andrew shaw outlook & review - asian commodities market

The Best of Times … The Worst of Times Commodities Outlook

Asian Mining Indaba

Singapore – 29 October 2012

Andrew Shaw

Head of Base Metals & Bulks Research, Credit Suisse

+65 6212 4244 [email protected]

ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.

https://firesearchdisclosure.credit-suisse.com/



1

Overview Macro risks abound

Photos: Andrew Shaw / Credit Suisse

2

The key driver for commodity prices remains growth

Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse

-8.5%

-6.5%

-4.5%

-2.5%

-0.5%

1.5%

3.5%

5.5%

7.5%

9.5%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Global GDP, real ann trend qoq GDP avg (1972-2012)

CCI Index, real trend qoq (rhs) CCI avg (1972-2012, rhs)

3

In Q3 commodities bounced? But will it last?


-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

3Q-10 1Q-11 3Q-11 1Q-12 3Q-12

Global GDP, ann qoq Current estimate/forecast Real CCI, qoq (rhs)

Q3 estimate: 2¾%

Divergence in

Q3-12

4

The key will be whether the Ben and Mario show translates to growth


-6%

-4%

-2%

0%

2%

4%

6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

Global IP, ann trend mom CSCB Ind metals, trend mom (right axis)

S&P500 trend mom (right axis)

Aug-27-10:Jackson

Hole Speech

Nov-3-10:QE2

Sept-13-12:

QE3

Dec-21-11:LTRO1 Jul-26-12:

Draghi "Whatever it

Takes"

6

Global IP volatile, but CS Basic Materials Index suggests recovery is starting


-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

2000 2002 2004 2006 2008 2010 2012

Global IP, ann 3MMA of mom change forecast

long run average CSBMI, 3mma (right axis)

7

China has been soft – with growth expected to remain in the 7-8% range (though some signs of a trough)

Source: the BLOOMBERG PROFESSIONALTM service, NBS, Credit Suisse

6%

7%

8%

9%

10%

11%

12%

13%

14%

2004 2005 2006 2007 2008 2009 2010 2011 2012

QoQ annualized YoY 1977 to Present Average

Assuming Q3 at 7.4%

saar

8

Source: NBS, CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

Real estate market improving QoQ, seasonally adjusted, trended

Social housing program ahead of schedule

Chinese stimulus – a story for 2013

Monetary easing YoY real growth in social financing

Infrastructure project approvals Infrastructure FAI, log (RMB Million), real, seasonally

adjusted

May June July Aug YTD Target %

Starts (M) 1.2 1.2 1.1 0.7 6.5 7.0 93

Completions (M) 0.6 0.5 1.0 0.6 4.2 5.0 84

Investment (RMB B) 143 118 153 160 820 - -

9

For now, we are still waiting for an IP bounce

Source: the BLOOMBERG PROFESSIONALTM service, Markit, Credit Suisse

-5%

0%

5%

10%

15%

20%

25%

30%

40.0

45.0

50.0

55.0

60.0

65.0

2006 2007 2008 2009 2010 2011 2012

Average PMI New Orders Chinese IP ann mom trend sa (right axis)

10

And infrastructure growth has actually slowed …

Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse *Note: Q3 estimated on 2 months

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

-40%

-20%

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009 2010 2011 2012

QoQ SAAR YoY (right axis)

Chinese infrastructure FAI*

11

We think commodity prices have overshot – with a correction unfolding in Q4


-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

3Q-10 1Q-11 3Q-11 1Q-12 3Q-12 1Q-13

Global GDP, ann qoq Current estimate/forecast

Real CCI, qoq (rhs) CCI estimate based on forecasts

Q3 estimate: 2¾%

Divergence in Q3-12

13

Most prices should pick up next year, but with considerable divergence among commodities

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

WT

I C

rud

e

Bre

nt

Cru

de

Palla

diu

m

Zin

c

Lea

d

Alu

min

ium

Nic

ke

l

Gold

Pla

tinu

m

Tin

Th

erm

al C

oa

l

Soyb

ean

s

UK

Na

t G

as

Co

pp

er

U.S

. N

at

Gas

Silv

er

Iro

n O

re (

Ch

ina)

Co

rn

Wh

eat

Q4-13 forecast vs Q4-13 forward

Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse *forwards based on Oct 10 data

14

The “commodity super-cycle” has been well and truly relegated to history …


200

300

400

500

600

700

800

900

1000

1100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

CSCB Excess Return (real) Forecast

Bull market

Oil bubble

Post-Lehman prices

Back to the future

15

Iron Ore End of an era

16

Short term price bounce driven by restock Average mills’ inventory cover from imported ore (lhs), US$/t (rhs)

Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, MySteel

80

100

120

140

160

180

200

18

23

28

33

38

43

48

Mar-11 Jun-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12

Avg Stock Days TSI Price (rhs)

56% restock

22% price increase

??% restock, 35% price increase

17

Iron ore price boom is fading


Iron ore prices returning to long-run mean? Real 2010 US$ log

Major revisions to CS IO price forecasts US$/t, CFR China (TSI 62% Fe)

3.6

4.1

4.6

5.1

5.6

6.1

1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005

price hptrend average

Stable prices around long run

Historical outlier

Returning to long run

Overshoot?

Forecast iron ore prices

Units as indicated below, long term prices based on 2011 real prices

2011 1Q-12 2Q-12 3Q-12 4Q-12 2012 1Q-13f 2Q-13f 3Q-13f 4Q-13f 2013f 2014f 2015 LT

Iron ore fines – 62% (China CFR) US$/t, dry 168 142 140 112 110 126 120 115 110 100 111 95 90 90

Iron ore fines - (China CFR) US$/dmtu 271 229 225 181 177 203 194 185 177 161 179 153 145 145

Source: Credit Suisse

$50

$70

$90

$110

$130

$150

$170

$190

$210

2009 2010 2011 2012 2013

Iron Ore (62% Fe CFR Tianjin spot) Quarterly avg forecasts

18

Key market characteristics

Global steel overcapacity

Moderating steel demand growth

Recovery from recent flat rates

Imports displacing China IO supply

…But new Chinese mines too

Wall of seaborne supply looming

19

World steel production growth rates moderating: Output forecast to grow at 4% p.a.

250

300

350

400

450

500

550

600

650

700

750

2005 2006 2007 2008 2009 2010 2011 2012

Raw Annualised SAAR

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

1990 1993 1996 1999 2002 2005 2008 2011

China World Ex-China

CAGR = 8.5%

CAGR = 7.4%

CAGR = 2.5%

CAGR = 21.8%

CAGR = 2.5%

China’s steel production has moderated since 2007 …

Natural log

… tracking sideways in 2012

Mt, Monthly, annualized (sa)

Source: World Steel Association, China NBS, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

20

Iron ore supply growth running ahead of underlying demand

16.2

16.4

16.6

16.8

17.0

17.2

17.4

17.6

17.8

18.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Australia World Ex-Australia

CAGR = 12.2%

CAGR = 5.7%

CAGR = 15.6%

… plenty of planned new supply

“Firmly committed supply” and forecast IO demand

Mt

Australia the main contributor to this surge …

Seaborne supply, natural log (sa)

* Base case assumes 4.1% p.a. world steel production in 2013-16

0

20

40

60

80

100

120

2013f 2014f 2015f 2016f

Seaborne Supply Growth Chinese + Seaborne ex-China Demand Growth

Source: Customs data, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

21

Assumes displacement of higher-cost China and other mine supply

Change in IO supply on 2011 production level (Mt)

-300

-200

-100

0

100

200

300

400

2012 2013 2014 2015 2016

Australia

Brazil

China (Domestic Supply)

Source: Credit Suisse forecasts

22

But Chinese supply may not shrink back as readily as many expect

US$/t delivered to mill

Peak production @ approx. 415 Mt/y

Forecast 2012 domestic demand (340 Mt)

Cumulative Supply (%)

40% of China’s domestic IO supply

is “loss making” at prices below

US$100/t

New mines targeted to come into

production under current 5Yr Plan

25% of supply today is “captive”

Further displacement by imports

will require lower prices

Major players have cash costs

below US$55/t CFR China

Committed expansions running far

ahead of demand

Recipe for a price war beyond

2013-14?

Source: CMMA, Steelease, Credit Suisse

23

Thermal Coal Range-bound

24

A depressed physical market has led to range-bound paper trading

With paper trading three distinct ranges

US$/t, Front calendar swap

The market has been trapped at a low level

US$/t, Spot

Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, McCloskey

80

90

100

110

120

130

140

150

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

Newc RBCT ARA

90

95

100

105

110

115

120

125

130

135

140


API#2 Y1 Swap API#4 Y1 Swap Newc Y1 Swap

25

A surfeit of supply means more than just Chinese production cuts are required to balance the market

Chinese raw coal production

Mt, monthly SA

US thermal coal exports

Mt, monthly SA

Source: Credit Suisse, Customs Data, SxCoal

100

150

200

250

300

350

400

2006 2007 2008 2009 2010 2011 2012

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009 2010 2011 2012

26

And with the China arb a mid-term cap, we also need stronger Chinese IP growth

Soft Chinese IP in 2012

%

China thermal coal import arb

US$/t (lhs), % (rhs)

Source: Credit Suisse, McCloskey, China NBS

0%

2%

4%

6%

8%

10%

12%

14%

16%

80

90

100

110

120

130

140

150

Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12

Seaborne South China CFR QHD South China CFR Discount (rhs)

0%

5%

10%

15%

20%

25%

2006 2007 2008 2009 2010 2011 2012

MoM Annualized YoY (lhs) Jan 02 - Dec 07 Avg

27

Only then can prices recover and volatility return to the market (US$/t)

Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, Customs Data, Company Data

But should be back in balance by 2014

Mt

Coal unmoved by QE3

Index, 13/09/12 = 100

95

100

105

110

115

120

13/ 09/ 2012 20/ 09/ 2012 27/ 09/ 2012

Copper 3-Month API2 Front Cal Iron Ore Front Q

2012 2013 2014 2015

World Import Demand 828 867 930 984

% change 5.6% 4.7% 7.3% 5.8%

World Export Supply 845 883 933 984

% change 7.8% 4.5% 5.7% 5.5%

Surplus/ Deficit 17 16 3 0

As a % of Exports 2.0% 1.8% 0.3% 0.0%

28

LME Commodities Fundamental variation


29

LME Metals Price Forecasts


LT

Q1 Q2 Q3 Q4 Yr Avg Q1 Q2 Q3 Q4 Yr Avg 2014 2015 (2012$)

Copper 8,329 7,860 7,720 7,800 7,927 8,000 8,300 8,000 7,700 8,000 7,500 7,000 5,500

Aluminium 2,188 1,987 1,929 2,020 2,031 2,100 2,150 2,200 2,250 2,175 2,350 2,400 2,250

Nickel 19,654 17,157 16,354 18,000 17,791 18,500 19,000 19,000 19,000 18,875 20,000 21,000 20,000

Lead 2,097 1,979 1,983 2,130 2,047 2,200 2,300 2,350 2,450 2,325 2,625 3,000 2,000

Zinc 2,031 1,930 1,892 2,000 1,963 2,100 2,150 2,200 2,250 2,175 2,425 2,800 1,900

Tin 22,953 20,550 19,287 20,000 20,698 21,000 21,000 21,500 22,500 21,500 23,000 24,000 20,000

2012 2013

30

Copper prices – best is behind us US$/t


$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$11,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Copper 3M Quarterly Avg Forecast

31

Aluminium prices – steady, but unexciting, gains US$/t


$1,200

$1,700

$2,200

$2,700

$3,200

$3,700

2005 2006 2007 2008 2009 2010 2011 2012 2013

Aluminum 3M Quarterly Avg Forecast

32

$800

$1,300

$1,800

$2,300

$2,800

$3,300

$3,800

$4,300

$4,800

2005 2006 2007 2008 2009 2010 2011 2012 2013

Zinc 3M Quarterly Avg Forecast

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Lead 3M Quarterly Avg Forecast

Supply dynamics impacts price outlook for Ni, Zn & Pb

Nickel prices and forecast (US$/t)

Zinc prices and forecast (US$/t)

Lead prices and forecast (US$/t)


$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

2005 2006 2007 2008 2009 2010 2011 2012 2013

Nickel 3M Quarterly Avg Forecast

33

Copper Vulnerable without real demand improvement

34

Copper market moving into surplus

Source: Brook Hunt forecasts, Credit Suisse forecasts

kt

35

Source: Brook Hunt forecasts, Credit Suisse forecasts

Large increase in mine supply expected … but risk of further delays

kt Cu

36

Source: Wood Mackenzie, Credit Suisse

South America remains the mainstay of production, but mine supply has grown in China and Africa

Kt Cu

37

China’s copper demand has stagnated and stocks are ample

Source: the BLOOMBERG PROFESSIONALTM service, Brook Hunt, Credit Suisse

38

Western markets are much tighter


Leading to a tight market in the West, vulnerable to squeezes

Premiums, US$/t

Inventories are ample in China, but not in the West

kt

Little accessible LME metal kt

39

Capex intensity is rising alarmingly: Mid-term incentive price now US$6,500/t

Source: Brook Hunt, Credit Suisse

40

Aluminium High premiums, vulnerable prices

41

Aluminium smelters no longer under pressure


Ex-China smelters cushioned by record premiums

US$/t

Chinese smelters protected by higher domestic prices, subsidies, integration

US$/t

42

Inventories increasingly difficult to access


Financing deals and warehouse queues

prevent access to most inventories LME inventories, kt

Financing yields remain attractive, although they have declined

Annualized yield, rolling 12-month to 3-month contracts

43

Lengthy queues on LME have led to record premiums


Long queues have effectively made metal in large warehouses unavailable

Premiums are at record highs, diminishing smelter cutbacks from low prices (US$/t)

44

Growing Chinese production leading to higher net exports and rising stocks

Source: CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

Chinese aluminium production expanding on the back of large new

smelters (Mt)

Aluminium and product exports remain strong despite an unfavourable arb …

0

50

100

150

200

250

300

350

400

450

500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0

50

100

150

200

250

300

350

400-1000

-800

-600

-400

-200

0

200

400

600

2004 2005 2006 2007 2008 2009 2010 2011 2012Arbitrage (lhs, US$/t) Al & product exports (rhs, kt)

LME Cheap

LME Expensive

…Rising SHFE stocks (kt)

45

Nickel Short window for higher prices

46

Nickel ramp-ups have hit road-blocks

Source: Credit Suisse, Company reports

Project Country Operator Type

Capacity

(kt) Start-up Comments

Barro Alto Brazil Anglo FeNi 40 Mar-2011 Full capacity targeted by end of 2012. Maintenance on

line 2 scheduled for H2; 5.4 kt produced in Q2 after

mainenance on line 1 in June; 6.6 kt produced in Q1

Onca Puma Brazil Vale FeNi 53 Mar-2011 Production halted following breakdowns in 2 furnaces; 2nd

line began production in January; 2 kt produced in Q2

after 4 kt in Q1; legal troubles

Taguang Myanmar Taguang

Taung Nickel

FeNi 22 Apr-2011 Refinery difficulties

Ravensthorpe Australia First Quantum HPAL 39 Oct-2011 First Quantum forecasting 33-36 kt in 2012; 8.1 kt

produced in Q2, 8.6 kt in Q1

Ramu Papua New

Guinea

MCC HPAL 31 Mar-2012 First production achieved in early March; full capacity

targeted in mid-2013

VNC (Goro) New Caledonia Vale HPAL 60 Q1 2012 Force majeure with acid plant repairs expected to take

months; 1.1 kt nickel oxide and 2.3 kt nickel hydroxide

cake in Q1

Ambatovy Madagascar Sherritt HPAL 60 Sep-2012 Obtained 6 month operating permit in September;

commercial production targeted for H1 2013

Koniambo New Caledonia Xstrata FeNi 60 H2 2012 Full capacity targeted by 2014

47

NPI likely to rebound with higher prices

Source: CEIC, Zijin Steel, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

Chinese nickel production fell in response to low prices (kt)

But prices have rebounded and NPI is once again attractive vs. refined nickel

(RMB/t)

48

Demand for nickel has Been the weakest of any LME metal

Source: International Stainless Steel Forum, Credit Suisse

H1 stainless steel production, YoY growth

49

Nickel market is moving into growing supply surplus


Forecast production from eight major projects (kt)

Nickel market balance (kt)

50

Zinc Squeezed today, but more surpluses tomorrow

51

Zinc is increasingly resembling aluminium


LME metal availability is very poor kt

Attractiveness of zinc financing relative to aluminium has improved

Annualized yield, rolling 12-month to 3-month contracts

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012

JohorCancelledJohor OnWarrantVlissingenCancelledVlissingen OnWarrantDetroitCancelledDetroit OnWarrantNew OrleansCancelledNew OrleansOn WarrantROWCancelledROW OnWarrant

52

The Chinese market has been tighter than expected

Source: CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

Chinese imports are likewise likely to fall back with less positive import arbitrage

Chinese smelter production has been weak, but should rebound with prices

kt

53

Mine closures have been delayed, pushing back prospect of annual market deficits


kt

54

Lead Moving into the spotlight

55

Lead market has been squeezed

• Mild winter and fall in battery scrap prices leads to less scrap in the US 1

• 400 kt/y of new US secondary capacity added, pushing up scrap prices 2

• Improving end-use demand and fire at 130 kt/y Herculaneum smelter tightens US refined market 3

• US premiums rise, far above those in the rest of the world, compensating smelters for scrap prices 4

• Consumers and traders look to source lead from the rest of the world to supply tight US market 5

• Major traders lock up more LME metal and limit access to LME stocks 6

Source: Credit Suisse

56

Tight physical market, particularly in the US

Source: Metal Bulletin, Reuters, the BLOOMBERG PROFESSIONALTM service, Credit Suisse

US scrap prices bounced strongly from Q4 2011 decline

US used battery prices; USc/lb

The tight US market has dragged up premiums in the rest of the world

US$/t

57

LME stocks have fallen, and little of the remainder is accessible


LME on warrant inventory, kt

58

Lead demand has been the strongest among LME metals


Chinese lead battery production very strong KVAH, seasonally adjusted

2012 demand growth outpacing other LME metals

YoY

59

Supply-side issues are key swing variables


Chinese closures could tighten market in short run

kt

Large mine closures expected to shift market into deficit in mid-term

kt

60

Tin Squeezed, but supply returning

61

Supply declined in response to low prices


Global refined tin production, kt

62

LME inventories have plummeted


On warrant LME inventories, kt

63

And the front of the LME curve has been squeezed


LME cash – 3 month, US$/t

64

Bulk Commodities Mixed fortunes


65

Other Commodities Precious Metals

66

Gold: Stronger for longer US$/oz


$300

$500

$700

$900

$1,100

$1,300

$1,500

$1,700

$1,900

$2,100

2005 2006 2007 2008 2009 2010 2011 2012 2013

Gold (Spot) Quarterly Avg Forecast

67

Gold: Bounce back towards LT trend line US$/oz

$0

$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Gold Price

Expected Value

Upper 3 Std Dev.

Lower 3 Std Dev.


68

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0$250

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Gold, $/oz (LHS)

US 5 year TIPS, %(scale inverted)

But short-term rally in yields likely

Daily correlation

: -0.945


69

Longer term, still bullish US Treasuries

See: Credit Suisse Global Weekly Snapshot, 28 September 2012

Fed not finished: QE 3.5 possibly as soon as December – Ongoing purchases of Treasuries after Twist expires

– $45bn/month baseline expectation

– Balances MBS purchases in middle of curve, still adequate liquidity for

Fed to buy more at back end

Further adjustments to guidance: More explicit linking of rates to unemployment + inflation – Shift in view of former hawk, Kotcherlakota, notable (unemployment

target of 5.5% as long as 2-year forward inflation forecast <2.25%)

Fed appears prepared to accept political risks of further balance sheet expansion

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70

Silver outperformance should reverse if markets correct

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

20

30

40

50

60

70

80

90

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Co

nd

itio

ns im

pro

vin

g

Silv

er

ou

tpe

rfo

rmin

g

Gold: silver ratio (lhs)

Financial Conditions Index


71

PGMs – Correction before recovery US$/oz


$100

$300

$500

$700

$900

2005 2006 2007 2008 2009 2010 2011 2012 2013

Palladium (Spot) Quarterly Avg Forecast

$500

$750

$1,000

$1,250

$1,500

$1,750

$2,000

$2,250

$2,500

2005 2006 2007 2008 2009 2010 2011 2012 2013

Platinum (Spot) Quarterly Avg Forecast

72

South Africa / positioning, not demand, driving price

South Africa = 75% of platinum mine supply

Labour relations at a nadir, complicated by inter-union rivalry, politics, and recent deaths

Tensions likely to remain high through Q4

Estimated production losses to date = 460,000 oz and growing

Knock-on effect on palladium output

73

More closures required to balance the market

At current metal prices, further closure of capacity is inevitable in our view, and necessary

Recent rand relief likely to be short-lived; the industry needs to be restructured for the long term


74

Auto industry rebound losing momentum and largely a gasoline (Pd) story


75

Still no clear arbitrage opportunity between Pt & Pd


76

Other Commodities Oil & Gas

77

Brent and WTI forecast decks

2015 Long term

Q1* Q2* Q3* Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)

Brent 83.13 109.97 118.28 108.95 109.62 105.00 110.46 110.00 115.00 115.00 120.00 115.00 115.00 110.00 110.00 105.00 110.00 100.00 90.0

previous 95.00 95.00 104.35 100.00 100.00 105.00 105.00 102.50 110.00 115.00 115.00 120.00 115.00 100.00 90.00

Net Change 14.60 10.00 6.10 10.00 15.00 10.00 15.00 12.50 5.00 -5.00 -5.00 -15.00 -5 .00 0.00 0.00

% Change 15% 11% 6% 10% 15% 10% 14% 12% 5% -4% -4% -13% -4% 0% 0%

Consensus* 108.30 111.3 109.60 108.00 110.40 109.30 110.20 113.2 111.00

Net Difference -3.30 -0 .80 0.40 7.00 4.60 10.70 4.8 -3.2 -11.0

% Difference -3% -1% 0% 6% 4% 10% 4% -3% -10%

Fw d Curve* 112.63 112.37 105.12 109.67 108.10 106.52 107.35 99.74 103.61 102.24 100.90 101.62 96.98

Net Difference -7.60 -1.90 4.90 5.30 6.90 13.50 7.60 15.30 6.40 7.80 4.10 8.40 3.00

% Difference -7% -2% 5% 5% 6% 13% 7% 15% 6% 8% 4% 8% 3%

WTI 79.61 90.70 102.91 93.43 92.51 89.00 94.46 97.00 106.00 108.00 113.00 106.00 107.00 102.00 102.00 97.00 102.00 93.50 83.5

previous 84.00 82.00 90.58 91.00 95.00 101.00 101.00 97.00 106.00 111.00 111.00 116.00 111.00 94.00 84.0

Net Change 8.50 7.00 3.90 6.00 11.00 7.00 12.00 9.00 1.00 -9.00 -9.00 -19.00 -9 .00 -0.50 -0.50

% Change 10% 9% 4% 7% 12% 7% 12% 9% 1% -8% -8% -16% -8% -1% -1%

Consensus* 93.80 95.66 97.70 97.80 101.00 100.80 101.50 102.80 104.50

Net Difference 11.20 -1.20 -0.70 8.20 7.00 12.20 4.50 -0.80 -11.00

% Difference 12% -1% -1% 8% 7% 12% 4% -1% -11%

Fw d Curve* 95.33 96.04 94.72 96.83 96.46 95.58 95.90 99.74 93.73 92.80 97.86 96.03 97.19

Net Difference -6.30 -1.60 2.30 9.20 11.50 17.40 10.10 7.30 8.30 9.20 -0.90 6.00 -3.70

% Difference -7% -2% 2% 10% 12% 18% 11% 7% 9% 10% -1% 6% -4%

WTI - Brent Spread -3.52 -19.27 -15.37 -15.51 -17.11 -16.00 -16.00 -13.00 -9.00 -7.00 -7.00 -9.00 -8.00 -8.00 -8.00 -8.00 -8.00 -6.50 -6.50

2015 Long termQ1* Q2* Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)

Brent 83.13 109.97 118.28 108.95 109.62 55.00 98.00 55.00 70.00 70.00 80.00 69.00 80.00 80.00 90.00 90.00 85.00 90.00 90.00

WTI 79.61 90.70 102.91 93.43 92.51 45.00 83.00 50.00 61.00 63.00 73.00 62.00 72.00 72.00 82.00 82.00 77.00 83.50 83.50

WTI - Brent Spread -3.52 -19.27 -15.37 -15.51 -17.11 -10.00 -15.00 -5.00 -9.00 -7.00 -7.00 -7.00 -8.00 -8.00 -8.00 -8.00 -8.00 -6.50 -6.50


Brent 83.13 109.97 118.28 108.95 109.62 75.00 103.00 70.00 75.00 85.00 90.00 80.00 85.00 90.00 90.00 80.00 86.00 80.00 75.00


Brent 83.13 109.97 118.28 108.95 109.62 115.00 113.00 115.00 120.00 120.00 120.00 119.00 125.00 125.00 125.00 125.00 125.00 140.00 110.00

2015 Long term

Q1* Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)

Brent 83.13 109.97 118.28 108.95 109.62 150.00 122.00 130.00 100.00 90.00 90.00 103.00 110.00 125.00 125.00 120.00 120.00 100.00 90.00

'Proposed new CS Base Case --Range of $100-120. No high conviction fundamentals direction down or up from that. Avg annual price rises one more year, 2013 and completes 11-year uptrend; then sets in decline

Oil Actuals & Forecasts ($US/b) 2010* 2011*2012 2013 2014

Disaster scenario. Big assumption: Policy error and/or other catalysts melt down confidence. A true credit crunch ratchets activity down fast. Demand plummets. Also, next recovery takes longer to achieve.

Oil Actuals & crisis bear-case ($US/b) 2010* 2011*2012 2013 2014

Economic crisis is not averted entirely. Demand growth erodes further. Supply side growth, meanwhile, accelerates. Much like w ith US natgas, market underestimates upstream efficiency gains and potential.


Scarcity is not dead. Global growth resumes a little quicker to a pace nearer that of 2002-2008. And on the supply side declines of the base keep upward pressure on the right side of the cost-curve.


Mideast supply shock. Markets price for accute scarcity, as 2mb/d is offline for 2 months. SPR et al released moderates prices. Demand plunge does damage too. Prices recover, only for intense supply respond to undermine



78

How we stand vs. the consensus

(0.8)

(0.3)

0.2

0.7

1.2

1.7

2013 Global OECD Non-OECD

Credit Suisse Consensus (IEA)

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

Non-OPEC Call on OPEC Crude and Stocks

Credit Suisse Consensus (IEA)

Our 2012 oil demand growth vs IEA (Mb/d)

and how we differ on the supply side (Mb/d)

22

27

32

37

42

47

52

57

62

-5

-4

-3

-2

-1

0

1

2

01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 01/11 01/12

CSBMI, 3m ma

Global PMI Mfg. New Orders, rhs

CSBMI peaked Jan12PMI peaked Apr12

CSBMI troughed Jun12PMI troughed Aug12?

CSBMI vs. global PMI

Source: the BLOOMBERG PROFESSIONALTM service, IEA, Credit Suisse

79

Oil demand yoy deltas: Data for 2012 through July, forecast for 2013

-400

-300

-200

-100

0

100

200

300

400

500

Jap

an

Ind

ia

Ch

ina

Bra

zil

Sau

di A

rab

ia

Oth

er M

E

Oth

er A

sia

Oth

er A

fric

a

Sou

th K

ore

a

Thai

lan

d

Ve

nez

uel

a

Au

stra

lia

Iran

Arg

en

tin

a

Sou

th A

fric

a

Me

xico

Ch

ile

Fran

ce

Egyp

t

Can

ada

Ger

man

y

UK

Oth

er E

uro

pe

Ital

y

USA

2012 ytd 2013E


80

Demand (Mb/d)

88

89

90

91

92


monthly SA SA 3mth MA

41

42

43

44

45


monthly SA 3mth Avg SA

44

45

46

47

48



9.0

9.5

10.0

10.5



Global Emerging Markets

OECD China


81

Supply (kb/d)

36

37

38

39

40

41

42

43

Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

-1000

-600

-200

200

600

1000

1400

1800

-1000

-600

-200

200

600

1000

1400

1800

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Non-OPEC ex. North America North America Non-Opec

0

200

400

600

800

1000

1200

1400

0

2,000

4,000

6,000

8,000

10,000

12,000

2000 2004 2008 2012E 2016E 2020E

US Oil Production Oil Shale Rig Count

0

200

400

600

800

1,000

1,200

1,400

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2011 2013 2015 2017 2019 2021

Wells Drilled

US Shale Oil RigCount

Monthly crude oil production from non-OPEC

Total US oil production (excluding NGL)

Shale rig count and total wells drilled

North American flows have grown fast, but declines

elsewhere undermine totals


82

Stocks (Mb)

-60

-20

20

60

100

140

180

220

Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12

Surplus onland floating storage

880

910

940

970

1000

1030

1060

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

5y Max Min 5yr avg 2012 2011

Crude oil inventories remain

adequate

Key products, such as middle distillates, remain in short

supply


83

9,000

13,000

17,000

21,000

25,000

29,000

33,000

37,000

Sep-11 Oct-11 Nov-11Dec-11 Jan-12 Feb-12Mar-12 Apr-12May-12 Jun-12 Jul-12 Aug-12 Sep-12

Official Bank Rate Unofficial Market Rate

EU import embargo

U.S. CBI Sanctions

EU and US sanctions fully implementated on July 1

Riots in Tehran as Rial plunges Oct 2,3

Iran’s currency collapses, what’s next? Rial/US$


84

Brent US$/b


$20

$40

$60

$80

$100

$120

$140

$160

2005 2006 2007 2008 2009 2010 2011 2012 2013

Brent front month Quarterly avg forecasts

85

Global LNG remains structurally tight

Source: the BLOOMBERG PROFESSIONALTM service, Platts, GTIS, Credit Suisse

6

7

8

9

10

11

12

13

14


2009 2010 2011 2012

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

JKM HH Prompt NBP Prompt Jap LNG Imp Price

Global Gas Benchmarks – APAC prices were weak in Q3

US$/MMbtu

Summer downturn in Japanese LNG imports was partly to blame, but it shouldn’t

last Bcf/d

86

US natural gas – The good, the bad and the ugly

50

52

54

56

58

60

62

64

66

68

0

200

400

600

800

1000

1200

1400

1600

1800

Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12

dry gas production Gas Rigs oil rigs

No supply growth in 2012,

but no declines either

0

2

4

6

8

10

12

14

Jan Mar May Jul Sep

yoy change change vs 5-yr avg

1,250

1,750

2,250

2,750

3,250

3,750

Nov Dec Jan Jan Mar

weather range 2012-2013 Fcst

(In Bcf/d) CS Base Case

Production -1.00

Imports/ (Exports)

LNG -0.10

Canada -0.30

Mexico -0.60

Demand

Power Gen 0.10

Industrial 0.10

"Residual" -2.20

Source: EIA, Bentek Energy, NOAA, Credit Suisse

Slowing US supply growth may turn to declines in 2013 (Bcf/d vs. rigs)

Coal-to-gas switching is moving lower as prices approach US$3.50

The current gas surplus should

improve in 2013, but winter risks remain

large

87

UK (NBP) Natural gas – anaemic demand, ample supply

Source: the BLOOMBERG PROFESSIONALTM service, National Grid, Credit Suisse

100

150

200

250

300

350

400

450


5 yr range Avg 2011 2012

Secular trends and cyclical headwinds have kept UK gas demand low

Mcm

-3

0

3

6

9

12

15

18

21

Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12

UK Clean Dark UK Clean Spark

Coal favored

Gas unfavored

Meanwhile, generation economics favour coal the largest margin YTD

GBp/MWh

88

Natural Gas US$/MMbtu


$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2005 2006 2007 2008 2009 2010 2011 2012 2013

NYMEX Henry Hub Quarterly Avg Forecast

89

Summary of Price Forecasts – 1 2015 LT

Yr Avg (a) Q1 (a) Q2 (a) Q3 (a) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Yr Avg (f) Yr Avg (f) (real)

Base Metals

Copper (US$/MT) ▲ 8,887 8,329 7,860 7,720 7,800 7,927 8,000 8,300 8,000 7,700 8,000 7,600 7,500 7,500 7,400 7,500 7,000 5,500

previous 8,887 8,329 7,860 7,300 7,500 7,747 7,800 8,300 8,000 7,700 7,950 7,500 7,500 7,500 7,000 5,500

Aluminium (US$/MT) ▲ 2,424 2,188 1,987 1,929 2,020 2,031 2,100 2,150 2,200 2,250 2,175 2,300 2,350 2,350 2,400 2,350 2,400 2,250

previous 2,424 2,188 1,987 1,920 2,000 2,024 2,050 2,150 2,200 2,250 2,163 2,300 2,300 2,350 2,400 2,250

Alumina spot (US$/MT) ▲ 378 317 317 316 330 320 350 350 375 375 363 400 400 400 400 400 415 400

previous 389 317 317 310 315 315 315 325 340 340 330 400 400 400 415 400

Nickel (US$/MT) - 23,015 19,654 17,157 16,354 18,000 17,791 18,500 19,000 19,000 19,000 18,875 19,500 20,000 20,000 20,500 20,000 21,000 20,000

previous 23,015 19,654 17,157 17,000 18,000 17,953 18,500 19,000 19,000 19,000 18,875 20,000 20,000 20,000 21,000 20,000

Lead (US$/MT) ▲ 2,405 2,097 1,979 1,983 2,130 2,047 2,200 2,300 2,350 2,450 2,325 2,550 2,600 2,650 2,700 2,625 3,000 2,000

previous 2,405 2,097 1,979 1,850 1,900 1,957 2,000 2,100 2,200 2,200 2,125 2,500 2,500 2,500 3,000 2,000

Zinc (US$/MT) ▲ 2,220 2,031 1,930 1,892 2,000 1,963 2,100 2,150 2,200 2,250 2,175 2,350 2,400 2,450 2,500 2,425 2,800 1,900

previous 2,220 2,031 1,930 1,800 1,850 1,903 1,900 2,000 2,050 2,100 2,013 2,250 2,400 2,400 2,800 1,900

Tin (US$/MT) ▲ 26,191 22,953 20,550 19,287 20,000 20,698 21,000 21,000 21,500 22,500 21,500 23,000 23,000 23,000 23,000 23,000 24,000 20,000

previous 26,191 22,953 20,550 18,500 19,500 20,376 20,500 21,000 21,500 22,500 21,375 23,000 23,000 23,000 24,000 20,000

Precious Metals

Gold (US$/oz) ▲ 1,571 1,689 1,612 1,653 1,760 1,680 1,790 1,820 1,870 1,880 1,840 1,820 1,750 1,730 1,690 1,750 1,500 1,300

previous 1,571 1,690 1,615 1,670 1,760 1,680 1,820 1,760 1,680 1,600 1,720 1,500 1,500 1,500 1,400 1,300

Silver (US$/oz) ▲ 35.20 32.59 29.48 29.94 32.00 31.00 33.80 33.70 32.80 31.90 33.10 31.40 31.30 31.50 31.30 31.40 26.30 22.40

previous 35.20 32.70 29.60 28.80 30.90 30.50 32.50 30.30 28.00 25.80 29.20 25.40 25.40 25.40 23.30 21.70

Palladium (US$/oz) ▼ 730 685 625 613 640 640 660 680 720 730 700 760 790 810 830 800 850 900

previous 730 685 625 610 650 640 690 710 720 750 720 800 800 800 840 900

Platinum (US$/oz) ▲ 1,720 1610 1510 1500 1620 1,560 1660 1680 1730 1760 1710 1750 1800 1820 1840 1,800 1,850 1,900

previous 1,720 1,610 1,510 1,470 1,560 1,540 1,630 1,660 1,690 1,730 1,680 1,800 1,800 1,800 1,850 1,900

Rhodium (US$/oz) ▼ 2,010 1460 1500 1175 1200 1,330 1400 1550 1750 1850 1640 1900 2000 2200 2500 2,150 2,500 3,000

previous 2,010 1,460 1,500 1,350 1,400 1,430 1,500 1,550 1,750 1,950 1,690 2,200 2,500 2,500 2,800 3,200

Minerals

Zircon bulk (US$/t) ▼ 1,880 2500 2500 2500 2400 2,480 2300 2200 2200 2100 2,200 2,000 1,900 1,900 1,800 1,900 1,700 1,500

previous 1880 2,500 2,500 2,500 2,500 2500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 1,875 1,500

Rutile bulk (US$/t) - 1,055 2400 2400 2400 2400 2,400 2000 2000 2000 2000 2,000 1,750 1,750 1,400 1,400 1,575 1,125 1,000

previous 1055 2,400 2,400 2,400 2,400 2400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 2,400 1,650 1,000

Synthetic Rutile (US$/t) - 858 2050 2050 2050 2050 2,050 1850 1850 1850 1850 1,850 1,625 1,625 1,300 1,300 1,463 1,025 890

previous 858 2,050 2,050 2,050 2,050 2050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 2,050 1,450 890

Ilmentite - sulphate 54% (US$/t) - 209 325 325 300 300 313 300 300 300 300 300 250 250 250 250 250 225 200

previous 209 325 325 350 350 338 350 350 350 350 350 300 300 300 250 200

Titanium Slag - SA Chlor 86% (US$/t) - 798 1750 1750 1750 1750 1,750 1700 1700 1700 1700 1,700 1,500 1,500 1,200 1,200 1,350 925 760

previous 798 1,750 1,750 1,750 1,750 1750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,225 760

AgricultureWheat-CBOT (US¢/bu) ▲ 710 643 641 869 850 750 825 800 750 700 770 700 675 650 650 670 650 600

previous 710 643 641 800 750 710 750 725 700 700 720 650 650 650 600 600

Corn-CBOT (US¢/bu) ▲ 680 641 618 781 725 690 700 625 550 550 610 550 525 500 500 520 500 500

previous 680 641 618 700 700 660 650 625 550 550 590 500 500 500 500 500

Soybeans-CBOT (US¢/bu) ▲ 1,320 1,273 1,425 1,674 1,500 1,470 1,450 1,450 1,300 1,300 1,380 1,250 1,250 1,200 1,200 1,230 1,200 1,100

previous 1,320 1,273 1,425 1,550 1,500 1,440 1450 1400 1280 1220 1,340 1,200 1,200 1,200 1,200 1,100

201420132011 2012


90

Summary of Price Forecasts – 2


2015 LT

Yr Avg (a) Q1 (a) Q2 (a) Q3 (a) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)

Energy

Brent (US$/bbl) ▲ 109.97 118.28 108.95 109.62 105.00 110.00 110.00 115.00 115.00 120.00 115.00 115.00 110.00 110.00 105.00 110.00 100.00 90.00

previous 109.97 118.50 108.95 95.00 95.00 104.00 100.00 100.00 105.00 105.00 103.00 110.00 115.00 115.00 100 90.00

WTI (US$/bbl) ▲ 90.70 102.91 93.43 92.51 89.00 94.00 97.00 106.00 108.00 113.00 106.00 107.00 102.00 102.00 97.00 102.00 93.50 83.50

previous 90.70 102.91 93.43 84.00 82.00 91.00 91.00 95.00 101.00 101.00 97.00 106.00 111.00 111.00 94 84.00

U.S. Natural Gas (US$/MMBtu) 4.07 2.77 2.26 2.81 3.10 2.74 3.60 3.40 3.80 4.00 3.70 4.40 4.20 4.20 4.40 4.30 4.50 4.50

previous 4.07 2.77 2.26 2.50 3.10 2.66 3.60 3.40 3.80 4.00 3.70 4.40 4.20 4.30 4.50 4.50

U. K. NBP (GBp/Therm) - 56.40 57.50 56.00 57.00 65.00 59.00 65.00 58.00 58.00 68.00 62.00 73.00 63.00 63.00 73.00 68.00 66.00 50.60

previous 56.40 57.50 56.00 53.00 65.00 58.00 65.00 58.00 58.00 68.00 62.00 73.00 63.00 68.00 66.00 50.60

Iron Ore

Iron ore fines - 62% (China CFR) US$/t ▼ 168 142 140 112 110 126 120 115 110 100 111 95 95 95 95 95 90 90

previous 168 142 140 135 140 139 145 150 145 140 145 135 130 128 115 90

Iron ore fines - (China CFR) US¢/dmtu 271 229 225 181 177 203 194 185 177 161 179 153 153 153 153 153 145 145

previous 271 229 225 218 226 224 234 242 234 226 234 218 210 206 185 145

Coking Coal (contract)

Hard coking coal (US$/t) ▼ 289 235 210 225 170 210 170 170 175 175 173 180 180 185 185 183 190 170

previous 289 235 210 225 215 221 210 210 210 210 210 205 205 205 200 170

Semi soft coal (US$/t) 212 157 141 141 117 139 119 119 123 123 121 126 126 130 130 128 133 130

previous 212 157 141 141 144 146 141 141 141 141 141 137 137 137 134 134

PCI coal (US$/t) 223 172 153 164 125 154 125 125 128 128 127 131 131 135 135 133 139 130

previous 223 172 153 162 155 161 151 151 151 151 151 148 148 148 144 134

Thermal Coal

Thermal Coal (Newcastle FOB) US$/t ▼ 123 113 95 86 90 96 95 95 100 100 98 105 105 110 110 108 118 110

previous 123 113 95 90 95 98 95 100 100 105 100 105 110 110 120 120

Thermal Coal (ARA CIF) US$/t 122 100 90 91 90 93 95 95 100 100 98 105 105 110 110 108 118 110

previous 122 100 90 90 95 94 95 100 100 105 100 105 110 105 120 120

Thermal Coal (RBCT FOB) US$/t 117 105 94 89 89 94 94 94 99 99 97 104 104 109 109 107 117 110

previous 117 105 94 89 94 96 94 99 99 104 99 104 109 109 119 120

Uranium

Uranium spot (US$/t) ▼ 57 52 52 48 48 50 52 55 58 60 56 65 65 65 65 65 70 65

previous 57 52 52 52 54 53 55 55 60 65 59 65 65 65 70 65

2014201320122011

91

Disclosure Appendix Analyst Certification I, Andrew Shaw, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this

report.

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Emerging Markets Bond Recommendation Definitions

Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.

Corporate Bond Fundamental Recommendation Definitions

Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector.

Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment.

Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector.

Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector.

Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is

factual or a reasonable, non-material deduction based on an analysis of publicly available information.

Corporate Bond Risk Category Definitions

In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor, designated as Market, or that it has a higher or lower risk profile, designated as Speculative and Conservative, respectively.

Credit Suisse Credit Rating Definitions Credit Suisse may assign rating opinions to investment-grade and crossover issuers. Ratings are based on our assessment of a company's creditworthiness and are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB, B) is dependent on our assessment of an

issuer's ability to meet its financial commitments in a timely manner. Within each category, creditworthiness is further detailed with a scale of High, Mid, or Low – with High being the strongest sub-category rating: High AAA, Mid AAA, Low AAA – obligor's capacity to meet its financial commitments is extremely strong; High AA, Mid AA, Low AA – obligor's capacity to meet its financial commitments is very strong; High A, Mid A, Low A – obligor's capacity to meet its financial commitments is strong; High BBB, Mid BBB, Low BBB – obligor's capacity to meet its financial

commitments is adequate, but adverse economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB – obligations have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B –

obligor's capacity to meet financial commitments is very weak and highly vulnerable to adverse economic, operating, and financial circumstances; High CCC, Mid CCC, Low CCC – obligor's capacity to meet its financial commitments is extremely weak and is dependent on favorable economic, operating, and financial circumstances. Credit Suisse's rating opinions do not necessarily correlate with those of the rating agencies.

Credit Suisse’s Distribution of Global Credit Research Recommendations* (and Banking Clients)

Global Recommendation Distribution** Buy 6% (of which 86% are banking clients)

Outperform 25% (of which 76% are banking clients)

Market Perform 49% (of which 72% are banking clients) Underperform 19% (of which 81% are banking clients)

Sell <1% (of which 100% are banking clients) *Data are as at the end of the previous calendar quarter.

**Percentages do not include securities on the firm’s Restricted List and might not total 100% as a result of rounding.

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