Andrew shaw outlook & review - asian commodities market

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Andrew shaw outlook & review - asian commodities market

  1. 1. The Best of Times …The Worst of TimesCommodities OutlookAsian Mining IndabaSingapore – 29 October 2012Andrew ShawHead of Base Metals & Bulks Research, Credit Suisse+65 6212 4244 andrew.shaw@credit-suisse.comANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER IMPORTANTDISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
  2. 2. OverviewMacro risks aboundPhotos: Andrew Shaw / Credit Suisse 1
  3. 3. The key driver for commodity prices remains growth 8.0% Global GDP, real ann trend qoq GDP avg (1972-2012) CCI Index, real trend qoq (rhs) CCI avg (1972-2012, rhs) 9.5% 7.0% 7.5% 6.0% 5.5% 5.0% 3.5% 4.0% 1.5% -0.5% 3.0% -2.5% 2.0% -4.5% 1.0% -6.5% 0.0% -8.5% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 2
  4. 4. In Q3 commodities bounced? But will it last? 5.0% Global GDP, ann qoq Current estimate/forecast Real CCI, qoq (rhs) 20.0% 15.0% 4.5% Divergence in Q3-12 10.0% 4.0% 5.0% 3.5% 0.0% 3.0% -5.0% 2.5% -10.0% Q3 estimate: 2¾% 2.0% -15.0% 3Q-10 1Q-11 3Q-11 1Q-12 3Q-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 3
  5. 5. The key will be whether the Ben and Mario show translates to growth10% Global IP, ann trend mom CSCB Ind metals, trend mom (right axis) 6% S&P500 trend mom (right axis) 9% Aug-27-10: Dec-21-11: Sept- LTRO1 Jul-26-12: 4% 8% Jackson 13-12: Hole Draghi QE3 Speech "Whatever it 7% Takes" 2% 6% 5% 0% 4% -2% 3% Nov-3-10: 2% QE2 -4% 1% 0% -6% Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 4
  6. 6. Global IP volatile, but CS Basic Materials Index suggests recovery is starting 15.0% Global IP, ann 3MMA of mom change forecast 2.5 long run average CSBMI, 3mma (right axis) 1.5 10.0% 0.5 5.0% -0.5 0.0% -1.5 -5.0% -2.5 -10.0% -3.5 2000 2002 2004 2006 2008 2010 2012Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 6
  7. 7. China has been soft – with growth expected to remain in the 7-8% range (though some signs of a trough)14% QoQ annualized YoY 1977 to Present Average13%12%11% Assuming10% Q3 at 7.4% saar 9% 8% 7% 6% 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: the BLOOMBERG PROFESSIONALTM service, NBS, Credit Suisse 7
  8. 8. Chinese stimulus – a story for 2013 Infrastructure project approvals Real estate market improving Infrastructure FAI, log (RMB Million), real, seasonally QoQ, seasonally adjusted, trended adjusted Monetary easing Social housing program YoY real growth in social financing ahead of schedule May June July Aug YTD Target % Starts (M) 1.2 1.2 1.1 0.7 6.5 7.0 93 Completions (M) 0.6 0.5 1.0 0.6 4.2 5.0 84 Investment (RMB B) 143 118 153 160 820 - -Source: NBS, CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 8
  9. 9. For now, we are still waiting for an IP bounce 65.0 Average PMI New Orders Chinese IP ann mom trend sa (right axis) 30% 25% 60.0 20% 55.0 15% 10% 50.0 5% 45.0 0% 40.0 -5% 2006 2007 2008 2009 2010 2011 2012Source: the BLOOMBERG PROFESSIONALTM service, Markit, Credit Suisse 9
  10. 10. And infrastructure growth has actually slowed … Chinese infrastructure FAI* 100% QoQ SAAR YoY (right axis) 50.0% 45.0% 80% 40.0% 60% 35.0% 30.0% 40% 25.0% 20% 20.0% 0% 15.0% 10.0% -20% 5.0% -40% 0.0% 2005 2006 2007 2008 2009 2010 2011 2012Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse *Note: Q3 estimated on 2 months 10
  11. 11. We think commodity prices have overshot – with a correction unfolding in Q4 5.0% Global GDP, ann qoq Current estimate/forecast 20.0% Real CCI, qoq (rhs) CCI estimate based on forecasts 15.0% 4.5% 10.0% 4.0% Divergence in Q3-12 5.0% 3.5% 0.0% 3.0% -5.0% 2.5% -10.0% Q3 estimate: 2¾% 2.0% -15.0% 3Q-10 1Q-11 3Q-11 1Q-12 3Q-12 1Q-13Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 11
  12. 12. Most prices should pick up next year, but with considerable divergence among commodities 25% Q4-13 forecast vs Q4-13 forward 20% 15% 10% 5% 0% -5%-10%-15%-20%-25% Palladium Gold Zinc Aluminium Tin UK Nat Gas Copper Silver Corn WTI Crude Brent Crude Lead Platinum Nickel Soybeans Thermal Coal Wheat U.S. Nat Gas Iron Ore (China)Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse *forwards based on Oct 10 data 13
  13. 13. The “commodity super-cycle” has been well and truly relegated to history … 1100 CSCB Excess Return (real) Forecast 1000 Oil bubble 900 800 Back to the future 700 600 Bull market 500 400 300 Post-Lehman prices 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 14
  14. 14. Iron OreEnd of an era 15
  15. 15. Short term price bounce driven by restock Average mills’ inventory cover from imported ore (lhs), US$/t (rhs) 48 Avg Stock Days TSI Price (rhs) 200 43 56% restock 180 38 160 ??% restock, 35% 33 price increase 140 22% price increase 28 120 23 100 18 80 Mar-11 Jun-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, MySteel 16
  16. 16. Iron ore price boom is fading Iron ore prices returning to long-run mean? Major revisions to CS IO price forecasts Real 2010 US$ log US$/t, CFR China (TSI 62% Fe)6.1 price hptrend average $210 Iron Ore (62% Fe CFR Tianjin spot) Quarterly avg forecasts Overshoot? $1905.6 $170 $1505.1 $130 Return4.6 ing to $110 Stable prices long run $904.1 around long run Historical outlier $703.6 $50 1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2009 2010 2011 2012 2013 Forecast iron ore prices Units as indicated below, long term prices based on 2011 real prices 2011 1Q-12 2Q-12 3Q-12 4Q-12 2012 1Q-13f 2Q-13f 3Q-13f 4Q-13f 2013f 2014f 2015 LT Iron ore fines – 62% (China CFR) US$/t, dry 168 142 140 112 110 126 120 115 110 100 111 95 90 90 Iron ore fines - (China CFR) US$/dmtu 271 229 225 181 177 203 194 185 177 161 179 153 145 145 Source: Credit SuisseSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 17
  17. 17. Key market characteristics  Global steel overcapacity  Moderating steel demand growth  Recovery from recent flat rates  Imports displacing China IO supply  …But new Chinese mines too  Wall of seaborne supply looming 18
  18. 18. World steel production growth rates moderating: Output forecast to grow at 4% p.a. China’s steel production has … tracking sideways in 2012 moderated since 2007 … Mt, Monthly, annualized (sa) Natural log11.5 China World Ex-China 75011.0 700 Raw Annualised SAAR CAGR = 2.5% 65010.5 CAGR = 7.4% 60010.0 550 CAGR = 21.8% 500 9.5 450 9.0 400 350 8.5 CAGR = 8.5% 300 8.0 250 1990 1993 1996 1999 2002 2005 2008 2011 2005 2006 2007 2008 2009 2010 2011 2012Source: World Steel Association, China NBS, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 19
  19. 19. Iron ore supply growth running ahead of underlying demand Australia the main contributor to this surge … plenty of planned new supply … “Firmly committed supply” and forecast IO demand Seaborne supply, natural log (sa) Mt18.0 Australia World Ex-Australia CAGR = 5.7%17.8 Seaborne Supply Growth Chinese + Seaborne ex-China Demand Growth17.6 120 CAGR = 15.6%17.4 10017.2 8017.0 6016.8 CAGR = 12.2% 4016.616.4 2016.2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f * Base case assumes 4.1% p.a. world steel production in 2013-16Source: Customs data, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 20
  20. 20. Assumes displacement of higher-cost China and other mine supply Change in IO supply on 2011 production level (Mt) 400 Australia 300 Brazil China (Domestic Supply) 200 100 0 -100 -200 -300 2012 2013 2014 2015 2016Source: Credit Suisse forecasts 21
  21. 21. But Chinese supply may not shrink back as readily as many expectUS$/t delivered to mill Peak production @ approx. 415 Mt/y  40% of China’s domestic IO supply is “loss making” at prices below US$100/t Forecast 2012 domestic demand (340 Mt)  New mines targeted to come into production under current 5Yr Plan  25% of supply today is “captive”  Further displacement by imports Cumulative Supply (%) will require lower prices  Major players have cash costs below US$55/t CFR China  Committed expansions running far ahead of demand  Recipe for a price war beyond 2013-14?Source: CMMA, Steelease, Credit Suisse 22
  22. 22. Thermal CoalRange-bound 23
  23. 23. A depressed physical market has led to range-bound paper trading The market has been trapped at a low level With paper trading three distinct ranges US$/t, Spot US$/t, Front calendar swap 150 140 Newc RBCT ARA API#2 Y1 Swap API#4 Y1 Swap Newc Y1 Swap 135 140 130 130 125 120 120 115 110 110 100 105 100 90 95 80 90 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, McCloskey 24
  24. 24. A surfeit of supply means more than just Chinese production cuts are required to balance the market US thermal coal exports Chinese raw coal production Mt, monthly SA Mt, monthly SA 400 7 6 350 5 300 4 250 3 200 2 1 150 0 100 2005 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012Source: Credit Suisse, Customs Data, SxCoal 25
  25. 25. And with the China arb a mid-term cap, we also need stronger Chinese IP growth China thermal coal import arb Soft Chinese IP in 2012 US$/t (lhs), % (rhs) % Seaborne South China CFR QHD South China CFR Discount (rhs) MoM Annualized YoY (lhs) Jan 02 - Dec 07 Avg 150 16% 25% 140 14% 20% 12% 130 10% 15% 120 8% 110 10% 6% 100 4% 5% 90 2% 80 0% 0% Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 2006 2007 2008 2009 2010 2011 2012Source: Credit Suisse, McCloskey, China NBS 26
  26. 26. Only then can prices recover and volatility return to the market (US$/t) Coal unmoved by QE3 But should be back in balance by 2014 Index, 13/09/12 = 100 Mt 120 Copper 3-Month API2 Front Cal Iron Ore Front Q 115 2012 2013 2014 2015 World Import Demand 828 867 930 984 110 % change 5.6% 4.7% 7.3% 5.8% World Export Supply 845 883 933 984 105 % change 7.8% 4.5% 5.7% 5.5% Surplus/ Deficit 17 16 3 0 100 As a % of Exports 2.0% 1.8% 0.3% 0.0% 95 13/ 09/ 2012 20/ 09/ 2012 27/ 09/ 2012Source: Credit Suisse, the BLOOMBERG PROFESSIONALTM service, Customs Data, Company Data 27
  27. 27. LME CommoditiesFundamental variationPhotos: Andrew Shaw / Credit Suisse 28
  28. 28. LME Metals Price Forecasts 2012 2013 LT Q1 Q2 Q3 Q4 Yr Avg Q1 Q2 Q3 Q4 Yr Avg 2014 2015 (2012$)Copper 8,329 7,860 7,720 7,800 7,927 8,000 8,300 8,000 7,700 8,000 7,500 7,000 5,500Aluminium 2,188 1,987 1,929 2,020 2,031 2,100 2,150 2,200 2,250 2,175 2,350 2,400 2,250Nickel 19,654 17,157 16,354 18,000 17,791 18,500 19,000 19,000 19,000 18,875 20,000 21,000 20,000Lead 2,097 1,979 1,983 2,130 2,047 2,200 2,300 2,350 2,450 2,325 2,625 3,000 2,000Zinc 2,031 1,930 1,892 2,000 1,963 2,100 2,150 2,200 2,250 2,175 2,425 2,800 1,900Tin 22,953 20,550 19,287 20,000 20,698 21,000 21,000 21,500 22,500 21,500 23,000 24,000 20,000Source: Credit Suisse forecasts 29
  29. 29. Copper prices – best is behind us US$/t $11,000 Copper 3M Quarterly Avg Forecast $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 30
  30. 30. Aluminium prices – steady, but unexciting, gains US$/t $3,700 Aluminum 3M Quarterly Avg Forecast $3,200 $2,700 $2,200 $1,700 $1,200 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 31
  31. 31. Supply dynamics impacts price outlook for Ni, Zn & Pb Zinc prices and forecast (US$/t) $4,800 Nickel prices and forecast (US$/t) Zinc 3M Quarterly Avg Forecast $4,300$55,000 $3,800 Nickel 3M Quarterly Avg Forecast $3,300$50,000 $2,800$45,000 $2,300 $1,800$40,000 $1,300$35,000 $800 2005 2006 2007 2008 2009 2010 2011 2012 2013$30,000 Lead prices and forecast (US$/t) $4,000 Lead 3M Quarterly Avg Forecast$25,000 $3,500$20,000 $3,000$15,000 $2,500 $2,000$10,000 $1,500 $5,000 $1,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 $500 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 32
  32. 32. CopperVulnerable without real demand improvement 33
  33. 33. Copper market moving into surplus ktSource: Brook Hunt forecasts, Credit Suisse forecasts 34
  34. 34. Large increase in mine supply expected … but risk of further delays kt CuSource: Brook Hunt forecasts, Credit Suisse forecasts 35
  35. 35. South America remains the mainstay of production, but mine supply has grown in China and Africa Kt CuSource: Wood Mackenzie, Credit Suisse 36
  36. 36. China’s copper demand has stagnated and stocks are ampleSource: the BLOOMBERG PROFESSIONALTM service, Brook Hunt, Credit Suisse 37
  37. 37. Western markets are much tighter Inventories are ample in China, but not in the Leading to a tight market in the West, West vulnerable to squeezes kt Premiums, US$/t Little accessible LME metal ktSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 38
  38. 38. Capex intensity is rising alarmingly: Mid-term incentive price now US$6,500/tSource: Brook Hunt, Credit Suisse 39
  39. 39. AluminiumHigh premiums, vulnerable prices 40
  40. 40. Aluminium smelters no longer under pressure Ex-China smelters cushioned by record Chinese smelters protected by higher premiums domestic prices, subsidies, integration US$/t US$/tSource: Brook Hunt, Credit Suisse 41
  41. 41. Inventories increasingly difficult to access Financing yields remain attractive, Financing deals and warehouse queues although they have declined prevent access to most inventories Annualized yield, rolling 12-month to 3-month LME inventories, kt contractsSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 42
  42. 42. Lengthy queues on LME have led to record premiums Long queues have effectively made Premiums are at record highs, diminishing metal in large warehouses unavailable smelter cutbacks from low prices (US$/t)Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 43
  43. 43. Growing Chinese production leading to higher net exports and rising stocks Chinese aluminium production Aluminium and product exports remain expanding on the back of large new strong despite an unfavourable arb … smelters (Mt) 2004 2005 Arbitrage (lhs, US$/t) 2008 2006 2007 2009 product exports (rhs,2012 Al & 2010 2011 kt) -1000 400 LME Expensive -800 350 -600 300 -400 250 -200 200 0 150 200 100 400 50 LME Cheap 600 0 …Rising SHFE stocks (kt) 500 450 400 350 300 250 200 150 100 50 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 44
  44. 44. NickelShort window for higher prices 45
  45. 45. Nickel ramp-ups have hit road-blocks CapacityProject Country Operator Type (kt) Start-up CommentsBarro Alto Brazil Anglo FeNi 40 Mar-2011 Full capacity targeted by end of 2012. Maintenance on line 2 scheduled for H2; 5.4 kt produced in Q2 after mainenance on line 1 in June; 6.6 kt produced in Q1Onca Puma Brazil Vale FeNi 53 Mar-2011 Production halted following breakdowns in 2 furnaces; 2nd line began production in January; 2 kt produced in Q2 after 4 kt in Q1; legal troublesTaguang Myanmar Taguang FeNi 22 Apr-2011 Refinery difficulties Taung NickelRavensthorpe Australia First Quantum HPAL 39 Oct-2011 First Quantum forecasting 33-36 kt in 2012; 8.1 kt produced in Q2, 8.6 kt in Q1Ramu Papua New MCC HPAL 31 Mar-2012 First production achieved in early March; full capacity Guinea targeted in mid-2013VNC (Goro) New Caledonia Vale HPAL 60 Q1 2012 Force majeure with acid plant repairs expected to take months; 1.1 kt nickel oxide and 2.3 kt nickel hydroxide cake in Q1Ambatovy Madagascar Sherritt HPAL 60 Sep-2012 Obtained 6 month operating permit in September; commercial production targeted for H1 2013Koniambo New Caledonia Xstrata FeNi 60 H2 2012 Full capacity targeted by 2014Source: Credit Suisse, Company reports 46
  46. 46. NPI likely to rebound with higher prices Chinese nickel production fell in But prices have rebounded and NPI is response to low prices (kt) once again attractive vs. refined nickel (RMB/t)Source: CEIC, Zijin Steel, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 47
  47. 47. Demand for nickel has Been the weakest of any LME metal H1 stainless steel production, YoY growthSource: International Stainless Steel Forum, Credit Suisse 48
  48. 48. Nickel market is moving into growing supply surplus Forecast production from eight major Nickel market balance (kt) projects (kt)Source: Brook Hunt, Credit Suisse 49
  49. 49. ZincSqueezed today, but more surpluses tomorrow 50
  50. 50. Zinc is increasingly resembling aluminium Attractiveness of zinc financing relative LME metal availability is very poor to aluminium has improved kt Annualized yield, rolling 12-month to 3-month contracts 1,200 Johor 1,000 Cancelled Johor On Warrant Vlissingen 800 Cancelled Vlissingen On Warrant Detroit 600 Cancelled Detroit On Warrant 400 New Orleans Cancelled New Orleans On Warrant 200 ROW Cancelled ROW On Warrant 0 2009 2010 2011 2012Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 51
  51. 51. The Chinese market has been tighter than expected Chinese smelter production has been Chinese imports are likewise likely to fall weak, but should rebound with prices back with less positive import arbitrage ktSource: CEIC, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 52
  52. 52. Mine closures have been delayed, pushing back prospect of annual market deficits ktSource: Brook Hunt, Credit Suisse 53
  53. 53. LeadMoving into the spotlight 54
  54. 54. Lead market has been squeezed • Mild winter and fall in battery scrap prices leads to less scrap in 1 the US • 400 kt/y of new US secondary capacity added, pushing up 2 scrap prices • Improving end-use demand and fire at 130 kt/y Herculaneum 3 smelter tightens US refined market • US premiums rise, far above those in the rest of the world, 4 compensating smelters for scrap prices • Consumers and traders look to source lead from the rest of the 5 world to supply tight US market • Major traders lock up more LME metal and limit access to LME 6 stocksSource: Credit Suisse 55
  55. 55. Tight physical market, particularly in the US US scrap prices bounced strongly from The tight US market has dragged up Q4 2011 decline premiums in the rest of the world US used battery prices; USc/lb US$/tSource: Metal Bulletin, Reuters, the BLOOMBERG PROFESSIONALTM service, Credit Suisse 56
  56. 56. LME stocks have fallen, and little of the remainder is accessible LME on warrant inventory, ktSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 57
  57. 57. Lead demand has been the strongest among LME metals Chinese lead battery production very strong 2012 demand growth outpacing other KVAH, seasonally adjusted LME metals YoYSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 58
  58. 58. Supply-side issues are key swing variables Chinese closures could tighten market Large mine closures expected to shift in short run market into deficit in mid-term kt ktSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 59
  59. 59. TinSqueezed, but supply returning 60
  60. 60. Supply declined in response to low prices Global refined tin production, ktSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 61
  61. 61. LME inventories have plummeted On warrant LME inventories, ktSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 62
  62. 62. And the front of the LME curve has been squeezed LME cash – 3 month, US$/tSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 63
  63. 63. Bulk CommoditiesMixed fortunesPhotos: Andrew Shaw / Credit Suisse 64
  64. 64. Other CommoditiesPrecious Metals 65
  65. 65. Gold: Stronger for longer US$/oz $2,100 Gold (Spot) Quarterly Avg Forecast $1,900 $1,700 $1,500 $1,300 $1,100 $900 $700 $500 $300 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 66
  66. 66. Gold: Bounce back towards LT trend line US$/oz $2,000 Gold Price Expected Value $1,750 Upper 3 Std Dev. $1,500 Lower 3 Std Dev. $1,250 $1,000 $750 $500 $250 $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 67
  67. 67. But short-term rally in yields likely $2,000 -2.0 Gold, $/oz (LHS) $1,750 US 5 year TIPS, % (scale inverted) -1.0 $1,500 0.0 $1,250 1.0 $1,000 2.0 $750 Daily correlation 3.0 $500 : -0.945 $250 4.0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 68
  68. 68. Longer term, still bullish US Treasuries  Fed not finished: QE 3.5 possibly as soon as December – Ongoing purchases of Treasuries after Twist expires – $45bn/month baseline expectation – Balances MBS purchases in middle of curve, still adequate liquidity for Fed to buy more at back end  Further adjustments to guidance: More explicit linking of rates to unemployment + inflation – Shift in view of former hawk, Kotcherlakota, notable (unemployment target of 5.5% as long as 2-year forward inflation forecast <2.25%)  Fed appears prepared to accept political risks of further balance sheet expansionSee: Credit Suisse Global Week ly Snapshot, 28 September 2012 69
  69. 69. Silver outperformance should reverse if markets correct 90 3.0 80 2.0 1.0 70 Silver outperforming Conditions improving 0.0 60 -1.0 50 -2.0 40 -3.0 30 Gold: silver ratio (lhs) -4.0 Financial Conditions Index 20 -5.0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 70
  70. 70. PGMs – Correction before recovery US$/oz$900 Palladium (Spot) Quarterly Avg Forecast $2,500 Platinum (Spot) Quarterly Avg Forecast $2,250$700 $2,000 $1,750$500 $1,500 $1,250$300 $1,000 $750$100 $500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 71
  71. 71. South Africa / positioning, not demand, driving price South Africa = 75% of platinum mine supply Labour relations at a nadir, complicated by inter-union rivalry, politics, and recent deaths Tensions likely to remain high through Q4 Estimated production losses to date = 460,000 oz and growing Knock-on effect on palladium output 72
  72. 72. More closures required to balance the market  At current metal prices, further closure of capacity is inevitable in our view, and necessary  Recent rand relief likely to be short-lived; the industry needs to be restructured for the long termSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 73
  73. 73. Auto industry rebound losing momentum and largely a gasoline (Pd) storySource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 74
  74. 74. Still no clear arbitrage opportunity between Pt & PdSource: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 75
  75. 75. Other CommoditiesOil & Gas 76
  76. 76. Brent and WTI forecast decksProposed new CS Base Case --Range of $100-120. No high conviction fundam entals direction dow n or up from that. Avg annual price rises one m ore year, 2013 and com pletes 11-year uptrend; then sets in decline 2012 2013 2014 2015 Long term Oil Actuals & Forecasts ($US/b) 2010* 2011* Q1* Q2* Q3* Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)Brent 83.13 109.97 118.28 108.95 109.62 105.00 110.46 110.00 115.00 115.00 120.00 115.00 115.00 110.00 110.00 105.00 110.00 100.00 90.0 previous 95.00 95.00 104.35 100.00 100.00 105.00 105.00 102.50 110.00 115.00 115.00 120.00 115.00 100.00 90.00 Net Change 14.60 10.00 6 .10 10.00 15.00 10.00 15.00 12 .5 0 5.00 -5.00 -5.00 -15.00 - 5 .0 0 0 .0 0 0.00 % Change 15% 1% 1 6% 10% 15% 10% 14% 12 % 5% -4% -4% -13% -4% 0% 0% Consensus* 108.30 111.3 109.60 108.00 110.40 109.30 110.20 113.2 111.00 Net Difference -3.30 - 0 .8 0 0.40 7.00 4.60 10.70 4 .8 - 3 .2 - 11.0 % Difference -3% - 1% 0% 6% 4% 10% 4% -3% - 10 % Fw d Curve* 112.63 112.37 105.12 109.67 108.10 106.52 107.35 99.74 103.61 102.24 100.90 101.62 96.98 Net Difference -7.60 - 1.9 0 4.90 5.30 6.90 13.50 7 .6 0 15.30 6.40 7.80 4.10 8 .4 0 3 .0 0 % Difference -7% -2% 5% 5% 6% 13% 7% 15% 6% 8% 4% 8% 3%WTI 79.61 90.70 102.91 93.43 92.51 89.00 94.46 97.00 106.00 108.00 113.00 106.00 107.00 102.00 102.00 97.00 102.00 93.50 83.5 previous 84.00 82.00 90.58 91.00 95.00 101.00 101.00 97.00 106.00 111.00 111.00 1 6.00 1 111.00 94.00 84.0 Net Change 8.50 7.00 3 .9 0 6.00 1 .00 1 7.00 12.00 9 .0 0 1.00 -9.00 -9.00 -19.00 - 9 .0 0 - 0 .5 0 -0.50 % Change 10% 9% 4% 7% 12% 7% 12% 9% 1 % -8% -8% -16% -8% - 1% -1% Consensus* 93.80 95.66 97.70 97.80 101.00 100.80 101.50 102.80 104.50 Net Difference 1 .20 1 - 1.2 0 -0.70 8.20 7.00 12.20 4 .5 0 - 0 .8 0 - 11.0 0 % Difference 12% - 1% -1% 8% 7% 12% 4% - 1% - 11% Fw d Curve* 95.33 96.04 94.72 96.83 96.46 95.58 95.90 99.74 93.73 92.80 97.86 96.03 97.19 Net Difference -6.30 - 1.6 0 2.30 9.20 1 .50 1 17.40 10 .10 7.30 8.30 9.20 -0.90 6 .0 0 - 3 .7 0 % Difference -7% -2% 2% 10% 12% 18% 11% 7% 9% 10% -1% 6% -4%WTI - Brent Spread -3.52 -19.27 -15.37 -15.51 -17.11 -16.00 -16.00 -13.00 -9.00 -7.00 -7.00 -9.00 -8.00 -8.00 -8.00 -8.00 -8.00 -6.50 -6.50Disaster scenario. Big assum ption: Policy error and/or other catalysts m elt dow n confidence. A true credit crunch ratchets activity dow n fast. Dem and plum m ets. Also, next recovery takes longer to achieve. 2012 2013 2014 2015 Long termOil Actuals & crisis bear-case ($US/b) 2010* 2011* Q1* Q2* Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)Brent 83.13 109.97 118.28 108.95 109.62 55.00 98.00 55.00 70.00 70.00 80.00 69.00 80.00 80.00 90.00 90.00 85.00 90.00 90.00WTI 79.61 90.70 102.91 93.43 92.51 45.00 83.00 50.00 61.00 63.00 73.00 62.00 72.00 72.00 82.00 82.00 77.00 83.50 83.50WTI - Brent Spread -3.52 -19.27 -15.37 -15.51 -17.11 -10.00 -15.00 -5.00 -9.00 -7.00 -7.00 -7.00 -8.00 -8.00 -8.00 -8.00 -8.00 -6.50 -6.50Econom ic crisis is not averted entirely. Dem and grow th erodes further. Supply side grow th, m eanw hile, accelerates. Much like w ith US natgas, m arket underestim ates upstream efficiency gains and potential. 2012 2013 2014 2015 Long term Oil Actuals & Forecasts ($US/b) 2010* 2011* Q1* Q2* Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)Brent 83.13 109.97 118.28 108.95 109.62 75.00 103.00 70.00 75.00 85.00 90.00 80.00 85.00 90.00 90.00 80.00 86.00 80.00 75.00Scarcity is not dead. Global grow th resum es a little quicker to a pace nearer that of 2002-2008. And on the supply side declines of the base keep upw ard pressure on the right side of the cost-curve. 2012 2013 2014 2015 Long term Oil Actuals & Forecasts ($US/b) 2010* 2011* Q1* Q2* Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)Brent 83.13 109.97 118.28 108.95 109.62 115.00 113.00 115.00 120.00 120.00 120.00 119.00 125.00 125.00 125.00 125.00 125.00 140.00 110.00Mideast supply shock. Markets price for accute scarcity, as 2m b/d is offline for 2 m onths. SPR et al released m oderates prices. Dem and plunge does dam age too. Prices recover, only for intense supply respond to underm ine 2012 2013 2014 2015 Long term Oil Actuals & Forecasts ($US/b) 2010* 2011* Q1* Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)Brent 83.13 109.97 118.28 108.95 109.62 150.00 122.00 130.00 100.00 90.00 90.00 103.00 110.00 125.00 125.00 120.00 120.00 100.00 90.00Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 77
  77. 77. How we stand vs. the consensus Our 2012 oil demand and how we differ on the growth vs IEA (Mb/d) supply side (Mb/d) 1.7 Credit Suisse Consensus (IEA) 1.0 Credit Suisse Consensus (IEA) 0.8 1.2 0.6 0.7 0.4 0.2 0.2 0.0 (0.3) (0.2) (0.4) (0.8) Non-OPEC Call on OPEC Crude and Stocks 2013 Global OECD Non-OECD CSBMI vs. global PMI 2 CSBMI peaked Jan12 PMI peaked Apr12 62 1 57 0 52 -1 47 42 -2 CSBMI troughed Jun12 PMI troughed Aug12? 37 -3 CSBMI, 3m ma 32 Global PMI Mfg. New Orders, rhs -4 27 -5 22 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 01/11 01/12Source: the BLOOMBERG PROFESSIONALTM service, IEA, Credit Suisse 78
  78. 78. 0 -400 -300 -200 -100 100 200 300 400 500 Japan India China Brazil Saudi Arabia Other ME Other Asia Other Africa South Korea Thailand Venezuela Australia Iran 2012 ytd Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse Argentina South Africa Mexico forecast for 2013 Chile France Egypt 2013E Canada Germany UK Other Europe Italy USA Oil demand yoy deltas: Data for 2012 through July,79
  79. 79. Demand (Mb/d) Global Emerging Markets 92 monthly SA SA 3mth MA 45 monthly SA 3mth Avg SA 91 44 90 43 89 42 88 41 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 OECD China 48 monthly SA 3mth Avg SA 10.5 monthly SA 3mth Avg SA 47 10.0 46 9.5 45 44 9.0 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 80
  80. 80. Supply (kb/d) North American flows have Monthly crude oil production grown fast, but declines from non-OPEC 43 elsewhere undermine totals 1800 1800 Non-OPEC ex. North America North America Non-Opec 42 1400 1400 41 1000 1000 40 600 600 39 200 200 38 -200 -200 -600 -600 37 -1000 -1000 36 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Total US oil production Shale rig count and total wells (excluding NGL) drilled 12,000 US Oil Production Oil Shale Rig Count 1400 18,000 1,400 10,000 1200 1,200 16,000 1000 1,000 8,000 14,000 800 800 6,000 12,000 600 600 4,000 Wells Drilled 400 10,000 US Shale Oil Rig 400 2,000 200 Count 8,000 200 0 0 2000 2004 2008 2012E 2016E 2020E 6,000 0 2011 2013 2015 2017 2019 2021Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 81
  81. 81. Stocks (Mb) Crude oil Key products, such as middle inventories remain distillates, remain in short1060 adequate 5y Max Min 5yr avg 2012 2011 220 supply Surplus onland floating storage1030 1801000 140 100 970 60 940 20 910 -20 880 -60 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 82
  82. 82. Iran’s currency collapses, what’s next? Rial/US$ 37,000 Riots in Tehran as Rial plunges Oct 2,3 33,000 Official Bank Rate Unofficial Market Rate 29,000 EU and US sanctions 25,000 fully implementated on July 1 EU import embargo 21,000 U.S. CBI Sanctions 17,000 13,000 9,000 Sep-11 Oct-11 Nov-11Dec-11 Jan-12 Feb-12Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 83
  83. 83. Brent US$/b $160 Brent front month Quarterly avg forecasts $140 $120 $100 $80 $60 $40 $20 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: the BLOOMBERG PROFESSIONALTM service, Credit Suisse 84
  84. 84. Global LNG remains structurally tight Global Gas Benchmarks – APAC prices Summer downturn in Japanese LNG were weak in Q3 imports was partly to blame, but it shouldn’t US$/MMbtu last$20 14 Bcf/d$18 13$16 12$14 11$12 10$10 9 $8 8 $6 $4 7 $2 6 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec JKM HH Prompt NBP Prompt Jap LNG Imp Price 2009 2010 2011 2012 Source: the BLOOMBERG PROFESSIONALTM service, Platts, GTIS, Credit Suisse 85

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