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1 Commodities Daily 10 September 2009 Focus: Oil looking to equities for direction,... again. Front-month WTI crude oil prices have failed to break up the $70/bbl $75/bbl trading range, with the market caught between mixed demand signals. In the absence of clear direction, the equity markets have emerged as a key driver of WTI prices right along the forward curve. The base metals have again been dominated by lead, both yesterday and into this morning, with the metal coming under heavy selling pressure. The trigger for the sell-off on Wednesday was technical rather than fundamental in nature, with profit taking emerging after what had been a spectacular rally, ran out of momentum. Further heavy selling has been seen this morning. Walter de Wet* CFA +44 (20) Walter.DeWet@standardbank.com Leon Westgate* +44 (20) Leon.Westgate@standardbank.com Manqoba Madinane* +27 (11) Manqoba.Madinane@standardbank.co.za The weakness in lead has also dragged zinc lower with it. The other base metals are also softer this morning, though this is due mainly to a slightly stronger dollar and a general feeling the recent rally in prices had become a little over-extended. For gold, resistance to a sustainable move above $1,000 remains strong. Gold has slipped to the mid-$980 s yesterday after failing to move higher. What makes the resistance even more remarkable is that gold has failed to move higher despite the dollar falling almost 1% against the euro yesterday. A weaker US dollar supported crude oil prices yesterday, with the market ignoring the API inventory data. Commodity price data (9 September 2009) Base metals LME 3-month Open Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash 3m Aluminium 1,892 1,890 1,915 1, , Copper 6,425 6,416 6,516 6, , Lead 2,450 2,406 2,495 2, , Nickel 18,075 17,950 18,300 17, , Tin 14,875 14,875 14,875 14, , Zinc 1,972 1,981 1,999 1, , Sources: Standard Bank; LME; BBG Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q3' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFPs Gold* , /1.70 Silver /3.0 Platinum 1, , , , , /4 Palladium /3 Please refer to the disclaimer at the end of this document.

2 Focus: Oil looking to equities for direction... again Front-month WTI crude oil prices have failed to break up the $70/bbl $75/bbl trading range, with the market caught between mixed demand signals. In the absence of clear direction, the equity markets have emerged as a key driver of WTI prices along the forward curve. Of note, while front-end WTI crude oil has been tracking the DJIA since June 29th, the back-end of the curve has also become positively correlated to the DJIA (see chart). The index of the WTI/DJIA ratio, which is referenced to May 29th, has been steadily declining for both the front-month and 2- year WTI contracts (lower ratio indicates a positive correlation). For the 2-year contract, the index has fallen from 101, on 19 August, to 93 yesterday. During the same period, the 5-day rolling correlation between front-month WTI crude and the DJIA has grown from 55%, on August 28th, to 95% yesterday, providing further evidence that the equity markets are once again in the driving seat. The current run of inventory data suggests points to a marked disconnect between prices and underlying demand. We note that despite a 3,282K barrel build in US API distillate fuel inventories yesterday, front-month WTI crude jumped 2.7% in NY trade. The net cumulative US distillate fuel inventory build since May 29th has now grown 22% w/w to 17,899K barrels, signalling WTI:DJIA Ratio May Index value 08-Jun 18-Jun 28-Jun 08-Jul Source: Global Markets Research 18-Jul 1m WTI/DJIA ratio growing US industrial crude oil demand weakness. With oil reacting to exogenous factors, the poor underlying fundamental picture leaves prices very susceptible to financial asset prices. We therefore see the US dollar and equities as the main risk factors to crude prices, with the fundamentals providing little support to fall back upon. 28-Jul 07-Aug 17-Aug 27-Aug 06-Sep 24m WTI/DJIA ratio Manqoba Madinane Base metals Lead has again been the main focus yesterday and into this morning, with the metal coming under heavy selling pressure. The trigger for the sell-off on Wednesday was technical rather than fundamental in nature, with profit taking emerging after what had been a spectacular rally, ran out of momentum. Overnight, reports quoting Beijing Antaike - the State-backed research firm - that China s domestic surplus will be 270 kt this year, and their estimates that lost production from the widespread smelter closures/investigations will only amount to 60 kt (~2% of country-wide production), has applied further downwards pressure with lead dropping below $2,250 during the morning session. The weakness in lead has also dragged zinc lower with it, though to a much lesser extent. The other base metals are also slightly softer this morning, though this is due mainly to a slightly stronger dollar and a general feeling the recent rally in prices has become a little over-extended. The main economic data this afternoon is the latest US jobless figures which may impact on currencies and the metals this afternoon. However, as far as the base metals are concerned, it is the raft of Chinese data for August - including the PPI and CPI numbers, Retail Sales, Industrial Production, Fixed Asset Investment and the Import and Export figures - released very early tomorrow morning (3am UK time), which may be the most decisive and will likely dictate whether the metals finish the week strongly or not. In other news, Zhuzhou Smelter - China s largest zinc producer - is planning to start construction of a new lead smelter at the beginning of next year. The facility is needed to help deal with the lead by-product from its zinc smelting operations - which are also expanding - and to help the company reduce its pollution levels. The smelter is expected to have a 100 ktpy capacity, which will double the company s current lead smelting capacity. Meanwhile, European zinc premiums are edging higher, signalling that physical demand is starting to improve, but also pointing to the impact of capacity closures on supply. Another factor may also be the potential impact that warehousing rent deals are starting to have on the availability of material. Leon Westgate 2

3 Today sees the release of the initial jobless claims and continuing claims data in the US - lagging indicators which show that the US economy is indeed recovering. The market expects another decline in jobless claims - albeit only a small 10K fall. Meanwhile, US Treasury yields are rising steadily again, with the 10y yields just below 3.50%. Equities are also finding good support. On top of this, the futures market still expects monetary tightening in the US only by Q2:10 indicating that liquidity should remain adequate (currently the options market is pricing a rise of 25bp in Q1:10). For gold, resistance to a sustainable move above $1,000 remains strong. Gold has slipped to the mid-$980 s yesterday after failing to move higher. What makes the resistance even more remarkable is that gold has failed to move higher despite the dollar falling almost 1% against the euro yesterday. However, the positive sign is that gold is also finding good support in the mid-$980 s. While the recent move might have been to much to fast, we maintain that gold could move closer towards $1,100 as we head towards the end of the year. We expect more weakness in the dollar. While gold is building resistance against dollar weakness at the moment, we doubt it can hold should the dollar show more sizable weakness. We see support at $990 and $983, and resistance at $1,004 and $1,015. With support from strikes falling away, both platinum and palladium are still struggling to break higher. Palladium is still finding support above $290 this morning. We maintain however that the large net speculative position in this metal is making it vulnerable to a correction lower. While we have been bullish on palladium relative to platinum for a few months, we now believe palladium will find it increasingly difficult to outperform platinum. We still see strong resistance for platinum at $1,300. Support is at $1,250 and $1,240. Palladium support is at $290 and resistance at $300. Walter de Wet A weaker US dollar supported crude oil prices yesterday, with the market ignoring the mixed API inventory data. The greenback slipped to $ against the euro in NY trade, the weakest level since December 2008, which saw the front-month jump from $70.66/bbl in London trade to $72.52/bbl in New York. Of note, the rolling 5-day correlation between the tradeweighted US dollar and front-month WTI crude oil is at 95% this morning. On the demand-side, yesterday s API crude inventory data showed a 3,282K barrel increase in distillate fuel and a 571K barrel build in gasoline inventories signaling continuing slack US demand for refined products. However, API total runs on crude oil inventories were at 7,216K barrels, with a net cumulative crude oil inventory contraction of 16,130K barrels since August 1st. Meanwhile, front-month Brent has climbed from $69.84/bbl to $70.70/bbl in electronic trade this morning, boosted by positive equity markets. Thermal coal prices gained yesterday, following crude, however signs of demand weakness and over-supply in China could weigh on contract prices. Of note, Chinese power consumption contracted 4.7% y/y for the period January July API2 (CIF ARA) for Q4:09 delivery gained $0.80/mt to $68.90/mt; API4(FOB) gained $0.75/mt to $63.45/mt. Carbon contract prices came under pressure amid a technical correction yesterday. ICE EUA for December 2009 delivery shed EUR0.30/mtCO2 to EUR15.16/mtCO2. Active-year UN-backed CER slipped EUR0.21/mtCO2 to EEUR13.36/mtCO2. Manqoba Madinane 3

4 Base metals Daily LME stock movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Contract turnover Aluminium 4,598,750 4,600,900-2,150-2,150 2,269, , ,247 Copper 316, ,550 1, ,250-22,975 9, ,881 Lead 122, , ,475 1, ,717 Nickel 117, , ,582 2, ,873 Tin 20,185 20, , ,800 Zinc 436, , ,675 11, ,124 Shanghai 3-month forward prices Copper 50,130 49, Cu Sep' % Zinc 15,560 15, ZAR metal prices (9 Septemebr 2009) Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 14,087 48,379 18, , ,189 14, month 14,493 49,198 18, , ,062 15, futures pricing Price Change Price Change Price Change Price Change Price Change 1-month forward 2-month forward 3-month forward 6-month forward 1-year forward Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO 380 Cargo ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q4:09 Q1:10 Q2:10 Cal 11 Cal 12 API2 (CIF ARA) API4 (FOB RBCT) Carbon Spot Dec-09 Dec-10 Dec-11 Dec-12 ICE - ECX EUA ( /mt) ICE - ECX CER ( /mt) Forwards (%) 1-month 2-month 3-month 6-month 12-month Gold Silver USD Libor Technical Indicators 30-day RSI 10-day MA 20-day MA 100-day MA 200-day MA Support Resistance Gold , Silver Platinum , , , , , , Palladium Active Month Future COMEX GLD COMEX SLV NYMEX PAL NYMEX PLAT DGCX GLD TOCOM GLD CBOT GLD Dec'09 Sep'09 Oct'09 Oct'09 Aug'09 Jun'10 Aug'09 Settlement , , Open Interest 438, ,418 22,372 26,908 1,564 88,790 3,305 Change in Open Interest Date: 9 September 2009 Sources: Standard Bank; LME; Bloomberg Cancelled warrants (mt) COMEX active month future prices Cancelled warrants (%) Metal Open Last 1d Change Open Close Change Change (%) Aluminium 15,100 15, Ali Sep' % 4

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