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1 : Daily Focus: Tin prices gearing up for another run higher 24 January 2011 Focus: Tin prices gearing up for another run higher - Tin is once again setting new records, with the metal closing last week above its previous November highs, and continuing to close in on $28,000. The trigger appears to be a combination of cautious statements about production targets this year, while on-warrant stocks have also started to decline. The base metals ended last week on a mixed note, with lead and zinc both coming under further pressure while nickel and tin powered higher. Monday has seen the various base metals move as one however, with a strong start, petering out very quickly as weaker Chinese equities and a stronger dollar weighed on prices. Oil prices recovered slightly on Friday, following Thursday s sell-off. Front-month WTI gained 25c/bbl, to close at $89.11/bbl, while front-month Brent was $1.02c/bbl higher, to settle at $97.60/bbl. Front-month WTI/Brent spread finished the day to a new recent low of -$8.49/bbl. Product cracks generally strengthened, while the term structure for WTI and ICE GO weakened slightly. Strategists Walter de Wet, CFA* Walter.DeWet@standardbank.com Leon Westgate* Leon.Westgate@standardbank.com James Zhang* Jinzhong.Zhang@standardbank.com Marc Ground, CFA* Marc.Ground@standardbank.com A poor start to the week for Asian equities (especially China) indicates lingering fears of increased Chinese monetary conservatism. Nevertheless, precious metals have done relatively well with a weaker dollar and relatively low prices prompting some physical buying in Asian markets. Going into the week, we don t expect concerns over China to be as dominant as they were last week, especially for precious metals. Commodity price data (21 January 2011) Base metals LME 3-month Open Close High Low Daily change Change (%) Change in cash Cash Settle settle Cash - 3m Aluminium 2,415 2,420 2,435 2, % 2, Copper 9,455 9,442 9,573 9, % 9, Lead 2,471 2,426 2,468 2, % 2, Nickel 25,900 26,165 26,450 26, % 25, Tin 27,575 27,745 27,800 27, % 27, Zinc 2,354 2,319 2,363 2, % 2, Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q1' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /-0.4 Silver /-0.2 Platinum 1, , , , , /2.0 Palladium /1.0 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of the document.

2 Daily 24 January 2011 Focus: Tin prices gearing up for another run higher LME On-warrant Tin inventories Tin is once again setting new records, with the metal closing last week above its previous November highs, and continuing to close in on $28,000. The trigger appears to be a combination of cautious statements about production targets this year, while on-warrant stocks have also started to decline Looking at inventory levels, 2010 showed an unusual pattern in inventory draws, as disrupted production levels saw on warrant stocks buck the normal seasonal pattern and come under pressure throughout the summer Inventories climbed in Q4, more or less in-line with the past decade s average monthly flows, with stocks continuing to pick up into early January. Over the past few days however, on-warrant stocks have started to decline, falling 700mt, or 4% over the past week. The majority of the activity has been Asia, with Johor the main location for warrant cancellations and stock outflows. 0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sources: LME, Standard Bank LME On-warrant Tin stock movements (%) Jan-10 Jul-10 Jan-11 The stock declines have come amid further dire warnings over likely production, with PT Timah, the world s largest tin supplier, already noting that 2011 production may well continue to struggle. The company s initial estimates suggest refined output will be in the region of kt, compared to 2010 output of 40kt Given that the La Nina weather anomaly was responsible for much of the weather-related production problems last year, the figures are perhaps on the conservative side. They nevertheless highlight the lack of significant new capacity coming on-stream. In addition, reports suggest Indonesia may stop issuing licences for new tin mines on Banka island, owing to environmental reasons, further limiting any pricerelated supply response. By Leon Westgate Jan Feb Mar Apr May Jun Jul Aug 2000-current 2010 Sources: LME, Standard Bank Sep Oct Nov Dec Base metals The base metals ended last week on a mixed note, with lead and zinc both coming under further pressure, copper and aluminium stablising and finding their feet, while nickel and tin powered higher. Monday has seen the various base metals move as one however, with a strong start, petering out very quickly as weaker Chinese equities and a stronger dollar weighed on prices. It s a very quiet start to the week data-wise, suggesting the performance of the US equity markets - still in the midst of reporting season - will, along with the dollar, likely govern short term prices direction this afternoon. As the week unfolds however, it the US data, particularly the FOMC rate decision on Wednesday and the Durable Goods Orders on Thursday will likely prove significant, with another solid run of US data key in terms of keeping the metals well supported. Copper climbed very strongly during overnight trade, continuing from Friday afternoon's recovery. However, with Chinese equity markets coming back under pressure, and against the backdrop of a strengthening dollar, copper has fallen back towards $9,500 heading into the afternoon. Inventory-wise, on-warrant stocks climbed 1,575 mt, though the increase was split between the US and European locations. Lead also saw a large increase in on-warrant stocks, with a 3,125 mt increase triggering a short-term sell-off this morning. Prices have since stabilized, with the metal looking towards copper for direction. Tin meanwhile has traded up to $27,800 this morning, boosted by a 395 mt fall in on warrant stocks this morning. By Leon Westgate 2

3 Daily 24 January 2011 Oil prices recovered slightly on Friday, following Thursday s sell-off. Front-month WTI gained 25c/bbl, to close at $89.11/bbl, while front-month Brent was $1.02c/bbl higher, to settle at $97.60/bbl. Front-month WTI/Brent spread finished the day to a new recent low of -$8.49/bbl. Product cracks generally strengthened, while the term structure for WTI and ICE GO weakened slightly. Net for the week, front-month WTI declined $2.43/bbl, while front-month Brent weakened only $1.08/bbl, after it hit a new 28- month high on the previous Friday, 14 January. The latest CFTC report showed Money Managers increased their net long positions in crude by 1.4% w/w (futures and options combined). Commercial hedger s net short positions rose by 0.6% w/w as the increase of short hedges outstripped that of long hedges. Swap Dealers increased their net short positions by 27.7% w/w. The net long positions held by non-commercial market participants stood at 7.4% last week, 0.9% lower than the all-time high reached during the last week of In the financial markets, it appeared that concerns over Chinese monetary policy were setting the tone last week, which sent the prices of many risky asset classes lower, including the oil price. However, the US continued to report generally better-thanexpected macroeconomic data. It is reported earlier today that Saudi Arabian Oil Minister signalled OPEC may increase supply to meet growing demand. As we pointed out in our Weekly published last Friday, we agree with OPEC s assessment that that the global oil market is currently well supplied. However, we do not agree with the conclusion that no action should be taken from OPEC as long as inventories are high. To support price stability, we maintain that OPEC should reiterate its intention to increase production, even though there is no immediate need, rather than reiterate its justifications for inaction. This week, the market will focus on the Fed s policy statement on Wednesday and advance Q4 US GDP on Friday. Speculations that China might raise interest before the Chinese New Year are likely to keep the market on its toes. We expect the market move sideways with more downside risks, barring any supply disruptions. By James Zhang A poor start to the week for Asian equities (especially China) indicates lingering fears of increased Chinese monetary conservatism. Nevertheless, precious metals have done relatively well with a weaker dollar and relatively low prices prompting some physical buying in Asian markets. Going into the week, we don t expect concerns over China to be as dominant as they were last week, especially for precious metals. Key to precious metals this week will be speculation surrounding Wednesday s FOMC decision and the health of the US economy. Data flow suggesting a stronger US economy might raise concerns over a possible scaling down of the Fed s intended $600bn in bond purchases. While we think that a change in policy is highly unlikely at this time, investor worries could see a pull-back in precious metals, especially gold. We advocate buying dips off the back of positive US data flow. Gold support is at $1,345 and $1,338. Resistance is at $1,357 and $1,361. Silver support is at $27.64 and $27.38, resistance is at $28.06 and $ The release of, slightly weaker-than-expected, Eurozone PMI Manufacturing figures, is having a minimal effect on PGM. German and Eurozone PMI came in at 60.2 and 56.9, respectively (consensus: 60.9 and 57.0), both marginally lower than the previous month. Platinum support is at $1,824 and $1,818, resistance is at $1,837 and $1,842. Palladium support is at $819 and resistance at $831. By Marc Ground 3

4 Daily 24 January 2011 Base metals Daily LME Stock Movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Cancelled warrants (mt) Cancelled warrants (%) Contract turnover Aluminium 4,550,325 4,486,325 68,750 4,750 64, , , ,883 Copper 381, ,525 2,400 1, ,750 31, ,377 Lead 264, , ,900 5, ,231 Nickel 135, , ,428-1, , ,133 Tin 17,295 17, , ,059 Zinc 711, , ,125 2, ,901 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Chnge Open Close Change Change (%) Aluminium 16,870 16, Ali Mar' Copper 71,390 71,890 1,040 Cu Mar' % Zinc 18,875 18, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 17,014 67,524 18, , ,161 16, month 17,458 68,116 17, , ,158 16, futures pricing Price Change Price Change Price Change Price Change Price Change 1 month 2 month 3 month 6 month 1 year Sing Gasoil ($/bbbl) Gasoil 0.1% Rdam ($/mt) NWE CIF jet ($/mt) Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q1-11 Q2-11 Q3-11 Cal 11 Cal 12 API2 (CIF ARA) API4 (FOB RBCT) Forwards (%) 1 month 2 months 3 months 6 months 12 months 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 Feb'11 Mar'11 Apr'11 Apr'11 Feb'11 Dec'11 Feb'11 Settlement 1, , , , , Open Interest 578, ,842 22,321 42,778 2, ,461 2,356 Change in Open Interest 2, Sources: Standard Bank; LME; Bloomberg 4

5 Daily 24 January 2011 Forecasts Base metals Base metals LME cash prices (US$/mt) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Aluminium 2,460 2,470 2,350 2,440 2,430 2,510 Copper 9,150 8,900 9,300 9,450 9,200 10,000 Lead 2,450 2,390 2,520 2,560 2,480 2,600 Nickel 24,500 23,800 22,000 22,500 23,200 22,000 Tin 26,200 27,000 29,000 29,800 28,000 29,500 Zinc 2,350 2,300 2,250 2,380 2,320 2,500 front-month prices Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg WTI ($/bbl) Brent ($/bbl) ICE Gasoil ($/mt) Nymex RBOB Gasoline (c/gal) API2 Coal Cif ARA ($/mt) API4 Coal Fob Ricahrds Bay ($/mt) spot prices (US$/oz) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Gold 1,370 1,440 1,500 1,435 1,430 1,450 Silver Platinum 1,850 1,800 1,750 1,950 1,850 2,000 Palladium Rhodium 2,400 2,300 2,400 2,700 2,500 3,000 Source: Standard Bank 5

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