Base metals Preference: neutral : Current (24 Oct) (last month): Copper USD 7,815/mt (8,271); Nickel USD 16,336/mt (18,351); Recommendations Aluminum USD 1,912/mt (2,079) Tactical (6 months) UBS View 6-month target: Copper: USD 8,800/mt; Nickel: USD 19,000/mt; Aluminum: USD 2,100/mt e We reiterate that the strong uptick in e After the swift uptick in prices, base metals have been under renewed pressure. The initial price strength base metal prices is skating on thin ice, in —a simple catch up with Chinese prices triggered by a shift in demand expectations — is losing strength. our view. Real activity has yet to follow ¢ In order to continue the price rally, a firm increase in final metal demand is needed. Since global and support prices over a longer time economic growth is far from seeing such a demand uptick in industrial activity during 4Q12, we think that period. 50% of the upside potential on a prices are likely to trade only sideways in the coming months before trending higher in 1Q13. month Horlven: is litaly to be behind us ¢ Loose monetary policy is a good precondition for activity to pick up, but not a guarantee after so many ki 4 sled Att SEH ’ rounds of monetary stimulus. We therefore look east to China. Although industrial activity growth in China making on Y¥ COPPEF aNd NICKEl Attractive, is likely to bottom out, the upcoming leadership change in the country (November 2012 to March 2013), with +10% expected return. will likely delay a bigger investment program into 1Q13. The latest stimulus program will probably prevent Strategic (2 years) Chinese IP from decelerating even further, but will not lift it meaningfully higher. ° Although the strongest performance ¢ Onasingle commodity level, we favor copper and nickel. For nickel, short-term supply issues due to a should be visible in zinc and lead, with slower ramp up of new and existing projects have temporarily brought the market closer to balance than existing mine capacity expected to peak