Nickel Market Report Q After the sharp fluctuation of nickel price in 2008, nickel market started to go flatly

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1 Nickel Market Report Q After the sharp fluctuation of nickel price in 2008, nickel market started to go flatly comparatively in the first quarter, 2009, and went slowly at a reasonable pace. In the first two months of the quarter, base metals prices have rebounded to some extend, and only nickel price remained weak. However, nickel price started to rebound strongly, mainly because some civilians held stocks at low prices, which pushed up nickel price. Generally speaking, nickel market did not retreat sharply, and began to rebound from the bottom. However, as the demand from stainless steel plants did not improve as expected, and in addition, the financial crisis depressed consumption interest, nickel market has not warmed up obviously. With no strong support of nickel price rise, ferronickel price still went at a low level. Producers hold back from selling, and prefer to wait for ferronickel market to go up. As a large amount of stainless steel plants have halted and reduced production, their demand for ferronickel remained weak. Meanwhile, as the sales of 200 series stainless steel went well, the consumption of low-grade ferronickel was strong. There were 9 million tons of nickel oxide ore stocked at major ports, and as most ferronickel plants were still out of production, the consumption of nickel oxide ore was in stagnant. The import of high-grade nickel oxide ore has reduced a lot, and mainly low-grade material was imported. It is a focus whether nickel market will resume as expected in the second quarter. The global economy resumption is sure to support nickel market recovery. 1. Three-month nickel on LME trend Q1,2009 Looking back from 3-month nickel on LME price trend in the first quarter, the price on LME only reached to USD13,000/t at the beginning of January, and then began to retreat sharply. The price has dropped to USD10,000/t, but the price cannot touch USD12,000/t even though it began to rebound. In February, nickel price has gone back to the low levels

2 in Oct and Nov,2008. The low price of USD9,463/t appeared in Feb 24, and had no good sign to rebound. The high price of USD13,417/t attributed to the commodity adjustment. Though producers have announced to reduce production, consumer demand remained weak in the first quarter,2009, and moreover it will last long time. It is obvious that 3-month nickel on LME basically fluctuated in the range of USD9,000-10,000/t, and the range slowed down. 3-month nickel on LME dropped to the bottom again at the end of March, and touched the low price of USD9,500/t in first quarter. Seeing from 3-month nickel on LME trend in Nov,2008, the financial corporations have been closed down, and nickel price has touched to the low level of USD8,820/t. The average price in Nov was USD10,700/t, and until Feb 24, 3-month nickel on LME has dropped to USD9,463/t. The average price in Feb was USD643/t higher than that in Nov. The price on LME of USD13,417/t in Jan has not been reached. At the end of January, the total stocks on LME have exceeded to 84,000t, and until Feb 24, the stocks has risen by 13,000t to 97,000t, rising by 24%. Though nickel plants in the world were reducing production, and tried to decrease the supply of nickel cathode. However, consumer demand decrease was more rapid.

3 Prices trend of 3-month nickel on LME Q1, Nickel price change in spot market Q1,2009 Nickel price in spot market was in accord with 3-month nickel on LME the first quarter. Nickel price of Jinchuan brand touched RMB94,000/t in early January and then retreated sharply to RMB90,000/t. The price rebounded in a small range and then retreated to low level RMB87,000/t. As producers were active to replenish stocks for the Spring Festival, which supported nickel market effectively. Nickel price of Jinchuan brand rose from RMB87,000/t to above RMB91,000/t before the Spring Festival. Nickel market went flatly comparatively because consumers started to return to nickel market after the Spring Festival, and moreover, the price almost reached RMB93,000/t twice at the beginning of Feb. However, it retreated again finally. The demand from stainless steel plants did not recovered as expected, and some nickel plants continued to reduce or halt production. The whole fundamentals remained weak. Nickel price fluctuated in the range of RMB86,000-88,000/t from the end of Feb and Mar, and the pace slowed down. It is obvious that nickel price kept stable at above RMB87,000/t, and moreover lasted a long time. Jinchuan Group, the largest producer in China, insisted on the offers at RMB87,000/t ex works, very close to their production cost. As it disclosed, Jinchuan Group kept production with tin concentrate of high prices. According to demand increase in Feb, they adjusted up the price to RMB91,000/t, and then reduced the offer to RMB86,000/t. Nickel price fluctuated in the range of the above price. Jinchuan Group adjusted their offers in March, and the price has dropped to RMB84,000/t, the lowest level in The price rebounded to RMB86,000/t, and the downward range has reached to 65% compared to the same time,2008. The global financial crisis not only depressed the economy, but the consumption interest, which led to the price rebound difficulty.

4 Prices trend of nickel of Jinchuan brand Q1, The supply and demand in nickel market 3.1 The global supply of nickel was surplus, most producers reduced production The supply of refined nickel was surplus in the first quarter, and consumer demand was very slow depressed by the global financial crisis. The global nickel producers had to reduce their production, as they cannot bear the losses caused by nickel price decline. Some new projects have postponed the production. The surplus volume of refined nickel was tons in Jan and Feb, dropping by 6% compared to the same time last year, and the main reason is that Japan has reduced the production. The surplus volume of nickel was 213,100tons in the first two months, As some data revealed, the consumption volume has dropped by 23% to 174,100 tons in Jan and Feb. WBMS revealed, the production volume of nickel ore decreased by 5.7% to 235,000 tons. The supply was surplus 12,200 tons in single Feb, and the output is 105,300 tons and the consumption volume was 93,100 tons. In the first quarter,2009, 3-month nickel on LME hovered at around USD10,000/t, and some new nickel projects also reduced the production depressed by the slow situation. In early March, Albidon Corporation announced, the Munali located in Zambia has halted

5 production, and it is estimated that the loss of nickel was 6,000t. PT Aneka Tambang claimed that their ferronickel output decreased by 32% to 12,000t in The Tati and Nkomati nickel projects of Norilsk Group were suffering losses since 3-month nickel on LME dropped to below USD10,000/t. If nickel price continues to move down, these two projects had to been closed down. It is rumor that nickel plants in Cuba also reduced production, and the Nicaro and Punta Gorda projects were going to halt production. Jinchuan Group, the largest producer in China, did not have news to reduce production, but the designed output kept stable at 120,000t. If nickel price held at a low level, Jinchuan Group is likely to reduce output further. Ji en Nickel Group invested many international nickel projects recently, but owing to nickel price decline, the company has suffered losses of 70%. They started to maintain equipment in the first quarter, and then resumed to production in February. Guangxi Yulin Nickel Co.,Ltd can not bear the low price, and was out of production. The output of Jiangxi Jiangli Sei-Tech Co.,Ltd remained at 1,000tpm, and cannot run fully. Yunnan Yuanjiang nickel Co.,Ltd has been out of production since last October, and has no plan to resume production. The output of refined nickel in the first quarter reduced month by month, and mainly because some small-sized plants cannot run fully.

6 Output of refined nickel Q1,2009 Volume Jan Feb Mar Month Output As nickel price remained low in the first quarter, most middle-grade ferronickel plants cannot bear the losses, and chose to halt production. After the continuous nickel price decline, the price is much lower than the production cost of all grades ferronickel. Middle-grade ferronickel plants were almost out of production. Facing to the high production cost and decreasing nickel price, most high-grade ferronickel plants halted production gradually, and only a few plants are running with difficulty. The offers of high-grade ferronickel kept stable at RMB900-1,000/mtu. However, the deals remained thin, and most plants held back from selling. Middle-grade ferronickel plants almost halted production since last year, and only a few plants are running to provide materials for their own stainless steel plants. A few deals were concluded at RMB1,000/mtu. The low-grade ferronickel plants go better than that of other grades. However, as the prices of low-grade ferronickel remained low, and most plants cannot run fully and only remained production with difficulty. 3.2 Nickel consumption little improvement The apparent consumption volume of nickel was 120 thousand tons in the first quarter, increasing by 30% compared to the same time last year. The demand for nickel has not improved, while the apparent consumption volume did not decline but increase. The two main reasons are as follows, one is part of the domestic stocks of nickel oxide ore have

7 transferred to nickel stocks, Many traders worried about the large stocks of nickel oxide ore at ports a lot, and in order to avoid the extra port charge, many traders chose to process to ferronickel or nickel cathode to be in stock. The second reason is that since the prices of nonferrous metals plummeted, the government has taken many purchasing plans such as copper, aluminum, zinc and indium. The news of purchasing nickel cathode came continuously, including some investors bought nickel cathode at low prices. Because of nickel price decline, the sales of some stainless steel plants got into trouble, and moreover, traders hold few stocks on hand. It appeared that the demand has decreased, and actually, most consumers hold wait-and-see attitudes towards the future market, and they have lost confidence in the future market. The general situation of stainless steel plants in Chinese domestic market is not optimistic in 2009, and the pace of downward movement has slowed down. One reason is that the downstream demand is possible to decline. Depressed by the global financial crisis, the consumption of stainless steel got into trouble, especially the demand entered into bottom, and the downstream demand for stainless steel will decrease continuously. At the background of economic recession, the production increase of household appliance will retreat again, and the demand for stainless steel will decrease further. In addition, Guided by the government favorable measures, real estate industries are likely to warm up, but the investment to high-grade housings will cool down, and only the economic housing increased. Therefore, with the demand for high-grade housing shrinking, the consumption volume of stainless steel will remain at a low level. The supply is beyond the demand in 2009, and the surplus situation is more serious. It is predicted that the global output is 1.55 million tons, increasing by around 170 million tons compared to The actual consumption volume was 1.44 million tons, increasing by 60 thousand tons. Therefore, the supply surplus in 2009 was at least 110 thousand tons, which will push down nickel price. 4. Import and export of nickel Q1,2009

8 As the picture illustrated, the import volume of refined nickel kept almost unchanged in Jan and Feb. The import of refined nickel and alloy increased by 66% to 12,690 tons compared to last month. The import volume of refined nickel in China kept strong, and the main reason is 3-month nickel on LME remained low at USD9,000-10,000/t,and there existed the price gap advantage with nickel price in Chinese domestic market. Therefore, many investors and traders invested imported nickel, and the import remained strong. The import of refined nickel decreased in March, and the export of refined nickel is low. It revealed that China is the large country in the world. Import and export of refined nickel Q1,2009 Volume Jan Feb March Month Export Import The import volume of nickel oxide ore was totally 570 thousand tons in March, 2009, and the import volume was 1690 thousand tons accumulative total, decreasing by 52% compared to last year. The import volume from Indonesia was 120 thousand tons in March, and the average price was USD37/t. The volume from Philippines was 410 tons, and the average price was USD21/t. With nickel price declining, the import prices of nickel oxide ore decreased sharply compared to last year, and the import volume from Philippines increased greatly, mainly because the nickel oxide ore ordered previously was imported to China in March when the rainy season was over. The volume decrease of nickel oxide ore from Indonesia was mainly because the high-grade ferronickel plants kept halting production, leading to the demand shrink for high-grade nickel oxide ore. The

9 import volumes from Australia, Russia and Botswana were 21,288t, 11,658t and 5,615t of nickel concentrate respectively. The total import volume was 40 thousand tons, and nickel concentrate was mainly sold to Jinchuan Group. In the first quarter, the import of nickel oxide ore and nickel concentrate kept stable comparatively. By the end of March, the total stocks at major ports were 8100 thousand tons, and the four major ports Rizhao, Lanshan, Lianyungang, and Tianjin had 6500 thousand tons of nickel oxide ore in stock. 5. Prospect of nickel market in the future Nickel price remained at a low level in the first quarter, 2009, and there was few favorable factors to support nickel market. Even though consumers returned to nickel market after the Spring Festival, nickel price did not rebound obviously. The news of production decrease from global nickel plants came out to keep nickel price stable, supporting nickel market temporarily. However, the fundamentals of nickel cathode did not improve greatly. The stainless steel plants in China go slowly, and they still consumed the previous stocks of nickel cathode, having little intention of purchasing. The demand from end-users was not active, and the orders from overseas market have decreased depressed by the financial crisis. They only purchase the metal to maintain the production in the short term, and dare not hold large stocks. Though the government purchased other base metals early March, and there was the nickel purchasing of thousand tons coming, but did not support the market greatly, and only promote nickel market temporarily. The supply of nickel cathode in spot market was surplus, and the stainless steel mills did not warm up, which depress the confidence of participants in spot market. Therefore, nickel price touched to the bottom than rebounded slightly. As the production cost held high, most nickel plants reduced the production in order to keep nickel price stable. Most participants believe that nickel price will not drop to below RMB80,000/t. If the demand from stainless steel plants warms up,

10 nickel price will keep rebounding, but the range will be small. Nickel price will keep fluctuating at above RMB100,000/t. Three-month nickel on LME is possible to rise to above USD12,000/t in the second quarter but will keep fluctuating to go upwards. If the government takes favorable measures to support nonferrous industries, nickel market will recover soon.