Market Outlook Updates &
Commodities Sector Allocation:
Base/Precious Metals, Energy, Agri
Robert P. Balan, Senior Market Strategist
Alessandro Gelli, Energy Strategist
Marion Megel, Base/Precious Metals Analyst
Created: November 18, 2011 v.1
Summary - Global Macro/Eurozone
European tension remains elevated as this week's Spanish bond
auction disappointed. This triggered volatile moves across Euro-
pean bond markets, briefly pushing the French sovereign spread to
Bunds above 200bp. ECB’s purchase of Italian’s soothed the panic
Spanish polls are signalling a landslide victory for the Partido Po-
pular (PP) in the 20 November elections. Enhanced fiscal consolida-
tion is likely to be a priority for the new government, with grwoth
policies that should be welcomed by the markets
In Italy, PM Monti won a confidence vote in the Senate by a wide
margin. The lower chamber is scheduled to hold its confidence vote
later today (Friday). While details will made available over the next
few days, the general message delivered by PM Monti goes in the
direction of growth and lower public debt and consolidation
Greece’s new government unveiled a 2012 budget with a deficit
shortfall dropping by almost half, due to pension and wage cuts
and a debt swap that will slash interest costs. Greece’s budget defi-
cit will narrow to 5.4 % of GDP next year, or 11.4 billion euros
($15.5 billion), from 9 percent this year, or 19.7 billion euros.
Q3 French GDP rebounded by 0.4% q/q, up from a revised -0.1% q/
q in Q2. However, this pace is unlikely to last because business
confidence continues to decline in France – and in the euro area in
general – due to a negative feedback loop caused by the euro sove-
reign debt crisis. French industrial production carry over is fairly
negative at -1.1% for Q4. Thus look for a 0.1% q/q GDP fall in Q4.
The UK retail sector reported another month of stronger than ex-
pected sales in October. Headline retail sales increased by 0.6% m/m
from a downwardly revised 0.5% m/m growth in September, sup-
ported by strong food, clothes and automotive fuel sales. Core retail
sales (excluding auto fuel) increased by 0.6% m/m from a downwar-
dly revised 0.6% previously.
2
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Global Macro/China/EM
China’s tight-minded policy makers have taken what appears to be
the first, cautious steps toward an easing policy — right on cue after
the October consumer inflation rate fell sharply. Open-market re-
purchase operations on Nov 8 cut interest rates on 10 billion yuan
worth of one-year central bank bills to 3.573% from 3.584% at the
previous 11 weekly auctions — first such reduction in 28 months.
Then the PBoC auctioned a CNY 52bn bill this week with an auction
yield of 3.4875%, 9 bp lower than the previous auction. This follows
the first drop in the 1y bill auction yield on November 8. We believe
the PBoC's decision to increase the auction size and lower the yield
means that it is sending a signal to the market of further easing.
Moreover, the PBoC this week published its report for Q3 and made
several changes on its policy language to reflect "forward-looking"
and "selective finetuning" of macro-economic policies. It was the
first time the PBoC put finetuning and selective easing on paper.
We now expect y/y GDP growth to slow to 8.9% in Q4 from 9.1% in
Q3. We forecast CPI inflation to fall further below 5.0%, — our CPI
inflation forecast is 5.0% in November and 4.50% in December.
3
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Macro/U.S. Economy
The U.S. CBO leading economic indicators rose sharply in October
on strength in building permits and interest rate spread. The LEI
rose 0.9% m/m in October, to 117.4, well above (0.6%) expectations.
There were broad-based gains across a number of the subcompo-
nents, with the largest contributions coming from building permits
(0.27%), interest rate spread (0.22%), the average workweek (0.13%),
equity prices (0.10%), and growth in M2 (0.10%).
US initial jobless claims suggest improving labor market conditions,
as it fell 5k in the week ending November 12, to 388k from an up-
wardly revised 393k. The last time initial claims and the four-week
moving average were consistently below 400k was March and April
of this year, so we continue to view the passing of this threshold in
recent weeks as an important signal that the labor market has mo-
ved through its recent period of higher rates of job separation.
US housing starts hold steady in October; permit activity suggests
that better start activity lies ahead. Housing starts fell 0.3% m/m, to
628k in October from a revised 630k in September, leaving Starts
above where the market (610k) had expected. The revisions to the
September data, which reversed what had been a strong gain that
month, account for much of the miss in consensus expectations.
The deficit ‘supercommittee’ in the U.S. appeared close to unravel-
ling with no movement on the critical issue of tax revenues. Mee-
tings are expected to continue through the weekend but there was
increasing pessimism as Republicans and Democrats began to
blame each other directly for the lack of progress.
Analysts are raising their forecasts for Q4 2011, just a few months
after a slowdown raised concern among investors — the economy
may end 2011 growing at its fastest clip in 18 months. Economists
have now upgraded previous predictions of Q4 growth which was
generally at 2.5% area, to 3.3% even 3.5%. We also raise our Q4 GDP
estimate from 2.7% to 2.85%, and keep a 3.2% forecast for Q1 2012
4
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Market Outlooks
OUTLOOK ON EQUITY MARKETS
NY Fed President Dudley highlighted the potential purchase of
mortgage-backed securities as a policy option to support the hou-
sing market, specifically noting that if the Fed were to buy more se-
curities, buying agency MBS would be better, as it would 1) directly
affect the housing market and 2) be less disruptive to the markets.
We believe that the new bull phase in equities is completing its first
major correction. Despite the incomplete resolution of the euro debt
crisis, signs that China and U.S. economies will fare modestly well
for the rest of 2011, plus a Fed promise to intervene in case of exter-
nal shocks or growth decline, will support the rally until Q1 2012
We are now at the conclusion of our Sept 30 bi-directional short-
term forecasts: an S&P 500 rally to the 1250 - 1275, then followed by
another price reversion to the 1175 area. This call for 1175 levels is
unlikely to be seen; support is now strong at circa 1200. The rally re-
sumes in earnest soon, probably before month-end. We still expect
the SPX to test the 1350 - 1375 highs by Q1 next year.
OUTLOOK ON BOND MARKETS
The Treasury curve continues to bull flatten: - 5y, 10y, and 30y
yields were lower by 3bp, 7bp, and 8bp, resp. Economic data were
mixed: 1/Oct. housing starts were better than consensus expecta-
tions; 2/the Philadelphia Fed Index surprised on the negative side,
3/European bank funding stress appeared to rise, as 1y Libor-OIS
rose 2bp, and CDS spreads on European senior financials widened
We are now at the tail-end of our Sept. 30 bi-directional short-term
outlook for bond yields: a rise in 10yr yields to circa 2.40% - 2.45%,
then followed by another reversion to 2.15% - 2.12%, which was
substantially overshot (low was at 1.93% —it may still fall to 1.88%).
However, yields should rally strongly from there before month-end.
By Q1 2012, we expect the 10yr yield to be at the 2.95% - 3.00% area.
5
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Market Outlooks
OUTLOOK ON CURRENCIES/U.S. DOLLAR
The ECB have been buying fair amounts of Italian bonds during the
week, providing what may be a prelude to more consistent EUR
strength/Dollar weakness as from late in the month. The USD Index
(DXY) may firm further to just below 79.00, but may weaken from
there. EUR/USD may find a floor at circa 1.34 late in the month
The U.S. Dollar and EUR are doing the end-phase of our Sept 30 fo-
recasts: the USD rally was over, and then fall to 75.00; conversely,
the EUR/USD sell-off was over and then rise to 1.41 thereafter. Both
happened, and so did the subsequent counter-move, which was ex-
pected to go to 78.50, and 1.3600 in EUR (the recent low was 1.3420).
The U.S. dollar bear phase resumes soon— we are also forecasting
that resumption of risk taking over the rest of the year, and into Q1
2012, will have the U.S. dollar falling to new historic lows
OUTLOOK ON COMMODITY MARKETS—ENERGY
Our energy strategist asserts an average of Brent Crude oil price in
2011 at $108 and $112, and an average of $115 - $120 in H1 2012.
Those higher numbers are based on current evidence that Emerging
Markets, the Middle East, and east Asia continue to drive robust
energy demand while supply becomes more and more stretched
We are now at the end-phase of our Sept. 30 projections: the Brent
Crude front-month contract will retest the $117/bbl resistance level.
A consolidation phase then brings it back to circa $109.00 thereafter.
However, the current sell-off from $117/bbl should find support
near $110.00 instead — then a rally to the $120/bbl area follows,
perhaps as early as from late in the month
Brent Crude Oil should continue to perform well in coming months
— we may be on track to see $127/bbl - $130/bbl by Q1 2012 202012.
6
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Market Outlooks
OUTLOOK ON COMMODITY MARKETS—BASE METALS
Our base metal analyst asserts that LME copper prices should ave-
rage out between $9100/mton and $9300/mton in 2011. For 1H 2012,
copper prices may average at $9700/mton and $9900/mton. Current
demand continues to improve in Asia/China market and a new up-
tick in U.S. housing starts will add to underlying support for copper
Chinese copper imports continue to do well. Recent low prices in
base metals are cue for a new series of Chinese inventory restocking
Our Sept. 30 forecasts are at a finale: we said Copper may improve
to $8300/mton - $8500/mton, followed by a correction back to $7700/
mton area thereafter. The reversion may actually settle soon at circa
$7300/mton, lower than expected. Reset long positions may expect a
copper rally back to the $9700/mton - $10000/mton by Q1 2012
OUTLOOK ON COMMODITY MARKETS—PRECIOUS METALS
Our precious metal analyst asserts that cash gold prices should ave-
rage out between $1,560/oz and $1,580/oz in 2011. For 1H 2012, gold
prices may average at $1,840/oz and $1,890/oz
Still strong Asian physical demand for PGMs, allied with large pur-
chases from emerging countries’ central banks to diversify their re-
serves should offset the impact of recent selling of gold ETF by
hedge funds, and bring strong support to gold and PGM prices
We projected on Sept. 30 that gold prices will improve to $1,730/oz -
$1,750/oz (actually peaked at $1800/oz), followed by a correction
back to $1,620/oz area. Prices never got that low, and instead, may
settle at circa 1685/oz from here. Gold prices should recover soon.
We also said that by Q1 2012, we are expecting gold prices to be
back at the $1,880/oz - $1,900/oz range, which now looks likely to be
surpassed, with $2000/oz the next market focus, if targets breached
7
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Market Performance
Return - 1W
RICI Ix Lumber Total Return 8.9%
DCI Meat Total Return 1.5%
RICI Meats Ix Total Return 1.1%
Bloomberg USD vs EUR 1.1%
RICI Industrial Metals Ix Total Return 0.5%
DCI Base Metals Total return 0.1%
Barclays Capital Bond Composite Global Index 0.0%
RICI Soft Ix Total Return 0.0%
RICI Fibers Ix Total Return -0.4%
DCI Crude Oil Total Return -0.7%
RICI Metals Ix Total Return -1.1%
RICI Energy Ix Total Return -1.3%
MSCI World -1.4%
RICI Global Total Return -1.4%
DCI Agriculture Total return -1.6%
DCI Global Total Return -1.6%
RICI Agriculture Ix Total Return -1.7%
DCI Energy Total return -1.7%
S&P 500 INDEX -1.9%
DCI Soft Total Return -2.3%
DCI Grains Total Return -2.5%
RICI Grains and Oilseeds Ix Total Return -3.0%
DCI Precious Metals Total return -3.1%
RICI Precious Metals Ix Total Return -4.1%
-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Source: Diapason
Return - 1M
DCI Crude Oil Total Return 7.7%
RICI Energy Ix Total Return 5.3%
DCI Energy Total return 2.3%
Bloomberg USD vs EUR 2.1%
DCI Precious Metals Total return 2.0%
RICI Precious Metals Ix Total Return 1.3%
S&P 500 INDEX 1.3%
RICI Ix Lumber Total Return 0.8%
Barclays Capital Bond Composite Global Index 0.4%
RICI Global Total Return 0.3%
DCI Global Total Return -0.2%
RICI Metals Ix Total Return -0.5%
MSCI World -0.8%
RICI Industrial Metals Ix Total Return -1.5%
RICI Fibers Ix Total Return -1.8%
DCI Base Metals Total return -1.9%
DCI Meat Total Return -2.2%
RICI Meats Ix Total Return -2.7%
RICI Agriculture Ix Total Return -5.3%
DCI Agriculture Total return -6.0%
RICI Grains and Oilseeds Ix Total Return -6.0%
DCI Grains Total Return -6.4%
RICI Soft Ix Total Return -7.1%
DCI Soft Total Return -7.5%
-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Source: Diapason
8
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Summary - Market Performance
Return - 3M
DCI Crude Oil Total Return 7.3%
Bloomberg USD vs EUR 7.2%
RICI Energy Ix Total Return 4.5%
DCI Meat Total Return 2.4%
RICI Meats Ix Total Return 2.0%
S&P 500 INDEX 1.9%
DCI Energy Total return 1.3%
Barclays Capital Bond Composite Global Index -0.4%
MSCI World -3.1%
RICI Ix Lumber Total Return -5.1%
DCI Global Total Return -5.4%
RICI Global Total Return -5.8%
DCI Precious Metals Total return -7.5%
RICI Fibers Ix Total Return -8.5%
RICI Precious Metals Ix Total Return -12.4%
RICI Agriculture Ix Total Return -13.4%
DCI Agriculture Total return -13.4%
RICI Metals Ix Total Return -13.7%
RICI Industrial Metals Ix Total Return -14.3%
RICI Soft Ix Total Return -14.5%
DCI Base Metals Total return -14.7%
DCI Soft Total Return -15.1%
DCI Grains Total Return -16.7%
RICI Grains and Oilseeds Ix Total Return -16.8%
-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
Source: Diapason
Return - YTD
DCI Precious Metals Total return 16.1%
DCI Crude Oil Total Return 7.7%
Barclays Capital Bond Composite Global Index 7.0%
RICI Precious Metals Ix Total Return 6.3%
RICI Energy Ix Total Return 5.4%
DCI Energy Total return 5.2%
DCI Meat Total Return -0.2%
Bloomberg USD vs EUR -0.5%
DCI Global Total Return -1.2%
RICI Meats Ix Total Return -2.4%
S&P 500 INDEX -3.3%
RICI Global Total Return -5.6%
DCI Soft Total Return -7.6%
RICI Soft Ix Total Return -8.8%
MSCI World -9.2%
RICI Metals Ix Total Return -12.0%
DCI Agriculture Total return -12.5%
RICI Agriculture Ix Total Return -15.6%
DCI Grains Total Return -17.5%
RICI Grains and Oilseeds Ix Total Return -20.2%
RICI Industrial Metals Ix Total Return -20.7%
DCI Base Metals Total return -20.8%
RICI Fibers Ix Total Return -20.9%
RICI Ix Lumber Total Return -48.4%
-60.0% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0%
Source: Diapason
9
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: BASE METALS
China's monthly Refined Copper Production, m/m Change
80'000
Sources: Diapason, Antaike, Chinese Customs
60'000
40'000
20'000
0
-20'000
-40'000
-60'000
07
08
09
10
11
7
8
9
0
1
7
8
9
0
1
7
8
9
0
1
-0
-0
-0
-1
-1
-0
-0
-0
-1
-1
l-0
l-0
l-0
l-1
l-1
n-
n-
n-
n-
n-
pr
pr
pr
pr
pr
ct
ct
ct
ct
ct
Ju
Ju
Ju
Ju
Ju
Ja
Ja
Ja
Ja
Ja
O
O
O
O
O
A
A
A
A
A
Base metals, especially copper, have remained very volatile. Over the past week, the
red metal front-month price has gone on roller coaster drive, hovering between $7,475/
tonne and $7,756. Copper investors seem to be hesitating between the positive funda-
mental data and the bearish global macroeconomic environment, dampened by the
Euro crisis and by the Chinese credit tightening policy.
Copper fundamentals are holding firm: Chinese total copper imports were up by 40%
y/y in October, to a 17-month high, in line with our expectations of restocking activity.
We believe the current slowdown in imports (suggested by the drop in cancelled war-
rants—from 15% of total LME inventories at the end of October to 8% currently– and
by the fall in Chinese premiums) is only temporary and that Chinese purchases will
remain strong in the coming months. The restocking cycle could indeed continue in
Q1’2012 as SHFE inventories are still at critical levels, at only 4 days of consumption.
In addition, domestic production is currently low due to raw material supply issues.
In addition, the Chinese industrial demand for copper should be supporter next year
by the government plan to build 10 million social houses. This means that the public
sector could offset the effect of a potential decline in private investments. However, we
remain cautious about Beijing’s plans, as about a 1/3 of the 2011 social houses construc-
tion target will be missed by the yearend.
Supply disruption persists. The strike at Grasberg mine in Indonesia has been ex-
tended to the third month The mine is running now at only 5% of full capacity. Also,
output remain lacklustre in Chile, the world’s top producing country: In Sept, the
country’s production was down 2% from last year.
The International Lead and Zinc Study Group’s latest stats confirm the two metals are
in massive surpluses, by 275Kt as for zinc and by 170Kt for lead, from Jan to Sept.
Nickel has been severely affected in the past weeks as European stainless steel produc-
ers have announced production cuts. Stainless steel (68% of nickel’s end usage) de-
mand in Europe should be flat in 2011, vs. a 4% growth in 2011.
10
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: PRECIOUS METALS
World Gold Consumer Demand, Tonnes
1000
India China SE Asia Middle East Turkey Russia USA Europe Others
900
800
700
600
500
400
300
200
100
0
Q1'06
Q2'06
Q3'06
Q4'06
Q1'07
Q2'07
Q3'07
Q4'07
Q1'08
Q2'08
Q3'08
Q4'08
Q1'09
Q2'09
Q3'09
Q4'09
Q1'10
Q2'10
Q3'10
Q4'10
Q1'11
Q2'11
Q3'11
The gold price has remained volatile over the past week and fell abruptly from
$1,770/oz to $1,720 on November 17, in line with other metals.
The latest statistics from the World Gold Council show that world gold demand in-
creased by 6% y/y in Q3’2011. Consumer demand surged by 11% y/y, due mostly to
the Chinese buying activities. The Middle Kingdom has indeed overtaken India to
become to world’s largest gold buyer, with a y/y increase of 13% , vs. a 26% drop as
for India, mainly due to seasonality as festival season peaks in October.
For Q4 et Q1’12, we expect strong consumption from China and India. China’s buy-
ing should intensify ahead of the New Year festivities. Imports have already surged
in September to 57 tonnes, a 6-fold increase from last year. India’s consumption
should rebound, due to the ongoing festival season and the forthcoming wedding
season. Growing rural incomes should also encourage Indian farmers to consume.
Central banks were also strong buyers of gold in the third quarter and made their
largest net purchases in 40 years at 148 tonnes. The majority of the buying took
place in September after prices fell sharply from record levels. According to the
IMF, Mexico was indeed the largest buyer from Jan to Sept (83.7 net tonnes added
to the reserves), followed by Russia (59 tonnes added) and Thailand (53 tonnes).
We remain positive on palladium as the market should be in deficit this year
(contrary to platinum). In addition, Russia has announced that stockpiles sales,
which represented the fourth largest source of supply last year, should total only 9
tonnes in 2012 and 2013 altogether and should then completely stop from 2014, as
inventories are almost exhausted.
China’s PGMs imports rose in September, with platinum more than doubling y/y
and were the strongest since April this year, at 264,000 ounces. Year to data imports
turned positive and were up 11% y/y. It seems that the steep decline in platinum
prices at the end of September encouraged physical demand in China.
11
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: ENERGY
WTI-Brent Spreads (Contracts N°)
$0
-$5
-$10
-$15
-$20
WTI-Brent 1st
WTI-Brent 3rd
-$25
WTI-Brent 6th
WTI-Brent 12th
Sources: Diapason, Bloomberg
-$30
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Political troubles increased in Kuwait where a large crowd com-
posed invade the parliament this week because of corruption scan-
dals. The Emir called for a tough action to maintain public order.
Political tensions in Kuwait are not new but it is the first time that it
reached this scale. Kuwait is the world’s fourth largest crude oil ex-
porter, exporting about 2.0 million b/d
Libyan crude oil production is now near 0.6 million b/d up from
less than 100’000 b/d in September. However, only the undamaged
fields have been restarted. It will take more time to increase produc-
tion from other fields that have been damaged.
Crude oil production in North Dakota increased to a new high in
September at 464’000 b/d, up 35.2 percent y/y. The number of rigs in
North Dakota suggests that crude oil production will continue to
grow but at a slower pace.
The reversal of the Seaway pipeline will reduce costs to transport
crude oil from Cushing to the Gulf Coast, leading to a narrower
Brent-WTI spread. However, the pipeline capacity (150’000 b/d) in
2012 will not allow a complete reversal of the pipeline.
Buzzard oil field’s operator said it had trouble restarting production
this week, leading to delayed cargoes.
12
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: ENERGY
Japanese Power Generation from Main Sources y/y
60%
40%
20%
0%
-20%
-40%
Power Generated and Purchased y/y
-60%
Thermal y/y
Nuclear y/y
Sources: Diapason, FEPC
-80%
Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11
The restart of 2 major refineries in Singapore and in Taiwan and
higher crude runs in China will ease the distillate market in Asia.
Japanese demand for oil (crude and fuel oil) and natural gas from
the power sector will remain strong as long as nuclear plants will
remain idle. Since the nuclear incident in March no nuclear has re-
started after performing maintenance, leading to a decline of the
nuclear utilisation rate to 18.5 percent in October, down from 72.3
last year. Thermal demand by the power sector was up by 38.8 per-
cent y/y in October.
US natural gas prices are close to the marginal cost of production.
Several gas producing companies have announced that they are
having difficulties with such prices and are increasing their expo-
sure to oil or liquid-rich gas.
Further signs of slower production growth and an improvement of
the economic outlook for the rest of the year are needed to boost US
gas prices.
13
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: Agriculture
India could produce 24.7 million to 25.0 million tonnes of sugar in
the new season that began this month, according to the food minis-
ter, a figure agreed with the farm ministry which had previously
forecast 26 million tonnes. The agreement between the farm and
food ministries over the 2011/12 output paves the way for the first
tranche of sugar exports in the new season.
Indonesia's white sugar output in 2011 is estimated at 2.3 million
tonnes, only modestly up from last year's 2.2 million tonnes, after a
hot dry season undermined efforts to boost production, according
to the gouvernment. This year's total is far below the government
target set earlier this year at 2.7 million tonnes, which means it will
be harder for the country to reach its target for self-sufficiency in
sugar in 2014. Indonesian sugar stocks of white sugar by the end of
2011 were estimated at 744,306 tonnes. Monthly white sugar
consumption was 220,000 tonnes.
Severe drought in the southwestern United States will hamper do-
mestic cotton production in 2011/12, while global output is ex-
pected to rise. High prices is likely to drive world cotton produc-
tion up 8 percent to the largest crop since 2004/05. Production will
primarily be driven by China and India, with increases also ex-
pected in Pakistan, Australia, parts of Africa and Turkey.
China is seen importing 3.3 million tonnes cotton this year, up 22.22
percent from last year's 2.7 million tonnes. China is expected to pro-
duce 7 million tonnes of cotton this year, while its consumption is
seen at 10 million tonnes. China is the world's largest exporter of
textiles with a global market share of 28.3 percent last year, or 6.6
times India's share of 4.3 percent, Indian government data show.
China is the biggest buyer of the commodity from India, ahead of
Bangladesh and Pakistan.
14
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Demand-Supply Factors: Agriculture
Brazil's 2011/12 soybean crop is seen at a record 75.5 million tonnes,
up from the 75.18 million tonnes forecast in early October. With
farmers having now planted 48 percent of the soy crop, data
showed area to be planted with soy this season will expand to 25.11
million hectares. Last season, farmers planted 24.14 million hec-
tares. The yield forecast is expected to be 3 tonnes per hectare, less
than the record 3.1 tonnes last year.
The planting of 2011/12 soybeans in Argentina was helped by recent
rains that brought relief to farmers after a dry September. Argentina
is the world's top soymeal and soyoil exporter and the No. 3 soy-
bean supplier. The government says farmers will produce between
52 million and 53 million tonnes this season, up from 48 million last
season. Last week, growers had planted 17 percent of the 18.8 mil-
lion hectares that the government expects to be planted with
2011/12 soybeans.
Brazil could produce up to 59 million 60-kg (132-pound) bags of
coffee in the 2012 harvest, helping ease the international price of
arabicas from multi-year highs. The estimate would be a nearly 40
percent increase from the 43.15 million bags Brazil produced last
year, as the world's top coffee producer enters an up year in its up-
and-down harvest cycle.
Australia's 2011/12 wheat harvest, now gathering pace, runs the risk
of quality downgrades following wet weather although overall
quality is expected to be an improvement on last year.
The Philippines' unmilled rice production this year is expected to
reach 16.68 million tonnes, below a target of a record output of 17.3
million tonnes, according to the government. Rice production in
October to December was expected to decline by 8.8 percent from a
year earlier to 5.93 million tonnes due to typhoon damages to crops.
15
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Recommended Allocations
SECTORS: There are no changes in the allocations
Energy: 40 pct Sectors Allocations
Energy Base Metals Precious Metals Agriculture
Base Metals: 25 pct 10%
40%
25%
Precious Metals: 25 pct
Agriculture: 10 pct 25%
BASE METALS: There are no changes in the allocations
Tin: 15 pct
Aluminium: 25 pct Base Metals Allocations
5% 5% 15% Tin
Copper: 35 pct 15% Aluminium
Copper
Nickel
Nickel: 15 pct 25% Lead
Zinc
35%
Lead: 5 pct
Zinc: 5 pct
ENERGY : There are changes in the allocations
Crude Oil WTI: 20
Energy Allocations
Crude Oil Brent: 30 pct 15%
10% 20%
WTI
Brent
Gasoline: 25 pct Gasoline
Heating Oil
Natural Gas
Heating Oil: 15 pct 25% 30%
Natural Gas: 10 pct
PRECIOUS METALS: There are no changes in the allocations
Palladium: 20 pct
P re c io us M e ta ls Allo c a tio ns
Silver: 25 pct 20%
4 5% P a lla diu m
S ilv e r
Platinum: 10 pct P la t inu m
Go ld
Gold: 45 pct 10 % 2 5%
16
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Recommended Allocations
AGRICULTURE: There are no changes in the allocations
Grains: 70 pct
Corn: 37 pct
Soybean: 23 pct
Agriculture Allocations
Wheat: 10 pct 9% 5% Corn
5% 37%
Soybean
Wheat
Soft: 30 pct 11%
Sugar
Cocoa
Sugar: 11 pct 10%
Coffee
Cotton
23%
Cocoa: 5 pct
Coffee: 9 pct
Cotton: 5 pct
DCI and Sectors’ Performance 2009-2011
DCI and Sectors Performance 2009-2011
DCI Agriculture Total return DCI Base Metals Total return DCI Energy Total return
DCI Precious Metals Total return DCI Total return
250
225
200
175
Jan-09 = 100
150
125
100
75
50
Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11
Source: Diapason
17
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Contact Information
Diapason Commodities Management S.A Diapason Commodities Management UK LLP
Malley Lumières 18 Upper Brook Street
Chemin du Viaduc 1 5th floor
Case Postale 225 London
1000 Lausanne 16 W1K 7PU
SWITZERLAND United Kingdom
+41 21 621 13 10 +44 207 290 2260
www.diapason-cm.com www.diapason-cm.com
Sales Team _ ________
Salvatore Miserendino Sébastien Max Waleed Albahr
Head, Marketing & Business Sales Sales
Development
Tel : +44 207 290 2260 Tel: +41 21 621 13 15 Tel: +44 207 290 2262
Salvatore.miserendino@diapason-cm.com sebastien.max@diapason-cm.com waleed.albahr@diapason-cm.com
Xavier Gendre Chiharu-Claire Nishida
Sales Sales
Tel: +41 21 621 13 12 Tel: +41 21 621 13 14
xavier.gendre@diapason-cm.com chiharu-claire.nishida@diapason-.com
Research and Indices Team
Sean Corrigan Robert Balan Alessandro Gelli
Chief Investment Strategist Sr. Market Strategist Energy Fundamental Research
sean.corrigan@diapason-cm.com robert.balan@diapason-cm.com alessandro.gelli@diapason-cm.com
Cyril Camilleri Fabien Espic Marion Megel
Indices and Quantitative Research Indices and Quantitative Research Metals Fundamental Research
cyril.camilleri@diapason-cm.com fabien.espic@diapason-cm.com marion.megel@diapason-cm.com
18
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
General Disclosure
This document or the information contained in does not constitute an offer or a solicitation, or a rec-
ommendation to purchase or sell any investment instruments, to effect any transactions, or to con-
clude any legal act of any kind whatsoever. The information contained in this document is issued for
information only. An offer can be made only by the approved offering memorandum. The invest-
ments described herein are not publicly distributed. This document is confidential and submitted to
selected recipients only. It may not be reproduced nor passed to non-qualifying persons or to a non
professional audience. For distribution purposes in the USA, this document is only intended for per-
sons who can be defined as “Major Institutional Investors” under U.S. regulations. Any U.S. person
receiving this report and wishing to effect a transaction in any security discussed herein, must do so
through a U.S. registered broker dealer. The investment described herein carries substantial risks and
potential investors should have the requisite knowledge and experience to assess the characteristics
and risks associated therewith. Accordingly, they are deemed to understand and accept the terms,
conditions and risks associated therewith and are deemed to act for their own account, to have made
their own independent decision and to declare that such transaction is appropriate or proper for
them, based upon their own judgment and upon advice from such advisers as they have deemed nec-
essary and which they are urged to consult. Diapason Commodities Management S.A.
(“Diapason”) disclaims all liability to any party for all expenses, lost profits or indirect, punitive,
special or consequential damages or losses, which may be incurred as a result of the information be-
ing inaccurate or incomplete in any way, and for any reason. Diapason, its directors, officers and
employees may have or have had interests or long or short positions in financial products discussed
herein, and may at any time make purchases and/or sales as principal or agent.
Certain statements in this presentation constitute “forward-looking statements”. These state-
ments contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect” and words of simi-
lar meaning. Such forward-looking statements are subject to known and unknown risks, uncertain-
ties and assumptions that may cause actual results to differ materially from the ones expressed or
implied by such forward-looking statements. These risks, uncertainties and assumptions include,
among other factors, changing business or other market conditions and the prospects for growth.
These and other factors could adversely affect the outcome and financial effects of the plans and
events described herein. Consequently, any prediction of gains is to be considered with an equally
prominent risk of loss. Moreover, past performance or results does not necessarily guarantee future
performance or results. As a result, you are cautioned not to place undue reliance on such forward-
looking statements.
These forward-looking statements speak only as at the date of this presentation. Diapason expressly
disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-
looking statements contained herein to reflect any change in Diapason’s expectations with regard
thereto or any change in events, conditions or circumstances on which any such statement is based.
The information and opinions contained in this document are provided as at the date of the presenta-
tion and are subject to change without notice.
19
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA
Trademarks
All rights reserved. “DIAPASON COMMODITIES INDEX”, “DCI”, “DIAPASON COMMODI-
TIES MANAGEMENT” and “DIAPASON” are trademarks and service marks of Diapason. “UBS
DIAPASON GLOBAL BIOFUEL INDEX” is a service mark of UBS AG and Diapason. “BNP
Paribas” and “BNPP” are trademarks and service marks of BNP PARIBAS, “DJ-UBS” are trade-
marks and service marks of UBS, and “SP GSCI” are trademarks and service marks of the
McGraw-Hill Companies Inc. “Jim Rogers”, "Rogers", “Rogers International Commodity Index”,
and "RICI" are trademarks and service marks of Beeland Interests, Inc. (“Beeland Interests”)
which is owned and controlled by James Beeland Rogers, Jr., and are used subject to license.
All proprietary rights with respect to the DCI and any component thereof belong to Diapason, with
respect to the UBS Diapason Global Biofuel Index and any component thereof belong to Diapason
and UBS AG, with respect to the DCI BNP Paribas Enhanced Index and any component thereof to
Diapason and BNP PARIBAS, with respect to the DJ-UBS to UBS, with respect to the SP GSCI to
McGraw-Hill Companies Inc., with respect to the RICI and any component thereof belong to Bee-
land Interests (the DCI, the DCI BNP Paribas Enhanced Index, the DJ-UBS, the SP GSCI, the
RICI® hereafter individually an “Index”, collectively the “Indexes” and each of their owners, an
“Index Owner”).
The Index Owners and their affiliates do not sponsor, endorse, sell or promote Diapason products by
this documentation and make no representation or warranty, express or implied, nor accept any re-
sponsibility, regarding the accuracy or completeness of this presentation, or the advisability of in-
vesting in securities or commodities generally, or in Diapason products or in futures particularly or
as to results to be obtained from the use of the Indexes. Diapason assumes sole responsibility for this
documentation which has not been reviewed by the other Index Owners.
Any third party product based on or in relation to the Indexes may only be issued upon the prior
written approval of their respective owners and upon execution of a licensing agreement between
those parties and the party intending to launch a product.
The Index Owners and their affiliates disclaim any liability to any party for any inaccuracy in the
data on which their respective Index are based, for any mistakes, errors, omissions or interruptions
in the calculation and/or dissemination of such Indexes, or for the manner in which they are applied
in connection with the issue and offering of a product. The Index Owners and their affiliates make
no warranty, express or implied, as to results to be obtained by owners of products, or any other per-
son or entity from the use of their respective Index, any data included therein or linked therewith or
products based thereon. The Index Owners and their affiliates do not make any express or implied
warranties, and expressly disclaim all warranties of merchantability or fitness for a particular pur-
pose or use with respect to their respective Index and any data included therein. Without limiting any
of the foregoing, in no event shall the Index Owners and their affiliates have any liability for any lost
profits or indirect, punitive, special or consequential damages or losses, even if notified of the possi-
bility thereof.
Electronic Communication (E-mail)
In the case that this document is sent by E-mail, the E-mail is considered as being confidential and
may also be legally privileged. If you are not the addressee you may not copy, forward, disclose or
use any part of it. If you have received this message in error, please delete it and all copies from your
system and notify the sender immediately by return E-mail. The sender does not accept liability for
any errors, omissions, delays in receipt, damage to your system, viruses, interruptions or interfer-
ences.
Copyright
© Diapason Commodities Management SA 2011
Any disclosure, copy, reproduction by any means, distribution or other action in reliance on the con-
tents of this document without the prior written consent of Diapason is strictly prohibited and could
lead to legal action.
20
Please refer to the risk and legal disclaimer at the end of the DCM SA is authorised and regulated by the Swiss Financial Market Supervisory Authority
document. (FINMA)
DCM UK LLP is authorised and regulated by the FSA