This market comment was written at 7:10 am on January 4th, US east coast time.

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1 Thursday, January 4th, LME Officials as Vol Op/Int Of Jan 3rd close High Low Close Csh/3 STOCKS (CH) SUP RESIS RSI 000 (000) MAV MAV MAV 3 Month Copper , Month Alum , Month Lead , Month Zinc , Month Nickel , Month Tin , Month Nasaac , NA NA This market comment was written at 7:10 am on January 4th, US east coast time. Copper prices continued to tumble yesterday, pushing below the $6,000 level to their lowest level since last April. Amazingly though, the complex s recent highfliers-- lead, zinc, and nickel -- all reversed copper-induced declines to close higher, while ali made up much of its earlier losses. Only tin joined copper in closing down in a big way. A better-than-expected December reading on the U.S. manufacturing sector did not stem the selling in copper, in part, because the trend is still down, and more importantly, the number did not constitute a major upside surprise. (See our chart below). U.S. construction spending also fell a smaller-than-expected 0.2 percent in Novembers, but an eighth straight drop in private residential building more than offset all-time highs in nonresidential and public construction. Source for Chart: (

2 Thursday, January 4th, We should also note that the weakness we saw in copper yesterday was prevalent in a host of commodity complexes, with big losses seen in grains, precious metals, and energy. There is talk that fund money is perhaps exiting commodities and moving into other arenas, of which the equity markets are mentioned as the most likely recipient. Given the synchronized weakness we saw yesterday, this is possible. This morning, we are off to another week start, eerily similar to yesterday s. Copper is once gain getting thrashed, down $186/MT and its weakness is spilling over into the rest of the group, with only nickel bucking the trend and now higher on the day (+$125/MT). Whether the rest of the group can once again reverse the steep sell-off evident in copper remains to be seen. Although we voiced our doubts about the group s staying power yesterday (and were admittedly wrong), we think it only matter of time when many of the other high fliers correct as well. At a time when commodity complexes are becoming increasingly intertwined across complexes, it is hard to imagine base metals going their own separate ways, especially when the one going in the different direction is none other than copper, the flagship metal in terms of both liquidity and fund/index exposure. Moreover, as charts recently prepared by our own Fred Demler show, (see last page), zinc and nickel prices, and to a lesser extent aluminum, look particularly vulnerable vs. their historical ending stock ratios. In terms of US economic data out today, we get November factory orders, (expected at +1.4%), followed by December ISM services (expected at 57). The week ends with December employment data, of which non-farm payroll figures (+110,000 jobs) will be the key figure to note. COPPER SUPPORT: $5000 RESISTANCE: $6200 Copper is looking quite miserable on the charts, and that is putting it kindly. We think the push to the $5000 level is now more likely, as there is little in terms of support from what we can see. Our RSI has sunk to 20, but this is no reason to test the waters on the long side. Remember that when copper was rallying, we had several days of RSI readings in the s range with little sign of a pullback. Copper stocks are up again today, and we are closing in on the 200,000 MT, a level above which copper stocks may not be deemed to be tight. A snap-back rally to the $6000 psychological resistance short-term may be possible, but should prove suspect

3 Thursday, January 4th, * Boliden said it extended hedging on its copper production by about two years due to investment in its Aitik mine in northern Sweden. The firm said 70% of its planned copper production is now hedged at $6,394 per ton for 2008, and at $5,920 per ton for It also extended hedging for gold, silver and lead exposures, but kept zinc production unhedged. ALUMINUM SUPPORT: $2700 RESISTANCE: $2850 Aluminum is at $2695, down $45/MT, and for the most part, still stubbornly defending the $2700 support level on closing basis. How much longer this continues in light of copper's unraveling remains to be seen, but we would prefer to err on the side of caution and move to the sidelines if long. * Aluminium Bahrain (Alba) said it boosted production 5.1% last year to 872,388 tons. ZINC SUPPORT: $4000 RESISTANCE: $4580 Zinc is at $4079, down $69/MT, with the $4000 support level, briefly breached yesterday on intraday basis; we would pare length here. LEAD SUPPORT: $1580 RESISTANCE: $1750 Lead is at $1645, down $75/MT; the metal bounced back impressively from $1570-$1580 support yesterday, and is well above that level for now; probably the relative safe haven within the group for now.

4 Thursday, January 4th, NICKEL SUPPORT: $32,500 RESISTANCE: $35,000 We are at $32,875/MT, up $125 and the lone gainer; nickel is possibly averting a much stronger decline from setting into the rest of the group by being up today, but we would not want to press our luck for too much longer. TIN SUPPORT: $11,000 RESISTANCE: $11,250 Tin closed below $11,000 support yesterday on a first day closing basis; if we close below there again today, a change in our trading range would be warranted.

5 Global Inventories (weeks use) vs Prices low inventories, high prices but too high?? $8,000 $7,000 $6,000 $5,000 $4,000 $4,500 $4,000 $3,500 $2,500 $1,500 $500 $2,800 $2,600 COPPER $2,400 ALUMINUM $2,200 $1,800 $1,600 $1,400 $1,200 $ ZINC stocks/consumption ratio (weeks) $30,000 $26,000 $22,000 NICKEL $18,000 $14,000 $10,000 $6, WBMS, Man est