Copper and the Cycle
Still Some Missing Ingredients
 Resurgent optimism — The base metal rebound has been driven by copper. However
we don’t believe the necessary ingredients are present for a sustained rally.
 Key ingredients for sustained recovery — Past cycles show demand growth is the
most important (an improving second derivative is not sufficient, but consumer
restocking is an amplifier). Next come falling inventories, speculative buying and
supply constraints.
 In the current cycle — Demand is improving in China but continues to plummet
elsewhere. Inventories continue to rise in most metals. Speculative buying is
underway and could be even more important than in past recoveries. Supplies
have been cut by 8-14%; the degree of supply constraints will be key in
determining which commodities recover first.
 Copper imports into China — Surging imports have been the main driver of prices,
driven by SRB (China's State Reserve Bureau) buying, scrap shortages, demand
recovery and inventory rebuilding. We expect imports to slow in coming months.
 SRB buying and the bigger picture — SRB buying is one of a three pronged
strategy to ensure security of resources. The other two are overseas acquisitions
and domestic exploration.
 Copper will lead the recovery — Supply constraints mean when global demand
recovers the copper market will tighten rapidly.
 Price forecasts — We still expect the copper price to fall from current levels, but
not to US$1.25 as previously. We now expect prices to average US$1.50 in 2H09
and US$1.65 in 2010.

2 Citigroup Global Markets
The Dynamics of Commodity Recoveries 3
Necessary ingredients for recovery 3
1. Demand recovery and consumer restocking 3
2. Speculative/Investment Buying 11
3. Inventories 14
4. Production cuts and Supply Constraints 15
Drivers of the Recent Rally 19
Chinese Imports – Booming 19
State Reserve Bureau – Buying 20
Arbitrage – Chinese Trader Dreams Come True 21
Underlying Demand – Improving at the edges 22
Restocking – underway 22
Reduced Scrap Availability 22
Scrap – Global Cyclical Shortage 23
Speculative Activity 24
TCRCs 25
Global Supply and Demand 25
Demand - Signs of Life But It’s a Long Road back 25
Supply 28
Supply-Demand Balance 29
Appendix A-1 38
Analyst Certification 38