Base metals Preference: neutral : Current (last month): copper USD 7,317/mt(7792); nickel USD 16,528/mt(16833); aluminumUSD 1,825/mt(1989) Recommendations UBS View 6-month target: copper: UDS 7,400/mt nickel: USD 18,000/mt; aluminum: USD 2,200/mt Tactical (3-6 months) e With the exception of aluminum, base metal prices stabilized broadly in June. But we see room for e From a timing perspective, building up somewhat lower prices in the short run (4-6 weeks). Deteriorating industrial activity in Asian countries, exposure to base metals is not yet weak US data and the Euro-zone crisis remain a price burden for the sector in the early part of 3Q12. advised. While we still expect higher ¢ To weigh on scrap supply and compensated for lower Chinese copper imports, copper prices are likely to prices over the next 6-12 months, the decline towards USD 6600/mt, in our view. For the rest of the base metals, prices could move deeper into short-term downside risks should offer the cost curve of production. When it comes to aluminum and nickel, however, prices have already investors better entry points, particularly declined deeply into the production cost curve. In both cases supply cuts could come quicker and limit the for copper. That said, existing aluminum price downside from current levels. and nickel positions should be kept. e In addition, supply uncertainty related to aluminum and nickel needs to be considered as well. 5 “ae : . . . ‘ Strategic (>1 year ) Indonesia's new regulations on ore exports could jack up Chinese import costs by around 20% in the a : F . . . ys a e Rising energy and labor costs provide the coming quarters. We think such an increase would be meaningfully, as 60% of China's nickel pig iron (NPI) . aaa naan ' backdrop for base metal prices to trend production and 80% of China's bauxite imports depend on Indonesia. ; . . . higher. The strongest performance is ¢ The reason why base metals overall should trade at current levels or higher in six months fro