base metals: outlook for supply and demand

Base metals outlook

Demand thrust into supply headwinds

November 2013

Macquarie Commodities Research

Jim Lennon

Macquarie Capital (Europe) Limited

Ropemaker Place 28 Ropemaker St

London, UK EC2Y 9HD

In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. Before making an investment decision on the basis

of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and

financial circumstances. Please see disclaimer.

Our commodity price forecasts…in pictures!

Impact of China on global markets….

Commodity prices – iron ore still the stand-out

performer

Index of monthly average commodity prices (Jan 2000 = 100)

0

200

400

600

800

1000

1200

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Ind

ex

Alumina Steel Stainless Steel Iron ore fob WTI oil

Thermal coal Coking coal Base metals Precious metals

Base metal prices – not all the same

Lead, copper and tin outperform nickel, aluminium and zinc

All metals except aluminium rose strongly in the boom period for Chinese demand growth and supply shortages up to mid-2008

Supply-side performance made the big difference in the recovery after 2008 financial crisis.

Chinese over-supply in zinc, nickel and aluminium combined with weak non-Chinese demand led to weakness.

Nickel has suffered since the advent of Chinese nickel pig iron; aluminium from soaring domestic production

Source: LME, Macquarie Research, November 2013

Index of monthly average commodity prices (Jan 2000 = 100)

0

100

200

300

400

500

600

700

800

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Ind

ex

Aluminium Copper Nickel Zinc Lead Tin

Base metal relative price performance in line

with surplus/deficits recorded

Source: Macquarie Research, November 2013

Accumulated market balance as a percent of global consumption

4%

-11%-13%

-8%-7%

-3%

21% 21% 22%

2%

-5%-3%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Al Ni Zn Cu Pb Sn

% o

f avera

ge c

on

su

mp

tio

n

2003-07 2008-2012

Page 6

Year-by-year performance of base metal

surplus/deficit

Global market surplses/deficits for base metals (expressed

as % of demand

-20%

-10%

0%

10%

20%

30%

40%

50%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013F

Cu

mu

lati

ve

su

rplu

s(+

)/d

efi

cit

(-)

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Av

era

ge

fo

r a

ll m

eta

ls

Aluminium Copper Nickel Zinc Lead Tin Average


Nickel and aluminium have the largest

inventory overhang of any base metals…

Estimated total stocks for base metals at end-August 2013

(weeks of annual consumption)

25.3 25.4

14.7

9.48.7

6.0

0

5

10

15

20

25

30

Al Ni Zn Cu Sn Pb

wks

0

5

10

15

20

25

30

Non-China in raw materials

China other

China SRB (e)

China- SHFE

Reported Producer

Japanese ports

Non-LME Ex-China

Comex

LME

In China raw materials

Source: LME, SHFE, Comex, IAI, ICSG, ILZSG, INSG, CRU, Macquarie Research,

November 2013

Page 8

Better growth in prospect in 2014 Global GDP growth since 2010 has been on a downward trend and become more lop-

sided with China accounting for an ever larger share.

2Q 2013 could have been the start of a new dynamic, as developed economies’ growth

accelerates and that of many emerging markets declines. For now it remains a second

derivative argument – in absolute terms growth is still higher in the emerging economies –

but the trend seems clear. China so far is an exception, with growth accelerating in recent

months.

As growth strengthens in developed economies the normalisation of US monetary policy

will have a far-reaching impact. How countries, and their capital, financial and commodity

markets cope will be one of the key themes of 2014.

Although global growth will be better balanced, for base metals, China’s huge share of

demand means it plays a larger role than its economic size would suggest. Chinese

growth could still surprise on the upside, and even if it slows, the absolute growth rate will

remain high. And faster growth in the rest of the world should mean global growth is more

robust and market confidence higher.

Backdrop of last 3 years is slowing world GDP growth

Source: Bloomberg, Macquarie Research, November 2013

Before the crisis world GDP growth was rising by 4-5% a year (in PPP terms) but after

2010 recovery has slowed sequentially to just over 2% a year.

Slowdown most pronounced in developed economies, with very little growth in

Europe/Japan. China has held up well but other emerging markets have also weakened.

World GDP growth, quarterly, year-on-year, %

(4%)

(2%)

0%

2%

4%

6%

2006 2007 2008 2009 2010 2011 2012 2013

Other developed US China Other emerging World Recovery

?

Developed market recovery – fragile but unmistakable


In 2Q 2013 the four main developed economies saw GDP growth for first time since 1Q 2011 with the

pace of expansion accelerating in the US and UK and the Eurozone returning to growth. 3Q has seen

further acceleration in US, UK, and continued growth, although slower, in Eurozone & Japan.

Manufacturing (and service) PMIs show growing optimism across all key regions.

Developed economies GDP growth, %

QoQ

Developed economies manufacturing PMI, > 50 =

expansion


-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2010 2011 2012 2013

USEurozoneUKJapan

40

45

50

55

60

65

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

US

UK

Japan

Eurozone

Ind

ex

Recovery can be seen from recent data ex-

China

Changes in non-Chinese base metals' demand

and G3 PMIS

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

% c

han

ge y

oy

- 3

MM

A

30

35

40

45

50

55

60

65

70

US

/Eu

rop

e/J

ap

an

PM

I

(3m

ths f

wd

)

World Ex-China Base metals app. demand

US/Europe/Japan PMI

Changes in non-Chinese steel demand and G3

PMIs

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

% c

han

ge y

oy

- 3

MM

A

30

35

40

45

50

55

60

65

70

US

/Eu

rop

e/J

ap

an

PM

I (3

mth

s

fwd

)

World Ex-China steel app. demand

US/Europe/Japan PMI

Emerging markets – China resilient, others…?

Sourc

e: B

loom

berg

, M

acquarie R

esearc

h, N

ovem

ber

2013

China’s economy has held up, despite a 2Q slowdown, with growth picking up in recent

months.

Some other emerging markets are under strain, with GDP growth falling & financial market

stresses rising. Equity indices have underperformed the developed economies.

GDP growth, China & other emerging markets, % YoY Equity Markets, start 2013 = 100

(4%)

(2%)

0%

2%

4%

6%

8%

10%

12%

14%

2007 2008 2009 2010 2011 2012 2013

China

Other emerging

80

85

90

95

100

105

110

115

120

125

130

Jan-13 Apr-13 Jul-13 Oct-13

Emerging markets

Japan

Eurozone

US

China – rebounding strongly but debt concerns grow

Source: CEIC, Macquarie Research, November 2013

China’s economic growth weakened in 1H 2013 but commodity demand remained strong thanks to

sectoral composition of growth and sheer size of economy.

Growth has accelerated (both in IP and Macquarie’s LKQ index) and short-term outlook positive but

structural problems, including high debt levels, suggest cautious outlook for 2014.

LKQ index & industrial production, % YoY Local government investment increasingly to pay off

debts, %

1999 2001 2003 2005 2007 2009 2011 2013

25

20

15

10

5

0

2009 2010 2011 2012 2013

100

80

60

40

20

0

Source: NBS, Macquarie Research, November 2013

Other emerging markets feel the strain


Emerging markets face challenges both internal and external. Key economies have seen

growth slow dramatically in recent years as structural problems mount.

The prospect of Fed tapering has seen capital outflows, falling currencies and the need for

a policy response.

Key emerging markets, GDP growth, % YoY

(15)

(10)

(5)

0

5

10

15

2007 2008 2009 2010 2011 2012 2013

Brazil Mexico India Russia

Key emerging market FX v US dollar, start 2012=100


70

75

80

85

90

95

100

105

110

115

Jan-12 Jul-12 Jan-13 Jul-13

India IndonesiaTurkey BrazilChina

2012 demand structure…all about China 2012 share of global copper demand

18%

10%

5%

42%

25%

Europe USA Japan China Other

2012 share of global aluminium demand

13%

11%

5%

45%

26%


2012 share of global zinc demand

19%

9%

4%

43%

25%


2012 share of global nickel demand

20%

9%

8%

45%

18%


Source: CNIA, ILZSG, INSG, IAI, ICSG, Macquarie Research, November 2013

Strength of Chinese demand this year is surprising…

Source: ICSG, INSG, ILZSG, IAI, Macquarie Research, November 2013

Year-on-year changes in demand, January-

October 2013 vs. 2012

11.4%

14.6%

12.0%

17.2%

9.0%

0.5% 0.9%2.2%

-2.5% -2.3%-5%

0%

5%

10%

15%

20%

Aluminium Copper Zinc Nickel Steel

% c

ha

ng

e Y

oY

China Ex-China World total

China still leads the way in demand, but rest of

world starts to recover also…


World base metals demand

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012 2013

% c

hg

e Y

oY

(3M

MA

)

World Ex-China base metals demand

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

2007 2008 2009 2010 2011 2012 2013

% c

hg

e Y

oY

(3M

MA

)

Chinese base metals demand

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

2007 2008 2009 2010 2011 2012 2013

% c

hg

e Y

oY

(3M

MA

)

Non-China recovery evident in all the metals…

Non-Chinese base metals demand changes

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% c

han

ge y

oy (

3M

MA

)

Zinc Copper Aluminium Nickel

Change in base metals apparent demand

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

% c

han

ge

yo

y -

3M

MA

China World Ex-China


The historical context – Chinese demand growth was

staggering and largely unexpected

Source: worldsteel, Macquarie Research, November 2013

World steel demand growth by decade

3212 23

46 49

157

257

128

51 66

563

-

100

200

300

400

500

6001

90

0-1

0

19

10

-20

19

20

-30

19

30

-40

19

40

-50

19

50

-60

19

60

-70

19

70

-80

19

80

-90

19

90

-00

20

00

-10

m t

on

ne

s c

ru

de

ste

el

-

100

200

300

400

500

600

China Rest of world

Impact of China - enormous

China's share of global consumption

5%3% 4%

2%4%

6%7%

5%

8%

4%

7%9%

12% 13%15%

6%

10%

16%

38%41% 41%

39%43% 43%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Copper Aluminium Zinc Nickel Lead Steel

% o

f to

tal

1980 1990 2000 2010

Average growth in consumption, 2000-

2010

15.0%

17.7%

13.9%

24.1%

18.9%

16.0%

-1.0%

1.0%

-0.8% -1.6% -1.7%

1.3%

-5%

0%

5%

10%

15%

20%

25%

30%


% C

AG

R

China Rest of world

Source: worldsteel, INSG, ICSG, IAI, ILZSG, Macquarie Research, November 2013

What happened to demand after 2008 global financial

crisis? Terrible outside China!

Source: LME, Macquarie Research, November 2013

Change in demand from 2007 to 2012

-26%

-16%

-20%-18%

-15%

-11%

-28%

-20%

-23%

-14%

1%

-18%-17%

-14%

-20%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Europe N.America Japan

20

12

/20

07

%

Copper Aluminium Crude Steel Nickel Zinc

Change in demand from 2007 to 2012

82%

74%

53%

97%

52%

0%

20%

40%

60%

80%

100%

120%

China

20

12

/20

07

%

Copper Aluminium Crude Steel Nickel Zinc

Sources of Chinese GDP growth – investment boost

“saved” China in 2009


Chinese GDP Growth contributions

5.7 5.54.2 4.0 3.6 3.9 4.4 5.1 5.6

4.2 4.6 4.5 5.34.1 3.8

1.8 1.9 4.1 4.46.3 5.5 4.3

5.56.0

4.5

8.1

5.5 4.4

3.9 3.6

0.1 1.0

0.0

0.7

0.1 0.7 2.6

2.1

2.6

0.9

-3.5

0.4

-0.4 -0.2

0.1

7.68.4 8.3

9.110.0 10.1

11.3

12.8

14.3

10.49.3

7.8 7.5

9.1

9.6

-4

-2

0

2

4

6

8

10

12

14

16

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

F

% c

ha

ng

e Y

oY

(re

al)

-4

-2

0

2

4

6

8

10

12

14

16

Consumption Gross capital formation Net exports Total

The changing structure of Chinese growth – less steel

and metals intensive

Source: Dragonomics, Macquarie Research, November 2013

Unbalanced growth? Too much investment?

China has invested a lot more than many

developing countries that got caught in a

“middle-income” trap (failed to boost

productivity when incomes reached $10-

15kt, but not much for economies which

escaped it (e.g., Japan, Korea, Taiwan)

China has invested more due to low

interest rates, capital abundance, and a

low capital stock when growth took off.

Consumption is underestimated in GDP by

4-10%

Bottom line: not such a worry.

Share of total Chinese GDP

30

35

40

45

50

55

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

% o

f to

tal

Gross capital formation Private consumption


Chinese monetary policy now quite “loose” –

partly loans to service debts


Loan and money supply growth minus nominal GDP

-10

-5

0

5

10

15

20

25

30

Ma

r-0

0

Se

p-0

0

Ma

r-0

1

Se

p-0

1

Ma

r-0

2

Se

p-0

2

Ma

r-0

3

Se

p-0

3

Ma

r-0

4

Se

p-0

4

Ma

r-0

5

Se

p-0

5

Ma

r-0

6

Se

p-0

6

Ma

r-0

7

Se

p-0

7

Ma

r-0

8

Se

p-0

8

Ma

r-0

9

Se

p-0

9

Ma

r-1

0

Se

p-1

0

Ma

r-1

1

Se

p-1

1

Ma

r-1

2

Se

p-1

2

Ma

r-1

3

Se

p-1

3

Qu

art

ery

: %

ch

an

ge

Yo

Y

Loans M2

Debt levels too high and a crisis on the

horizon?

Remember banks owned by government; government budget deficit is only

1.9% of GDP. Loans are all in RMB (not much foreign bank debt as happened in

Asian crisis).

Worst case scenario: many loans could be written off by government without

creating collapse

At over 50% of GDP, Chinese savings rate is high so can finance debt internally.

This doesn’t mean the government doesn’t want to deleverage and cut

investment in inefficient areas (local govt spending, adding to over-capacity in

industry, etc) – this is crucial for long term stability.

However, there is no sign of imminent stress or a “Lehman” moment! June spike

in interbank lending rate to 25% was a “warning” by government about

restraining loose lending.

Too much supply in many metals

As demand growth slowed after the global financial crisis, supply growth started

to accelerate (copper growth was delayed but has now caught up)

China has dominated refined supply growth in recent years based on

construction at low capex of conversion capacity, partly based on imported raw

materials.

Changes in refined metals production, 2008-2012

1974

312 312

900

-216-55

55 150

-500

0

500

1000

1500

2000

2500

Al Cu Ni Zn

'000t

China

Ex-China

Source: CNIA, ICSG, IAI, INSG, ILZSG, Macquarie Research, November 2013

Base metal raw material constraints have been removed

in China by high imports of raw materials

Source: Chinese Customs Statistics, Macquarie Research, November 2013

Indonesian government policy change in 2014 to impact bauxite/nickel?

Bauxite imports

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

ton

ne

s

Nickel ore/conc. imports

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

ton

ne

s

Copper concentrate imports

0

200000

400000

600000

800000

1000000

1200000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

ton

ne

s

China to the end of the decade?

Growth rates to continue to slow due to:

1. Demographics making labour tight, urbanisation less: Potential growth

rates for the economy lower

2. Restructuring of the economy to reduce debt levels, increase efficiency,

reduce over-capacity, encourage more consumption driven growth

However, growth will continue: China is still a “developing” economy

Government measures designed to make growth sustainable (albeit at

a lower rate than in past)

Our assumptions to 2020

Trend growth in Chinese consumption

15.0%

17.7%

13.9%

24.1%

18.9%

16.0%

6.2%

9.6%

6.1%7.3% 7.3%

3.5%

0%

5%

10%

15%

20%

25%

30%


% C

AG

R

2000-10 2010-20F

Trend growth in Ex-Chinese consumption

-1.0%

1.0%

-0.8%

-1.6% -1.7%

1.3%1.0%

3.8%

1.3%1.8%

1.3%

2.9%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%


% C

AG

R

2000-10 2010-20F

Source: ICSG, ILZSG, INSG, NBS, Macquarie Research, November 2013

What this means in quantities – still large Actual and "needed" supply growth for copper

1.5

4.0 4.1

7.8

0

1

2

3

4

5

6

7

8

9

1980-90 1990-2000 2000-10 2010-20F

mt

refi

ned

co

pp

er

Mine

and

scrap

Actual and "needed" supply growth for zinc

0.6

2.2

3.7

4.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1980-90 1990-2000 2000-10 2010-20F

mt

refi

ned

zin

c

Actual and "needed" supply growth for nickel

183 168

344

711

0

100

200

300

400

500

600

700

800

1980-90 1990-2000 2000-10 2010-20F

'00

0t

refi

ned

nic

kel

Actual and "needed" upply growth for aluminium

3.1

6.1

16.7

31.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1980-90 1990-2000 2000-10 2010-20F

mt

refi

ned

lead


Capex cuts continue – the first of three years

of underinvestment?

Source: wood Mackenzie, Macquarie Research, November 2013

Macquarie forecasts for YoY changes in global

mining capex

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Changes in copper mine output forecast, Oct 13 vs May 2012

326

165

-346

280

-577

-1568

-2000 -1500 -1000 -500 0 500

2013f

2014f

2015f

2016f

2017f

2018f

kt

We should be in a phase of taking supply

offline (ex-copper), but the process is slow

Source: LME, Wood Mackenzie, Macquarie Research, November 2013

LME Aluminium prices and cash costs

1000

1500

2000

2500

3000

3500

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

$/t

on

ne a

lum

iniu

m

9 0 t h percent ile LM E cash

LME nickel prices and cash costs

0

10000

20000

30000

40000

50000

60000

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

$/t

on

ne n

ickel


y

LME zinc prices and cash costs

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

$/t

on

ne z

inc


LME copper prices and cash costs

0

2000

4000

6000

8000

10000

12000

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

Ja

n-1

3

$/t

on

ne z

inc


In summary: Surpluses to 2015 then markets

to tighten: Zn, Pb, Cu and Sn to outperform?


Global market surplses/deficits for base metals (expressed as % of

demand

-20%

-10%

0%

10%

20%

30%

40%

50%

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

F

20

14

F

20

15

F

20

16

F

20

17

F

20

18

F

Cu

mu

lati

ve

su

rplu

s(+

)/d

efi

cit

(-)

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Av

era

ge

fo

r a

ll m

eta

ls

Aluminium Copper Nickel Zinc

Lead Tin Average

Accumulated market balance as a percent of

global consumption

21% 21%22%

2%

-5%

-3%

2%

7%

-1%

2%

-2%

3%

-10%

-5%

0%

5%

10%

15%

20%

25%

Al Ni Zn Cu Pb Sn

% o

f a

ve

rag

e c

on

su

mp

tio

n

2008-2012 2013-2017

Base metals detail

Nickel and aluminium have similar issues

Nickel

Surplus of 319kt from 2008 to 2012,

equal to 21% of 2012 world use. Large

surpluses continue in 2013; without large

supply cuts, further large surplus

predicted for 2014.

China accounts for all of the demand

growth and 85% of supply growth since

2008

Large surpluses due to massive growth

in Chinese nickel pig iron production –

major delays in Greenfield capacity

additions outside China have reduced

potential over-supply.

Indonesia a big part of Chinese raw

material supply.

Aluminium

Surplus of 8.5mt from 2008 to 2012,

equal to 21% of use. Smaller surpluses

in 2013 and 2014 but cuts needed.

Demand and supply growth dominated

by China: 90% of demand growth and

more than 100% of supply growth

No end in sight to the surpluses as

financial players/traders soak up excess

material from producers, pay high

physical premiums and “lock” the

material away

Indonesian bauxite a big part of

aluminium raw material supply.

Nickel stocks keep rising while (reported)

aluminium stocks are falling

Reported stocks for nickel and aluminium

300

350

400

450

500

550

600

650

Ja

n-1

1

Fe

b-1

1M

ar-

11

Ap

r-1

1

Ma

y-1

1

Ju

n-1

1

Ju

l-1

1

Au

g-1

1

Se

p-1

1

Oct-

11

No

v-1

1

De

c-1

1

Ja

n-1

2

Fe

b-1

2M

ar-

12

Ap

r-1

2

Ma

y-1

2

Ju

n-1

2

Ju

l-1

2

Au

g-1

2

Se

p-1

2

Oct-

12

No

v-1

2

De

c-1

2

Ja

n-1

3

Fe

b-1

3M

ar-

13

Ap

r-1

3

Ma

y-1

3

Ju

n-1

3

Ju

l-1

3

Au

g-1

3

'00

0t

Ni

6500

6700

6900

7100

7300

7500

7700

7900

8100

8300

'00

0t

Al

Nickel Aluminium

Source: LME, INSG, IAI, Comex. SHFE, Macquarie Research, November 2013

Most of the Chinese raw materials stocks are

Indonesian material… Chinese are preparing for

2014 restrictions

Source: CM, SMM, CRU, Macquarie Research, November 2013

Estimated Chinese bauxite stocks

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013

mt

gro

ss w

eig

ht

Ports and refineries

Estimated Chinese nickel ore stocks

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013

mtt

gro

ss

we

igh

t

Ports Producer

What could happen in Indonesia in

2014?

2009 Mining Act requires a full ban on exports of unprocessed mineral

products (including bauxite and nickel ore) from January 12, 2014

Recent feedback from Indonesia suggests that companies who are

planning to build nickel and alumina plants (to come on stream in 2015

and onwards) are already negotiating 2014 export quotas!

Politically acceptable compromise may well be a rise in export tax from

20% to 50% with reductions for exporters with plants under

construction.

Even a 30-40% reduction in exports from 2013 inflated levels may not

change Chinese production levels for nickel pig iron/alumina that much

in 2014 due to heavy destocking.

Nickel supply/demand summary – surplus to

2015?

Source: INSG, Macquarie Research, November 2013

`000t 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Total SS production 33666 35525 38910 41889 45157 47444 49139 50401

% Change 5.7% 5.5% 9.5% 7.7% 7.8% 5.1% 3.6% 2.6%

Ni-containing SS prod. 25080 26944 29268 31641 34250 35938 37023 38037

% Change 9.3% 7.4% 8.6% 8.1% 8.2% 4.9% 3.0% 2.7%

Nickel Consumption 1597 1662 1791 1907 2050 2118 2149 2176

% Change 7.3% 4.1% 7.7% 6.5% 7.5% 3.3% 1.5% 1.3%

Nickel Supply 1630 1781 1922 1941 2019 2085 2140 2173

% Change 12.3% 9.2% 7.9% 1.0% 4.0% 3.3% 2.7% 1.5%

(of which NPI) (282) (362) (482) (474) (475) (460) (450) (450)

World Market Balance 34 119 131 34 -31 -33 -8 -3

LME/Producer stocks 186 227 358 392 360 327 319 316

Weeks' world demand 5.9 7.0 10.2 10.5 9.0 7.9 7.6 7.4

LME Cash Price (cents/lb) nominal 1036 795 688 703 794 907 998 1089

LME Cash Price ($/tonne) - nominal 22831 17527 15166 15500 17500 20000 22000 24000

Aluminium outlook – getting closer to balance but

massive stock overhang

Worst fundamentals of any base metal over the past decade due to large growth in Chinese supply

Weak prices but high premiums have kept producers in business and supply on-stream

Strong demand growth should help to rebalance markets eventually

Warehousing “games” – ongoing demand for material not needed by consumers: will this end soon?

What can happen to turn things?

Role of Indonesia in bauxite exports to China

Chinese costs rising? (New low-cost Western capacity but closures in the East?)

Strong ex-Chinese demand growth

Production cuts due to falling premiums as new LME rules take effect?

Problem for world market – China has largely been

self-sufficient….in fact a growing net exporter of

metal and semis

Source: WBMS, Chinese Customs, Macquarie Research, November 2013

Chinese Aluminium Production and

Consumption Since 1970 ('000t)

0

2500

5000

7500

10000

12500

15000

17500

20000

22500

1970 1975 1980 1985 1990 1995 2000 2005 2010

'00

0t

Al

Production Consumption Production

Chinese net Imports of aluminium, scrap alloy and

semis

-3000

-2000

-1000

0

1000

2000

3000

4000

1970 1975 1980 1985 1990 1995 2000 2005 2010

'00

0t

Al

Al and Alloy Semis Scrap Total Al units

Supply growth is all about China

Chinese aluminium production and capacity

4

6

8

10

12

14

16

18

20

22

24

26

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

mt

an

nu

ali

se

d p

rod

uc

tio

n

Capacity Production

Ex-China aluminium production and capacity

21

23

25

27

29

31

33

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

mt

an

nu

ali

se

d p

rod

uc

tio

n

Capacity Production

Source: IAI, CRU, Macquarie Research, November 2013

Adding aluminium premiums to exchange prices

significantly shifts results of breakeven analysis

Aluminium prices and cash production costs

0

500

1,000

1,500

2,000

2,500

3,000

0 10 20 30 40 50

Cumulative production, m tonnes

US

$/t

on

ne

C1 cash cost

LME price + premiums

YTD LME average price

Source: LME, Wood Mackenzie, Macquarie Research, November 2013. Note: LME cash settlement price average 1 Jan – 19 November 2013

Macquarie global aluminium S&D

Source: WoodMackenzie, CRU, IAI, Macquarie Research, November 2013

'000 tonnes Al 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F

World consumption 45552 47906 50800 53943 57331 60694 63967 66953

% change YoY 10.4% 5.2% 6.0% 6.2% 6.3% 5.9% 5.4% 4.7%

of which: China 19976 21942 24136 26308 28676 30970 33138 35126

of which: Ex-China 25575 25965 26664 27635 28655 29724 30829 31827

World production 46174 48091 51099 54861 58032 61261 64206 66767

% change YoY 8.7% 4.2% 6.3% 7.4% 5.8% 5.6% 4.8% 4.0%

of which: China 20000 22500 24500 26500 28500 30923 32837 34087

of which: Ex-China 26174 25591 26599 28360 29532 30338 31369 32680

Global balance 622 185 300 917 701 566 239 -186

All stocks (est) 11703 11981 12281 13198 13899 14465 14704 14519

Weeks' demand 13.4 13.0 12.6 12.7 12.6 12.4 12.0 11.3

LME price 2395 2018 1854 1863 1950 2200 2300 2500

Indonesia’s share of Chinese aluminium

production around 22% in 2013

Source: GTIS, CM, WoodMackenzie, Macquarie Research, November 2013

Source of bauxite and alumina for Chinese aluminium

production needs (real consumption)

15% 15%20%

26% 23% 22%

11% 7%

8%

9%10% 15%

55%

53%

55%

62%57% 54%

19%25%

17%

3%10% 9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013F

Indonesia Other imports Chinese domestic Imported alumina

Chinese raw material stocks rise sharply in 2013

0

1

2

3

4

5

6

7

8

2009 2010 2011 2012 2013

Al co

nte

nt

of

bau

xit

e a

nd

alu

min

a s

tocks

1

3

5

7

9

11

13

15

17

sto

cks in

wks o

f A

l p

rod

ucti

on

Bauxite Alumina weeks' Al production

Copper: Transitioning away from raw

material constraint

Source: NBS, China Customs, Macquarie Research, November 2013

Imported

Blister

6%

Domestic

mined copper

19%

Imported

concentrate

28%Scrap

18%

Refined copper

imports

29%

Chinese copper imports - YoY change

-1000

-500

0

500

1000

1500

2000

2500

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013f

2014f

,000t

Cu

co

nta

ined

Refined

Blister

Scrap

Conc

Supply growth always has the propensity to

disappoint…but there’s a lot of it!

Source: Wood Mackenzie, Company data, Macquarie Research, November 2013

Change in copper output, 2015f vs. 2012

0 50 100 150 200 250 300 350 400 450 500

Escondida

Antapaccay

PT Freeport Indonesia

Oyu Tolgoi

Toromocho

Buenavista (Cananea)

Sentinal

Collahuasi

MMH

Caserones (SXEW)

Salobo

Sierra Gorda

Ok Tedi

Batu Hijau

,000t

Greenfield

Brownfield

Copper mine output growth accelerates

Unmistakeable rise in Chilean copper mine output

5.1

5.4

5.3

5.8

5.6 5.6

5.8

6.0

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

Q112 Q212 Q312 Q412 Q113 Q213 Q313E Q413F

mt

Cu

an

nu

alis

ed

World copper mine production by quarter

15.5

16.5

16.8

18.0

17.417.5

18.318.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

Q112 Q212 Q312 Q412 Q113 Q213 Q313E Q413F

m t

on

ne

s a

nn

ua

lis

ed

Source: Wood Mackenzie, ICSG, Macquarie Research, November 2013

We expect high-single-digit mine output growth –

and above trend demand


Copper mine supply growth

-600

-400

-200

0

200

400

600

800

1000

1200

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

2018f

,000 t

on

nes

Copper demand growth

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

2018f

,000 t

on

nes

World ex-China

China

Consistent

growth expected

Less need to

substitute/thrift

Turning copper on its head – the cathode market

has been tighter!

Source: CRU, China Customs, LME, Macquarie Research, November 2013

YoY change in China's Cu scrap imports, 3MMA

-30%

-20%

-10%

0%

10%

20%

30%

40%

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

Premiums are high, helped by Johor queue

Financing contributed to tightening market – we’d

expect imports to fall

Source: China Customs, LME, Macquarie Research, November 2013

Physical cash arbitrage - Chinese copper imports (inc.

premium)

-300

-250-200

-150

-100-50

050

100

150200

250

Jan 1

3

Feb 1

3

Mar

13

Apr

13

May 1

3

Jun 1

3

Jul 13

Aug 1

3

Sep 1

3

$/t

on

ne

SHIBOR spike –

imports

encouraged

Chinese cathode imports

0

50

100

150

200

250

300

350

400

450

500

Jan

-11

Ap

r-1

1

Ju

l-11

Oct-

11

Jan

-12

Ap

r-1

2

Ju

l-12

Oct-

12

Jan

-13

Ap

r-1

3

Ju

l-13

'000t

Stocks are set to build – the question is where?

Source: LME, CRU, SHFE, Macquarie Research, November 2013

Exchange and bonded stocks

0

200

400

600

800

1000

1200

1400

1600

1800

Ja

n-0

9

Ap

r-0

9

Ju

l-0

9

Oct-

09

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

Oct-

10

Ja

n-1

1

Ap

r-1

1

Ju

l-1

1

Oct-

11

Ja

n-1

2

Ap

r-1

2

Ju

l-1

2

Oct-

12

Ja

n-1

3

Ap

r-1

3

Ju

l-1

3

Oct-

13

Ja

n-1

4

Ap

r-1

4

kt

LME Comex SHFE Bonded

Forecast

We expect the build in LME

inventories from ex-China

smelters delivery, however

this could come in bonded

or even off-market

Smelters – some reasons to feel cheerful for once!

Source: Wood Mackenzie, LME, Macquarie Research, November 2013

Copper TC/RC - Spot to China

0

5

10

15

20

25

30

35

40

Jan

10

Jul

10

Jan

11

Jul

11

Jan

12

Jul

12

Jan

13

Jul

13

(c/lb) Share of copper price received by smelters - spot

basis

0

100

200

300

400

500

600

700

800

900

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

Ju

l-1

2

Ja

n-1

3

Ju

l-1

3

$/t

on

ne

What returns copper to deficit – the peak of SX-EW

helps

Source: Wood Mackenzie, Macquarie Research, November 2013

Incentive price for 10% IRR - SxEw projects

0

2000

4000

6000

8000

10000

12000

14000

Bole

o

Kip

oi

Kolw

ezi

KO

V

White R

ange

El P

ilar

Andin

a

Kala

kundi

La G

ranja

Tia

Maria

Antu

coya

$/t

on

ne

YoY changes in SxEw output

-300

-200

-100

0

100

200

300

400

2007

2008

2009

2010

2011

2012

2013f

2014f

2015f

2016f

2017f

2018f

kt

Chile DRC Rest of World

Copper projects are both increasingly dilutive to

the existing asset base and highly capital-

intensive

Source: Wood Mackenzie, CRU, Macquarie Research, November 2013

Weighted average copper project by year of delivery

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

0 5000 10000 15000 20000 25000 30000 35000 40000

Life of mine capital intensity

Av

era

ge

he

ad

gra

de

2000-2011

2012-2018f

2000

2001

2002

2004

2005

2006

2007

2008 2009

2010

20112012

2013f

2014f

2015f

2016f

2017f2018f

Macquarie’s copper supply-demand balance


Global Refined Copper Balance'000 tonnes 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

World Production 18,298 18,930 19,624 20,105 20,868 21,985 22,972 23,753 24,521 24,457

% Change Y-o-Y 0.1% 3.5% 3.7% 2.5% 3.8% 5.4% 4.5% 3.4% 3.2% -0.3%

World Consumption 17,426 19,188 19,957 19,886 20,698 21,633 22,625 23,589 24,500 25,210

% Change Y-o-Y -3.1% 10.1% 4.0% -0.4% 4.1% 4.5% 4.6% 4.3% 3.9% 2.9%

Balance 873 -258 -333 220 170 352 346 163 21 -753

World Reported Stocks 1,358 1,183 1,174 1,078 1,248 1,600 1,946 2,109 2,131 1,377

Stocks (Weeks) 4.1 3.2 3.1 2.8 3.1 3.8 4.5 4.6 4.5 2.8

LME Cash Price ($/t) 5,164 7,539 8,811 7,950 7,351 6,550 6,525 7,525 7,875 7,875

LME Cash Price (c/lb) 234 342 400 360 333 297 296 341 357 357

Concentrates Market ('000t Cu)'000t Cu 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Mine Production:

Concentrates 12527 12658 12593 13036 14218 14715 15368 16177 16545 16319

SX-EW 3281 3340 3414 3660 3756 4034 4210 4135 4365 4270

Total 15809 15998 16006 16696 17974 18748 19577 20312 20910 20589

% Change Y-o-Y 1.8% 1.2% 0.1% 4.3% 7.7% 4.3% 4.4% 3.8% 2.9% -1.5%

Concs Balance -277 -32 -341 12 284 0 0 0 0 0

Zinc – The mine supply problem – too much in

2013…

Source: ILZSG, Macquarie Research, November 2013

Global zinc mine, refined metal

output

9

10

11

12

13

14

15

J 2

009

M 2

009

S 2

009

J 2

010

M 2

010

S 2

010

J 2

011

M 2

011

S 2

011

J 2

012

M 2

012

S 2

012

J 2

013

M 2

013

m t

on

nes,

3M

MA

an

nu

ali

sed

Mine

output

Refined

output

Chinese zinc mine output

0

1

2

3

4

5

6

7

J 2

004

J 2

005

J 2

006

J 2

007

J 2

008

J 2

009

J 2

010

J 2

011

J 2

012

J 2

013

m t

on

nes,

an

nu

ali

sed

Monthly

12MMA

…and too little in the latter part of the decade

Source: Wood Mackenzie, ILZSG, Macquarie Research, November 2013

Ex-China zinc mine output

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

J 2

011

A 2

011

J 2

011

O 2

011

J 2

012

A 2

012

J 2

012

O 2

012

J 2

013

A 2

013

J 2

013

Yo

Y %

ch

, 3M

MA

Zinc mine major projects and depletions

-1500

-1000

-500

0

500

1000

2013f 2014f 2015f 2016f 2017f

,000 t

on

nes

Ozernoe

Shalkiya Restart

Dugald River

McArthur River

Century

Brunswick

Perseverence

Lisheen

Skorpion

Questions regarding

sustainability of

Chinese output

Just like others, the Chinese market has been

tightening…

Source: worldsteel, INSG, ICSG, IAI, ILZSG, Macquarie Research, November 2013

China's zinc mine and metal output

0

1

2

3

4

5

6

J 2

009

M 2

009

S 2

009

J 2

010

M 2

010

S 2

010

J 2

011

M 2

011

S 2

011

J 2

012

M 2

012

S 2

012

J 2

013

M 2

013

m t

on

nes,

3M

MA

an

nu

ali

sed

Mine

output

Refined

output

Reported commercial zinc stocks

0

500

1,000

1,500

2,000

2,500

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

'000 t

on

nes,

mo

nth

en

d

Producers

Merchants

Consumers

SHFE

LME

China's zinc concentrate imports

0

50

100

150

200

250

300

350

400

450

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

Ju

l-1

2

Ja

n-1

3

Ju

l-1

3

'00

0 t

on

ne

s

…however higher treatment charges are

encouraging smelters back

Source: CRU, ILZSG, Macquarie Research, November 2013

China's refined zinc output

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

J 2

011

A 2

011

J 2

011

O 2

011

J 2

012

A 2

012

J 2

012

O 2

012

J 2

013

A 2

013

J 2

013

Yo

Y %

ch

an

ge

Zinc TCs - spot vs contract

0

50

100

150

200

250

J 2

011

A 2

011

J 2

011

O 2

011

J 2

012

A 2

012

J 2

012

O 2

012

J 2

013

A 2

013

J 2

013

US

$/d

mt

Contract

Spot

The lack of LME stocks in Asia perhaps the

biggest 2014 price risk

Source: LME, CRU, ILZSG, Macquarie Research, November 2013

Global refined zinc consumption

-15%

-10%

-5%

0%

5%

10%

15%

J 2

011

A 2

011

J 2

011

O 2

011

J 2

012

A 2

012

J 2

012

O 2

012

J 2

013

A 2

013

J 2

013

Yo

Y %

ch

an

ge

World galv. steel sheet output

7%

4%

9%

5%

6%

9%

4%4%

1%

2%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

2011 Q

1

2011 Q

2

2011 Q

3

2011 Q

4

2012 Q

1

2012 Q

2

2012 Q

3

2012 Q

4

2013 Q

1

2013 Q

2

Yo

Y %

ch

an

ge

LME zinc stocks by region

0%

20%

40%

60%

80%

100%

J 2

009

J 2

009

J 2

010

J 2

010

J 2

011

J 2

011

J 2

012

J 2

012

J 2

013

J 2

013

% t

ota

l, m

on

th e

nd

M.East

Europe

USA

Asia

Macquarie’s zinc supply-demand balance

Source: Wood Mackenzie, ILZSG, Macquarie Research, November 2013

'000t zinc 2012 2013F 2014F 2015F 2016F 2017F 2018F

Mine production 13,250 14,250 14,850 15,250 15,000 15,750 16,400

YoY change 4.0% 7.5% 4.2% 2.7% -1.6% 5.0% 4.0%

Refined production 12,600 13,100 13,650 14,150 14,550 15,200 15,800

YoY change -3.2% 4.0% 4.2% 3.7% 2.8% 4.5% 3.9%

Consumption 12,446 12,945 13,542 14,147 14,756 15,338 15,900

YoY change -0.8% 4.0% 4.6% 4.5% 4.3% 3.9% 3.7%

Balance 154 155 108 3 -206 -138 -150

LME cash price

LME Cash Price ($/t) 1,946 1,933 1,988 2,150 2,375 2,350 2,200

LME Cash Price (c/lb) 88 88 90 98 108 107 100

Ex-China lead mine supply struggling…

Source: China Customs, ILZSG, Macquarie Research, November 2013

Ex-China lead mine output

-4%

-2%

0%

2%

4%

6%

8%

J 2

012

M 2

012

M 2

012

J 2

012

S 2

012

N 2

012

J 2

013

M 2

013

M 2

013

J 2

013

Yo

Y %

ch

, 3M

MA

YoY change in China's Pb concentrate imports, 3MMA

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Jan-1

0

Apr-

10

Jul-10

Oct-

10

Jan-1

1

Apr-

11

Jul-11

Oct-

11

Jan-1

2

Apr-

12

Jul-12

Oct-

12

Jan-1

3

Apr-

13

Jul-13

…making future Chinese mine supply

increasingly important – more so than for zinc

Source: ILZSG, CRU, Macquarie Research, November 2013

Chinese mine output as a proportion of global

0%

10%

20%

30%

40%

50%

60%

70%

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

Lead

Zinc

Lead market balance under different scenarios

-800

-600

-400

-200

0

200

400

2013F 2014F 2015F 2016F 2017F 2018F

,00

0 t

on

ne

s

Chinese Supply falls 5%pa

Base

Chinese Supply grow s 5%pa

Macquarie’s lead supply-demand balance

Source: CRU, ILZSG, Macquarie Research, November 2013

'000t lead 2012 2013F 2014F 2015F 2016F 2017F 2018F

Mine production 4,900 5,100 5,200 5,300 5,300 5,400 5,550

% Change YoY 8.9% 4.1% 2.0% 1.9% 0.0% 1.9% 3%

Total production 10,450 10,850 11,100 11,300 11,400 11,700 12,150

% Change 2.0% 3.8% 2.3% 1.8% 0.9% 2.6% 4%

Consumption 10,400 10,750 11,100 11,400 11,600 11,750 12,100

% Change YoY 3.5% 3.4% 3.3% 2.7% 1.8% 1.3% 3%

Refined balance 50 100 0 -100 -200 -50 50

LME cash price

$/tonne 2061 2126 2175 2400 2250 2200 2200

c/lb 93.0 96.0 99.0 109.0 100.0 100.0 100.0

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand

Outperform – return > 3% in excess of benchmark return

Neutral – return within 3% of benchmark return

Underperform – return > 3% below benchmark return

Benchmark return is determined by long term nominal GDP growth

plus 12 month forward market dividend yield

Macquarie – Asia/Europe

Outperform – expected return >+10%

Neutral – expected return from -10% to +10%

Underperform – expected <-10%

Macquarie First South - South Africa




Macquarie - Canada




Macquarie - USA




Volatility index definition* This is calculated from the volatility of historic

price movements.

Very high–highest risk – Stock should be

expected to move up or down 60-100% in a year

– investors should be aware this stock is highly

speculative.

High – stock should be expected to move up or

down at least 40-60% in a year – investors should

be aware this stock could be speculative.

Medium – stock should be expected to move up

or down at least 30-40% in a year.

Low–medium – stock should be expected to

move up or down at least 25-30% in a year.

Low – stock should be expected to move up or

down at least 15-25% in a year.

* Applicable to Australian/NZ stocks only

Recommendation – 12 months

Note: Quant recommendations may differ from

Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following

adjustments made:

Added back: goodwill amortisation, provision for

catastrophe reserves, IFRS derivatives & hedging, IFRS

impairments & IFRS interest expense

Excluded: non recurring items, asset revals, property

revals, appraisal value uplift, preference dividends &

minority interests

EPS = adjusted net profit /efpowa*

ROA = adjusted ebit / average total assets

ROA Banks/Insurance = adjusted net profit /average

total assets

ROE = adjusted net profit / average shareholders funds

Gross cashflow = adjusted net profit + depreciation

*equivalent fully paid ordinary weighted average number

of shares

All Reported numbers for Australian/NZ listed stocks

are modelled under IFRS (International Financial

Reporting Standards).

Recommendation proportions – For quarter ending 30 September 2013

AU/NZ Asia RSA USA CA EUR

Outperform 50.56% 56.87% 48.78% 41.00% 61.75% 47.10% (for US coverage by MCUSA, 5.85% of stocks covered are investment banking clients)

Neutral 38.95% 25.18% 42.68% 54.40% 34.43% 30.89% (for US coverage by MCUSA, 3.90% of stocks covered are investment banking clients)

Underperform 10.49% 17.94% 8.54% 4.60% 3.83% 22.01% (for US coverage by MCUSA, 0.00% of stocks covered are investment banking clients)

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base metals: outlook for supply and demand

Economy & Finance

global growth

chinese growth

better growth

global gdp growth

economies gdp growth

developed economies

continued growth

little growth