Document Sample
metals Powered By Docstoc
					ab                                                                                                     Global Equity Research

 UBS Investment Research
 U.S. Metals & Materials Weekly
                                                                                                        Sector Comment

 Nuts and Bolts: Oasis or Mirage Ahead?
                                                                                                                                    8 February 2010
    The week that was: STLD Q4 earnings disappoint, dollar rallied
 STLD disappointed with a light Q4 and did not quantify guidance except to say Q1
 would improve. More evidence scrap would be flat in Feb did not help sentiment,
 nor did continued dollar strength. The group was sideways after recent weakness.
 Channel checks show muted optimism but difficulty passing through higher costs.                                                     Timna Tanners
     The week ahead: Aggregates earnings, MT reports Q4                                                                
                                                                                                                                        +1-212-713 2927
 We expect MLM, VMC, and MT are all happy to leave 2010 behind. ArcelorMittal
 likely is relatively upbeat about rising steel prices, particularly to boost mature mkt                                                   PT Luther
 operations. We see aggregate co outlooks will be muted as visibility is limited and                                                   Associate Analyst
 dependent on politics, but we think a road spending solution is likely near term.                                          
                                                                                                                                        +1-212-713 2481
     Latest thinking: Getting more constructive, but flat-rolled supply daunting
 In recent weeks we’ve taken advantage of some pullbacks to upgrade certain
 names, with the latest being scrap processor Schnitzer. We think SCHN can benefit
 from robust Asian demand, and investors are overly concerned on Chinese demand
 growth slowing. We remain concerned that too much US flat-rolled capacity is
 restarting and think this and an end to restocking will quell price strength into H2.

     Stock picks: Sell-off provides opportunities
 Once investors digest some disappointment over a slower-than-expected recovery,
 we think solid opportunities will find support. We believe Q2 will bring recovery
 for aggregates and remain comfortable that politicians will resolve road spending.
 We like the risk/reward for STLD, RS, and SCHN, and like the cyclical and
 secular recovery for specialty metals ATI and MLM in particular of the aggregates.

 Chart 1: Steel & Aggregates Performance vs S&P & Other Industrials Since S&P Bottom

                                         S&P 500 57%
         UBS Steel Cov erage                                       98%
            UBS Aggregates                   19%

                   --Dow Jones
             Building Materials                                     104%
         Containers/Packagin                                      97%
         Truck Manufacturers                             64%
                        Trucking                         64%
         Div ersified Industrials                                   100%
                       Railroads                                  95%
                     Machinery                                     98%
               Basic Materials                                      100%
                     Aerospace                                    97%
          Engineering/Constru                      50%
            Deliv ery Serv ices                            73%
                         Airlines                                                 144%
                         Defense                   53%
               Waste Remov al                       56%

                                    0%   20% 40%   60% 80% 100% 120% 140% 160% 180%

 Source: Dow Jones, Factset, UBS estimates

 This report has been prepared by UBS Securities LLC
 UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
 have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making
 their investment decision.
U.S. Metals & Materials Weekly 8 February 2010

What’s ahead
This week has another busy several days of Q4 earnings, starting with Vulcan        We think the sector has become much
after the close on Monday and Martin Marietta on Tuesday. We expect                 more interesting now that expectations
ArcelorMittal on Wednesday to be closely watched. With the sharp correction in      have been “right-sized”
stocks of late, we think the group has gotten much more compelling. We think
shares more accurately reflect political risks (in the U.S. and China), and a
sluggish expected U.S. recovery.

We just published a preview for the aggregates companies, titled “Seasonality       Politics remain critical for the rocks
Hurt Q4/Q1, But Bar Set Low.” Politics continue to be critical for the rocks. It
seems clear the political winds are shifting and that jobs should be front and
center on the political agenda, which should be good for aggregates. Yet as we
approach better weather and the typical seasonal construction recovery, it seems
critical that we get clarity on the federal government highway spending program
that expired late September. Some news reports suggest that the White House
and Congressional leaders are getting more focused on at least a longer-term
extension to the SAFETEA-LU highway program, but it is still unclear where
this fits in other myriad priorities. We remain confident public spending will
yield better 2010 volumes y/y, but visibility on how much upside there may be
is difficult and unfortunately requires us to continue to monitor the mood in
Washington DC.

Channel checks
We published our 22nd quarterly UBS Service Center Survey, and as expected
most saw rising prices, in line with recent mill announcements. We were
surprised, however, at the muted outlook in what is normally a robust seasonal
improvement. In our “bonus question,” we asked about what it would take for
buyers to restock inventory and to buy import. In both cases better comfort
around economic recovery were key, and for import it seemed offered prices
needed to fall further (some said 10-15% below domestic). Recently improved
data regarding lending to the commercial and industrial sector is positive, but
generally read through would be seen 12 months out.

We are starting to hear some reports of buyers struggling to pass through higher
prices to customers and some concern over $600/t for HRC being a
psychological “resistance level”. Although we had heard flat-rolled mills were
contemplating a further price hike, perhaps sideways scrap pricing in February
postponed or cancelled any increase.

We have quantified the new capacity reportedly restarting in February, all flat-
rolled integrated tons. U.S. Steel’s #14 blast furnace is approximately 3.3M tons
annually, while ArcelorMittal’s Indiana Harbor is about 1.8M tons and
Severstal’s Warren is about 1.5M tons. This compares with about 65M tons of
domestic capacity, of which perhaps 40M tons we believe is being consumed
currently. We think an increase of about 15% of current consumption will prove
excessive and hurt pricing into H2.

Later this month we will be visiting U.S. Steel and Allegheny Technologies, in
addition to meeting with some scrap contacts in Pittsburgh. We look forward to
having clearer insights after those meetings.

                                                                                                                        UBS 3
U.S. Metals & Materials Weekly 8 February 2010

Top picks and key themes
Among our top picks is Allegheny Technologies (ATI, Buy) which offers
attractive risk/reward in our view with a DCF on our estimates of $73-$74. We
think investors are overlooking upside from the likely imminent end to jet
engine channel destocking now that the Dreamliner has taken flight. We also
recommend Steel Dynamics (STLD, Buy) and believe it will continue to benefit
from strong volumes and rising prices, with potential further upside from its
Mesabi Nugget project. We have gotten more positive on aggregate names
Vulcan Materials (VMC, Buy) and Martin Marietta (MLM, Buy) and have
confidence that stimulus dollars will spark better volumes and be witnessed as
early as H1 2010. We prefer Martin to Vulcan given less geographic risk from
California and Florida but see greater eventual leverage for Vulcan. We also
upgraded distributor Reliance Steel and Aluminum (RS, Buy) in late
November, as we find valuation compelling amid margin recovery, and we see
the company benefitting from higher steel prices. RS should be in shape to grow
through M&A in H210.

   Leverage to recovery. Since mid-March, many investors have been looking
   to own the most levered names to an economic recovery, as early signs of
   conditions reaching a trough began to emerge. While earnings leverage in the
   recent past has been most dramatic for U.S. Steel (X, Sell), we think
   reverting to profitability requires a much more dramatic upswing in price and
   volume than we forecast in the next 18 months. We see more upside to
   volume than margin, and see Steel Dynamics taking market share. We
   believe U.S. Steel needs at least 65%-70 utilization to be profitable in the
   U.S. For AK Steel (AKS, Neutral), we think leverage is tempered by flat-to-
   down contract prices for auto transplant customers and electrical steel, as
   electrical steel profits eclipse carbon steel improvement.

   Excess capacity. We see pricing power limited to the extent there is excess
   steel capacity both in the U.S. and globally. Not only was capacity utilization
   51% on average in 2009 and should be about 70% in 2010, but we also see
   ~6M tons of new sheet capacity starting up in 2010/2011 from
   ThyssenKrupp and Severstal. We do not see any meaningful, permanent
   capacity closures in the U.S., especially amid improving market conditions.
   We think this new sheet capacity will most hurt U.S. Steel and AK Steel,
   with a greater impact likely now in 2011.

   Weak non-residential construction, end of distributor/auto destocking.             Our auto analyst says U.S. auto
   Underlying demand remains generally weak, but the end of destocking in the         restocking is now mostly complete
   auto and service center channels has invited more steel purchases and helped
   support utilization rates rising. In fact, our auto analyst says auto restocking
   is now mostly complete and sees risk of near-term production downside. We
   see mini-mills taking distributor market share and the integrateds benefiting
   from auto demand. However, particularly focused non-residential
   construction focused companies, such as Gerdau Ameristeel and
   Commercial Metals, can see end market weakness continue through 2010.
   Commercial construction backlogs continue to worsen according to industry
   participants and our new forecast.

                                                                                                                      UBS 4
U.S. Metals & Materials Weekly 8 February 2010

    Stimulus dollars are coming… Federal dollars will start to be evidenced in
    infrastructure spending in Q4 in our view, helping offset seasonal materials
    demand weakness, but likely are much more impactful in Q2 when weather
    improves. The table below shows the funds allocated by the federal
    government to the states. Projects must then be bid, then awarded, and then
    dollars should start to flow to “shovel-ready” projects. This suggests that the
    spending is on its way but stuck in the system. Congress decided in mid-
    December to extend the expired SAFETEA-LU federal highway spending
    program by two months to the end of February. This may be more preferable
    than the recent one-month to six-week extensions, but still limits visibility
    for state DOTs. As of January 29th, 19.3% of total apportioned funds were
    outlayed, versus 19.7% the prior week, but up from 18.5% the week of
    January 15th (Charts 3 and 4 below). We expect aggregates and rebar
    producers to see volumes improving, particularly as weather improves in Q2.
    We think this is a positive particularly for Vulcan Materials and Martin
    Marietta, but we are wary of the implications of continued delays in
    SAFETEA-LU reauthorization.

Table 2: Federal Stimulus Funds Obligated and Outlayed as of January 29th

                                       Obligated                        Outlayed                                      FY2008 Sales Breakdown

State                                   in M$s                in M$s               % of Obligated                     VMC               MLM

California                              3,500                          555.4                   15.9%                          20%

Texas                                   2,255                          583.0                   25.8%                         ~10%              19%

Florida                                 1,607                          141.4                    8.8%                          20%              6%

Georgia                                 1,004                          124.7                   12.4%                          10%              9%

North Carolina                           826                           189.3                   22.9%                           5%              19%

Virginia                                 472                            72.7                   15.4%                        10-15%             2%

South Carolina                           459                            97.9                   21.4%                           2%              5%

Louisiana                                431                            43.8                   10.2%                           1%              5%

Iowa                                     398                           224.3                   56.3%                                           7%

Source: Department of Transportation, UBS

Chart 3: Federal Stimulus Funds Obligated and Outlayed ($M)                    Chart 4: Federal Stimulus Funds Outlayed ($M)

 $35,000                                                                           $8,000
 $30,000                                                                           $7,000
 $25,000                                                                           $6,000
 $20,000                                                                           $5,000


                       Obligations ($mn)           Outlay s ($mn)

Source: Department of Transportation                                           Source: Department of Transportation

                                                                                                                                                     UBS 5
U.S. Metals & Materials Weekly 8 February 2010

    Scrap prices can remain high. Global growth, particularly from Asia,
    should continue to outpace the rest of the world and this can continue to keep
    scrap exports and prices elevated. Scrap prices rose nearly $100/t combined
    in December prices and January on seasonal manufacturing weakness and
    healthy export demand. However, our channel checks with five different
    scrap dealers suggest shredded prices would be flat to down as much as $15/t.
    Our contacts notes that February slipped because export demand fell,
    although domestic demand remained steady. Scrap supply is highly elastic
    and can often take a break after strong price increases. November saw a $30/t
    decrease, with October down by $20/t, after strong hikes in July, (up $40/t
    per Purchasing Magazine), August (up another $15/t) and September (up
    $10/t). In the near-term we see auto production already at near term peaks,
    but better demand from mini-mills ramping up sheet capacity and sustained
    export demand to Asia. We see risk that scrap prices can remain stronger
    than domestic steel prices and pressure margins for companies that are not
    fully self-sufficient scrap processing capacity, such as Nucor (NUE, Neutral)
    and Gerdau Ameristeel (GNA, Neutral).

Chart 5: International Scrap Prices ($/tonne)


                              Rotterdam Export, Shredded ($/tonne fob)
                              Rotterdam Export, HMS 1&2 ($/tonne fob)
                              Korean Import, HMS 1 ($/tonne c&f)

Source: IISI, David J Joseph Co, UBS

    Valuations assume some recovery for steels, less for aggregates. We think
    steel valuations assume some recovery into 2010 and 2011, albeit less so in
    recent weeks. Steel stocks appear to be looking past a tough 2009 and 2010
    and anticipating a 2011 recovery, with some investors asking about our 2012
    forecasts. We like prospects for more near-term volume recovery from mini-
    mills, while we think more significant volume recovery will be necessary to
    see U.S. Steel return to profits. Aggregates, on the other hand, trade at higher
    multiples so inherently assume good profits and less cyclicality, in our view.
    We think upside on better 2010 and beyond volumes and infrastructure
    stimulus spending is not fully priced in for Martin Marietta and Vulcan
    Materials. We see limited downside for MLM and VMC given relative
    underperformance to peers and to the S&P. We also think negatives for the
    aggregates names are relatively well known, and we are cautiously optimistic
    government spending issues will be resolved. But seasonality means near-
    term earnings should be poor.

                                                                                                                                                                                                UBS 6
U.S. Metals & Materials Weekly 8 February 2010

Table 3: Normalized Valuation Table Analysis for U.S. Steel Coverage

                                                                                                       Implied           Consensus

                                                                        2/5/10           Avg hist.        EPS                2011E               Pct

                                                                        Price                 P/E    using P/E                 EPS       difference

NUE         Nucor                                                       39.64                 15x        $2.64                $3.26             -19%

X           U.S. Steel                                                  43.15                  9x        $4.79                $4.54               6%

AKS         AK Steel                                                    20.02                9.8x        $2.05                $2.03               1%

STLD        Steel Dynamics                                              14.86                 12x        $1.24                $1.68             -26%

GNA         Gerdau Ameristeel                                             7.19                 7x        $1.03                $1.13              -9%

CMC         Commercial Metals                                           13.67                 12x        $1.14                $1.47             -23%

ATI         Allegheny Tech                                              40.58                 13x        $3.12                $2.33              34%

RS          Reliance Steel & Aluminum                                   39.98                 12x        $3.33                $3.98             -16%

SCHN        Schnitzer Steel                                             42.38                 14x        $3.03                $3.49             -13%

Source: FactSet, Company reports, UBS. Note: consensus EPS is discounted for one year.

Updated consensus estimate valuation on 2011 normalized analysis shows that
U.S. Steel and Allegheny Technologies look expensive. Commercial Metals,
Steel Dynamics and Nucor look long-term attractive. With the recent selloff,
Reliance and Schnitzer look more compelling on this analysis as well. US Steel
looks more reasonably valued on consensus 2011 than on UBSe, but we believe
consensus estimates are too high (UBS EPS for 2011E is $2.05.) Similarly we
think ATI 2011 consensus is too low (UBS EPS for 2011E is $2.90), but our
estimated earnings power on ATI is more back-end loaded.

Key forecasts
For 2010 we see utilization rising to 70-72% from slightly better than 50% in                            Table 4: Key UBS Forecast
2009. Better utilization is expected to be primarily a function of the end of                             HRC H1 forecast ($/s ton)      $590          Unch
destocking in the auto and service center channels. We think non-residential
                                                                                                          HRC 2010 forecast ($s/ton)     $550          Unch
construction as an end market can continue to weaken into 2010. Mills had
                                                                                                          Benchmark scrap Q1 ($/t)       $300          Unch
announced price hikes that would have brought HRC north of $600/t by
February, and while much of this has stuck, it seems there has been some                                  Benchmark scrap 2010 ($/t)     $281          Unch

discounting. Still, prices are up soundly from $500/t in December. We forecast                            2010 utilization             ~70-72%         Unch
domestic benchmark sheet prices at $550/t in 2010, assuming pressure from new
capacity into H210. In recent weeks we have heard of three furnaces restarting
                                                                                                         Source: AISI, UBS
and we think oversupply is a risk into Q2 and more likely in H2.

Latest updates
      Capacity utilization. For the week ended January 30, U.S. steel production
      rose to a capacity utilization rate of 66.9%, or 1.595M tons, up from a 65.6%
      operating rate the prior week. The rate marks the 5th consecutive w/w
      increase, and the highest operation rate since October 2008. U.S. Steel is
      restarting its No. 14 blast furnace at Granite Works, ArcelorMittal is
      restarting its IH-4 furnace, and Severstal is restarting its Warren, OH blast

                                                                                                                                                 UBS 7
U.S. Metals & Materials Weekly 8 February 2010

Chart 6: U.S. Steel Capacity Utilization

  140                                                                                    140
  130                                                                                    130
  120                                                                                    120
  110                                                                                    110
  100                                                                                    100
   90                                                                                    90
   80                                                                                    80
   70                                                                                    70
   60                                                                                    60
   50                                                                                    50
   40                                                                                    40

          Jan 1997
          Jan 1998
          Jan 1999
          Jan 2000
          Jan 2001
          Jan 2002
          Jan 2003
          Jan 2004
          Jan 2005

          Jan 2007
          Jan 2008
          Jan 2009

                    U.S. capability (mln tons)        U.S. raw steel output (mln tons)

Source: AISI, UBS

    Prices. We have not received updated China steel price data since domestic
    HRC slid to $467/t on January 26th from $486 on January 6th. The $486/t
    price was the highest level since mid-August. The recent drop appeared
    related to China’s switch to monetary tightening policy earlier than most
    economists and steel market participants had forecast.

Chart 7: U.S. Benchmark Sheet vs Scrap Prices (US$/short ton)           Chart 8: Chinese Steel Prices (US$/metric ton)

 1200                                                                     1000
                                                                                      tonne per USD
 1000                                                                      900
  800                                                                      800
  200                                                                      600
    0                                                                      500
        Jan 1980
        Jan 1982
        Jan 1984
        Jan 1986
        Jan 1988
        Jan 1990
        Jan 1992
        Jan 1994
        Jan 1996
        Jan 1998
        Jan 2000
        Jan 2002
        Jan 2004
        Jan 2006
        Jan 2008




                                                                           12 9



                                                                           11 8


                                                                           10 9








            Scrap steel, No. 1 heavy melt, Chicago, $/gross ton


                                                                                                  Hot-rolled band        Cold-rolled coil
                                                                                                  Rebar #5               Standard plate
            Hot-rolled sheet, Midwest market average, $/ton                                       Scrap

Source: Purchasing Magazine                                             Source: WSD

                                                                                                                                            UBS 8
U.S. Metals & Materials Weekly 8 February 2010

                               Chart 9: Steel Prices in US and China (US$/metric ton)

                                                                              US Hot-rolled band, FOB the mill ($/mt)                                                                        Chinese Hot-rolled band, ex-works ($/mt)
                                                                              US Cold-rolled coil, FOB the mill ($/mt)                                                                       Chinese Cold-rolled coil, ex-works ($/mt)

                               Source: WSD’s Steel Benchmarker

Chart 10: US HRC vs China (plus est VAT and Freight), $/s.t.                                                                                                                 Chart 11: EU HRC vs China (plus est VAT and Freight), $/tonne

 650                                                                                                                                                                           650
 500                                                                                                                                                                           550
 350                                                                                                                                                                           450













                             US HRC                              China HRC (+VAT+freight)                                                                                                                                                        EU HRC                                        China HRC (+VAT+freight)

Source: AMM, CRU, MEPS, World Steel Dynamics, UBS estimates                                                                                                                  Source: CRU, MEPS, World Steel Dynamics, UBS estimates

    Market expectations. A similar majority from the previous survey’s results,
    66% of U.S. steel-related companies expected higher prices over the next
    three months, according to The Steel Index survey published February 4. The
    findings confirm that recent mill price hike announcements are being
    accepted. Results are also consistent with limited restocking still underway in
    the U.S. Some 43% of respondents reported higher stock levels than in the
    previous week, similar to 45% last week, while 39% reported steady stocks.
    In addition, 55% of respondents foresaw higher demand, similar to the prior
    week’s results.

Latest data

    January U.S. employment data showed a 20K drop in payrolls (UBSe -
    20K, consensus +15K), though the unemployment rate dropped to 9.7% from
    10.0% (UBSe 10.1%, consensus 10.0%). UBS U.S. economist Maury Harris
    said, “We suspect that the 20k decline in payrolls overstated the degree of

                                                                                                                                                                                                                                                                                                                                            UBS 9
U.S. Metals & Materials Weekly 8 February 2010

   improvement in January to some degree because of weather and seasonal
   distortions in retail sales. And the drop in the unemployment rate is unlikely
   to be sustained with payrolls still falling. However, leading indicators within
   the payrolls data were quite positive, with an increased workweek and decent
   temp hiring; and we expect a return to net job formation later in Q1. For
   more detail, please see his February 5 note, “Employment Improvement?”

   January U.S. ISM Index rose 3.5 points to 58.4 (UBSe 56.0, consensus
   55.5) from 54.9 in December, and the best reading since August 2004.

   December U.S. Construction Spending fell 1.2% in Dec (UBSe -0.3%,
   consensus -0.5%), and November was revised to -1.2% from -0.6%. UBS
   U.S. economist Maury Harris said, “Some of the weakness was in the
   volatile improvements category, with spending ex improvements -0.4% after
   -0.8%; business construction spending rose, residential spending softened
   slightly, and public spending plunged. The data suggest a 0.2 pt cut to the
   5.7% growth pace in Q4 real GDP, with incremental weakness in state and
   local government construction spending.” For more detail, please see his
   February 1 note, “Strong mfg ISM, construction still falling.”

   January's steel ISM survey results looked incrementally better in terms of
   intention to restock, but still 50% of respondents said they would keep
   inventory flat, while 1/3 (vs 43% in December) intended to reduce stocks
   further. The outlook for demand was much brighter as well, i.e. 50% saw
   sales and production in the industry up in the next six months, vs 29% in

In case you missed it…
Steel Dynamics (STLD) posted Q4 EPS of $0.12, at the low end of mid-
December guidance of $0.10-$0.20, and below consensus $0.17 and UBSe
$0.20. We were surprised by an $11.4M scrap segment loss, hurt by Mesabi
Nugget $6-$8M of start-up costs (seen continuing in Q1), and a deeper-than-
expected downstream loss. Steel shipments were 7% above our expectations and
prices were in line. We lowered our 2010 EPS estimate to $1.30 from $1.40. For
more detail, please see our February 4 note, “Trimming 2010 Ests; Remaining at

We published our Q110 Steel Service Center Survey on February 3. A clear
majority of respondents to our 22nd quarterly survey saw higher steel and scrap
prices in Q110 vs Q4. Views on demand were less clear, with slightly more
respondents seeing Q1 demand flat than up. There was moderate restocking
interest yet over half planned to keep inventories steady. Of 95 responses, 49%
saw demand flat and 46% saw higher demand in Q1, vs 53% seeing demand flat
and 33% seeing demand lower in Q4. Despite near record low inventories, 69%
of Q1 respondents called inventory levels “adequate” and 26% called them too
low but 54% would keep them steady and just 36% would restock. Respondents
clearly said they would wait for better demand before restocking inventory.
Most said they were primarily buying for need. We also asked about interest in
import, and distributors said they consider domestic availability, price difference,
and demand when contemplating foreign purchases of steel. For more detail,
please see our note, “U.S. Steel Service Center Survey – Q110 Outlook:
Demand Slowly Improving.”

                                                                                       UBS 10
U.S. Metals & Materials Weekly 8 February 2010

Appendix A – Calendar of Events
Figure 1: UBS Metals & Materials Calendar of Events

              Monday                              Tuesday                         Wednesday                           Thursday                             Friday
February                          8                                   9                                  10                                 11                                 12
                                        VMC Q4 earnings call (11AM)              MT Q4 earnings                                                  China January Steel Exports
                                                                                                                                                        (approx. date)
                                         MLM Q4 earnings call (2PM)
        VMC Q4 release (AMC)

                                  15                                  16                                 17                                 18                                 19
    Presidents Day - mkt closed                                                                               CLF Q4 earnings call (10AM)

                                                                             CLF Q4 earnings (AMC)

                                  22                                  23                                 24                                 25                                 26
                                       January steel import data (10AM)                                             RS Q4 earnings
                                                                           KALU Q4 earnings call (1PM)
                                          KALU Q4 earnings (AMC)

March                             1                                   2                                  3                                  4                                  5
                                           UBS Metals& Materials
                                          San Francisco conference

Source: Company reports, UBS. Note: all times are in Eastern Time

                                                                                                                                                                        UBS 11
         Appendix B - Stock Performance

                                                                                                                                                                                                                                            U.S. Metals & Materials Weekly 8 February 2010
         Table 4: North American Metals and Materials Coverage Universe Performance

                                               02/05/10                            Consensus EPS            52-Week Shr Px
                                      Ticker    Price     Target      Rating       2009E   2010E    2011E   High      Low      W/W      1M       3M       Y-T-D    12M      4Q09     3Q09     2Q09     1Q09     2008     2007     2006
         Steel Producers
         Nucor                        NUE      $40.52     $44.00     Neutral       -$0.94   $1.99   $3.67    $49.93   $30.74    -0.7%   -18.8%    3.0%    -13.1%    -5.0%    -0.8%     5.8%    16.4%   -17.4%   -22.0%     8.3%    63.8%
         U.S. Steel                   X         44.81     34.00     Sell (CBE)     -11.06   -0.17   5.11      65.44    16.88     0.9%   -31.4%   19.9%    -18.7%    54.4%    24.2%    24.1%    69.1%   -43.2%   -69.2%    65.3%    52.2%
         ArcelorMittal                MT        37.23     54.98        Buy           0.05   2.67    4.53      48.50    16.48    -4.1%   -18.9%   15.0%    -15.1%    49.9%    25.9%     9.2%    53.1%   -10.1%   -67.9%    65.8%    42.9%
         Steel Dynamics               STLD      14.98      23.00    Buy (CBE)       -0.04   1.37    1.89      20.19      6.9    -1.3%   -25.8%    6.4%    -15.5%    25.6%    15.5%     3.6%    68.0%   -21.2%   -62.5%    83.6%    82.8%
         Gerdau Ameristeel            GNA       7.30       8.50    Neutral (CBE)    -0.22   0.71    1.28       9.51     3.07    -3.1%   -18.1%   -6.4%    -11.5%    17.6%     4.2%    16.1%   122.1%   -49.3%   -57.4%    59.4%    58.2%
         Commercial Metals            CMC       13.89     16.00    Neutral (CBE)     0.17   -0.04   1.66      21.11     8.89     1.1%   -18.4%   -7.9%    -11.2%    14.8%   -12.6%    11.7%    38.8%    -2.7%   -59.7%    14.1%    37.5%
         AK Steel                     AKS       20.46     22.00    Neutral (CBE)    -0.63   1.41    2.29      25.77     5.45     0.6%   -20.6%   20.6%     -4.2%   152.9%     8.2%     2.8%   169.5%   -23.6%   -79.8%   173.6%   112.6%
         Allegheny Technologies       ATI       40.97     50.00        Buy           0.46   1.39    2.63      50.95    17.49     0.3%   -19.4%   25.8%     -8.5%    77.0%    28.0%     0.2%    59.3%   -14.1%   -70.5%    -4.7%   151.3%
         Metals Distributors
         Reliance Steel & Aluminum    RS        41.09     50.00     Buy (CBE)      1.71     3.39    4.49      48.42    19.82    0.9%    -15.1%    5.7%     -4.9%   75.3%     1.6%     10.9%    45.8%   32.0%    -63.2%   37.6%     28.9%
         Metals Processors
         Kaiser Aluminum              KALU      34.97     39.50      Neutral        1.67    1.79    2.57      44.26     16.7    -0.5%   -20.4%   -16.0%   -16.0%   39.8%     14.5%     1.3%    55.3%     2.7%   -71.7%    42.0%         -
         Sims Group                   SMS       17.94     21.61        Buy          0.17    0.73    1.33      23.90     9.74    -3.0%   -15.1%    -1.6%    -6.5%   21.3%     -2.8%   -13.9%    57.8%    -3.1%   -35.4%    32.8%    15.1%
         Schnitzer Steel Industries   SCHN      43.03     50.00     Buy (CBE)      -1.14    2.29    3.93      63.18    24.23     6.2%   -23.1%    -3.6%    -9.8%    2.3%    -10.4%     0.7%    68.4%   -16.6%   -45.5%    74.1%    29.8%
         Building Materials
         Vulcan Materials             VMC       43.65     54.00        Buy         0.27     0.83    2.03      60.65    34.55    -1.2%   -17.1%    -9.0%   -17.1%   -14.1%    -2.6%    25.5%    -2.7%   -36.3%   -12.0%   -12.0%    32.6%
         Martin Marietta              MLM       78.62     102.00       Buy         2.33     3.25    4.96     102.57    68.37    -0.7%   -13.0%    -6.3%   -12.1%    -5.2%    -2.9%    16.7%    -0.5%   -18.3%   -26.8%    27.6%    35.4%

         Source: DataStream, UBS. Note: CBE - Exception to the standard +/- 6% bands
UBS 12
         Appendix C - Comp Sheet

                                                                                                                                                                                                                                                                                                U.S. Metals & Materials Weekly 8 February 2010
         Table 5: UBS North American Metals & Materials Coverage Universe Comp Sheet
                                                                Target          2/5/10          52 Week           Shares       Market                                       CY EPS                                                                      CY P/E
         Steel Producers                         Rating          Price          Price         High      Low      Out. (mln)   Cap ($Bs)   2003A     2004A     2005A     2006A   2007A        2008A     2009E      2010E     2004A    2005A    2006A     2007A     2008A     2009E     2010E
         Nucor (NUE)                            Neutral           $44          $40.46        $51.08     $29.84     315.7        $12.8     $0.20     $3.49      $4.19     $5.68    $5.08      $5.99      ($0.94)   $0.90     13.4x    8.8x     11.5x     11.4x      8.9x       --       44.8x
         U.S. Steel (X)                          Sell             $34          $44.78        $66.45     $16.66     143.4        $6.4      $3.46     $8.33      $7.42    $11.19    $7.63     $17.24     ($11.18)   ($1.20)   8.7x     6.4x     8.2x      10.4x      7.8x       --         --
         ArcelorMittal (MT)                      Buy              $51          $38.06        $49.41     $16.28    1597.0        $60.8       NA       NA        $5.66     $5.76    $7.41     $10.75       $1.50    $2.04      NA      6.8x     4.6x       5.7x      7.2x     25.4x      18.7x
         Steel Dynamics (STLD)                   Buy              $23          $14.99        $20.47      $5.95     234.2        $3.5      $0.24     $1.31      $1.09     $1.88    $2.00      $2.38      ($0.04)   $1.30      9.4x    7.3x     9.6x      10.8x      8.1x      NA        11.6x
         Gerdau Ameristeel (GNA)                Neutral          $8.50          $7.32        $9.66       $2.98     432.2        $3.2      ($0.48)   $1.19      $0.97     $1.25    $1.66      $1.60      ($0.27)   $0.55      5.7x    5.8x     7.4x       4.4x      4.6x       --       13.4x
         Commercial Metals (CMC)                Neutral           $16          $13.88        $21.29      $8.83     112.5        $1.6      $0.31     $1.69      $2.35     $3.04    $2.68      $1.70      ($0.58)   $0.00      9.6x    7.6x     9.2x      10.1x      9.0x       --      104.1x
         AK Steel (AKS)                         Neutral           $22          $20.43        $26.75      $5.39     109.3        $2.2      ($5.48)   $2.19     ($0.02)    $0.11    $3.46      $3.89      ($0.68)   $0.93      9.6x    7.0x     13.2x     13.7x      9.9x       --       21.9x
         Allegheny Technologies (ATI)            Buy              $50          $40.99        $53.39     $16.92     108.0        $4.4      ($3.90)   $0.22      $3.59     $5.61    $7.26      $5.55       $0.48    $1.45      NA      11.7x    15.1x     13.3x      7.9x     84.6x      28.3x
         Metals Distributors
         Reliance Steel & Aluminum (RS)           Buy            $50           $41.13        $49.05     $19.75     73.8         $3.0      $0.53     $2.60     $3.10     $4.82     $5.34      $6.56     $1.80      $3.35     12.6x    10.5x     9.5x      9.2x      7.9x     22.9x     12.3x
         Metals Processors
         Kaiser Aluminum (KALU)                 Neutral          $39.5         $34.96        $44.40     $16.36     20.0         $0.7      ($3.38)   ($10.88) ($13.97)   $2.88     $4.46      ($3.17)    $1.08     $1.95      NA      NA       16.2x     19.3x      11.1x    32.2x     17.9x
         Sims Group (SGN/SMS)                    Buy              $24          $18.44        $23.74      $9.39     181.1        $3.3         --        --       --        --      $1.51      $2.24     ($0.06)    $0.95       --      --        --        --       10.5x      --      19.4x
         Schnitzer Steel Industries (SCHN)       Buy              $50          $43.11        $63.98     $23.35     28.1         $1.2         --      $4.75    $4.52     $4.06     $4.63      $6.06      $0.54     $3.07     10.1x    7.4x     8.9x      12.8x      11.5x    80.1x     14.0x
         Building Materials
         Vulcan Materials (VMC)                   Buy            $54           $43.66        $62.00     $34.30     125.9        $5.5      $2.17     $2.58     $3.30     $4.81     $4.66      $1.74     $0.23      $1.00     17.8x    19.4x    16.8x     17.9x      20.3x    188.9x    43.6x
         Martin Marietta (MLM)                    Buy            $102          $78.62       $103.44     $67.25     44.8         $3.5      $2.13     $2.68     $4.15     $5.29     $6.02      $4.08     $2.24      $3.10     17.2x    18.7x    16.2x     19.7x      18.3x     35.0x    25.3x
                                              Enterprise       Dividend       Net Debt/     Net Debt/                           CY Avg Enterprise Value / EBITDA                              Book Price to Tangible                           EV/ton Shipped
         Steel Producers                      Value ($Bs)        Yield         Capital     09E EBITDA   2003A     2004A        2005A     2006A     2007A      2008A     2009E     2010E     Value/shr Book   P/BV           2005A    2006A    2007A     2008A     2009E     2010E
         Nucor (NUE)                             $13.6           3.5%          10.3%          2.9x      5.2x       3.9x         4.1x       4.8x      5.8x      4.9x      47.0x    11.6x      $23.4      1.7x       2.7x      666      616      594       661       978       791
         U.S. Steel (X)                          $11.8           1.0%          31.5%          -2.1x     15.7x      4.6x         5.0x       4.5x      5.7x      5.5x     -12.8x    15.0x      $32.6      1.4x       2.3x      599      545      533       482       786       575
         ArcelorMittal (MT)                      $88.1           3.4%          27.6%          4.2x       NA        NA           6.8x       5.2x      5.5x      4.7x      14.9x     7.9x      $40.0      1.0x       NA         NA      798      803       867      1,244     1,022
         Steel Dynamics (STLD)                    $5.7           2.2%          52.7%          6.5x      10.0x      4.3x         4.4x       4.9x      6.1x      5.7x      16.8x     6.8x      $8.5       1.8x       4.8x     1,603    1,221    1,201     1,109     1,509     1,237
         Gerdau Ameristeel (GNA)                  $5.4           0.3%          39.0%          7.5x       NA        5.2x         3.6x       4.7x      5.7x      5.0x      20.1x     7.1x      $6.7       1.1x       7.5x      857      825      713       647       997       852
         Commercial Metals (CMC)                  $2.4           3.5%          36.6%          7.6x       6.2x      5.5x         4.6x       5.5x      5.5x      5.2x      20.9x    14.1x      $13.5      1.0x       1.1x
         AK Steel (AKS)                           $3.7           1.0%          14.1%          1.1x       NA        7.9x         7.3x       8.6x      7.4x      6.1x      24.6x     8.9x      $8.1       2.5x       2.7x      574      597      568       628       936       665
         Allegheny Technologies (ATI)             $5.3           1.8%          14.8%          1.6x       NA        NA           10.2x      8.1x      7.9x      4.5x      23.7x    12.1x      $19.3      2.1x       2.1x
         Metals Distributors
         Reliance Steel & Aluminum (RS)           $4.0           1.0%          28.3%          2.6x      13.5x       4.9x        6.0x       5.7x      6.0x      5.3x     10.8x      7.5x      $33.9      1.2x       4.4x
         Metals Processors
         Kaiser Aluminum (KALU)                   $0.7           2.7%          -3.4%          -0.5x      6.1x      5.2x         4.2x       5.8x      6.8x      5.0x     11.4x      8.5x      $41.3      0.8x       0.9x
         Sims Group (SGN/SMS)                     $3.3           4.9%           0.0%           0.0x       --        --           --         --        --       4.5x     28.0x      7.7x      $7.2       2.6x       NA
         Schnitzer Steel Industries (SCHN)        $1.4           0.2%          14.1%           1.9x      6.2x      5.7x         4.1x       5.0x      6.9x      6.2x     17.7x      6.6x      $32.4      1.3x       1.7x
         Building Materials
         Vulcan Materials (VMC)                   $8.5           4.5%          40.7%          4.8x       8.8x      8.8x         10.3x     10.3x      10.2x    11.2x     14.2x     11.4x      $32.5      1.3x      23.9x
         Martin Marietta (MLM)                    $4.7           0.5%          44.2%          2.8x       8.8x      8.5x         9.5x      10.2x      11.1x     9.9x     11.9x     10.4x      $30.2      2.6x       5.7x
                                                                           FY 2008 Breakdown of Company Sales                                                    Total Steel Shipments                                                           Total Steel Capacity
                                             Hot rolled coil                  Structural    Bar/Rod     Plate     Tubular      Other       2003      2004      2005      2006      2007       2008      2009E     2010E     2004A    2005A    2006A     2007A     2008A     2009E     2010E
         Steel Producers
         Nucor (NUE)                             21%               9%           16%          24%         11%        --          19%       17,474     19,098   20,465     22,118    22,940    20,608     13,933    17,216    19,900   26,200    25,260    25,760    26,200    26,200    26,200
         U.S. Steel (X)                          31%              50%             --           --         --       18%           1%       19,156     21,767   19,663     21,632    22,108    24,448     14,981    20,505    25,150   26,400    28,600    34,500    34,500    34,500    34,500
         ArcelorMittal (MT)                      52%               6%             --         27%          --        --          15%           NA         NA       NA    110,503   109,724   101,691     70,854    89,885        NA       NA   142,725   148,256   154,713   158,000   158,000
         Steel Dynamics (STLD)                   20%              25%           21%          26%          --        --           7%        2,800      3,416    3,571      4,688     4,765     5,161      3,794     4,627       -        141     5,050     5,600     6,125     7,425     7,425
         Gerdau Ameristeel (GNA)                 15%                --          20%          26%          --        --          39%        4,822      5,178    6,287      6,527     7,554     8,319      5,399     6,320     6,400    8,400     9,000    12,000    12,000    12,000    12,000
         Commercial Metals (CMC)                  --                --            --         30%          --        --          70%        3,608      4,950    4,900      5,401     5,295     5,407      4,417     2,294     2,900    4,400     4,400     4,480     4,480     4,760     4,860
         Schnitzer Steel Industries (SCHN)        --                --            --         17%          --        --          83%
         AK Steel (AKS)                          11%              44%             --           --         --       3%           42%        5,831      6,253    6,418      6,169     6,479      5,866     3,936     5,542     6,900    6,900     6,900     7,000     7,000     7,000     7,000
         Metals Distributors                 Carbon Steel      Aluminum       Stainless      Other
         Reliance Steel & Aluminum (RS)          55%              16%           14%           8%                                           1,982      2,082    2,193    3,172     3,690      4,147       3,500     3,576     NA       NA       NA         NA        NA       NA         NA
         Building Materials                   Aggregate         Cement         Asphalt       Other                                                                Aggregate Volumes (mn tons)
         Vulcan Materials (VMC)                  65%               3%           32%           0%                                             233        243      260      255        231       204         155       165
         Martin Marietta (MLM)                   87%               0%            4%           9%                                             192        191      203      198        182       159         125       133
UBS 13

         Source: Factset, Company reports, and UBS estimates Note: Ratings and price targets are as of January 29, 2009. EV for U.S. Steel, AK Steel, ATI, and GNA include pension, OPEB-funded position.
U.S. Metals & Materials Weekly 8 February 2010
                                                 UBS 14
U.S. Metals & Materials Weekly 8 February 2010

   Statement of Risk

The potential risks in the metals sector may include but are not limited to the
volatile nature of raw materials and finished product prices; trade flows of raw
materials and finished products; and operational difficulties, including weather
and other uncontrollable logistics problems.

   Analyst Certification

Each research analyst primarily responsible for the content of this research
report, in whole or in part, certifies that with respect to each security or issuer
that the analyst covered in this report: (1) all of the views expressed accurately
reflect his or her personal views about those securities or issuers; and (2) no part
of his or her compensation was, is, or will be, directly or indirectly, related to
the specific recommendations or views expressed by that research analyst in the
research report.

                                                                                       UBS 15
U.S. Metals & Materials Weekly 8 February 2010

Required Disclosures

This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and
affiliates are referred to herein as UBS.

For information on the ways in which UBS manages conflicts and maintains independence of its research product;
historical performance information; and certain additional disclosures concerning UBS research recommendations,
please visit The figures contained in performance charts refer to the past; past performance is
not a reliable indicator of future results. Additional information will be made available upon request.

UBS Investment Research: Global Equity Rating Allocations
                                                                                                      1                                2
 UBS 12-Month Rating                    Rating Category                                     Coverage                      IB Services
 Buy                                    Buy                                                       48%                             40%
 Neutral                                Hold/Neutral                                              40%                             35%
 Sell                                   Sell                                                      13%                             26%
                                                                                                      3                               4
 UBS Short-Term Rating                  Rating Category                                     Coverage                      IB Services
 Buy                                    Buy                                               less than 1%                            17%
 Sell                                   Sell                                              less than 1%                            67%
1:Percentage of companies under coverage globally within the 12-month rating category.
2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within
the past 12 months.
3:Percentage of companies under coverage globally within the Short-Term rating category.
4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were provided
within the past 12 months.

Source: UBS. Rating allocations are as of 31 December 2009.
UBS Investment Research: Global Equity Rating Definitions
 UBS 12-Month Rating                    Definition
 Buy                                    FSR is > 6% above the MRA.
 Neutral                                FSR is between -6% and 6% of the MRA.
 Sell                                   FSR is > 6% below the MRA.
 UBS Short-Term Rating                  Definition
                                        Buy: Stock price expected to rise within three months from the time the rating was assigned
                                        because of a specific catalyst or event.
                                        Sell: Stock price expected to fall within three months from the time the rating was assigned
                                        because of a specific catalyst or event.

                                                                                                                                 UBS 16
U.S. Metals & Materials Weekly 8 February 2010

 Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12
 Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not a
forecast of, the equity risk premium).
 Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stock's price target and/or rating are
subject to possible change in the near term, usually in response to an event that may affect the investment case or valuation.
 Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect any
change in the fundamental view or investment case.
Equity Price Targets have an investment horizon of 12 months.

UK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,
performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:
Negative on factors such as structure, management, performance record, discount.
Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment Review
Committee (IRC). Factors considered by the IRC include the stock's volatility and the credit spread of the respective company's
debt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.
When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.

Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are not
registered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained in
the NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by a
research analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,
UBS Securities LLC: Timna Tanners; PT Luther.

Company Disclosures
 Company Name                                           Reuters   12-mo rating Short-term rating         Price        Price date
                                16, 20
 AK Steel Holding Corp                                   AKS.N    Neutral (CBE)              N/A      US$20.43       05 Feb 2010
 Allegheny Technologies Inc.                              ATI.N             Buy              N/A      US$40.99       05 Feb 2010
               4, 5, 6b, 7, 16, 22
 ArcelorMittal                                         ISPA.AS              Buy              N/A        €27.31       05 Feb 2010
                                            16, 20
 Commercial Metals Company                               CMC.N    Neutral (CBE)              N/A      US$13.88       05 Feb 2010
                                   6b, 7, 16, 20
 Gerdau Ameristeel Corp                                  GNA.N    Neutral (CBE)              N/A       US$7.32       05 Feb 2010
 Kaiser Aluminum                                        KALU.O          Neutral              N/A      US$34.96       05 Feb 2010
 Martin Marietta Materials Inc.                          MLM.N              Buy              N/A      US$78.62       05 Feb 2010
             13, 16
 Nucor Corp.                                             NUE.N          Neutral             N/A       US$40.46       05 Feb 2010
                                               1, 5,
 Reliance Steel & Aluminum Co.
 16, 20                                                   RS.N      Buy (CBE)               N/A       US$41.13       05 Feb 2010
                                             16, 20
 Schnitzer Steel Industries Inc                        SCHN.O       Buy (CBE)               N/A       US$43.11       05 Feb 2010
                        16, 20
 Steel Dynamics Inc.                                   STLD.O       Buy (CBE)               N/A       US$14.99       05 Feb 2010
                               2, 4, 13, 16, 20
 United States Steel Corp                                 X.N       Sell (CBE)              N/A       US$44.78       05 Feb 2010
                  2, 4, 6a, 16
 Vulcan Materials                                       VMC.N              Buy              N/A       US$43.66       05 Feb 2010
Source: UBS. All prices as of local market close.
Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricing

1.        UBS Securities LLC is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of
          securities of this company/entity or one of its affiliates.
2.        UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of
          this company/entity or one of its affiliates within the past 12 months.
4.        Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking
          services from this company/entity.

                                                                                                                               UBS 17
U.S. Metals & Materials Weekly 8 February 2010

5.      UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services
        from this company/entity within the next three months.
6a.     This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking
        services are being, or have been, provided.
6b.     This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment
        banking securities-related services are being, or have been, provided.
7.      Within the past 12 months, UBS Securities LLC has received compensation for products and services other than
        investment banking services from this company/entity.
13.     UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity
        securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent
        month`s end).
16.     UBS Securities LLC makes a market in the securities and/or ADRs of this company.
20.     Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR
        exceeds the MRA by 10% (compared with 6% under the normal rating system).
22.     UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end
        (or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).

Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report.

For a complete set of disclosure statements associated with the companies discussed in this report, including information on
valuation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention:
Publishing Administration.

                                                                                                                                 UBS 18
U.S. Metals & Materials Weekly 8 February 2010

Global Disclaimer

This report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG is
referred to as UBS SA.

This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy or
recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information
purposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No
representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information
concerning UBS AG, its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. UBS does not
undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should
exercise prudence in making their investment decisions. The report should not be regarded by recipients as a substitute for the exercise of their own judgement. Any opinions expressed in this
report are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria.
Research will initiate, update and cease coverage solely at the discretion of UBS Investment Bank Research Management. The analysis contained herein is based on numerous assumptions.
Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other
constituencies for the purpose of gathering, synthesizing and interpreting market information. UBS is under no obligation to update or keep current the information contained herein. UBS relies
on information barriers to control the flow of information contained in one or more areas within UBS, into other areas, units, groups or affiliates of UBS. The compensation of the analyst who
prepared this report is determined exclusively by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking
revenues, however, compensation may relate to the revenues of UBS Investment Bank as a whole, of which investment banking, sales and trading are a part.
The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and
trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates
and other market conditions. Past performance is not necessarily indicative of future results. Foreign currency rates of exchange may adversely affect the value, price or income of any security
or related instrument mentioned in this report. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither UBS nor any of its
affiliates, nor any of UBS' or any of its affiliates, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. For financial
instruments admitted to trading on an EU regulated market: UBS AG, its affiliates or subsidiaries (excluding UBS Securities LLC and/or UBS Capital Markets LP) acts as a market maker or
liquidity provider (in accordance with the interpretation of these terms in the UK) in the financial instruments of the issuer save that where the activity of liquidity provider is carried out in
accordance with the definition given to it by the laws and regulations of any other EU jurisdictions, such information is separately disclosed in this research report. UBS and its affiliates and
employees may have long or short positions, trade as principal and buy and sell in instruments or derivatives identified herein.
Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction
can or could have been effected at those prices and any prices do not necessarily reflect UBS's internal books and records or theoretical model-based valuations and may be based on certain
assumptions. Different assumptions, by UBS or any other source, may yield substantially different results.
United Kingdom and the rest of Europe: Except as otherwise specified herein, this material is communicated by UBS Limited, a subsidiary of UBS AG, to persons who are eligible
counterparties or professional clients and is only available to such persons. The information contained herein does not apply to, and should not be relied upon by, retail clients. UBS Limited is
authorised and regulated by the Financial Services Authority (FSA). UBS research complies with all the FSA requirements and laws concerning disclosures and these are indicated on the
research where applicable. France: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities France SA. UBS Securities France S.A. is regulated by the Autorité des
Marchés Financiers (AMF). Where an analyst of UBS Securities France S.A. has contributed to this report, the report is also deemed to have been prepared by UBS Securities France S.A.
Germany: Prepared by UBS Limited and distributed by UBS Limited and UBS Deutschland AG. UBS Deutschland AG is regulated by the Bundesanstalt fur Finanzdienstleistungsaufsicht
(BaFin). Spain: Prepared by UBS Limited and distributed by UBS Limited and UBS Securities España SV, SA. UBS Securities España SV, SA is regulated by the Comisión Nacional del
Mercado de Valores (CNMV). Turkey: Prepared by UBS Menkul Degerler AS on behalf of and distributed by UBS Limited. Russia: Prepared and distributed by UBS Securities CJSC.
Switzerland: Distributed by UBS AG to persons who are institutional investors only. Italy: Prepared by UBS Limited and distributed by UBS Limited and UBS Italia Sim S.p.A.. UBS Italia Sim
S.p.A. is regulated by the Bank of Italy and by the Commissione Nazionale per le Società e la Borsa (CONSOB). Where an analyst of UBS Italia Sim S.p.A. has contributed to this report, the
report is also deemed to have been prepared by UBS Italia Sim S.p.A.. South Africa: UBS South Africa (Pty) Limited (Registration No. 1995/011140/07) is a member of the JSE Limited, the
South African Futures Exchange and the Bond Exchange of South Africa. UBS South Africa (Pty) Limited is an authorised Financial Services Provider. Details of its postal and physical address
and a list of its directors are available on request or may be accessed at United States: Distributed to US persons by either UBS Securities LLC or by UBS Financial
Services Inc., subsidiaries of UBS AG; or by a group, subsidiary or affiliate of UBS AG that is not registered as a US broker-dealer (a 'non-US affiliate'), to major US institutional investors only.
UBS Securities LLC or UBS Financial Services Inc. accepts responsibility for the content of a report prepared by another non-US affiliate when distributed to US persons by UBS Securities LLC
or UBS Financial Services Inc. All transactions by a US person in the securities mentioned in this report must be effected through UBS Securities LLC or UBS Financial Services Inc., and not
through a non-US affiliate. Canada: Distributed by UBS Securities Canada Inc., a subsidiary of UBS AG and a member of the principal Canadian stock exchanges & CIPF. A statement of its
financial condition and a list of its directors and senior officers will be provided upon request. Hong Kong: Distributed by UBS Securities Asia Limited. Singapore: Distributed by UBS Securities
Pte. Ltd or UBS AG, Singapore Branch. Japan: Distributed by UBS Securities Japan Ltd to institutional investors only. Where this report has been prepared by UBS Securities Japan Ltd, UBS
Securities Japan Ltd is the author, publisher and distributor of the report. Australia: Distributed by UBS AG (Holder of Australian Financial Services License No. 231087) and UBS Securities
Australia Ltd (Holder of Australian Financial Services License No. 231098) only to 'Wholesale' clients as defined by s761G of the Corporations Act 2001. New Zealand: Distributed by UBS New
Zealand Ltd. An investment adviser and investment broker disclosure statement is available on request and free of charge by writing to PO Box 45, Auckland, NZ. Dubai: The research
prepared and distributed by UBS AG Dubai Branch, is intended for Professional Clients only and is not for further distribution within the United Arab Emirates.
The disclosures contained in research reports produced by UBS Limited shall be governed by and construed in accordance with English law.

UBS specifically prohibits the redistribution of this material in whole or in part without the written permission of UBS and UBS accepts no liability whatsoever for the actions of third parties in this
respect. © UBS 2010. The key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.


                                                                                                                                                                                                UBS 19

Shared By: