Gfms aug2009

© Copyright GFMS Ltd - August 2009

All rights reserved. This report serves as a single user licence. No part of this publication may be reproduced,

stored in a retrieval system or transmitted in any form or by any means without the prior written permission of the

copyright owner. This data is released for general informational purposes only, and is not for use in documents

with an explicit commercial purpose such as Initial Public Offerings (IPOs), offers to conduct business, background

briefings on the precious metals markets associated with marketing a particular business or business offering, or

similar such documents without prior written agreement of GFMS. GFMS retains all intellectual and commercial

property rights associated with the data contained herein and any unauthorised use of this data is a violation of

applicable international laws and agreements.

By continuing to read this document, you agree to the above terms and conditions in their entirety.

Published by GFMS LimitedHedges House

153-155 Regent StreetLondon, W1B 4JE

tel: +44 (0)20 7478 1777fax: +44 (0)20 7478 1779

email: [email protected]: www.gfms.co.uk

Base Metals Forecasting

Monthly

August 2009

Date of release: 6th August 2009

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

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 does not accept

responsibility for any losses or damages arising directly, or indirectly, from the use of this document.

Table of Contents

Copper 3

Aluminium 6

Nickel 9

Zinc 12

Lead 15

Tin 18

Base Metals Forecasting Monthly - August 2009

3Independent - Informed - International

1. CopperKey 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

Source: GFMS

4000

4500

5000

5500

6000

6500

OctSepAugJulJunMay

US$/tonne

Sources: GFMS, LME

(000 tonnes) 2008 2009F

W.World production 12,425 12,448W.World consumption 11,473 10,815Net East-West trade -700 -1,400W/W balance 252 232

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

Global production 18,272 18,268Global consumption 18,007 18,023 Global balance 264 245


4 Independent - Informed - International

Copper Daily Stocks vs Price

Copper Price Volatility Copper Prices in Major Currencies in July

Copper Premiums Jan 05 - to Present

20

30

40

50

AugJulJunMay

20

30

40

50

AugJulJunMay

Daily Copper Price Volatility

Source: GFMS; Volatility is calculated using theLME cash prices from the prior 20 days.

Rolling20-dayvolatility(%)

US$/tonne

0

200

400

600

800

1000

1200

Jan 09Jan 08Jan 06Jan 05Jan 04Jan 021000

3000

5000

7000

9000

Spot Price

Stocks

tonnes000s

Source: Thomson Reuters Ecowin, LMEJan 07Jan 03

Max Min Average YTD Avg

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

Yen/t 549,413 447,071 491,458 403,287

Rmb/t 39,285 32,936 35,686 26,466

Source: Thomson Reuters EcoWin

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.

0

50

100

150

200

250

01/0901/0801/0701/0601/05

($/tonne)

High grade cathode

Grade A European

Source: GFMS


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

0 1 2 3 40

2000

4000

6000

8000

10000

Combined Gold ETF holdings

Stocks (No. of Weeks Consumption)

$/tonne

Jul 09

Sources: GFMS, LME

LME Copper Cash - 3 Month Differential

-50

-40

-30

-20

-10

0

10

20

30

40

AugJulJunMay

-50

-40

-30

-20

-10

0

10

20

30

40

AugJulJunMay

Daily Copper Cash - 3M

Sources: GFMS, LME

($/tonne)

Shanghai Copper Stocks

0

25

50

75

100

125

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

tonnes000s

Source: SHFE

Chinese Refined Copper Imports

0

100

200

300

400

20092008200720062005

tonnes000s

Source: Chinese Customs; GFMS

Comex Net Non-Commercial Positions

US$/tonne

100

150

200

250

300

Jan 09Jan 08Jan 06Jan 04Jan 021000

3000

5000

7000

9000

Spot Price

Open Interest

(contracts,thousands)

Sources: Thomson Reuters Ecowin, LMEJan 03 Jan 07Jan 05


-30

-20

-10

0

10

20

30

40

50

20092008200720062005200420032002

-30

-20

-10

0

10

20

30

40

50

20092008200720062005200420032002

Source: CFTC


Short

Long



2. Aluminium

Aluminium Price and Forecast Trading Range Aluminium Supply & Demand

(000 tonnes) 2008 2009F

W.World production 21,148 19,734W.World consumption 23,729 20,321 Net East-West trade 3,750 2,440W.World balance 1,169 1,853


Global production 39,479 36,869 Global consumption 38,120 35,164 Global balance 1,360 1,705

Source: GFMS

1350

1450

1550

1650

1750

1850

1950

2050

2150

OctSepAugJulJunMay

US$/tonne

Sources: GFMS, LME

Oct

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.

Outlook for Next Three Months: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 Daily Stocks vs Price

Aluminium Price Volatility

US$/tonne

0

1000

2000

3000

4000

5000

Jan 09Jan 08Jan 07Jan 06Jan 05Jan 04Jan 03Jan 021000

1500

2000

2500

3000

3500

Spot Price

Stocks

tonnes000s

Sources: Thomson Reuters EcoWin, 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.

20

30

40

50

AugJulJunMay

20

30

40

50

AugJulJunMay



Aluminium Prices in Major Currencies in July

Aluminium Premiums Jan 05 - to Present

0

50

100

150

200

01/0901/0801/0701/0601/05

($/tonne)

99.7% ingot duty Paid

Cif Japan

99.7% ingot duty Unpaid

Source: GFMS


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

Yen/t 178,057 141,051 156,923 139,078

Rmb/t 12,732 10,464 11,413 9,088.0Source: Thomson Reuters EcoWin



LME Stocks vs Spot Price Jan 03 - July 09

Shanghai Aluminium Stocks

LME Aluminium Cash - 3 Month Differential

0 2 4 6 8 10 121000

1500

2000

2500

3000

3500


Stocks (No. of Weeks Consumption)

$/tonne

Jul 09

Sources: GFMS, LME

10

20

30

40

50

AugJulJunMay

10

20

30

40

50

AugJulJunMay

Sources: GFMS, LME

($/tonne)

Contango

0

50

100

150

200

250

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

tonnes000s

Source: SHFE

Chinese and IAI Primary Production

0

20

40

60

80

100

Jan 09Jul 08Jan 08Jul 07Jan 07

tonnes(thousands)

L.AmericaAust'sia

W.Europe

AsiaAfrica

E.Europe

North America

China

Source: IAI and CNIA

Aluminium Open Interest vs LME PriceChinese Primary Aluminium Imports

0

100

200

300

400

20092008200720062005

tonnes000s


US$/tonne

0

200

400

600

800

1000


1500

2000

2500

3000

3500

Spot Price

Open Interest

tonnes000s



3. Nickel

Nickel Price and Forecast Trading Range Nickel Supply & Demand

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.

Outlook for Next Three Months: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.

11000

13000

15000

17000

19000

21000

OctSepAugJulJunMay

US$/tonne

Sources: GFMS, LME

(000 tonnes) 2008 2009F

W.World production 873 716W.World consumption 943 772 Net East-West trade 130 90W.World balance 60 34

ROW production 489 491 ROW consumption 352 408

Global production 1,362 1,207Global consumption 1,294 1,180

Global balance 67 27 Source: GFMS



Nickel Daily Stocks vs Price

Nickel Price Volatility Nickel Prices in Major Currencies in July

Nickel premiums Jan 05 - to Present

30

40

50

60

70

80

AugJulJunMay

30

40

50

60

70

80

AugJulJunMay

Daily Nickel Price Volatility



US$/tonne

0

30

60

90

120

150


10000

20000

30000

40000

50000

60000

tonnes000s

Spot Price

Stocks

Sources: Thomson Reuters Ecowin, LME

0

500

1000

1500

2000

2500

01/0901/0801/0701/0602/05

($/tonne)

US melting premium

Briquettes

4*4 cathode

99.7% uncut cathode

Source: GFMS


US$/t 17,650 14,360 15,945 12,344

Euro/t 12,559 10,278 11,316 9,140

Yen/t 1,686,457 1,322,556 1,506,537 1,176,517

Rmb/t 120,587 98,118 109,269 76,956


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%.



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

0 1 2 3 4 5 60

10000

20000

30000

40000

50000

60000

Stocks (No.of Weeks Consumption)

$/tonne

Jul 09

Sources: GFMS, LME

LME Nickel Cash - 3 Month Differential

-50

0

50

100

150

200

250

AugJulJunMay

($/tonne)

Sources: GFMS, LME

Contango

Backwardation

Chinese Nickel Imports

0

10

20

30

40

20092008200720062005

tonnes000s


Global Stainless Steel Production

0

1000

2000

3000

4000

5000

6000

7000

8000

200920082007200620052004

Tonnes(thousands)

W.Europe/Afr.AmericasC.+ E.Europe

Asia

Source: ISSF

US$/tonne

0

20

40

60

80

100


10000

20000

30000

40000

50000

60000

tonnes000s

Spot Price

Open Interest

Source: Thomson Reuters Ecowin, LME



US$/EUR 1.42 1.39 1.41 1.34

JPY/US$ 96.67 92.24 94.43 95.33

US$/Rmb 6.83 6.83 6.83 6.83

DJ AIG 9,172 8,147 8,680 8,145

S&P 500 987 879 936 864


Major FX Rates and World Stock Indices in July



4. Zinc

Zinc Price and Forecast Trading Range Zinc Supply & Demand

Source: GFMS

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.

Outlook for Next Three Months: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.

1000

1200

1400

1600

1800

2000

AugJulAugustJulyJunMay

US$/tonne

Sources: GFMS, LME

(000 tonnes) 2008 2009F

W.World production 6,712 6,480 W.World consumption 6,958 6,246Net East-West trade 375 -75W.World balance 129 159


Global production 11,665 11,361 Global consumption 11,487 11,201

Global balance 178 160



Zinc Daily Stocks vs Price

Zinc Price Volatility Zinc Prices in Major Currencies in July

Zinc Premiums Jan 05 - to Present

30

40

50

60

AugJulJunMay

30

40

50

60

AugJulJunMay

Daily Zinc Price Volatility



US$/tonne

0

200

400

600

800


1000

2000

3000

4000

5000

tonnes000s

Spot Price

Stocks


0

50

100

150

200

250

300

01/0901/0801/0701/0601/05

($/tonne)

US high grade

LME warehouse Singapore

Source: GFMS


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

Rmb/t 11,942 9,982.6 10,795 8,499.0


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.



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

0 1 2 3 4 5 6700

1700

2700

3700

4700



$/tonne

Jul 09

Sources: GFMS, LME

LME Zinc Cash - 3 Month Differential Shanghai Zinc Stocks

0

25

50

75

100

125

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

tonnes000s

Source: SHFE

Chinese Zinc Imports

0

25

50

75

100

125

20092008200720062005

tonnes000s


US$/tonne

100

150

200

250


1000

2000

3000

4000

5000


Spot Price

Open Interest


0

10

20

30

40

50

AugJulJunMay

0

10

20

30

40

50

AugJulJunMay

Sources: GFMS, LME

($/tonne)

Contango



5. Lead

Lead Price and Forecast Trading Range Lead Supply & Demand

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.

Outlook for Next Three Months: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.

1350

1450

1550

1650

1750

1850

1950

2050

OctSepAugJulJunMay

US$/tonne

Sources: GFMS, LME

(000 tonnes) 2008 2009F

W.World production 4,955 4,905W.World consumption 5,168 5,108Net East-West trade 250 250W.World balance 37 47


Global production 8,558 8,706 Global consumption 8,512 8,645 Global balance 46 61

Source: GFMS



Lead Daily Stocks vs Price

Lead Price Volatility Lead Prices in Major Currencies in July

Lead Premiums Jan 05 - to Present

30

40

50

60

70

AugJulJunMay

30

40

50

60

70

AugJulJunMay



US$/tonne

0

50

100

150

200

250


1000

2000

3000

4000

tonnes000s

Spot Price

Stocks


0

50

100

150

200

250

01/0901/0801/0701/0601/05

($/tonne)

US high grade ingot

European warehouse Rotterdam

Source: GFMS


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

Euro/t 1,311.0 1,121.2 1,188.3 1,024.0

Yen/t 176,051 144,321 158,188 131,951

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


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.


Commodity Indices

DJAIG

S&PGSCI

350

400

450

500

7500

8000

8500

9000

9500

JulJunMay

DJ AIG


S&P GSCI


0.0 0.5 1.0 1.5 2.00

1000

2000

3000

4000


$/tonne

Jul 09

Sources: GFMS, LME

LME Lead Cash - 3 Month Differential

-20

-10

0

10

20

30

AugJulJunMay

($/tonne)

Sources: GFMS, LME

Contango

Backwardation

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

Chinese Lead Imports

0

10

20

30

40

50

20092008200720062005

tonnes000s


US$/tonne

25

50

75

100

125


1000

2000

3000

4000


Spot Price

Open Interest




6. Tin

Tin Price and Forecast Trading Range Tin Supply & Demand

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.

Outlook for Next Three Months: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.

10000

11000

12000

13000

14000

15000

16000

17000

OctSeptAugJulyJunMay

US$/tonne

Sources: GFMS, LME

(000 tonnes) 2008 2009F

W.World production 210.1 213.4W.World consumption 206.9 218.0Net East-West trade -10.0 5.0Stockpile sales 7.0 7.0W.World balance 0.2 7.4

ROW production 136.7 154.8ROW consumption 142.5 146.5

Global production 346.8 368.2 Global consumption 349.4 364.5

Global balance -2.6 3.7

Source: GFMS



Tin Daily Stocks vs Price

Tin Price Volatility Tin Prices in Major Currencies in July

Tin Premiums Jan 05 - to Present

20

30

40

50

60

AugJulJunMay

20

30

40

50

60

AugJulJunMay

Daily Tin Price Volatility



US$/tonne

0

10000

20000

30000

40000

50000


5000

10000

15000

20000

25000

30000

tonnes000s

Spot Price

Stocks


($/tonne)

Source: GFMS

100

200

300

400

500

600

01/0901/0801/0701/0601/05

US Grade A

3-month

Spot

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.


US$/t 15,050 12,450 14,013 12,530

Euro/t 10,673 8,947 9,945 9,297

Yen/t 1,433,250 1,150,006 1,324,197 1,195,087

Rmb/t 102,807 85,068 95,781 78,027




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

0 1 2 3 4 5 60

5000

10000

15000

20000

25000

Stocks (No.of weeks consumption)

$/tonne

Jul 09

Sources: GFMS, LME

LME Tin Cash - 3 Month Differential

-500

-400

-300

-200

-100

0

100

AugJulJunMay

($/tonne)

Source: GFMS, LME

Backwardation

Contango

Chinese Tin Imports

0

1000

2000

3000

4000

5000

20092008200720062005

kg


US$/tonne

0

10

20

30

40

50


0

5000

10000

15000

20000

25000

30000


Spot Price

Open Interest


Gfms aug2009

Investor Relations

Transcript of Gfms aug2009