Demand

• A decline in stainless steel production, destocking in the stainless steel market, and a shift away from austenitic grades resulted in a 5.7% decline in global nickel consumption in 2007. The recovery in stainless production that was originally expected in Q4/07 looks now to be delayed until Q2/08. We forecast a resulting rebound in nickel demand growth to 13.2% in 2008, decreasing to 8.1% in 2009 and 7.2% in 2010, before falling back to trend average growth of 4.5% in 2011 and 2012.

Supply

• Refined capacity growth is expected to remain relatively modest until a number of large projects currently in the development phase begin to come on stream in 2009 and beyond. The one exception has been nickel pig iron. Global refined production increased by 6.7% in 2006 and 5.1% in 2007, largely as a result of the emergence of nickel pig iron production in China. Refined production is forecast to grow by 5.3% in 2008, increasing to 7.7% in 2009 and 2010, 5.4% in 2011, and 7.8% in 2012 as new projects boost output.

Market Balance and Inventories

• After a deficit of 39,000 tonnes in 2006, the market experienced a surplus of over 100,000 tonnes in 2007 on the back of the stainless steel destocking cycle. We believe that inventories will decline in Q2/08 as stainless production finally rebounds. However, our forecast growth in nickel production in 2008 will leave the market roughly balanced and inventories essentially unchanged for the year as a whole. We expect the market to remain roughly balanced in 2009 and 2010. However, continued strong growth in production should result in large surpluses in 2011 and 2012.

Price Forecasts

• We continue to believe that through 2009, prices should be constrained by the marginal cost to produce pig iron, unable to fall below $10.00/lb for any length of time because nickel pig iron supply would decline sharply, but unable to exceed $16.00/lb for too long or supply would be too great. We forecast an average price of $14.00/lb in 2008 dropping to $13.00/lb in 2009. As our forecast surpluses grow and begin to reduce the market’s dependence on nickel pig iron, we expect prices to drop to $9.00/lb in 2010 and $6.00/lb in 2011 and 2012. Our long-term forecast is $5.25/lb in 2008 US$.

Risks to Forecast

• Economic Growth – Cyclical risks persist. Global leading indicators point to slower growth and the U.S. could tip into recession as a result of the ongoing global credit crisis. A 1% reduction in global demand (17,000 tonnes per year) could leave the market in a surplus of 24,000 tonnes in 2008 and a surplus of 20,000 tonnes in 2009.

• Stainless Steel – The exact timing and extent of a rebound in stainless steel production remains uncertain.

• New Capacity – Delays or difficulties in bringing new projects (many of which rely on new technologies) on stream could result in tighter markets and higher prices than we arecurrently forecasting in 2010 and beyond.

• Investment Demand – Investment demand once again played a major role in pushing prices higher in Q1/08, leaving them vulnerable to increased volatility.