abn oct2010 monthly

8/8/2019 ABN Oct2010 Monthly

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Price forecasts

13 October 1-month 2-month 3-month 12-month

Gold $/oz 1,366 1,340-1,420 1,365 1,300 1,260

Silver $/oz 23.53 23.50-25.00 24.00 23.00 22.00

Platinum $/oz 1,696 1,650-1,720 1,695 1,700 1,770

Palladium $/oz 587 570-620 600 620 560

Aluminium (3-month) $/tonne 2,425 2,300-2,450 2,400 2,300 2,390

Copper (3-month) $/tonne 8,411 8,250-8,600 8,000 7,895 8,250

Lead (3-month) $/tonne 2,434 2,250-2,400 2,300 2,200 2,400

Nickel (3-month) $/tonne 24,210 23,000-25,000 24,500 23,750 24,000

Tin (3-month) $/tonne 26,800 28,000-29,000 29,500 30,000 27,000

Zinc (3-month) $/tonne 2,410 2,350-2,460 2,350 2,280 2,100

Steel: (3-month) Med $/tonne 455 500 510 520 600

2010 av 2011 av 2012 av 2013 av 2014 av

Gold $/oz 1,218 1,425 1,165 921 900

Silver $/oz 18.96 24.71 19.25 17.18 17.00

Platinum $/oz 1,604 1,699 1,883 2,058 1,950

Palladium $/oz 505 562 639 720 600

Aluminium (3-month) $/tonne 2,164 2,200 2,496 2,667 2,900

Copper (3-month) $/tonne 7,386 8,227 8,796 8,896 7,950

Lead (3-month) $/tonne 2,166 2,303 2,142 2,171 2,200

Nickel (3-month) $/tonne 21,926 23,137 26,875 30,667 31,525

Tin (3-month) $/tonne 20,715 24,955 20,542 18,167 19,326

Zinc (3-month) $/tonne 2,158/ 2,258 3,408 3,671 3,200

Steel: (3-month) Med $/tonne 500 575 700 800 900

Source: VM Group italics denote revision from previous month

ABN AMRO Metals Monthly

Investment Research by VM Group October 2010

Precious metals

Base metals

Steel


2/35

Analysts:

Carl Firman

E-mail: [email protected]

Gary Mead


Marina Loterijman


Charles Monbiot


The Metals Monthly is produced as part of a joint venture

between ABN AMRO Bank N.V. and VM Group


3/35

Contents

Prices and stocks ....................................................................................... 2

Feature: How high and how far? ................................................................. 3

Gold ............................................................................................................ 8

Silver ........................................................................................................ 10

Platinum and palladium ............................................................................ 12

Aluminium ................................................................................................. 14

Copper ...................................................................................................... 16

Nickel ........................................................................................................ 18

Zinc .......................................................................................................... 20

Lead ......................................................................................................... 22

Tin .......................................................................................................... 24

Steel ......................................................................................................... 26

Fund activity ............................................................................................. 28

About VM Group ....................................................................................... 30

VM Group disclaimer and copyright .......................................................... 31

ABN AMRO disclaimer and copyright ....................................................... 32


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2

Prices and stocks

London PM fix precious metal prices, over past month: re-

based to 100

LME 3-month base metal and steel prices, over past

month: re-based to 100

Source: VM Group

Historical prices & base metal stocks

Prices 13 Oct2010

Past 12 months1 week

agoWoW

(%)1 month

agoMoM

(%)

12months

agoYoY(%) Av. 2009 Av. 2008Average High Low

Gold $/oz 1,366 1,168 1,366 1,032 1,345 1.5% 1,247 9.5% 1,060 28.9% 973 873

Silver $/oz 23.53 18.14 23.53 15.14 23.4 0.6% 19.9 18.2% 17.9 31.2% 14.7 15.15

Platinum $/oz 1,696 1,546 1,752 1,313 1,723 (1.6%) 1,545 9.8% 1,356 25.1% 1,205 1,599

Palladium $/oz 587 454 598 318 598 (1.8%) 518 13.3% 326 80.1% 264 357

Aluminium $/tonne 2,425 2,135 2,482 1,858 2,376 2.1% 2,114 14.7% 1,897 27.9% 1,703 2,659

Copper $/tonne 8,411 7,145 8,411 6,101 8,286 1.5% 7,545 11.5% 6,211 35.4% 5,186 7,030

Lead $/tonne 2,434 2,154 2,620 1,581 2,307 5.5% 2,200 10.6% 2,189 11.2% 1,738 2,136

Nickel $/tonne 24,210 20,601 27,595 15,925 24,730 (2.1%) 22,855 5.9% 18,225 32.8% 14,762 21,689

Tin $/tonne 26,800 18,108 26,800 14,185 26,450 1.3% 21,800 22.9% 14,275 87.7% 13,382 18,766

Zinc $/tonne 2,410 2,178 2,660 1,618 2,333 3.3% 2,156 11.8% 2,011 19.9% 1,687 1,924

Steel (Med) $/tonne 455 459 620 355 460 (5.4%) 510 (14.7%) 390 11.5% 364 747

LME Stocks 13 Oct2010

Past 12 months

1 weekago

WoW(%)

1 monthago

MoM(%)

12months

agoYoY(%) Av. 2009 Av. 2008Average High Low

Aluminium Tonnes 4,318,100 4,517,104 4,640,750 4,318,100 4,331,600 (0.3%) 4,400,575 (1.9%) 4,548,375 (5.1%) 4,318,100 4,517,104

Copper Tonnes 371,500 459,718 555,075 353,325 372,000 (0.1%) 390,450 (4.9%) 353,325 5.1% 371,500 459,718

Lead Tonnes 197,875 170,231 199,450 128,975 198,400 (0.3%) 190,625 3.8% 128,975 53.4% 197,875 170,231

Nickel Tonnes 124,176 138,937 166,476 115,668 123,222 0.8% 118,818 4.5% 122,700 1.2% 124,176 138,937

Tin Tonnes 12,465 21,598 27,905 12,150 12,275 1.5% 13,885 (10.2%) 26,450 (52.9%) 12,465 21,598

Zinc Tonnes 609,275 547,321 623,600 424,250 611,725 (0.4%) 619,575 (1.7%) 428,200 42.3% 609,275 547,321

80

85

90

95

100

105

110

115

120

125

13 Sep 20 Sep 27 Sep 04 Oct 11 Oct

Aluminum CopperLead NickelSteel Med TinZinc

90

95

100

105

110

115

120

13 Sep 20 Sep 27 Sep 04 Oct 11 Oct

Gold

Silver

Platinum

Palladium


5/35

3

Feature: How high and how far?

The degree to which base and precious metals prices rallied during Q3 2010 and

into Q4 2010 was phenomenal, and poses the obvious question how much

higher can they go? The star performer was tin which rose 43% over the period to

more than $25,000/t, while lead, palladium and copper brought up the rearguard,

rising 30%, 25% and 21%, respectively, to $2,302/t, $571/oz and $8,132/t. Gold,

which stole all the headlines, rose just 7% over Q3 but was up another 4% in

early October to hit a new record fix in London in the morning of 14 October, of

$1,380.75/oz. How much of this rally is justifiable, given the present shaky

economic climate is unclear; there are no historical precedents. But despite

appearances, not all is as positive as prices suggest. For now, prices are being

driven by expectations that emerging market demand will be huge, reinforced by a

weaker dollar and a second round of vast quantitative easing in the US; this is notincorrect, but the timing might be longer than the current surge implies. We

remain bullish regarding the longer term outlook, but cautious in the shorter term

for those metals with less appealing supply-demand fundamentals.

The centrepiece to the near-term metals outlook, and chief proponent of the Q3

2010 rally, is the now all but certain second round of quantitative easing by the

US Federal Reserve. Its become increasingly clear in the past couple of weeks

that the Fed which has the dual mandate of managing inflation as well as

ensuring full employment is more inclined to focus on the latter and let theformer go hang. There are more doves than hawks on the Federal Open Market

Committee (FOMC), the entity that sets US Fed monetary policy, and when the

FOMC next meets (2-3 November) the market now expects it to announce the

start of a fresh bout of quantitative easing, QE2, probably buying up $500bn of

long-term government debt. This will certainly inject a strong dose of inflation into

the US (and world) economy, but the FOMC firmly believes that the greater risk

right now is deflation, not inflation. If we are right in our assumption that the

November FOMC meeting will see QE2, then the dollar will remain weak and

commodities thereby relatively cheaper. Assuming the US Fed does elect to enteranother phase of quantitative easing in November 2010, which is currently built in

to metals prices, the race to the bottom of other currencies to fall in line with the

weaker dollar will most likely follow, and aggressively.

Largely forgotten over the Q3 2010 period was the risk of sovereign debt default

in the eurozone and its sluggish recovery, while the tough austerity measures

announced by many EU economies left little doubt that growth will be limited for

years ahead. To understand why the tepid recovery in the EU has had very little

effect on industrial metals prices, one only has to glance at the emergingeconomies and China in particular, where the long-term prospects for raw

PMI for China, eurozone and US,

July 2009-Sept 2010

45

47

49

51

53

55

57

59

61

63

Jul Oct Jan Apr Jul

Euro

zone

US

China

Source: ISM, Markit Economics

World industrial production actual

and forecast out to 2012

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

2002 2005 2008 2011

OECD IP Non-OECD IP

Source: VM Group


6/35

4

materials demand remains very convincing. Indeed, demand from the emerging

world for commodities is now setting the pace, with the financial crisis and

recession in the West only accelerating this geographic shift of the global engine.

Its becoming increasingly clear that the advanced economies influence indetermining the prices of industrial metals, through fundamentals alone, has

become extremely diluted.

China stands as a good proxy for the emerging world, with its demand for base

metals exceeding all expectations over the past two years. Chinas exports may

have suffered, as global demand collapsed in Q4 2008, but it escaped largely

unscathed from the financial contagion sweeping the developed world, and

redirected its energies internally. Such has been the countrys structural demand

that consumption growth of materials has not only been maintained but

Commodities: Change in price (%) of commodities in Q3 2010 and high and low range

-80% -60% -40% -20% 0% 20% 40% 60% 80%

10yr yieldRhodium

Cocoa, LIFFELean hogsCocoa, ICE Futures US

$ index (broad currencies)Henry Hub natural gas

$ index (major currencies)Cobalt

Regular gasolineCO2 yr 2CO2 yr 3

yuan/$Feeder cattle

Steel (Med)Lumber

LLDP plasticsWhite rice

RBOB gasolinePP plasticsSteel (Asia)

S&P 500Gold

Coal, Nymexsterling/$Platinum

Rough ricePork bellies

Live cattleWTI crude

FCOJeuro/$

UraniumBrent crude

Ethanol (CBOT)Soybeans

NickelPalm oil

Heating oilSoybean Oil

MilkMSCI emerging markets

ZincSilver

AluminiumCopper

PalladiumRobusta coffee

CottonLeadCorn

Arabica coffeeSugar, no.5

TinWheat (KCBT)

Sugar no.1 1Wheat (CBOT)

Range (low to high)

Financial assets

Losers Gainers

Performance in Q3 2010

Source: VM Group


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5

accelerated. This is likely to remain a long-term trend. Even if Chinese economic

growth weakens slightly in 2011, Beijing will find it extremely difficult, politically if

not economically, to curb expenditure on transportation, affordable property and

power infrastructure, all of which must continue expanding rapidly if the country isto fulfil its developmental goals.

Base and precious metals are now inexorably linked to this shift towards

industrialisation in China and the rest of the emerging world. This is why supply-

demand fundamentals have come back into focus alongside the macro drivers,

giving prices for some metals a boost while depressing others. A further twist to

spiralling upward metals prices will be given by the introduction of physically-

backed base metal exchange traded products the first announced by ETF

Securities on 11 October, with other vendors sure to follow. This will inevitably

push up the prices of those base metals that have the tightest set of supply-side

dynamics, although those base metals in structural oversupply (such as

aluminium and lead) look unlikely candidates for successful ETFs. Add in supply-

side issues that are already impacting tin, copper and zinc, plus finite supply

source weakness in the PGMs, and the recipe is set for prices to rise even further

over the next 18 months. But the extent to which prices rise will partly be

governed by the individual supply-demand fundamental characteristics of each

metal. In the short-term, once QE2 becomes a reality, we expect to see a mild

correction.

Those to watch, those to avoid

Tin and copper stand out as our pick of the pack of the base metals in 2011, while

in the precious metals we favour those with a large industrial demand component,

such as the PGMs and silver. We still expect the gold price to appreciate, but also

to underperform the other precious metals. 2011 will see more volatility as the

market attempts to guess when and by how much the US Fed will adjust interest

rates, if at all, while the weakening dollar could usher in a scramble for the bottom

as nations vie with each other to keep their currencies internationally competitive,leading to rising tensions. Golds status as a hedge against generalised risk will

mean it blossoms further to a peak of $1,530/oz in June 2011 in our view.

Tin

We are unashamedly medium-term tin bulls. The LME stands as the market of last

resort and, in tins case, this has been realised, as there is little in the way of

above ground stocks of tin elsewhere. Tin inventories on the LME stand at just 13

days of global consumption, having trended down consistently since mid-January

2010 to stand at a little more than 12,000t by mid-October. Although cancelled

tonnage is quite low, at 285t as at 12 October, the prospects of further drawdowns

Gold price (pm fix, $/oz) during Q3

period, 2006-2010, 100=1 June

80

85

90

95

100

105

110

115

Jun Jul Aug Sep

2010 2006

2007 2008

2009 2010

Source: LBMA, VM Group

LMEX index during Q3 period, 2006-

2010, 100=1 June

70

8090

100

110

120

130

140

Jun Jul Aug Sep

2006 2007 2008

2009 2010

Source: LME, VM Group

Change in LME tin stocks during the

Q3 period, 2000-2010, 000 t

-11

-6

-1

4

9

14

1 2 3 4 5 6 7 8 9 10



8/35

6

are likely in Q4 2010 since, apart from in Q4 2005, tin stocks have been drawn

down continuously since late January 2010. This should result in the cash to

three-month spread heading into deeper backwardation and for tin prices to spike

even higher, even though they have recently reached new nominal peaks.Underpinning prices will be the continuation of Indonesian supply issues and lack

of new supply coming online to meet the expected growth in demand for

electronic soldering purposes. One caveat is whether Chinese producers become

incentivised to expand production, should tin prices continue to rise. This is not

likely to occur in Q4 2010, since China has cut tin smelter output in a drive to

meet a five-year energy efficiency target. The tin market will be in deficit by at

least 14,000t in 2010, widening to 19,000t in 2011 on a 2.7% growth in demand

but with a mere 1.2% improvement in supply.

Copper

Coppers bull story is based on very solid supply-demand problems. Large

established mines are consistently encountering lower ore grades and higher

costs and these elderly mines are regularly failing to hit production targets. There

is a dearth of large copper resource discoveries in politically stable jurisdictions.

China and other emerging economies have a long-term insatiable appetite for

copper. These are the main price drivers. The refined copper market is already in

deficit, with low and diminishing concentrate availability, as evidenced by very low

treatment and refining charges, all of which is impacting refined output. Demandgrowth meanwhile has outpaced supply growth and will do so again in 2011,

leaving as a buffer just the large overhang of exchange stocks and those

purportedly held by Chinas State Reserves Bureau and other off market entities.

This off market volume will alleviate some of the expected copper market

tightness ahead, but it is unclear how large these inventories are, and how fast

they might leak back into the market should the copper price challenge or even

surpass its record high of $8,940/t in July 2008. Higher copper prices will also

tempt more scrap supply into the market, but the question remains whether

existing inventories and scrap supply will be enough to counter rising emerging

world demand and weak mine production growth.

Zinc

Zinc has taken a beating in 2010 due to the failure of producers to restrain supply

to keep pace with shrunken demand. Even so, zinc supply and demand growth in

2010 has been stronger than all the base metals, except for aluminium. The

refined zinc surplus this year might remain large, at ~520,000t, from 725,000t in

2009. At first glance this estimate is bearish, but this surplus is necessary to stave

off the tightness in the market that we believe lies ahead, since like copper there is not enough new zinc mine supply coming through to replace depleted

Gold/copper correlation, 1 Jan 2010

13 Oct 2010

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

Jan Mar May Jul Sep

Source: VM Group

Zinc stocks on the LME and SHFE

since the start of 2010, Mt

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Jan Mar May Jul Sep

SHFE LME



9/35

7

reserves. In the immediate term the stubbornly high stocks in the LME and SHFE

should see zinc underperform the base metals pack, but we anticipate the

surplus narrowing in 2011 and, with the possible introduction of a zinc-backed

ETF, we expect the zinc price to flourish in the latter part of 2011 as the marketbegins to tighten.

PGMs

Soaring Chinese car sales and a tepid recovery in US and EU sales in 2011 will

exert strain on PGM production in South Africa, which is beset with power supply

problems. This will support prices, leaving aside the perennial problems South

Africas deep level PGM mines encounter their record of first setting and then

subsequently under-achieving production targets is second to none. We expect

palladium to outperform platinum the platinum:palladium ratio has trended

lower for much of 2010 to mid-October on investment demand based on

expected continued strong growth in Chinese car sales, where the lions share of

new passenger cars are gasoline fuelled and thus favour greater palladium

loadings in the autocatalyst.

Aluminium

Even an aluminium-backed ETF will do little to dent the huge volume of

inventories held both on and off market. We do not envisage more than 400,000t

of ETF offtake in the first year of its introduction, which is a drop in the ocean of

inventories. To prospective ETF investors the thought of paying as much as 3%

in warehousing overheads in a market obviously awash with metal may entice

only the most ardent aluminium bull. Although ETF Securities has not yet

released details of the individual base metal ETFs, and we expect the vendor to

have negotiated favourable warehousing deals, we have yet to be persuaded that

the aluminium price in 2011 has much scope to rise higher, although a general

rise in other base metals will necessarily pull up aluminium, too. Existing

production capacity remains more than enough to meet demand growth next year

and, as yet, there is no telling when the metal held in term financing deals will

end.

VM Groups average price forecast by quarter, Q4 2010 Q4 2011

Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011

Gold, $/oz 1,355 1,410 1,496 1,410 1,336

silver, $/oz 23.66 23.16 24.80 26.93 24.66

platinum, $/oz 1,685 1,677 1,700 1,631 1,787

palladium, $/oz 589 577 562 528 580

Copper, $/t 8,025 8,283 8,417 7,792 8,417

nickel, $/t 24,083 21,417 24,000 22,874 24,257

aluminium, $/t 2,347 2,117 2,135 2,187 2,363lead, $/t 2,320 2,263 2,287 2,204 2,458

zinc, $/t 2,230 2,100 2,250 2,151 2,533

tin, $/t 27,500 25,000 23,333 22,652 28,833

Platinum/palladium ratio since 1

Jan 2010 to 13 Oct 2010

70

80

90

100

110

Jan-1 0 May-1 0 Se p-1 0



10/35

8

Gold

Gold enjoyed another month of record-breaking prices as investment demand

soared on the back of a weakening dollar and the likelihood of further quantitativeeasing. The US Federal Reserve announced on 21 September 2010 that it was

prepared to provide additional accommodation if needed as inflation remains well

below target and unemployment levels stubbornly high. The gold price rallied,

reaching a monthly high of $1,307/oz on 29 September in London. The upward

momentum continued into October following the release of the minutes from the

Feds September meeting. The report published on 13 October - confirmed the

US central banks readiness to provide additional monetary policy accommodation

if the unemployment rate or inflation continued to come in below levels consistent

with its mandate. The London pm gold fix reached another an all-time nominal

high of $1,373/t on 14 October.

We assume that when the Fed meets on 2-3 November it will decide to buy upto $500bn of long term government bonds. This will have the following implications:

the dollar will remain weak/weaken further (making commodities cheaper);

bubbles will emerge in stock markets; physical assets will become more sought

after; the risk of uncontrollable inflation appearing a couple of years down the line

will be higher; and large exporting nations whose currencies become even stronger

against the dollar will start to suffer and their governments will consider retaliatory

moves. All of this is good for gold but will there be another surge in prices? Maybe

not - since the Fed raised expectations of a second round of quantitative easing on

21 September, the gold price has risen 7.7%, its largest three-week rise in more

than five months. The immediate impact of any QE2 has probably already been

factored into the price.

Recent movements in ETFs reflect the growth of bullish sentiment. Inflows intothe 17 ETFs we follow have been positive in each of the three weeks from 10

September, rising to 66.84 Moz. The SPDR product in the US led the advance with

an increase of 0.28 Moz. There were also flows into non-US funds, which

increased by 0.17 Moz over the same period.

AngloGold Ashanti on 7 October became the last gold mining major to unwindits gold hedge book, providing the company and its shareholders with full exposure

to the prevailing gold price. The cost of closing out all future hedge contracts

amounted to a mammoth $2.63bn, representing an average buy-back of $1,300/oz.

The reaction to this was rather simplistic. Most saw it as yet another bullish

indicator but there is a deeper and less optimistic interpretation. The end of the

dehedging era means that gold miners no longer have the option of buying back

gold from banks. The gold price will instead be at the mercy of central banks and

speculative investors to a degree that has not been the case for many years. The

unspoken question who is going to be a big gold buyer in years to come, if not

the miners themselves? is an underlying concern which could not be more

Gold, London PM fix, $/oz

1,200

1,220

1,240

1,260

1,280

1,300

1,320

1,340

1,360

1,380

1,400

1 3-Sep 23 -Sep 03-Oc t 13-Oc


Gold price in various currencies,

three months ago = 100

90

95

100

105

110

115

13-Jul 13-Aug 13-Sep

Dollar RupeeEuro


Shanghai Gold Exchange, lots/day

(average past 22 days)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Oct-09 Apr-10 Oct-10

Source: VM Group, SHFE


11/35

9

clearly shown than by the $20/oz fall shortly after AngloGolds dehedging

announcement in early afternoon trading on 7 October.

Central banks have been net buyers of gold since May 2009 to August 2010 to

the tune of 92.6t, while previously they were net sellers of gold. If this trend

continues it will help to bridge the gap vacated by de-hedgers; but is a drop in the

ocean from the almost 3,000t bought back from the global hedge book since 2001.

Short-term outlook

The last remaining gold bear has left the room in embarrassment. The Federal

Reserve, may be about to give the gold market bulls what they have been

warning for years a massive new dose of inflationary cheap money in a bid

to pull down US unemployment from almost 10%. With record low interest

rates and the loosest monetary policy in decades, gold will prosper. Right now

the fear is all about deflation. Its possible the Fed is right, and that the US

economy is on track to see extremely poor GDP growth rates for years ahead

in which case its next injection of liquidity will be a timely boost. In any case

however it will reinforce those who regard gold as the only true safe haven in

town and their ranks are growing. Short-term London pm fix: $1,340/oz-

$1,420/oz.

Gold forward curve (Comex), 1st

position = 100, various dates

98

100

102

104

106

108

110112

114

1 13 25 37 49

1yr ago

1m agoLatest


Gold ETF offtake, tonnes

(30)

(20)

(10)

0

10

20

30

09-Jul 06-Aug 03-Sep 01-Oct

Source: VM Group

Lease rates, 1m and 12m, % per

annum

(0.2)

(0.2)

(0.1)

(0.1)

0.0

0.1

0.1

0.2

0.2

0.30.3

0.4

13-Sep 23-Sep 03-Oct 13-Oc

Gold - 12m

Gold - 1m

Source: VM Group

Gold supply & demand balance, tonnes

2008 2009 2010f

Supply

Mine supply 2,347 2,465 2,495

Scrap recycling 1,185 1,408 1,339

Hedging 33 74 65

Central Bank sales 310 397 161

Total supply 3,875 4,330 4,059Demand

Jewellery fabrication 1,976 1,672 1,424

Legal tender coins 225 234 296

Electronics 422 375 356

Other end uses 313 297 275

ETFs 320 576 563

Central Bank purchases 215 437 223

Dehedging 373 321 105

Total demand 3,842 3,912 3,241

Residual 33 432 818

Source: VM Group


12/35

10

Silver

Silver fixed at a monthly high of $22.07/oz in London on 30 September 2010,

before rising to fix at $24.49/oz on 14 October, its highest level since 1980.Volatility in the currency markets has bolstered silver prices since the start of

2010, which have increased by 44%, compared to golds 26%. Silvers strong

performance has pushed the gold/silver price ratio to a 12-month low of 59 as at

the end of September, 6 points above the 40-year average. The acceleration of

silver prices in October pushed the ratio down by a further 2 points, reaching 57

on 14 October.

The metal is benefiting from a surge in speculative demand, with investorsopting to buy cheaper safe haven assets amid concerns over the health of the

global economy. Inflows into the ETFs have been positive in each week since 23July, rising during that time from 412 Moz to 453 Moz. The US iShares product

led the advance with an increase of 28.95 Moz. There were also flows into non-

US funds, which increased by 10.09 Moz over the same period. Between 1 June

2010 to mid-October, silver ETF holdings have advance almost 12%, compared

with less than 5% for palladium and less than 2% for platinum and gold.

High silver prices are also being supported by a strong recovery in industrialdemand. The electronics sector in China is estimated to have grown by 15%

since the start of 2010, resulting in a 41% increase in Chinese imports of silver in

H1 2010, compared with the same period of last year. As China and otherdeveloping nations emerge out of recession, a further surge in physical demand

may occur and in the longer term, demand will surge on the back of silvers use

as a superior conductor and biocide.

Short-term outlook

The outlook for the silver price remains promising. Its precious image is

receiving growing interest from cautious investors while its industrial

usage is certain to flourish. As precious metal prices continue on their

upward trend, we expect silver to gain more ground on gold before the end

of the year. Short-term London fix: $23.50/oz-$25.00/oz.

Silver supply & demand balance, tonnes

2008 2009e 2010f

SupplyMine supply 21,398 22,058 22,793

Recycling 12,951 12,752 11,978Government 500 500 250Total supply 34,849 35,310 35,021

DemandJewellery and Silverware 7,784 7,068 6,971

Industrial 4,327 3,553 3,259Investment 6,600 6,260 6,385

Total demand 28,512 28,517 27,805

Residual 6,337 6,794 7,216

Source: VM Group

Silver, London fix, $/oz

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

13-Sep 23-Sep 03-Oct


Lease rates, 1m and 12m, % per

annum

(0.5)

(0.4)

(0.3)

(0.2)

(0.1)

0.0

0.1

0.2

0.3

13-Se p 23-Se p 03-Oct 13-Oct

Sil ver - 12m

Silver - 1m


Silver ETF offtake, weekly, tonnes

(50)

0

50

100

150

200

250

300

350

02-Ju l 30-Jul 27-Aug 24-S ep

Source: VM Group, ETF providers


13/35

11

Gold and silver data

Gold CFTC net long position & price Gold in current $/oz and 2009 $/oz Gold/oil ratio, past 3 years

400

500

600

700

800

900

1,000

1,100

1,200

1,3001,400

Oct-09 Feb-10 Jun-10

0

100

200

300

400

500

600

700

800

9001,000

TonnesPrice, $/oz

0

200

400

600

800

1,000

1,200

1,400

85 90 95 00 05

2009

Current

0

5

10

15

20

25

30

Oct-07 Oct-08 Oct-09 Source: VM Group, CFTC Source: VM Group Source: VM Group

Gold/silver ratio, past 3 years Gold dehedging, tonnes/quarter Central bank gold data, August 2010

40

45

50

5560

65

70

75

80

85

90

Oct-07 Oct-08 Oct-09 (250)

(200)

(150)

(100)

(50)

0

50

100

01 03 05 07 09

Country/institution Tonnes

IMF (18.48)

Kazakhstan (3.11)

Others (0.15)

Total sales (21.74)

Russia 9.27

Others 0.12

Total purchases 9.39Net change (18.48)

Source: VM Group Source: VM Group Source: IMF, International Financial Statistics &

national country websites. Not all country changes

shown

Silver CFTC net long position & $/oz Silver in current $/oz and 2009 $/oz Silver/copper ratio, past 3 years

4

9

14

19

24

29

Oct-09 Feb-10 Jun-10

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

$/oz Tonnes

0

5

10

15

20

25

85 90 95 00 05

2009

Current $

0

20

40

60

80

100

120

140

160

Oct-07 Oct-08 Oct-09 Source: VM Group, CFTC Source: VM Group Source: VM Group


14/35

12

Platinum and palladium

The past few months have been a good time to be long in palladium, as it has

risen by 31% since 1 June 2010, to reach ~$600/oz by mid-October, its highestlevel since 2001, outpacing both platinum and gold. Palladium has benefited

largely from soaring car sales in China and other emerging markets and this has

not been lost on the investment community.

Palladium ETF holdings have risen by more than 4% in the period 1 June to15 October, to a record 1.89 Moz. This compares with just 1.1% and 1.5% for

platinum and gold, respectively, but lower than the remarkable 11.8% increase in

silver ETF holdings. The palladium net long position on Nymex has increased by

23% over this same period, which is still off Mays highs. With this in mind and the

21% fall in the net futures position on Tocom, we suspect that physical demandhas played a larger role in palladiums advance than purely speculative futures

exchange investment.

Cars sold in China are mostly gasoline engine rather than diesel enginevehicles and therefore favour palladium over platinum in autocatalyst loadings.

With car sales in the US and EU remaining constrained, it is China that has led

the way in terms of numbers of vehicles being sold. Sales of new passenger cars

in China stood at annualised 14.72m units in September, up from 12.35m units in

the same month in 2009. Some estimates have Chinese car sales clocking up as

much as 17m units by the end of 2010, which means sales will rocket in Q4 2010.Chinas imports of palladium reached 0.7 Moz in the first eight months of 2010, up

53% and 47% on the same periods in 2009 and 2008, respectively. Palladium

exports from Hong Kong, much of which is destined for mainland China, have

leapt 468% on the year, to 0.25 Moz in the first eight months of 2010.

Swiss palladium exports have risen by 45% in the first eight months of 2010,to 1.85 Moz, with much of this metal destined for the Chinese and Honk Kong

markets, as well as going to London vaults to satisfy investment demand.

Short-term outlookPalladiums short to medium-term prospects appear more bullish than that

of platinum purely on the basis of Chinese car sales. But the improving

share of diesel engines in the EU is positive for platinum and we expect

both metals to perform well in 2011, especially with the ongoing risks that

South Africa will face a power supply crunch sooner or later. Short-term

London fix: $1,650/oz-$1,720/oz for platinum and $570/oz-$620/oz for

palladium.

Platinum price, PM fix, $/oz

1,400

1,420

1,440

1,460

1,480

1,500

1,520

1,540

1,560

1,580

1,600

10-Aug 20-Aug 30-Aug 09-Sep

Source: LPPM, VM Group

Palladium price, PM fix, $/oz

450

460

470

480

490

500

510

520

530

540

550

10-Aug 20-Aug 30-Aug 09-Sep

Source: LPPM, VM Group

Platinum/palladium price ratio

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Dec-06 Dec-07 Dec-08

Source: VM Group


15/35

13

PGMs data

US & China car* monthly sales, million

units

Top four European car markets sales,

monthly, million units

Platinum turnover on the SGE, rolling

3m average, annualised, oz

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Aug-07 Aug-08 Aug-09 Aug-10

US China

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

Aug-07 Aug-08 Aug-09 Aug-10

France Germany

UK Italy

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Source: VM Group, national data. * China includes

commercial vehicles.

Source: VM Group, national data Source: VM Group, SGE

Palladium ETFs weekly offtake, oz Platinum ETFs weekly offtake, oz South Africa PGM output, 2005=100

(80,000)

(60,000)

(40,000)

(20,000)

0

20,000

40,000

11-Ju n 09-Ju l 06-Au g 03-S ep

ETFS US

ZKB

ETFS UK

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

11-Jun 09-Jul 06-Au g 03-Se p

ETFS US

ZKB

ETFS UK

0

20

40

60

80

100

120

140

Jul -07 Jul-08 Jul-09 Jul -10 Source: VM Group, company data Source: VM Group, company data Source: VM Group, SSA

Platinum supply & demand balance, 000 oz Palladium supply & demand balance, 000 oz2008 2009e 2010f 2008 2009e 2010f

Supply SupplyMine supply 5,964 6,020 6,160 Mine supply 6,345 6,390 6,480

Scrap recycling 1,457 1,450 1,518 Scrap recycling 1,392 1,356 1,558

Total supply 7,421 7,470 7,678 Total supply 7,737 7,746 8,038

Demand Demand

Autocatalysts 3,538.0 2,700.0 3,100.0 Autocatalysts 4,411 4,000 4,600

Jewellery 1,710.0 2,500.0 2,150.0 Jewellery 1,022 1,075 1110

Other industrial 1,813 1,571 1,505 Other industrial 2,218 2,093 2,111

Total demand 7,061 6,771 6,755 Total demand 7,561 7,168 7,821

Residual 360 699 922 Residual 86 578 217

Stock movements Stock movements

ETF inflows 102 380 633 ETF inflows 280 502 1124

Russian stock sales 1,000 1,000 850

Unknown/implied investment 258 319 289 Unknown/implied investment 705 1,076 (57)


16/35

14

Aluminium

The aluminium price has been swept up by the dash towards tangible assets

by investors driven by a potential second round of quantitative easing in the US.However, the enforced closures of smelters in China, as Beijing looks to hit a

five-year energy efficiency target in 2010, has added a much needed boost from

a fundamental perspective. Chinese aluminium production is likely to remain

subdued for the rest of 2010, after mirroring the excesses of the steel sector prior

to the government clampdown. This should see its exports of aluminium products

capped (primary aluminium exports are heavily taxed, while aluminium products

are not) and perhaps alleviate Western world concerns of cheap Chinese-made

products swamping the international market.

Aluminium demand outside of China is booming, with North Americandemand up 15% year-on-year, to 3.9 Mt, in the first eight months of 2010, anddemand from the EU up 18%, to 4.4 Mt over the same period. However, some of

this is due to restocking, in our view, and will not be repeated in 2011. While

demand should still remain healthy in 2011, high aluminium stocks on the LME

and SHFE and the existence of huge off market stocks, and ample excess

production capacity, will be more than able to cope with any demand growth in

the medium-term and will cap prices. Also, metal that is locked in the LME on

financing term deals, taking advantage of the contango in aluminiums nearby

spread relative to the cheap cost of capital, is a ticking time bomb. When the US

Fed decides to increase interest rates, which we believe will not happen until

before late 2011 at the earliest, then this metal will become available, which is

likely to be very bearish for prices.

Short-term outlook

Aluminium may have further upside due to macro drivers and the closure of

some smelters by Beijing, but ultimately it has the weakest set of short to

medium-term fundamentals of all base metals. We therefore see the rise in

the aluminium price as short-lived and expect it to be one of the worst

performers in 2011. Short-term LME three-month aluminium price: $2,300/t-

$2,450/t.

Chinese aluminium and alumina prices, yuan/t

14 October 2010 Current YoY % chg Last mth YoY % chg

SHFE spot price 16,050 8% 15,365 4%

SHFE three-month price 16,345 9% 15,660 5%

SHFE six-month price 16,680 12% 15,985 -93%

SHFE stocks, tonnes 494,782 116% 491,488 114%

Chinese aluminium ingots (99.7%min) 16,125 8% 15,285 3%

Chalco alumina prices 2,750 4% 2,750 8%

Chinese alumina (Australian import) 2,875 4% 2,925 9%

Aluminium price, LME, $/tonne

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500

2,600


3m 27m


Aluminium stocks, LME, Mt

4.10

4.20

4.30

4.40

4.50

4.60

4.70

Oct-09 Feb-10 Jun-10 Oct-10


Aluminium forward curve, LME,

various dates, spot price = 100

95

100

105

110

115

120

125

Spot 3m 15m 27m 63m

13/10/2010

1m ago

1yr ago



17/35

15

Aluminium data

Aluminium output by region, monthly,

Mt

SHFE/LME price differential, $/t Japanese domestic shipments of

extruded products, 000t

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2003 2005 2007 2009

China

Rest of worldEurope

Americas

(500)

(400)

(300)

(200)

(100)

0

100

200

Oct-09 Mar-10 Aug-10

0

10

20

30

40

50

60

70

80

90

Oct

07

Jun

08

Feb

09

Oct

09

Jun

10 Source: IAI, VM Group Source: SHFE, LME, VM Group Source: Japan Aluminium Association

Unwrought aluminium producer stocks,

Mt

Chinese imports/exports of unwrought

aluminium and aluminium products,

000t

US output, alumina and aluminium,

100=2002

0.0

0.5

1.0

1.5

2.0

2.5

99 01 03 05 07 09 (400)

(300)

(200)

(100)

0

100200

300

400

500

06 07 08 09 10

(400)

(300)

(200)

(100)

0

100

200

300

400

500

600Exports

Imports

Net

60

65

70

75

80

8590

95

100

105

2006 2007 2008 2009 2010 Source: IAI, VM Group Source: China Customs Source: Federal Reserve, VM Group

Aluminium supply & demand balance, 000t

2006 2007 2008 2009 2010 2011

SupplyChina 9,352 12,605 13,247 13,483 16,655 18,250

North America 5,334 5,643 5,783 4,762 4,775 4,801Europe & CIS 9,197 9,665 9,997 8,774 8,792 8,800Rest of world 10,029 10,181 10,588 10,438 10,925 11,495

Total world output 33,912 38,094 39,615 37,457 41,148 43,346Year-on-year % chg 6.4% 12.3% 4.0% (5%) 9.9% 5.3%

DemandTotal world consumption 34,121 37,765 38,265 35,721 40,115 42,823

Year-on-year % chg 6.5% 10.7% 1.3% (7%) 12.3% 6.7%

Implied market balance - 209 329 1,350 1,736 1,033 523

Total stocks 3,671 4,248 4,987 6,695 7,674 7,913

Average 3-m LME price ($/t) 2,593 2,662 2,626 1,703 2,125 2,220

Source: IAI, WBMS, VM Group


18/35

16

Copper

The copper price is benefiting from the weak dollar and on its own set of

convincing supply-demand fundamentals. The price has trended higherthroughout Q3 2010 and now threatens to reach its all-time nominal high of

$8,930/t (set in July 2008). We are forecasting a deeper deficit in 2010 of

129,000t, moving to a large deficit of 442,000t in 2011, as a number of dynamics

weigh on the market.

On the demand side, Chinas appetite for copper is now and will remain verystrong, with September 2010 imports of unwrought copper and copper products

down just 2.9% month-on-month, to 368,410t. In the first nine months of 2010

imports of unwrought copper and products are on par with the record breaking

volumes seen in 2009 and are up 75% on the same period in 2008 and 57% on2007. Chinas production of refined copper however is up 24% in the first eight

months of 2010 from year ago levels, to 3.45 Mt, implying that its copper demand

has strengthened. Demand elsewhere has also grown. In the US, copper demand

has risen 5% in H1 2010 vs. H1 2009, while in the EU it is up 7% and in Japan up

37%.

It is on the supply side however that the copper price will find most of itssupport. The under-performance of many of the large and mature copper mines

and the decline in the rate of discovery of replacement reserves suggests that

supply will have a difficult task in keeping up with growing demand. Throw inlabour disputes, since a high copper price is sure to lead to calls for wage

increases, and other unforeseen risks, and deficit territory is assured.

Short term outlook

In 2011 China will continue to dominate global copper usage, which could

rise more than 5%, and we expect improving consumption in the US and EU

as economic recovery becomes more certain. The copper market is already

in deficit and is likely to remain so from now at least through 2012. Copper

exchange stocks (LME, SHFE and Comex) are all in decline, and although

US dollar fears are currently built into the copper price, we believe that the

metal is supported by its own fundamentals and will go on to record new

record highs in the near future. Short-term, LME three-month copper price:

$8,250-$8,600/t.

Chinese copper prices, yuan/t (unless stated otherwise)

14 October 2010 Current YoY %chg Last mth YoY %chg

SHFE spot price 62,110 27% 59,350 119%


SHFE six-month price 62,300 28% 59,330 119%

SHFE stocks, tonnes 114,302 14% 98,025 101%

Chinese copper cathode (99.95%) 62,850 29% 59,150 24%

Current Last mth 6m ago

Copper TC (cif) China ($/t) 17.5 25.0 10.5

Copper price, LME, $/tonne

6,000

6,500

7,000

7,500

8,000

8,500

9,000


3m

27m

Source: VM Group

Copper stocks, LME, Mt

0.0

0.1

0.2

0.3

0.4

0.5

0.6


Source: VM Group

Copper forward curve, LME, various

dates, spot = 100

85

90

95

100

105

110

Spot 3m 15m 27m 63m

13/10/2010

1m ago

1yr ago

Source: VM Group


19/35

17

Copper data

World mine capacity utilisation, % Global copper concentrate output,

monthly, 000t

Apparent copper usage, monthly, 000t

65

70

75

80

85

90

95

2007 2008 2009 2010 800850900950

1,0001,0501,1001,1501,2001,2501,3001,3501,4001,450

Jan-07 Jan-08 Jan-09 Jan-10 0

100

200

300

400

500

600

700

800

2007 2008 2009 2010

EU-15

United States

China

Source: ICSG, VM Group Source: ICSG, VM Group Source: ICSG, VM Group

Monthly refined copper production

(primary and secondary), 000t

China implied copper demand & copper

output, monthly, 000t

US copper imports in million dollars

0

500

1,000

1,500

2,000

2007 2008 2009 2010

Rest of World China

India Japan

Russian Fed US 0

200

400

600

800

1,000

1,200

Aug 07 Aug 08 Aug 09 Aug 10

Implied demand

Products output

0

100

200

300

400500

600

700

800

900

1,000

Jul 07 Jul 08 Jul 09 Jul 10

Source: ICSG, WBMS, VM Group Source: China customs, NBS, VM Group Source: US Census Bureau, VM Group

Copper supply & demand balance, 000t

2006 2007 2008 2009 2010 2011

SupplyTotal mine production 14,983 15,439 15,450 15,262 15,369 15,561Year-on-year %change 0% 3% 0% (1.2%) 0.7% 1.3%

North America 2,150 2,169 2,182 2,002 1,862 2,151Latin America 3,555 3,600 3,515 3,564 4,499 4,612

Asia (ex China) 3,974 4,167 4,121 3,952 3,520 4,065China 2,822 3,222 3,597 4,005 4,725 5,068

Europe 3,551 3,578 3,698 3,522 3,659 3,787Total refined production 17,361 18,011 18,232 18,288 18,837 19,534

Year-on-year %change 5% 4% 1% 0.3% 3.0% 3.7%Demand

Total refined consumption 17,148 18,048 18,027 17,821 18,966 19,976

Year-on-year %change 3% 5% 0% (1.1%) 6.4% 5.3%Implied balance 213 (37) 204 467 (129) (442)

Total stocks 1,093 1,422 1,158 1,263 1,098 656Average 3-m LME price ($/t) 6,861 7,096 6,871 5,186 7,331 8,317

Source: ICSG, WBMS, VM Group


20/35

18

Nickel

There is a flood of nickel supply coming in the next two quarters, promising to

move the market from balance in 2010 to surplus in 2011. The initial spike indemand from the stainless steel sector has come and gone, as evidenced by the

slip in stainless steel scrap demand in H2, and while we expect a pickup in nickel

demand in Q4, it will not keep pace with supply.

The strikes at Vales Voiseys Bay and Sudbury nickel operations in Canadaspanning H1 2009 and H1 2010 (the strike at Voiseys Bay has yet to be

concluded), coupled with strong demand growth, supported the nickel price and

saw LME nickel stocks decline from February 2010 onwards. But the settlement

of the strike at Vales Sudbury operation in July 2010 and the seasonal re-

opening of Norilsks Nickel shipments from the port of Dudinka in Russia after thelate spring melt has seen LME stocks inch higher since mid-August. The arrival of

more metal on the market from Vales Goro high pressure acid leach mine

(HPAL) in New Caledonia and other sources, including Vales Ona Puma project

in Brazil, Sherritt Internationals Ambatovy project in Madagascar and First

Quantums Ravensthorpe project in Australia, could add as much as 130,000t of

nickel in 2011, about 10% of global supply. Without a strong demand response,

which is not likely given that the nickel price is $25,000/t, it is likely that LME

stocks will stay high and pressure prices.

Matters will be compounded further once Vale negotiates a settlement withunionised workers at its Voiseys Bay mine, which could then be rapidly rampedup to as much as 70,000t/year. Additionally, Chinese nickel pig iron (NPI)

production might remain constrained due to government enforced cutbacks, but

the current nickel price leaves most of this small-scale supply profitable.

Short-term outlook

The nickel market balance is heading in the wrong direction while the price

has risen. High prices will not help demand rise nor prevent Chinese NPI

ramping up after Beijing eases its temporary policy of enforced closures.We estimate a global refined nickel surplus in 2011, even factoring in

hiccups in the production ramp ups at various HPAL projects. Short term

LME three-month nickel price: $23,000/t-$25,000/t.

Chinese nickel and stainless steel prices, yuan/t


Nickel cathode (Jinchuan, 99.9% min) 181,500 36% 170,500 28%

Nickel cathode (Norilsk 99.9% min) 181,000 37% 169,500 29%

Nickel cathode (Vale Inco, 99.9% min) 191,500 26% 181,500 24%

Stainless steel

Hot rolled sheet (304) 22,450 25% 21,950 28%

Cold rolled coil (304) 23,550 14.0% 22,950 13%

Nickel price, LME, $/tonne

17,000

18,000

19,000

20,000

21,000

22,000

23,000

24,000

25,00026,000


3m

27m

Source: VM Group

Nickel stocks, LME, Mt

0.00

0.05

0.10

0.15

0.20


Source: VM Group

Nickel forward curve, LME, various

dates, spot = 100

82

84

86

88

90

92

94

96

98

100

102

Spot 3m 15m 27m

13/10/2010

1m ago

1yr ago

Source: VM Group


21/35

19

Nickel data

Chinese imports of nickel ore, 000t Chinese refined nickel output and

imports, 000t

Nickel mine production, year-on-year %

change

-

500

1,000

1,500

2,000

2,500

3,000

Jul -07 Jul -08 Jul -09 Jul -10 0

10

20

30

40

50

60

70

Mar-08 Feb-09 Jan-10

Imports

Production

-100%

-50%

0%

50%

100%

150%

Jan 08 Jan 09 Jan 10

Canada

Kazakhstan

Russian Fed

Australia

Source: China Customs Source: China Customs, NBS Source: INSG, VM Group

World primary output and refined

consumption, 000t

Chinese stainless CR Sheet (304 2b,

1mm), yuan/t

US stainless steel prices for flat rolled

coil, $/kg

-150

-100

-50

0

50

100

150

Jan

06

Jan

07

Jan

08

Jan

09

Jan

10

Consumption OutputNet

0

5,000

10,000

15,000

20,000

25,000

30,000

Aug

08

Feb

09

Aug

09

Feb

10

Aug

10 0

2

4

6

8

10

12

Jul 07 Jul 08 Jul 09 Jul 10

301(7%)

304 (8%)

316.0

Source: INSG, VM Group Source: Asian Metals, VM Group Source: Metal Prices

Nickel supply & demand balance, 000t2006 2007 2008 2009 2010 2011

SupplyTotal mine production 1,469 1,595 1,476 1,331 1,410 1,581

% chg y-o-y 5.9% 8.6% (7.5%) (9.8%) 5.9% 12.2%Canada 147 154 168 116 155 210

China 137 199 200 240 295 325Japan 152 162 158 142 152 161

Russian Fed. 286 272 258 244 250 260Australia 114 111 104 112 114 124

Total refined production 1,368 1,395 1,375 1,319 1,411 1,523% chg y-o-y 7.3% 2.0% (1.4%) (4.1%) 7.0% 7.9%

DemandTotal refined consumption 1,398 1,351 1,319 1,238 1,414 1,501

% chg y-o-y 12.0% (3.4%) (2.4%) (6.1%) 14.2% 6.2%Implied balance (31) 44 57 81 (2) 22

Total stocks 95 146 182 263 258 280Average 3-month LME price ($/t) 23,266 36,217 21,240 14,706 21,384 24,438

Source: INSG, WBMS, VM Group


22/35

20

Zinc

LME zinc stocks have been stubbornly high since May 2010 and have only

declined modestly since late September, to 607,325t as at 15 October. Supply formuch of 2009 and 2010 has run ahead of consumption, but conditions are

improving. Alongside a marked improvement in mine supply from Latin America

and China, global consumption has also picked up. These LME stocks however

are probably the tip of an iceberg, as we suspect there may sit large volumes of

zinc held off market. A further constraint on higher prices will be that a lot more

idled mine capacity is due to restart at current high prices.

The macro drivers that have swept all base metals higher in the past fewmonths will encourage zinc mine and smelter restarts, continuing the already lofty

market surplus for most of 2011. We estimate some 0.5 Mt of additional minecapacity (excluding China) is profitable at or near current market prices and this

will put into the shade expected demand growth of 6% during H1 2011.

Although this appears bearish for prices, the build up of surplus metal may benecessary in staving off a prolonged period where mine supply falls short of

demand. Many of the worlds largest zinc mines are nearing the end of their life,

and what committed projects are scheduled to come on line might not be enough

to fill the void. It is here that the stock builds on both the LME and SHFE and off

market might come into play. It also explains Chinas near $2.1bn investment into

international zinc mines and projects, to date.

Short-term outlook

Chinas zinc imports in the first eight months of 2010 are less than half

those of the same period in 2009, while SHFE stocks are a sizeable 0.26 Mt,

up 51% from the start of the year. Add a market surplus and high LME and

off market stocks and the short-term outlook for zinc appears weak. This is

neatly symbolised by the fact that some metal is held in term financing

deals. However we expect the metal to nevertheless be driven by cross

commodity macro currents and by its more promising medium-term

prospects where mine supply will fall short of demand. Short-term LME

three-month zinc price: $2,350/t-$2,460/t.

Chinese zinc prices, yuan/t, unless otherwise stated


SHFE spot price 18,455 18% 17,500 20%


SHFE six-month price 19,145 19% 18,120 21%

Chinese zinc ingot (99.995% min) 18,700 21% 17,450 20%Chinese zinc conc (55% min) S China 13,000 31% 11,850 25%

Chinese zinc conc. (55% min) N China 12,800 31% 11,650 26%

Zinc conc TC (50% min, cif) China ($/t) 115 -41% 75 -59%

Zinc price, LME, $/tonne

1,600

1,700

1,800

1,900

2,000

2,100

2,200

2,300

2,400

2,500


3m

27m

Source: VM Group

Zinc stocks, LME, Mt

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7


Source: VM Group

Zinc forward curve, LME, various

dates, spot = 100

95

100

105

110

115

120

Spot 3m 15m 27m 63m

13/10/2010

1m ago

1yr ago

Source: VM Group


23/35

21

Zinc data

Zinc mine production, Mt World zinc demand, Jan 2009-Oct 2009,

y-o-y % change

China: imports and exports of

unwrought zinc, 000t

0.0

0.5

1.0

1.5

Jan-08 Jan-09 Jan-10

EU North AmericaChina Asia (ex China)Peru Australia

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Jan Apr Jul Oct Jan Apr -100

-50

0

50

100

150

2000 2003 2006 2009

ExportsImportsNet

Source: ILZSG, WBMS, VM Group Source: ILZSG, CHR Metals, VM Group Source: China Customs

SHFE/LME price differential (inc VAT) Zinc concentrate TC, cif China, $/t US construction spending, y-o-y %

change

-300

-250

-200

-150

-100

-500

50

100

150

200

250

Oct-09 Mar-10 Aug-10 0

50

100

150

200

250

300

350

Mar-07 Mar-08 Mar-09 Mar-10 -20%

-15%

-10%

-5%

0%

5%

2006 2007 2008 2009 2010 Source: SHFE, LME, VM Group Source: Asian Metal, VM Group Source: USCB

Zinc supply & demand balance, 000t2006 2007 2008 2009 2010 2011


% chg y-o-y 5.9% 6.3% 4.8% (2.6%) 6.5% 0.6%China 3,117 3,740 3,829 4,334 4,795 5,712

North America 1,371 1,388 1,356 1,120 1,300 1,504South America 491 471 475 450 489 577

Europe 2,436 2,486 2,429 2,001 2,208 2,503Australia 463 498 498 500 525 520

Total refined production 10,573 11,189 11,481 11,250 12,326 12,794% chg y-o-y 5.5% 5.8% 2.6% (2.0%) 9.6% 3.8%


% chg y-o-y 5.9% 2.2% (1.8%) (4.7%) 12.2% 5.9%Implied balance (432) (61) 433 725 516 292

Total stocks 851 641 825 1,123 1,404 1,6583-month LME price ($/t) 3,252 3,243 1,894 1,669 2,132 2,300

Source: CHR Metals, ILZSG, WBMS, VM Group


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Lead

LME lead stocks have crept up from 193,000t in June 2010 to reach 194,345t

at the end of September and 197,625t as at 15 October, which implies that eitherdemand is weak or supply plentiful. Replacement battery demand is largely

insensitive to economic cycles, suggesting that global lead supply has been more

than sufficient to meet demand. Reports of drawdowns of Chinese off-market

lead stockpiles might be one cause of the lack of LME stock drawdowns, but we

also attribute it to runaway zinc mine production levels over the past year, where

lead is often recovered as a by-product and to rapidly growing lead refinery

capacity in China. One supportive factor is that an estimated 75m lead-acid

battery units will be replaced in China by the end of the year, a 19% increase on

2009, while refined lead production has risen by 7% year-on-year, to 2.54 Mt, in

the first eight months of 2010.

Sales of new passenger cars in China amounted to 1.21m in September,below the peak (so far) in January 2010 of 1.32m units, but this volume indicates

that the market has steadied after a slowdown in Q2 2010 sales. The sales rate

should extend into Q4 2010, but sales in 2011 could be hit by the end of the

governments car subsidy schemes, and some sales will have been brought

forward to 2010.

Global refined lead production for Jan-July 2010 increased by 2.6% from a

year ago, to 5.107 Mt. With expected increases in capacity in Australia, India,Mexico and China, the global market will end 2010 in surplus by almost 40,000t

and grow to more than 90,000t in 2011, even though Chinese new car sales will

continue growing strongly.

Short term outlook

We expect Chinese car sales in Q4 2010 to be high but if government-

backed incentives are slimmed down in 2011 that would be very bearish for

the lead price. China has built so much lead production and refining

capacity that any dip in demand will see inventories rise rapidly. However,

prices will find support from the new lead futures contract to be launch on

the SHFE, while in the immediate term, macro drivers are clearly

supportive. Short-term LME three-month lead price: $2,100/t-$2,300/t.

Chinese lead prices, yuan/t, unless otherwise stated

12 August 2010 Current YoY %chg Last mth YoY %chg

Lead ingot (>99.99%) 16,300 19% 14,900 11%

Lead concentrate (60% min) 13,950 24% 12,350 14%

Lead concentrate TC (cif) China ($/t) 25 -29% 25 -29%

Lead price, LME, $/tonne

2,100

2,200

2,300

2,400

2,500


3m

27m

Source: VM Group

Lead stocks, LME, Mt

0.00

0.05

0.10

0.15

0.20

0.25


Source: VM Group

Lead forward curve, LME, various

dates, spot = 100

95

96

97

98

99

100

101

102

Spot 3m 15m 27m 63m

13/10/2010

1m ago

1yr ago

Source: VM Group


25/35

23

Lead data

World refined lead output, 000t Refined lead consumption, 100=Aug

2005

Chinese lead trade, past two years, 000

tonnes

0

100

200

300

400

500

600

700

800

900

Jan Jul Jan Jul Jan Jul

China

North America

EU

Rest of world

0

50

100

150

200

250

Jan Jul Jan Jul Jan Jul

Germany China

US Japan

South Korea

-30

-20

-10

0

10

20

30

40

2007 2008 2009

Exports

Imports

Source: ILZSG, WBMS, VM Group Source: ILZSG, WBMS, VM Group Source: China Customs

North American battery shipments,

million units

Passenger cars sold or produced, 000

units

Lead TC, cif China, $/t

7

7

8

8

9

9

10

Jan 08 Oct 08 Jul 09 Apr 10 0

200

400

600

8001,000

1,200

1,400

1,600

1,800

2005 2007 2009

JapaneseChineseUS

0

50

100

150

200

250

300

350

400

Jan 08 Jan 09 Jan 10 Source: Battery Council International Source: JAMA, NBS, BEA Source: VM Group

Lead supply & demand balance, 000t

2006 2007 2008 2009 2010 2011


% chg y-o-y 3.5% 3.3% 8.0% (3.0%) 10.0% 4.8%China 2,715 2,788 3,121 3,605 4,002 4,290

US 1,313 1,303 1,282 1,276 1,295 1,305Europe 1,625 1,745 1,780 1,702 1,695 1,739

Total refined production 7,981 8,177 8,548 8,805 9,216 9,650% chg y-o-y 4.8% 2.5% 4.5% 3.0% 4.7% 4.7%


% chg y-o-y 3.7% 3.8% 1.5% 1.2% 6.9% 4.1%

Implied balance (72) (179) 67 222 38 96

Total stocks 284 234 301 521 559 654

3-month LME price ($/t) 1,282 2,558 2,089 1,721 2,124 2,320

Source: WBMS, ILZSG, VM Group


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Tin

Although the tin price hit new nominal records in October, the price is still

35% off its all-time real high set in 1980 of $40,935/t (adjusted by the US implicitprice deflator, 100=2000). Considering its current set of supportive supply-

demand fundamentals, we see the price moving higher yet.

Among the biggest supportive factor is the continued failure of Indonesia todeliver tin volumes as it did in the recent past. The latest tin trade data for

September shows Indonesias refined tin exports down 11% year-on-year in

September, to 6,904t. Bad weather has been blamed but there are numerous

structural causes, including the depletion of easily accessible on-shore resources,

the crackdown on illegal mining, and taxes that have put some operators into the

red. The latest setback was for PT Timah to announce that it could not meet all itsdelivery obligations, due to an 11% fall in production from year ago levels. Chinese production has also disappointed, with the latest enforced closure ofcapacity by Beijing at a number of tin smelters in order to meet a five-year energy

efficiency target being the immediate cause of tins latest surge higher. Weak

production from Peru and the moratorium on tin exports from the Democratic

Republic of Congo have also not helped.

Short term outlook

Tin remains the most illiquid LME base metal (apart from cobalt andmolybdenum) and there is therefore always a greater risk of sharp price

swings in either direction. Technically, tins relative strength index reads at

more than 80 (as at 15 October), suggesting a price fall in the near term is

imminent, but fundamentals appear too convincing for any correction to

last long. We expect prices to challenge the $28,000/t level by November

and $30,000/t shortly afterwards. Demand remains very strong for tin in

electronics soldering and tins end-users have no real substitutes. The

only producer who could possibly pump out more metal is China and tin

production is just not important enough a strategic issue for China to be

interested in doing so. The majority of Chinas tin-users are involved in the

electronics industry and they will simply put up their prices of finished

goods, largely destined for export markets. Short-term LME three-month tin

price: $28,000/t-$29,000/t.

Chinese tin prices, yuan/t, unless otherwise stated


Chinese tin ingot (99.9%) 159,000 36% 147,500 26%

Chinese tin concentrate (60% min) 139,500 30% 131,500 20%

Tin price, $/tonne

21,500

22,500

23,500

24,500

25,500

26,500

27,500


3m

27m

Source: VM Group

Tin stocks, LME, 000 tonnes

0

5

10

15

20

25

30


Source: VM Group

Tin forward curve, LME, various

dates, spot = 100

87

89

91

93

95

97

99

101

Spot 3m 15m

13/10/2010

1m ago

1yr ago

Source: VM Group


27/35

25

Tin data

Tin mine production, year-on-year %

change

World refined tin production and

consumption, 000t

China tin output and imports, tonnes

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Jan-09 Jun-09 Nov-09 Apr-10

Indonesia

China

Peru

Bolivia

17

19

21

23

25

27

29

31

33

35

Jan-08 Sep-08 May-09 Jan-10

Production

Consumption

0

5,000

10,000

15,000

20,000

25,000

30,000

Mar-08 Mar-09 Mar-10

Imports

Output

Source: WBM, VM Group Source: WBMS, VM Group Source: China Customs, NBS

China tin concentrate and ingot prices,

000 yuan/t

Japan electronics production, billion yen China computer production, million

units

40

60

80

100

120

140

160

180

Mar-07 Mar-08 Mar-09 Mar-10

Tin I ngot 99.9%

Tin Conc 60%

0

500

1,000

1,500

2,000

2,500

Jul-07 Jul-08 Jul-09 Jul-10 0

5

10

15

20

25

Oct-09 Jan-10 Apr-10 Jul -10 Source: Asian Metal Source: JEITA Source: NBS

Tin supply & demand balance, 000t2006 2007 2008 2009f 2010 2011

SupplyTotal mine production 334 353 314 306 313 329

% chg y-o-y (4.4%) 5.7% (11.0%) (2.7%) 2.3% 5.1%China 132 147 129 136 140 142

Indonesia 77 78 70 62 60 65South America 65 58 61 58 61 60

Rest of world 54 40 43 40 40 39Total refined production 351 348 334 331 335 336

% chg y-o-y 0.5% (0.9%) (4.1%) (1.0%) 1.3% 0.3%Demand

Total refined consumption 363 354 341 311 349 355% chg y-o-y 6.1% (2.5%) (3.5%) (9.0%) 12.3% 1.8%

Implied balance (12) (6) (7) 20 (14) (19)Total stocks 34 32 31 52 44 373-month LME price ($/t) 8,758 14,532 18,442 13,337 20,152 25,000

Source: WBMS, VM Group


28/35

26

Steel

LME steel billet price performance paints a bleak picture of underlying supply

and demand. Three-month LME steel rose just 6% during Q3, to $463/t, incontrast to the double-digit gains in base metals and a more than 7% appreciation

in precious metals. Chinese physical steel billet prices have fared no better, rising

just 5% over this period, as measures by Beijing to close inefficient still mills and

consolidate the industry take time to dent the surplus inventory built up over the

past 12 months most of which is in semi-finished product form.

Although Chinese crude steel production fell slightly month-on-month to51.64 Mt in September 2010, (an annualised 608 Mt, just outside government

targets), the runaway production levels during Q1 2010 and Q2 2010 will see

crude steel production outstrip steel use by about 60 Mt in 2010. The resultingexcess is finding its way onto the international markets in the form of steel

products, with exports more than double those of 2009 in the first nine months of

2010, at 34 Mt, and net exports rising 14% month-on-month, to 1.66 Mt, following

two months of decline. Iron ore imports into China in September also suggest that

Beijings effort to reduce steel output is having limited success.

The planned joint venture between BHP Billiton and Rio Tinto to merge theiriron assets in Australia was abandoned in mid-October, symbolising the

prospects of strong iron ore demand well into the future. Regulatory hurdles were

cited for the reason of the termination of the JV agreement, but it might alsoreflect the fact that Rio Tinto, which holds the stronger of the iron ore assets in

Australia, has significantly improved its balance sheet and thus no longer needs a

cash injection from BHP.

Short-term outlook

Apparent steel use in the US might rise by an estimated 30% in 2010, due

largely to government stimulus measures, but the ending of these will see

usage grow by less than 10% in 2011, well below 2007 levels. Steel demand

in the EU has followed a similar pattern, while Chinese and other emergingeconomies will continue to dominate supply and demand. Steel prices will

therefore vary across regions but should see an overall appreciation. In the

short-term we expect only modest gains in the LME billet contract. Short

term LME steel price: $500/t.

Chinese steel prices, yuan/t, unless otherwise stated


SHFE spot rebar 4,304 25% 4,450 22%

SHFE 3m rebar 4,274 18% 4,401 13%

SHFE 6m rebar 4,355 15% 4,439 10%SHFE 12m rebar 4,562 19% 4,518 11%

16mm Med plate (Q235b) China ($/t) 640 19% 680 26%

Iron ore (Indian 61%, cnf China), ($/dt) 147 82% 136.5 96%

Steel price, LME, Med, $/tonne

350

400

450

500

550

600

650


3m

27m

Source: VM Group

Steel stocks, LME, Med, 000 tonnes

0

10

20

30

40

50

60

70

80

90


Source: VM Group

Steel forward curve, LME, Med,

various dates, spot = 100

80

85

90

95

100

105

110

115

120

125

130

Spot 3m 15m

13/10/10

1m ago

1yr ago

Source: VM Group


29/35

27

Steel data

Crude steel production, yoy %chg China export/imports, steel products,

Mt

SHFE steel rebar price curve, 100=spot

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Aug Nov Feb May

Russia Japan

US China

Germany S.Korea

-10

-8

-6

-4

-2

0

2

4

2005 2006 2007 2008 2009 2010

Imports

Exports

Net

95

100

105

110

115

120

125

1 pos 5 pos 9 pos

6-mths a go

last month

current

Source: WSA, VM Group Source: China Customs Source: SHFE, VM Group

Japan steel products trade, Mt Germany, new orders of first processing

of steel, constant prices, euros,

2005=100

US construction, consumer durable and

equipment steel output, 100=2002 ($)

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Aug 08 Aug 09 Aug 10

Imports ExportsNet

0

20

40

60

80

100120

140

160

180

2005 2006 2007 2008 2009 2010 30

50

70

90

110

130

150

04 05 06 07 08 09 10

ConstructionDurableEquipment

Source: Japan Customs Source: German Federal Statistical Office Source: Federal Reserve

Crude steel production, Mt H1 08 H2 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 June July Aug

China 262.4 236.1 126.7 139.3 153.7 146.7 157.9 165.3 53.8 51.7 51.6

Year-on-year %change 9.5% (6.3%) 1.9% 0.9% 20.8% 34.7% 24.6% 18.7% 8.8% 2.1% (1.32%)

US 50.9 40.4 12.0 12.5 15.6 17.6 19.6 21.2 7.2 6.7 6.9

Year-on-year %change 5.1% (18.7%) (52.9%) (51.1%) (37.9%) 14.2% 63.5% 69.8% 65.0% 32.9% 23.7%

Russia 38.4 30.1 12.9 13.9 14.9 16.5 15.7 16.9 5.4 5.6 5.6


Germany 24.4 21.4 7.3 6.6 8.8 10.0 10.9 11.8 3.9 3.5 3.5

Year-on-year %change (0.5%) (10.8%) (39.7%) (46.9%) (25.4%) 4.3% 50.1% 80.1% 53.4% 29.7% 17.1%

India 27.2 27.9 13.4 13.9 14.1 15.1 16.1 16.2 5.4 5.8 5.7

Year-on-year %change 4.2% 3.3% (6.2%) 7.7% 1.2% 8.5% 18.7% 16.8% 16.8% 21.6% 19.5%

South Korea 27.6 26.1 10.5 12.3 12.7 13.4 13.2 14.8 4.8 4.8 4.5

Year-on-year %change 7.4% 0.8% (22.4%) (12.2%) (8.4%) 9.8% 26.9% 19.9% 20.3% 18.1% 7.3%Japan 61.9 56.8 17.6 19.1 24.2 26.6 26.5 28.1 9.4 9.2 8.9


Rest of world 164.7 136.7 51.0 54.6 57.7 65.4 67.9 73.4 23.7 22.2 20.9


Source: World Steel Association


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28

Fund activity

According to data from TrimTabs Investment Research and BarclayHedge

Ltd., hedge funds pulled in$11.3bn in August, their biggest inflow since February.The biggest chunk of cash, $9.04bn, went to funds with over $2bn under

management, furthering the trend towards the consolidation of a top-heavy

industry. Data from Hennessee Group show returns for September averaging

3.5%, a vast improvement on the performance of the last few months and their

best showing since May 2009.

In a move that will spur negotiations closer to a final conclusion,Francedropped its objection to the issuing of marketing rights to non-EU funds in the

form of an operating passport. Frances objection to the passport provision in the

EU proposals to regulate hedge funds and private equity had been a majorstumbling block in negotiations between member countries.

As the European initiative to regulate the hedge fund community continues tolimp along, the UK Financial Services Authority (FSA) has maintained its stance

in favour of balanced regulation, often citing the threat of funds fleeing in the face

of excess regulation or unworkable rules. The Credit Requirements Directive a

component of the EU proposals favours limiting pay across financial services

applying the same restrictions to hedge funds as are applied to banks. The terms

of this component, which will govern pay in the sector, are due to be finalised by

the end October. The FSA does not see hedge funds and banks as belonging tothe same species and is, according to Dan Waters, head of the FSA asset

management team, committed to ensuring unnecessarily burdensome

requirements are avoided.

August: still stuck in the summer doldrums

Funds struggled to stay in positive territory in August with average returns

of just 0.10% for the month, a drop from 1.25% in July. Funds with

commodity investment did better than the overall sample, returning 1.80%

while those with over 50% of their portfolio weighted towards commodities

returned 1.53% on average. Funds weighted towards energy were the top

performers with 2.33% returns, while metals funds followed close behind at

2.21%, and softs funds trailed in with returns of just 0.17%. This dull

performance did not affect assets under management (AUM) inflows, which

saw total industry assets climb to $1.17 trillion. According to a study by US-

based hedge fund observers AR Magazine, bigger is better in the current

investment climate. The biggest funds in the US fared much better than

their smaller more nimble counterparts during the first six months of this

year. Funds managing $1bn or more saw their assets remain stable or dip

while those with over $5bn recorded an increase. The findings confirm that

investors, particularly those responsible for institutional portfolios,

continue to favour bigger more established funds. According to the survey

Hedge fund returns in metals, %

monthly

-20

-15

-10

-5

0

5

10

15

20

Feb-09 Oct-09 Jun-10

Reuters-CRB precious

metals

Funds with >50% in

metals

Source: VM Group, Barclay Database

Hedge funds AUM, $bn

850

900

950

1,000

1,050

1,100

1,150

1,200

Jan-09 Sep-09 May-10

Source: VM Group, Barclay Database

Hedge fund returns by commodity

weighting, % monthly

(5)

(4)

(3)

(2)

(1)

0

1

2

3

4

5

Jan-09 Jul -09 Jan-10 Jul-10

All Funds

All with some commodity

investment

Funds with >50% AUM in

commodities

Source: VM Group, BarclayHedge


31/35

29

Bridgewater Associates, established in 1975 and managing $51bn, ranks as

the biggest hedge fund in the US and managed to increase its assets by

$7.3bn in 2010. The second largest US-based firm, J.P. Morgans asset

management unit managing $41bn, took in $2.7bn in the same period.When average returns are so meagre, critical mass matters. Preliminary

data show a better performance in September, although at 3.5% these gains

still lag the major stock indices and commodity benchmarks.


32/35

30

About VM Group

VM Group is a commodities research consultancy that covers not just conventional

energy, but also renewable energy, carbon, base and precious metals, andagricommodities. The VM Group comprises a uniquely skilled team that is highly

experienced in the analysis of the fundamentals of commodities and their geopolitical

impact and contexts.

VM Group work excels in macro-economic analysis, the generation of supply and demand

scenarios, costs analysis, derivative research and price forecasting. Confidentiality,

experience and independence are key elements in this advisory capacity. We deliver

excellence to those in need of external expertise, as well as those who wish to

supplement their own in-house resources. Our extensive international contacts mean we

are able to span the globe.

To see further how we can meet your research and consulting requirements, please email:

[email protected]

VM Group

100 Ashmill Street

London NW1 6RA

Tel: +44 20 7569 5930

Fax: +44 20 7569 5931


33/35

31

VM Group disclaimer and copyright

This report was prepared by VM Group. VM Group has made all reasonable efforts to ensure that all information provided in

this report is accurate and reliable at the time of inclusion (the 1st of this month otherwise stated), however, there may be

inadvertent and occasional errors and lack of accuracy or correctness, for which VM Group cannot be held responsible. VM

Group and its employees have no obligation to inform the reader when opinions and information contained in this report

change.

VM Group makes no representation or warranty, express or implicit, as to the accuracy or completeness of contents of this

report. This report is not and cannot be construed as an offer to sell, buy or trade any securities, equities, commodities or

related derivative products and the report in no way offers investment advice. Therefore VM Group employees accept no

liability for any direct, special, indirect, or consequential losses or damages, or any other losses or damages of whatsoever

kind, resulting from whatever cause through the use of any information obtained either directly or indirectly from this report.

The contents of this report, all the information, opinions and conclusions contained are protected by copyright. This

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only with the full and appropriate citing of the original source.


34/35

32

ABN AMRO disclaimer and copyright

The contents of this document are confidential and proprietary to ABN AMRO Bank N.V. and its affiliates (ABN AMRO)

and may not be disclosed to a third party without ABN AMROs prior written consent. This document is provided for

information purposes only and as an accommodation to you. The information contained herein (the Information) is current

as at the date of issue and ABN AMRO shall be under no obligation to notify you of any changes to the Information or

otherwise to update the Information after this date. Any material contained herein is for information purposes only and

should not be regarded as an offer, recommendation or solicitation to buy or sell securities or derivative products. It does not

contain a complete description of any particular product or transaction and any investment decision should be based upon

the final documentation prepared in relation to any particular product or transaction. Information may have been obtained

from, and/or based upon information obtained from sources that ABN AMRO believes to be reliable, however the accuracy

and completeness thereof and the computations based thereon cannot be assumed. No representation or warranty, express

or implied, is or will be made, and no responsibility or liability is or will be accepted by ABN AMRO or any of its officers,

servants, agents, employees or advisors in relation to the accuracy or completeness of this document or the Information.

The Information must be considered in conjunction with all other publicly available information. This document may include

various forms of performance analysis, characteristics and pricing estimates. Such information and any opinion, estimate or

projection contained in this document is illustrative only and is not intended to predict actual results which may be expected

to differ substantially from those described in this

abn oct2010 monthly

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