Global Metals Playbook – 1Q10 Gathering Momentum

Cyclical trends remain supportive for commodities as an asset class. Unprecedented fiscal and monetary easing in 2009 is reviving business confidence and growth, the global rate tightening cycle is in its infancy, liquidity conditions remain generous, and asset allocations towards commodities are still increasing.

Metals sector outlook: We expect weighted average gains in base metal prices of 32.4% in 2010, driven by a strengthening industrial production cycle, with copper remaining our preferred exposure in this sector.

Anticipated financial market conditions still point to further increases in investment demand for precious metals, while we expect a revival in global automotive production to be particularly favourable for platinum group metals.

We also expect a cyclical recovery in contract bulk commodity prices in 2010 as global steel production and power consumption are set to rise, with hard coking coal and iron ore prices likely to increase the most YoY in percentage terms, in our estimation.

Our highest conviction Overweight stock picks based on these views are JFE Holdings, Vedanta, Alcoa, Xstrata, and Vale.