Commodities Monthly: Bullish market disguised in bearish corrections

8/6/2019 Commodities Monthly: Bullish market disguised in bearish corrections

1/20

SEB Commodities MonthlyBullish market disguised in bearishcorrections

31 MAY 2011


2/20

2

Commodities Monthly

Bullish market disguised in bearish corrections

GENERAL 0-3 M 4-6 M 7-12 M We expect sideways and volatile commodity markets in the

months ahead as growth momentum and leading indicators

are likely to weaken further and risk appetite is tempered byEuropean sovereign debt, the end of QE2 and Chineseslowdown worries

We recommend using the volatility bursts to build long

commodity positions as the global recovery remains on trackwith growing demand and strained supply

ENERGY 0-3 M 4-6 M7-12 M Investors shed some speculative length during the May

correction but are still substantially long and further correctivesell-offs are therefore likely on periods of general risk aversion

However geopolitical risk is high (MENA), with escalations in

Yemen and Syria, and fundamentals remain strong

The shortage of sweet crude oil due to the Libyan outage isgoing to test the market over the coming months as refineriesin the Atlantic basin ramp up production

INDUSTRIAL METALS 0-3 M4-6 M7-12 M The industrial metal sector remains highly vulnerable to

indications of China moving towards a hard landing but is alsobeing impacted by OECD slowdown worries

Sideways and volatile price action in the months ahead willcreate attractive buying opportunities

We recommend buying copper on dips into the $8500-9000/t

range as Chinese destocking eventually comes to an end

We recommend buying aluminium on dips below $2500/t as

demand recovery and energy prices will offer supportPRECIOUS METALS 0-3 M4-6 M7-12 M The gold market rests on solid support mainly from a high

level of uncertainty and fear regarding the European sovereigndebt situation in general and the Greek in particular

A widespread negative real interest rate environment, centralbank buying and growing Asian demand all remain supportive

However, we see a non negligible risk that dollar strength and

falling Chinese inflation at least temporarily could put an endto the gold rally during the second half of 2011

AGRICULTURE 0-3 M4-6 M7-12 M Short to medium term fundamentals in the agricultural sector

have strengthened significantly, e.g. on widespread droughthitting winter crops in several regions.

Consequently, we upgrade our short term view from neutral to

mildly bullish since the upside is likely to be limited by demanddestruction.

Due to low inventory levels, at least for corn and soybeans,

and relatively easy substitution we expect the grainmovements to be fairly synchronized.

The long term view remains bearish as the probability ofurther adverse weather falls with the fading La Nia cycle

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

COMMODITIES MONTHLY WILL NOW TAKE A SUMMERBREAK UNTIL SEPTEMBER

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

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Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

General

Over the next few months, we expect a volatile andrange-bound commodity market to provideattractive buying opportunities. The global recovery

continues, a view supported by the G8 statement atthe end of May confirming that the global economyis in general strengthening and becoming more self-sustained. However, despite continuing growthand the sustained recovery, growth momentum,PMIs and consequently risk appetite are flagging.Markets remain unsure whether to expect a hard orsoft landing in China given its current monetarypolicies to dampen inflation and excessive growth.Further, EU peripheral debt concerns are rising,investors are wary as the end of US QE2 approachesand the inventory cycle is creating a soft-patch in IPgrowth momentum. Despite decreasing during the

May commodity correction, current speculativepositions remain high implying the possibility offurther volatile corrective action.

After reaching record highs at the beginning of April,commodities corrected strongly at the start of May. Atthe height of the sell-off, Bloombergs broad CMCIcommodity index closed down 7.3% compared to theend of April, and up to 9.2% lower relative to its Aprilhigh. The correction occurred against the background ofrecord high speculative positions in many commoditiesand low volatility levels and was triggered by an ECB

statement declaring that even if rate hikes had startedthis did not imply that they would rise rapidly. Thisindication rapidly reversed USD depreciation, sendingthe USD index as much as 4.35% higher in Maycompared to its April close. The ECBs comments cameamid growing concerns regarding the Europeanperipheral debt situation including rapidly rising bondyields especially in Greece and Ireland which also lentsupport to the USD and reduced risk appetite generally.

At the end of May, the realization that China intended tobuy Eurozone bailout bonds slightly eased marketconcerns surrounding the Greek debt crisis. Also,markets regarded as positive the fact that Europeanimplementation of Basel III will be somewhat easier onEuropean banks than had been feared, and wereimpressed by the G8s reassuring statement on theglobal economy. As a result commodities have partlyrecovered previous losses while USD depreciation hasresumed. Nevertheless, gold stands only 1% off its all-time high, the Swiss franc is record strong against boththe USD and euro, while yields on 10-year US andGerman government bonds have declined to around 3%.In other words, risk aversion and recovery concerns stillstalk the markets.

If we neutralize the USD effects in the movements ofCMCI commodity index by dividing it by the USD indexwe get that it is marginally down year to date.

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4/20

4

Commodities Monthly

Crude oil

The May sell-off in crude oil reduced speculativepositions sharply though prices fell much less. Thispartly reflects reduced investor risk appetite due to

increased uncertainty concerning the upcoming endof QE2, at the same time as physical marketparticipants find current prices attractive based onstrong fundamentals. In our opinion, the worst ofthe technical sell-off is over leaving us bullish forQ2-11 with an average price forecast of $120/b. Wealso regard risk as biased to the upside as refineriesramp up production ahead of the start of the USdriving season, exacerbating the effect of the sweetcrude shortage caused by events in Libya. Our priceoutlook for H2-11 is relatively conservative andincludes a projected oil price of $105/b. Firstly, weexpect oil demand to ease following this summersdriving and flying season. Secondly, it remains tooearly to assess the demand destruction effect ofcurrent high oil prices. Thirdly, we should have aclearer idea by the end of the summer when at leastsome Libyan oil production will be back on-linedespite uncertain developments going forward. Still,we regard price risk as lying above $105/b with theMENA situation the pivotal factor. A deterioratingglobal macroeconomic situation, including aChinese hard landing, radical European peripheraldebt eruption or stumbling US recovery, takentogether with an improved MENA situation would

clearly depress the Brent crude oil price below$105/b although this is not our main scenario.

In Libya positions remain locked, with significantvolumes of oil unlikely to be back on the market beforethe end of the year whatever the scenario. Elsewhere inthe region, Yemens president Saleh continues to avoidresponding to peace initiatives from the GulfCooperation Council, bringing his country to the verge ofcivil war, and threatening to destabilize the MENA regionfurther. In Syria protests continue despite indiscriminatekilling by security forces, fanning further discontent.

In China little rain has fallen resulting in low hydroreserves which have forced authorities to rationelectricity. In addition, due to the high cost of coal andregulated power prices producers with coal fired powerplants have become reluctant to produce. At the sametime, authorities are disinclined to raise power prices,mirroring inflation concerns. We expect consumers toswitch to diesel-generated sources instead.

US demand remains surprisingly resilient despite currenthigh prices. Implied demand for both gasoline anddistillates is consistent with normal seasonality. The

definitive test of demand will take place over the summerdriving season lasting from Memorial Day until LabourDay.

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

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(kb/d)IEA 87.9 +/-0 89.2 -200EIA 86.68 +/-0 88.08 -120

OPEC 86.67 +120 88.08 +140


5/20

5

Commodities Monthly

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

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

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

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Chart Sources: Bloomberg, SEB C ommodity Research


6/20

6

Commodities Monthly

Nordic power

At the end of May, a decision regarding the future ofnuclear power in German finally came. The seven plantstaken offline in the three month moratorium on reactor

lifetime extensions after the Japanese incident in Marchwill be permanently close. The rest of the reactors will gooffline in 2021. There is one possible exception however,if the transition to renewable energy does not go asquickly as planned three of the plants will be allowed tocontinue operating until 2022. Even though the markethad priced in most of this after a month of speculationsand rumours, it traded up rapidly during the last days ofMay.

In May, the Nordic power market was dominated by verywet weather that pushed prices lower and finallyimproved the much strained hydro-balance somewhat.The deficit shrunk from -35 to -24 TWh m/m, which is anunusually large move but still small relative to the totaldeficit.

Despite the wet weather, spot prices in May deliveredvery high and stable averaging at EUR 54.49/MWh, upEUR 0.65/MWh compared to April. That is yet again aclear sign that producers are in good control and that thesystem can still absorb huge volumes of water. TheSwedish spot traded largely in line with the system price.In Germany spot prices picked up much more during Mayand delivered EUR 2.34/MWh above the Nordic system

price at EUR 56.83/MWh, which is the largest premiumsince October 2009.

In spite of the German decision, all parts of the Nordicforward curve retreated in May. Q3-11 lost EUR1.30/MWh and closed at around EUR 55.00/MWh whileYR-12 lost EUR 0.40/MWh and closed at around EUR51.95/MWh. The German curve was stable during mostof the month but gained a lot on the nuclear decision. Asa result of this the spread between Nordic and GermanyYR-12 widened EUR 1.75/MWh m/m to around EUR8.70/MWh.

Looking ahead, we are still comfortable in our beliefthat Nordic power prices will remain strong. Despitewet weather and the resulting improvement in thehydro-balance, support from stable spot prices, theGerman nuclear shutdown and firm fuel prices willoffer good support. A large German vs. Nordic YR-12premium, which signals export, as well as a largehydro deficit are very bullish signals going forward.

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

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7/20

7

Commodities Monthly

Industrial metals

The outlook for the industrial metal sector is beingobscured by the slowdown in OECD growth impliedby softer economic indicators, as well as

uncertainty regarding the effect of measures totighten Chinese monetary policy. General riskappetite is also being undermined by concernsconnected with the upcoming end of QE2, whichtogether with the continued deterioration of theEuropean sovereign debt situation has hurtcommodities due to the strong dollar. Consequently,general price levels have fallen back in line withthose last seen in Q4-10. Despite further high shortterm uncertainty, we regard current prices asattractive for accumulating long term positions.However, we do not expect industrial metal indicesgenerally to increase beyond previous highs, at leastuntil late this year. Instead, we foresee range-boundand volatile trading as industrial metals seek a newbase from which to advance after softening over thesummer. While we still recommend selectiveexposure, preferring copper and aluminium to nickeland zinc, a broader investment profile is once againattractive following the recent market pricecorrection. However, there is some risk of morebearish short term downside in the event of asustained dollar rally when QE2 ends and the Fedpotentially signalling upcoming interest rate hikes.

Following eight reserve requirement ratio (RRR)increases, four interest rate rises and the renminbistrengthening 5% against the US dollar, we believeChinese authorities have probably completedimplementation of most planned measures to curbinflation and dampen economic activity. Given the usuallag of between six and 24 months before the effects ofsuch measures become apparent, we expect their effectsto become increasingly apparent going forward,intensifying discussions on whether the country faces asoft vs. hard landing. The countrys reluctance to buymetals when prices are high was already apparent earlier

this year with prices near record highs. However, in viewof continued strong industrial activity, industryinventories must have fallen resulting in a greater needto restock. Anecdotally, buying interest may well haveincreased in May as consumers took the opportunity torestock partially on price weakness.

The worst drought in 50 years has hit Chinese hydropower production hard. As a result, power rationing wasintroduced in several provinces in April, a s ituation whichis bound to worsen over the summer as consequentlyreduced industrial activity adversely impacts both metalproduction and consumption. The energy intensive early

segment of the value chain will most probably be worstaffected, hitting supply even harder than demand withincreasing supply tightness as a result.

LME indexLME indexLME indexLME index(weekly closing)

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8/20

8

Commodities Monthly

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

(weekly data)

Chinese power rationing will probably have a negative

effect on domestic aluminium supply in particular, with

potentially stronger import demand going forward. High marginal production costs, possibly as high as

$2500/t, have built a strong floor under aluminiumprices, skewing price risk to the upside from currentlevels. We expect aluminium to rebound above $2800/tquickly when general sentiment turns bullish again.

Bearishly, however, the market remains in surplus this

year and probably also in 2012-13.

Although LME inventories are at record highs, a major

share in both the US and Europe is tied up in f inancialtransactions and warehouse queues. As a result thephysical market is in fact significantly tighter than itappears.

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

Anecdotal evidence suggests that Chinese bonded

warehouse inventory levels have begun to decrease aslower prices trigger restocking demand, a trend alsoreflected in the narrowing LME vs. SHFE premium.

Stabilizing or falling SHFE, LME and COMEX copper

inventories also suggest the copper market is tightening.

We recommendation to build long copper positions in

the $8500-9000/t range as we expect the market to

remain tight until at least the end of next year with pricesrising well above $10000/t before moving lower again.

Long term, copper will be strongly supported by Chinasambitious plans to build low cost housing.

Speculative positions in COMEX copper have fallen

sharply implying scope to accumulate new longs.

The Peruvian election scheduled for June poses a bullishevent risk if Ollanta Humala wins.

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

LME inventories have continued to fall in May on strong

demand from the stainless steel industry as well assupply disruptions. However, recent trends suggestinventories may be starting to reverse.

So far, the market appears to have successfully absorbed

strong production growth in China.

We expect the nickel market to reverse from deficit to

surplus moving into the second half of this year, withresulting further price weakness.

We will remain bearish on nickel until prices fall to a

fundamentally sound level around $20000/t.

Power rationing in China represents potential upside risk

as it could hurt NPI production going forward. 0

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9/20

9

Commodities Monthly

Industrial metalsZinZinZinZincccc LME zinc price and inventorieLME zinc price and inventorieLME zinc price and inventorieLME zinc price and inventoriessss

(weekly data)

While for this year, the zinc market still appears

oversupplied, we believe it could move into balance in

2012. However, the market may tighten earlier thananticipated due on weaker Chinese production andmetal being tied up in financing deals.

Currently, we see little value in zinc above $2000/t.

Recently released data from the International Lead and

Zinc Study Group (ILZSG) concerning the zinc marketshowed supply of refined zinc exceeding demand by111,000 tonnes, a 4.8% y/y increase in mine output, a4.7% rise in refined output, and 6% higher consumption.

According to documents released in connection with the

Glencore IPO the company controls 60% of marketablezinc output worldwide, implying potentially significantpricing power concerning zinc production.

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SteelSteelSteelSteel LME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventories(weekly data)

Chinese 62% iron ore corrected 5.7% down in May

versus the April close which also coincided with a 6.3%fall in the Shanghai equity index over the same period.

LME 3 month steel billets closed between $535/t and

$566/t in May closing the moth at $566/t, up 1.25%versus the April close.

In Europe domestic shredded scrap was down 5.2%while domestic European HRC was down 9.4% andNorth American, Midwest HRC was down 6.4% in May

With weakness in iron ore in China, scrap in Europe andHRC in both the US and Europe we expect to seeweakness also in LME steel billets ahead. The ongoinginventory cycle driven soft-patch and flagging growthmomentum should also put a lid on the upside for aperiod.

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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)

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11-05-27

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

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

21500

22000

22500

23000

23500

24000

24500

25000

25500

26000

26500

27000

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

11-03-31

11-04-28

11-05-27

2225

2250

2275

2300

2325

2350

2375

2400

2425

2450

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

11-03-31

11-04-28

11-05-27

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

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

2400

2425

2450

2475

2500

2525

2550

2575

2600

26252650

2675

2700

2725

2750

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

11-03-31

11-04-28

11-05-27

27000

27400

27800

28200

28600

29000

29400

29800

30200

30600

31000

31400

31800

32200

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

11-03-31

11-04-28

11-05-27



11/20

11

Commodities Monthly

Precious metals

Our bullish short term view on gold remains strongon widespread disagreement between Europeanleaders concerning Greece. Contagion risk has also

increased. In addition, OECD central banks remainreluctant to meet rising inflation with interest ratehikes, fearing adverse effects on the recovery.Meanwhile, Chinese inflation looks likely to increasefurther despite several rate hikes. Gold is thereforelikely to continue to be supported by safe haven andinflation hedge demand at least during Q3-11. Themain threat over this period is potential dollarappreciation. Although it has been suggested thatthe end of QE2 could drive the dollar upward,potentially greater uncertainty and higher riskaversion could also act supportive for gold. In boththe short- and long term, continued central bank

buying supports the gold price with GFMSestimating an accumulation of 240 tonnes this year.Asian demand in general is also likely to remainstrong, acting as a major underlying driver. Still, weregard the long term outlook more conservatively,believing that gold may be adversely affected by astronger US dollar in Q4-11 and decreasing Chineseinflation.

Markets are increasingly concerned about Greek debtrestructuring. While modest measures could adverselyaffect the countrys banking system, major provisions

could hurt public finances in more healthy countrieswithin the Euro-zone. While European politicians havealready begun discussing soft restructuring, i.e.extending debt maturities, the ECB strongly opposes allsuch talks. Further, meddling with debt maturities couldmake the countrys bonds unusable as collateral,reducing ECB funding for Greece. Also depressing arebond valuations and indicators concerning prospects forIreland and Portugal. It is very difficult to imagine ascenario in which the downward spiral can be reversedwithout considerable social and economic hardship.

The inflation and interest rate environment remains veryaccommodative for gold. Despite rising US headline andcore CPI and pressure from the OECD, the Fed is unlikelyto raise interest rates before 2012. Also, inflation isprobably not that unwelcome in the US, with dollar debtincreasing. The ECBs first post crisis rate increase (by25bp to 1.25%) is likely to be followed by two more hikeslater this year (by 25bp in July and October), which wouldonly bring rates into line with current core inflation. InChina, we expect one more interest rate increase(probably in July) although inflation may rise to around6% before tightening measures take effect. Real interestrates are therefore likely to remain negative over the next

half year, supporting the investment attractions of goldcompared to other safe haven investments.

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

maj-11

SilverPlatinum

GoldPalladium

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

-4

-3

-2

-1

0

1

2

3

4

5

6

78

9

10

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)

Our bullish short term view on gold has strengthened

further mainly due to the European debt crisis, as well as

present and feared future inflation. We expect gold toeasily pass above $1600/ozt.

Our long term view concerning potential dollar strength

and easing Chinese inflation remain more modest.

According to the World Gold Council (WGC) China

overtook India as the largest market for goldinvestments during Q1-11.

After decreasing during the general commodity

liquidation wave in early May, physical gold ETP holdingsrecovered during the second half of the month to closeat 2058 tonnes, only 57 tonnes below the previous high.

Long speculative positions in COMEX gold fell 10% in

May to relatively low levels compared to open interest.

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)

Silver suffered an expected, violent and wholly justified

20% correction in May and remains sensitive to furtherdownside.

We see little value in silver above $30/ozt (i.e. agold/silver ratio below 50).

The recent almost hysterical rally appears to have been

driven by demand mainly from US, Indian and Chineseretail investors.

Despite a recent explosion in silver trading in Chinaturnover remains far behind Europe and the US.

Physical silver ETP holdings fell dramatically in May to

currently 13780 tonnes vs. a record 15518 tonnes inApril.

Long speculative positions in COMEX silver have

continued to fall and are now relatively low compared toopen interest.

2468

101214161820

222426283032343638404244464850

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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

Disrupted global auto production as a result of the

Japanese earthquake continues to dampen palladiumand platinum prices. However, demand is likely to catchup as automakers seek to offset shortfalls in Q4-11.

Johnson Matthey expects the platinum market to be

balanced in 2011 although insufficient investments inmining capacity are likely to drive it into deficit in both2012 and 2013.

Johnson Matthey is even more bullish on palladium with

a deficit expected as early as this year.

The downside risk for both platinum and palladium is

strongly supported by high production costs.

While physical platinum ETP holdings remain close to

record highs, palladium holdings have trended lower inrecent months.

100

200

300

400

500

600

700

800

900

1000

1100

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

300

550

800

1050

1300

1550

1800

2050

2300Palladium(left axis)

Platinum (right axis)



13/20

13

Commodities Monthly

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

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

1400

1450

1500

1550

1600

1650

1700

1750

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

11-03-3111-04-28

11-05-27

36

37

38

39

40

41

42

43

44

4546

47

48

jul-11

okt-11

jan-12

apr-12

jul-12

okt-12

jan-13

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

okt-14

jan-15

apr-15

jul-15

okt-15

11-03-31

11-04-28

11-05-27

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

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

755

760

765

770

775

780

785

jun-11

sep-11

dec-11

mar-12

jun-12

11-03-31

11-04-28

11-05-27

1770

1780

1790

1800

1810

1820

1830

1840

1850

jul-11

okt-11

jan-12

apr-12

jul-12

11-03-31

11-04-28

11-05-27

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

maj-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

maj-11

Palladium

Platinum



14/20

14

Commodities Monthly

Agriculture

Short- to medium term fundamentals in theagricultural commodity sector have strengthenedsignificantly due to protracted droughts in several

parts of the world which have substantially reducedyield expectations for developing winter crops. Inaddition, wet and cold weather conditions areadversely affecting yield expectations for springcrops currently being planted. Hoarding byconsumers to secure supply and to some extent alsoby producers hoping for even higher prices isexacerbating the situation. Consequently, weupgrade our previous neutral short term view tomoderately bullish as demand destruction is likelyto limit rallies due to already record high prices. Weexpect high sector sensitivity and unpredictabilityas the market follows weather forecasts closely. As

a result of relatively easy substitution and lowinventories, at least for corn and soybeans, weexpect grain movements to be largely synchronized.Reduced protectionism is a bearish short termfactor with Ukrainian and Russian restrictions to beremoved. A drastic improvement in weatherconditions, major general risk aversion, significantdollar strength and/or lower energy prices wouldsupport an improved outlook for supply, restrictingprospects for prices. Our long term view remainsbearish with adverse weather conditions likely tobecome less frequent during the second half of the

year following the end of the current La Niameteorological phenomenon this summer.However, previous record high prices could beexceeded before such a position is reached.Nevertheless, considering current low inventoriesthe market is unlikely to soften much before the UScorn and soybean harvest in Q4-11.

The global crop weather situation continues to dampenthe present production outlook. The US is most widelyaffected with a severe drought in southern winter wheatgrowing areas, where the crop is developing, andexcessive rain in the spring wheat growing areas in thenorth, where planting is progressing. Simultaneously inthe Midwest rains are delaying corn and soybeanplanting. In Canada planting has also been delayed bywet conditions. These disturbances are typical late stageLa Nia phenomena. According to latest data, the effectsof the anomaly continued to weaken during March withpresent forecasts indicating a neutral environment willbe achieved between May and July, and will continue forthe rest of the year, hopefully improving growingconditions significantly. In South America, while heavyrain has delayed the harvest high moisture levels willbenefit the approaching planting season. Droughts of

varying intensities will adversely affect developing wintercrops in Europe, China and the former Soviet Union.

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

maj-11

Wheat

Soybeans

Corn

Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)(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

11/12

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)

Since despite high corn prices ethanol costs only half

that of gasoline net of subsidies, corn demand for

ethanol production remains high. Sharply lower crude oilprices would however hurt demand for ethanol.

Despite wet conditions in the Midwest, corn planting has

moved back on schedule in recent weeks at 79%. Still,compared with a 5-year average of 87% as of May 22,planting is slower than at any time since 1995.

Initial US Department of Agriculture (USDA) estimates

for 2011/2012 indicate that global corn inventories areexpected to recover slightly vs. 2010/2011.

The International Grains Council (IGC) estimates

2011/2012 production/consumption/inventories at848/853/116 mt respectively, compared withcorresponding USDA forecasts of 868/861/129 mt.

100

200

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400

500

600

700

800

2002

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2006

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2009

2010

2011

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

Drought developments in coming months will be

extremely important for the wheat market.

In the southern Great Plains drought conditions are nowrated exceptional, i.e. their most severe. On May 22some 44% of the US winter wheat crop was rated pooror very poor vs. only 9% last year.

US spring wheat planting is also lagging with only 54%

planted on May 22 compared to a 5-year average of 89%

due to cold, wet conditions. Initial USDA production estimates for 2011/2012 suggest

global wheat inventories are expected to fall slightlycompared to 2010/2011.

The IGC estimates 2011/2012 production/consumption/

inventories at 667/669/185 mt respectively, comparedto corresponding USDA data of 669/670/181 mt.

200

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2011

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

The soybean market remains tighter than for wheat but

less so than for corn.

Uncertainties affecting Asian demand render thesoybean market less predictable.

With both corn and soybean growing in the US based in

the Midwest, soybeans are also being affected byplanting delays due to wet conditions, although withsoybean planting starting later than for corn thesituation is less problematic.

As of May 22, some 41% of US planting had been

completed compared with a 5-year average of 51%.

Initial USDA production estimates for 2011/2012 showglobal soybean inventories in terms of days of supply areexpected to fall slightly vs. 2010/2011.

USDA forecasts 2011/2012 production/consumption/

inventories of 263/263/62 mt respectively.

400

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1800

2002

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2005

2006

2007

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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)

550

575

600

625

650

675

700

725

750

775

jul-11

okt-11

jan-12

apr-12

jul-12

okt-12

jan-13

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

okt-14

11-03-31

11-04-28

11-05-27

725

750

775

800

825

850

875

900

925

950

975

jul-11

okt-11

jan-12

apr-12

jul-12

okt-12

jan-13

apr-13

jul-13

11-03-31

11-04-28

11-05-27

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

SugarSugarSugarSugar(NYBOT, /lb)

1250

1275

1300

1325

1350

1375

1400

1425

jul-11

okt-11

jan-12

apr-12

jul-12

okt-12

jan-13

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

11-03-31

11-04-28

11-05-27

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

2

004

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005

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006

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009

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010

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011

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2

002

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003

2

004

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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) 5,6 2011-03-31 7,8 2011-02-28 2011-06-15

Industrial production (%, MoM) 0,0 2011-03-31 0,6 2011-02-28 2011-06-15

Capacity utilization (%, sa) 81,3 2011-06-30 80,3 2011-03-31

Manufacturing PMI 54,8 2011-05-31 58,0 2011-04-30 2011-06-01

Real GDP (%, YoY) 2,5 2011-03-31 2,0 2010-12-31 2011-06-08

Real GDP (%, QoQ, sa) 0,8 2011-03-31 0,3 2010-12-31 2011-06-08

CPI (%, YoY) 2,8 2011-04-30 2,7 2011-03-31 2011-06-16

CPI (%, MoM) 0,6 2011-04-30 1,4 2011-03-31 2011-06-16

Consumer confidence -9,8 2011-05-31 -11,6 2011-04-30 2011-06-22

USA

Industrial production (%, YoY) 5,0 2011-04-30 5,3 2011-03-31

Industrial production (%, MoM) 0,0 2011-04-30 0,7 2011-03-31 2011-06-15

Capacity utilization (%) 76,9 2011-04-30 77,0 2011-03-31 2011-06-15


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 2011-06-24

CPI (%, MoM) 3,2 2011-04-30 2,7 2011-03-31 2011-06-15

CPI (%, MoM, sa) 0,4 2011-04-30 0,5 2011-03-31 2011-06-15

OECD Composite Leading Indicator 103,4 2011-03-31 103,1 2011-02-28Consumer confidence (Michigan) 74,3 2011-05-31 69,8 2011-04-30 2011-06-17

Nonfarm payrolls (net change, sa, 000) 244 2011-04-30 221 2011-03-31 2011-06-03

JAPAN

Industrial production (%, YoY, nsa) -13,1 2011-03-31 2,9 2011-02-28 2011-05-31

Industrial production (%, MoM, sa) -15,5 2011-03-31 1,8 2011-02-28 2011-05-31

Capacity utilization (%, sa) 73,6 2011-03-31 93,7 2011-02-28


Real GDP (%, YoY, nsa) -1,0 2011-03-31 2,2 2010-12-31

Real GDP (%, QoQ, sa) -0,9 2011-03-31 -0,8 2010-12-31 2011-06-09

CPI (%, YoY) -0,1 2011-05-31 -0,1 2011-04-30 2011-07-01

CPI (%, MoM) 0,3 2011-04-30 0,3 2011-03-31

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

Consumer confidence 33,6 2011-04-30 38,3 2011-03-31

CHINAIndustrial production (%, YoY) 13,4 2011-04-30 14,8 2011-03-31 2011-06-14


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

CPI (%, YoY) 5,3 2011-04-30 5,4 2011-03-31 2011-06-14

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

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

Bank lending (%, YoY) 17,5 2011-04-30 17,9 2011-03-31

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

OTHER

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

Global manufacturing PMI 55,0 2011-04-30 55,8 2011-03-31

Sources: Bloomberg, SEB Commodity Research


18/20


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


20/20

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Commodities Monthly: Bullish market disguised in bearish corrections

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