commodities monthly: demand lags fading tail risks

7/29/2019 Commodities Monthly: Demand lags fading tail risks

1/20

Commodities MonthlyDemand lags fading tail risks 26 FEBRUARY 2013


2/20

2

Commodities Monthly

Demand lags fading tail risks

GENERAL 0-3 M 4-6 M 7-12 M Energy and metal prices have increased on higher risk appetite

due to more stable US and Chinese growth and decreasing

European tail risks. With global growth still weak, despite recent improvements,

supply issues will determine which commodities will movehigher - or not.

ENERGY 0-3 M 4-6 M7-12 M Driven mainly by improving macroeconomic expectations,

Brent crude prices began the year at their highest levels sinceearly 2012.

Their outperformance relative to other benchmarks mainlyreflects strong investor interest based on its position as themost global benchmark.

Due to the lack of Chinese transparency, structural changes

and seasonal effects, the actual crude oil market balance iscurrently very uncertain.

Barring significant geopolitical events we expect Brent to tradebelow $115/b in H1-13.

INDUSTRIAL METALS 0-3 M4-6 M7-12 M Following a three month rally, slightly ahead of fundamentals,

industrial metals experienced an expected, justified correctionin late February.

Prices remain high enough relative to production costs,stimulating production and rising inventories due to weakdemand.

We still expect industrial metals prices to end 2013 higher

relative to 2012.PRECIOUS METALS 0-3 M4-6 M7-12 M Gold remains under pressure due to stronger investor demand

for higher risk assets, trading towards the low end of its$1550-1800/ozt range prevailing since mid-2011.

Short speculative positions in COMEX gold have reached theirhighest level since the late 1990s while long positions alsoremain substantial, reflecting a wide divergence in marketviews.

Although prices may rebound in the short-term due toextreme short speculative positioning, we expect a bearishlong-term trend.

A continued outflow from physical ETF holdings should beconsidered a strong warning signal.

AGRICULTURE 0-3 M4-6 M7-12 M After falling during H2-12, grain prices are largely unchanged

so far this year, supported by drought related stress.

Assuming a generally successful US corn and soybean season,12-month forward futures prices are on average consistentwith our price expectations.

USDA Agricultural Outlook Forum estimates for total US corn,wheat and soybean acreage are almost exactly in line withtheir 2012 outcome.

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

UBS Bloomberg CMCI Sector Indices(price indices, weekly closing, January 2011 = 100)

75

80

85

90

95

100

105

110

115

120

125

130

135

140

jan-11

feb-11

mar-11

apr-11

m

aj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-12

apr-12

m

aj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

Industrial Metals

Precious MetalsEnergyAgriculture

Sector performance(MSCI World, UBS Bloomberg CMCI price indices)

-9-8-7-6

-5-4-3-2-1012345

Equities

Commodities

Energy

Industrial

metals

Precious

metals

Agriculture

YTD (%) M/M (%)

Winners & Losers over the last month(%)

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Silver

Wheat

Nat.gas(US)

Gold

SteelbilletsTi

n

PlatinumCorn

CO2(EUA)

Copper

Coffe(Ar.)

Power(Cont.)WTI

Cocoa(US)

Nickel

AluminiumLead

Power

Soybeans

Sugar

Palladium

Heat.oil(US)

BrentZinc

Cotton

Gasoline

Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

General

Global growth is unlikely to be sufficiently strong toboost commodities prices generally, though manyselective valuation opportunities remain.

Potentially, several may rally due to supplyconstraints or a greater risk of a steady increase indemand. Backwardated commodities such as Brentcrude may also offer solid roll yield this year,provided their entry level is fair. Additionally, thereis always the possibility that governmentsworldwide may embark on a global currency warthat eventually inflates all commodity prices. Whilesuch a development remains unlikely, it is clearlybeing discussed, especially with Japan resuming aninflationary, yen depreciating policy.

Globally, investors are breathing a sigh of relief, with tail

risks declining. Growth in the US and China has stabilizedwhile fears the Euro zone may disintegrate havesubstantially decreased. As a result, exposure to equitiesand growth commodities such as oil and metals hassurged, boosting valuations. Seemingly however, suchflows reflect only marginal investments with most moneystill invested in the safe havens they have occupied forthe last four years of financial crisis.

Worldwide growth has stabilized, but remains weak. Eurozone economic activity deteriorated further thanexpected in Q4-12 and is set to decrease again in 2013,

even though the downturn has begun to slow. Moreover,in China politicians are unlikely to follow up thegovernments latest stimulus measures with furtheraggressive infrastructure spending and credit expansionduring the coming year. Consequently, with its economicactivity facing headwinds from a weak Europeancounterpart, we project Chinese GDP growth to slowfrom 8.1% in 2013 to 7.7% in 2014. Generally, westernhouseholds, governments and banks still need more timeto consolidate their debts.

Governments worldwide could decide to print moremoney to resolve their debt and deficit problems due tothe failure of continuing austerity measures. If they do,commodity prices may nominally increase. Otherwiseglobal growth may be insufficient to ensure theirsubstantial, broad-based appreciation over the comingyear. Instead we expect diverse commodity pricedevelopments based on supply constraints and thesporadic effects of intermittent speculative trading. Sincethe beginning of November, metals and oil have provedpopular, gaining 5% and 6% respectively, while gold andagricultural commodities have lost 8% and 4%respectively. Clearly, investor sentiment has favouredhigher growth commodity prices including energy and

metals, while abandoning traditional safe havens likegold.

UBS Bloomberg CMCI(price index, weekly closing)

750800850900950

10001050110011501200125013001350140014501500155016001650

170017501800

2007

2008

2009

2010

2011

2012

2013

JPM global manufacturing PMI(monthly, PMIs >50 expansive)

34

36

38

40

42

44

46

48

50

52

54

56

58

2007

2008

2009

2010

2011

2012

2013

OECD composite leading indicators(monthly, 100 corresponds to long term trend growth in industrial production)

93

94

95

96

97

98

99

100

101

102

103

104

2007

2008

2009

2010

2011

2012

ChinaEurozone

OECDUSA

Reference



4/20

4

Commodities Monthly

Crude oil

Brent began the year strongly, peaking almost 7%above its 2012 average price ($111.7/b) and at thehighest levels since May. Subsequently, it has

remained relatively strong although, not exceptionallyso given current generally positive market sentimentand lack of major negative macroeconomic surprisesso far this year. Still, extreme backwardation and highpremiums to other benchmarks suggest Brent is thestrongest segment of the global crude oil market, acounterintuitive observation given the worse thanexpected European recession and increasinglyoptimistic expectations for China. Several factorscause us to maintain our slightly bearish short- tomedium-term forecasts. Firstly, the crude oil price rallyhas lost momentum. Secondly, so far this year marketoptimism has not yet been thoroughly stress tested.

Thirdly, investors now holding long Brent positions togain exposure to the rally in risky assets appear tohave been more than a marginal driver, partlydisconnecting prices from fundamentals. Given allthese considerations, we regard upside potential frompresent levels as limited and the risk of a furthercorrection substantial.

Currently, the situation in the Atlantic basin should be

supported by weak US and European demand and rapidlyrising US domestic production. US Gulf Coast crude importshave therefore hit decade lows. With new US barrels light

and sweet, more such barrels (e.g. from Africa) should be

available to satisfy European demand, easing pressure onthe Brent benchmark. However, this is not what marketpricing is signaling. Could it be instead that strong Asiandemand impacting the Atlantic basin? Probably not given

the wide Brent-Dubai spread. Rather, the explanationprobably partly lies in strong demand for an asset well

exposed to improving global growth expectations, i.e. Brent.

For now, there is considerable confusion regarding theglobal crude oil market supply and demand balance due tothe lack of Chinese transparency. With no official data

available concerning its consumption or stock levels it isalmost impossible to gauge the extent to which actual use

and stock building respectively drive Chinese crude oilimport demand. This uncertainty affects the entire systemand is reflected in divergent views on market tightness

going forward. What we do know is that stock building inChina was a major import component last year and that

considerable additional volumes of crude will be addedduring the current decade although the intended rate ofstock building in 2013 remains a major unknown factor.

With several structural changes taking place in the market it

is becoming extremely difficult to measure overall markettightness. What is certain, however, is that crude oildemand is seasonally weaker, not stronger, during H1 and

that output cuts are generally needed to balance themarket.

Crude oil price(NYMEX/ICE, $/b, front month, weekly closing)

30

40

50

60

70

80

90

100

110

120

130

140

150

2007

2008

2009

2010

2011

2012

2013

NYMEXWTI

ICE Brent

US crude oil inventories(DOE, mb, weekly data)

315

320

325

330

335

340345

350

355

360

365

370

375

380

385

390

j f m a m j j a s o n d

2008-2012 avg.

2012

2013


Current global crude oil demand estimates2012

(mb/d)

Revision

(kb/d)

2013

(mb/d)

Revision

(kb/d)IEA 89.8 +/-0 90.7 -90EIA 89.16 -10 90.21 +100

OPEC 88.84 +50 89.68 +130

SEB average Brent crude oil price forecast($/b) Q1 Q2 Q3 Q4 Full

Year2013 110 107.5 110 110 109.42014 - - - - 110.02015 - - - - 115.0


5/20

5

Commodities Monthly

EnergyWTI futures curve(NYMEX, $/b)

Brent futures curve(ICE, $/b)

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

okt-14

jan-15

apr-15

jul-15

okt-15

jan-16

apr-16

jul-16

okt-16

jan-17

apr-17

12-12-21

13-01-22

13-02-22

89

91

93

95

97

99

101

103

105

107

109111

113

115

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

okt-14

jan-15

apr-15

jul-15

okt-15

jan-16

apr-16

jul-16

okt-16

jan-17

apr-17

jul-17

okt-17

jan-18

apr-18

jul-18

okt-18

12-12-21

13-01-22

13-02-22

Gasoline and heating oil prices(NYMEX, /gal, front month, weekly closing)

Gasoline and distillate inventories(DOE, mb, weekly data)

75

100

125

150

175200

225

250

275

300

325

350

375

400

425

2007

2008

2009

2010

2011

2012

2013

NYMEXGasoline

NYMEXHeating oil

120

130

140

150

160

170

180

190

200

210

220

230

240

j f m a m j j a s o n d

Gasoline 2008-2012 avg.

Gasoline 2013

Distillate fuel oil 2008-2012 avg.

Distillate fuel oil 2013

US natural gas prices(NYMEX, $/MMBtu, front month, weekly closing)

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

2

3

4

5

6

7

8

9

10

11

12

13

14

2

007

2

008

2

009

2

010

2

011

2

012

2

013

3,25

3,50

3,75

4,00

4,25

4,50

4,75

5,00

feb-13

jun-13

okt-13

feb-14

jun-14

okt-14

feb-15

jun-15

okt-15

feb-16

jun-16

okt-16

12-12-21

13-01-22

13-02-22



6/20

6

Commodities Monthly

Nordic power

Both German and Nordic future contracts fell steeply inJanuary. A rally in the euro reduced coal prices in euroterms while political uncertainty over the EU emission

system led to a 50% fall in the price of emission permitsto a low of EUR 3.42/ton at the end of January. Sincethen power prices in both regions have recovered someof their January losses as the euro EURUSD hasweakened again and emission permits have rallied closeto 50% to EUR 5/ton on hopes for political intervention.

The Nordic power market has remained more resilientthan its continental counterparts, with the Nordic vs.Germany power showing spread at all-time lows. Cal-14Nordic trades at EUR 37.30/MWh and Germany at EUR42.70/MWh. Since August last year, the spread hasnarrowed from EUR 11.30/MWh to currently EUR5.40/MWh. Furthermore, coal and CO2 are also affectingthe Nordic market, though the seasonal winter effect andmuch weaker hydro balance than existed even a fewmonths ago support it. Currently, the hydro balanceshows a 16 TWh deficit, compared with a 2 TWh surplusat the beginning of the year.

Despite the winter season and prolonged cold weather,Nordic spot prices remain extremely stable with nospikes, averaging EUR 41.39/MWh in January, down EUR1.55/MWh from December and only EUR 2.00 belowtheir German counterparts. This reflects high availability

from Nordic nuclear plants, no transmission griddisruptions and very high reservoir filling levels whenwinter began. Subsequently, hydro producers havemaintained high output levels.

Regarding the prompt curve, we see little downsidegoing forward given the weak hydro balance, whilefurther out downside is limited, although furtherfalls in coal and CO2 prices could change thatsituation. We recommend end users to hedgepower, especially in SEK as levels remain veryattractive.

(by Mats Forsell and Mats Hedberg, Commodities Trading)

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

20

25

30

35

40

45

50

55

60

65

70

75

80

2007

2008

2009

2010

2011

2012

2013

Continental power price(EEX, /MWh, front quarter, weekly closing)

20

25

30

35

40

45

50

55

60

65

70

75

80

85

90

95

2007

2008

2009

2010

2011

2012

2013

EUA price(ECX ICE, /t, Dec. 13, weekly closing)

4

5

6

7

8

9

10

11

12

13

14

15

16

1718

19

20

2009

2010

2011

2012

2013



7/20

7

Commodities Monthly

Industrial metals

With few negative macroeconomic surprises duringthe start of this year, industrial metal marketsentiment remained bullish well into February,

despite several familiar tail risks still operating.Under such generally slightly overbought marketconditions compared to economic fundamentals,industrial metals were vulnerable to a correction.This was also what occurred last week. Mostproducers seemed content to operate plants at theJanuary and February price level, which restrictedfurther upside potential. Moreover, soft demand andincreasing or already high LME inventories providedlittle support either. We still expect the LME index toend 2013 above its current level following anuptrend based on more stable foundations in H2-13.However, in the short-term, Chinese demanddynamics following Lunar New Year celebrationswill probably determine whether prices willcontinue to consolidate at this level or continue tocorrect lower. The most immediate macroeconomicthreat remains the upcoming US debt ceiling.

In February, industrial metals prices consolidated afterhaving posted new highs for three consecutive months,reporting an LME Index rally of over 10%. Concurrently,US equities performed similarly, though gains in Chinawere twice as large and those in Europe half as great.Equity markets have therefore reflected recent diverse

regional sentiment affecting industrial metals. Mostindicators suggest and analysts believe that the currentChinese stabilization is real and supportive of metalsprices this year. We agree. In turn, while Europe couldalso start providing support towards the end of the year,we believe it is more likely to do so in 2014, due to itsdeeper-than-expected recession. Still, given presentsigns of regional stabilization we regard the regionprimarily as an upside risk. We expect the impact of theslow but steady US recovery to have a stabilizing effecton industrial metals markets going forward, apart fromthe debt ceiling event risk.

China reports an increasingly solid and credible recoverywith growth looking ever more likely to stabilize around8% annually over the next few years. While industrialproduction growth is still well below trend, at 10% y/y itremains well above any of its OECD counterparts. Inaddition, manufacturing PMI continues to improvesteadily, trade is improving while the housing marketappears to have stabilized. Moreover, other activityindicators (e.g. crude oil processing, steel productoutput, electricity production and railway freightvolumes) are also moving in a positive direction.Negatively, foreign direct investments remain low as

other emerging markets currently appear moreattractive, while fixed asset investments continue weakdue to already substantial overcapacity.

LME index(weekly closing)

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

3400

3600

38004000

4200

4400

4600

2007

2008

2009

2010

2011

2012

2013

Industrial metal prices(LME, indexed, weekly closing, January 2011 = 100)

60

65

70

7580

85

90

95

100

105

110

115

120

125

130

jan-11

feb-11

mar-11

apr-11

maj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-12

apr-12

maj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

Copper

Nickel

Aluminium

Zinc

LeadTin

Price and inventory changes over the last month(LME)

-7

-5-3-1135

79

111315

1719

212325

Aluminium

Copper

Nickel

Zinc

Lead Ti

n

Steel

Price (%)

Inventories (%)



8/20

8

Commodities Monthly

Industrial metalsAluminium LME aluminium price and inventories(weekly data)

While LME aluminium inventories have drifted lower thisyear they remain very near record highs but with

considerable volumes either locked in warehousefinancing deals or in long outbound queues.

Low physical availability continues to support prices andencourage smelters to produce.

While we see good prospects for increased aluminiumdemand in 2013, we also expect supply to rise, ensuringthat the market remains in substantial surplus.

Vehicle sales continue to develop well in both the US andChina, though European markets remain both weakerand less clear.

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

5000000

5500000

2007

2008

2009

2010

2011

2012

2013

1250

1500

1750

2000

2250

2500

2750

3000

3250

3500LME inventoris (t, left axis)

LME price ($/t, right axis)

Copper LME copper price and inventories(weekly data)

Every year the copper market opens with analystsforecasting that this year is different and projectingstronger supply growth. However, project delays,disruptions and disappointing production usually provethem wrong.

While we see good potential increases in supply in 2013,following probable oversupply late 2012 and early thisyear, we still think it a little optimistic to expect a

substantial market surplus before 2014. Though LME copper stocks have moved back above 400

kt for the first time since late 2011, they remain wellbelow record highs (948 kt in 2002).

The now relatively large inventory buffer is cooling whatwould otherwise be a highly sensitive copper market,one which has generally led industrial metals movementsin recent years.

0

50000

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Nickel LME nickel price and inventories(weekly data)

So far this year, the strong LME nickel inventory uptrendhas continued with stocks rapidly approaching all-timehighs.

With HPAL projects generally producing at or close tointended levels and prices high enough to give ChineseNPI producers reason to ramp up production, the nickelmarket appears likely to remain in surplus in 2013.

Record high nickel ore imports from Indonesia suggeststrong Chinese NPI production.

Despite still lacklustre production growth, Chinesestainless steel mills have been producing near fullcapacity so far this year, while European producers areapparently struggling.

0

20000

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50000





9/20

9

Commodities Monthly

Industrial metalsZinc LME zinc price and inventories(weekly data)

The zinc market has been surprisingly strong givencurrent very weak fundamentals. Producers are likely to

be content to sell at the present level, which lies wellabove marginal production costs.

Meanwhile, the prolonged rising trend in LME inventoriesappears to have paused in early 2013 with stocks evendecreasing slightly, probably due to flows to otherinventories rather than stronger demand.

Unlike aluminium, zinc remains physically available.

Despite potential improvements on the demand side, thezinc market surplus is likely to remain substantial in2013, though the supply outlook is less clear on a 2-5year horizon. 0

100000

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LME inventoris (t, left axis)


Ferrous metals(by Maximilian Brodin, Commodities Sales) LME steel billet price and inventories(weekly data)

After increasing steadily since early December, Chinesesteel prices turned downward when markets re-openedafter the Chinese Lunar New Year.

Iron ore prices however appear unaffected, remainingbullish when trading resumed.

Prompt cargoes continue in short supply exerting pricepressure. The curve is in steep backwardation with theMarch contract trading at $152/t and Q4 around $130/t.

Scrap markets have recently range traded, finding

support at $385/t and resistance at $410/t.

0

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LME lead price and inventories(weekly data)

LME tin price and inventories(weekly data)

0

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0

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9000

12000

15000

18000

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27000

30000

33000





10/20

10

Commodities Monthly

Industrial metalsAluminium futures curve(LME, $/t)

Copper futures curve(LME, $/t)

2000

2050

2100

2150

2200

2250

2300

2350

2400

2450

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

12-12-2113-01-22

13-02-22

7750

7800

7850

7900

7950

8000

8050

8100

8150

8200

8250

8300

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

12-12-21

13-01-22

13-02-22

Nickel futures curve(LME, $/t)

Zinc futures curve(LME, $/t)

16900

17000

1710017200

17300

17400

17500

17600

17700

17800

17900

18000

18100

mar-13

jun-13

sep-13

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sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

12-12-21

13-01-22

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2025

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sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

12-12-21

13-01-2213-02-22

Lead futures curve(LME, $/t)

Tin futures curve(LME, $/t)

2290

2300

2310

2320

2330

2340

2350

2360

2370

2380

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

12-12-21

13-01-22

13-02-22

22900

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23300

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mar-13

apr-13

maj-13

jun-13

jul-13

aug-13

sep-13

okt-13

nov-13

dec-13

jan-14

feb-14

mar-14

apr-14

maj-14

12-12-21

13-01-22

13-02-22



11/20

11

Commodities Monthly

Precious metals

At the time of writing, gold is trading just below$1600/ozt, near the bottom of the range traded sinceits post mid-2011 nominal high, i.e. $1550-1800/ozt. Wehave been neutral or bearish towards gold since themuted market reaction to QE3 clearly showed thatadditional liquidity was unable to drive its price muchhigher. Regarding developments early this year, themetal has still performed surprisingly poorly asoptimistic growth expectations and moderating tailrisks have driven investors away from defensiveassets. So far, however, the sell-off in physical goldETFs has been relatively limited. If it continues it wouldrepresent a strong sell signal by showing that theconsensus view of the entire market, including retailinvestors, has turned against gold. For the time beingwe see some rebound potential due to the extremeshort speculative positioning but expect the long-termtrend to be bearish. While major signs suggestinginflation expectations are increasing remain absentover-confident European policymakers and theinability of US politicians to compromise still seriouslythreaten system stability.

Two major bearish factors have been exerting additionalnegative pressure on the gold market. Firstly, the January

Fed FOMC minutes indicated that QE3 may not be openended pending a recovery in the employment market. WithFOMC members growing more sceptical of the benefits of

massive bond buying (currently running at $ 85bn a month)given its potential risks, it may be decreased already in

2013. However, since the start of the crisis, the Fed hasremained sufficiently flexible, pragmatically abandoningmore hawkish positions whenever market instability

required it to do so. Furthermore, the US 10-year real yieldonce again shows signs of moving higher after trending

lower since 2008. If this represents the start of a new trendgold prices will have a very hard time holding ground at

current levels.

Following recent publication of World Gold Council data for

all 2012, we summarize supply and demand developmentsfor last year, compared to 2011 as follows. Total demand fell

173 tonnes to 4405 tonnes, mainly due to lower investmentdemand (down from 1700 to 1535 tonnes) but also forjewellery (falling from 1972 to 1908 tonnes). In addition,

technology demand fell slightly (from 453 to 428 tonnes). Interms of investments, reduced demand for bars and coins

was partly offset by increasing physical ETF demand.Central banks remained highly supportive, increasing netbuying from 457 to 535 tonnes. Mine supply only rose

slightly (from 2836 to 2848 tonnes), highlighting one of themain bullish factors affecting the gold market. Recycling

also fell back (from 1669 to 1626 tonnes). Chinese demandwas largely unchanged at 200 tonnes in Q4, compared tothe same period a year earlier.

Precious metal prices(COMEX/NYMEX, indexed, weekly closing, January 2011 = 100)

70

80

90

100

110

120

130

140150

160

170

jan-11

feb-11

mar-11

apr-11

maj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-12

apr-12

maj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

Silver

Platinum

Gold

Palladium

Gold to silver ratio(front month, weekly closing)

30

34

38

42

46

50

54

58

62

66

70

74

78

82

86

2007

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

Gold and currencies vs. USD

-8

-7

-6

-5

-4

-3

-2

-10

1

2

GOLD EUR JPY GBP SEK RUB NOK CHF

YTD (%) MoM (%)



12/20

12

Commodities Monthly

Precious metalsGold Gold price(COMEX, $/ozt, front month, weekly closing)

Net speculative long positions in COMEX gold have beentrending lower from very high levels last October and

have now reached the lowest level since 2008 in relationto open interest.

Significantly however, short speculative positions are atthe highest level since the 1990s while long positionsremain relatively elevated. Obviously, views on futuregold prices diverge.

Physical gold ETF holdings have gradually decreasedfrom record highs in late 2013 (2633 tonnes) to standcurrently at 2560 tonnes.

Monthly US Mint gold coin sales remain well above 2012levels, after reporting negative growth for the past threeyears.

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

1700

1800

1900

2000

2007

2008

2009

2010

2011

2012

2013

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

Net long speculative positions in COMEX silver stand at arelatively neutral level, despite trending lower for severalmonths. Speculative short positions however, have beenlow since the end of last summer.

Despite standing slightly below their January record high(19699 tonnes), physical silver ETF holdings appear to betrending positively, totalling 19529 tonnes.

US Mint silver coin sales have remained strong so far this

year, compared to the same period in 2012. At 54.7, the gold-to-silver ratio is only slightly above its

post Q4-11 average of 53.6.

8101214161820222426283032343638404244464850

2007

2008

2009

2010

2011

2012

2013

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

Net long speculative positions in platinum and palladiumare extremely high with very few shorts reflecting generally

positive price expectations for both metals. Physical platinum holdings hit a new all-time high of 51.8

tonnes in February, while those for palladium, at 67.3

tonnes, continued to recover steadily towards previoushighs (73.1 tonnes).

Since last November, the gold-to-palladium ratio has fallenfrom 2.9 to below 2.1 as optimistic growth sentiment has

driven funds out of safe haven gold and into more growthsensitive palladium. The gold-to-platinum ratio (0.98) has

trended similarly, subject to a modest time lag.

Due to improved fundamentals and better growth forecastswe remain bullish on platinum and palladium vs. gold andsilver, despite recent, fairly usual volatility.

100

200

300

400

500

600

700

800

900

1000

1100

2

007

2

008

2

009

2

010

2

011

2

012

2

013

300

550

800

1050

1300

1550

1800

2050

2300Palladium (left axis)

Platinum (right axis)



13/20

13

Commodities Monthly

Precious metalsGold futures curve(COMEX, $/ozt)

Silver futures curve(COMEX, $/ozt)

1550

1575

1600

1625

1650

1675

1700

1725

1750

17751800

1825

1850

feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

feb-15

maj-15

aug-15

nov-15

feb-16

maj-16

aug-16

nov-16

feb-17

maj-17

aug-17

nov-17

feb-18

maj-18

12-12-21

13-01-2213-02-22

28,0

28,5

29,0

29,5

30,0

30,5

31,0

31,5

32,0

32,5

33,0

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

jun-16

sep-16

dec-16

mar-17

jun-17

sep-17

dec-17

12-12-21

13-01-22

13-02-22

Palladium futures curve(NYMEX, $/ozt)

Platinum futures curve(NYMEX, $/ozt)

680

685

690

695700

705

710

715

720

725

730

735

740

mar-13

jun-13

sep-13

dec-13

mar-14

12-12-21

13-01-22

13-02-22

1530

1550

1570

1590

1610

1630

1650

1670

1690

1710

apr-13

jul-13

okt-13

jan-14

apr-14

12-12-21

13-01-22

13-02-22

Physical silver and gold ETP holdings(weekly data, tonnes)

Physical palladium and platinum ETP holdings(weekly data, tonnes)

2050

2100

2150

2200

2250

2300

2350

2400

2450

2500

2550

2600

2650

jan-11

feb-11

mar-11

apr-11

maj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-12

apr-12

maj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

16500

17000

17500

18000

18500

19000

19500

20000Gold holdings

Silver holdings

35

40

45

50

55

60

65

70

75

jan-11

feb-11

m

ar-11

apr-11

m

aj-11

jun-11

jul-11

a

ug-11

s

ep-11

okt-11

nov-11

d

ec-11

jan-12

feb-12

m

ar-12

apr-12

m

aj-12

jun-12

jul-12

a

ug-12

s

ep-12

okt-12

nov-12

d

ec-12

jan-13

feb-13

Palladium holdings

Platinum holdings



14/20

14

Commodities Monthly

Agriculture

While grain prices have fallen back slightly since theJanuary edition of Commodities Monthly, the strongdowntrend that dominated the second half of last

year has been broken, with current average grainprices largely unchanged so far this year. Frontcontracts have been supported by the persistent USdrought threatening spring planting and droughtrelated stress affecting the South American cropoutlook. On, average 12-month forward futuresprices are now fairly consistent with our long-termbearish expectations if one assumes a reasonablysuccessful outcome to the US corn and soybeanseason. Although the current situation does notjustify higher grain prices, the key to the outcome ofthe forthcoming season lies in Midwest soilmoisture conditions existing when corn planting

starts in April. Despite slightly improved conditionslately, the implications of another drought year,especially for corn, are too serious to disregard. Wetherefore remain short-term cautious pendingfurther improvements.

The USDA Agricultural Outlook Forum estimates total USwheat, corn and soybean acreage in 2013 will be largelyunchanged from last year, i.e. 230.0 million acres vs.230.1 in 2012. However, actual planted corn and soybeanacreage will depend considerably on the soil moisturesituation at the time of planting, making forecasting

extremely difficult. The next, and more reliable estimate,will be contained in the Prospective Plantings report(March 28), which is based on actual interviews withfarmers.

El Nio Southern Oscillation (ENSO) conditions areexpected to remain neutral during the Northernhemisphere spring even though weather models and seatemperature measurements are slightly skewed towardsEl Nio conditions. US soil moisture has improved locallyin both the Midwest and Great Plains. However, so far,there are no clear signs the current drought is recedingfrom these core US agricultural production sites.Weather conditions in Europe and the FSU are fairlysatisfactory despite several dry areas. In South Americadry conditions are particularly stressing the developingArgentinean soybean crop. With the harvest notscheduled to start until May, there is still plenty of timefor persistent drought conditions to damage the crop.Consequently, production estimates could suffer furtherdowngrades. Meanwhile, logistical problems in SouthAmerica together with Chinese economic stabilization islikely to divert some soybean import demand to the US.

Grains prices(CBOT, indexed, weekly closing, January 2011 = 100)

70

75

80

85

90

95

100

105

110

115

120

125

130

135

jan-11

feb-11

mar-11

apr-11

maj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

mar-12

apr-12

maj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

Wheat

SoybeansCorn

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

45

55

65

75

85

95

105

115

125

135

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

Wheat

Soybeans

Corn

Production and inventory estimate revisions(WASDE, monthly data, %, 2012/2013)

-14-13-12-11-10-9-8-7-6-5-4-3-2-10123456789

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

Corn productionCorn stocksWheat productionWheat stocksSoybean productionSoybean stocks

Chart Sources: Bloomberg, USDA, SEB Commodity Research


15/20

15

Commodities Monthly

AgricultureCorn Corn price(CBOT, /bu, front month, weekly closing)

The USDA Agricultural Outlook Forum projected amodest decrease in US 2013 corn acreage from 97.2

million acres in 2012 (a multi-decade high) to 96.5million acres. This forecast is however very unreliablegiven the current drought situation.

Net long speculative positions in CBOT corn havecontinued to fall back due to increasing shortpositioning. Long positions remain relatively high.

Due to poor profitability, some US ethanol productionhas already been idled and more could shut down. Whileof course supporting ethanol prices, this also reducesstress on the corn market.

250

300

350

400

450

500

550

600

650

700

750

800

850

2007

2008

2009

2010

2011

2012

2013

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

The USDA Agricultural Outlook Forum projected a smallincrease in US 2013 wheat acreage from 55.7 millionacres in 2012 to 56.0 million acres this year.

Net speculative positions in CBOT wheat have beennegative since the end of 2012, with an almost equal andsubstantial number of short and long positions.

US winter wheat conditions pre-dormancy were terrible.As vegetation recovers heading into spring it will once

again become possible to follow developments in theUSDA Crop Progress report, the first 2013 issue of whichwill be published on April 1.

400

500

600

700

800

900

1000

1100

1200

2007

2008

2009

2010

2011

2012

2013

Soybeans Soybean price(CBOT, /bu, front month, weekly closing)

The USDA Agricultural Outlook Forum forecast a smallincrease in US 2013 soybean acreage from 77.2 million

acres in 2012 to 77.5 million acres this year although,given the potential effects of the regional drought, thisestimate may prove very unreliable.

Net long speculative positions in CBOT soybeans arehigh but not especially so relative to open interest.However, both long and short positions are elevatedrelative to 5-year historic averages.

The oil-to-bean ratio remains near decade lows due to anoversupply of vegetable oil. Meanwhile, the meal-to-bean ratio is still high and trending upward once againafter correcting earlier this year.

600

800

1000

1200

1400

1600

1800

2007

2008

2009

2010

2011

2012

2013



16/20

16

Commodities Monthly

AgricultureCorn futures curve(CBOT, /bu)

Wheat futures curve(CBOT, /bu)

520

540

560

580

600

620

640

660

680

700

720

740

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

12-12-2113-01-22

13-02-22

710

720

730

740

750

760

770

780

790

800

810

820

830

840

850

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

12-12-21

13-01-22

13-02-22

Soybean futures curve(CBOT, /bu)

Sugar(NYBOT, /lb)

1225

1250

1275

1300

1325

1350

1375

1400

1425

1450

1475

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

12-12-21

13-01-22

13-02-22

8

10

12

14

1618

20

22

24

26

28

30

32

34

36

2007

2008

2009

2010

2011

2012

2013

Cotton(NYBOT, /lb) Cocoa(NYBOT, $/t)

30405060708090

100110120130140150160170180190

200210220

2

007

2

008

2

009

2

010

2

011

2

012

2

013

1400

1600

1800

2000

2200

2400

2600

2800

3000

3200

3400

3600

3800

2

007

2

008

2

009

2

010

2

011

2

012

2

013



17/20

17

Commodities Monthly

Commodity related economic indicatorsEUROZONE Current Date Previous Date NextIndustrial production (%, YoY) -2,4 2012-12-31 -4,0 2012-11-30 2013-03-13

Industrial production (%, MoM) 0,7 2012-12-31 -0,7 2012-11-30 2013-03-13

Capacity utilization (%, sa) 77,2 2013-03-31 76,9 2012-12-31

Manufacturing PMI 47,8 2013-02-28 47,9 2013-01-31 2013-03-01

Real GDP (%, YoY) -0,9 2012-12-31 -0,6 2012-09-30 2013-03-06

Real GDP (%, QoQ, sa) -0,6 2012-12-31 -0,1 2012-09-30 2013-03-06

CPI (%, YoY) 2,2 2012-12-31 2,2 2012-11-30 2013-02-28

CPI (%, MoM) -1,0 2013-01-31 0,4 2012-12-31 2013-02-28

Consumer confidence -23,6 2013-02-28 -23,9 2013-01-31 2013-02-27

USA

Industrial production (%, YoY) 2,1 2013-01-31 2,9 2012-12-31

Industrial production (%, MoM) -0,1 2013-01-31 0,4 2012-12-31 2013-03-15

Capacity utilization (%) 79,1 2013-01-31 79,3 2012-12-31 2013-03-15


Real GDP (%, YoY) 1,5 2012-12-31 2,6 2012-09-30

Real GDP (%, QoQ, saar) -0,1 2012-12-31 3,1 2012-09-30 2013-02-28

CPI (%, MoM) 1,6 2013-01-31 1,7 2012-12-31 2013-03-15

CPI (%, MoM, sa) 0,0 2013-01-31 0,0 2012-12-31 2013-03-15

OECD Composite Leading Indicator 103,4 2011-03-31 103,1 2011-02-28Consumer confidence (Michigan) 76,3 2013-02-28 73,8 2013-01-31 2013-03-01

Nonfarm payrolls (net change, sa, 000) 157 2013-01-31 196 2012-12-31 2013-03-08

JAPAN

Industrial production (%, YoY, nsa) -7,9 2012-12-31 -5,5 2012-11-30 2013-02-28

Industrial production (%, MoM, sa) 2,4 2012-12-31 -1,4 2012-11-30 2013-02-28

Capacity utilization (%, sa) 84,6 2012-12-31 82,2 2012-11-30


Real GDP (%, YoY) 0,3 2012-12-31 0,4 2012-09-30

Real GDP (%, QoQ, sa) -0,1 2012-12-31 -1,0 2012-09-30 2013-03-08

CPI (%, YoY) -0,6 2013-01-31 -0,6 2012-12-31 2013-03-01

CPI (%, MoM) 0,1 2012-12-31 -0,4 2012-11-30

OECD Composite Leading Indicator 104,9 2011-02-28 104,2 2011-01-31

Consumer confidence 43,3 2013-01-31 39,1 2012-12-31

CHINAIndustrial production (%, YoY) 10,3 2012-12-31 10,1 2012-11-30 2013-03-09


Real GDP (%, YoY) 7,9 2012-12-31 7,4 2012-09-30 2013-04-15

CPI (%, YoY) 2,0 2013-01-31 2,5 2012-12-31 2013-03-09

OECD Composite Leading Indicator 102,3 2011-03-31 102,1 2011-02-28

Consumer confidence 103,7 2012-12-31 105,1 2012-11-30

Bank lending (%, YoY) 15,4 2013-01-31 15,0 2012-12-31

Fixed asset investment (%, YoY) 20,5 2012-09-30 20,4 2012-06-30

OTHER

OECD Area Comp. Leading Indicator 103,2 2011-03-31 103,0 2011-02-28

Global manufacturing PMI 51,5 2013-01-31 50,1 2012-12-31

Sources: Bloomberg, SEB Commodity Research


18/20

18

Commodities Monthly

PerformanceClosing

last weekYTD(%)

1 m(%)

1 q(%)

1 y(%)

5 y(%)

UBS Bloomberg CMCI Index (TR) 1293,09 -0,8 -2,1 -0,7 -5,3 -11,6UBS Bloomberg CMCI Index (ER) 1215,03 -0,8 -2,1 -0,7 -5,4 -13,0UBS Bloomberg CMCI Index (PI) 1559,68 -1,1 -2,3 -0,7 -5,0 7,9UBS B. CMCI Energy Index (PI) 1552,81 2,6 -0,1 2,3 -4,5 -1,4UBS B. CMCI Industrial Metals Index (PI) 1075,75 -1,8 -2,7 3,3 -7,8 -12,5UBS B. CMCI Precious Metals Index (PI) 2324,70 -6,1 -8,1 -10,2 -12,2 62,4UBS B. CMCI Agriculture Index (PI) 1715,20 -3,6 -3,6 -5,3 -3,6 9,2Baltic Dry Index 740,00 5,9 -10,3 -31,0 5,1 -89,7

Crude Oil (NYMEX, WTI, $/b) 93,13 1,4 -3,2 6,6 -12,4 -5,7Crude Oil (ICE, Brent, $/b) 114,10 2,7 1,5 2,9 -7,2 17,6Aluminum (LME, $/t) 2048,00 -1,2 -1,3 6,1 -10,2 -29,9Copper (LME, $/t) 7801,00 -1,6 -4,1 1,4 -7,5 -6,4Nickel (LME, $/t) 16975,00 -0,5 -2,3 1,9 -15,5 -40,2Zinc (LME, $/t) 2088,00 0,4 1,6 8,9 1,0 -16,4Steel (LME, $/t) 305,00 0,0 -6,2 -7,6 -40,8 N/AGold (COMEX, $/ozt) 1572,40 -6,2 -7,1 -9,0 -11,2 66,4

Corn (CBOT, /bu) 690,25 -1,1 -5,3 -6,8 8,1 32,2Wheat (CBOT, /bu) 715,00 -8,1 -8,2 -15,4 10,9 -31,9Soybeans (CBOT, /bu) 1461,25 3,0 0,7 3,8 14,9 2,9

Sources: Bloomberg, SEB Commodity Research

Major upcoming commodity eventsDate Source

Department of Energy, US inventory data Wednesdays, 16:30 CET www.eia.doe.gov

American Petroleum Institute, US inventory data Tuesdays, 22:30 CET www.api.org

CFTC, Commitment of Traders Fridays, ~21:30 CET www.cftc.gov

US Department of Agriculture, Crop Progress Mondays, ~22.30 CET (season) www.usda.gov

International Energy Agency, Oil Market Report March 13 www.oilmarketreport.com

OPEC, Oil Market Report March 12 www.opec.org

Department of Energy, Short Term Energy Outlook March 12 www.eia.doe.gov

US Department of Agriculture, WASDE March 8 www.usda.gov

International Grains Council, Grain Market Report March 21 www.igc.org.uk

OPEC ordinary meeting, Vienna, Austria May 31 www.opec.orgSources: Bloomberg, SEB Commodity Research

Contact listCOMMODITIES Position E-mail Phone MobileTorbjrn Iwarson Head of Commodities [email protected] +46 8 506 234 01

Peter Lvaas Head of Commodities

Norway

[email protected] +47 22 82 72 70

RESEARCH

Bjarne Schieldrop Chief analyst [email protected] +47 22 82 72 53 +47 92 48 92 30

Filip Petersson Strategist [email protected] +46 8 506 230 47 +46 70 996 08 84

SALES SWEDENPr Melander Corporate [email protected] +46 8 506 234 75 +46 70 714 90 79

Karin Almgren Institutional [email protected] maternity leave

SALES NORWAY

Maximilian Brodin Corporate/Institutional [email protected] +47 22 82 72 73 +47 92 45 67 27

SALES FINLAND

Jussi Lepist Corporate/Institutional [email protected] +358 9 616 285 21 +358 40 844 187 7

SALES DENMARK

Peter Lauridsen Corporate/Institutional [email protected] +45 331 777 34 +45 616 211 59

TRADING

Niclas Egmar Corporate/Institutional [email protected] +46 8 506 234 55 +46 70-618 560 4


19/20

19

Commodities Monthly

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to provide background information only. It is confidential to the recipient, any dissemination, distribution, copying, or other use ofthis communication is strictly prohibited.

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connection with its distribution in the US. The distribution of this document may be restricted in certain jurisdictions by law, andpersons into whose possession this documents comes should inform themselves about, and observe, any such restrictions.

The SEB Group: members, memberships and regulators

Skandinaviska Enskilda Banken AB (publ) is incorporated in Sweden, as a Limited Liability Company. It is regulated byFinansinspektionen, and by the local financial regulators in each of the jurisdictions in which it has branches or subsidiaries,including in the UK, by the Financial Services Authority; Denmark by Finanstilsynet; Finland by Finanssivalvonta; Germanyby Bundesanstalt fr Finanzdienstleistungsaufsicht and Norway by Finanstilsynet. In the US, SEBAB is a U.S. broker-dealer,registered with the Financial Industry Regulatory Authority (FINRA). SEBAB is a direct subsidiary of SEB. SEB is active onmajor Nordic and other European Regulated Markets and Multilateral Trading Facilities, in as well as other non-Europeanequivalent markets, for trading in financial instruments. For a list of execution venues of which SEB is a member or

participant, visit http://www.seb.se.


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www.seb.se

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47

commodities monthly: demand lags fading tail risks

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