seb commodities monthly: waiting for a technical correction

8/7/2019 SEB Commodities Monthly: Waiting for a technical correction

1/20

SEB Commodities MonthlyWaiting for a technical correction

3 MAY 2011


2/20

2

Commodities Monthly

Waiting for a technical correction

GENERAL 0-3 M 4-6 M 7-12 M We see little upside in commodity prices at the moment other

than potential bullish influence from a continued dollar slump

Several commodities are still supported by tight supply A technical correction is unavoidable due to a high level of

speculative positions but it may not materialize before we seea proper dollar trend reversal

ENERGY 0-3 M 4-6 M7-12 M We expect Brent crude prices to remain high in Q2-11 with risk

skewed to the upside of $120/b

We also raise our H2-11 average Brent price forecast from

$95/b to $105/b on drawn out unrest in the MENA region

The Libyan supply loss has created a shortage of sweet crude

that could be exacerbated in Q2 as US and European refineries

ramp up production So far there seems to have been only limited demand

destruction due to high oil prices

INDUSTRIAL METALS 0-3 M4-6 M7-12 M The industrial metals market currently focuses on Chinese soft

vs. hard landing expectations as leading indicators signal anapproaching downturn

Temporary sell-offs are likely over the nearest months on

periods of Chinese hard landing fear

The long term picture is supported by ambitious Chinese plans

to build low cost housing

Japanese reconstruction demand, potentially recovering OECDdemand and approaching Chinese industry restocking alsolends long term support

PRECIOUS METALS 0-3 M4-6 M7-12 M The short term gold market outlook remains bullish on

sovereign debt fear, inflation hedging, dollar softness andelevated geopolitical risk

The long term view is however starting to be moderated by

potential dollar strength when QE2 comes to an end thissummer and FED could start signalling future rate hikes

In addition, Chinese inflation is likely to start to retreat later

this year and reduce inflation hedging demand

Gold could therefore peak in the $1700-1800/ozt area in 2011

AGRICULTURE 0-3 M4-6 M7-12 M Even though agricultural commodity prices remain elevated

due to low inventory levels and continued adverse weather theuptrend has clearly been broken

Demand destruction and more favourable long term weather

prospects are the main drivers

While the short term outlook is supported by low inventory

levels and high uncertainty we expect an increasingly bearishdevelopment over the year

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

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

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feb-10

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Industrial Metals

Precious Metals

Energy

Agriculture

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

-4-202

468

1012141618202224

Equities

Commodities

Energy

Industrial

metals

Precious

metals

Agriculture

YTD (%) M/M(%)

Winners & Losers last monthWinners & Losers last monthWinners & Losers last monthWinners & Losers last month(%)

-15

-10

-5

0

5

10

1520

25

30

Cotton

Sugar

LeadZinc

Soybeans

Wheat

Copper

CO2(EUA)

Power(Cont.)

SteelbilletsTi

n

Palladium

Power(Nordic)

Nickel

Platinum

Nat.gas(US)

Corn

Aluminium

Heat.oil(US)WTI

Gold

Brent

Gasoline(US)

Cocoa(US)

Coffe(Ar.)

Silver

Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

General

The commodity outlook is becoming less clear.Recovery, USD weakness and plentiful liquidityremain positive forces, but Libyan oil outage is now

discounted and China continues to implementmeasures to dampen its own (inflationary)economic activity. With broad commodity indices ator close to record highs we see little further upsideat present other than the possibility that they couldcontinue to move higher as the USD depreciates. Atechnical correction is unavoidable at some pointwith speculative positions near record highs andvolatilities at complacent lows. It is hard to imaginewhat factor will trigger such a correction. Examplesinclude a strong reversal in the USD downturndriven by European debt flare-ups; bad news fromChina suggesting the possibility of a hard landing;

deterioration in US growth; or an improvement inthe situation in MENA. The unavoidable technicalcorrection is however unlikely to mark the end ofthe current cyclical bull market in commodities. Itmay instead create attractive buying opportunities.

In April, the CMCI index (UBS Bloombergs broadcommodity price benchmark) gained 1% due to higherprecious metals (+8.4%) and energy (+5.0%) prices.Industrial metals were unchanged and agriculturalcommodities down 3.0%. At the same time however, theUSD index fell 3.0%. In other words, denominated in

most currencies commodities have become slightlycheaper over the past month.

A depreciated USD, strong liquidity, speculativepositions, growth optimism and rising demand are alldriving commodity prices at present, although Brentcrude has outperformed most commodities lately mainlyas a result of radically tighter fundamentals in Q1. Inresponse to rising demand many commodities are pricedeither based on tight supply (e.g. cotton, corn, copper,tin, sweet crude, coking coal and iron ore) or on risingmarginal costs (e.g. aluminium) while precious metalsmove upwards because of liquidity, risk aversion and asofter USD. Currently, commodities generally aresupported by both liquidity and growth, enjoying thebest of all worlds with support for both precious metals,industrial metals and energy. Sooner or later one of thesedrivers will have to give way. Either surplus liquidity willneed to be removed as growth is solid or growth willbreak down paving the way for even higher liquidity. Butfor now they co-exist together.

In terms of plain long positions we prefer gold, longdated oil and copper while maintaining a bearish view onagriculture generally as conditions normalise after La

Nia episode. However, with an unavoidable correctionahead and commodities priced fairly high, spread tradesare preferable to outright longs with the long leg taken inthose commodities with the tightest fundamentals (e.g.copper).

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

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

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

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9394

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100101

102103

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ChinaEurozone

OECD

USAReference



4/20

4

Commodities Monthly

Crude oil

The physical tightness created by the loss of Libyansweet crude is probably discounted in the presentBrent crude price and in the size of speculative long

positions. The shortage in sweet crude couldhowever be exacerbated as US and Europeanrefiners ramp up production in coming months. Wetherefore expect sweet crude prices to remain highfor at least the rest of the second quarter with riskskewed above $120/b. For H2-11 we expect the oilprice to ease once the summer driving season isover with softer demand for sweet crude. We alsoanticipate further signs of demand destruction andpotentially a reduced MENA risk premium. However,we raise our Brent crude oil forecast for H2-11 from$95/b to $105/b as the MENA situation hascontinued to deteriorate and therefore is unlikely tobe resolved in 2011.

The crude oil market is supported by a range of bullishfactors making record long speculators reluctant to takeprofits despite a 33% rally by Brent crude so far this year.The main reason is the increasing likelihood that Libyanoil will be out of the market for a long time, particularlywith Gaddafi loyalists attacking rebel held oil fields toprevent further exports. Primarily, this has resulted in amarket shortage of sweet, i.e. low sulphur, crude oil. Withdesulphuring capacity in the Atlantic basin limited, sweetcrude oils such as Brent, WTI and Bonny Light are trading

at a substantial premium to sour crude oils. In addition,US growth optimism on strong economic indicators,potential further dollar weakness and growing inflationworries are keeping crude oil bulls happy. The mainupside risks concern a potential escalation in post-election unrest in Nigeria, a further deterioration in theMENA situation, and a more acute sweet crude shortage.However, a technical correction is unavoidable sooner orlater.

OPEC is insisting that the crude oil market isoversupplied which may be true from a sour crude

perspective. However, it can do very little to relieve thesweet crude shortage. Refinery activity was at a seasonallow when Libya left the market and the situation couldtherefore deteriorate further in Q2-11 as refineries rampup production. Indications suggest OECD crude oil andproduct inventories have begun to fall rapidly.

It is still too early to gauge the full impact of the currenthigh oil price on the global economy. So far it hasreduced growth in US consumer spending, but has notyet had an abrupt impact on worldwide economicactivity. The correlation between oil and equities is onceagain positive, with the US VIX index below 15%

indicating that financial markets are not over-concerned.

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

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NYMEXWTI

ICE Brent

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

310

320

330

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370

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

2006-2010 avg.

2010

2011


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

2010

(mb/d)

Revision

(kb/d)

2011

(mb/d)

Revision

(kb/d)IEA 87.9 +10 89.4 +/-0EIA 86.68 -10 88.20 +/-0

OPEC 86.55 +160 87.94 +110


5/20

5

Commodities Monthly

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

Brent futurBrent futurBrent futurBrent futures curvees curvees curvees curve(ICE, $/b)

96979899

100101102103104105106107108109110111112

113114115

jun-11

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104105106107108109110111112113114115116117118119120121122123124125126

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11-03-31

11-04-28

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

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

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2011

NYMEXGasoline

NYMEXHeating oil

110

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170

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210

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230

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250

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

Gasoline 2006-2010 avg.

Gasoline 2011

Distillate fuel oil 2006-2010 avg.

Distillate fuel oil 2011

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

US natural gasUS natural gasUS natural gasUS natural gas futufutufutufutures curveres curveres curveres curve(NYMEX, $/MMBtu)

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Chart Sources: Bloomberg, SEB C ommodity Research


6/20

6

Commodities Monthly

Nordic power

During April the power market was dominated by theaftermath of the Japanese earthquake and itsimplications for the future of nuclear power, as well as

weather issues and the spring flood. In Germany anearlier decision to extend the current nuclear programwas withdrawn as a result of the Japanese accident. Thenuclear debate in Europe and elsewhere is fierce andwhere it will end is very difficult to predict. We believe itwill be impossible to significantly replace existing nuclearcapacity in the foreseeable future without switching toCO2 intensive fossil fuel-based power generation. Fornow, other cleaner energy sources are not realisticalternatives and are also far more expensive. We believethat both the industry and the unions will do their best toturn public opinion around primarily because shuttingdown nuclear capacity is more than likely to reduceEuropean industrial competitiveness with obviousimplications for employment.

Spot prices fell in April on normal seasonality, i.e. fewerdark hours and higher temperatures. At the beginning ofthe month prices were above EUR 60/MWh but hit a lowof EUR 33.63/MWh over Easter when a low load inconjunction with the spring flood and warm weathercaused prices to collapse. While the warm and dryweather has acted as a short term bearish price driver itis bullish from a mid- to long term perspective as itworsens an already very stretched hydrological balance.

As a result forward prices have increased over the pastmonth. The spot market traded above EUR 50/MWh inthe last days of April. The April average was EUR53.84/MWh, EUR 10.37/MWh lower than in March. TheSwedish spot traded largely in line with the system price.

For the most part, forward prices moved sideways overthe month but finished higher. Q3-11 gained EUR2.05/MWh to close at EUR 56.25/MWh while YR-12gained EUR 2.20/MWh before closing at EUR52.35/MWh. The German curve remained stable duringthe period despite higher fuel prices, narrowing the

spread between markets with the German YR-12 nowtrading at a EUR 6.95/MWh premium to the Nordic YR-12after hitting a low of EUR 10.00/MWh in the first fewdays of April.

Going forward, we still believe prices will remainhigh. The spring flood continues. What remains isexpected to be very controlled with smeltingconcentrated in areas with very good reservoirfilling capacity due to their current low levels.Despite a possibility that the prompt end of thecurve may continue to ease slightly as a result of thespring flood and higher temperatures we expect its

back end to remain strong due to support from highfuel prices and the large hydro balance deficit.

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

20

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65

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

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65

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85

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95

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2011

EUA priceEUA priceEUA priceEUA price(ECX ICE, /t, Dec. 11, weekly closing)

5

10

15

20

25

30

35

2006

2007

2008

2009

2010

2011



7/20

7

Commodities Monthly

Industrial metals

Currently the industrial metals sector is exclusivelyconcerned with the outlook for a soft or hardlanding in China where the business cycle is

beginning to show signs of weakness. Authoritiescontinue to dampen economic activity by raisinginterest rates and reserve requirement ratios.Nevertheless, both economic growth and inflationremain strong. On the other hand, leading indicatorsare signalling a moderate downturn. Under currentcredit conditions and given present high levels ofuncertainty it is difficult to imagine a situation inwhich a sustained industrial metals rally couldoccur. Our overall short term view of the sector isneutral. A sharper than expected Chinese downturnis likely to have a strong bearish effect on industrialmetals prices. However, further out, their prospectsare significantly brighter. Although more Chineseinterest rate hikes are expected this summer,lending restrictions could be eased as early as H2-11if the economy cools to a desired level. In addition,Chinas fixed asset investments remain high withfurther plans to build tens of millions of low costhousing units under the 2011-2015 five year plan.The long term situation is further supported byJapanese reconstruction requirements, potentiallyrecovering OECD demand, and the fact that Chineserestocking needs are apparently increasing due to acombination of continued strong economic growth

and relatively weak metal imports. In the near termsoft spots could therefore be used to build long termpositions.

Chinese authorities continue to clamp down on energyinefficient industrial metals production and overcapacityeven though such efforts have proven relativelyunsuccessful historically. This is due to a cleardivergence between central government efforts towardmore efficient use of resources and local governmentsstrategy to boost regional employment and growth.However, current indications suggest the central

government will try to limit annual production growth often non-ferrous metals to 8% over the next five years.

Indifference in industrial metals markets todevelopments within the OECD has been well illustratedby their limited reaction to the European and USsovereign debt debacle, which implies strong austeritymeasures over the next decade, as well as industrialproduction disturbances resulting from componentshortages following the Japanese earthquake. The lack ofinterest in events within the OECD is probablyattributable to already modest demand growthexpectations that are more likely to surprise on the

upside than the down. For example, the US housingmarket remains depressed with housing starts stillaround 25% of pre-crisis levels.

LME indexLME indexLME indexLME index(weekly closing)

900110013001500170019002100230025002700290031003300350037003900

4100430045004700

2002

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2011

Industrial metal pricesIndustrial metal pricesIndustrial metal pricesIndustrial metal prices(LME, indexed, weekly closing, January 2010 = 100)

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90100

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feb-10

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okt-10

nov-10

dec-10

jan-11

feb-11

mar-11

apr-11

CopperNickel

Aluminium

Zinc

Lead

Tin

LME price andLME price andLME price andLME price and inventory changesinventory changesinventory changesinventory changes last monthlast monthlast monthlast month

-8-7-6-5-4-3-2-10123456789

10111213

Aluminium

Copper

Nickel

Zinc

Lead Ti

n

Steel

Price (%) Inventories (%)



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)

Chinese authorities have initiated a new wave of

clampdowns on inefficient production and capacity

expansion. Planned projects are to be haltedimmediately.

Reduced capacity expansion and energy efficiency

ambitions could compel China to become a net importeras early as this year although historically localgovernments have been reluctant to comply with centralgovernment mandates.

Prices are well supported by high input costs. Sensitivity

to changes in energy prices is however likely to be high.

While LME inventories remain stable SHFE inventories

are falling back. Anecdotal evidence also suggests thatunregistered Chinese inventories are falling.

0

500000

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LME price ($/t, right axis)

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

While LME and Chinese bonded warehouse inventories

appear to be rising Chinas industry inventories are likelyto trend lower together with SHFE inventories. Extensiverestocking should therefore be expected later this year.

We believe copper prices are well supported in both the

short and long term and do not expect prices below$8500/t during periods of temporary risk aversion.

The International Copper Study Group (ICSG) forecasts a

market deficit of 377 kt in 2011 and 279 kt in 2012. The second round of the Peruvian presidential election in

June will be extremely important for the copper market.If Ollanta Humala wins, which could happen, contractswith foreign mining companies will be renegotiatedwhich could have a negative effect on supply.

0

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NickelNickelNickelNickel LME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventories(weekly data)

So far this year the nickel market has been supported by

solid demand, falling LME inventories and supply

disruptions. The outlook is however worse. While the market appears

likely to be in deficit in H1-11, a surplus appears morelikely during H2.

The International Nickel Study Group (INSG) expects a

full year surplus of 60 kt.

Chinese nickel pig iron (NPI) supply represents the

greatest market uncertainty and is likely to determine themarkets eventual balance.

Our long term price target remains around $20000/t.

0

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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)

The zinc market remains in oversupply with prices well

above production costs. It therefore continues to

represent one of the weakest segments of the industrialmetals sector.

The International Lead and Zinc Study Group (ILZSG)

expects this years increased supply to exceed growth indemand for a fifth consecutive year. It forecasts a marketsurplus of 200 kt.

While the zinc market appears relatively balanced next

year, it may be in deficit in 2013. We see a predominantrisk that the surplus will continue into 2012.

LME inventories once again moved higher in April while

SHFE inventories also continued their uptrend. 0

100000

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4500



SteelSteelSteelSteel LME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventories

(weekly data)

Sluggish MENA steel demand gives a bearish flavour to

the European steel market.

Chinese economic cool down efforts are making marketstakeholders careful.

An approaching mild inventory cycle with rising steel

inventories is also putting a lid on the upside for steelproducts.

Mainly sideways prices in April with small price changes

in most steel products.

Iron ore is trading at $181.5/t, up 4.4% m/m while cokingcoal was negotiated as high as $330/t in April.

The European steel market looks sideways to bearish

over the nearest months.0

10000

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okt-08

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LME inventoris (t, left axis)


LME lead price and inventoriesLME lead price and inventoriesLME lead price and inventoriesLME lead price and inventories(weekly data)

LME tin price and inventoriesLME tin price and inventoriesLME tin price and inventoriesLME tin price and inventories(weekly data)

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LME inventoris (t, left axis)




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)

2575

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maj-11

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

Zinc futures curveZinc futures curveZinc futures curveZinc futures curve(LME, $/t)

23000

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feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

feb-15

maj-15

11-02-28

11-03-31

11-04-28

2225

2250

2275

2300

2325

2350

2375

2400

2425

2450

2475

2500

2525

2550

2575

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

feb-15

maj-15

11-02-28

11-03-31

11-04-28

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

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

2375

2400

2425

2450

2475

2500

2525

2550

2575

2600

26252650

2675

2700

2725

2750

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

feb-15

maj-15

11-02-28

11-03-31

11-04-28

31650

31700

31750

31800

31850

31900

31950

32000

32050

32100

3215032200

32250

32300

32350

32400

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

11-02-28

11-03-31

11-04-28



11/20

11

Commodities Monthly

Precious metals

Our short term gold market view remains bullish onEuropean and US sovereign debt fears, inflationworries, the current bearish dollar trend and high

geopolitical risk. Our bullish long term view ishowever beginning to moderate due to a potentialdollar bullish end to QE2 and expectations of USinterest rate hikes in early 2012. In addition, Chineseinflation is likely to begin to show signs of slowinggoing forward, resulting in reduced demand forinflation hedging. Gold could therefore peakbetween $1700-1800/ozt this year. However,European and US sovereign debt concerns areunlikely to recede and therefore represent thegreatest upside risk to the gold market togetherwith a situation in which inflation accelerates. Keydownside risks include a stronger than expected

economic recovery and a sharp upturn in the dollar.

Although Chinese inflation continues to rise, substantialtightening measures already implemented should soonbegin to impact. Still, real interest rates are likely toremain negative into the second half of this year. As aresult, its inflation hedging demand may not yet havepeaked. In Europe headline and core inflation are risingrelatively rapidly although ECB rhetoric has becomeincreasingly hawkish. However, the division betweeneconomically stronger northern Europe and the weakersouth is increasing. This creates problems for the ECB

when raising interest rates. In the US inflation is alsorising although the Fed appears confident that it willremain acceptable and has expressed no intentions yetof hiking interest rates in 2011. Gold bulls are howeversceptical concerning the central banks ability to controlthe situation and therefore strongly prefer gold and silverto paper money. Overall however, the real interest rateenvironment appears likely to remain gold supportiveduring the rest of this year, at least throughout the thirdquarter. Potentially softer food and energy prices couldhelp dampen inflation in H2-11.

While most people still consider the US AAA rating assacrosanct in current circumstances S&Ps outlookrevision from stable to negative managed to move themarket. As long as US politicians fail to agree on how tohandle mounting debt over the coming decade the USwill follow the same course as Europe from a sovereigndebt perspective. European and US leaders are obviouslyequally unwilling to decide on measures that risk turningtheir voters against them. In Europe, markets areincreasingly focusing on potential Greek debtrestructuring after Portugal gave in to pressure andasked to be bailed out. Greek restructuring is howeverunlikely to be implemented before its budget has been

rebalanced once again. Restructuring in itself is notnecessarily bullish for gold if performed in a controlledmanner.

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

8090

100110120130140150160170180190200210220230240250260

270280290

jan-10

feb-10

mar-10

apr-10

maj-10

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

mar-11

apr-11

Silver

PlatinumGold

Palladium

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

30

34

38

42

46

50

54

58

62

66

70

74

78

82

86

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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

-1

0

1

2

3

4

5

6

7

8

910

11

12

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)

We maintain our bullish outlook for gold despite the fact

that the long term view is being undermined by potential

renewed dollar strength and the inflation dampeningeffects of Chinese monetary tightening.

A short term bullish view is largely justified by European

and US sovereign debt concerns, inflation worries, thecurrent bearish dollar trend and high geopolitical risk.

Demand for coins and bars remains strong.

Physical gold Exchange Traded Product (ETP) holdings

continued to recover in April, increasing 43 tonnes to2070 tonnes, while remaining below late 2010 highs(2115 tonnes).

Long speculative positions in COMEX gold have againincreased during the past two months but remain below

record highs.

200

300

400

500

600

700

800

900

1000

1100

1200

13001400

1500

1600

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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

Extremely strong demand for physical investment

products, mainly coins, bars and ETPs have driven silverclose to the 1980 nominal record high, i.e. $50/ozt.However, in real terms prices need to move above$140/ozt to post a new top.

The US mint is currently selling four times as many silvercoins as they have historically.

Physical gold Exchange Traded Product (ETP) holdings

posted a new record high in late April at 15518 tonnes. Meanwhile silver supply is growing and the market

heading towards a surplus in 2011.

Considering the retail silver hype and exceptionally

strong silver outperformance vs. gold, we see increasingevidence that violent corrections lower like the one inearly May are likely to continue to occur.

2468

101214161820

222426283032343638404244464850

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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

As expected Japanese data show vehicle production

more than halved following the earthquake and tsunami

in early March. Production elsewhere in the world hasalso been severely affected due to componentshortages.

With normalization expected during Q2 demand for

palladium and platinum should recover with bullishimplications.

The long term outlook for palladium vs. platinum is morebullish due to a tighter supply situation and its use ingasoline powered cars favoured in China.

Physical platinum and palladium ETP holdings rose to 43

and 69 tonnes respectively in April. 100

200

300

400

500

600

700

800

900

1000

1100

2

002

2

003

2

004

2

005

2

006

2

007

2

008

2

009

2

010

2

011

300

550

800

1050

1300

1550

1800

2050

2300

Palladium (left axis)

Platinum (right axis)



13/20

13

Commodities Monthly

Precious metalsGoldGoldGoldGold futures curfutures curfutures curfutures curveveveve(COMEX, $/ozt)

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

1400

1450

1500

1550

1600

1650

1700

1750

1800

jun-11

sep-11

dec-11

mar-12

jun-12

sep-12

dec-12

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

11-02-2811-03-31

11-04-28

32

33

34

35

36

37

38

39

40

41

42

43

4445

46

47

48

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

feb-15

maj-15

aug-15

nov-15

11-02-28

11-03-31

11-04-28

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

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

760

765

770

775

780

785

790

795

800

805

810

jun-11

sep-11

dec-11

mar-12

jun-12

11-02-28

11-03-31

11-04-28

1770

1780

1790

1800

1810

1820

1830

1840

1850

1860

jul-11

okt-11

jan-12

apr-12

jul-12

11-02-28

11-03-31

11-04-28

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)

1100

1200

1300

1400

1500

1600

1700

1800

1900

2000

2100

2200

jan-10

feb-10

mar-10

apr-10

maj-10

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

mar-11

apr-11

Silver holdings / 10

Gold holdings

20

25

30

35

40

45

50

55

60

65

70

75

jan-10

feb-10

m

ar-10

apr-10

maj-10

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

m

ar-11

apr-11

Palladium

Platinum



14/20

14

Commodities Monthly

Agriculture

We expect agricultural commodity prices tocontinue to trend lower for the rest of this year asproduction estimates are raised and risk premiums

lowered due to the diminishing effects of the LaNia weather anomaly. The current NationalOceanic and Atmospheric Administration (NOAA)forecast suggests that global weather patterns willhave normalized by June. Due to generally highagricultural prices, upside risk is limited by demanddestruction. However, inventories for severalagricultural commodities are low and sensitivity todisturbances therefore very high. As bothdecreasing La Nia related disturbances and normalvariations will continue to hamper production weexpect further temporary price rallies during the restof the year. Current examples include extremely dry

conditions in the US Great Plains where winterwheat is growing, and cold, wet conditions in thenorthern United States where soybeans, corn andspring wheat are about to be planted. In the grainssector, corn is most exposed to disruptions andcould also pull other associated crops higherthrough substitution effects.

According to the International Grains Council (IGC) theoutlook for grain production in the 2011/2012 season isfavourable. IGC expects production to increase by 4.5%after weather disturbances weighed on production in the

previous harvest year. Consumption is forecast toincrease by a more modest 1.5% but will slightly exceedsupply in absolute terms. The current forecast thereforesuggests a relatively well balanced market. IGC alsoprojects record high grain consumption during thecurrent season.

Soft commodity prices generally also continue to fallback. Sugar prices began to decrease earlier this year onstrong Brazilian and Thai production and have recentlybeen joined by cotton. Exceptionally high cotton priceshave finally caused demand to slow down resulting incancelled orders. Although the general sector is trendingtowards lower prices there are some exceptions. Arabicacoffee has continued to move higher, trading above$3/lb for the first time ever. The coffee market issupported by strong demand, record low inventories andproduction disruptions in several major producernations. The situation originated with three consecutivedisappointing Columbian crop years. However, givencurrent record high prices, demand destruction is boundto put an end to the coffee rally sooner or later.

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

70

80

90

100

110

120

130

140

150

160

170

180

190

jan-10

feb-10

mar-10

apr-10

maj-10

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

mar-11

apr-11

Wheat

SoybeansCorn

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)(USDA, yearly data updated monthly)

50

60

70

80

90

100

110

120

130

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

Wheat

Soybeans

Corn

Chart Sources: Bloomberg, USDA, SEB Commodity Research


15/20

15

Commodities Monthly

AgricultureCornCornCornCorn Corn priceCorn priceCorn priceCorn price

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

Snow, rain and cold weather continue to delay US

planting with acreage losses to soybeans and lower

yields the potential result if conditions do not improve. Due to low inventories, the corn market will remain

highly sensitive to future disruptions.

Although demand destruction and substitution appear to

be holding back the corn market, high oil prices continueto stimulate demand from ethanol producers.

According to the US Department of Agriculture (USDA)

global 2010/2011 ending stocks will reach 71.0 days ofsupply, some 24% below their 10-year average.

Even though high prices stimulate planting the IGC

expects consumption to slightly exceed productionduring the 2011/2012 season. A record crop is needed to

relieve the tight inventory situation.

100

200

300

400

500

600

700

800

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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

While dry conditions in the US heartland, Europe and

China are damaging the developing winter wheat crop,rain in the northern US and Canada is delaying springwheat planting. However, conditions are now showingsigns of improvement on several fronts.

The US winter wheat situation is the most severe in living

memory. USDA now rates 41% of the crop as poor orvery poor compared with 7% last year. This situation

could result in a tighter supply of high quality wheat. Global wheat inventory estimates for the end of the

2010/2011 season remain relatively solid at 96.9 days ofsupply, some 3% above their 10-year average.

IGC expects a well balanced market in the 2011/2012

season. We regard wheat as the weakest grain althoughbullish influences could come from the more strainedcorn market.

200

300

400

500

600

700

800

900

1000

1100

1200

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

SoybeansSoybeansSoybeansSoybeans Soybean pricSoybean pricSoybean pricSoybean priceeee(CBOT, /bu, front month, weekly closing)

Potential record crops in Brazil and Argentina havebegun to enter the market, exerting bearish pressure onprices.

Although the USDA expects US soybean acreage to

decrease this year, delayed corn planting could result inacreage being transferred to soybeans.

The USDA estimates global 2010/2011 ending stocks at

81.4 days of supply, some 1% above their 10-yearaverage, although US inventories are significantlytighter.

Strong Chinese imports appear to have replenished

inventories and could lead to a period of softer demandeven though the long term demand outlook remainsfirm.

We regard soybean fundamentals as stronger than thoseof wheat but weaker than corn.

400

600

800

1000

1200

1400

1600

1800

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011



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)

500

525

550

575

600

625

650

675

700

725

750

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

aug-13

nov-13

feb-14

maj-14

aug-14

nov-14

11-02-28

11-03-31

11-04-28

725

750

775

800

825

850

875

900

925

950

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

11-02-28

11-03-31

11-04-28

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

SugarSugarSugarSugar(NYBOT, /lb)

1200

1225

1250

1275

1300

1325

1350

1375

1400

1425

1450

maj-11

aug-11

nov-11

feb-12

maj-12

aug-12

nov-12

feb-13

maj-13

aug-13

nov-13

11-02-28

11-03-31

11-04-28

0

5

10

15

20

25

30

35

40

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

CottonCottonCottonCotton(NYBOT, /lb)

CocoaCocoaCocoaCocoa(NYBOT, $/t)

20

40

60

80

100

120

140

160

180

200

220

2

002

2

003

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011

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2200

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2600

2800

3000

3200

3400

3600

3800

2

002

2

003

2

004

2

005

2

006

2

007

2

008

2

009

2

010

2

011



17/20

17

Commodities Monthly

Commodity related economic indicatorsEUROZONE Current Date Previous Date NextIndustrial production (%, YoY) 7,5 2011-02-28 6,3 2011-01-31 2011-05-12

Industrial production (%, MoM) 0,5 2011-02-28 0,2 2011-01-31 2011-05-12

Capacity utilization (%, sa) 80,0 2011-03-31 78,1 2010-12-31

Manufacturing PMI 58,0 2011-04-30 57,5 2011-03-31 2011-05-02

Real GDP (%, YoY) 2,0 2010-12-31 2,0 2010-09-30 2011-05-13

Real GDP (%, QoQ, sa) 0,3 2010-12-31 0,4 2010-09-30 2011-05-13

CPI (%, YoY) 2,7 2011-03-31 2,4 2011-02-28 2011-05-16

CPI (%, MoM) 1,4 2011-03-31 0,4 2011-02-28 2011-05-16

Consumer confidence -11,6 2011-04-30 -10,6 2011-03-31 2011-05-20

USA

Industrial production (%, YoY) 5,9 2011-03-31 5,6 2011-02-28

Industrial production (%, MoM) 0,8 2011-03-31 0,1 2011-02-28 2011-05-17

Capacity utilization (%) 77,4 2011-03-31 76,9 2011-02-28 2011-05-17


Real GDP (%, YoY) 2,3 2011-03-31 2,8 2010-12-31

Real GDP (%, QoQ, saar) 1,8 2011-03-31 3,1 2010-12-31 2011-05-26

CPI (%, MoM) 2,7 2011-03-31 2,1 2011-02-28 2011-05-13

CPI (%, MoM, sa) 0,5 2011-03-31 0,5 2011-02-28 2011-05-13

OECD Composite Leading Indicator 103,2 2011-02-28 102,9 2011-01-31Consumer confidence (Michigan) 69,8 2011-04-30 67,5 2011-03-31 2011-05-13

Nonfarm payrolls (net change, sa, 000) 216 2011-03-31 194 2011-02-28 2011-05-06

JAPAN

Industrial production (%, YoY, nsa) -12,9 2011-03-31 2,9 2011-02-28 2011-05-19

Industrial production (%, MoM, sa) -15,3 2011-03-31 1,8 2011-02-28 2011-05-19

Capacity utilization (%, sa) 93,7 2011-02-28 91,1 2011-01-31


Real GDP (%, YoY, nsa) 2,2 2010-12-31 4,9 2010-09-30

Real GDP (%, QoQ, sa) -0,3 2010-12-31 0,8 2010-09-30 2011-05-19

CPI (%, YoY) -0,1 2011-04-30 -0,2 2011-03-31 2011-05-27

CPI (%, MoM) 0,3 2011-03-31 -0,1 2011-02-28

OECD Composite Leading Indicator 105,4 2011-02-28 104,5 2011-01-31

Consumer confidence 38,3 2011-03-31 40,7 2011-02-28

CHINAIndustrial production (%, YoY) 14,8 2011-03-31 14,9 2011-02-28 2011-05-11


Real GDP (%, YoY) 9,7 2011-03-31 9,8 2010-12-31 2011-07-15

CPI (%, YoY) 5,4 2011-03-31 4,9 2011-02-28 2011-05-11

OECD Composite Leading Indicator 101,9 2011-02-28 101,8 2011-01-31

Consumer confidence 107,6 2011-03-31 99,6 2011-02-28

Bank lending (%, YoY) 17,9 2011-03-31 17,7 2011-02-28

Fixed asset investment (%, YoY) 23,8 2010-12-31 24,0 2010-09-30

OTHER

OECD Area Comp. Leading Indicator 103,2 2011-02-28 103,0 2011-01-31

Global manufacturing PMI 55,8 2011-03-31 57,4 2011-02-28

Sources: Bloomberg, SEB Commodity Research


18/20

18

Commodities Monthly

PerformanceClosing YTD

(%)1 m(%)

1 q(%)

1 y(%)

5 y(%)

UBS Bloomberg CMCI Index (TR) 1481,64 8,8 1,3 38,4 30,3 42,7UBS Bloomberg CMCI Index (ER) 1393,86 8,7 1,3 38,1 30,1 29,3UBS Bloomberg CMCI Index (PI) 1761,07 8,7 1,1 42,5 33,3 71,1UBS B. CMCI Energy Index (PI) 1766,53 22,6 5,0 44,1 27,9 44,8UBS B. CMCI Industrial Metals Index (PI) 1330,75 3,2 0,1 32,6 18,2 32,7UBS B. CMCI Precious Metals Index (PI) 2424,41 12,2 8,4 54,6 40,4 139,5UBS B. CMCI Agriculture Index (PI) 1922,95 -2,2 -3,0 43,8 51,5 106,9Baltic Dry Index 1269,00 -29,3 -17,1 -29,3 -62,2 -46,4

Crude Oil (NYMEX, WTI, $/b) 112,86 23,5 5,8 54,8 31,0 57,0Crude Oil (ICE, Brent, $/b) 125,02 31,9 6,5 75,0 43,0 73,6Aluminum (LME, $/t) 2767,50 12,0 4,5 33,1 22,7 0,5Copper (LME, $/t) 9320,00 -2,9 -1,1 38,2 25,4 33,3Nickel (LME, $/t) 26850,00 8,5 2,9 45,1 2,1 39,3Zinc (LME, $/t) 2247,00 -8,4 -4,9 6,5 -1,7 -29,2Steel (LME, Mediterranean, $/t) 559,00 -1,9 0,7 35,5 6,5Gold (COMEX, $/ozt) 1531,20 7,7 6,4 41,4 29,7 133,9

Corn (CBOT, /bu) 723,00 14,9 4,3 102,8 97,4 203,5Wheat (CBOT, /bu) 743,00 -6,5 -2,7 56,8 51,1 114,6Soybeans (CBOT, /bu) 1350,25 -3,1 -4,3 47,7 36,5 129,9

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, 22.00 CET www.usda.gov

International Energy Agency, Oil Market Report May12 www.oilmarketreport.com

OPEC, Oil Market Report May 11 www.opec.org

Department of Energy, Short Term Energy Outlook May 10 www.eia.doe.gov

US Department of Agriculture, WASDE May 11 www.usda.gov

International Grains Council, Grain Market Report May 26 www.igc.org.uk

OPEC ordinary meeting, Vienna, Austria June 8 www.opec.orgSources: Bloomberg, SEB Commodity Research

Contact listCOMMODITIES Position E-mail Phone MobileTerje Anderson Global Head of

[email protected] +47 22 82 71 03 +47 92 61 26 76

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 SWEDEN

Katarina Johnsson Corporate [email protected] +46 8 506 233 95 +46 73 501 52 02Karin Almgren Institutional [email protected] +46 8 506 230 51 +46 73 642 31 76

SALES NORWAY

Maximilian Brodin Corporate/Institutional [email protected] +47 22 82 71 62 +47 92 45 67 27

SALES FINLAND

Vesa Toropainen Corporate/Institutional [email protected] +358 9 616 286 08 +358 50 597 000 6

SALES DENMARK

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

TRADING

Mats Hedberg Chief Dealer [email protected] +46 8 506 230 15 +46 70 462 29 78


19/20

19

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. All

information 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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www.seb.se/mb

seb commodities monthly: waiting for a technical correction

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