Gfms aug2009

Base Metals
Forecasting
Monthly

August 2009

Date of release: 6th August 2009

© Copyright GFMS Ltd - August 2009
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Table of Contents

Copper 3

Aluminium 6

Nickel 9

Zinc 12

Lead 15

Tin 18

Disclaimer
Whilst every effort has been made to ensure the accuracy of the information in this document, GFMS Ltd cannot
guarantee such accuracy. Furthermore, the material contained herewith has no regard to the specific investment
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Base Metals Forecasting Monthly - August 2009

1. Copper
Key Copper Market Developments:
• The strength copper prices enjoyed throughout the better part of June was maintained throughout
July, as after modest consolidations in the first half of the month, the spot price trended upwards over
the second, peaking at $5,750/tonne at end-month, a 9% gain over June’s peak of $5,266/tonne.
More recently, further gains have seen prices top $6,000/tonne, for the first time this year, during the
first few trading days of August.
• Concerns over tight supply conditions that could eventually fuel a shortage of metal continued to
underpin the market, prompting investors to maintain and in fact extend their exposure on the metal.
Coupled with healthy demand in China, this more than compensated what we perceive to have been a
continued weakness of consumption in the majority of mature economies.
• Looking at reported stocks and focusing on LME inventories, although the month saw these increase
on a net basis, at 16,400 tonnes, this offset only a small part of the decline stocks suffered over the
first half of the year. At end-month, LME inventories stood at 282,125 tonnes, amounting to just over
one week’s Western World consumption.

Outlook for Next Three Months:
Investor sentiment towards copper has been very positive in the last few weeks and this continues
to be the case at the time of writing. Although the basic argument of structural tightness in the
copper market, on which this sentiment is founded upon, is undoubtedly sound in the medium-term,
our projections continue to see consumption declines more than offsetting losses in production over
the rest of the year, resulting in an overall surplus of 245,000 tonnes over 2009. Coupled with the
price currently around the $6,000/tonne mark, this makes us cautious towards copper, at least over
the next few weeks. We continue to see a noteworthy correction taking place before the end of the
summer season, which could see spot prices falling to levels around $5,000/tonne. Thereafter, as
consumption begins to recover sometime in the last quarter, so will prices, and we would not be
surprised to see levels of $6,500/tonne breached before the end of the year. As such, we think that
copper will trade in a $5,000-$6,500/t range from August to November.

Copper Price and Forecast Trading Range Copper Supply & Demand

(000 tonnes)
6500 2008 2009F

6000 W.World production 12,425 12,448
W.World consumption 11,473 10,815
Net East-West trade -700 -1,400
US$/tonne

5500 W/W balance 252 232

ROW production 5,846 5,820
5000
ROW consumption 6,534 7,208

4500 Global production 18,272 18,268
Global consumption 18,007 18,023

4000
Global balance 264 245
May Jun Jul Aug Sep Oct

Sources: GFMS, LME
Source: GFMS

Independent - Informed - International 3


Copper Market News:
• Collahuasi said its projections see it suffering losses of around 5% or 20,000 tonnes over the year
following power trouble in July. The mine said in a statement that repairs to the damaged control
room that powers its main conveyor belt will take two months.
• Chilean Antofagasta’s H1 output was down 6.6% y-o-y to 218,200 tonnes. Overall, the Chilean
government stated production was down 2.6% in June, at 467,185 tonnes.
• Moving to Russia, in line with past announcements, Norilsk Nickel recently said its first half copper
production was down to 195,507 tonnes, compared to 208,046 tonnes last year.
• In Japan, June copper cable shipments rose an estimated 20% compared with May in the latest data
from the Japanese Electric Wire and Cable Makers’ Association. However, shipments were estimated
at 53,600 metric tons in June and are therefore still down 25% compared with last June.
• The latest International Copper Study Group (ICSG) bulletin suggests that over the January-
April period the copper market was in deficit of 37,000 tonnes, comprising of 5.927m tonnes of
consumption exceeding 5.891m tonnes of refined production. A closer look at the seasonally adjusted
data though paints a completely different picture. On this basis, production over the four months in
question stood at a monthly 1.51m tonnes, while seasonally adjusted monthly consumption amounted
to 1.458m tonnes, pointing to a surplus of 141,000 tonnes over the period.
Copper Daily Stocks vs Price Copper Premiums Jan 05 - to Present

250
1200 9000
High grade cathode
1000 200
Spot Price
7000
($/tonne)

800
150
tonnes 000s

US$/tonne

600 5000
100

400

3000 50

200 Stocks Grade A European

0
0 1000
01/05 01/06 01/07 01/08 01/09
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09
Source: Thomson Reuters Ecowin, LME Source: GFMS

Daily Copper PriceCopper
Volatility Price Volatility Copper Prices in Major Currencies in July

Max Min Average YTD Avg
50
US$/t 5,750.0 4,821.0 5,202.8 4,220.0
Euro/t 4,091.4 3,447.5 3,691.9 3,126.3
Rolling 20-day volatility (%)

Yen/t 549,413 447,071 491,458 403,287
40
Rmb/t 39,285 32,936 35,686 26,466

Source: Thomson Reuters EcoWin

30

20
May Jun Jul Aug
Source: GFMS; Volatility is calculated using the
LME cash prices from the prior 20 days.

4 Independent - Informed - International


Combined Gold ETF holdings

LME Stocks vs Spot Price Jan 03 - July 09 Copper Open Interest vs LME Price

10000
300 9000
Spot Price
8000

(contracts, thousands)
250 7000
Jul 09
6000
$/tonne

US$/tonne
200 5000
4000

150
3000
2000
Open Interest

100 1000
0
0 1 2 3 4 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09
Stocks (No. of Weeks Consumption) Sources: Thomson Reuters Ecowin, LME
Sources: GFMS, LME

LME Copper Cash - 3 Month Differential Shanghai Copper Stocks
Daily Copper Cash - 3M

40 125

30
100
20
($/tonne)

10
tonnes 000s

75
0

-10
50
-20

-30 25
-40

-50 0
May Jun Jul Aug Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Sources: GFMS, LME
Source: SHFE

Comex Net Non-Commercial Positions Chinese Reﬁned Copper Imports

50
400
40

30 Long
300
20
tonnes 000s

10
200
0

-10
Short
100
-20

-30
2002 2003 2004 2005 2006 2007 2008 2009 0
2005 2006 2007 2008 2009
Source: CFTC
Source: Chinese Customs; GFMS



2. Aluminium
Key Aluminium Market Developments:
• After a subdued first half of July many market participants have been caught by surprise by the
strength and speed of the rally for a metal, which at all times during this rally, has seen record, and
rising, LME stocks. This trend has accelerated in the last few days of July, with cash prices ending July
at an 8-month peak of $1,864/tonne on 31st July. At the start of August prices have rallied further,
exceeding $2,000/tonne for the LME cash price on 5th August.
• This steep increase in the aluminium price also represented the largest percentage increase of all
the six LME metals, quite a turnaround for what has often been the laggard of the complex in recent
years. Indeed, the cash price is now 61% higher than the lows of late February.
• One supportive factor for the bullishness across base metals was the Chinese macro view,
particularly following the Chinese announcing that Q2 GDP was up 7.9% year-on-year.
• More importantly for aluminium, at least in the short term, is the continued inflow of primary metal
into China over the past few months. Chinese import data for June showed that 267,681 tonnes of
primary aluminium flowed into China, the second highest level on record.
• Meanwhile data from many of the developed markets was also more supportive than for many
months, as the statistics were up month-on-month, even if still down heavily year-on-year. A prime
example was North American aluminium mill products were up 5.8% in May from April. Noticeably the
previously hard hit extruded products sector which experienced a substantial recovery as shipments
jumped 10.1% to 221.7m lbs in May, from 201.5m lbs in April.

In our recently published Three Year Aluminium Quarterly GFMS has revised its projections for
aluminium supply and demand as well as our price forecasts for the year. Our largest revision for
2009 is to raise our projection for Chinese demand signiﬁcantly higher. However, even with this
change our forecast is still for a surplus of 1.705m tonnes in 2009. Our projections though show
the market, especially outside China, to be tighter in the second half of the year than through the
ﬁrst six months and this is supportive to the price. That said, the current strength of the rally given
the fundamentals is somewhat exaggerated, while the market remains so well stocked and with vast
restarts occurring in China. Thus, GFMS expects the price to come under downward pressure in the
weeks ahead, although prices will not get close to lows seen in February. In conclusion, over the next
three months we expect aluminium to trade in a $1,550-$2,150 range.

Aluminium Price and Forecast Trading Range Aluminium Supply & Demand

(000 tonnes)
2008 2009F
2150

2050
W.World production 21,148 19,734
1950 Net East-West trade 3,750 2,440
W.World balance 1,169 1,853
US$/tonne

1850

1750 ROW production 18,332 17,135
1650
Global production 39,479 36,869
1550
1450
Global balance 1,360 1,705
1350
Oct
Source: GFMS
Sources: GFMS, LME



Aluminium Market News:
• Two smelters have moved closer to shutting during the past month. Ormet’s 270,000 tonne
Hannibal smelter in Ohio handed out redundancy notices to its workers following the (premature)
end of a contract with Glencore, where all production had previously been sold forward. Despite
increasingly desperate government attempts the 148,000 tonne Anglesey smelter in Wales also
appears set for closure, when its existing power contract finishes at the end of September.
• Chinese production levels are continuing somewhat of a rollercoaster ride over the past 12
months. Output in June was up 8% month-on-month, to an annualised 12.592 million tonnes. This
represented a dramatic continuation of the surge in restarts, as more than 930,000 tonnes of capacity
came on stream in just one month. This has included smelters in Guangxi, Guizhou and Hubei
entering into agreements with power companies on preferential power rates.
• In Japan, May saw another rise in aluminium shipments month-on-month according to the Japanese
Aluminium Association. These shipments rose by 1.7% compared to April to 139,723 tonnes, however
just like in the US this still means a sharp year-on-year decline (of 28.7% to be precise). However,
aluminium rolled products shipments in Japan dropped at the slowest pace in 7 months in June.
• Italy’s non-ferrous metal association, Assomet, stated that output of aluminium product output
plunged 36 percent to 330,000 tonnes in the first six months of this year. Indeed, the industry
association estimates for aluminium semis consumption are for a decline of 20-25 percent in the first
six months of 2009. On a brighter note, Assomet talked of a recent pick-up in orders for aluminium
products for the July-September period.

Aluminium Daily Stocks vs Price Aluminium Premiums Jan 05 - to Present

5000 3500 200

4000 Spot Price 3000
150 99.7% ingot duty Paid
tonnes 000s

($/tonne)

3000 2500
US$/tonne

100

2000 2000 Cif Japan

50
1000 1500
99.7% ingot duty Unpaid
Stocks
0 1000 0
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/05 01/06 01/07 01/08 01/09
Sources: Thomson Reuters EcoWin, LME Source: GFMS

Aluminium Price Volatility Aluminium Prices in Major Currencies in July

50 Max Min Average YTD Avg
US$/t 1,863.5 1,531.5 1,668.0 1,458.9

Euro/t 1,326.0 1,096.1 1,178.7 1,083.7
40 Yen/t 178,057 141,051 156,923 139,078
Rmb/t 12,732 10,464 11,413 9,088.0

30

20
May Jun Jul Aug



LME Stocks vs Spot Price Jan 03 - July 09 LME Aluminium Cash - 3 Month Differential

3500
50

3000
40

2500

($/tonne)
$/tonne

30
Jul 09

2000

20

1500 Contango

10
1000 May Jun Jul Aug
0 2 4 6 8 10 12
Stocks (No. of Weeks Consumption) Sources: GFMS, LME
Sources: GFMS, LME

Shanghai Aluminium Stocks Chinese and IAI Primary Production

250 100 L.America
E.Europe Asia
Africa Aust'sia
W.Europe

200 80
tonnes (thousands)
tonnes 000s

150
60

100 40
North America

50 20
China

0 0
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09

Source: SHFE Source: IAI and CNIA

Chinese Primary Aluminium Imports Aluminium Open Interest vs LME Price

1000 3500
400

800 Spot Price 3000
300
tonnes 000s

tonnes 000s

600 2500
US$/tonne

200
400 2000

100
200 1500
Open Interest

0 1000
0
2005 2006 2007 2008 2009
Sources: Thomson Reuters EcoWin, LME



3. Nickel
Key Nickel Market Developments:
• Nickel prices in July represent a vast improvement on levels seen earlier in the year. The July
monthly average at $15,984/tonne is almost 7% up on June and 64% higher than the March low of
just under $10,000/tonne. More recently, on July 31, the spot price climbed by $775/tonne in the
space of one day to $17,625/tonne, breaching levels not seen since Q3 last year. Further sharp gains
have been seen in early August, with cash prices exceeding $20,000/tonne for the first time in almost
a year.
• The fundamentals have had little to do with nickel’s progress, and instead it has been the investment
community that has been setting the direction for prices, encouraged by the increasing perception of a
recovery in economic activity and the stainless steel sector in particular. These investors were buoyed
by the latest PMI data, especially from the US, with the ISM manufacturing index for July up by 4.1 to
48.94. This was the slowest pace of contraction since August 2008.
• Stocks on the LME have recently started to show some support falling by around 3,800 tonnes to
105,864 tonnes on August 3, after having reached a one-month high of 109,716 tonnes on July 9.
However this figure, by historical standards still represents a very large stockpile. LME inventories
represent 7.1 weeks of “Western World” consumption, which is the second highest stock/consumption
ratio among LME base metals.

Over the past month or so, the nickel market has started noting improvements in some of its
fundamentals. Output at a number of stainless mills outside of China have been increasing as orders
from consumers and service centres are picking up, a trend we are likely to see accelerate over H2.
A tight scrap market should also help boost demand for primary nickel. More recently, stocks on the
LME have started falling, which signals an improving demand-side scenario. However, with prices
well above the marginal cost of production, it is likely that producers will start bringing back on idled
capacity, which in theory should put a cap on any excessive price rise. Consequently, nickel will trade
in a $14,000-$21,000 range from August to November.

Nickel Price and Forecast Trading Range Nickel Supply & Demand

21000 (000 tonnes)
2008 2009F

19000 W.World production 873 716
W.World consumption 943 772
US$/tonne

17000
Net East-West trade 130 90
W.World balance 60 34

15000 ROW production 489 491
ROW consumption 352 408
13000
Global production 1,362 1,207
11000

Sources: GFMS, LME

Source: GFMS



Nickel Market News:
• Planned strike action was commenced on Saturday 1st August by 120 workers at the Voisey’s Bay
nickel mine in Canada, run by Vale, the company has announced. This operation had been due to
reopen on 1st August after a one-month shut-down.
• Global mine production growth according to the WBMS fell by 4.8% y-o-y to 584,200 tonnes in the
first five months of the year. Mine output slipped in every region, except in Asia (+17.7%), where
output was primarily lifted on the back of 223% y-o-y growth in the Phillippines. This reflects higher
ore production to feed Chinese nickel pig iron producers as well as the expansion at Coral Bay.
• Recovery in stainless demand over the last few months has led to a 25% m-o-m increase in the
Acerinox’s order book in June, and has also consolidated price increases. It has been reported that
orders at German stainless mills doubled in June from May, to over 200,000 tonnes.
• Japanese mills are raising stainless output in Q3. For example, Nisshin Steel has announced plans to
produce 140,000 tonnes, up from a low of 90,000 tonnes in Q1. By October, it plans to be operating
at a capacity utilisation rate of 50%.
Nickel Daily Stocks vs Price Nickel premiums Jan 05 - to Present

150
60000 2500

50000 US melting premium
120 Spot Price 2000

40000
tonnes 000s

($/tonne)

90 Briquettes
US$/tonne

1500

30000

60 1000
4*4 cathode
20000

30
500
10000
Stocks

0 99.7% uncut cathode
0 0
Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 01/09
02/05 01/06 01/07 01/08
Sources: Thomson Reuters Ecowin, LME
Source: GFMS

Nickel Price Volatility Nickel Prices in Major Currencies in July
Daily Nickel Price Volatility

80
US$/t 17,650 14,360 15,945 12,344
Euro/t 12,559 10,278 11,316 9,140

70
Yen/t 1,686,457 1,322,556 1,506,537 1,176,517
60 Rmb/t 120,587 98,118 109,269 76,956

50

40

30
May Jun Jul Aug




LME Nickel Stocks vs Spot Price Jan 03 - July 09 Nickel Open Interest vs LME Price

60000

100 60000
50000
Spot Price 50000
80
40000
$/tonne

40000

tonnes 000s

US$/tonne
60
30000
Jul 09 30000

40
20000
20000

10000 20
10000
Open Interest

0 0 0
0 1 2 3 4 5 6
Stocks (No.of Weeks Consumption)
Sources: GFMS, LME Source: Thomson Reuters Ecowin, LME

LME Nickel Cash - 3 Month Differential Chinese Nickel Imports

250 40

200
30
tonnes 000s

150
($/tonne)

100 20

50
10
Contango
0

Backwardation
0
-50
2005 2006 2007 2008 2009
May Jun Jul Aug
Sources: GFMS, LME Source: Chinese Customs; GFMS

Global Stainless Steel Production Major FX Rates and World Stock Indices in July

Asia Americas
US$/EUR 1.42 1.39 1.41 1.34
8000 W.Europe/Afr. C.+ E.Europe
JPY/US$ 96.67 92.24 94.43 95.33
7000
US$/Rmb 6.83 6.83 6.83 6.83
6000 DJ AIG 9,172 8,147 8,680 8,145
Tonnes (thousands)

5000 S&P 500 987 879 936 864

4000 Source: Thomson Reuters EcoWin

3000

2000

1000

0
2004 2005 2006 2007 2008 2009
Source: ISSF



4. Zinc
Key Zinc Market Developments:
• Zinc prices maintained and in fact expanded their gains over the course of July. Having started the
month in the mid-1,500s, prices suffered a correction in the first half of the month that saw the spot
price bottoming at $1,461/tonne. From then on, the price trended upwards to an end-month $1,748/
tonne, which marked a fresh year-to-date peak (breached again by recent advances over $1,850/
tonne). The average price for the month, at $1,579/tonne, was virtually unchanged from June.
• Investor interest has continued, in our view, to be the principal driver of the strength prices
have enjoyed recently. In line with the wider base metals sector, optimism over the prospects of
consumption recovering has supported the rally. The metal’s fundamentals on the other hand remain
uninspiring and, similarly to the wider complex, talk of ‘green shoots’ has yet to translate in any
material recovery in galvanized steel demand and by implications zinc consumption.
• Looking at the LME inventory growth of July, the market seems to still be in surplus. Specifically,
stocks rose by 54,575 tonnes over the month to reach 407,950 tonnes, equivalent to a little over
three weeks’ Western World consumption. Interestingly, the bulk of the rise in LME stocks took place
in the last week of July, as price broke through the $1,700/tonne barrier. There were further additions
to LME stocks in early August, but again did not stop further price gains to over $1,850/tonne.

The last few months have seen zinc prices rocket from a low of $1,060/tonne to current levels above
$1,850/tonne. In the past, we had considered the former levels to represent unsustainably low levels
which call for a recovery. Although the argument may be less clear, it is our view that the current
levels will prove similarly difﬁcult to maintain in the short-term, given the zinc market’s fundamentals
and anecdotal evidence pointing to an speculative overhang having been built in base metals over the
last few weeks. By implication, we would be surprised if a noteworthy correction did not materialise at
some point over the remainder of the summer period. In conclusion, we think that zinc will trade in a
$1,450-$2,000 range from August to November. The upper end of this range may be hit if the cur-
rent labour negotiations at the Antamina copper-zinc mine lead to a strike.

Zinc Price and Forecast Trading Range Zinc Supply & Demand

(000 tonnes)
2000
2008 2009F

1800 W.World production 6,712 6,480
Net East-West trade 375 -75
US$/tonne

1600 W.World balance 129 159

1400

1000
August Jul Aug
May Jun July

Sources: GFMS, LME Source: GFMS



Zinc Market News:
• Bulgaria’s second largest zinc and lead smelter, OTZK, stated in late July that its production declined
11.2 percent in the first half of the year, citing technical reasons. However, the company confirmed
that it still plans to produce 27,000 tonnes in the whole of 2009.
• The latest International Lead and Zinc Study Group bulletin suggests producers’ stocks rose at the
margin during May, to 402,000 tonnes, compared to 390,000 tonnes at end-April.
• In Germany, demand fell by a third for the first five months of 2009 compared to the same period a
year earlier. A 31% decline was also recorded for Italian consumption, which stood at 99,000 tonnes
over the same period, while a more measured 17% drop was suffered by Belgium, where 134,000
tonnes were used. Overall, European consumption fell by 27% to reach 803,000 tonnes.
• Apparent consumption in China over the first six months of the year, excluding confirmed SRB
purchases of 159,000 tonnes, amounted to an impressive 2.192m tonnes, marking a 13% increase
over the same period last year. The increase was in large measure fuelled by the exceptionally high
net imports into the country, which amounted to 473,393 tonnes over the period.

Zinc Daily Stocks vs Price Zinc Premiums Jan 05 - to Present

800 5000 300

Spot Price 250
4000
600
200
tonnes 000s

($/tonne)
US$/tonne

3000
150 US high grade
400
Stocks
2000
100

200
1000 50

LME warehouse Singapore
0 0
0

Sources: Thomson Reuters Ecowin, LME Source: GFMS

Zinc Price Volatility Zinc Prices in Major Currencies in July
Daily Zinc Price Volatility

60
US$/t 1,748.0 1,461.0 1,574.5 1,360.4
Euro/t 1,189.5 1,028.4 1,088.7 963.60

Yen/t 167,021 134,558 148,743 129,874
50
Rmb/t 11,942 9,982.6 10,795 8,499.0


40

30
May Jun Jul Aug




LME Zinc Stocks vs Spot Price Jan 03 - July 09 Zinc Open Interest vs LME Price

4700 250 5000

Spot Price
4000

3700
200

US$/tonne
3000
$/tonne

Open Interest
2700
2000
150
Jul 09

1700 1000

100 0
700
0 1 2 3 4 5 6
Stocks (No.of Weeks Consumption) Sources: Thomson Reuters Ecowin, LME

Sources: GFMS, LME

LME Zinc Cash - 3 Month Differential Shanghai Zinc Stocks

50 125

40 100
tonnes 000s

30 75
($/tonne)

20 50

10 25
Contango

0 0
May Jun Jul Aug Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Sources: GFMS, LME
Source: SHFE

Chinese Zinc Imports

125

100
tonnes 000s

75

50

25

0
2005 2006 2007 2008 2009




5. Lead
Key Lead Market Developments:
• Prices have surged over recent days, to $1,949/tonne on August 3, representing the highest level
since September 2008. We continue to believe that prices are way ahead of the fundamentals, with
demand in the mature economies remaining weak and production recovering in China.
• Consequently, this latest surge is difficult to justify on real supply/demand grounds and is largely
due to intense speculative buying on the exchanges. We also believe this speculative activity was
at the forefront of the strength in prices through June and July, with the monthly average largely
unchanged on the previous month, at $1,679/tonne in July from $1,674/tonne in June.
• LME stock levels have picked up over past couple of months in line with the onset of the summer
slowdown, increasing by 11,650 in June and around 15,500 tonnes in July. This trend may continue
over the near future, taking into account the fact that we are entering a traditionally weak period for
lead demand and there have been significant restarts of previously idled capacity in China. Having
said this, at 110,550 tonnes on August 3, stocks still remain relatively low in comparison to the other
base metals at just over one week’s consumption.
• Lead was also boosted in the closing days of July by news that the US scrappage scheme had
completely been utilised in just 7 days, and that Congress was looking to extend the package.

The fundamentals in the immediate term are weaker than prices would suggest. Chinese restarts
of previously idled capacity could pose some problems over the short term, and import buying is
expected to ease over the summer months. Additionally, with conditions in the mature economies
remaining weak, we envisage prices dropping back slightly from current levels. However, with the
traditionally strong “battery season” coming into force as we enter Q4, lead prices should recover
towards the end of the year. However, given the recent surge, prices are likely to consolidate before
climbing further and will trade in a $1,400-$2,050 range over the next three months.

Lead Price and Forecast Trading Range Lead Supply & Demand

2050 (000 tonnes)
2008 2009F
1950

W.World production 4,955 4,905
1850
US$/tonne

1750
Net East-West trade 250 250
W.World balance 37 47
1650
1550 ROW consumption 3,344 3,537

1350
Sources: GFMS, LME
Source: GFMS



Lead Market News:
• Bolivian production was strong, with production at 38,000 tonnes for the first five months and up
46.2% year-on-year. This strength looks likely to continue as the San Cristobal mine is now reported
to be back operating at full capacity. However, in the rest of the Americas production was weak,
with output declining 5.6% to 437,000 tonnes for the first five months, on falls in Canada, Peru and
the US. Peruvian weakness continued into June, with output down 11.9% y-o-y to 25,148 tonnes
according to the Peruvian mining ministry.
• Chinese concentrate production in June has risen further to 124,559 tonnes, up from the May level
of 112,019 tonnes, according to the China Non-ferrous Industry Association.
• Chinese demand has found significant support from its auto sector. Over the first six months of the
year, vehicle sales climbed to 6.099m units, up 17.7% y-o-y. June sales of 1.14m units gained on May
levels and approached those seen in April. This figure was up a significant 36% y-o-y.
• Doe Run Peru has told regulators it plans to restructure its operations after months of financial
difficulty, company and government officials have said.
Lead Daily Stocks vs Price Lead Premiums Jan 05 - to Present

250
250 4000

US high grade ingot
200
200 Spot Price
3000

150
tonnes 000s

($/tonne)

150
US$/tonne

2000
100
100

European warehouse Rotterdam
1000 50
50
Stocks
0
0 0
01/05 01/06 01/07 01/08 01/09

Sources: Thomson Reuters Ecowin, LME Source: GFMS

Lead Price Volatility Lead Prices in Major Currencies in July

70
US$/t 1,842.5 1,567.0 1,674.3 1,381.9

60 Euro/t 1,311.0 1,121.2 1,188.3 1,024.0
Yen/t 176,051 144,321 158,188 131,951

50
Rmb/t 12,558 10,707 11,462 8,623.2


40

30
May Jun Jul Aug



LME Lead Stocks vs Spot Price Jan 03 - July 09 Lead Open Interest vs LME Price

125 4000
4000

100 Spot Price
3000

3000

Jul 09

US$/tonne
$/tonne

75 2000
2000

50 1000
1000
Open Interest

25 0
0
0.0 0.5 1.0 1.5 2.0 Sources: Thomson Reuters Ecowin, LME
Stocks (No.of Weeks Consumption)

Sources: GFMS, LME

LME Lead Cash - 3 Month Differential Commodity Indices

30
9500 500

20 S&P GSCI
DJ AIG
9000
450
10
($/tonne)

S&P GSCI
Contango 8500
DJ AIG

0
Backwardation 400

-10 8000

-20
7500 350
May Jun Jul Aug
May Jun Jul
Sources: GFMS, LME

Chinese Lead Imports

50

40
tonnes 000s

30

20

10

0
2005 2006 2007 2008 2009




6. Tin
Key Tin Market Developments:
• Having fallen to $12,450/tonne on July 10 – residing to levels last noted in late April – from the
year-high of $15,725/tonne on June 10, the cash quote has picked up and at present is trading above
$15,500/tonne in early August. The increases seen in recent days are the result of positive economic
data, coupled with improving financial markets.
• Nonetheless, out of all of the base metals on the LME, tin was the only metal to see its July monthly
cash quote, which came in at $14,039/tonne, fall m-o-m, by 6.3%.
• The intensity of the speculation has been highlighted by the movement of spreads between the cash
and three month price. The premium for cash material over three months on 6th August for example
was $305/tonne, which compares to around $40/tonne in mid-June. The premium is even larger when
compared to contracts dated further out.
• Indeed, the tin market, for some time now, has been in backwardation suggestive of the market
being in a short-term deficit. However, this seems at odds with the current market situation,
particularly as it is widely perceived to be over-supplied. Stocks on the LME increased by 1,275
tonnes over July to end the month on 18,405 tonnes, which largely reflects the weakness in demand
more than a pickup in supply, although Chinese production is increasing. Nevertheless, at least for
prices, it can be said that the pace in the acceleration of stocks has slowed down in comparison to the
previous month when they surged by 2,650 tonnes.

Tin’s price performance to date is a reﬂection of speculative activity rather than any sort of
improvement in its fundamentals. Demand remains weak, and in our view will not recover any time
before September when the slow summer months come to an end. On the supply side, we have the
problem of low output in Indonesia versus rising output in China with the restart of operations at
Yunnan Tin. However, in the medium-term the shortage of new projects leads us to believe that prices
could rise considerably from current levels if consumption returns to pre-recession levels. As such, we
think that tin will trade in a $12,000-$17,000/t range over the next three months.

Tin Price and Forecast Trading Range Tin Supply & Demand

17000 (000 tonnes)
2008 2009F
16000

15000
W.World production 210.1 213.4
W.World consumption 206.9 218.0
US$/tonne

14000 Net East-West trade -10.0 5.0
Stockpile sales 7.0 7.0
13000 W.World balance 0.2 7.4

12000 ROW production 136.7 154.8
ROW consumption 142.5 146.5
11000

Global production 346.8 368.2
10000
Global consumption 349.4 364.5
May Jun July Aug Sept Oct

Sources: GFMS, LME Global balance -2.6 3.7

Source: GFMS



Tin Market News:
• In an effort to further clamp down on illegal operation in Indonesia, the country approved its 30th
export license in July. The ministry approved a permit for CV Nujanah. The latest data released by
the Indonesian trade ministry shows that the volumes checked for exports up to June remained strong
amounting to 50,575 tonnes, up 9.2% y-o-y.
• Global mine production over January-May waned significantly by 10% y-o-y to 117,400 tonnes,
largely the result of falls in excess of 12% in the two largest producers, China and Indonesia.
Combined, these fell by 15% y-o-y, which is largely the reflection of wet weather and earlier price-
related cutbacks.
• According to the WBMS, global refined tin production in the first five months of the year fell by
around 10%. The largest producer, China, saw production decline 13.7% to 44,287 tonnes, while
Indonesia registered output at just 27,000 tonnes, down 12.9%. A shortage of concentrate feed has
also translated to lower refined output in these regions.
• Domestic Brazilian shipments of tinplate fell by 20.3% y-o-y for the first five months of 2009, to
206,300 tonnes.

Tin Daily Stocks vs Price Tin Premiums Jan 05 - to Present

600
50000 30000

US Grade A
25000 500
40000 Spot Price
($/tonne)

20000
tonnes 000s

400
30000
3-month
US$/tonne

15000
300
20000
10000 Spot

200
10000
5000
Stocks

0 100
0
Source: GFMS
Sources: Thomson Reuters EcoWin, LME

Tin Price Volatility Tin Prices in Major Currencies in July
Daily Tin Price Volatility
60 US$/t 15,050 12,450 14,013 12,530
Euro/t 10,673 8,947 9,945 9,297

50 Yen/t 1,433,250 1,150,006 1,324,197 1,195,087
Rmb/t 102,807 85,068 95,781 78,027

40 Source: Thomson Reuters EcoWin

30

20
May Jun Jul Aug



LME Tin Stocks vs Spot Price Jan 03 - July 09 Tin Open Interest vs LME Price

25000
50 30000

20000 25000
40 Spot Price
Jul 09

20000
15000 30
$/tonne

US$/tonne
15000

10000 20
10000

10
5000 5000
Open Interest

0 0
0 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06Jan 07 Jan 08 Jan 09
0 1 2 3 4 5 6
Stocks (No.of weeks consumption) Sources: Thomson Reuters EcoWin, LME
Sources: GFMS, LME

LME Tin Cash - 3 Month Differential Chinese Tin Imports

100
Contango 5000

0

4000
-100
($/tonne)

-200 3000
kg

-300 2000

-400
Backwardation 1000

-500
May Jun Jul Aug 0
Source: GFMS, LME 2005 2006 2007 2008 2009



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