SEB's Commodities Monthly: Crude oil back on the radar screen

8/3/2019 SEB's Commodities Monthly: Crude oil back on the radar screen

1/20

SEB Commodities Monthly$200/b crude oil back on the radar screen

15 NOVEMBER 2011


2/20

2

Commodities Monthly

$200/b crude oil back on the radar screen

GENERAL 0-3 M 4-6 M 7-12 M OECDs Composite Leading Indicators for November points

more strongly to a slowdown with below trend growth for

Brazil, China, India, Canada and Europe Key commodities like copper and oil are struggling to match

demand even in the current weak demand environment callingfor higher prices when macro economic conditions stabilize

We see an increasing risk that Eurozone debt could spiral outof control and add volatility to commodity markets

ENERGY 0-3 M 4-6 M7-12 M We revise our average Q4-11 Brent price forecast $5/b higher

to $115/b and, our 2012 forecast $4/b higher to $114/b andour 2013 forecast $5/b higher to $120/b

Geopolitical risk in the crude oil market has increased further

due to renewed focus on Iranian nuclear ambitions, a full-

blown conflict could send oil prices above $200/b We expect volatility to remain high into 2012 due to the

European sovereign debt crisis and the effects of Chinesemonetary tightening

The Brent-WTI spread is likely to continue to tighten towards a

more fundamentally justifiable $10/b

INDUSTRIAL METALS 0-3 M4-6 M7-12 M Expect continued volatility in the industrial metal sector as the

European crisis generates waves of risk aversion and theeffects of Chinese monetary tightening peak

In other scenarios than a Chinese hard landing, marginal

production costs limit the downside risk in most metals

We believe conditions will improve significantly in the sectorduring H2-12, after the worst part of the European slowdownbehind and with a less strict Chinese monetary policytriggering a restocking wave

PRECIOUS METALS 0-3 M4-6 M7-12 M The gold price has returned to the underlying trend after the

strong rally and subsequent correction in Q3-11

The European sovereign debt crisis has now reached the core

of the European economy as market confidence in Italy andSpain is faltering

ECB throwing in the towel and cutting interest rates in

combination and likely additional OECD quantitative easing is

keeping the liquidity outlook supportive for gold With increasing focus on Iranian nuclear ambitions,

geopolitical risk has become a supportive factor for gold again

We forecast an average gold price of $1800/ozt in Q4-11 and

$2088/ozt in 2012

AGRICULTURE 0-3 M4-6 M7-12 M We do not expect grain prices to rebound to earlier highs,

instead we expect a primarily bearish development over thecoming 12 months

However, several supportive factors imply that it is too early to

sound the all clear signal in the sector

We do not expect prices to start falling back significantly until

well into 2012

La Nia induced adverse weather over the winter is the main

upside risk in the sector going forward

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

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

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Industrial Metals

Precious Metals

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

-18-16-14-12-10-8-6-4-202468

1012141618202224

Equities

Commodities

Energy

Industrial

metals

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metals

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YTD (%) M/M(%)

Winners & Losers last montWinners & Losers last montWinners & Losers last montWinners & Losers last monthhhh(%)

-10

-8

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68

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Sugar

Gasoline(US)

Cocoa(US)

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Nickel

CO2(EUA)

Power(Cont.)

Aluminium

Steelbillets

Coffe(Ar.)

Wheat

Brent

Corn

Lead

Power(Nordic)ZincTin

Copper

Heat.oil(US)

Gold

Palladium

PlatinumSilver

WTI

Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

General

On the positive side US statistics are stronger thanmany had feared, supporting investor sentiment.China is probably moving towards the end of its

monetary tightening cycle and may well move fastertowards stimulation given on-going Eurozonetroubles. Developments in Japan are also positivewith industry activity increasing for the first timesince February. However, OECDs CompositeLeading Indicators (CLI) for November points evenstronger to a slowdown with below trend growth forBrazil, China, India, Canada and Europe during thenext 6 months. For Europe the future looksincreasingly unstable. Either politicians produce acredible solution by establishing an appropriatebuyer of last resort (potentially the ECB) or the euromay very well disintegrate. Still, the world can

probably live with a stagnant, struggling Eurozone inwhich case the associated printing of high volumesof euros will drive gold prices even higher. However,if Eurozone politicians fail to get their act togetherwe may well see a major, global credit disruptionhitting global growth. The lesson of the LehmanBrothers bankruptcy was that a major creditdisruption has an immediate global impact on allcountries including China.

The unrelenting Eurozone turmoil is strangling creditavailability to European companies due to stressed banks

deleveraging balance sheets. At the same time, Europeangovernments are implementing austerity measures.Consequently, lack of credit and budget cuts will depressEuro-zone growth going forward. At present, evenGermany is edging closer to stagnation, Frencheconomic performance is deteriorating sharply while therest of the Eurozone is experiencing an acceleratingslowdown. Standard and Poors is probably preparing todowngrade French debt which could damage the EFSFstriple A rating. The German Christian Democratic partyand Angela Merkel are demonstrating their considerablesupport for the euro suggesting the political willingnessto reach a solution remains. However, the big question iswhether markets are willing to allow politicians sufficienttime to act.

Since our last report the UBS Bloomberg CMCI energyprice index (+3.6%) has remained well supported withUS data better than some had feared, US and Europeanoil stocks decreasing to an 8-year low and shipments toChina increasing in order to alleviate the countrys tightdiesel market. The industrial metals index (+1.0%) wasvery volatile in October showing greatest sensitivity toAsia/China. The agricultural index has also been weak (-4.2%). Like the metals index it is also still off 13% since

the beginning of September. The precious metals indexwas the best performer (+7.8%), driven higher byEurozone turmoil.

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 growth in industrial production)

8889

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9394

9596

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100101

102103

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China

Eurozone

OECDUSA

Reference



4/20

4

Commodities Monthly

Crude oil

We revise our Q4-11 average Brent price forecast$5/b higher to $115/b. We also raise our 2012estimate by $4/b to $114/b (Q1: $110/b, Q2: $110/b,

Q3: $115/b, Q4: $120/b) and our 2013 projection by$5/b to $115/b. We do so due to high geopoliticalrisk, e.g. with the Iranian nuclear issue resurfacingonce again, less likelihood of a US recession, enupcoming heating season with low oil productinventories in e.g. Europe and a tightening long termmarket balance outlook. In particular, the Europeandiesel market is clearly a potential bull trigger. Weexpect a highly volatile market over at least the nextsix months with the European debt crisis continuingand further effects from Chinese monetarytightening. While we still acknowledge an upsiderisk to our forecasts we maintain a conservativestance due to lacklustre 2012 OECD growthforecasts and uncertainty regarding Chinas exitstrategy.

Since late 2010 geopolitical supply risk has been highdue to low OPEC reserve capacity given potentialdisruptions due to the Arab spring. That risk hasescalated following an IAEA report suggesting that Iran iscontinuing to develop nuclear weapons. If a pre-emptivestrike is executed Iran could retaliate by closing off theStrait of Hormuz, an action which could easily send theoil price above $200/b, significantly impeding global

growth.

After bottoming out in mid-October the Brent-WTIspread narrowed rapidly as WTI began narrowing itsdiscount to Brent. The spread began contract rapidlyafter it had reached $28/b, a level difficult to justifyfundamentally. Road and rail transport costs from over-supplied Cushing to coastal refineries only merits aspread of approximately $10/b while a tighter Europeanvs. US market warrants an additional $5/b spread.Improving US and deteriorating European growthprospects together with increasing Libyan production

has begun eroding the spread, a process accelerated bylong position closures. We expect the differential tocontinue to narrow towards $10/b in coming months.

The European naphtha and diesel markets areparticularly significant at present. While naphtha pricesare weak due to low demand from the petrochemicalindustry, both in Europe and elsewhere, the dieselmarket is relatively tight as a result of continued soliddemand. With low inventories and winter approachingwe acknowledge the risk of a European low sulphurdiesel induced oil market rally, a central issue in the 2008oil price spike. In general, light and middle distillate

stocks are low and are maintained so sincebackwardation make holding stocks unattractive.

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 inventorieUS crude oil inventorieUS crude oil inventorieUS crude oil inventoriessss(DOE, mb, weekly data)

310

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380

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

2011(mb/d)

Revision(kb/d)

2012(mb/d)

Revision(kb/d)

IEA 89.2 -70 90.5 -20EIA 88.23 -170 89.62 -220

OPEC 87.81 +/-0 89.01 +/-0


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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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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NYMEXGasoline

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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 futures curvefutures curvefutures curvefutures curve(NYMEX, $/MMBtu)

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Chart Sources: Bloomberg, SEB C ommodity Research


6/20

6

Commodities Monthly

Nordic power

Moving in to autumn both actual- and expected rainfallhave decreased. Meanwhile temperatures have been wellabove normal resulting in unusually low consumption

and a further increase in reservoir levels. Both Norwayand Sweden have seasonally very well filled reservoirs.Still, negatively for hydro the very mild weather hasresulted in very little snow. While normally at this time ofyear snow reservoirs would have begun accumulating,currently almost all precipitation even at higher altitudeshas been as rain, instead filling water reservoirs.Meanwhile input from corresponding markets (coal, gasand emissions) has been mainly bearish.

On October 1, the new Swedish price areas (Lule,Sundsvall, Stockholm and Malm) were introduced tothe spot market. We are critical of the new system whichwe believe will reduce opportunities for participants tosecure a full price area hedge as liquidity and interest inoffering them are small. The recent system involving onlya single Swedish price area was problematic enough withfew players willing to trade. Although when temperaturesare mild and there are few supply or grid disturbancesdifferences are limited.

Currently, approximately 55% of installed Swedishreactor capacity is running with a further 19 % expectedback online this week following annual maintenance. Thelast two reactors to return following modifications will be

Ringhals 2 and 3, both of which plan to reconnect to thegrid in December. Overall therefore, the situation maynot be as negative. Swedish nuclear energy productionplays a key role, not just in helping determine the powerprice, but also the transmission system balance. Despitea fairly normal hydrological balance high prices are againlikely this winter if nuclear availability underperformswhen the cold weather begins. The differences betweenrealised spot prices and the nearest monthly forwardcontracts have gradually disappeared. Since our lastreport, Q1-12 has remained range bound between EUR45/MWh and EUR 49/MWh although a serious test of the

upside was made when, for two days, the market settledabove EUR 50/MWh. Similarly, Cal-12 has tradedbetween EUR 42.50/MWh and EUR 46.50/MWh. Priceareas Malm and Stockholm trades with substantialpremiums, EUR 11.25/MWh and EUR 4.85/MWh for Q1-12, respectively.

Going forward we still recommend Swedishconsumers hedge consumption over the winter.Based on the winter months in 2009 and 2010, anduncertainties still surrounding the situationaffecting the countrys nuclear power plants such astrategy offers inexpensive insurance at current

prices. For the forward curve we hold a short termneutral view, regarding it as reasonable absent newprice signals.

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

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

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EUA priceEUA priceEUA priceEUA price(ECX ICE, /t, Dec. 12, weekly closing)

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7/20

7

Commodities Monthly

Industrial metals

We expect industrial metals prices to remain volatilefor the rest of this year and well into 2012 as theEuropean sovereign debt crisis generates waves of

risk aversion and Chinese monetary tighteningpeaks. We still see no reason to believe Chinas hardlanding scenario will occur as signs now suggestrestrictions will be eased soon. Further, economicstability remains a key strategic priority during thecountrys change of leadership next year. We alsosee little price downside for most metals as priceshave fallen into line with marginal production costs.With the market apparently discounting some riskof a Chinese hard landing, we anticipate significantupside in industrial metals prices in H2-12 when theworst of the European growth slowdown haspassed and a less strict Chinese monetary policytriggers a wave of restocking. While China is likelyto remain the decisive factor for metals prices overthe next year the extreme risk of a Euro-zonemeltdown should not be disregarded, at least untilthe situation clearly stabilises.

After the Chinese clampdown on the countrys shadowbanking system in Q3-11 efforts to tighten monetaryconditions appear to have peaked with evidence nowsuggesting that its stricter policy is proving increasinglyeffective. Currently, policymakers are even suggestingthat monetary policy may soon be eased, mainly for

small- and medium sized enterprises, infrastructureprojects and public housing. Consequently, we wouldexpect bank lending to increase in Q4. We believe easingwill continue going forward, e.g. in the form of reserverequirement ratio reductions for banks, although werecommend careful monitoring of CPI and GDP growthdata to determine expectations. However, with measuresto tighten monetary policy normally requiring severalmonths to take effect there is therefore still some risk ofrecurrent bouts of concern over the risk of a hard landingwhich may in turn exacerbate sector volatility.

The iron ore market slump accelerated in October withno recovery occurring until prices had fallen by around35%, i.e. to 2010 lows. The slump was driven by severalfactors. Buyers have been more wary with demandrestricted by global slowdown concerns, tight Chinesecredit conditions and a softer real estate sector. Inaddition, as spot prices began to fall vs. contract prices,buyers began refusing delivery of fixed price contracts.As a result, significant volumes needed to be dumpedinto the spot market exacerbating the existing slump. Weregard the current sell-off as excessive and not anindication of further downside in the industrial metalsector. Instead, we expect a rebound as metal buyers

return, attracted by low prices followed by restockingdemand as Chinese credit conditions ease.

LME indexLME indexLME indexLME index(weekly closing)

900110013001500170019002100230025002700290031003300350037003900

4100430045004700

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2011

IndustriIndustriIndustriIndustrial metal pricesal metal pricesal metal pricesal metal prices(LME, indexed, weekly closing, January 2010 = 100)

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CopperNickel

Aluminium

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Tin

LME price and inventory changesLME price and inventory changesLME price and inventory changesLME price and inventory changes last monthlast monthlast monthlast month

-26-24-22-20-18-16-14-12-10

-8-6-4-20

246

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)

Current aluminium prices are likely to remain well

supported due to stable inventories, solid demand and

unprofitable Chinese high cost producers. Chinese marginal production is likely to be cut relatively

quickly in response to lower prices, limiting furtherdecreases.

We do not expect aluminium prices to fall below $2000/t

unless the risk of a Chinese hard landing increases or theEuropean situation deteriorates significantly.

LME inventories remain high while their Chinese

counterparts are stabilizing at low levels.

Estimates suggest 25% of smelters worldwide are

unprofitable. 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)

Copper prices remain well above marginal production

costs and are thus sensitive to changes in sentiment.

With marginal production costs becoming material

around $6500/t, we regard copper as an obviousmedium- to long term buy around the same level.

We forecast average copper prices of $7500/t in Q4-11,

increasing to $9500/t in Q4-12.

Copper supply continues to suffer from strikes, bad

weather and other production disturbances, resulting inalmost no output growth year-on-year.

The third largest mine in the world, Grassberg, is almostat a standstill due to infrastructure disruptions whichmay last until the end of this year.

We expect the copper market to remain in substantial

deficit in 2012 with a potentially looser market balance in2013.

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

Strong Q3-11 production growth, mainly from

conventional sources, is probably a significant factorbehind recent price weakness.

With Chinese nickel pig iron (NPI) production under

pressure at current prices we see little further downsidein nickel, particularly with prices having fallen alongsideinventories for most of this year.

Lower prices also risk the further postponement of High

Pressure Acid Leach (HPAL) projects, negativelyimpacting the supply growth outlook.

Most likely, nickel will trade around $20000/t next year

with HPAL and NPI supply major uncertainties.

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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 shows positive signs though a bullish

stance would be premature.

LME zinc inventories have finally begun to decline afterincreasing since 2007, the first indication that the marketbalance is beginning to tighten.

Our main scenario is that the zinc market will tighten

further during 2012 and be in balance by the end of theyear.

We still regard zinc as a weak industrial metal and mainly

regard rallies as good selling opportunities.

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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)

After a weak September iron ore fell sharply to $117/t in

October before recovering to $138/t.

European HRC has fallen 6.7% in the last 30 days and21% since peaking in March.

The decline in the SBB World HRC index since September

is accelerating.

LME billets have fallen 10% since the beginning of

September but have been largely unaffected by the pastmonths iron ore sell-off.

Ferrous prices are likely to continue to grind lower due tocontinued effects over the next six months of Chinasmonetary tightening in the past year. Also, OECDcomposite leading indicators signal below trend growthin Brazil, China, India and the Eurozone.

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

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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)

212521502175220022252250227523002325235023752400242524502475250025252550257526002625

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7100720073007400750076007700780079008000810082008300840085008600

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

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11/20

11

Commodities Monthly

Precious metals

The gold market has continued to develop in linewith our expectations, returning to its long termprice trend following a September correction, driven

mainly by the continuing European sovereign debtcrisis. We remain bullish concerning prospects forthe next 12 months (average price forecasts: Q4-11$1800/ozt, 2012 $2088/ozt). We still regard thebreak-up of the Euro-zone as a real possibility, eventhough the probability is low. In addition, we seefurther stimulus measures and easier monetarypolicies ahead, with liquidity injections to avoid adeep OECD recession. Geopolitical risk has alsobecome gold supportive due to the Iranian nuclearissue and possible military action. If strong riskaversion were to impact the gold market, e.g. in arace for liquidity, we would expect it to find solid

support around $1550-1600/ozt before quicklyrebounding.

The European sovereign debt crisis has entered a newstage with authorities refocusing away from theproblematic but relatively manageable Greek crisis toItaly, the Euro-zones third largest economy. With Italytoo big to bail out the risk that the Euro-zone may break-up completely has increased substantially. It was theslow and disorderly reaction to the Greek crisis thatpaved the way for the rapid loss of confidence in theability of Italys leaders to handle the situation. While

Italian problems are manageable the market is scepticalthat politicians will be able to do what is needed, i.e.negotiate and implement a credible austerity package.Meanwhile the ECB is buying Italian bonds in order tohold the situation together and give politicians time todevise the necessary response. However, the centralbank has repeatedly stated it will not financegovernment debt by printing money. So far they havehad little choice but to do so and it is difficult to see anyattractive alternatives going forward. European moneyprinting and fears the Euro-zone may break-up are bothstrongly supportive factors for gold. We note also that adisorderly sell-off of Italian gold reserves to raise cash isunlikely. Such transactions are improbable and even ifthey were necessary would be carried out off market.

With the ECB somewhat unexpectedly cutting interestrates in early November, from 1.50% to 1.25%, and withfurther potential cuts likely as the economic outlookdeteriorates and inflation concerns recede the liquidityconditions best for gold continue to improve. We expectfurther monetary and fiscal support efforts within theOECD which also help gold. While actual US and Euro-zone inflation data remain on an uptrend, inflation itselfdecreased in China during October, paving the way for a

relaxation of monetary policy. At the same time, we seelittle likelihood that the countrys appetite for gold willease anytime soon.

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

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12/20

12

Commodities Monthly

Precious metalsGoldGoldGoldGold Gold priceGold priceGold priceGold price

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

Physical gold ETF holdings survived the market

consolidation almost unscathed and currently stand at

2313 tonnes, 17 tonnes below the all-time high. Net speculative long positions at COMEX however

remain around two year lows, signalling significant riskof a bullish accumulation in speculative positions goingforward.

According to local sources Chinese gold demand is

expected to increase by approximately 50% in 2011,supporting our view that rising Asian demand is one ofseveral major fundamental gold market drivers.

Recently, mine supply of gold has come under pressure

with the Grassberg copper mine in Indonesia, alsoaccounting for around 5% of global gold mine supply, ata standstill due to an equipment failure which may lastuntil the year-end.

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

After falling sharply earlier this year physical silver ETF

holdings have recover to 17451 tonnes, 1236 tonnesbelow their all-time high.

Net long speculative positions in COMEX silver are at

their lowest level since early 2009 with, like gold, bullishimplications in current market conditions.

Once again, the gold/silver ratio has edged above 50,supporting our interest in silver. Still, we prefer exposure

to gold which possesses those properties likely to bemost bullish going forward.

US mint silver coin production in October decreased to arelatively normal level for the current year (3,064,000coins).

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

Palladium holdings are now showing signs of bottomingout after having fallen back since the beginning of theyear while platinum holdings remain stable.

While net long speculative positions in platinum are still

relatively high, those for palladium remain depressed.

While Thai flooding hurt auto production the general

demand situation from this key source is positive despitethe adverse effect of Chinese tightening.

Platinum remains firm vs. palladium on supportive long

term supply fundamentals.

Russian state inventories remain the decisive factor for

the palladium market. Sharply lower supply from thissource is a risk in 2012 and 2013.

The fact that the palladium market has managed to

absorb EFT outflows suggests demand is sound.

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13/20

13

Commodities Monthly

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

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

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14/20

14

Commodities Monthly

Agriculture

The grain market rebound following the generalcommodity market slump in September has beenmitigated by pressure from the northern hemisphere

harvest. We do not expect grain prices oragricultural commodity prices in general, to reboundto highs hit earlier this year. Instead we forecast amainly bearish development over the next 12months. However, during the next six months wesee several factors which could drive grain priceshigher once again or at least support them at anelevated level. It is therefore premature to sound theall clear signal in the agricultural sector. Thecombination of low inventories and high weather-related risks are of primary concern. As in mostother commodity markets, high volatility shouldalso be expected in the agricultural sector due to the

potential impact of both the European sovereigndebt crisis and the impact of tight Chinese creditconditions.

Current factors supporting the agricultural commoditymarket include high energy prices, US ethanol producersmoving quickly to take advantage of the blendingsubsidy before it ends by new year, elevated US cattleprices, strong Chinese feed demand and Thai floodingsharply reducing rice production estimates. Adverseweather due to a stronger La Nina effect is the mostobvious upside risk for the rest of this year and early

next. An oil price rally, possibly induced by the Iraniannuclear issue or European product market tightness,would also send agricultural prices higher.

For obvious reasons meteorological conditions aregenerally the main driver of agricultural commodityprices. Particularly in recent years the weather has beenin focus due to the El Nio and La Nia weatheranomalies, both of which have inflicted heavy losses.Forecasts still suggest another La Nia which could peakbetween November and January. Both computer modelsand historical precedent suggest a weaker recurrencethan in 2010-2011. If La Nia weakens in H1-12 asforecast, growing conditions will probably begin tonormalize, inventory level expectations will be revisedhigher and agricultural prices could begin moving sharplylower. However, going forward we should expect aboveaverage rainfall in Southeast Asia and Australia, whichcould be beneficial unless it causes flooding or interfereswith harvests, such as the Australian. In addition, there isa risk that drought conditions in the southern US statescould continue with a potential adverse effect on wheatplanting. Another possible risk is drought in SouthAmerica, which could impact corn and soybeanproduction.

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

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Chart Sources: Bloomberg, USDA, SEB Commodity Research


15/20

15

Commodities Monthly

AgricultureCornCornCornCorn Corn priceCorn priceCorn priceCorn price

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

The November World Agricultural Supply and Demand

Estimates (WASDE) published by the USDA revealed a

1.10 mt downward revision of global 2011/2012production to 858.99 mt and a 1.62 mt downgrade inending stocks to 121.57 mt.

While weather conditions have been mixed the US

harvest is well ahead of its five year average and almostcompleted.

Although China appears likely to post record crop

demand growth continues to outstrip increases in supplydue to strong demand for feed caused by rapidly risingmeat consumption. Naturally this has bullish implicationsfor import demand in coming years.

Corn is likely to be supported by strong ethanol demand

for the rest of this year while substitution with lowquality wheat could limit upside potential.

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

Global 2011/2012 wheat production estimates increased

2.1 mt to 683.30 mt according to the WASDE whileending stocks only rose 0.23 mt to 202.60 mt due tohigher consumption estimates.

US winter wheat planting is nearing completion despite

dry conditions in southern growing regions andconsequent poor crop development.

The market is currently refocusing on the Australian

harvest which is expected to be highly satisfactory. Thestrengthening La Nia could however interfere with theharvest.

Plentiful lower quality wheat supplies, particularly fromthe Black Sea region, are easing pressure in grains whilethe tight corn supply is having the opposite effect.

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

Global 2011/2012 soybean production estimates

increased slightly, by 0.31 mt to 258.91 mt according tothe WASDE while ending stocks only rose 0.55 mt to63.56 mt.

While weather conditions have been mixed the US

harvest is ahead of its five year average and close tocompletion.

As the northern hemisphere harvest comes to an end the

market is refocusing on South American growingconditions and potential La Nia-related drought. Theharvest begins in Q2-12.

The entire soybean complex has moved lower in recent

months, with relatively stable ratios between beans,meal and oil.

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16/20

16

Commodities Monthly

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

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

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SugarSugarSugarSugar(NYBOT, /lb)

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17/20

17

Commodities Monthly

Commodity related economic indicatorsEUROZONE Current Date Previous Date NextIndustrial production (%, YoY) 2,2 2011-09-30 6,0 2011-08-31 2011-11-14

Industrial production (%, MoM) -2,0 2011-09-30 1,4 2011-08-31 2011-11-14

Capacity utilization (%, sa) 79,7 2011-12-31 80,8 2011-09-30

Manufacturing PMI 47,1 2011-10-31 48,5 2011-09-30 2011-11-23

Real GDP (%, YoY) 1,6 2011-06-30 2,4 2011-03-31 2011-11-15

Real GDP (%, QoQ, sa) 0,2 2011-06-30 0,8 2011-03-31 2011-11-15

CPI (%, YoY) 3,0 2011-09-30 2,5 2011-08-31 2011-11-16

CPI (%, MoM) 0,8 2011-09-30 0,2 2011-08-31 2011-11-16

Consumer confidence -19,9 2011-10-31 -19,1 2011-09-30 2011-11-22

USA

Industrial production (%, YoY) 3,2 2011-09-30 3,3 2011-08-31

Industrial production (%, MoM) 0,2 2011-09-30 0,1 2011-08-31 2011-11-16

Capacity utilization (%) 77,4 2011-09-30 77,3 2011-08-31 2011-11-16


Real GDP (%, YoY) 1,6 2011-09-30 1,6 2011-06-30

Real GDP (%, QoQ, saar) 2,5 2011-09-30 1,3 2011-06-30 2011-11-22

CPI (%, MoM) 3,9 2011-09-30 3,8 2011-08-31 2011-11-16

CPI (%, MoM, sa) 0,3 2011-09-30 0,4 2011-08-31 2011-11-16

OECD Composite Leading Indicator 103,4 2011-03-31 103,1 2011-02-28Consumer confidence (Michigan) 64,2 2011-11-30 60,9 2011-10-31 2011-11-23

Nonfarm payrolls (net change, sa, 000) 80 2011-10-31 158 2011-09-30 2011-12-02

JAPAN

Industrial production (%, YoY, nsa) -3,3 2011-09-30 0,4 2011-08-31 2011-11-14

Industrial production (%, MoM, sa) -3,3 2011-09-30 0,6 2011-08-31 2011-11-14

Capacity utilization (%, sa) 85,8 2011-09-30 89,0 2011-08-31


Real GDP (%, YoY) 0,0 2011-09-30 -1,1 2011-06-30

Real GDP (%, QoQ, sa) 1,5 2011-09-30 -0,3 2011-06-30 2011-11-14

CPI (%, YoY) -0,5 2011-10-31 -0,3 2011-09-30 2011-11-25

CPI (%, MoM) 0,0 2011-09-30 0,2 2011-08-31

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

Consumer confidence 38,5 2011-10-31 38,5 2011-09-30

CHINAIndustrial production (%, YoY) 13,2 2011-10-31 13,8 2011-09-30 2011-12-09


Real GDP (%, YoY) 9,1 2011-09-30 9,5 2011-06-30

CPI (%, YoY) 5,5 2011-10-31 6,1 2011-09-30 2011-12-09

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

Consumer confidence 103,4 2011-09-30 110,4 2011-08-31

Bank lending (%, YoY) 15,8 2011-10-31 15,9 2011-09-30

Fixed asset investment (%, YoY) 25,6 2011-06-30 25,0 2011-03-31

OTHER

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

Global manufacturing PMI 50,0 2011-10-31 49,8 2011-09-30

Sources: Bloomberg, SEB Commodity Research


18/20

18

Commodities Monthly

PerformanceClosing

last weekYTD(%)

1 m(%)

1 q(%)

1 y(%)

5 y(%)

UBS Bloomberg CMCI Index (TR) 1309,54 -3,9 2,0 -4,9 0,7 24,7UBS Bloomberg CMCI Index (ER) 1231,73 -3,9 1,9 -5,0 0,6 16,0UBS Bloomberg CMCI Index (PI) 1567,25 -3,3 2,2 -4,5 1,4 49,1UBS B. CMCI Energy Index (PI) 1544,77 7,2 6,3 3,6 12,8 40,1UBS B. CMCI Industrial Metals Index (PI) 1070,94 -17,0 1,7 -12,4 -14,2 -2,2UBS B. CMCI Precious Metals Index (PI) 2672,76 23,6 7,9 0,4 26,9 172,8UBS B. CMCI Agriculture Index (PI) 1771,28 -9,9 -3,1 -9,1 -5,2 80,1Baltic Dry Index 1835,00 2,2 -12 ,9 43,7 -22,4 -56,4

Crude Oil (NYMEX, WTI, $/b) 98,99 8,3 15,4 15,5 12,7 66,1Crude Oil (ICE, Brent, $/b) 114,16 20,5 3,1 5,7 28,5 91,2Aluminum (LME, $/t) 2162,00 -12,5 -3,1 -10,4 -12,0 -19,8Copper (LME, $/t) 7639,00 -20,4 4,8 -14,0 -13,5 10,4Nickel (LME, $/t) 18075,00 -27,0 -4,2 -16,3 -24,7 -38,5Zinc (LME, $/t) 1920,00 -21,8 0,5 -12,2 -24,5 -55,3Steel (LME, Mediterranean, $/t) 530,00 -7,0 -3,6 -7,0 2,4 N/AGold (COMEX, $/ozt) 1788,10 25,8 7,7 2,2 27,4 183,8

Corn (CBOT, /bu) 638,50 1,5 -1,0 -9,1 13,2 86,0Wheat (CBOT, /bu) 616,75 -22,3 -6,7 -12,0 -12,4 28,4Soybeans (CBOT, /bu) 1166,00 -16,3 -5,6 -12,6 -12,3 79,0

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 December 13 www.oilmarketreport.com

OPEC, Oil Market Report December 13 www.opec.org

Department of Energy, Short Term Energy Outlook December 6 www.eia.doe.gov

US Department of Agriculture, WASDE December 9 www.usda.gov

International Grains Council, Grain Market Report November 24 www.igc.org.uk

OPEC ordinary meeting, Vienna, Austria December 14 www.opec.orgSources: Bloomberg, SEB Commodity Research

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

[email protected] +46 8 506 234 01

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

Pr Melander Corporate [email protected] +46 8 506 234 75 +46 70 714 90 79Karin Almgren Institutional [email protected] +46 8 506 230 51 +46 73 642 31 76

SALES NORWAY

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

SALES FINLAND

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

SALES DENMARK

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

TRADING

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


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Commodities Monthly

DISCLAIMER & CONFIDENTIALITY NOTICE

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

Opinions contained in this report represent the banks present opinion only and are subject to change without notice. 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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SEB's Commodities Monthly: Crude oil back on the radar screen

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