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1 : Daily Focus: Gasoil crack rally could end 22 March 2011 Focus: The gasoil crack rallied strongly last week in the wake of Japan s disaster. Per our Weekly Potential impact of Japan s disaster on the energy market of 17 March 2011, Japan is a net exporter for gasoil/diesel; it had an average export volume of 200kbd in It s likely that the gasoil crack rally last week was fuelled by short-covering from Japan s traditional export markets. However, we believe that the gasoil crack rally will end for three key reasons. With very little data flow today, base metals remain range-bound. This morning copper was the only metal to register a rise in LME warehouse inventory equal to 3,850mt. The majority of the metal went into Singapore and South Korean warehouses. Warehouse inventory for copper is now closing in on the high levels reached early last year around 146K mt. 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 Looking ahead, market will be again watching the weekly US oil inventory report closely tomorrow, particularly Cushing stock situation. However, the focus will be back to the persistent tensions in MENA, which is likely to pose further upside risks to oil prices and volatility. The increase in Chinese reserve requirements last Friday, has left precious metals markets virtually unscathed. Our analysis reveals that apart from a temporary kneejerk reaction, higher reserve requirements do not have a significant long-term impact on precious metals. Commodity price data (21 March 2011) Base metals LME 3-month Open Close High Low Daily change Change (%) Change in cash Cash Settle settle Cash - 3m Aluminium 2,588 2,571 2,580 2, % 2, Copper 9,520 9,400 9,483 9, % 9, Lead 2,710 2,645 2,669 2, % 2, Nickel 26,750 26,750 26,750 26, % 26, Tin 29,850 29,700 29,900 29, % 29, Zinc 2,320 2,281 2,319 2, % 2, Open Close High Low day/day Change (%) ICE Brent % NYMEX WTI % ICE Gasoil % API2 Q2' % ICE EUA Dec % AM Fix PM Fix High bid Low offer Closing bid Change (d/d) EFP's Gold 1, , , , , /0.3 Silver /-1.0 Platinum 1, , , , , /2.0 Palladium /2.0 Sources: Standard Bank; LME; BBG Please refer to the disclaimer at the end of this document.

2 Daily 22 March 2011 Focus: Gasoil crack rally could end The gasoil crack rallied strongly last week in the wake of Japan s disaster. Per our Weekly Potential impact of Japan s disaster on the energy market of 17 March 2011, Japan is a net exporter for gasoil/diesel; it had an average export volume of 200kbd in It s likely that the gasoil crack rally last week was fuelled by short-covering from Japan s traditional export markets. However, we believe that the gasoil crack rally will end for three key reasons: Global gasoil inventories remain very high. The latest weekly inventory data for Singapore and Europe (Amsterdam-Rotterdam-Antwerp as proxy) show that gasoil/middle distillate inventories remain at their seasonal highs across all three regions. Furthermore, the US distillate inventories are 4.5MB above its 5-yr high and 21MB above 5-yr average. Seasonal heating demand for gasoil is diminishing. The record cold weather in both Europe and the US during the past winter has boosted gasoil demand significantly. Nevertheless, it failed to draw down gasoil inventories, as noted above. As winter comes to an end in the North Hemisphere, seasonal demand for gasoil is to diminish. Refining runs are picking up. As a consequence of Japan s earthquake, about 1.5mbd refining capacity was shut in Japan. As the situation settles down, it appears only two refineries, totalling 0.36mbd, are likely to remain shut for a prolonged period time. The Singapore middle-distillate inventories 3,400 2,800 2,200 1,600 1,000 kte Jan Feb Mar Apr May Jul Aug Sep Oct Nov Dec Sources: International Enterprise; Standard Bank rest are in the process of resuming operation. In addition, those Japanese refineries unaffected by the earthquake have been increasing their throughput. In summary, our view is that the fundamentals for the gasoil remain weak with high inventories and diminishing seasonal demand. Therefore, the recent rally is not likely to run much further. Although the reduced refining capacity in Japan will support refinery margins and product cracks in general, we don t see significant upside in the margin and cracks. Instead, we view it as a hedging opportunity for margin and cracks. By James Zhang Base metals With very little data flow today, base metals remain range-bound. This morning copper was the only metal to register a rise in LME warehouse inventory equal to 3,850mt. The majority of the metal went into Singapore and South Korean warehouses. Warehouse inventory for copper in Asia is now closing in on the high levels reached early last year around 146K mt. Zinc is also finding better support this morning, trading firm in Shanghai and the LME. The zinc/lead spread is now at $330, down from $360 yesterday. While we continue to favour lead s fundamentals over that of zinc, lead has rallied strongly on the back of Japan s earthquake and nuclear reactor blow-up last week. But lead is finding strong resistance on approach of $2,700 and the metal has repeatedly failed to close above this level. As pointed out yesterday, we would not be surprised to see the lead/zinc ratio moving lower in coming days. Yesterday US existing homes sales data was poor, with 4.88m SAAR houses sold in Feb - well below expectations. For the metal market, such as copper, existing homes sales are only important as far as it shows normalization to the US housing market conditions. But existing homes use no metals and no energy to construct. As a result, from a commodity demand perspective, we are more interested in tomorrow s US new home sales. The market expects 290K annualized homes sold in Feb. We would not be surprised, based on seasonal weakness, if the number is below expectations. However, even if the data is in line with expectations, the number would still be very low in historical terms. In fact, US housing starts remain close to the lowest level seen in the past 50 years. The latest housing data, no matter what the actual print will be, will not be a positive number in the bigger scheme of things. 2 For base metals like copper, this is bearish from a US demand perspective. But we look at the copper market from a global perspective. We also estimate the copper market to be in a 385K mt deficit this year and a 562K mt deficit in 2012 (see our latest Standard Bank's latest Base Metals Monthly Report). Therefore, despite one of the largest US housing slumps in history, the copper market remains tight. By Walter de Wet

3 Daily 22 March 2011 Oil traded higher yesterday on continued air-strikes in Libya. Front-month WTI traded $1.26/bbl lower, to settle at $102.33/bbl, while front-month Brent gained $1.03/bbl, to close at $114.96/bbl. While April WTI approaches expiry today, the term structure of WTI remains stable, which signals that the storage concerns at Cushing habe eased to some extent. In contrast, the term structure in Brent weakened reflecting a short-term demand dip caused by European refinery turnaround. Net for last week, crude oil prices were broadly unchanged. Front-month WTI ended the week 9c/bbl weaker and front-month Brent was 9c/bbl higher. However, there were sharp daily volatilities during the past week, with weekly highs in Brent hit $114.90/bbl and weekly low reached $108.52/bbl, a range more than $6/bbl. The sharp inter-day moves have been pulled by bearish sentiments from Japan s nuclear concerns and bullish sentiments from persistent turmoil in the MENA region. Japan appeared to have made significant progress during the past few days in the battle to gain control over the nuclear reactors at Fukushima. Meanwhile, JX s 270kbd Negashi Refinery has resumed operation. It appears only two refineries, totalling 0.36mbd, are likely to remain shut for a prolonged period. In addition, those Japanese refineries unaffected by the earthquake have been increasing their throughput. The latest weekly CFTC report shows that Money Managers cut their net length in crude by 11% w/w on 15 March (futures and options combined). This is following an increase of 77% for the previous three-week period. CFTC also report that commercial hedgers net short position fell by 3.8% w/w as both consumers and producers appeared to slow down in their hedging activities. The net length held by non-commercials represents 8.8% of total open interest. With the persistent tension in the MENA region, the oil market is likely to attract further strong investment flows. In the financial market, global equity markets appeared to have recovered from the shock of Japan s earthquake and the subsequent nuclear fall-out. In contrast to the short-term bearish sentiment over Japan, the US continues to show healthy growth, with its manufacturing sector leading the way while housing market still lags. The Fed reiterated its accommodative policy in its latest FOMC statement last week. However, US inflation shows signs of acceleration, particularly in PPI, driven by high energy and food prices. To tame inflation, China raised its bank reserve ratio again last Friday, by 50 bps. As to the impact on the oil market, our analysis reveals that the effect of monetary tightening in China on oil prices is fairly benign. Currency devaluation and increasing reserve requirements appear to have no discernible impact. While credit rationing and higher interest rates do appear to have a noteworthy effect, these are relatively minor, compared to their impact on other commodities, especially the base metals. Looking ahead, market will be again watching the weekly US oil inventory report closely tomorrow, particularly Cushing stock situation. However, the focus will be back to the persistent tensions in MENA, which is likely to pose further upside risks to oil prices and volatility. By James Zhang continue to benefit from uncertainty over the situation in Libya and the ongoing efforts to bring the Fukushima nuclear plant under control in Japan. Silver has been leading the charge, supported by technical buying and shortcovering. Gold and PGMs have been tracking each other closely, posting moderate gains in overnight trade. However, volumes in Asia were not strong enough to push prices beyond key technical levels. For today, as focus returns to tensions in the MENA region we foresee further upside for precious metals. In addition, a weaker dollar (after last week s pledge by G7 nations to curb gains in the yen) is also lending support to the complex. Any strong indications that Japan s nuclear crisis might be coming to an end, could see safe-haven demand come off slightly, which would limit the upside for gold and silver. Platinum and palladium might benefit from such news, as this might raise optimism over a rebuild of the Japanese industrial sector (especially concerning auto manufacturing). The increase in Chinese reserve requirements last Friday, has left precious metals markets virtually unscathed. Our analysis reveals that apart from a temporary knee-jerk reaction, higher reserve requirements do not have a significant long-term impact on precious metals. Gold support is at $1,420 and $1,412. Resistance is at $1,437 and $1,444. Silver support is at $35.54 and $34.93, resistance is at $36.49 and $ Platinum support is at $1,709 and $1,727, resistance is at $1,759 and $1,772. Palladium support is at $730 and resistance at $ By Marc Ground

4 Daily 22 March 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 4,606,175 4,612, ,650-6, , , ,426 Copper 430, ,650 2,225 1, ,950 10, ,809 Lead 287, , ,000-1,000 79,375 17, ,306 Nickel 124, , ,824 7, ,783 Tin 18,250 18, , ,022 Zinc 736, , ,725 5, ,038 Shanghai 3-month forward prices COMEX active month future prices Metal Open Last 1d Change Open Close Change Change (%) Aluminium 16,700 16, Ali May' Copper 70,880 71, Cu May' % Zinc 17,820 18, ZAR metal prices Aluminium Copper Lead Nickel Tin Zinc ZAR/USD fix Cash 17,629 66,157 18, , ,944 15, month 18,108 66,217 18, , ,219 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 ($/mt) 1, , , , , Singapore Kero ($/bbl) % Rdam barges ($/mt) % Fuel Oil FOB ($/mt) Sing FO180 Cargo ($/mt) Thermal coal Q2-11 Q3-11 Q4-11 Cal 12 Cal 13 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 Apr'11 May'11 Apr'11 Apr'11 Apr'11 Feb'12 Apr'11 Settlement 1, , , , , Open Interest 500, ,076 19,899 33,272 1,134 99,513 2,190 Change in Open Interest 1, , , , Sources: Standard Bank; LME; Bloomberg 4

5 Daily 22 March 2011 Forecasts Base metals Base metals LME cash prices (US$/mt) Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg Aluminium Copper Lead Nickel Tin Zinc front-month prices Q1:11 Q2:11 Q3:11 Q4:11 Avg Avg WTI ($/bbl) Brent ($/bbl) ICE Gasoil ($/mt) Nymex RBOB Gasoline (c/gal) API2 Coal Cif ARA ($/mt) API4 Coal Fob Richards Bay ($/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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