commodities monthly: focus shifting to chinese easing

8/3/2019 Commodities Monthly: Focus shifting to Chinese easing

1/20

Commodities MonthlyFocus shifting to Chinese easing 17 JANUARY 2012


2/20

2

Commodities Monthly

Focus shifting to Chinese easing

GENERAL 0-3 M 4-6 M 7-12 M Commodities prices are likely to struggle during the first half

of 2012 with leading indicators still forecasting relatively loweconomic activity over the next six months.

However, accelerating US growth, long term ECB refinancingoperations and monetary easing in China are supportivefactors.

Global commodity destocking continued in December,opening up the possibility of restocking at a later stage.

ENERGY 0-3 M 4-6 M 7-12 M Lack of supply security will continue to destabilize the oil

market due to persistent political tensions in MENA. Absent supply disruptions, economic headwinds are likely to

restrict Brent crude to around $110/b in H1-12. However, we expect its price to rise towards $120/b towards

the end of the year as both cyclical and seasonal demandrevive against the background of a still challenging mediumterm supply outlook.

INDUSTRIAL METALS 0-3 M 4-6 M 7-12 M We expect continued high industrial metal sector volatility in

H1-12. Industrial metal prices currently discount a high risk of a

Chinese hard landing. However, Chinese industrial activity indicators remain

relatively healthy and the sharply lower inflation increases thelikelihood of additional monetary stimulus if needed.

We expect fears of a Chinese hard landing to dissipate by mid-year, boosting industrial metals in H2-12.

PRECIOUS METALS 0-3 M 4-6 M 7-12 M With no immediate bullish driver gold remains in a holding

pattern around its 200 day moving average, awaiting a reasonto move higher or lower.

We remain bullish towards gold, expecting further liquiditymeasures in the short- to medium term to increase its relativeattraction.

However, we see a risk that sell-offs on general risk aversioncould accelerate given the possibilities of securing largeprofits following a multi-year bullish trend.

AGRICULTURE 0-3 M 4-6 M 7-12 M The late 2011 rebound in grain prices due to drier South

American crop conditions ended with the publication ofbearish inventory data by USDA in January.

We expect the grain market to continue to trend lower in 2012with crop conditions likely to normalize following several yearsof abnormal weather.

The present la Nia forecast still indicates weak- to moderateassociated meteorological conditions fading by summer.

Main upside risks include higher energy prices and furtheradverse weather.

Arrows indicate the expected price action during the period in question.

UBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector Indices(price indices, weekly closing, January 2010 = 100)

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Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

GeneralDespite struggling during the first half of the year,we still expect commodity prices to increase in 2012.Positive drivers include continued US

macroeconomic improvements, China beginning toease its monetary policy, and ECB long termrefinancing operations. However, OECD leadingindicators still suggest a further slowdown in globaleconomic activity over the next six months. In thepast few days alone, France and Austria have losttheir AAA ratings while in China house prices are stillfalling and the number of failed local governmentland auctions continues to accelerate.

During the past month, US economic data havecontinued to exceed expectations with productiongrowth accelerating sharply to an eight month high inDecember and growth in new orders increasing fasterthan at any time since April. Chinese inflation continuedto slow in December (4.1%), supporting a more relaxedmonetary policy (as already seen). In December theReserve Requirement Rate (RRR) for banks was loweredfor the first time since 2008 while new renminbi lendingincreased to RMB 640bn. We expect a further RRR cut inthe short term. In early January Premier Wen Jiabaoapproved development programme guidelines forwestern and north eastern China. Large-scaledevelopments will be prioritised in the western regionwith an emphasis on developing infrastructure and

strategic energy bases. In both areas economic growth isforecasted to exceed the national average over the next5-years. In other words, conditions are optimal forfocused commodity-intensive growth in both regions.Some positive policy measures were also taken in Europewhere ECB lent 523 banks a total of 489bn in a LongTerm Refinancing Operation (LTRO) in Decemberthereby preventing any near term credit crunch inEurope. The ECB plans a further LTRO in February.

Despite such positive developments we still think it tooearly to expect a strong recovery in commodity prices.OECD leading indicators (January 12) continue to suggesta further slowdown in global economic activity over thenext six months. Regionally the US, Russia and Japanremain above long term growth trend while China slowstowards trend and Europe slows further to below trend.In China a hard landing by the property sector remains ofconcern with house prices falling and failed localgovernment land auctions accelerating in December. Themost recent negative news in Europe was very recentrating downgrades concerning France and Austria.Unless Germany provides additional guarantees, this willin turn result in the EFSF also being downgraded,increasing its funding costs.

UBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCI(price index, weekly closing)

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4/20

4

Commodities Monthly

Crude oil

We maintain our average Brent crude oil priceforecast for 2012 at $114/b with prices increasingfrom around $110/b during H1-12 to $120/b near year

end due to both cyclical and seasonal recoveries indemand. Lack of supply security will continue tounsettle the oil market this year with widespreadunrest throughout the MENA region likely to persistwith a clear risk of supply disruptions. Absent anydisruptions, we expect growth in supply to exceeddemand in 2012, a situation necessary to rectify lastyears depletion of global oil stocks. In our view,prices will be driven higher towards year-end mainlyby adverse medium-term market conditionscombining substantially increased demand fromdeveloping markets and inadequate MENA regionalinvestments.

The recent DOE/EIA STEO report slightly downgradedthe 2012 oil demand outlook to an annualized increaseof 1.3 mb/d while maintaining the 2013 increase indemand at 1.5 mb/d, implying continued solid growth inoil demand despite a challenging macroeconomicenvironment. At the same time, supply could prove to bea bearish factor in 2012 with its growth expected tooutstrip demand due to anticipated increased productionfrom Iraq, Libya, Brazil, the US and Canada. Still, growthin Iraqi supplies will depend on the security situation.Violence appears to have escalated since US troops leftthe country in December. Further, increasing supply fromLibya will also reflect relevant local security conditions.Currently, the ruling National Transitional Council isincreasingly struggling to maintain control, e.g. as gunbattles rage in Tripoli between rival, power hungry gangs.Technical issues are also likely to soften supply growthfrom Libya approaching 1.0 mb/d.

The Iran nuclear issue may be resolved both bullishly andbearishly this year. On the one hand, the oil price willclearly spike at new record nominal highs if, contrary toall expectations, Iran actually takes steps to halt

transportation in the Strait of Hormuz. Converselyhowever, Saudi Arabia is strategically likely to maintainproduction at current very high levels to mitigate risks ofsupply disruption going forward, especially with globaloil stocks already relatively low following depletion,particularly over the past year. Also, while high SaudiArabian production could prove bearish if,simultaneously, Iran proves able to deliver its oil to themarket despite sanctions and embargoes, risks willremain high as long as global oil production continuesnear maximum capacity.

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Current global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimates

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OPEC 87.80 +/-0 88.87 -140

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($/b) Q1 Q2 Q3 Q4 FullYear

2011 - - - - 1102012 110 110 115 120 1142013 - - - - 120


5/20

5

Commodities Monthly

EnergyWTI futures curveWTI futures curveWTI futures curveWTI futures curve(NYMEX, $/b)

Brent futures curveBrent futures curveBrent futures curveBrent futures curve(ICE, $/b)

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US natural gasUS natural gasUS natural gasUS natural gas futures curvefutures curvefutures curvefutures curve(NYMEX, $/MMBtu)

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Chart Sources: Bloomberg, SEB C ommodity Research


6/20

6

Commodities Monthly

Nordic power

Spot prices both in December and early January wereweaker than in November with little variation betweenprice areas. Clearly, the situation is very different

compared to this time last year when a huge hydrodeficit existed and nuclear availability was very limited.The December system price averaged EUR 33.74/MWh(EUR 81.65/MWh in December 2010) compared with a2011 average of EUR 47.05/MWh (EUR 53.06/MWh fullyear 2010). The German spot price average was alsolower in December, settling at EUR 41.78/MWh. (EUR54.55/MWh in December 2010)

The current key price driver is temperature, as soon asconditions become colder Swedish southern price areasare almost immediately going to be priced up due to gridconstraint/bottleneck issues. This year however, mildweather has resulted in abnormally low powerconsumption, enabling the hydrobalance to improvefurther to currently +20 TWh.

The forward market is trading lower due to weaker gas,coal and CO2 prices, good Swedish nuclear availabilityand lower consumption estimates for 2012 due to theweak (at best uncertain) economic outlook as a result ofthe European debt crisis. In particular, prompt contractsgenerally and winter month contracts especially havefallen substantially with February-12 changing hands atEUR 41.50/MWh, Q2-12 at 34/MWh and YR-13 at EUR40/MWh.

We regard current forward pricing as reasonablegiven present conditions and expect spot prices toremain low absent sudden colder weather whenprices may spike temporarily.

Nordic power priceNordic power priceNordic power priceNordic power price(Nord Pool, /MWh, front quarter, weekly closing)

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7/20

7

Commodities Monthly

Industrial metals

We expect industrial metals to remain volatile whilecontinuing to range-trade throughout most of H1-12.With the LME Index having retreated to 2009 levels,

around 25% below 2011 highs, the market alreadydiscounts a generally bearish outlook.Consequently, if the European situation stabilizesand Chinese hard landing fears recede, currently ourmain scenario, prices should begin trending higher.If growth stabilizes faster than expected (e.g.through fiscal and monetary stimulus measures) theexpected future market balance could tightenrapidly, quickly driving prices higher. Non-negligibledownside risks mainly concern a Euro-zone collapseor a possible Chinese hard landing. In scenariosother than those already noted, marginal productioncosts should provide solid sector support at currentprices. We strongly urge both investors andcorporate hedgers to recognise presentexceptionally high tail risks and take action toreduce their potential impact where necessary.

Adverse European macroeconomic conditions have onlyvery limited potential to drive the LME Index below itsQ4-11 trading range. Markets already view Europeangrowth prospects conservatively, being far more awareof the scale of the present crisis than politicians.However, the real economy is very different from thatprevailing in 2008.With the recent recession still fresh ineveryones minds, metal producers are well aware of thebleak demand outlook for H1-12 as well as downsiderisks concerning Europe and China, and have initiatedpre-emptive measures including reducing production, aprocess already in train as tougher credit conditionsimpacted. In addition, Chinese officials, recognizing thedifficulties facing the global economy, have signalledtheir willingness to relax fiscal and monetary policies asnecessary; a position supported by recent sharpdecreases in domestic inflationary pressure.

China continues to enjoy solid industrial activity

indicators despite its prolonged monetary tighteningcycle. Manufacturing PMI is currently near neutral (~50)after stabilising in recent months. Meanwhile conditionsin the property sector continue to deteriorate with pricesstill decreasing slowly. Also of concern, the bankingsector still includes high levels of bad debt, mostlyproperty-related. However, fiscal and monetary stimulusmeasures should prove able to resolve these problems.Industrial metals will clearly be too low if Chinasuccessfully brokers a soft landing, still our mainscenario. Anecdotal evidence also suggests that Chineseconsumers regard current prices as attractive forrestocking.

LME indexLME indexLME indexLME index(weekly closing)

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CopperNickelAluminiumZincLeadTin

PPPPrice and inventory changesrice and inventory changesrice and inventory changesrice and inventory changes last monthlast monthlast monthlast month(LME)

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8/20

8

Commodities Monthly

Industrial metalsAluminiumAluminiumAluminiumAluminium LME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventories

(weekly data) After testing $2000/t in late 2011 aluminium appears

well supported with a significant share of global

production capacity unprofitable at such a level. While demand is weak, supply is also being cut, albeitslowly as smelters often decide on changing outputlevels late due to the high costs involved in stopping andstarting up production.

Slow production cuts, possibly together with limitedbalance sheet reductions in December pushed LMEinventories to new record highs.

Currently, the main aluminium market uncertaintyconcerns the willingness of producers to reduce output.

We forecast an average aluminium price of $2275/t in2012, with markets strong mainly in H2-12.

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CopperCopperCopperCopper LME copper price and inventoriesLME copper price and inventoriesLME copper price and inventoriesLME copper price and inventories(weekly data)

According to ICSG the January-September 2011 coppermarket deficit totalled 170 kt (seasonally adjustedsurplus of 33 kt, refined production: 14,588 kt).

ICSG also reported a 1.0% increase in refined demandand 2.8% higher production, by comparison, mineproduction expanded by only 0.3% vs. the 2010.

As an industrial metal, Copper enjoys the strongestfundamentals. However, it also trades well above its

marginal production costs, leaving it sensitive to bothpositive and negative surprises. Chinese refined copper imports exploded in H2-11 as

prices decreased, sending bullish signals concerninglocal demand expectations and restocking requirements.

Expecting copper to perform strongly once growthexpectations stabilize, we forecast an average LMEcopper price of $8625/t in 2012.

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NickelNickelNickelNickel LME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventories

(weekly data) Nickel has recovered from two year lows posted in late

2011 ($16750/t) with increased support attributable to adeep dive into the marginal production cost curve.

The slump should have resulted in a sharp reduction inNPI production. However, the current main downsiderisk is insufficient production cuts.

LME nickel inventories stabilised in late 2011, probablydue to weaker demand and year-end balance sheetreductions, having fallen throughout the year.

We remain relatively optimistic on nickel in 2012 despitecontinued significant uncertainties regarding HPAL andNPI supply, which could drive prices either higher orlower.

We forecast an average 2012 LME nickel price of$21250/t.

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9/20

9

Commodities Monthly

Industrial metalsZinZinZinZincccc LME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventories

(weekly data) According to the ILZSG, the refined zinc market reported

a surplus of 337 kt compared with 11918 kt of refined

production between January-November 2011. Over thesame period output increased 1.9% and demand 0.7%,compared with 2010.

LME zinc inventories surged again late last year afterslowly decreasing during H2-11, representing the firstmajor drawdown since 2006.

Fundamentally, zinc remains the least attractiveindustrial metal with large surpluses projected during atleast the first three quarters of 2012.

Our main 2012 scenario involves zinc lagging the rest ofthe industrial metal sector. Either demand needs toimprove or supply cut to provide solid market support.

We forecast an average LME zinc price of $2225/t in2012.

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Ferrous metalsFerrous metalsFerrous metalsFerrous metals LME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventories

(weekly data) Turkish mills continue to demand deep-sea scrap, with

prices having recovered about 15% since November. Demand for HRC has also remained firm with US

Midwest up 14.5% since bottoming in October. LME steel billets, on the other hand, have lacked clear

direction and turnover has been low. So far this month, iron ore prices have risen with traders

position-taking in anticipation of mills restocking aheadof the Chinese New Year.

We believe prices are too high with China reporting 42days of mill stocks, about 50 days of iron ore stocks inports and record high ship congestion.

We are short-term bearish towards iron ore, expectingmills to buy little ahead of the Chinese New Year. Wemaintain our 2012 price forecast of 140$/t.

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2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

0

500

1000

1500

2000

2500

3000

3500



0

5000

10000

15000

20000

25000

30000

35000

40000

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

33000





10/20

10

Commodities Monthly

Industrial metalsAluminiumAluminiumAluminiumAluminium futures curvefutures curvefutures curvefutures curve(LME, $/t)

Copper futures curveCopper futures curveCopper futures curveCopper futures curve(LME, $/t)

1975

2025

2075

2125

2175

2225

2275

2325

23752425

2475

2525

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

11-11-11

11-11-09

12-01-13

7500

7550

7600

7650

7700

7750

7800

7850

79007950

8000

8050

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

11-11-11

11-11-09

12-01-13

Nickel futures curveNickel futures curveNickel futures curveNickel futures curve(LME, $/t)

Zinc futZinc futZinc futZinc futures curveures curveures curveures curve(LME, $/t)

17500

17700

17900

18100

18300

18500

18700

18900

19100

19300

19500

19700

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

11-11-11

11-11-09

12-01-13

1900

1925

1950

1975

2000

2025

2050

2075

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

11-11-11

11-11-09

12-01-13

Lead futures curveLead futures curveLead futures curveLead futures curve(LME, $/t)

Tin futures curveTin futures curveTin futures curveTin futures curve(LME, $/t)

1950

1975

2000

2025

2050

2075

2100

21252150

2175

2200

2225

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

11-11-11

11-11-0912-01-13

19400

1960019800

2000020200

2040020600

20800210002120021400

2160021800

22000

j a n - 1

2

f e b - 1 2

m a r -

1 2

a p r - 1

2

m a j -

1 2

j u n - 1

2 j u l

- 1 2

a u g -

1 2

s e p -

1 2

o k t - 1 2

n o v -

1 2

d e c -

1 2

j a n - 1

3

f e b - 1 3

m a r -

1 3

11-11-11

11-11-09

12-01-13



11/20

11

Commodities Monthly

Precious metalsDespite the weak end to 2011, partly due to a strongdollar uptrend caused by better than expected USeconomic indicators, we remain bullish on gold in

the short- to medium term. The same USmacroeconomic signals have also deferred moremoney printing (QE3), further impacting the price ofgold. In addition, European policy makers havecontinued to avoid printing money, while Chinesecredit conditions remain tight. However, the Euro-zone has vast refinancing requirements early thisyear when the full force of regional recession islikely to be felt, inevitably impacting both the USand China. How it all plays out will be decisive forthe next round of fiscal and monetary stimulusmeasures worldwide. Mainly, we expect furthersuch initiatives to devalue confidence in papermoney, implying additional upside potential forgold. Currently, we see no immediate strong bulldriver though option market bets against the SPDRGold Trust are at a 20-month low, possiblyindicating increasingly bullish sentiment.

Gold fell below its 200 day moving average in December,the first time it has done so since early 2009. A strongdollar, postponed liquidity measures and reductions inlong speculative positions weighed heavier than demandfor a commodity widely regarded as an insurance againsta collapse in the international financial system and an

indicator of the extent of distrust in paper money.Consequently, the gold price fell back to currently tradein a holding pattern around the 200 day moving average,awaiting a reason to move higher. If and when it will doso depends to a large extent on European policy makersthough we believe gold market risk is skewed to theupside from its current consolidated level. However, abreak lower from the its present price would mean thepost 2008 trend has clearly been broken which couldtrigger a wave of selling. Gold is extremely hard to valueobjectively and many gold investors have large profits tobook after a decade of rising prices. Consequently,selloffs could accelerate. Under such conditions atemporary tactical exit from long positions should beconsidered.

However, geopolitical fear as a potential bull driver forgold should not be overlooked at present. The real termrecord high price recorded in 1980 was caused, not justby strong inflation and weak mine production but also bytwo major geopolitical events: the Iranian revolution andthe Soviet invasion of Afghanistan. Today, Iran remains ageopolitical time bomb. With already strong internaltensions and years of sanctions, a European, or possiblyglobal, oil embargo could force the regime to takedesperate action or spark another popular uprising. Asprobably one of the most important events this century,the Arab spring is by no means over.

Precious metal pricesPrecious metal pricesPrecious metal pricesPrecious metal prices(COMEX/NYMEX, indexed, weekly closing, January 2010 = 100)

8090

100110120130140150160170180190200210220230240250260

270280290

j a n - 1

0

f e b - 1 0

m a r -

1 0

a p r - 1

0

m a j -

1 0

j u n - 1

0 j u l

- 1 0

a u g -

1 0

s e p -

1 0

o k t - 1 0

n o v -

1 0

d e c -

1 0

j a n - 1

1

f e b - 1 1

m a r -

1 1

a p r - 1

1

m a j -

1 1

j u n - 1

1 j u l

- 1 1

a u g -

1 1

s e p -

1 1

o k t - 1 1

n o v -

1 1

d e c -

1 1

j a n - 1

2

SilverPlatinum

GoldPalladium

Gold to silver ratioGold to silver ratioGold to silver ratioGold to silver ratio(front month, weekly closing)

303438424650

545862667074788286

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

Gold and currencies vs. USDGold and currencies vs. USDGold and currencies vs. USDGold and currencies vs. USD

-4

-3

-2

-1

0

1

2

3

4

5

GOLD EUR JPY GBP SEK RUB NOK CHF

YTD (%) MoM (%)



12/20

12

Commodities Monthly

Precious metalsGoldGoldGoldGold Gold priceGold priceGold priceGold price

(COMEX, $/ozt, front month, weekly closing) Net speculative positions in COMEX gold have fallen

from record highs in November and stabilized at three-

year lows, reflecting decreased long- and increased shortpositions. Conversely, Physical ETF gold holdings have risen,

hitting a new record high in late 2011 of 2393 tonnes.This may both reflect investors increasingly regardinggold as a separate asset class but also more risk adversephysical investors disagreeing with their more bearishfutures market counterparts.

The US Mint reported a recovery in gold coin sales inDecember (65,500 ozt) from a 2011 low (41,000 ozt) inNovember.

200300400500600700800900

10001100120013001400150016001700

180019002000

2 0 0 2

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2 0 1 0

2 0 1 1

2 0 1 2

SilverSilverSilverSilver Silver priceSilver priceSilver priceSilver price(COMEX, $/ozt, front month, weekly closing)

With the gold to silver ratio having increased to a morehistorically comfortable level silver now represents anattractive alternative to gold, although we still prefer thelatters pure precious metal characteristics and generallylower volatility.

Net speculative long positions in COMEX silver continuedto decrease at the end of 2011 as short positions werebuilt and long positions stabilized. Net speculative long

positions are near 2008 lows, in turn the smallest since2003. Physical silver ETF holdings were relatively stable in H2-

11 after decreasing slightly from record highs (18,574tonnes) in H1-11 to currently 17222 tonnes.

The US Mint sold silver coins totaling 2.01 million ozt inDecember, compared with 1.38 million ozt in November,a 2011 low.

2468

101214161820

222426283032343638404244464850

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

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2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

Platinum & PalladiumPlatinum & PalladiumPlatinum & PalladiumPlatinum & Palladium Platinum and palladium pricesPlatinum and palladium pricesPlatinum and palladium pricesPlatinum and palladium prices(NYMEX, $/ozt, front month, weekly closing)

While palladium prices have stabilized in recent months,platinum has continued to fall back in late 2011 beforerebounding somewhat in early 2012, unusually it nowtrades at a significantly discount to gold.

The main bearish driver for platinum is its predominantuse in diesel engine auto catalysts, sold mainly toEuropean customers.

We see relatively limited downside in the platinummarket with most bearish news probably nowdiscounted. Palladium also appears attractive at currentlevels.

Physical ETF holdings in platinum declined in late 2011and now stand at 41 tonnes (from a record high of 46tonnes) while those of palladium continued to fall to 51tonnes (compared with a record high of 73 tonnes).

100

200

300

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1100

2 0 0 2

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2 0 1 1

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300

550

800

1050

1300

1550

1800

2050

2300Palladium (left axis)Platinum(right axis)



13/20

13

Commodities Monthly

Precious metalsGoldGoldGoldGold futures curvefutures curvefutures curvefutures curve(COMEX, $/ozt)

SiSiSiSilverlverlverlver futures curvefutures curvefutures curvefutures curve(COMEX, $/ozt)

1625

16501675

17001725

1750

17751800

1825

185018751900

1925

1950

f e b - 1 2

m a j -

1 2

a u g -

1 2

n o v -

1 2

f e b - 1 3

m a j -

1 3

a u g -

1 3

n o v -

1 3

f e b - 1 4

m a j -

1 4

a u g -

1 4

n o v -

1 4

f e b - 1 5

m a j -

1 5

a u g -

1 5

n o v -

1 5

f e b - 1 6

m a j -

1 6

a u g -

1 6

n o v -

1 6

f e b - 1 7

m a j -

1 7

11-11-11

11-11-09

12-01-13

28,5

29,029,5

30,030,5

31,031,5

32,032,5

33,033,534,0

34,5

35,0

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

a p r - 1

3 j u l

- 1 3

o k t - 1 3

j a n - 1

4

a p r - 1

4 j u l

- 1 4

o k t - 1 4

j a n - 1

5

a p r - 1

5 j u l

- 1 5

o k t - 1 5

j a n - 1

6

a p r - 1

6 j u l

- 1 6

11-11-11

11-11-09

12-01-13

Palladium futures curvePalladium futures curvePalladium futures curvePalladium futures curve(NYMEX, $/ozt)

Platinum futures curvePlatinum futures curvePlatinum futures curvePlatinum futures curve(NYMEX, $/ozt)

630

635

640

645

650

655

660

665

670

m a r -

1 2

j u n - 1

2

s e p -

1 2

d e c -

1 2

m a r -

1 3

11-11-11

11-11-09

12-01-13

1480

1500

1520

1540

1560

1580

1600

1620

1640

1660

j a n - 1

2

a p r - 1

2 j u l

- 1 2

o k t - 1 2

j a n - 1

3

11-11-11

11-11-09

12-01-13

Physical sPhysical sPhysical sPhysical silver and goldilver and goldilver and goldilver and gold ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)

Physical pPhysical pPhysical pPhysical palladium and platinumalladium and platinumalladium and platinumalladium and platinum ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)

1400

1500

1600

1700

1800

1900

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2300

2400

j a n - 1 0

f e b - 1 0

m a r - 1

0

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0

m a j -

1 0

j u n - 1 0 j u l

- 1 0

a u g -

1 0

s e p -

1 0

o k t - 1 0

n o v -

1 0

d e c -

1 0

j a n - 1 1

f e b - 1 1

m a r - 1

1

a p r - 1

1

m a j -

1 1

j u n - 1 1 j u l

- 1 1

a u g -

1 1

s e p -

1 1

o k t - 1 1

n o v -

1 1

d e c -

1 1

j a n - 1 2

Silver holdings / 10Gold holdings

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j a n - 1

0

f e b - 1 0

m a r - 1

0

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0

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1 0

j u n - 1

0 j u l

- 1 0

a u g -

1 0

s e p -

1 0

o k t - 1 0

n o v -

1 0

d e c -

1 0

j a n - 1

1

f e b - 1 1

m a r - 1

1

a p r - 1

1

m a j -

1 1

j u n - 1

1 j u l

- 1 1

a u g -

1 1

s e p -

1 1

o k t - 1 1

n o v -

1 1

d e c -

1 1

j a n - 1

2

PalladiumPlatinum



14/20

14

Commodities Monthly

AgricultureWe expect the grain market to continue to trendlower in 2012 with crop conditions likely tonormalize following several years of abnormal

weather. However, the late 2011 rebound in grainprices clearly illustrates market sensitivity, mainlydue to the exceptionally low corn inventory whichunsettles the entire complex. The Decemberrebound was triggered by increasingly hot and dryconditions for developing corn and soybean crops inArgentina and Brazil, and further fuelled by risingenergy prices. With only dormant winter wheat inthe ground in the northern hemisphere, la Nia-related disturbances in South America are likely toremain in focus in coming months, potentiallysupporting prices. Due to seasonally low sectoractivity, the market could also easily overreact tothese issues. We are therefore slightly less bearishon prospects for the first few months of the year.However, we see little subsequent support forgrains given likely bearish macroeconomic factorsand dissipating la Nia effects. Lower US fertilizerprices may also have a bearish impact with furtherpotential adverse effects from the continued declinein US natural gas prices (feed stock for fertilizers).Possibly higher oil prices in 2012 represent anupside risk this year if Iranian oil shipments areembargoed (fuel is a significant production cost).

While drought conditions in South America have becomeof increasing concern, US developments are morepositive. Despite the winter wheat fields on the GreatPlains remaining dry, the situation has improveddramatically in recent months following an exceptionallyprolonged draught during most of last year. Both US andSouth American droughts are typical manifestations ofthe la Nia weather phenomenon. Latest forecastssuggest its effects are currently peaking and that theywill fade during spring with conditions normalising asearly as March and no later than May. The current eventis overall categorized as weak to moderate but mostmodels are indicating a weak event.

With few exceptions, conditions affecting the rest of theagricultural sector also appear bearish too. For example,cocoa prices have fallen from multi-decade highs due toa bumper crop in West Africa (la Nia conditions benefitcocoa production) and weak demand as a result of theEuropean crisis. Record high prices have also stimulatedfarmers to invest more. However, temporary loadingdifficulties in Nigeria have provided price support thismonth. Of soft commodities, cotton appears to enjoy themost bullish prospects in 2012, with low inventories,strong competition for acreage and demand stilldepressed after the 2008 crisis leaving a marketsensitive to its eventual recovery, the first sign of whichwill probably be an upturn in China.

Grains pricesGrains pricesGrains pricesGrains prices(CBOT, indexed, weekly closing, January 2010 = 100)

70

80

90

100

110

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160170

180

190

j a n - 1

0

f e b - 1 0

m a r - 1

0

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0

m a j -

1 0

j u n - 1

0 j u l

- 1 0

a u g -

1 0

s e p -

1 0

o k t - 1 0

n o v -

1 0

d e c -

1 0

j a n - 1

1

f e b - 1 1

m a r - 1

1

a p r - 1

1

m a j -

1 1

j u n - 1

1 j u l

- 1 1

a u g -

1 1

s e p -

1 1

o k t - 1 1

n o v -

1 1

d e c -

1 1

j a n - 1

2

WheatSoybeans

Corn

Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)(WASDE, yearly data updated monthly)

45

55

65

75

85

95

105

115

125

135

0 0 / 0 1

0 1 / 0 2

0 2 / 0 3

0 3 / 0 4

0 4 / 0 5

0 5 / 0 6

0 6 / 0 7

0 7 / 0 8

0 8 / 0 9

0 9 / 1 0

1 0 / 1 1

1 1 / 1 2

WheatSoybeansCorn

Production and inventory estimate revisionsProduction and inventory estimate revisionsProduction and inventory estimate revisionsProduction and inventory estimate revisions(WASDE, monthly data, %, June corn inv. change. cut for clarity: -13.4%)

-2

-1

0

1

2

3

4

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6

j u n - 1

1 j u l

- 1 1

a u g -

1 1

s e p -

1 1

o k t - 1 1

n o v -

1 1

d e c -

1 1

j a n - 1

2

Corn productionCorn stocksWheat productionWheat stocksSoybean productionSoybean stocks

Chart Sources: Bloomberg, USDA, SEB Commodity Research


15/20

15

Commodities Monthly

AgricultureCornCornCornCorn Corn priceCorn priceCorn priceCorn price

(CBOT, /bu, front month, weekly closing) Net long speculative positions in CBOT corn have

decreased significantly in recent weeks, primarily due to

a sharp reduction in short positions accumulated inQ4-11. Currently, US ethanol prices are slightly lower than

gasoline following a sharp downward correction inDecember due to a massive increase in ethanolproduction to benefit from the blending premium aheadof its year-end expiry.

Corn remains the most critical component in the grainscomplex with global forward coverage of only 54 days vs.112 days for wheat and 89 days for soybeans.

Markets are currently focusing on weather conditions inArgentina (the largest exporter of corn) rather than Brazil(its biggest producer).

100

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WheatWheatWheatWheat Wheat priceWheat priceWheat priceWheat price(CBOT, /bu, front month, weekly closing)

Speculative positions in CBOT wheat remain netnegative at levels unseen since H1-10, the last period forthe grains market with generally favourable growingconditions.

The outlook for wheat is the most bearish of all grainsdue to relatively weak demand, strong competition in theexport market, ample inventories and improving cropconditions after the severe drought in the US last year.

In some areas of the northern hemisphere abnormallyhigh temperatures have stimulated winter wheatdevelopment. With little snow cover for protection cropsare exposed to sudden cold periods including frost.

The Australian harvest is largely complete with littleweather risk remaining.

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SoybeansSoybeansSoybeansSoybeans Soybean prSoybean prSoybean prSoybean priceiceiceice(CBOT, /bu, front month, weekly closing)

After gradually decreasing to H1-10 lows, net speculativepositions rose slightly in late 2011, reflecting a reduction

in the number of short positions, which had increaseddramatically in Q4-11. With demand generally weak, soybeans are mainly

supported by la Nia-related drought conditions in SouthAmerica. Currently, while both Argentina and Brazil (asmajor producers) are adversely affected by the drought,the market is more focused on Brazil as the largestexporter.

400

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16/20

16

Commodities Monthly

AgricultureCorn futures curveCorn futures curveCorn futures curveCorn futures curve(CBOT, /bu)

Wheat futures curveWheat futures curveWheat futures curveWheat futures curve(CBOT, /bu)

540

550

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m a r - 1

2

j u n - 1

2

s e p -

1 2

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3

s e p -

1 3

d e c -

1 3

m a r - 1

4

j u n - 1

4

11-11-11

11-11-0912-01-13

575

600

625

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m a r - 1

2

j u n - 1

2

s e p -

1 2

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1 2

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3

s e p -

1 3

d e c -

1 3

11-11-11

11-11-09

12-01-13

Soybean futures curveSoybean futures curveSoybean futures curveSoybean futures curve(CBOT, /bu)

SugarSugarSugarSugar(NYBOT, /lb)

1115

1125

1135

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m a r - 1

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j u n - 1

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CottonCottonCottonCotton(NYBOT, /lb)

CocoaCocoaCocoaCocoa(NYBOT, $/t)

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17/20

17

Commodities Monthly

Commodity related economic indicatorsEUROZONE Current Date Previous Date NextIndustrial production (%, YoY) -0,3 2011-11-30 1,0 2011-10-31 2012-02-14Industrial production (%, MoM) -0,1 2011-11-30 -0,3 2011-10-31 2012-02-14Capacity utilization (%, sa) 79,7 2011-12-31 80,8 2011-09-30Manufacturing PMI 46,9 2011-12-31 46,4 2011-11-30 2012-01-24Real GDP (%, YoY) 1,3 2011-09-30 1,6 2011-06-30 2012-02-15Real GDP (%, QoQ, sa) 0,1 2011-09-30 0,2 2011-06-30 2012-02-15CPI (%, YoY) 3,0 2011-11-30 3,0 2011-10-31 2012-01-17CPI (%, MoM) 0,1 2011-11-30 0,3 2011-10-31 2012-01-17Consumer confidence -21,1 2011-12-31 -20,4 2011-11-30 2012-01-23USAIndustrial production (%, YoY) 3,7 2011-11-30 4,3 2011-10-31Industrial production (%, MoM) -0,2 2011-11-30 0,7 2011-10-31 2012-01-18Capacity utilization (%) 77,8 2011-11-30 78,0 2011-10-31 2012-01-18Manufacturing PMI 53,9 2011-12-31 52,7 2011-11-30 2012-02-01Real GDP (%, YoY) 1,5 2011-09-30 1,6 2011-06-30Real GDP (%, QoQ, saar) 1,8 2011-09-30 1,3 2011-06-30 2012-01-27CPI (%, MoM) 3,4 2011-11-30 3,5 2011-10-31 2012-01-19CPI (%, MoM, sa) 0,0 2011-11-30 -0,1 2011-10-31 2012-01-19

OECD Composite Leading Indicator 103,4 2011-03-31 103,1 2011-02-28Consumer confidence (Michigan) 74,0 2012-01-31 69,9 2011-12-31 2012-01-27Nonfarm payrolls (net change, sa, 000) 200 2011-12-31 100 2011-11-30 2012-02-03JAPANIndustrial production (%, YoY, nsa) -4,0 2011-11-30 0,1 2011-10-31 2012-01-18Industrial production (%, MoM, sa) -2,6 2011-11-30 2,2 2011-10-31 2012-01-18Capacity utilization (%, sa) 89,3 2011-10-31 85,8 2011-09-30Manufacturing PMI 50,2 2011-12-31 49,1 2011-11-30 2012-01-31Real GDP (%, YoY) -0,7 2011-09-30 -1,7 2011-06-30Real GDP (%, QoQ, sa) 1,4 2011-09-30 -0,5 2011-06-30 2012-02-13CPI (%, YoY) -0,4 2011-12-31 -0,9 2011-11-30 2012-01-27CPI (%, MoM) -0,6 2011-11-30 0,1 2011-10-31OECD Composite Leading Indicator 104,9 2011-02-28 104,2 2011-01-31Consumer confidence 38,1 2011-12-31 37,7 2011-11-30

CHINAIndustrial production (%, YoY) 12,4 2011-11-30 13,2 2011-10-31 2012-01-17Manufacturing PMI 50,3 2011-12-31 49,0 2011-11-30 2012-02-01Real GDP (%, YoY) 9,1 2011-09-30 9,5 2011-06-30 2012-01-17CPI (%, YoY) 4,1 2011-12-31 4,2 2011-11-30 2012-02-09OECD Composite Leading Indicator 102,3 2011-03-31 102,1 2011-02-28Consumer confidence 97,0 2011-11-30 100,5 2011-10-31Bank lending (%, YoY) 15,8 2011-12-31 15,6 2011-11-30Fixed asset investment (%, YoY) 24,9 2011-09-30 25,6 2011-06-30OTHEROECD Area Comp. Leading Indicator 103,2 2011-03-31 103,0 2011-02-28Global manufacturing PMI 50,8 2011-12-31 49,7 2011-11-30

Sources: Bloomberg, SEB Commodity Research


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Commodities Monthly

PerformanceClosing

last weekYTD(%)

1 m(%)

1 q(%)

1 y(%)

5 y(%)

UBS Bloomberg CMCI Index(TR) 1285,26 1,4 1,4 0,0 -6,8 29,1UBS Bloomberg CMCI Index(ER) 1208,86 1,4 1,4 0,0 -6,9 21,1UBS Bloomberg CMCI Index(PI) 1543,09 1,5 1,6 0,5 -6,0 54,8UBS B. CMCI Energy Index(PI) 1508,58 1,1 -1,1 4,1 2,7 53,3UBS B. CMCI Industrial Metals Index(PI) 1103,29 5,6 5,2 4,8 -15,4 10,0UBS B. CMCI Precious Metals Index (PI) 2413,47 4,4 -2,4 -2,8 14,8 148,3UBS B. CMCI Agriculture Index(PI) 1706,85 -2,3 2,3 -7,1 -14,1 69,2Baltic Dry Index 1053,00 -41,3 -45,2 -51,1 -26,8 -77,3

Crude Oil (NYMEX, WTI, $/b) 98,70 -0,1 -1,4 17,2 8,0 86,3Crude Oil (ICE, Brent, $/b) 110,44 2,8 0,9 -0,6 12,6 108,6Aluminum (LME, $/t) 2145,00 6,2 7,2 -2,8 -13,6 -20,4Copper (LME, $/t) 8000,00 5,3 5,3 9,4 -16,8 39,1Nickel (LME, $/t) 19600,00 4,8 7,1 6,2 -23,3 -39,6Zinc (LME, $/t) 1960,00 6,2 2,5 1,9 -20,4 -48,0Steel (LME, Mediterranean, $/t) 537,50 1,4 -3,2 -0,3 -8,9 N/AGold (COMEX, $/ozt) 1630,80 4,1 -1,8 -2,2 17,6 160,1Corn (CBOT, /bu) 599,50 -7,3 1,9 -6,1 -6,7 51,2Wheat (CBOT, /bu) 602,25 -7,7 1,8 -2,5 -23,1 25,6Soybeans (CBOT, /bu) 1160,00 -3,2 3,7 -7,7 -17,7 64,3


Major upcoming commodity eventsDate Source

Department of Energy, US inventory data Wednesdays, 16:30 CET www.eia.doe.govAmerican Petroleum Institute, US inventory data Tuesdays, 22:30 CET www.api.orgCFTC, Commitment of Traders Fridays, 21:30 CET www.cftc.govUS Department of Agriculture, Crop Progress Mondays, 22.00 CET www.usda.govInternational Energy Agency, Oil Market Report January 18, February 10 www.oilmarketreport.comOPEC, Oil Market Report February 9 www.opec.orgDepartment of Energy, Short Term Energy Outlook February 7 www.eia.doe.govUS Department of Agriculture, WASDE February 9 www.usda.govInternational Grains Council, Grain Market Report N/A www.igc.org.ukOPEC ordinary meeting, Vienna, Austria June 14 www.opec.org


Contact listCOMMODITIES Position E-mail Phone MobileTorbjrn Iwarson Global Head of

[email protected] +46 8 506 234 01

RESEARCHBjarne Schieldrop Chief analyst [email protected] +47 22 82 72 53 +47 92 48 92 30Filip Petersson Strategist [email protected] +46 8 506 230 47 +46 70 996 08 84SALES SWEDEN

Pr Melander Corporate [email protected] +46 8 506 234 75 +46 70 714 90 79Karin Almgren Institutional [email protected] +46 8 506 230 51 +46 73 642 31 76SALES NORWAYMaximilian Brodin Corporate/Institutional [email protected] +47 22 82 72 73 +47 92 45 67 27SALES FINLANDJussi Lepist Corporate/Institutional [email protected] +358 9 616 285 21 +358 40 844 187 7SALES DENMARKPeter Lauridsen Corporate/Institutional [email protected] +45 331 777 34 +45 616 211 59TRADINGNiclas Egmar Corporate/Institutional [email protected] +46 8 506 234 55 +46 70-618 560 4


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Commodities Monthly

DISCLAIMER & CONFIDENTIALITY NOTICE

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska EnskildaBanken AB (publ) (SEB).

Opinions contained in this report represent the banks present opinion only and are subject to change without notice. Allinformation contained in this report has been compiled in good faith from sources believed to be reliable. However, norepresentation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents andthe information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of thisdocument is urged to base his or her investment decisions upon such investigations as he or she deems necessary. Thisdocument is being provided as information only, and no specific actions are being solicited as a result of it; to the extentpermitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this documentor its contents.

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic andother European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets)for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange,Deutsche Brse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden;

it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designatedinvestment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEBconducts operations.

SEB Merchant Banking. All rights reserved.

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47


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commodities monthly: focus shifting to chinese easing

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