Robin Bhar, Base Metals Strategist robin.bhar@ubs +44 20 7567 7850 April 2006

1. ISRI 2006 Annual Convention & Exposition: Spotlight on Aluminium, 4 April 2006 Aluminium market outlook: Going from strength to strength Robin Bhar, Base Metals Strategist robin.bhar@ubs.com +44 20 7567 7850 April 2006

2. Commodities traded at UBS

3. Growing interest in commodity indices

4. Fundamentals continue to improve • Underlying consumption growth strong on back of robust global economy • Impact of power and alumina shortages on aluminium production – the re-rating of energy values is supportive in the longer- term and prices should reflect this • China not exporting as much metal following abolishment of toll smelting and strong domestic consumption growth • Late-cycle credentials intact • Market to remain roughly balanced but risks are to the upside given higher energy prices • Inventories are not excessive • Investment funds active in commodities - aluminium has good risk:reward • Price forecast: • 2005 (actual): 86c/lb • 2006: 110c/lb • 2007: 95c/lb LME 3m Aluminium Prices Stocks:Consumption Ratio

5. Aluminium: market details - forecasts Source: LME, AME, Brook Hunt, CRU, UBS estimates

6. Zinc and aluminium are the laggards Base Metals Prices: Relative Performance

7. Key themes • ‘Stronger for longer’ on energy, China and asset class momentum • Energy prices lead the commodity price rises The most significant change in global commodities in the past six months has been the sustained rise in energy values and the strong correlation that has developed between oil and other commodities. The common drivers of commodity prices have been supply tightness induced by underinvestment, continuing growth in China’s demand, cost inflation, and speculator involvement. • Demand: China and the world China remains critical to our case for a secular uplift in materials-friendly demand growth rates. Nevertheless, we point out the potential improvement in Indian, Japanese and European economic activity.. • Commodities still an under-invested asset class It is our view that the emerging 'commodity asset class' could be significantly under-invested by a factor of 4-5x. We believe that the total exposure of many institutional investors to commodities is well below 5%, compared with the 10-15% weighting recommended by portfolio consultants.

8. `Stronger for longer` - key drivers in 2006

9. European and Japanese indicators suggest synchronous growth US ISM manufacturing and German IFO business conditions US ISM at 56.7 in Feb German IFO at recent record highs 105.4 Japan Tankan remains positive US ISM and Japan Tankan manufacturing Source: Datastream

10. Secular theme #1: Costs are rising rapidly Most extreme for aluminium: re-rating of energy values expected to impact aluminium prices – floor Labour, equipment, feedstock, royalty costs rising as well C$, A$, Real, Rand Operations, across sub-sectors experiencing costs increases between 20% to 50% Source: Brook Hunt

11. Aluminium: illustrating cost pressures Aluminium cost split (2004) Relationship between oil price, power and smelter costs (Europe) Aluminium smelter cost curve Energy increasing marginal capacity 750kt capacity in Europe threatened High power – CO2 costs Source: AME, Datastream, Brook Hunt, UBS estimates

12. Aluminium: ‘power hungry’, prices revised up on power costs Impact of emissions trading on coal plant op cost €/MWh Energy driving aluminium prices Aluminium price revisions China net import/exports from 2001 in mt Source: China Custom Statistics, Datastream, UBS estimates

13. Alumina: market details - forecasts Source: LME, AME, Brook Hunt, CRU, UBS estimates

14. Secular theme #2: China China’s share of global demand China influences commodity preferences Copper Zinc Nickel Iron ore Platinum Gold Power – Aluminium (?) Power – Thermal Coal (?) China’s share of global supply Source: AFPA, AME, BP, Brook Hunt, CEMBureau, CMAI, CRU, GFMS, IISI, RISI, SRI, WBMS, WGC, UBS estimates

15. Aluminium and China - long of the metal Aluminium net imports & production Alumina realised prices Alumina net imports & production Toll abolishment to decelerate aluminium exports Alumina imports to be impacted, but quality and growth rates important High power and alumina costs continue to pressure China Future rationalisation? Source: Chinese Customs Statistics, Datastream, Brook Hunt, UBS estimates

16. China to impact global intensity of use trends Aluminium consumption/capita growth in major economic takeoffs, year 1-25 Aluminium Intensity of Use Note: Intensity of use defined as materials consumption per unit of GDP Source: AME, Brook Hunt, USGS, World Bank, UBS estimates

17. China’s growth to offset any US slowdown % of world materials demand, 2005E Growth rates for regional metal demand, 2002-05 China’s growth enough to offset weak US materials demand growth in 2003 US demand has actually been weak over most of 2005 with no noticeable downward impact on prices Would China’s re-acceleration in 2006E be enough to offset a weaker US? We believe so Weaker Chinese demand offset by stronger US Re-accelerating China enough to offset US slowdown? Probably Source: AME, BP, Brook Hunt, CRU, UBS estimates

18. China could average 8% pa materials dmd growth for 15-20 yrs Modelling China’s consumption/capita vs US, Japan Steel consumption per capita Implied Chinese steel consumption growth Copper consumption per capita Source: IISI, AME, Brook Hunt, United Nations, USGS, US Census Bureau, UBS estimates

19. Urbanisation a key secular driver of materials demand Steel and urbanisation in US Steel and urbanisation in Japan Urbanisation rates % of total Urbanisation rates, people Source: Japanese Iron & Steel Institute, United Nations, US Census Bureau, UBS

20. Using Japan, Korea and the US to forecast China’s demand US, Japanese, Korean and Chinese steel consumption per capita, 1900-2005 Per capita consumption for countries with lower populations peak at higher levels All countries follow a similar growth trend NOTE: this is not a straight line trend – there are cycles Aluminium consumption/capita growth in major economic takeoffs, year 1-25 Source: AME, Brook Hunt, IISI, Japanese I&S Fed’n, UN, USGS, World Bank, UBS estimates

21. Secular theme #3: Capital flows to hard assets

22. Oil vs. other commodities… drivers converging Apparent convergence of price performance between oil and many other commodities, including copper and aluminium Share similar drivers particularly for copper; Chinese demand, supply constraints, rising production costs, speculator involvement and downstream bottleneck Firms are consolidating, management focus on returns; cyclical mentality resulting in slow response to an arguably secular environment Oil price & LME copper Increased harmony in performance may be a function of convergence of global drivers Source: Thomson Financial Datastream, UBS estimates

23. Fund flows into commodities – asset diversification, etc. Combined dollar value and metal equivalent of GSCI and DJ indices Fund flows are fundamentally supported Asset diversification benefits Momentum to reach a maximum this year (?) Source: Goldman Sachs, Dow Jones, UBS estimates

24. Fund flows into commodities – asset diversification, etc. Potential impact of additional future funds flows in terms of volume Fund flows through indices could grow by 50% this year Decelerate in 2007E, but fundamental underpin should remain in place Source: BME, UBS estimates

25. Supercycle?… yes and no • Yes. We expect an extended period of commodity price strength based on two fundamental secular factors 1. Higher global consumption growth and 2. High cost inflation • No. This is not new, extended commodity cycles have been witnessed historically Copper price trend (real) Source: Brook Hunt, USGS, UBS estimates

26. Forward curves: expectations of stronger for longer Source: Reuters, UBS estimates

27. What could go wrong? – Downside risks