The Spectre of Net Negative Western Jewellery Consumption

Transcription

1 Quarterly Newsletter May Issue 39 The Spectre of Net Negative Western Jewellery Consumption by Neil Meader, Research Director In recent editions of our Gold Survey, we have frequently talked about the long run slide in the industrialised world s jewellery consumption in weight terms. As a reminder of the longevity of this trend, consumption peaked in 2001 in the United States and in a yet more distant 1992 for Europe. As for the scale of the drop, levels last year stood at around a third of the maximum recorded for total western sales. At the same time, scrap (almost all sourced from jewellery) has grown greatly, with volumes in 2010 around four times those seen a decade earlier. To quantify this, western consumption in 2010 fell to around 300 tonnes and scrap rose to almost 500 tonnes. As a result, western jewellery has become a notable net supplier to the international market, a position it first attained in Incidentally, Japan became a net seller one year earlier, in This clearly has bearish implications if the factors driving this are independent of the gold price and if the phenomenon were to spread to other parts of the world. It seems fair to argue that short term drivers, in particular rising gold prices and economic austerity, have contributed to the slide, largely explaining the acceleration in the average annual loss from 4% in the first half of the decade to 18% in the last three years. The Spectre of Net Negative Western Jewellery Consumption 1 (Continued on next page) NEWS FROM THE FIELD Indian Investors Hold Onto Their Silver 3 NEWS AT GFMS World Gold Analyst Special Reports for Mexico and Colombia 4 NEW AT GFMS Ten Year Outlook for Silver 5 PUBLICATIONS AND PRODUCTS Copper Survey Gold, Platinum & Palladium and Silver Surveys EVENTS Gold and Platinum & Palladium Survey 2011 Launches 7 Copper Survey 2011 Launch 8 FORTHCOMING EVENTS Russian Language Gold and Platinum & Palladium Survey Launch 8 Chinese Language Gold Survey Launch 8 MARKET COMMENTARY GFMS Mailing List: The GFMS quarterly newsletter is a free publication distributed by only. If you are not on our mailing list and would like to receive a copy regularly, please contact Emma Hastings at info@gfms.co.uk or register on line at Published by GFMS Ltd Hedges House Regent Street London, W1B 4JE, UK tel: +44 (0) fax: +44 (0) info@gfms.co.uk web: Whatever The News, The Dollar Has Been Taking it Badly 9 Base Metals: High Prices, but Higher Risk 10 The GFMS Team 11

2 However, the long term nature of the slide does strongly suggest structural factors are at work and indeed there are many candidates for the role. These include a shift from plain to gemset, from unbranded to branded, from simple styles to high design items and so forth; all trim the fine weight sold as they shift expenditure to other materials or the intangible. We can neither ignore the competition from other often better advertised categories of consumer goods, such as mobile phones. Although the bulk of the structural changes are behind us, they still have some mileage left, which means that, even if economic growth were to improve and gold prices to soften, the recovery for western consumption in weight terms could prove limited, especially in Europe as its affinity for gold seems to have faded more than in the United States. It is also probable that this behaviour will spread to other countries but, given the slow pace of change in countries like China, this is best regarded as a distant threat. The pace of western scrap growth has also accelerated, up from 7% a year in the first half of the decade to 28% in the last three years. This strongly suggests that both the price and economic hardship were integral and, as such, should the price ease (as we forecast in the longer term) and western economies regain a sounder footing, then it is quite possible that scrap too will fall. The great unknown is the proportion of near market stocks that have already been sold and here a wide range of opinions can be found. Nonetheless, research trips conducted this year have shown that there are clear incidences in specific countries where scrap volumes have begun to decline. Furthermore, local contacts frequently cite as an explanation of this turnaround the possibility that much of the loosely held material has already been sold back. However, even if the bulk has come to market, the establishment of new channels for jewellery collection and heightened consumer awareness of recycling possibilities will serve to sustain flows. As a result, western jewellery could move back into net demand territory in the medium term, if not to any great extent. Neil Meader joined GFMS in He is currently in the position of Research Director at GFMS. This role centres on acting as editor and manager in chief of all the consultancy s precious metals reports. From a research perspective, Neil covers most of Europe, trends in world fashions relating to jewellery and all areas of global scrap from non-jewellery sources. Prior to GFMS, Neil worked as an analyst in the energy industry and in soft commodity trading. He holds an honours degree in Economic History from Exeter University. Western Jewellery Consumption & Scrap* Consumption Tonnes Scrap Source: GFMS; *North America and the top 5 European markets 2

3 NEWS FROM THE FIELD Indian Investors Hold Onto Their Silver by Gargi Shah, Analyst Over the course of the last decade, as investment in gold went from strength to strength, silver investment remained relatively sluggish. It was only in late 2008 when the price fell through the Rps 20,000/kilo barrier that investment demand for silver suddenly exploded, reaching an unprecedented level of over 3,000 tonnes. Many of these investors then sold into the 2009 rally as the price moved up towards Rps 30,000/kilo but net investment returned last year as price expectations became more bullish, although volumes failed to clear the 1,000 tonne mark. Given these marked swings, monitoring potential developments becomes critical, not just for the Indian market but also, on occasions, the world market. A research trip to the important eastern state of Maharashtra was therefore arranged, focussing on silver investment. What this revealed was truly remarkable; the apparent picture in the field was that investors price expectations are running even more strongly than the recent surge in the silver price, which recently surpassed the Rps 75,000/kilo level. What this in turn meant was that net investment continued as the price moved higher, a quite surprising event given the supposedly price sensitive nature of the market. This was partly fuelled by heavy, positive media coverage towards silver and this helped silver overshadow its yellow cousin s longstanding position in the country s precious metals space. Furthermore, indications received in the last few days suggest that, despite the ongoing volatility in the silver price, investors by and large appear to not only be holding on to their silver but also looking to add to their existing pool of metal, keeping the Indian market in net investment. There has nonetheless been some notable gross selling, especially by those who joined in rather late, but this has to date been outweighed by the buy side interest. Having said that, even with all the enthusiasm surrounding silver, demand does not seem to be anywhere close to the record levels seen during the price crash in late 2008, presumably given that the price is roughly three time levels in force then. We shall continue to monitor price expectations since this, as much as actual price levels themselves, will remain a critical driver for investment in this crucial and still volatile arena. Gargi Shah works at GFMS as a Metals Analyst, concentrating on research on gold, silver and PGM group metals. She is responsible for research in the Indian sub-continent and assists Paul Walker in covering this key region. Prior to joining GFMS, she worked as a commodities writer for a national daily in India. As a law graduate, she was involved in varied legal practice in a corporate law firm in Mumbai. 3

4 NEW AT GFMS WORLD GOLD ANALYST Releases Two New Special Reports for Mexico and Colombia The Mexico Gold & Silver Mining Industries 2011 GFMS World Gold, the equities research arm of GFMS, has released two new World Gold Analyst investor reports on countries where there is intense precious metal exploration and development activity. The first report presents a comprehensive review of current gold and silver exploration and development initiatives in Mexico, one of the most active exploration regions on earth. And their focus is not just on silver, as the country has seen in the past few years new gold mines opening up in the Sierra Madre to the north of the country. There are almost hundred companies currently active in gold and silver exploitation in Mexico and this review provides a snapshot of the status of each of their projects. Two Mexican mining industry organisations, the Mexican Geological Survey and Fideicomiso de Fomento Minero (FIFOMI), were the major sponsors and, in addition, seventeen mining and exploration companies supported this study and their projects are discussed in depth in individual reports. making a major discovery at La Colosa, and soared to a spectacular peak in late 2010 with the offer from EBX to acquire Ventana Gold that valued the company at US$1.5 billion. Fifteen mining and exploration companies supported this study and their projects are discussed in depth in individual reports following the body of the report. The Colombian Gold Mining Industry The country has a long history of silver production and is still one of the world s top silver producers. Its importance is likely to grow further as a large number of foreign, mainly Canadian, companies have been attracted to the country in recent years, bringing expertise and capital to rejuvenate many old mining regions and to prospect for new orebodies. In recent years, Colombia has swapped its somewhat tarnished image for a golden gleam as those in the mining industry can attest to. It has become one of the exploration hotspots for gold exploration and development worldwide and seen many millions of dollars spent as a raft of gold exploration companies have flocked in through Bogata international airport. This gold rush of foreign companies into the country started as a trickle in 1995 with Greystar Resources discovering the Angostura deposit; gained fresh impetus in 2003 with AngloGold Ashanti entering and The aim of each of these studies is to present the investment community with a review of a selection of the exploration and development activity being undertaken on a company-bycompany basis, while at the same time providing an opportunity for a number of exploration companies to promote the merits of their projects to investors. The reports are free to qualified institutional investors. Please emma.hastings@gfms.co.uk for details of how to receive a printed copy or to download a pdf version. 4

5 NEW AT GFMS GFMS Ten Year Outlook for Silver GFMS are pleased to announce that the Ten Year Outlook for Silver will be released in July The Ten Year Outlook for Silver complements our successful current series of forecasting monthlies and quarterlies on the precious metals markets, which have proved to be extremely popular within the precious metals market place. The service offers a Base Case and two alternative scenarios for silver supply, demand and the price over the next 10 years, with each given a weighted percentage probability and with a particular emphasis in the report on risks to the forecast, including those stemming from potential supply or demand shocks. Table of Contents Section 1: Executive Summary Section 2: Economic Outlook Section 3: Historical Supply and Demand Overview Section 4: Mine Production and Producer Hedging Section 5: Scrap Supply Section 6: Government Sales Section 7: Investment Section 8: Industrial Fabrication Section 9: Photographic Fabrication Section 10: Jewellery and Silverware Section 11: Appendix Specifications Available in both hardcopy and electronic format. The biannual service also includes a presentation or conference call with the authors of the report to discuss its findings. Annual Fees: 14,950 / US$24,350 / 17,950. A discounted Introductory Offer is available on request. For more information or to purchase the forecast, please contact: charles.demeester@gfms.co.uk PUBLICATIONS AND PRODUCTS GFMS Release Their 2011 Annual Surveys GFMS have launched their Copper, Gold, Silver and Platinum & Palladium Surveys 2011 at launches internationally. Copper Survey 2011 Copper Survey 2011 GFMS Limited Copper Survey 2011 Sponsored by Sponsored by Section 1: Summary and Price Outlook This section highlights the key findings of the research report with particular focus on changes in the market fundamentals and prices. Section 2: Copper Prices This section provides an overview of the key trends in copper prices over the course of the year. Section 3: Investment This section provides insight into the opaque field of the impact of investor activity on the copper market and prices. Section 4: Mine and Refined Production This section analyses all aspects of the copper supply chain from concentrate to refined metal including the secondary sector Section 5: Trade Flows & Stocks The section focuses on global trade flows in copper concentrates and refined metal. It provides a detailed discussion of trends in global stocks. Section 6: Consumption A particular focus of the report is end-use trends in key consuming areas, which are not analysed systematically in existing research on the copper sector. Section 7: Appendices Specifications Available in both hardcopy and electronic format The Copper Survey was published on 5th April Price: 325 / US$595 / 440 5

6 THE SILVER INSTITUTE th street, nw suite 303 washington, dc tel: (202) fax: (202) GFMS Quarterly Newsletter PUBLICATIONS AND PRODUCTS GFMS Release Their 2011 Surveys GFMS have recently released Gold Survey 2011, Silver Survey 2011 and Platinum & Palladium Survey These reports include detailed supply and demand statistics, country-by-country data covering main consuming and producing countries. All the data is organised in easy-to-read format and has a concise summary of main findings in each chapter, critical assessment of current and future trends and gives the outlook for precious metal prices. Gold Survey 2011 Published on 13th April Platinum & Palladium Survey 2011 Published on 5th May World Silver Survey 2011 Published on 7th April Gold Survey 2011 GFMS Limited Gold Survey 2011 Platinum & Palladium Survey 2011 GFMS Limited Platinum & Palladium Survey 2011 W o r l d S i l v e r S u r v e y The Silver Institute World Silver Survey 2011 Sponsored by 1/ Summary and Price Outlook 2/ Gold Prices 3/ Investment 4/ Mine Supply 5/ Supply from Above-ground Stocks 6/ Gold Bullion Trade 7/ Fabrication Demand 8/ Appendices 1/ Summary and Price Outlook 2/ Platinum & Palladium Prices 3/ Investment 4/ Supply 5/ Demand 6/ Appendices 1/ Summary and Outlook 2/ Silver Prices 3/ Investment 4/ Mine Supply 5/ Supply from Above-ground Stocks 6/ Silver Bullion Trade 7/ Fabrication Demand 8/ Appendices Price: 325 / US$595 / 440 Price: 325 / US$595 / 440 Price: 130 / US$225 / 180 Surveys are available in both hardcopy and electronic format - pdf prices are available on request For more information or to purchase a survey or package, please contact charles.demeester@gfms.co.uk GFMS Survey Packages GFMS offer a range of discounted packages, all of which include one or more of the flagship publications - the Gold Survey and its two accompanying updates, the Silver Survey and the Platinum & Palladium Survey. Moreover, GFMS are happy to provide tailor-made packages, which will perfectly serve the research needs of your business. Gold Package The package comprises: Gold Survey and Updates 1&2 Price for one year subscription is 695 / US$1,150 / 850 Precious Metals Package The package comprises: Gold Survey, World Silver Survey and Platinum & Palladium Survey Price for one year subscription is 750 / US$1,250 / 950 Precious Metals Package Plus The package comprises: Gold Survey and Updates 1&2, World Silver Survey and Platinum & Palladium Survey Price for one year subscription is 950 / US$1,595 / 1,195 6

7 EVENTS Gold Survey 2011 Launch, 13 th April 2011 GFMS Gold Survey 2011 was released on 13 th April 2011 at events at Thomson Reuters in London, Standard Bank in Johannesburg and Toronto Board of Trade in Canada. GFMS Chairman, Philip Klapwijk, presented the main findings of the report on the gold market at the London launch. Gold investment demand last year continued to drive gold prices higher, which rose by close to 26% in 2010 (on an annual average basis). As Klapwijk noted, global investment actually fell compared with 2009, but last year s performance was still comfortably the second highest on record. Furthermore, in value terms, world investment last year did set a new high. An analysis of investment flows in Gold Survey 2011 reveals that the performance was not entirely oneway. ETF holdings experienced the second highest annual gain, while combined purchases of bars and coins surged last year. In contrast, investor interest in the futures market was scaled back in 2010, having peaked early in the fourth quarter. Support for higher gold prices was, however, not restricted to developments in the investment sector. As Klapwijk pointed out, last year we saw signs of the gold market having adjusted to higher prices. While jewellery demand partially recovered, following 2009 s steep losses, scrap supply was little changed, even though gold prices posted a series of record highs in The prospects for gold prices this year remain bright. Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly. And, with the spotlight also shining on the state of government finances, there is every reason to believe that investors will remain focused on the gold market. Furthermore, growing price acceptance by consumers will help lift jewellery demand, while generating only a muted response from scrap. Together, these will help raise the support level in the gold market and provide a firm platform for investors to take gold higher. Overall, we would not be surprised, therefore, to see gold break through $1,600 before the end of the year. Platinum & Palladium Survey 2011 Launch, 5 th May 2011 GFMS Platinum & Palladium Survey 2011 was released on 5 th May 2011 at events at Thomson Reuters in London and Standard Bank in Johannesburg. GFMS Chairman, Philip Klapwijk, presented the main findings of the report on the platinum and palladium market at the London launch. Platinum s gross surplus grew again in 2010 and another large surplus is expected in In contrast, palladium s gross deficit returned to a sizeable level in 2010 and is set to remain high in Reviewing platinum first, the consultancy sees the metal as having registered a gross surplus of almost one million ounces in 2010, which represents an increase of 10% to the highest level in GFMS 12-year data series and it was the sixth consecutive year of a gross surplus being recorded. Klapwijk commented, the core message here therefore is that, despite a decent rise in fabrication demand as the world economy got back on its feet, there was an even greater supply response, partly as a result of firmer platinum prices. The principal change as regards palladium was its return in 2010 to a substantial gross deficit, which GFMS estimate at just over 550,000 ounces. Much of this was due to the 30% or near 1.2m ounce recovery in autocatalyst demand to a 10-year high, chiefly as car sales rebounded, especially in gasoline and therefore palladium-focused markets, but also as a result of substitution within diesel from platinum to palladium. There was also a notable recovery for electronics offtake, again to a 10-year high. Not all was positive for demand as jewellery offtake fell by over 300,000 ounces, due largely to losses in China. On the supply side, GFMS believe that, after three years of losses, mine production rose, by 5%, with most of the gains originating in South Africa (including the release of refining circuit inventory). Autocatalyst scrap also increased, and by more than 20%, as higher prices largely eliminated supply withholding and due to improved recycling efficiencies. 7

8 EVENTS Copper Survey 2011 Launch, 5 th April 2011 GFMS Copper Survey 2011 was released on 5 th April 2011 in Santiago, Chile to coincide with CESCO Week. GFMS Senior Analyst for copper, Nikos Kavalis, presented the main findings of the report on the copper market. GFMS estimates that the copper market went into deficit in the second half of last year, more than offsetting the small surplus noted in the first six months of The swing to deficit was the result of accelerated growth in mature economies consumption, further increases in Chinese offtake and lacklustre growth in mine production. Despite a significant increase in secondary production boosting total refined output, the consultancy estimated that global refined consumption exceeded supply by 286,000 tonnes. The sharp improvement in copper fundamentals, Kavalis noted, rekindled investor interest in copper, after a period of relative weakness, in the aftermath of the European sovereign debt crisis. The combination of a tight physical market and strong investment demand saw prices rise to a series of all-time highs late in 2010 and in the first few weeks of 2011, peaking at $10,148/tonne on 14th February. The report argues that the continued recovery of mature economies consumption and strong underlying increases in demand in developing countries, led by China, should result in global refined consumption remaining strong in Although mine production is also expected to accelerate and scrap volumes to rise further, the consultancy believes that refined production is unlikely to outpace demand this year. As such, the market is expected to remain in a deficit at least through to the end of the year. Coupled with an ever-tighter fundamental market, as deficits continue to work their way through stockpiles, GFMS expect that this will see prices resume their upward trajectory and that a new peak towards the $11,000/tonne mark will be breached, in the second half of the year. FORTHCOMING EVENTS Russian Edition of The Gold Survey 2011 and The Platinum & Palladium Survey 2011 GFMS will be launching the 2011 Russian edition of our annual Gold Survey and the Platinum and Palladium Survey on 21st July at Gokhran of Russia s premises in Moscow. Date Thursday, 21st July 2011 Programme (local times) Registration: 15:00 Presentation & Questions: 15:30-16:30 Cocktail: 16:30-18:00 Presented by There will be a presentation by Dr Paul Walker, CEO of GFMS, followed by cocktails Venue Gokhran of Russia, 14, 1812 Goda Street, Moscow, Russia Sponsored by Sberbank / Deutsche Bank / Gokhran Registration carmen.eleta@gfms.co.uk Last day to register Wednesday, 6th July 2011 Chinese Edition of The Gold Survey 2011 GFMS will be launching the 2011 Chinese edition of our annual Gold Survey on 7th July in Beijing. Details to follow. 8

9 MARKET COMMENTARY Whatever The News, The Dollar Has Been Taking it Badly by Rhona O Connell, GFMS Analytics The dollar has been under persistent pressure in the latter part of April, responding bearishly both to good economic news and associated appetite for risk, and also to poorer news, notably with respect to sovereign debt. As far as the good news is concerned, increased risk appetite on the back of a degree of economic confidence has seen an increasing number of speculators and investors using the dollar in the carry trade. This involves selling an asset short (the US dollar, in this case) in order to reinvest the funds elsewhere, into assets either offering a higher yield or with the perceived scope for capital increase. This fresh set of risk-on trades has stemmed from improving corporate results that have spurred a belief in the global economic recovery. In addition a series of economic figures from the EU and Switzerland have been heightening expectations of interest rate rises from the European Central Bank (ECB) and from the Swiss National Bank. The Federal Reserve in the United States, by contrast, is maintaining its ultraloose monetary policy. The Federal Open Market Committee held its latest meeting on 26th/ 27th April. Prior to this meeting, Standard & Poor s had reduced its credit rating outlook for the United States to negative, reflecting, in the words of one of the S&P credit analysts, the fact that More than two years after the beginning of the recent crisis, US policy makers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures. The minutes of the FOMC March meeting had shown differences of opinion over the prospects for the economy. Some members were considering whether an exit strategy should be implemented this year. Others were of the view that the ultra-loose policy should be maintained into Following the April meeting, at the inaugural quarterly Press Conference from the Federal Reserve, Chairman Bernanke said that the stimulus programme (the $600bn of bond-buying, plus up to $200bn of reinvestment in mortgage repayments and other maturing assets) would be completed this June and implied that he remains averse to raising interest rates for as long as possible, subject to inflationary pressures. The Fed s inflation forecasts currently centre on a range of 1% to 2% from now to Until the minutes are released (19th May), we are unlikely to gauge the degree of consensus and this most recent meeting (subject of course to individual speeches from any of the Federal board governors or bank presidents) implies continued uncertainty among Fed watchers. Elsewhere, the Eurozone registered 2.7% annual inflation in March while the Markit monthly financial survey suggested that the buoyancy of the first quarter of 2011 is being sustained into the second quarter. The ECB raised its benchmark interest rate by 25 basis points in early April and the markets are expecting further rises. The Swiss franc hit a record high against the dollar in late April on the back of an improving economic performance, although views are mixed about whether the SNB will raise rates. There is a feeling in the market that the US dollar may be reaching its lows as it discounts several elements of bad news. The $: rate, at $1.48 as we write, is at a level last seen in early December 2009, while the G-6 trade-weighted dollar has not been this low since early August We continue to expect a resurgence of inflationary concerns later this year, especially were there to be any renewed sign of a QE3. We also subscribe to the view that the dollar:euro rate, at least, may be about to enjoy a small rally over the middle of the year, but not an overall secular change in direction. Rhona O Connell is a recognised authority in the metals markets, with over 20 years experience as an analyst in the metals sector. Rhona is the managing director of GFMS Analytics and ROC Consultancy, an independent consultancy specialising in metals markets analysis and commentary. Her specialist areas constitute gold, silver, platinum and palladium, looking at the markets themselves in the context of the economic, political and financial environments while considering also the performance of other asset classes and related mining equities. 9

10 MARKET COMMENTARY Base Metals: High Prices, but Higher Risk by Neil Buxton, Managing Director Base Metals & Steel The base metal sector performed strongly in March; however a few cracks began to emerge in April. The GFMS Base Metal Index (BMI) averaged 384 in March compared to 398 in February and 361 in January. Towards the end of April the GFMS BMI stood at just under 380. Some of the fundamentals remain positive. Our discussions with the downstream fabricators and producers suggest that the demand strength seen in 2010 has been carried over to the first quarter of this year. The consumption growth experienced in 2010 can essentially be seen as a reaction to the collapse in demand in late 2008 and in For consumption growth to be maintained there has to be support from the key economies. Aside from China, we doubt whether this will be the case for the second half of Investment activity has altered the price:inventory relationship Typically over most commodity cycles there has been an inverse relationship between inventories and prices. However, a number of developments have changed this relationship. The most important factor has been the growing acceptance of industrial commodities as an asset class. Industrial metals are being viewed by funds as both a play on emerging market growth (particularly China) and on favourable fundamentals. In addition, the relatively low interest environment has attracted investment interest to the sector. Nevertheless, we still believe that there has to be some fundamental support to justify the current inflated prices. Even for the markets, which have the most positive fundamentals in our view copper and tin the question is whether the fundamentals justify even higher levels, or a consolidation of the massive price advances seen over the last 18 months. Our general view favours the latter with our price projections for copper and tin only suggesting the scope for limited advances from the levels prevailing in early April. Given that industrial commodities are increasingly seen as an asset class the issue of relative price performance has become more important. This explains the rise in the aluminium price, which has had little or no support from the fundamentals. Even looking forward, we still project that the market will be in significant surplus this year. The gains in nickel prices are hard to explain given the expected surge in production. The key factor about nickel supply is that the increase is coming from a variety of sources Chinese nickel pig iron, the recovery from strike-related losses at Vale s Canadian operations, the next generation of HPAL projections and the commissioning of ferronickel projects (mainly in Brazil). The bottom line is that the nickel industry is unlikely to see a repeat of the late 1990s, when the source of extra nickel was from the untried and untested first generation of HPAL projects in Western Australia. Hence, we retain our cautious stance towards the nickel market. Risks are increasing In terms of the higher risks towards the sector, there are a number of issues. First, is the sustainability of the economic recovery with some indicators pointing to a slowdown of growth? Second, we believe that the tragic events in Japan will have a negative impact on the sector. We do not expect a repeat of the quick rebound in industrial output that occurred following the Kobe earthquake in High oil prices have the ability to derail the economic recovery as do the inflationary pressures associated with increased food prices. The next move for interest rates globally seems to be higher. These pressures are taking place against the backdrop of fiscal tightening in a number of countries and the re-emergence of the sovereign debt problems in Europe. Given the current elevated base metal prices, GFMS believes that a constant stream of bullish news is required to support these levels. Given the concerns highlighted above, we do not believe that this news flow will be maintained and we are cautious about the prospects for further price increases. To receive a copy of GFMS latest supply-demand balance and price forecast on the base metals please contact: Charles.demeester@gfms.co.uk or Carmen.eleta@gfms.co.uk 10

11 The GFMS Team Precious Metals Philip Klapwijk Official Sector, Investment & Demand China, Americas and Europe Paul Walker Supply and Demand East Asia and Indian Sub-continent William Tankard Mine Production & Hedging Worldwide Philip Newman Supply and Demand USA, Middle East, UK Cameron Alexander Supply and Demand East Asia, Australia, Middle East Matthew Piggott Mine Production & Hedging Worldwide Neil Meader Demand Europe Ayako Furuno Supply & Demand Worldwide Oliver Heathman Mine Production & Hedging Worldwide Peter Ryan Senior Consultant PGMs Gargi Shah Supply & Demand, India Junlu Liang Official Sector, China Base Metals & Steel Neil Buxton Managing Director Shairaz Ahmed Metals Analyst Robert Smith Metals Analyst Nikos Kavalis Metals Analyst Yang Lu Metals Analyst Equity Research and World Gold Analyst Paul Burton Managing Director Immediate Market Analysis Rhona O Connell Managing Director rhona.oconnell@gfms.co.uk Mine Cost Studies & Benchmarking Mark Fellows Managing Director mark.fellows@gfms.co.uk Paul Wheeler Mining Analyst paul.wheeler@gfms.co.uk Nick Pickens Mining Analyst nick.pickens@gfms.co.uk George Coles Mining Analyst george.coles@gfms.co.uk Other Contacts Emma Hastings Office Manager / Sales & Marketing emma.hastings@gfms.co.uk Charles de Meester Sales Director charles.demeester@gfms.co.uk GFMS Limited Hedges House Regent Street LONDON W1B 4JE Carmen Eleta Regional Sales Director, Latin America, Southern Europe, France, CIS, India, Japan and Steel Worldwide carmen.eleta@gfms.co.uk Switchboard: +44 (0) Sales: +44 (0) Fax: +44 (0) info@gfms.co.uk Web: Jacky Foster Accounts jacky.foster@gfms.co.uk Vitaly Borisovich Consultant, Russia Copyright, May GFMS Limited 11