Base MetalsCommodity Research: Yuan and the base metals industry5 March 2005 Maqsood Ahmed ■ Yuan: Hype over revaluation has eased +44-(0)-20-7638-0292 @ ■ Outsiders still watching events very closely ■ China increasingly short metals but long value added manufacturing ■ “Pain for Gain” always a hard sell CNY1YNDF=, Close(Bid) [Line] Daily25Jun02 - 18Mar05PrCNY1YNDF= , Close(Bid), Line20028Feb05 -36200-200-400-600-800-1000-1200-1400-1600-1800-2000-2200-2400-2600-2800-3000-3200-3400-3600-3800-4000-4200-4400-4600-4800-5000-5200Jul02AugSepOctNovDecJan03FebMarAprMayJunJulAugSepOctNovDecJan04FebMarAprMayJunJulAugSepOctNovDecJan05FebMar CALYON FINANCIAL METALS GROUP NEW YORK, LONDON, HONG KONG th New York: 666 Third Avenue, 14Floor, New York, NY 10017 (T) +1 212 453 6100 London: 6 Lombard Street, London, EC3V 9JU (T) +44 (0)20 7638 0292, +44(0)20 7550 2360 thHong Kong: Credit Agricole Indosuez Cheuvreux, 26 Floor, Pacific Place, 88 Queensway, Hong Kong (T) 00-852-2826-5744 LME: Category 1 Ring Dealing Membership through Credit Lyonnais Rouse Comex: Aluminium, Copper, Gold, Silver (T) +1 212 738 5458 Comex: Gold EFP’s, Gold Options (T) +1 212 590 4947 Precious & Base Metals, OTC, EFP’s & 24 Hour Desk (T) +1 212 453 6100, metalsgroup@ Reuters Dealing Code: CALM Bloomberg CAIR /
Base Metals Introduction ■ Distinguished guests, economists and fellow brokers, good day to you all. Please allow me to firstly thank the Shanghai Futures Exchange for allowing Calyon Financial and myself in particular to share my thoughts on your metals industry. ■ Calyon Financial’s parent company, Calyon Corporate and Investment Bank, is a global wholesale bank with a broad presence in over 60 countries around the world. CALYON -A Global Player Europe Presence in over 60 BelgiumCzech Republiccountries FinlandFranceGermany AsiaGreat BritainGreeceChina HongKongHungaryIrelandKorea ItalyIndiaLuxembourgIndonesia MonacoJapanNetherlandsMalaysiaNorwayPhilippinesNorth AmericaPolandSingaporeRussiaMTaiwaniddle East UnitedStatesSlovakiaThailandTheCaribbeanBahreinIslandsSpainVietnamBangladesh SwedenAfricaFrench West IndiesCentral IranSwitzerlandFrench GuyanaAmericaIsraelTurkeyAlgeria LebanonUkraineCameroonMexicoSaudi ArabiaCongo South United Arab EmiratesDjiboutiAmericaYemenEgypt ArgentinaGabonOceaniaBrazilIvory CoastChileAustralia MadagascarUruguayNew CaledoniaMoroccoVenezuelaNew Zealand SenegalSouth AfricaTunisia Calyon Corporate and Investment Bank was formed in 2004 as a result of the merger between Credit Agricole Indosuez and Credit Lyonnais. Calyon Corporate and Investment Bank encompasses the commercial banking, specialized financing, commodity financing, and capital market activities of the Crédit Agricole Group. Calyon Corporate and Investment Bank is one of France's leading banking institutions with more than 50 years of experience in Europe and the Middle East and more than 120 years of experience in Asia. 2 CALYON FINANCIAL METALS GROUP
Base Metals ■ Calyon Financial is a global brokerage firm providing institutional clients with efficient access to financial and commodity markets around the world. We hold memberships on major worldwide futures and equity options markets and consistently rank among the largest in customer volume on the top global exchanges. Calyon Financial is a member to 33 major exchanges and have affiliate access to another 19 exchanges. Calyon Financial offers its clients a suite of products including futures & options, equities, foreign exchange, fixed income, financials, energies, metals, agricultural, and security futures products. It also provide a full range of services that can stand alone or support our product lines. These services include trade execution, global clearing, and eBrokerage (a group of real-time trading systems). •FINANCIAL FUTURES•BROKERAGE•MULTICURRENCY STATEMENT•ENERGIES•GLOBAL CLEARING•TREASURY SERVICES •FOREX•ELECTRONOIC BROKERAGE•GIVE-IN/GIVE-UP •METALS•ADVISORY•DELIVERY ASSISTANCE•AGRICULTURALS•ALTERNATIVE INVESTMENT•ELECTRONIC SOLUTIONS •SOFT COMMODITIES•CONSULTING•24 HOURS SUPPORT ■ China is now the single largest consumer in a host of metals, and consequently interest in this sector is at the forefront of many an investors mind. Indeed, Chinese metal demand, import and export data and the potential for change in exchange rates are, and will remain key to investment decisions in a whole host of financial markets. Specifically in the copper and aluminium markets, London brokers have often felt that their own dominant transaction medium, The London Metal Exchange, has played second fiddle to Shanghai itself over the last year or so. Very often the first question of the day is what has Shanghai done. ■ Thus, the importance of China’s role in the world economy and also in financial markets is not under estimated by any serious participant in the metals sector. With this as the fundamental background it is not surprising to see the media frenzy about the possible revaluation / floatation of the national currency. In more recent weeks the western press has cooled its coverage but no doubt the hype could well return for this most financial and political “ hot potato” issues. ■ The issues that I would like to address at this given opportunity include: ■ Past country experience of being short commodities but long on manufacturing. The subsequent effect of a stronger national currency. ■ The effect on USD dollar priced commodities in a period of US Dollar strength and weakness ■ The possible effect of a stronger Yuan at the commodity level ■ Specifics of the copper and aluminium industry in China 3 CALYON FINANCIAL METALS GROUP
Base Metals Yuan revaluation: The outsiders view China: FX reserves700600In December 2003, the PBOC bailed out the Bank of China and the China Construction Bank with USD reserves, USDbn3002001000 ■ From the outsider’s point of view, the single most compelling factor for upward revaluation has been the tangible level of US Dollar’s held by the Chinese central bank. When it comes to other macro economic data, such as GDP, Industrial production, import and export figures there still is a widely held perception in financial markets that the quality of reporting is sub-standard and consequently subject to significant revision. Looking at FX reserves there is complete confidence in the figures with the conclusion being that direct foreign investment flows and the trade surplus is swelling reserves at an exponential rate. The obvious deduction is that economic growth of this magnitude should in turn result in a significantly stronger Yuan. ■ Aside from the simple outsiders view, the more pessimistic investor would look at the quality of growth in China. Outsiders continue to estimate non-performing loans over and above the official reported figures. Amongst the skeptical outsiders the feeling is that non-performing loans could be in the high 40% range and if an abrupt change was made the transition would be catastrophic for world markets both real and financial. Thus, if one looks through the media meddling, most seasoned investors would prefer a measured approach and thankfully that is what we are seeing. 4 CALYON FINANCIAL METALS GROUP Billion US$199619971998199920002001200220032004
Base Metals The Yuan Non Deliverable Forward : reading into the moves CNY1YNDF=, Close(Bid) [Line] Daily 25Jun02 - 18Mar05PrCNY1YNDF= , Close(Bid), Line20028Feb05 -36200-200-400-600-800-1000-1200-1400-1600-1800-2000-2200-2400-2600-2800-3000-3200-3400-3600-3800-4000-4200-4400-4600-4800-5000-5200Jul02AugSepOctNovDecJan03FebMarAprMayJunJulAugSepOctNovDecJan04FebMarAprMayJunJulAugSepOctNovDecJan05FebMar ■ The introduction of the non-deliverable Yuan forward has given interested investors a tool to speculate on potential revaluation. As the chart illustrates, excessive hype about the potential for revaluation started in 2003. At one point, outside investors were willing to bet that the Chinese currency would be traded at a % premium on a one year forward basis. Towards the last quarter of 2004 the western press once again worked itself into frenzy with almost daily reporting about potential policy change being reported on the newswires. Indeed, the very fact that I am here, talking about this issue again bears out the point that this issue will not go away all that easily. ■ Furthermore, the topic can become political. As was seen during the recent US presidential election, candidates and parties were keen to point score with the voting public by talking tough on free trade. The implication being that market forces be applied to all areas of trade with China which would inevitably lead to a strengthening of the Yuan and in turn better terms for the US economy. ■ At this point, I side with many of you in audience, in that those same market forces should be applied to farmers in North America and Europe. Once their subsidies are removed then we are really talking about free trade for all. ■ Politics aside, the general direction of the western press and comments from Chinese government officials now suggests that no imminent Yuan revaluation is likely. Thus, on a one-year forward basis, the traded market has adjusted from pricing in a % revaluation at the start of the year to the current expectation of % . 5 CALYON FINANCIAL METALS GROUP
Base Metals Japan: A valid case history? Japanese Yen vs Industrial Production2801052601002409522090Soft Yen200Negative Industrial Growth8518080Strong Industrial 16075growthStrong 14070Yen1206510060805589012345678901234567890123457788888888889999999999000000----------------------------nnnnnnnnnnnnnnnnnnnnnnnnnnnnaaaaaaaaaaaaaaaaaaaaaaaaaaaaJJJJJJJJJJJJJJJJJJJJJJJJJJJJ ■ In looking at the specific effects of a structural shift in currency I have taken as example Japan. Now I fully realize that China is not Japan (and for that matter India) and the changes that happened in Japan over the last 30 years are by no means a direct parallel as to what may happen in China. ■ Nevertheless, the starting point is a nation (Japan) that during its rapid industrialisation period was in essence an importer of basic commodities and an exporter of value added manufactured goods. From energy in the form of coal, oil, gas and uranium the Japanese had to and still do import everything. There is no tangible domestic resource. Similarly, on the metals front, Japan has to import nearly all its iron ore for the steel industry, alumina for the aluminium sector, copper /zinc/ nickel concentrate for the base metals smelting business. Currently China is not exactly in the same predicament. There are tangible domestic resources of coal and base metal mining. However, these have already fallen well short of the national requirement and it is the current importation and future expectations of this trend that is the main driving force behind the current boom and demand for commodity investments amongst global investors. As you can see the parallels for China with Japan are not 100% but they are not all that different either. ■ For Japan, the recent experience for basic commodity producers has been a painful one. The steel industry has seen stagnation and demise. The same can be said for base metal (toll) smelting. In the most energy intensive industry aluminium smelting we have seen complete capitulation and we will focus on this in this section. 6 CALYON FINANCIAL METALS GROUP Yen/ US$Industrial production Index
Base Metals ■ The chart above tracks Japanese industrial production and the impact the structural shift to a stronger Yen has had on the manufacturing part of the economy. As you can see, the Japanese economy forged ahead during the 1970’s and the 1980’s. However, as the economy matured the Japanese could not sustain a soft currency and by the early 1990’s the tables had turned. Indeed, as the chart illustrates, Japanese industrial production has effectively been going in a sideways cycle ever since. ■ Looking at the growth period of the 1970’s and 1980’s one can see that the value added manufactured goods production more than offset the lack of buying power at the basic commodity level. However, Yen strength, which at the commodity import level would have been beneficial, was more than offset by more expensive exports. Thus, benefits at one level have been highly problematic at another. ■ Consequently, during the 1990’s to this day engineered weakness of the Yen, through economic stimulus packages and indirect handouts to the public have produced short periods of growth. Ultimately however, these prove to be artificial stimulation and thus the relapse into stagnation has occurred. It can be argued that self-sustaining growth has eluded the Japanese for the best part of 12-13 years. (Watch out America- see any parallels). ■ At this juncture it is worth pointing out that the demise of certain manufacturing sectors in Japan is and was achievable because lower operating cost countries existed (the tiger economies of the 1990’s). However, once value added manufacturing, whose key input cost is labour, is re-located to China that should be the end of the track for that industry. There is no realistic cheap alternative to China even taking into account India. 7 CALYON FINANCIAL METALS GROUP
Base Metals High oil prices and strong Yen resulted in capitulation of the aluminium industry. ■ The aluminium industry in Japan provides a very good example of how brutal market forces can be. As the charts below illustrate in the 1970’s basic primary aluminum production in Japan was running at well over 1 million tones annualized production. Today there is virtually no primary aluminium industry. ■ As many of you are aware, basic primary aluminium production is the most energy intensive amongst the base metals accounting for around 40% of the input cost. The Japanese as mentioned before were hostage to importing all the alumina for their aluminium smelters and similarly energy directly and indirectly is imported into the country. ■ In the 1970’s there were two big shocks in the oil industry, which also knocked the global economy. Firstly in Saudi Arabia (the worlds largest exporter of oil) the political elite decided that the days of giving oil away for free had to come to an end. Thus in 1973 / 74 the price of oil tripled reaching almost $15/bbl. That in it self was digestible for the aluminium industry in Japan. However, by the late 1970’s, revolution in Iran (another dominant exporter of oil) had sent the oil price up to $40/bbl and that effectively killed of energy intensive primary aluminium production in Japan. Even the strong Yen, which should have helped on the import side of the equation, failed to bring a reprieve for this sector in Japan. Thus, the logical conclusion was to abandon self-sufficiency in domestic primary aluminium production and instead move to joint ventures overseas to replace the lost capacity. Market forces dictated that it was better to import the basic commodity and focus on the high value added downstream products. ■ Over the last two years, high oil prices generated through Chinese demand and once again Middle East political instability has led to $50/bbl plus prices re-appearing. Market forces are dictating that the location of primary aluminium production be changed. This time the focus is on the US production base and we are witnessing right now, falling output from US smelters and shift in production towards Iceland, Australia, South Africa and the Middle East. The generalized outside view is that Chinese smelters are not subject to the same market forces, but realistically how long can this continue. 8 CALYON FINANCIAL METALS GROUP
Base Metals Japan: Aluminium Production vs Oil Japan: Primary Aluminium Production vs Currency Strength 9 CALYON FINANCIAL METALS GROUP Oil Price US $/bblExchange rate JPY/ US $19701978197119721979197319801974198119751982197619771983197819841979198519801986198119821987198319881984198919851990198619871991198819921989199319901994199119921995199319961994199719951998199619971999199820001999200120002002200120022003200320042004Primary Aluminium Production (Million Tonnes)Aluminium Production (Million tonnes)
Base Metals Commodity Currencies- Effects of a strong and weak US Dollar AUD=, Close(Bid) [Line] MCU3, Close(Last Trade) Daily16Mar02 - 18Mar05PrPrAUD= , Close(Bid), LineUSD25Feb05 , Close(Last Trade), Line25Feb05 ■ The majority of world traded commodities are priced in US dollars and consequently market forces do impact national currencies in countries where a significant proportion of export revenue is generate from commodities itself. In the simplest sense if commodity prices are rising, then the commodity producing country should benefit and in turn the nation currency gets stronger vs. the US Dollar. ■ Because of this natural reaction investors do, and also currently are, using commodities as hedge against US dollar weakness. Thus, we have seen with a high degree of correlation the LME metals complex moving higher in reaction to foreign exchange markets pushing US dollar values lower. This has also been true in the gold market and in oil. ■ The chart above, illustrates both a commodity currency effect and a metals vs. US Dollar hedge. Australia, Canada, South Africa and New Zealand are still seen as commodity countries. Their export mix of agriculture, precious metals, gold, iron ore and base metals provides an ideal investor tool to bet on both commodities and US $ weakness. The chart for the Australian dollar vs. the copper prices shows a very high degree of correlation. Obviously there are times when the currency leads the way or vice versa but the relationship is undeniable. The same relationship would be true if we replaced copper with a basket of commodities. Given the existence of such trading patterns we can end up with a whole host of interlinked indirect investments. China, being the current case in point. 10 CALYON FINANCIAL METALS GROUP
Base Metals ■ For many investors outside of China taking an equity stake in the economy by investing in shares or similar instruments is not an option. However, in a period of strong economic upturn it is taken for granted that China’s demand for commodities will rise sharply. Thus, investors have used commodities as a vehicle, particularly those commodities that are traded on financial exchanges, as an indirect way of gaining exposure to the Chinese economy. ■ This has further fuelled prices as it has compounded the genuine tightness in supply and demand. Similarly, investors could use commodity future contracts as a way of reducing exposure to China if they felt that the economy was cooling down. Taking these interlinked relationships at face value the current logic would be: upward revaluation of the Yuan will lead to a weaker US dollar, which in turn leads to higher commodity prices. Conversely, if nothing happens to the Yuan, the US dollar would most probably strengthen, which would be negative for commodity prices. At this juncture I would bet on the latter as the most likely outcome. Strong US Dollar: implication for commodities ■ As mentioned a strong US dollar can lead to weaker commodity prices. Sometimes this can also have the effect of keeping commodity prices depressed for a longer period than the elastic supply and demand models would suggest. ■ To illustrate this I have used the LME zinc market as an example. As the chart below illustrates the zinc market was in a structural surplus from 2001 to 2003. As a result US dollar zinc prices were depressed. ■ However, over this period the US $ was the safe haven currency and consequently against a basket of currencies it remained strong. For our example, I have used the Euro. Because of this the zinc industry managed to keep on producing the metal at a time when normally mines would be loosing money and going out of business. The strong US dollar was in effect keeping local operating costs low in producing regions such as South America, Australia, Canada etc. ■ As the chart shows, the expected break-even price going into the down turn was thought to be around $950/t. Thus, when LME zinc prices went below this level many speculators placed bets on an imminent turn around based on a rationalization in the industry and reduced supply. However, as the chart shows, the strong US $ allowed mines to stay above around the break even cost level for longer than anyone could have guessed. The end result being that zinc prices bounced around $750/t for almost two years before market forces pushed values higher. This allowed for a $200/t or 21% miscalculation on the part of some speculators at the LME. 11 CALYON FINANCIAL METALS GROUP
Base Metals LME Zinc Price US $/t vs Euro/ US $ exchange Close(Last Trade)= Close(Bid) cost of period of low Zinc: Western World Market Balance4003002001000-100-200 12 CALYON FINANCIAL METALS GROUP Price $/tMarket Balance ('000t)Mar-99May-99Jul-991998Sep-99Nov-99Jan-00Mar-00May-001999Jul-00Sep-00Nov-00Jan-01Mar-012000May-01Jul-01Sep-01Nov-01Jan-022001Mar-02May-02Jul-02Sep-02Nov-022002Jan-03Mar-03May-03Jul-03Sep-032003Nov-03Jan-04Mar-04May-04Jul-042004FSep-04Nov-04Jan-05Exchange rate Euro/$
Base Metals China: Copper and potential revaluation China-Copper Supply and Demand 3500US $ value of imports in 2004 was ~ Billion30002003200425002000150010005000Mine productionRefined productionConsumptionReal Net import ■ In very general terms China’s demand for copper has exceeded 3 million tonnes at a time when real domestic mine production is thought to be just over 500,000t. Thus, China was a real net importer of about Million of copper in 2004, with Million tonnes coming in the form of refined cathode and the balance made up from concentrate and scrap. This represents in equivalent US dollar terms, based on LME cash prices, a value of about US$ billion. Clearly a stronger Yuan would be helpful if copper prices stayed constant in US dollar terms. The vexing issue posed is that upward Yuan revaluation may in turn only lead to higher copper prices in US dollar terms, and thus the net benefit would be zero. ■ For the Chinese speculator who in the very short term wants to be pro-active and a) believes that revaluation is imminent & b) global and Chinese demand for copper will remain strong, then the trade would be to fix your prices now. ■ That said, on both these counts the short term view has turned more negative and thus I do not expect stock build via price fixing to take place during 2005. ■ For the policy makers the question remains what would be the longer-term implications of a stronger currency. We have looked at Japan, but as I said earlier, China is not Japan. The effects of a strong Yen hit the economy hard when it had reached a very mature level of development. The generalized view is that China is still way short based on per capita consumption of copper. 13 CALYON FINANCIAL METALS GROUP ('000 Tonnes)
Base Metals Shanghai and London Copper prices in line /SCFc1, Close(Last Trade) [Line] MCU3 Daily09Apr03 - 11Mar05PrPr/SCFc1 , Close(Last Trade), LineUSDUSD25Feb05 3804TTMCU3 , Close(Last Trade), Line380025Feb05 ■ The vast proportion of copper used in China is most probably consumed for electrification of the country and to feed the coastal housing boom. Thus, my belief is that copper in China is not simply a buy the commodity and re-export the value added. The bulk is consumed domestically. ■ Obviously, there are cheaper cost structures that can be looked at and that should be acted on. The value is in manufacturing and the cheaper the input costs the greater benefit to the overall Chinese economy. Once manufacturing is shifted to China there is no alternative cheaper cost country to relocate to. Thus, manufacturing is here to stay and with that confidence in mind, mining capacity overseas should be sought in order to give China a more integrated copper industry with a lower cost base. ■ The cost of production at a typical mining operation is around $1600/t on a fully amortised basis. Thus, by not having a presence at the mining level the Chinese economy effectively threw away US $3 billion based on average cash price of $2800/t in 2004. ■ Given that more than 80% of China’s copper is imported it is not surprising to see the high degree of correlation between the Shanghai Futures price and the London Metal Exchange price. Revaluation would in the very short term have little or no effect on this correlation. 14 CALYON FINANCIAL METALS GROUP
Base Metals China is an exporter of aluminium! ■ Unlike copper the Shanghai futures Aluminium contract has under performed the international market since April 2004. The simple deduction on upward Yuan revaluation is that it would make Chinese aluminium exports even more expensive and thus would further suppress prices and the industry. ■ In the short term outside investors have been skeptical as to Chinese national policy and exactly how influential it would be on curbing excessive aluminium production. Despite depressed prices, exports of Chinese aluminium continue to appear on international markets. Indeed, data from customs and Antaike suggest that the export tonnage in 2004 exceeded 650,000t and in 2005 it could well exceed 300,000t. ■ In the bigger picture, policy makers have to look at the national benefit and it could be argued that right now there is no national benefit as parts of the industry are running at a loss. Indeed, if we look at raw material sourcing and energy costs and then the actual value added in final product then the conclusion would have to be that aluminium smelting in China is actually value destroying. ■ That said, we currently have national Chinese production of primary aluminium at almost 7 Million tonnes and furthermore slated capacity in the pipeline at 10 Million tones. Thus, we can see why funding for the industry has become more difficult but from an outsiders view structural deficiencies have been apparent for many years and no action has been taken. Consequently, the short term outsiders view is that exports of aluminium will continue and this will stop aluminium prices on the world stage performing like other base metals. ■ As the chart below shows, Alumina imports made up about 45% of the national requirement in 2004 and the same is expected in 2005. The reported value of these imports was US $ Bn. On the primary aluminium side the export revenue generated by 650,000t was US $. A stronger Yuan would help at the base level. ■ Thus, the argument remains philosophical. At the base level of primary production there is no doubt that “real” profits would be much easier to come by via equity stakes in overseas production. New Greenfield smelters are looking at cash costs of around $800-900/t. The real figure in China could well be 60-80% higher. In the short term a stronger Yuan would provide better terms on which to make energy and raw material purchases but the key remains value added rather than commodity exports. Aluminium penetration into the auto sector, construction and packaging will come naturally, but it will the exportation of machinery, electrical and consumer durables that will provide the value added and offset real losses at the base commodity production level. 15 CALYON FINANCIAL METALS GROUP
Base Metals Shanghai and London prices out of line /SAFc1, Close(Last Trade) [Line] MAL3 Daily09Apr03 - 11Mar05PrPr/SAFc1 , Close(Last Trade), LineUSDUSD25Feb05 1967TTMAL3 , Close(Last Trade), Line25Feb05 China becomes an aluminium exporter700600500400300200100020012002200320042005 (F)-100-200 16 CALYON FINANCIAL METALS GROUP ('000 Tonnes)
Base Metals China: Raw material requirments (Alumina) for the primary aluminium industry98Domestic productionImports7654321020042005 F ■ In summary, there is going to be a cost for better purchasing power. Sooner or later as China integrates financially into world markets an upward shift in the Yuan looks inevitable. This will lead to less favourable trade terms, however, unless something drastic happens to improve the business climate in India, I still believe that China is the labour market end game in the fight for global capital. The one constant is that change is inevitable, but China can move forward with confidence. There will be no real alternative cheap labour cost nation to move on to. 17 CALYON FINANCIAL METALS GROUP Million Tonnes
© 2004, CALYON All rights reserved. This research report or summary has been prepared by CALYON or one of its affiliates or branches (collectively “CALYON”) from information believed to be reliable. Such information has not been independently verified and no guarantee, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. This report, which is a commercial communication, is provided for information purposes only. Nothing in this report should be considered to constitute investment, legal, accounting or taxation advice and you are advised to contact independent advisors in order to evaluate this report. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein, nor is it intended to form the basis for any credit or other evaluation and is intended for use only by those professional investors to whom it is made available by CALYON. CALYON does not act in a fiduciary capacity to you in respect of this report. CALYON may at any time stop producing or updating this report. Not all strategies are appropriate at all times. Past performance is not necessarily a guide to future performance. The price, value of and income from any of the financial instruments mentioned in this report can fall as well as rise and you may make losses if you invest in them. Independent advice should be sought. In any case, investors are invited to make their own independent decision as to whether a financial instrument or whether investment in the financial instruments described herein is proper, suitable or appropriate based on their own judgement and upon the advice of any relevant advisors they have consulted. CALYON has not taken any steps to ensure that the financial instruments referred to in this report are suitable for any investor. CALYON will not treat recipients of this report as its customers by virtue of their receiving this report. CALYON, its directors, officers and employees may effect transactions (whether long or short) in the financial instruments described herein for their own accounts or for the account of others, may have positions relating to other financial instruments of the issuer thereof, or any of its affiliates, or may perform or seek to perform securities, investment banking or other services for such issuer or its affiliates. CALYON may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. CALYON is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without the prior express written permission of CALYON. To the extent permitted by applicable securities laws and regulations, CALYON accepts no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents. This research report is being distributed in the United States of America by Calyon Securities (USA), Inc. (a broker-dealer registered with the Securities and Exchange Commission). This report is being distributed solely to persons who qualify as “Major . Institutional Investors” as defined in Rule 15a-6 under the Securities and Exchange Act of 1934 and who deal with CALYON. However, the delivery of this research report to any person in the United States shall not be deemed a recommendation of Calyon Securities (USA), Inc. to effect any transactions in the securities discussed herein or an endorsement of any opinion expressed herein. Any recipient of this research in the United States wishing to effect a transaction in any security mentioned herein should do so by contacting Calyon Securities (USA), Inc.. In the United Kingdom, this report is approved and/or distributed by CALYON, London branch (which is authorised by the Commission Bancaire and the Financial Services Authority (the “FSA”) and regulated by the FSA for the conduct of UK business), and is not for distribution to Private Customers (as defined by the FSA). The information contained herein does not apply to, and should not be relied upon by, private customers. In Italy, this research report can only be distributed to, and circulate among, professional investors (operatori qualificati), as defined by the relevant Italian securities legislation. In Spain, this report is distributed by CALYON, Madrid branch and may only be distributed to institutional investors (as defined in article of Royal Decree 291/1992 on Issues and Public Offers of Securities) and cannot be distributed to other investors that do not fall within the category of institutional. In Hong Kong this report is distributed by CALYON, Hong Kong branch. In Japan, this report is distributed by Calyon Capital Markets Asia . which is registered for securities business in Japan pursuant to the Law Concerning Foreign Securities Firms (Law n°5 of 1971, as amended), and is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. This report is not intended, and should not be considered, as advice on investments in securities which is subject to the Securities Investment Advisory Business Law (Law n°74 of 1986, as amended). In Luxembourg, this report is distributed by CALYON, Luxembourg branch. It is only intended for circulation and/or distribution to institutional investors and investments mentioned in this report will not be available to the public but only to institutional investors. In Singapore, this report is distributed by CALYON, Singapore branch and is not intended for distribution to any persons other than accredited investors, as defined in the Securities and Futures Act (Chapter 289 of Singapore), and persons whose business involves the acquisition or disposal of, or the holding of capital markets products (as defined in the Securities and Futures Act (Chapter 289 of Singapore)). This report is distributed in Switzerland by Crédit Agricole Indosuez (Suisse .). This report is not subject to the SBA Directive of January 24, 2003 as they are produced by a non-Swiss entity. In Germany, this report is distributed by CALYON, Frankfort branch and may only be distributed to institutional investors. THE DISTRIBUTION OF THIS DOCUMENT IN OTHER JURISDICTIONS MAY BE RESTRICTED BY LAW, AND PERSONS INTO WHOSE POSSESSION THIS DOCUMENT COMES SHOULD INFORM THEMSELVES ABOUT, AND OBSERVE, ANY SUCH RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING. 18 CALYON FINANCIAL METALS GROUP
