tentative (and perhaps somewhat artificial)
recovery in the bud.
US out of recession…
At face value, recent macroeconomic data is pointing to an
economy getting back on track. Manufacturing and indus-
trial output is expanding and new orders are rising, capacity
utilization is recovering, and housing and construction data
is generally moving inline with or better than expectations.
This recovery pattern was topped off late last month with
the release of Q3 US GDP growth at 3.5%, which was
above forecasts and confirmed that the US has emerged
from recession.
…but not out of the woods yet
However, on closer inspection, the recovery is patchy and
heavily reliant on government spending. The latest Federal
Reserve Beige Book observed that “Reports of gains in
economic activity generally outnumber declines, but virtu-
ally every reference to improvement was qualified as either
small or scattered.” It also noted that wages were falling in
some areas, with consumer demand remaining weak.
Income and confidence down, unemployment up
According to the latest Census Bureau data, real median
household income declined by 3.6% in 2008, to $50,303, its
2
Commodities Research
Base Metals Monthly — 9 November 2009
steepest year-on-year drop in four decades. It is likely to be
even worse for 2009. Meanwhile, consumer credit fell by a
larger-than-expected 5.8% year-on-year in August, suggest-
ing that consumers are still de-leveraging, as unemployment
continues to rise and foreclosure filings continue to exceed
300,000 a month, now for six consecutive months.
This pessimism is also evident in the consumer confidence
index, which eased back from 54.5 in August to 53.1 during
September, with the present situation index falling from 25.4
to 22.7. This suggests that the strong rally in sentiment wit-
nessed during the second quarter has petered out.
Manufacturing PMI data shows growth
October PMI data from China, Europe, the US and Japan all
signalled manufacturing activity had returned to growth, with
all readings above the key 50 expansion/contraction thresh-
old. Especially encouraging were gains in the forward-looking
new orders indices. In general the data is painting a bullish
picture of a synchronized expansion in global manufacturing
activity unfolding over the next six months.
European business, consumer confidence rises
In Europe, a run of positive data on manufacturing, industrial
orders and exports has boosted the confidence of both busi-
nesses and consumers, with the IFO index rising for the sixth
consecutive month during September, to 91.3. Consumer
confidence is also recovering, rising from a reading of 3.8 in
September to 4.3 in October, driven in part by a decline in
consumer prices during the same month.
Chinese output and investment continue to soar
Year-on-year growth in Chinese IP accelerated in August,
rising from 10.8% in July to 12.3%. Investment in fixed assets
rose by 33% year-on-year during the same month (up 0.1
percentage point from July), with investment in primary indus-
try up by a stunning 60.4%.
Meanwhile, year-on-year GDP growth accelerated from 7.9%
to 8.9% between Q2 and Q3. The economy expanded by
7.7% during the nine months to September, and it is on target
for 8% growth during 2009 as a whole.
Indian IP also booming
India’s IP expanded at its fastest rate in almost two years (at
10.4%) during August. The production of consumer durables,
including cars, jumped 22.3%. Meanwhile, India’s monsoon
season, which ended last month, was the driest since 1972,
which will weigh on GDP somewhat during the third quarter.
Base Metals Monthly — 9 November 2009

Aluminium — Prices hit a ceiling on the threat of increased supply

After LME Week, the aluminium price tested $2,000/tonne LME cash and 3-month aluminium price
for the second time this year. This came as the market fo- USD/tonne
cused strongly on both US dollar weakness and crude oil 3,400
price strength. However, this rally faltered amid the threat of
increased aluminium supply and continued fears of a delay 2,800
to the demand recovery outside of China.
2,200
Nevertheless, while the upside seems capped, the downside
also seems to be protected by investor demand in the dips.
1,600
While demand seems to remain stubbornly strong in China,
higher prices have been negatively affecting the expected 1,000
demand recovery in North America and Europe. Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09

Chinese demand strength has been helping the SHFE main- Cash 3-month
tain its $2,200/tonne price level and providing support for the
increased level of aluminium production in the country. Sep- Sources: LME; Standard CIB Research
tember output was a new record high, and it is likely that the
growth will continue. Elsewhere, there has been a very minor Monthly change to LME aluminium stocks vs. cash price
increase in production from non-Chinese smelters, suggest-
Thousands of tonnes USc/lb
ing their production levels have now reached a bottom for
600 150
this downturn.

Combining the demand and supply pictures together, along- 400 125
with the levelling out of LME stocks, it is becoming increas-
ingly apparent than the market is in balance. While Chinese 200 100
production will continue to increase, the key to a further re-
vival in prices is the pick up in European and North American 0 75
demand, something we expect will start to emerge next year,
and the impact this will have on exchange inventory levels. -200 50
Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
Western world demand sees little improvement
Stock change Cash average

Aluminium demand in the major economies of North America

Sources: LME; Standard CIB Research
and Europe remains pretty stagnant. Underlying demand has
only picked up slightly, while the lack of new builds to re-
Month-end LME aluminium stocks vs. cash price
placed finished projects is casting doubt on how sustainable
current demand is. However, the scrappage schemes have USc/lb
been helping demand for aluminium from Central and East- 150
ern European extruders. October 09
125
The situation in North America is similar. While demand has
clearly hit a bottom, the recovery is being hampered because
downstream fabricators are still struggling to pass on LME 100
price increases to consumers. In turn this is serving to cap January 96
demand for aluminium further upstream. 75

Chinese demand remains robust… 50

0 1 2 3 4 5 6 7
Surprisingly high net Chinese import data in September sug- Weeks consumption
gests that demand from extruders and rolling mills in the
country is stronger than expected. This is especially true if Sources: LME; Standard CIB Research
we consider the lack of an apparent build up in stocks and

3
Commodities Research
 Base Metals Monthly — 9 November 2009

the continued production increases. such we expect to see more growth in output in 2010.

…while China continues to ramp up production Outside of China production is essentially flat

Month-on-month Chinese production increased by 4.9% in
September, following a 6% increase in August and a 4.7%
gain July. China’s September production was a record high
of 1.21m tonnes for the month and 14.76m tonnes on an
annualised basis. However, China still has an estimated
19.9m tpy of capacity, leaving a potential 5.14m tpy or
420,000 tonnes per month available for future production
increases. We expect 15.1m tpy of the industry's capacity
will be utilized by the end of the year.
While it is possible that the Chinese government will suc-
ceed in its goal to block new greenfield capacity until after
2012, there is both enough installed capacity and already-
approved projects for further production ramp-ups and as
Non-Chinese smelters around the world collectively pro-
duced 64,200 tpd in July, 64,400 tpd in August and 64,600
tpd in September. These are minor increases and are
largely due to new smelters coming online in Central Asia
and the Middle East. It is now clear that, forgoing another
demand collapse in the medium term, the July daily produc-
tion level for non-Chinese smelters marked the bottom for
this downturn, and May was the bottom globally.
With the Chinese restarts, we are currently just above the
same level of daily production as in November last year. For
the remainder of 2009 we expect the small monthly gains in
non-Chinese production to continue. Should prices hold
above $2,000/tonne for a sustained period, we may see
smelters elsewhere look to re-start as ‘swing capacity’.

Annual Global Supply/Demand Balance for Aluminium, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Production
Africa 1,369 1,372 1,428 1,711 1,752 1,864 1,815 1,715 1,688 1,884 1,854
North America 5,222 5,415 5,495 5,109 5,375 5,332 5,642 5,783 4,850 4,620 4,523
Latin America 1,991 2,229 2,275 2,356 2,391 2,493 2,559 2,660 2,536 2,588 2,714
Asia (ex. China) 2,099 2,113 2,317 2,585 2,944 3,296 3,504 3,700 4,239 4,850 5,995
Western Europe 4,196 4,260 4,425 4,667 4,741 4,541 4,664 4,840 3,862 3,666 3,383
Australasia 2,121 2,170 2,198 2,246 2,252 2,274 2,314 2,296 2,175 2,112 2,120
China 3,385 4,420 5,465 6,589 7,743 9,349 12,607 13,129 13,550 14,895 16,600
CIS and Eastern Europe 4,049 4,141 4,345 4,569 4,643 4,749 5,021 5,182 4,583 4,473 4,460
Total 24,432 26,120 27,948 29,831 31,840 33,898 38,126 39,305 37,482 39,088 41,649
Year-on-year % change 0.0% 6.9% 7.0% 6.7% 6.7% 6.5% 12.5% 3.1% (4.6%) 4.3% 6.6%

Consumption
North America 6,251 6,595 6,829 7,500 7,567 7,653 7,526 6,913 5,043 5,446 5,712
Asia (ex. China) 5,304 5,473 6,001 6,646 6,780 6,960 7,100 7,140 6,675 7,020 7,240
Western Europe 5,720 6,038 6,192 6,603 6,717 7,055 7,244 7,256 5,900 6,074 6,403
China 3,599 4,189 5,148 6,086 7,091 8,480 11,497 12,934 14,100 15,720 17,800
Others 3,202 3,243 3,408 3,637 3,855 4,098 4,187 4,288 4,065 4,191 4,643
Total 24,075 25,538 27,577 30,473 32,009 34,246 37,554 38,531 35,784 38,451 41,541
Year-on-year % change (3.3%) 6.1% 8.0% 10.5% 5.0% 7.0% 9.7% 2.6% (7.1%) 7.5% 8.0%

Implied surplus (deficit) 357 581 371 (641) (169) (348) 571 773 1,699 637 109

Stocks analysis
IAI 1,740 1,660 1,629 1,788 1,797 1,621 1,553 1,676
LME 821 1,241 1,423 693 644 698 929 1,338
COMEX 270 340 213 61 160 122 40 35
SHFE 34 11 27 60 46 19 89 207
Total 3,873 4,455 4,826 4,184 4,016 3,667 4,239 5,012 6,711 7,348 7,457
Stocks as weeks of consumption 8.4 9.1 9.1 7.2 6.5 5.6 5.9 6.8 9.8 9.9 9.3

LME cash prices

Historical & base case ($/tonne) $1,443 $1,350 $1,431 $1,716 $1,898 $2,567 $2,639 $2,576 $1,635 $2,190 $2,390
Historical & base case (cents/lb) 65.5c 61.2c 64.9c 77.8c 86.1c 116.4c 119.7c 116.8c 74.2c 99.3c 108.4c
Sources: IAI; WBMS; LME; COMEX; SHFE; Standard CIB Research

4
Commodities Research
Base Metals Monthly — 9 November 2009
Aluminium alloy
After hovering at just above $1,700/tonne since the middle
of September, the LME aluminium alloy contract embarked
on a gentle rise in October that saw it gain over 2% last
month.
Although the upward trend has been very much in line with
the trend observed in the LME primary aluminium contract,
it has still lagged behind. However, supply is still tight and
LME stocks declined by 1,540 tonnes (or by 1.8%) in Octo-
ber.
This relative underperformance by the alloy is not surpris-
ing, given the overall state of the transportation markets in
Europe. Although the stimulus schemes are certainly help-
ing car sales in the region, alloys demand is still not re-
flected in the figures. Once again, this brings us to the
question of customers’ stocks. If they are as low as we be-
lieve, extensions to the region’s scrappage schemes may
well see alloy demand increase significantly over the next
few months.
Automotive production in mainland Europe finds itself at a
crossroads, as the money for the government-funded mini-
boom runs out. Calls for an extension to Germany’s scrap-
page scheme have been mooted, but there are doubts that
the government will respond. Surprisingly, the UK incentive
scheme has been extended until early next year, and there
are hints that Italy’s scheme will also run into 2010.
In China, car output increased by nearly 80% year-on-year
in September. However, although sales have also in-
creased substantially, they grew at a much lower pace than
production, raising the question of whether alloys demand
in the country will continue to increase in the coming
months.
LME cash and 3-month aluminium alloy price
USD/tonne
3,200
2,600
2,000
1,400
800
Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
Cash 3-month
Sources: LME; Standard CIB Research
NASAAC
The North American Alloy contract outperformed the Euro-
pean alloy equivalent contract in October, with NASAAC
rising by 2.5% to just over $1,800/tonne currently. NASAAC
therefore managed to preserve its premium over the Euro-
pean alloy, which has been a feature of the last couple of
months.
Both alloys received support from a higher primary alumin-
ium price, but the fundamentals of NASAAC look slightly
stronger than those of its sister alloy. Indeed, the supply of
scrap and alloyed ingot in North America remains tight, with
LME NASAAC stocks declining by 4,920 tonnes (or by
2.6%) in October.
Looking forward, predictions for the automotive build rate
for Q4 remain hazy, but not entirely pessimistic. However,
judging by car sales for the first month after the “cash for
clunkers” scheme ended, output may fall back towards pre-
vious levels. Toyota, which had the largest number of sales
related to the scheme, suffered a drop in sales of 13% in
September compared to August, while General Motors’
sales dropped by 37% month-on-month.
Car makers’ stocks are widely reported to be low, but it is
not certain that they will restock to previous levels – main-
taining a low level of stocks seems to be the default posi-
tion for everyone at the moment. It was thought that the
ending of the auto finance scheme might introduce a sub-
stantial restocking scenario but, despite anecdotal evidence
that there is indeed a slight improvement, this appears not
to be the case just yet. We are more optimistic for 2010
however, and can see restocking activity picking up more
concertedly from the second quarter onwards.
LME cash and 3-month NASAAC price
USD/tonne
3,200
2,600
2,000
1,400
800
Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
3-month Cash
Sources: LME; Standard CIB Research
5
Commodities Research
 Base Metals Monthly — 9 November 2009

Copper — Near term weakness offering entry points to long term bulls

Copper prices have so far held up better than previously ex- LME cash and 3-month copper price
pected in the final quarter. Investor demand has provided
USD/tonne
support in the dips, though prices have also struggled to ex- 10,000
tend this year’s rally with any convincing breakout to the up-
side. This is in spite of a run of generally upbeat macroeco- 8,000
nomic data, a weak dollar, and supply disruptions.

Demand is still subdued in the West and China is still well 6,000

supplied; even though imports blipped higher again in Sep-

tember the trend for the coming months should be downward. 4,000
Given this short-term outlook, we maintain that prices could
come under pressure between now and the year end, espe- 2,000
cially if labour contracts at Codelco are settled without strikes. Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09

3-month Cash
In the longer term we remain concerned about supply short-
falls that we see occurring once the global economy gets
Sources: LME; Standard CIB Research
back on track over the course of the coming year. The global
mine supply pipeline looks insufficient to keep up with the
Monthly change to LME copper stocks vs. cash price
expected pace of the demand recovery, and this will yield a
deficit in H2 2010 and through 2011. Thousands of tonnes USc/lb
160 450
Therefore, although the risks to the short-term price outlook
are to the downside, in the medium to longer term the risks
80 350
are to the upside. As such, any price weakness that occurs in
the coming few months is likely to be viewed by many as a
0 250
good buying opportunity.

We maintain our price forecasts this month at $4,982/tonne -80 150

this year, $6,175/tonne in 2010 and $7,700/tonne in 2011 and
we reiterate that copper could be at new record highs in the -160 50
2011-2012 period. Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
Stock change Cash average
Mixed picture painted by latest Chinese data

Sources: LME; Standard CIB Research

Recent data from China showed that refined copper produc-
tion rose to a new record high of 395,000 tonnes in Septem-
Month-end LME copper stocks vs. cash price
ber. Taken together with the unexpected rebound in imports
in the same month (up 29% to 282,828 tonnes) and very
USD/lb
strong Q3 GDP growth of 8.9%, demand would appear to be
4
much stronger than expected. Indeed, our apparent con-
sumption calculations put September’s growth at more than
3
50% year-on-year and still above 40% for the year to date.
October 09
However, high SHFE stocks, reports of significant off-market 2
stocks, and falling spot premiums (down to around $55-60/
January 96
tonne from $80/tonne previously), and a local forward price
1
curve in contango, all continue to fan fears of an oversupplied
market. We share those fears and maintain our view that im-
0
ports should continue to fall away in the coming months.
0 1 2 3 4 5
Slower Chinese import demand in the final quarter has led to Weeks consumption
a pattern of copper prices tending to tail off in November and
Sources: LME; Standard CIB Research
December in recent years. We expect to see the same trends

6
Commodities Research
Base Metals Monthly — 9 November 2009

this year, and our price forecasts reflect this.
Labour contract settlements may trigger price fall
Supply disruptions may be keeping dip buyers interested.
However, although the Vale Inco strike in Canada and the
Spence strike in Chile are ongoing, and a vote for strike
action has been announced at Antamina in Peru, workers at
Escondida have agreed their new contract. If Codelco work-
ers follow suit (as many suspect, now that Escondida has
set a precedent), then the majority of the labour-related sup-
ply risks hanging over this market will have been removed.
With stocks rising on both the LME and SHFE indicating
well-supplied markets in China and the West, there would
appear to be little fundamental reason for prices to remain
well bid into the year end.
No respite for TC/RCs
The latest data from the ICSG showed that global mine cop-
per capacity utilisation fell to just 76.1% in July – its lowest
level of the year. Although Escondida has since come back
on line, the strikes in Chile and Canada, the accident at
Olympic Dam and problems in Indonesia and elsewhere are
still likely to be keeping utilisation below 80%. In this context
we are not surprised that TC/RCs have stuck to, and remain
at, extremely low levels – reportedly $10-20/tonne and 1-2¢/
lb on a spot basis in China.

Annual Global Supply/Demand Balance for Copper, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mine production
Total 13,626 13,578 13,785 14,607 14,921 15,020 15,580 15,440 15,240 15,580
Year-on-year % change 3.1% (0.4%) 1.5% 6.0% 2.1% 0.7% 3.7% (0.9%) (1.3%) 2.2%

Refined production
Africa 413 447 454 508 513 563 627 680 770 860
North America 2,793 2,326 2,074 2,198 2,162 2,155 2,175 2,210 2,060 2,080
Latin America 3,595 3,564 3,608 3,566 3,549 3,553 3,595 3,535 3,600 3,660
Asia (ex. China) 3,362 3,358 3,489 3,541 3,831 4,200 4,330 4,340 4,030 4,100
China 1,510 1,613 1,836 2,199 2,600 3,047 3,497 3,779 3,950 4,108
Australasia 560 543 484 490 469 429 442 502 480 505
Europe 3,411 3,420 3,309 3,449 3,533 3,605 3,620 3,710 3,560 3,610
Total 15,644 15,271 15,254 15,951 16,657 17,552 18,286 18,756 18,450 18,923
Year-on-year % change 5.5% (2.4%) (0.1%) 4.6% 4.4% 5.4% 4.2% 2.6% (1.6%) 2.6%

Refined consumption
North America 3,310 2,971 2,900 3,101 2,967 2,863 2,805 2,720 2,610 2,665
Latin America 533 432 494 541 552 554 568 580 560 570
Asia (ex. China) 3,864 4,196 4,216 4,564 4,522 4,680 4,900 4,860 4,500 4,600
China 2,357 2,774 3,097 3,371 3,540 3,820 4,525 4,930 5,520 5,962
Europe 4,732 4,651 4,754 5,031 4,814 5,208 5,155 5,050 4,615 4,700
Others 295 337 332 333 355 343 350 352 340 345
Total 15,090 15,361 15,793 16,941 16,750 17,468 18,303 18,492 18,145 18,842
Year-on-year % change (1.8%) 1.8% 2.8% 7.3% (1.1%) 4.3% 4.8% 1.0% (1.9%) 3.8%

Implied surplus (deficit) 554 (90) (539) (990) (93) 84 (17) 264 305 81

Stocks analysis
LME 799 856 431 49 92 191 199 341
COMEX 244 362 255 44 6 31 14 31
SHFE 94 75 121 32 58 31 26 15
Producer 290 240 238 233 238 283 259 256
Merchant 27 19 23 20 17 18 21 26
Consumer 181 161 145 141 135 149 154 135
Total 1,636 1,712 1,212 519 546 703 673 804 1,109 1,190
Stocks as weeks of consumption 5.6 5.8 4.0 1.6 1.7 2.1 1.9 2.3 3.2 3.3

LME cash prices

Historical & base case ($/tonne) $1,577 $1,558 $1,780 $2,866 $3,684 $6,730 $7,126 $6,969 $4,982 $6,175
Historical & base case (cents/lb) 71.5c 70.7c 80.7c 130.0c 167.1c 305.3c 323.2c 316.1c 226.0c 280.1c
Sources: ICSG; WBMS; LME; COMEX; SHFE; Standard CIB Research
7
Commodities Research
 Base Metals Monthly — 9 November 2009

Lead — Short term risk to prices are to the downside

LME cash and 3-month lead price
China’s lead poisoning crisis that flared up in late August
continues to be one of the main focuses of the lead market. USD/tonne
However, also important is identifying any signs of a pick- 4,000
up in consumer interest as we approach the high-demand
winter replacement auto battery season, especially after a 3,200
disappointing summer season this year.
2,400
Both factors – supply disruptions and seasonal demand –
have the potential to be bullish influences on lead prices.
However, both are proving to be a disappointment to lead 1,600
bulls, at least so far. Production losses in China are looking
minimal and demand remains stubbornly subdued. 800
Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
Therefore, we see a lack of fundamental support for prices
3-month Cash
at the moment. That said, the fundamentals are not the
main driving force currently; investor money flows and cur-
Sources: LME; Standard CIB Research
rency markets are setting the tone. But if the fundamentals
start to reassert themselves, the risks for lead prices in the
Monthly change to LME lead stocks vs. cash price
near term appear to be to the downside.
Thousands of tonnes USc/lb
Moreover, if runaway Chinese production growth, particu- 40 200
larly from the secondary sector, is not reined in one way or
another, the upside to prices may start to become limited 20 150
next year too.
0 100
About 700,000 tpy of Chinese capacity suspended

-20 50
There continues to be a trickle of news emanating from
China about the ongoing crackdown on lead smelters sus-
pected of causing pollution. There have been a few more -40 0
Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
closures over the past month, and we think the total capac-
ity affected amounts to around 700,000 tpy. Stock change Cash average

Market still well supplied... Sources: LME; Standard CIB Research

Lead prices had rallied strongly in September of the back of Month-end LME lead stocks vs. cash price
supply shortages potentially caused by this crackdown, and
prices have largely held on to those gains as concerns USD/lb
have persisted. However, as noted in previous reports, 2.0
Chinese production is unlikely to be severely affected over October 09
the long term, with the market seemingly well enough sup- 1.5
plied at the moment to ride out any production cutbacks.
1.0
…with September data supporting that view
January 96
In the official production and trade figures for September – 0.5
the first full month of data after the crackdown started in
late August, output was reported to have been 335,153 0.0
tonnes, which is only 8% lower than August’s level and still 0.0 0.4 0.8 1.2 1.6 2.0
11% above the year-to-date monthly average of 301,949 Weeks consumption
tonnes. We will wait to see how much of a further decline, if
any, occurred in October. Based on September's data it
Sources: LME; Standard CIB Research

8
Commodities Research
Base Metals Monthly — 9 November 2009

seems we were correct to warn that Chinese output would
prove to be resilient.
Meanwhile, net imports of refined lead into China in Sep-
tember continued their declining trend from April’s all-time
high, which is again indicative of a market feeling no ill ef-
fects of the clampdown.
No seasonal demand pick-up yet
The summer replacement battery season was disappoint-
ing in the Northern Hemisphere this year, as motorists
tended to use their vehicles less and defer maintenance
costs. Now in the run-up to the winter battery season, the
indicators are again looking disappointing. LME lead stocks
continue to rise, cancelled warrants have faded away to
almost zero again, physical premiums are largely stagnant,
and high prices are deterring restocking by keeping poten-
tial buyers at bay.
Vehicle production in Europe and the US has ramped up in
recent months, which is helping original equipment battery
demand, but with consumer confidence still poor and un-
employment still rising, potential buyers are still putting off
purchases of big-ticket items like new cars. That said, we
note that some weather forecasters are now starting to
predict that the US East Coast will see its coldest winter in
10 years, so this could provide a boost to the replacement
battery market in North America in the coming months.

Annual Global Supply/Demand Balance for Lead, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mine production
Total 3,032 2,831 3,120 3,138 3,437 3,540 3,685 3,890 3,800 3,960 4,150
Year-on-year % change (0.5%) (6.6%) 10.2% 0.6% 9.5% 3.0% 4.1% 5.6% (2.3%) 4.2% 4.8%

Refined production
Africa 132 144 138 100 111 114 90 97 100 110 130
North America 1,866 1,848 1,854 1,745 1,775 1,806 1,802 1,827 1,720 1,780 1,760
Latin America 229 244 238 270 270 266 265 270 180 220 300
Asia (ex. China) 1,014 1,036 1,066 1,058 1,093 1,106 1,152 1,315 1,330 1,360 1,410
China 1,196 1,325 1,564 1,934 2,391 2,715 2,757 3,106 3,440 3,740 4,150
Australasia 280 311 315 281 277 253 252 275 252 260 270
Europe 1,905 1,762 1,589 1,569 1,702 1,655 1,747 1,794 1,680 1,730 1,740
Total 6,622 6,670 6,764 6,957 7,619 7,915 8,065 8,684 8,702 9,200 9,760
Year-on-year % change (0.3%) 0.7% 1.4% 2.9% 9.5% 3.9% 1.9% 7.7% 0.2% 5.7% 6.1%

Refined consumption
North America 2,003 1,861 1,823 1,816 1,891 1,923 1,777 1,848 1,720 1,740 1,780
Latin America 191 205 207 224 237 236 221 241 240 244 250
Asia (ex. China) 1,359 1,458 1,535 1,585 1,533 1,566 1,610 1,620 1,540 1,580 1,643
China 720 957 1,183 1,510 1,973 2,213 2,543 2,890 3,260 3,749 4,311
Europe 2,054 2,027 1,933 2,007 1,998 1,968 1,944 1,855 1,690 1,700 1,740
Others 149 134 153 153 142 145 140 142 140 142 144
Total 6,476 6,642 6,834 7,295 7,774 8,051 8,235 8,596 8,590 9,155 9,869
Year-on-year % change (0.2%) 2.6% 2.9% 6.7% 6.6% 3.6% 2.3% 4.4% (0.1%) 6.6% 7.8%

Implied surplus (deficit) 187 34 (10) (282) (119) (117) (170) 88 112 46 (107)

Stocks analysis
LME 98 184 109 40 44 41 45 45
Producer 188 142 138 127 145 137 97 114
Consumer 149 156 159 132 118 130 138 146
Merchant 1 1 1 1 2 2 2 1
Total 436 483 407 300 309 310 282 306 418 464 357
Stocks as weeks of consumption 3.5 3.8 3.1 2.1 2.1 2.0 1.8 1.9 2.5 2.6 1.9

LME cash prices

Historical & base case ($/tonne) $476 $453 $516 $887 $976 $1,288 $2,595 $2,090 $1,671 $2,200 $2,450
Historical & base case (cents/lb) 21.6c 20.5c 23.4c 40.2c 44.3c 58.4c 117.7c 94.8c 75.8c 99.8c 111.1c
Sources: ILZSG; WBMS; LME; Standard CIB Research

9
Commodities Research
 Base Metals Monthly — 9 November 2009

Nickel — Market balanced now

We had forecast at the start of the year, and discussed in recent LME cash and 3-month nickel price
reports that the nickel market would be much tighter in the sec-
USD/tonne
ond half of the year, even returning the deficit, after a large sur- 40,000
plus in the first half. This transition to balance/deficit been con-
firmed by the latest INSG data which shows demand exceeding
32,000
supply in August for the first time in well over a year.

Whether the tighter fundamentals persist to the year-end is be- 24,000

coming less certain, but overall we still think a generally bal-
anced market is the most likely outcome, both for the remainder 16,000
of 2009 and for the duration of 2010. This should be supportive
to prices, though the ongoing relocation of Russian metal onto 8,000
LME warrant in Rotterdam is masking the underlying balance at Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
the moment.
3-month Cash
The short term risks to this balanced market outlook include the
resolution of labour disputes in Canada, the continuing rise in Sources: LME; Standard CIB Research
Chinese nickel pig iron production, the possibility of restarts to
previously idled mine capacity, and patchy demand. Monthly change to LME nickel stocks vs. cash price

Our price forecasts remain unchanged this month at $14,802/ Thousands of tonnes USD/lb
tonne for 2009 and $19,500/tonne for 2010, rising to $23,200/ 16 26
tonne in 2011 with the arrival of the first annual deficit in 5 years.
8 20
Market returned to deficit in August
0 14
The latest data from the INSG is noteworthy because it shows
that the global nickel market returned to deficit in the month of -8 8
August - for the first time since February 2008. Production de-
clined for the third consecutive month, coming in at 108,200 -16 2
tonnes, as ongoing cutbacks and the start of the strike at Vale Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
Inco’s Canadian operations offset rising nickel pig iron output in Stock change Cash average
China. At the same time, consumption in August rose to 115,300
tonnes – the highest level in 16 months – due to stainless steel Sources: LME; Standard CIB Research

mills gradually raising output levels since around mid-year.

As we have noted in our previous reports, a deficit is in line with Month-end LME nickel stocks vs. cash price

our own reading of the market, and we think that demand will
generally match or exceed supply for the remainder of this year USD/lb
28
and through 2010.

North America getting tight 21

January 96 October 09
With a disappointing demand recovery in Europe so far 14
(Outokumpu reports no recovery yet and Acerinox is cutting ca-
pacity back again) and oversupply of Chinese stainless steel in
7
Asia, the main bright spot for demand is North America.

There seems to be more buying activity occurring in this region 0

and physical premiums are on the rise. Although stainless mills 0 1 2 3 4 5 6
are ramping up output and are rebuilding nickel stocks, the main Weeks consumption
cause of the tightness is the ongoing strike at Vale Inco’s nickel
Sources: LME; Standard CIB Research
operations in Canada. Workers walked out in July and there still

10
Commodities Research
Base Metals Monthly — 9 November 2009

appears to be no end in sight to the pay dispute. Moreover,
we note that workers at Xstrata’s Sudbury operations also
have labour contracts up for renewal in February, so the
disruptions could run well into next year.
Mine restarts may still be some way off
much delayed Goro mine in New Caledonia)
The high costs relative to current prices for many idled and
next-generation nickel mines underscores our view that
nickel still needs to go higher before the overhang of ca-
pacity starts to become a more pressing risk.

NPI here to stay

We were interested to note last month that China’s Minmet-
als says it needs a steady nickel price above $20,000/tonne
It also underscores the fact that Chinese nickel pig iron
to consider reopening its suspended Avebury mine in Tas-
(NPI) producers now appear to have a niche in this market
mania. This is a broadly similar figure to the $18,000/tonne
for the long term, as their breakeven price starts from about
price that Toledo Mining recently said was its breakeven
$15,000/tonne. Indeed, nickel ore imports surged to a new
level at Berong in the Philippines. And although BHP Billi-
all-time high in September – some 25% above the previous
ton’s mothballed Ravensthorpe mine is making headlines
monthly record – confirming that the sector can operate
again as potential buyers cast their eyes over it, there are
viably at current prices and is more competitive than many
still serious doubts about its viability at current prices (with
conventional producers in the current environment.
these concerns also casting a shadow over Vale Inco’s

Annual Global Supply/Demand Balance for Nickel, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mine production
Total 1,224 1,248 1,264 1,327 1,387 1,503 1,595 1,530 1,380 1,415 1,590
Year-on-year % change 4.3% 1.9% 1.3% 5.0% 4.5% 8.4% 6.1% (4.1%) (9.8%) 2.5% 12.4%

Refined production
Africa 53 55 54 57 56 55 50 42 40 45 48
North America 141 145 124 152 140 147 154 168 125 152 167
Latin America 124 146 157 161 168 171 168 137 122 128 146
Asia (ex. China) 164 167 174 177 173 167 180 178 166 176 190
China 50 54 65 73 98 137 219 200 220 225 240
Australasia 174 181 167 166 178 163 156 142 151 158 164
Europe 449 434 451 468 463 512 514 510 450 472 500
Total 1,154 1,181 1,191 1,253 1,276 1,352 1,441 1,377 1,274 1,356 1,455
Year-on-year % change 6.5% 2.3% 0.9% 5.2% 1.8% 6.0% 6.6% (4.4%) (7.5%) 6.4% 7.3%

Refined consumption
North America 147 133 130 139 148 155 145 137 126 136 140
Latin America 23 27 29 26 26 25 26 24 22 23 25
Asia (ex. China) 353 408 422 430 402 429 380 348 299 340 380
China 88 94 125 150 190 245 330 360 405 460 506
Europe 461 476 461 454 447 492 424 400 333 352 380
Others 33 38 48 46 34 46 41 40 36 41 42
Total 1,104 1,176 1,215 1,245 1,247 1,392 1,346 1,309 1,221 1,352 1,473
Year-on-year % change (1.6%) 6.5% 3.3% 2.5% 0.2% 11.6% (3.3%) (2.7%) (6.7%) 10.7% 8.9%

Implied surplus (deficit) 50 (51) 37 8 29 (40) 95 68 53 4 (17)

Stocks analysis
LME 19 22 24 21 36 7 48 79
Producer 74 69 73 72 71 75 70 71
Consumer and merchant 28 18 22 5 4 6 9 6
Total 121 109 119 98 111 88 127 156 209 213 196
Stocks as weeks of consumption 5.7 4.8 5.1 4.1 4.6 3.3 4.9 6.2 8.9 8.2 6.9

LME cash prices

Historical & base case ($/tonne) $5,948 $6,772 $9,640 $13,852 $14,735 $24,287 $37,181 $21,074 $14,802 $19,500 $23,200
Historical & base case ($/lb) $2.70 $3.07 $4.37 $6.28 $6.68 $11.02 $16.87 $9.56 $6.71 $8.85 $10.52
Sources: INSG; WBMS; LME; Standard CIB Research

11
Commodities Research
 Base Metals Monthly — 9 November 2009

Zinc — Can the demand recovery keep pace with rising supply?
The run of announcements about smelter restarts since LME cash and 3-month zinc price
around mid-year from the likes of Nyrstar, Teck and others USD/tonne
appears to have slowed. However this is largely because 3,200
most previously idled capacity is now back on line. There-
fore, with Western World output rising again and Chinese 2,600
output breaking records, the key question for zinc is
whether demand is recovering quickly enough to absorb 2,000
the additional material now being produced.

The fact that LME stocks have been flat-to-lower since Au- 1,400
gust would suggest that the market is largely in balance. If
October’s strong rally in zinc prices to more than $2,300/ 800
tonne was driven by the fundamentals, then this return to Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
equilibrium, between supply and demand is likely to have 3-month Cash
been a key factor.
Sources: LME; Standard CIB Research
However, our own view is that the price move was more to
do with investment money flows than fundamentals, and
Monthly change to LME zinc stocks vs. cash price
although we remain zinc bulls on a medium to long-term
horizon, the short term fundamental outlook is starting to
Thousands of tonnes USc/lb
get a little clouded by uncertainties. 100 220

China is starting to look oversupplied…

50 170

Although LME stocks have flat-lined, suggesting a largely

balanced market, SHFE stocks have started to rising rap- 0 120

idly, and this is a concern. The headline total in Shanghai

has jumped by 30% in the last two weeks alone, to a new -50 70
all-time high. We have heard reports for some months
about large off-market stockpiles in China following the -100 20
surge in imports earlier this year, so it is not a surprise that Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
the domestic market is starting to look oversupplied, espe- Stock change Cash average
cially given record high production data recently.
Sources: LME; Standard CIB Research

…amid record high production

Month-end LME zinc stocks vs. cash price
Refined zinc production was reported by the NBS to have
been 410,413 tonnes in September, only fractionally down
USD/lb
from August’s record high of 415,000 tonnes. Production 2.2
has now risen by nearly 70% since January’s low, as previ-
ously idled smelters have been quickly restarted and as 1.7
new capacity has been commissioned. Moreover, with con- October 09
centrate imports up 38% this year and domestic mine out-
1.2
put having more than doubled since the start of the year,
January 96
apparent supply of zinc concentrate in China is also at a
record high, which will continue to fuel high refined metal 0.7
output, as long as availability remains easy.
0.2
The concs market is now tightening up 0 1 2 3 4 5 6
Weeks consumption
This may be changing now, however, as many Western
World smelters have now restarted and there is more Sources: LME; Standard CIB Research

12
Commodities Research
Base Metals Monthly — 9 November 2009

smelting capacity chasing material in the concentrate mar-
ket. Indeed, we estimate that some 466,000 tpy of non-
Chinese smelter cutbacks have been reversed since the
start of H2. This compares with mine supply that has re-
mained little changed in the West, as idled mine capacity
has been far slower to restart than smelter capacity.
The changing balance in the global zinc concentrate market
is already affecting TCs, with spot terms in China dropping
in October by around $10-20/tonne to $180-200/tonne.
They could fall further on rising demand and seasonally
lower Chinese mine output.
Short term demand outlook mixed and uncertain
many of which have not yet seen any real improvement in
orders – are in no hurry to jump into the market, especially
at recently elevated LME prices. How they react to lower
prices might be a more useful gauge of underlying de-
mand. In Europe, sentiment is more upbeat. Pressure is
building on premiums and a rise is expected from the
$100-120/tonne range as a number of steel mills are re-
starting galvanising lines.
However, in both regions there is the threat of Chinese
HDG exports. This is dominating the galvanised steel mar-
ket, threatening price stability and raising the possibility
that mills may have to maintain/resume production disci-
pline through Q4 and Q1 2010 in order to avoid a glut.

US spot zinc premiums have eased slightly as consumers –

Annual Global Supply/Demand Balance for Zinc, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mine production
Total 8,933 8,904 9,520 9,709 10,146 10,444 11,129 11,680 11,120 11,350 11,680
Year-on-year % change 1.1% (0.3%) 6.9% 2.0% 4.5% 2.9% 6.6% 5.0% (4.8%) 2.1% 2.9%

Refined production
Africa 135 147 197 260 273 257 279 262 266 272 276
North America 1,294 1,438 1,431 1,496 1,401 1,377 1,394 1,404 1,240 1,310 1,360
Latin America 423 465 499 496 482 486 545 565 470 510 560
Asia (ex. China) 1,898 2,034 2,136 2,187 2,280 2,412 2,433 2,670 2,620 2,660 2,730
China 2,038 2,155 2,319 2,720 2,776 3,163 3,743 3,913 4,080 4,240 4,360
Australasia 556 567 553 474 457 466 502 499 495 502 510
Europe 2,877 2,904 2,744 2,720 2,563 2,508 2,516 2,470 2,180 2,220 2,300
Total 9,221 9,710 9,879 10,353 10,232 10,669 11,412 11,783 11,351 11,714 12,096
Year-on-year % change 2.7% 5.3% 1.7% 4.8% (1.2%) 4.3% 7.0% 3.3% (3.7%) 3.2% 3.3%

Refined consumption
North America 1,569 1,634 1,573 1,680 1,496 1,540 1,520 1,478 1,360 1,410 1,480
Latin America 367 389 378 443 414 436 457 471 442 455 474
Asia (ex. China) 2,259 2,359 2,505 2,551 2,525 2,578 2,533 2,510 2,290 2,330 2,510
China 1,500 1,750 2,155 2,690 3,041 3,225 3,597 4,014 4,280 4,622 4,992
Europe 2,817 2,754 2,780 2,833 2,684 2,786 2,850 2,628 2,280 2,320 2,450
Others 405 470 440 457 452 475 480 472 440 470 481
Total 8,917 9,356 9,831 10,654 10,612 11,040 11,437 11,573 11,092 11,607 12,387
Year-on-year % change (1.0%) 4.9% 5.1% 8.4% (0.4%) 4.0% 3.6% 1.2% (4.2%) 4.6% 6.7%

Implied surplus (deficit) 327 357 55 (269) (351) (343) (15) 210 259 108 (289)

Stocks analysis
LME 433 651 740 629 394 91 89 254
SHFE 0 0 0 0 0 0 54 63
Producer 377 315 293 280 308 332 347 356
Consumer 120 115 114 116 111 114 101 105
Merchant 16 14 12 13 15 12 11 12
Total 946 1,095 1,159 1,038 828 549 602 790 1,049 1,157 867
Stocks as weeks of consumption 5.5 6.1 6.1 5.1 4.1 2.6 2.7 3.5 4.9 5.2 3.6

LME cash prices

Historical & base case ($/tonne) $886 $779 $828 $1,048 $1,382 $3,273 $3,250 $1,873 $1,592 $2,150 $2,550
Historical & base case (cents/lb) 40.2c 35.3c 37.6c 47.5c 62.7c 148.5c 147.4c 85.0c 72.2c 97.5c 115.7c
Sources: ILZSG; WBMS; LME; SHFE; Standard CIB Research

13
Commodities Research
 Base Metals Monthly — 9 November 2009

Tin — Another offensive against illegal mining in Indonesia

The rise in LME tin stocks over the past year has been phe- LME cash and 3-month tin price
nomenal, and on a year-on-year comparative basis even
USD/tonne
exceeds the rise seen in aluminium stocks: tin has had an 26,000
eight-fold increase from 3,000 tonnes last November to
26,000 tonnes currently, while aluminium has ‘merely’ tri-
21,000
pled. Not all of the rise represents a surplus of production
this year over consumption – we put that at around 14,000
16,000
tonnes in tin’s case. The rest of the increase in LME stocks
represents the relocation of producer and consumer inven-
tories on to LME warrant, and this trend has now become 11,000

clearly visible in WBMS data.

6,000
However, as the latest (and ongoing) production disruptions Nov 07 Apr 08 Sep 08 Jan 09 Jun 09 Nov 09
in Indonesia are starting to tighten supply in Asia now, at
3-month Cash
the same time as demand is beginning to reaccelerate. As
a result, the LME stock rise finally appears to be topping Sources: LME; Standard CIB Research
out and we think the tin market may be moving back into
deficit. Monthly change to LME tin stocks vs. cash price
We have maintained a bullish view on tin prices for some
time and this remains unchanged. We see the market stay- Thousands of tonnes USc/lb
5 1200
ing in deficit for much of 2010 and recording a large annual
deficit in 2011 amid consumer restocking, recovering end-
use markets and long-term structural supply constraints. 3 900

Accordingly, our 2009 price forecast remain unchanged at

0 600
$13,560/tonne, we see an average next year of $16,825/
tonne, rising to $20,200/tonne in 2011.
-3 300

Indonesian crackdown over, but problems remain

-5 0
Since late-August when the police crackdown on suspected Oct 04 Aug 05 Jun 06 Apr 07 Feb 08 Dec 08 Oct 09
illegal mining in Indonesia resulted in the shutdown of the Stock change Cash average
independent mining and private smelting sectors, supply
Sources: LME; Standard CIB Research
issues in the country – the world’s largest tin exporter –
have rarely been far from the headlines. The crackdown is Month-end LME tin stocks vs. cash price
effectively over now and, as of late October, most inde-
pendent miners had returned to work. However, bad
USD/lb
weather is apparently hampering attempts to ramp ore pro- 12
duction back up again. As a result, many of those private
October 09
smelters that have restarted furnaces are experiencing ore
9
shortages and have so far only been able to achieve utilisa-
tion rates of 20-25% at best. With seasonal rains likely to
continue for the next few months, we would expect Indone- 6
sia’s ingot output and shipments to the global market to January 96
remain constrained for some time. 3

PT Timah and PT Koba Tin have been unaffected by the

crackdown and are still aiming for production of 45,000- 0
48,000 tonnes and 9,000 tonnes respectively, but supply 0 2 4 6 8 10
from the private sector – which accounts for around half of Weeks consumption
the national total – now looks set to finish the year below
expectations. Sources: LME; Standard CIB Research

14
Commodities Research
Base Metals Monthly — 9 November 2009

The fundamentals have tightened The backwardation is starting to narrow

Data released by Indonesia's trade ministry for tin exports in A prominent and unique feature of the tin market all this year
September showed a fall of 29.5% year-on-year and 8.2% has been the persistent backwardated structure of the for-
month-on-month, to just 7,755 tonnes. This is also the low- ward curve, despite the large and persistent gains in LME
est monthly total since April and it clearly reflects the impact stocks until now.
that the police clampdown is having on Indonesian supply.
However, in recent weeks the backwardation has gradually
Exports in October will possibly be even weaker, and we
eased. Cash to three-months averaged $87/tonne in the first
expect November and December data to be negatively af-
week of November versus $500/tonne a month ago, while
fected too.
cash to 15-months averaged $332/tonne compared to more
The topping out of the LME stock rise in October is likely to than $1,000/tonne in late September and early October.
be due in large part to the slowdown in supply from Indone-
LME data has shown that a dominant position holder has
sia, and given that tin demand in the fourth quarter is fairly
been present in this market most of the year, but the flatten-
robust on the back of the seasonal peak in consumer elec-
ing out of the forward curve suggests that it may finally be
tronics and a still-healthy tinplate sector, we think the tin
relinquishing its grip.
market is now edging into deficit.

Annual Global Supply/Demand Balance for Tin, 2001-2011

Thousands of tonnes 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Mine production
Total 248 248 255 286 342 335 350 318 305 309 321
Year-on-year % change 1.3% 0.2% 2.9% 11.9% 19.7% (2.0%) 4.5% (9.1%) (4.1%) 1.3% 3.9%

Refined production
Latin America 46 54 59 66 63 65 58 61 63 65 69
Asia (ex. China) 103 114 104 112 153 142 131 134 132 133 140
China 106 84 98 117 122 132 149 129 134 132 138
Europe 14 17 14 15 11 11 11 12 9 10 11
Others 2 2 2 3 3 3 2 2 1 1 1
Total 269 269 278 313 352 353 351 338 339 341 359
Year-on-year % change 2.1% 0.1% 3.1% 12.8% 12.6% 0.2% (0.6%) (3.7%) 0.3% 0.6% 5.3%

Refined consumption
North America 53 51 50 59 48 54 40 33 31 32 33
Latin America 12 12 14 16 10 11 9 10 10 11 12
Asia (ex. China) 75 86 90 97 102 109 100 98 85 87 96
China 62 53 72 93 116 115 134 128 136 148 162
Europe 75 69 72 69 65 71 69 66 59 61 65
Others 7 6 5 6 6 5 6 5 4 5 6
Total 283 277 303 341 347 365 358 340 325 344 374
Year-on-year % change 2.3% (2.1%) 9.3% 12.4% 1.8% 5.2% (1.9%) (5.1%) (4.4%) 5.8% 8.7%

Implied surplus (deficit) (6) 1 (16) (19) 13 (3) (2) 2 14 (2) (13)

Stocks analysis
LME 30.6 25.6 14.5 8.1 16.7 13.0 12.1 7.8
USA 7.7 7.3 6.5 6.1 5.4 5.7 9.1 7.9
Indonesia 4.3 6.7 6.7 3.8 5.3 5.2 4.6 7.2
Brazil 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6
Others 6.1 5.5 6.7 6.4 7.3 6.1 6.0 5.9
Total 52.3 48.7 38.0 28.0 38.3 33.6 35.4 32.4 46.4 44.4 31.4
Stocks as weeks of consumption 9.6 9.1 6.5 4.3 5.7 4.8 5.1 5.0 7.4 6.7 4.4

LME cash prices

Historical & base case ($/tonne) $4,483 $4,062 $4,896 $8,513 $7,370 $8,763 $14,536 $18,539 $13,560 $16,825 $20,200
Historical & base case (cents/lb) 203.3c 184.2c 222.1c 386.1c 334.3c 397.5c 659.3c 840.9c 615.1c 763.2c 916.3c
Sources: WBMS; LME; Standard CIB Research

15
Commodities Research
 Base Metals Monthly — 9 November 2009

Certification
The analyst(s) who prepared this research report (denoted by an asterisk*) hereby certifies(y) that: (i) all of the views and opinions expressed
in this research report accurately reflect the research analyst's(s') personal views about the subject investment(s) and issuer(s) and (ii) no part
of the analyst’s(s’) compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed by the
analyst(s) in this research report.
Conflict of Interest
It is the policy of The Standard CIB Research Limited and its worldwide affiliates and subsidiaries (together the “Standard CIB Research”) that
research analysts may not be involved in activities in a way that suggests that he or she is representing the interests of any member of the
Standard CIB Research or its clients if this is reasonably likely to appear to be inconsistent with providing independent investment research. In
addition research analysts’ reporting lines are structured so as to avoid any conflict of interests. For example, research analysts cannot be
subject to the supervision or control of anyone in the Standard CIB Research’s investment banking or sales and trading departments. How-
ever, such sales and trading departments may trade, as principal, on the basis of the research analyst’s published research. Therefore, the
proprietary interests of those sales and trading departments may conflict with your interests. Please note that one or more of the analysts
that prepared this report sit on a sales and trading desk of the Standard Bank Group.

Legal Entities:
To U. S. Residents
Standard New York Securities, Inc. is registered with the Securities and Exchange Commission as a broker-dealer and is also a member of
the FINRA and SIPC. Standard Americas, Inc is registered as a commodity trading advisor and a commodity pool operator with the CFTC and
is also a member of the NFA. Both are affiliates of Standard Bank Plc and Standard Bank of South Africa. Standard New York Securities, Inc
is responsible for the dissemination of this research report in the United States. Any recipient of this research in the United States wishing to
effect a transaction in any security mentioned herein should do so by contacting Standard New York Securities, Inc.
To South African Residents
The Standard Bank of South Africa Limited (Reg.No.1962/000738/06) is regulated by the South African Reserve Bank and is an Authorised
Financial Services Provider.
To U.K. Residents
Standard Bank Plc is authorised and regulated by the Financial Services Authority (register number 124823) and is an affiliate of Standard
Bank of South Africa. The information contained herein does not apply to, and should not be relied upon by, retail customers.
General
This research report is based on information from sources that Standard CIB Research believes to be reliable. Whilst every care has been
taken in preparing this document, no research analyst or member of the Standard CIB Research gives any representation, warranty or under-
taking and accepts no responsibility or liability as to the accuracy or completeness of the information set out in this document (except with
respect to any disclosures relative to members of the Standard CIB Research and the research analyst’s involvement with any issuer referred
to above). All views, opinions and estimates contained in this document may be changed after publication at any time without notice. Past
performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors or any par-
ticular class of investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price
or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. Members of Standard CIB Research may act as placement agent, advisor or
lender, make a market in, or may have been a manager or a co-manager of, the most recent public offering in respect of any investments or
issuers referenced in this report. Members of the Standard CIB Research and/or their respective directors and employees may own the invest-
ments of any of the issuers discussed herein and may sell them to or buy them from customers on a principal basis. This report is intended
solely for clients and prospective clients of members of the Standard CIB Research and is not intended for, and may not be relied on by, retail
customers or persons to whom this report may not be provided by law. This report is for information purposes only and may not be reproduced
or distributed to any other person without the prior consent of a member of the Standard CIB Research. Unauthorised use or disclosure of this
document is strictly prohibited. By accepting this document, you agree to be bound by the foregoing limitations. Copyright 2009 Standard CIB
Research. All rights reserved.

LC/COMR/0109

16
Commodities Research