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SHORT STAY Speculation continues to playa role in the aluminum market. Sophisticated speculators are as active today in commodities markets as they were before the sharp downtrend in prices started. They have passed from having long positions in metals such as aluminum (betting that prices will increase) to deep short positions (betting pries will fall). Many funds have profited greatly from plummeting prices because they have positioned themselves on the right side. Speculators simply benefit greatly from sharp and clear trends such as this one. Our contacts in the hedge fund community confirm they have been short for some time now. A recent survey made by a prestigious European bank also shows that funds haven't change their appetite for commodities at all and that they plan to invest close to 10 percent of their portfolios in them as a way to have exposure to emerging markets' growth and to enhance diversification. We believe funds will continue to cause volatility and will probably provide important ammunition for a bounce in prices as sharp as the fall we have experienced. They just need evidence that demand has bottomed to switch positions. We are not there yet. BOUNCING BACK We see factors in place that could result in a potentially frightening bounce in demand and prices ahead. For instance, authorities around the globe are taking unprecedented actions on the fiscal, monetary and financial fronts to restore confidence and growth in the worldwide economy. If indeed confidence is restored (and we need to see that), we will then face the most accommodative environment for demand since the Great Depression. AdditionallYJ a real long- term demand boom mainly from emerging countries, including China, India, Brazil, Russia, Middle East, remains unchanged in our opinion. We also must see insufficient aluminum supply and constrained capacity adjust to the upside to produce a bounce. Output cuts today equal 15 percent of global production in 2007 and will be greater than 20 percent by the time demand bounces. Additionally, the financial crisis has stopped and postponed numerous aluminum expansion projects. When demand bounces, it will bounce considerably in a context of a really restrained and damaged supply. Re-stocking needs in the entire supply chain will intensify the bounce in demand once confidence is restored. Finally, we see China buying between 0.8 and 1.2 million tons of aluminum in 2009 for state and provincial reserves. This amount by itself is enough to reduce to less than half even the most pessimistic 2009 market surplus. Nevertheless, a number of key unknowns persist. For instance, how effective the fiscal, financial and monetary actions taken by authorities will be to foster confidence remains to be seen. The extent of the damage to the structure of the global economy also must be determined. Also unknown are the timing and magnitude of the possible bounce in demand, China's aluminum industry policies and the precise price at the bottom ($1,425, $1,300 or $1,000). Although there is potential for a scary bounce in demand and prices between the second and third quarters of 2009, we need to be pragmatic and realize we still have a big global financial/confidence problem. We need tangible evidence to call an official end to this crisis of confidence and we don't have that yet. Meanwhile, the trend in prices is officially downward. Regardless of the precise time and level of the bottom, today's LME aluminum prices seem tremendously cheap under almost every measurement. Even the most bearish analysts expect higher prices than the LME forward curve is offering for the 2009-2011 period. Buying at these