COMMODITY SPECIAL REPORT

MEDIUM ‐TERM COPPER VIEW Date: 15th December, 2010

COPPER IN UNCHARTED TERRITORY

Analysis by:

Renisha Chainani
Deputy Manager – Research

Copper is called the "metal with a Ph.D. in economics." This is because copper has countless industrial
uses, and thus serves as an activity gage for the global economy. The red precious metal shows up in
home appliances, electrical wiring, and automotive parts ‐‐ pretty much.

Copper ascended to a fresh lifetime peak, trading above $9,200 per tonne at LME and ` 420 /kg at MCX.
The copper‐buying binge is a huge bet on the red metal and leaves outsiders wondering whether this
reflects a belief that global manufacturing is truly rebounding to the point where copper could soon be in
short supply, or whether this is simply big money engineering a speculative “pump‐and‐dump” that’s
likely to burn anyone jumping on the bandwagon at this late stage. Reasons for current bull rally are:

1) Chinese Policy Decision triggers relief rally

Most important reason is that financial market was widely expecting Interest Rate hike from China in
last weekend after its worse‐than‐expected CPI figures rose above 5% YoY in November. But PBOC
surprised the market by raising Reserve Ratio by 50 bps and not raising Interest Rate. China has
avoided aggressive moves to curb inflation that could inhibit its strong economic growth and blunt its
voracious demand for raw materials. Copper Bulls were rejuvenated after this decision.

2) Investment Demand from ETF

UK‐listed ETF Securities started physically backed exchange traded commodities (ETC) vehicles in
copper, tin and nickel, with trading beginning from December 10. Black Rock, Goldman Sachs and
Deutsche Bank are also introducing exchange traded products with copper as the underlying asset.

3) Recent Strong Chinese Economic data

China’s industrial production in November rose to 13.3 percent year‐on‐year from 13.1 percent last
month while Chinese copper imports surged in November, with imports up by 29 percent month‐on‐
month and 21 percent year‐on‐year. China’s auto sales in November increased by another 10.10
percent from the previous month, and the China Association of Automobile Manufacturers expected
the market to remain bullish in December despite the slow‐down in growth.

4) Demand from Emerging as well as Advanced economies

US economic recovery has turned more optimistic while growth in emerging market has been robust.
Advanced economies will continue to adopt accommodative monetary policies to boost growth and
the impacts should gradually be unveiled. China, the world’s largest consumer of copper is expected
to continue to witness economic expansion in the coming years, as is India, Brazil and other emerging
markets.

Anagram Commodities Research is also available on Bloomberg <Code ANGM>

Regd. Office: Anagram House, H.L. Commerce College - Stadium Road, Near Samved Hospital, Navrangpura, Ahmedabad – 380 009.
Web site: www.anagram.co.in
Anagram Commodity Special Copper Report

5) Continuous decline in Inventory Stocks

Global exchange inventories (LME + Shanghai + COMEX) of copper have declined by 33% this year and
stockpiles are expected to drop to an all time low. Furthermore, mining and production of copper has
been on the decline as new reserves are getting harder to find and the grade of copper that is being
extracted continues to deteriorate.

6) Depreciation in Dollar

15th Dec, 2010

Anagram Commodity Special Copper Report

Dollar Index has strong inverse correlation with LME Copper with average around ‐85%. The logic is,
depreciation in Dollar leads to appreciation in Dollar denominated commodities like Copper. And
Dollar has been trading weak this year and has fallen over 10% from 2010.

7) Supply Demand Imbalance

Copper is expected to witness a supply and demand imbalance in the coming years. According to
forecasts by various analysts surveyed, demand for copper is expected to outpace supply by 380,000
metric tons in the coming year. This demand is primarily being driven by economic growth around the
globe. In fact, production at the world’s largest copper mine, Escondida, is expected to drop by as
much as 10 percent over the next year. Production concerns can further be supported by statements
made by Freeport McMoRan, stating that major copper reserves that are produced are being
extracted from mines that are 100 years old and fading away.

Copper Supply & Demand

(in ‘000 tonnes)
2006 2007 2008 2009 2010 2011
Supply
Total mine production 14,983 15,439 15,450 15,262 15,369 15,561
Year‐on‐year %change 0% 3% 0% ‐1.20% 0.70% 1.30%
North America 2,150 2,169 2,182 2,002 1,862 2,151
Latin 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 4,065
China 2,822 3,222 3,597 4,005 4,725 5,068
Europe 3,551 3,578 3,698 3,522 3,659 3,787
Total refined production 17,361 18,011 18,232 18,288 18,837 19,534
Year‐on‐year %change 5% 4% 1% 0.30% 3.00% 3.70%
Demand
Total refined consumption 17,148 18,048 18,027 17,821 18,966 19,914
Year‐on‐year %change 3% 5% 0% ‐1.10% 6.40% 5.00%
Implied balance 213 ‐37 204 467 ‐129 ‐380
Total stocks 1,093 1,422 1,158 1,263 1,098 656
Average 3‐m LME price ($/t) 6,861 7,096 6,871 5,186 7,494 8,623
Source: ICSG, WBMS, Anagram Research

In 2011 the copper market will be characterised by strong demand from China and other emerging
economies, yet constrained in meeting this demand due to insufficient mine supply growth. This will
form the backdrop to the copper market and will be compounded with the introduction of physically‐
backed exchange traded products, which will only add to the market deficit by competing with
physical consumers. Indeed, apart from tin, copper is the only base metal in firm deficit already, and
will remain so through 2011 and 2012.

8) Fall in Mine Utilisation rates

The problem facing the copper market is that demand will grow strongly – by as much as 5% annually
for the next several years – but mine supply growth will lag far behind. Unless stockpiling by the likes
of China’s State Reserves Bureau proves to be much larger than thought, or more copper scrap supply
becomes available – which is a distinct possibility given expected record copper prices ahead – the
copper market is facing a protracted period of extreme tightness.

15th Dec, 2010

Anagram Commodity Special Copper Report

The failure of mines to produce anywhere near their nameplate capacity has seen mine utilisation
rates edge lower, from more than 90% in 2004 to less than 80% in the first seven months of 2010,
according to data from ICSG. The largest and more mature mines are the main culprits, having
exhausted much of their high grade ore as well as encountering various other disruptions to normal
service, such as labour disputes and technical failures.

9) Technical chart looking strong

MCX Copper( ` / Kg) Weekly Chart

Outlook and Recommendation

MCX Copper has successfully cleared the resistance of ` 390 to ` 400 area last week, which Copper was not
able to clear from 2006. Buyers attempted again to lift prices to resistance area in 2008 also, but in vain. Now
in December 2010, prices have finally cleared that level. If we look at Extension levels, Copper has also cleared
major 61.8% resistance of 420. Now the next 76.4% Resistance is ` 452 and 100% Resistance is ` 504.

But as prices have run up very fast recently, it is advised to Buy Copper on dips around ` 400 ‐ 410. Support
would around ` 365 and Targets are 450 and 500 within 6 months time frame.

15th Dec, 2010

Anagram Commodity Special Copper Report

COMMODITIES RESEARCH TEAM

Analyst Designation Specialization E-mail Tel. (Direct)

Avinash Gorakshakar Head -Research Research avinash.gorakshakar@anagram.co.in +91 9223178007
Renisha Chainani Deputy Manager - Research All Commodities renisha.chainani@anagram.co.in +91 79 6662 9859
Tapan Patel Research Analyst Energy tapan.patel@anagram.co.in +91 79 6662 9975
Jatin Pateliya Research Analyst Base Metals jatin.pateliya@anagram.co.in +91 79 6662 9801
Anil Panchal Research Analyst Technicals anil.panchal@anagram.co.in +91 79 6662 9975

For any clarification and more information: Commodity Research Desk: 92272 60068

Anagram Comtrade Ltd.

Regd. Office: Anagram House, H.L. Commerce Collage - Stadium Road, Navrangpura, Ahmedabad – 380 009

Disclaimer

This document has been prepared by Anagram Capital Ltd (Anagram). Anagram, its holding company and associate companies are a full
service, brokerage group. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as
an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be
reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Anagram or any of its affiliates/ group
companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as
the basis for an investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document
should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies
referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of
such investment. The investment discussed or views expressed may not be suitable for all investors. We and our affiliates, group companies,
officers, directors, and employees may: (a) from time to time, have long or short positions in, and buy or sell the securities thereof, of
company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other
compensation or act as advisor or lender/ borrower to such company (ies) or have other potential conflict of interest with respect to any
recommendation and related information and opinions. This information is strictly confidential and is being furnished to you solely for your
information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication,
availability or use would be contrary to law, regulation or which would subject Anagram and affiliates/ group companies to any registration or
licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons
in whose possession this document comes, should inform themselves about and observe, any such restrictions.

The information given in this document is as of the date of this report and there can be no assurance that future results or events will be
consistent with this information. This information is subject to change without any prior notice. Anagram reserves the right to make
modifications and alterations to this statement as may be required from time to time. However, Anagram is under no obligation to update or
keep the information current. Nevertheless, Anagram is committed to providing independent and transparent recommendation to its client
and would be happy to provide any information in response to specific client queries. Neither Anagram nor any of its affiliates, group
companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential
including lost revenue or lost profits that may arise from or in connection with the use of the information. Past performance is not necessarily
a guide to future performance. The disclosures of interest statements incorporated in this document are provided solely to enhance the
transparency and should not be treated as endorsement of the views expressed in the report. Anagram Capital Limited generally prohibits its
analysts, persons reporting to analysts and their dependents from maintaining a financial interest in the securities or derivatives of any
companies that the analysts cover. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her
personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be,
directly or indirectly related to specific recommendations or views expressed in this report. Pl. note that Mutual Fund Investments are subject
to market risks, read the offer document carefully of the respective schemes before investing for full understanding and detail. Kindly read the
Risk Disclosure Documents carefully before investing in Equity Shares, Derivatives, Commodities or other instruments. The information
provided in these reports remains, unless otherwise stated, the copyright of Anagram. All layout, design, original artwork, concepts and other
Intellectual Properties, remains the property and copyright Anagram and may not be used in any form or for any purpose whatsoever by any
party without the express written permission of the copyright holders.

15th Dec, 2010