Open Close High Low Daily change Change (%) Cash Settle

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1 FICC Research Commodities: Daily 16 July 2010 Focus: Copper premiums continue to climb Leon Westgate* Focus: Copper premiums have continued to climb, particularly in Asia with premiums for CIF Shanghai material heard as high as $120/mt and Singapore climbing above $100/mt. Higher premiums are occurring against the backdrop of declining LME inventories - on warrant stocks down 5.4% since the beginning of July alone - suggesting demand remains solid. The base metals continue to be rangebound, trading broadly sideways yesterday and into this morning, with the complex struggling to push higher, in spite of a weaker dollar and better than expected earnings announcements. Volumes have been exceptionally low this morning, even by recent standards, with the market seemingly happy to sit back and wait for something to happen. After a quiet start to the day, a sharp fund-based sell off on the opening of NY trade this afternoon has seen spot gold trade below $1,190. The reason for the sell-off in gold appears to be the unwinding of the euro gold trade (affectively buying-euro and selling-gold), with the weakness spilling over into the rest of the precious metals complex. Commodity price data (15 July 2010) Base metals LME 3-month Open Close High Low Daily change Change (%) Cash Settle Change in cash settle Cash 3m Aluminium 2,012 2,017 2,023 2, % 1, Copper 6,677 6,680 6,690 6, % 6, Lead 1,820 1,799 1,815 1, % 1, Nickel 19,400 19,425 19,499 19, % 19, Tin 18,100 17,930 18,100 18, % 18, Zinc 1,846 1,808 1,840 1, % 1, Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q3' % EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFPs Gold 1, , , , , /0.2 Silver 1, /2.0 Platinum 1, , , , , /4.0 Palladium /1.5 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document.

2 Focus: Copper premiums continue to climb Copper premiums have continued to climb, particularly in Asia with premiums for CIF Shanghai material heard as high as $120/mt and Singapore climbing above $100/mt. Higher premiums are occurring against the backdrop of declining LME inventories - on warrant stocks down 5.4% since the beginning of July alone - suggesting demand remains solid. The supportive backdrop has certainly lent support to copper prices, however, it has not been enough to shift copper out of its recent range, with the metal finding it hard to sustain a move above $6,750. There is concern from some quarters that the strong demand from China for the metal, in spite of the lack of sustained arbitrage opportunities, is due more to liquidity constraints in the country rather than physical metal demand, with copper being used for collateral purposes instead. While the use of copper for collateral purposes may be an additional factor in the market at the moment, the rapid and sustained declines in LME inventory, and the fact that the SHFE market is in backwardation suggests that the main driver is still solid physical demand. Copper physical premiums ($/mt) Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Shanghai CIF Singapore Rotterdam Livorno South Korea Sources: Standard Bank, Fast Markets SHFE vs LME equivalent* forward curves Jul-10 SHFE Copper stocks did increase today, for the first time since the beginning of May. It was a relatively small gain of 2,779 mt, while the LME stocks data this morning showed further fresh warrant cancellations in Asian warehouses - 1,150 mt of cancellations in Busan. It will be interesting to see how the Chinese market evolves over the summer months, in particular the fluctuations in the SHFE- LME arbitrage and if SHFE inventories continue to rise. So far we remain bullish over China s metal demand levels and expect Chinese activity to continue lending support to copper prices Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 SHFE Fw d - 16/07/10 LME Equiv - 16/07/10 Sources: SHFE, LME, Standard Bank *includes VAT and other charges Base metals The base metals continue to be rangebound, trading broadly sideways yesterday and into this morning, with the complex struggling to push higher, in spite of a weaker dollar and better than expected earnings announcements from Bank of America, GE and Citigroup. Volumes have been exceptionally low this morning, even by recent standards, with the market seemingly happy to sit back and wait for something to happen. Given the weaker dollar and positive figures, a solid performance form the US equity markets should see the metals finish the week strongly. With concern over the bank stress tests at the end of next week however, and another week of earning announcements still to come, the metals will likely continue to range trade. Nickel has come under pressure this morning, in spite of continuing inventory draws. That said, physical premiums have come off the boil a little however, in both Europe and Asia, suggesting some of the recent pressure in the market has subsided. Elsewhere, zinc, which came under heavy pressure on Thursday, has recovered slightly heading into Friday afternoon. Comparatively speaking volumes are pretty good, with turnover exceeding that of aluminium. In absolute terms however, they remain very subdued. 2

3 After a quiet start to the day, a sharp fund-based sell off on the opening of NY trade this afternoon has seen spot gold trade below $1,190. Based on recent price behavior we would expect the sell-off to trigger decent buying interest on he dip, while $1,180 represents solid technical support. The reason for the sell-off appears to be the unwinding of the euro gold trade (affectively buying-euro and selling-gold), with the weakness spilling over into the rest of the precious metals complex and explaining why a weaker dollar has had not impact on prices. Silver has followed gold lower this afternoon, dropping below $18/oz, while the PGM s have also nosedived, in spite of firmer, or at least stable base metal prices. Data-wise, the US CPI figures held few surprises, with the focus instead turning towards the University of Michigan Confidence index (expected at 74.0 from 76.0) Crude oil managed to recover form its sell-off on Thursday afternoon, with front month WTI gaining in NY trade to close the day at $ Friday has seen prices generally trade sideways, though interestingly, the dollar has had little or no impact on prices so far. The performance of the equity markets will likely dictate direction during the afternoon, while technical signals will also be key. With crude oil struggling to make any headway, sentiment is turning more bearish towards its near-term performance. Much of this appears related to the rather lacklustre performance of the Dow Jones and S&P over the past couple of days however, with both markets running out of steam and failing to push higher. The coal market has been similarly lacklustre, with API2 for Q3-04 unchanged yesterday at $94.25 while Cal-11 gained $0.20/ mt. API4 was a little firmer in the nearby s with Q4-10 climbing $0.50/mt while Cal-11 recorded a $0.35/mt gain. In other news, Richards Bay Coal Terminal has failed to end a strike by workers from the South African Trade and Allied Workers Union. The strike is currently in its 5th day, with the disagreement over the length of the wage agreement. RBCT is offering a 3-year deal, while workers, concerned about inflation, want a 1-year deal. The union is willing to accept the company s offer of 9.5% for this year however. 3

4 Base metals Daily LME stock movement (mt) Metal Today Yesterday In Out One day change YTD change (mt) Contract turnover Aluminium 4,381,725 4,375,900 12,575 6,750 5, , , ,547 Copper 427, ,500 1,475 2, ,600 31, ,428 Lead 187, , ,200 13, ,962 Nickel 119, , ,448 5, ,184 Tin 16,150 16, ,615 1, ,235 Zinc 616, ,025 1, ,875 23, ,335 Shanghai 3-month forward prices COMEX active month future prices ZAR metal prices (15 July 2010) Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 15,042 50,286 13, , ,821 13, month 15,466 51,220 13, , ,480 13, 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 Q3-10 Q4-10 Q1-11 Cal 11 Cal 12 API2 (CIF ARA) API4 (FOB RBCT) 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 Aug'10 Sep 10 Sep'10 Oct'10 Aug'10 Jun'11 Aug'10 Settlement 1, , , , , Open Interest 570, ,578 19,729 28, ,712 2,898 Change in Open Interest -2, , Date: 15 July 2010 Sources: Standard Bank; LME; Bloomberg Cancelled warrants (mt) Cancelled warrants (%) Metal Open Last 1d Change Open Close Change Change (%) Aluminium 14,930 14, Ali May' Copper 53,110 52, Cu May' % Zinc 15,200 15,

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