>Global Metals Playbook – 4Q09 (MORGAN STANLEY)

A Strengthening Cycle

• Cyclical trends are supportive for commodities as unprecedented fiscal and monetary easing has re-ignited growth, the global rate tightening cycle has only just begun and will likely be protracted, liquidity conditions are generous as quality spreads have narrowed, the US dollar remains in a sustained weakening trend, and asset allocations towards commodities are increasing.

• Metals sector outlook: We expect the broad and strong gains in base metal prices in 2009 to be sustained into 2010 and beyond, led by copper which remains our preferred base metal exposure.

• A weakening US dollar and easy liquidity conditions will particularly favour precious metals, and we expect prices of gold, silver, and platinum all to register further gains over the next year.

• We also expect to see the beginnings of a cyclical recovery in bulk commodity prices in 2010 as global steel production and power consumption are set to rise further after registering initial
gains in 1H09, with hard coking coal and iron ore prices set to register the strongest percentage increases, in our estimation.

• Our highest conviction Overweight stock picks based on these views are JFE, China Zhongwang, Vedanta, Mechel, Grupo Mexico, and Kazakhmys.

To see the full report: METALS PLAYBOOK