TSX Commentary

Nickel Market Outlook – First Quarter 2010
Global nickel demand collapsed in the second half of 2008 on the back of unprecedented stainless steel destocking and we estimate a further decline of 7.8% in 2009. Global demand remains weak, supported almost solely by increased Chinese off take, in part due to restocking. As China’s restocking process comes to an end, an increase in demand outside China will be required to prevent renewed weakness in global demand. RBC CM’s analysis suggests that inventories will remain wellabove the critical level throughout the forecast period. The estimated surp2009 suggests inventories ended the year at 16.4 weeks of consumptioline with the change in reported inventories. Our forecast rebound indemand in 2010 and beyond looks likely to be matched by increases in supply, leading to balanced markets and no significant drawdown in inventory
In the near term, Vale’s ongoing disruptions continue to support the nickeprice. However, with inventories in weeks of consumption near historically high levels, current prices appeunsustainable from a fundamental perspective. Investment fundshave emerged as a key driver of pricesover the past six months, and while iimpossible to know how long this will last, when the fundamentals finally reassert themselves and the Vale strike is settled, the historic inventory price relationship points to downside risk for nickelprices. RBC CM forecasts an average price of $7.00/lb in 2010, $7.00/lb in 2011, $7.00/lb in 2012 and $8.00/lb in 2013. The long-term price forecast is $7.50/lb in 2009 US$.