Credit Suisse - Don’t Over-Analyze the PMIs

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					                                                                                                                      29 March 2012
                                                                                                             Fixed Income Research
                                                                                          http://www.credit-suisse.com/researchandanalytics




                                                   Commodities Advantage:
                                                   Pausing for Breath
                                                   Com modities Research



                       Research Analysts           Don’t Over-Analyze the PMIs ...
                                 Ric Dev erell     Over the past week or so the market has been disappointed by the modest dips
                          +44 20 7883 2523
                  ric.deverell@credit-suisse.com
                                                   seen in the Chinese and European preliminary PMIs, along with several of the
                                                   regional surveys in the US. The more bearish commentators have suggested
                               Joachim Azria       that the global rebound is running out of steam, with some even talking of a
                            +1 212 325 4556
                joachim.azria@credit-suisse.com
                                                   further dip into global recession. Although it is possible that the PMI data are
                                                   foreshadowing a significant slowdown, our assessment is that the numbers are
                                   Cilline Bain    far less scary than many have suggested.
                           +44 20 7888 7174
                  cilline.bain@credit-suisse.com   We think that such negative commentary is overstating the statistical signal in
                            Marcus Garv ey
                                                   such small monthly movements in the PMI series. As we discuss in detail
                          +44 207 883 4787         below, there is a tendency to significantly “over-interpret this data.” To the
               marcus.garvey@credit-suisse.com     extent that there is a signal, we believe that the data are reflecting the likelihood
                               Tom Kendall
                                                   that global IP growth is in the process of stabilizing at a still healthy pace as
                         +44 20 7883 2432          normally occurs at this stage of the business cycle (the absence of a big dip last
                 tom.kendall@credit-suisse.com     year means a 2009-style rebound is unlikely).
                              Stef an Rev ielle     Generally when this happens, the macro data stop surprising to the upside
                             +1 212 538 6802
               stefan.revielle@credit-suisse.com
                                                     (expectations have adjusted) and markets pause for thought (Exhibit 2).

                             Andrew Shaw
                                                   The further fall in US weekly initial jobless claims was the most significant
                           +65 6212 4244           economic signal of the week, we think, providing reassurance that the US labor
                andrew.shaw@credit-suisse.com      market recovery remains on track. The data over coming weeks will be very
                                    Jan Stuart
                                                   important in fine tuning our assessment of the outlook. However to date the
                            +1 212 325 1013        information at hand remains in line with slightly above average global IP growth
                    jan.stuart@credit-suisse.com   over Q2.
                           Iv an Szpakowski
                            + 65 6212 3534
             ivan.szpakowski@credit-suisse.com
                                                   Focus – Petroleum: What Drives US Gasoline?
                                    Martin Y u
                                                   The short answer is that the Brent crude oil price remains the principal driver
                          + 44 20 7883 2150        (~70%) of what the US consumer is charged at the pump. Benchmark US WTI
                    martin.yu@credit-suisse.com    prices are still disconnected from global markets and still trade at a wide (~ 15%
                                                   discount). And other inland refiner feedstock is much cheaper still. But those
                                                   juicy cost advantages do not accrue to US motorists.
                                                   Next, refining margins are a distant second in what makes up the retail price of
                                                   gasoline (currently nearly $4 per gallon) in the US. Refining margins on average
                                                   account for about 15%, but they can blow out when utilization rates are high
                                                   and/or refiners trip off line, in summer especially.
                                                   US gasoline consumers have unusually low gasoline tax burdens (11%). In this
                                                   way, US motorists are more exposed than drivers in most other countries to the
                                                   forces of oil supply and demand, i.e., the ultimate drivers of Brent price.




AN ALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES ARE IN THE DISCLOSURE APPENDIX. FOR OTHER
IMPORTANT DISCLOSURES, PLEASE REFER TO https://firesearchdisclosure.credit-suisse.com.
                                                                                                                                                              29 March 2012




                                           In this Issue
                                           Macro View: Peering Through the Statistical Fog                                                                               3
                                                        Recent PMI Volatility - Is the rebound stalling?                                                                3
                                                        The PMIs – Useful, but prone to over-interpretation                                                             3
                                           Commodity Returns in Q1 2012                                                                                                  8
                                           Focus – Petroleum: US Gasoline Prices                                                                                        9
                                                  Retail price = Crude oil + refining margins + taxes                                                                   9
                                           Natural Gas                                                                                                                 12
                                                        Northwest hydro outlook improving, mixed bag out west                                                          12
                                           Bulk Commodities                                                                                                            13
                                                        Iron Ore – Signposts pointing the way?                                                                         13
                                                        Thermal Coal – Chinese buying still not enough                                                                 15
                                           Industrial Metals – In Limbo                                                                                                16
                                           Precious Metals                                                                                                             17
                                                        Gold – from short-term bearish to neutral                                                                      17
                                           Agriculture: Waiting on Data                                                                                                18
                                           Commodity Investment Flows                                                                                                  19
                                           Technical Analysis                                                                                                          21
                                                        Gold bases out and begins next upward phase for $1800                                                          21
                                           Trade Recommendations                                                                                                       22

                                           Commodity performance
                                           In another mixed week for commodities, US Natural Gas retraced gains from last week,
                                           leading the space lower. Palladium and corn followed closely behind, while iron ore and
                                           RBOB gasoline outperformed. RBOB gasoline remains the top performer year to date.

Exhibit 1: Commodity performances (as of close of 28 March 2012)
Weekly returns, activ e contract                                                       Y ear to date returns, f ront month

                                                       Iron Ore                                                     RBOB Gasoline
                                                RBOB Gasoline                                                                  Silver
                                               U.K. Natural Gas                                                            Platinium
                                                        Copper                                                                 Brent
                                                      Soybean                                                            Heating Oil
                                                         Gold                                                                Soybean
                                                                   Lean Hogs                                        U.K. Natural Gas
                                                                   Brent                                                      Copper
                                                                   Thermal Coal                                          Aluminium
                                                                   Heating Oil                                                 Gold
                                                                   Platinium                                                    WTI
                                                                   Aluminium                                              Palladium
                                                                   Wheat                                                                Lean Hogs
                                                                   Silver                                                               Iron Ore
                                                                   WTI                                                                  Corn
                                                                   Corn                                                                 Thermal Coal
                                                                   Palladium                                                            Wheat
                                                                   U.S. Natural Gas                                                     U.S. Natural Gas

 -8%    -7%     -6%     -5%    -4%   -3%     -2%     -1%          0%        1%    2%   -30%          -20%         -10%              0%                 10%   20%      30%

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                                  2
                                                                                                                           29 March 2012




                                      Macro View: Peering Through the Statistical Fog
                                      Recent PMI volatility – Is the rebound stalling?
                                      Over the past week or so the market has been disappointed by the modest dips seen in
                                      the Chinese and European preliminary PMIs, along with several of the regional surveys in
                                      the US. The more bearish commentators have suggested that the global rebound is
                                      running out of steam, with some even talking of a further dip into global recession.
                                      Although it is possible that the PMI data are foreshadowing a significant slowdown, our
                                      assessment is that the numbers are far less scary than many have suggested.
                                      We think that such negative commentary is overstating the statistical signal in such small
                                      monthly movements in the PMI series. As we discuss in detail below, there is a tendency
                                      to significantly “over-interpret this data.” To the extent that there is a signal, we believe that
                                      the data are reflecting the likelihood that global IP growth is in the process of stabilizing at
                                      a still healthy pace as normally occurs at this stage of the business cycle (the absence of a
                                      big dip last year means a 2009-style rebound is unlikely).
                                       Generally when this happens, the macro data stop surprising to the upside (expectations
                                        have adjusted) and markets pause for thought (Exhibit 2).
                                      The further fall in US weekly initial jobless claims was the most significant economic signal
                                      of the week, we think, providing reassurance that the US labor market recovery remains
                                      on track. The data over coming weeks will be very important in fine tuning our assessment
                                      of the outlook. However to date the information at hand remains in line with slightly above
                                      average global IP growth over the next quarter.

                                      Exhibit 2: Global macro surprise indicator – normalization, not crash
                                      Index lev el


                                        0.6

                                        0.4

                                        0.2

                                        0.0


                                       -0.2

                                       -0.4

                                       -0.6

                                       -0.8

                                       -1.0
                                             2005       2006          2007          2008   2009        2010        2011         2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service




                                      The PMIs – Useful, but prone to over-interpretation
                                      Although the PMIs are a key early indicator of underlying momentum in global growth, in
                                      our view there is a tendency among the analytical community to over-interpret monthly
                                      changes. To us there are several key factors that should be kept in mind when assessing
                                      these data:
                                       Monthly series are by nature volatile. In part this is because of measurement error. But
                                        more generally economic growth, even when properly measured, is not as smooth
                                        month to month as many think.



Commodities Advantage: Pausing f or Breath                                                                                             3
                                                                                                                                           29 March 2012



                                       Related to the first point, it is clear that not all surveys are created equal, with some
                                        providing a much more consistent read than others month to month.
                                          The best example of this phenomenon in the past month was the “divergence” between
                                           the German PMI new orders and the IFO survey. As Exhibit 3 shows, the IFO has
                                           provided a far more stable read on momentum over recent years than the PMI.

                                      Exhibit 3: IFO provides far fewer false signals than the PMI New Orders
                                      Lev el

                                                                                                                                                     120
                                                                 German PMI New Orders          German IFO Expectations(rhs)
                                       65


                                       60                                                                                                            110


                                       55

                                                                                                                                                     100
                                       50


                                       45
                                                                                                                                                     90

                                       40


                                       35                                                                                                            80
                                         2000             2002             2004              2006             2008             2010          2012
                                      Source: the BLOOMBERG PROFESSIONAL™ service, Markit Economics



                                       Another good example is the Chinese preliminary PMI. Although the survey has value, it
                                        should be noted that its composition is very different than the official NBS survey, with
                                        the latter in our view more representative. Note that they do not always move together.
                                       Note that there is nothing special about the level of 50 in the Chinese PMI – it correlates
                                        with around 8% IP growth – and DOES NOT indicate contraction.

                                      Exhibit 4: Chinese IP Growth and PMI New Orders – bottoming out?
                                      Percent (LHS), and Lev el (RHS)

                                                                            IP QoQ sa                        PMI New Orders
                                        7%                                                                                                            65

                                        6%
                                                                                                                                                      60
                                        5%                                                                                               Bottoming
                                                                                                                                           out?
                                        4%                                                                                                            55
                                        3%

                                        2%                                                                                                            50

                                        1%
                                                                                                                                                      45
                                        0%

                                       -1%                                                                                                            40
                                               2005        2006          2007            2008         2009           2010         2011         2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service



                                       A third point is that there is little evidence that the PMIs are genuine lead indicators.
                                        Indeed, when compared with a centered trend (used to avoid phase shift issues
                                        associated with yoy or even 3m/3m comparisons) the PMIs actually lag movements in
                                        industrial production, while the new orders component is coincident at best.


Commodities Advantage: Pausing f or Breath                                                                                                                 4
                                                                                                                                             29 March 2012



                                       This does not mean that PMIs are not useful, as they are published in near real time,
                                        giving a significant timeliness advantage against the actual real economy data. But they
                                        do not actually provide any real information about future activity above the benefits of
                                        current momentum.
                                       The graph below also demonstrates how the PMIs can often significantly misrepresent
                                        underlying momentum in industrial production growth. In the most recent period the ISM
                                        new orders have completely diverged from trend IP growth.

                                      Exhibit 5: Trend Monthly IP, ISM New Orders – do monthly movements have any
                                      real information?
                                      Monthly annualized trend

                                       10%                          US IP ann trend mom                    US Manf ISM New Orders (RHS)                 75

                                         8%                                                                                                             70

                                         6%                                                                                                             65

                                         4%                                                                                                             60

                                         2%                                                                                                             55

                                         0%                                                                                                             50

                                        -2%                                                                                                             45

                                        -4%                                                                                                             40

                                        -6%                                                                                                             35

                                        -8%                                                                                                             30
                                             2000            2002              2004              2006           2008            2010           2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service



                                       When assessing momentum it is also necessary to consider underlying struc tural
                                        movements in the economy. For example, in the US very warm weather has seen
                                        electricity production (a key component of IP) acting as a drag on overall IP. In contrast,
                                        manufacturing production has been very strong. Of course the PMI in the US in part
                                        reflects the depressing impact of the warm weather.

                                      Exhibit 6: Large divergence between IP and Manufacturing
                                      Monthly trend annualized

                                        15%
                                                                    US IP ann trend mom                  US IP (Manf Sector) ann trend mom


                                        10%



                                         5%



                                         0%
                                                                                                                                      Divergence
                                                                                                                                   between headline
                                         -5%                                                                                          IP and IP in
                                                                                                                                    manufacturing
                                                                                                                                         sector
                                       -10%
                                              2000            2002              2004              2006            2008           2010            2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service, Bureau of Labor Statistics




Commodities Advantage: Pausing f or Breath                                                                                                                   5
                                                                                                                                         29 March 2012



                                       Remaining on the US, the dip seen in the regional PMIs in March actually occurred in
                                        the nationwide survey in February (which makes sense as the national survey occurs
                                        later in the month). Although forecasting the PMI is difficult (and falls into the over-
                                        analyzing camp mentioned above), our econometric analysis suggests the new orders
                                        component for March may actually move sideways, as it has already seen the dip that
                                        occurred in the March regional surveys.

                                      Exhibit 7: Regressing the regional surveys (New Orders) – pointing sideways?
                                      Lev el


                                       70                                           Regression of regional surveys (New Orders)
                                                                                    ISM New Orders (rhs)
                                                                                    Average (1980-present)
                                       65


                                       60


                                       55


                                       50


                                       45


                                       40
                                         2005              2006          2007          2008          2009          2010           2011       2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                       It should also be noted that given that we didn’t have a big fall in IP last year, it is
                                        unlikely that we get the rapid rebound seen in 2009 or even in 2010. Indeed, given that
                                        at a global level IP is now back at trend, our focus when assessing the level of the
                                        surveys should be against the long-run average (is IP growing faster or slower than
                                        average?) rather than against the rapid rebound levels rarely achieved.

                                      Exhibit 8: ISM still tracking the normal recovery range ...
                                      US PMI New Orders (t=trough)
                                                                                US new orders ISM (t=trough)


                                               70


                                               60


                                               50


                                               40


                                               30                                 2008 recession

                                                                                  Avg previous recessions ex '80s recession
                                               20
                                                    t-12 t-8   t-4   t    t+4    t+8 t+12 t+16 t+20 t+24 t+28 t+32 t+36 t+40 t+44 t+48

                                      Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                          6
                                                                                                                                                 29 March 2012



                                       Finally, at a global level, IP growth is currently being highly distorted by developments in
                                        Japan, where IP again dipped last year as the Thailand floods disrupted the supply
                                        chains, but which has rebounded rapidly in recent months. Although Japan is expected
                                        to continue to grow at a good clip, much of the “loss of momentum” globally is currently
                                        being driven by the normalization of Japanese growth following the catch-up surge.

                                      Exhibit 9: Global IP trend and PMI New Orders
                                      Annualized monthly change and lev el


                                                                 Global IP ann trend mom                        Global IP (average)
                                        15%
                                                                 Global Manf PMI New Orders (RHS)               Global Manf PMI NO Ave (RHS)
                                                                                                                                                               65

                                        10%
                                                                                                                                                               60


                                         5%                                                                                                                    55

                                                                                                                                                               50
                                         0%
                                                                                                                                                               45

                                        -5%
                                                                                                                                             IP much           40
                                                                                                                                             stronger
                                                                                                                                             than PMI
                                       -10%                                                                                                                    35
                                             2000            2002              2004              2006                2008             2010              2012

                                      Source: the BLOOMBERG PROFESSIONAL™ service, Markit Economics, Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                          7
                                                                                                                                              29 March 2012




                                          Commodity Returns in Q1 2012
                                          Strong performance into the end of the quarter
                                          As the quarter draws to a close, we note that commodities outperformed the majority of
                                          asset classes, with most commodity indexes just behind equities (outperforming bonds,
                                          hedge funds, and corporates – see Exhibit 10).
                                          Among the commodity groups, precious metals and energy commodities outperformed,
                                          while agriculture and livestock lagged (Exhibit 11). This broadly agrees with the individual
                                          commodity performances that show RBOB gasoline, silver, platinum and Brent leading as
                                          top performers year to date.
                                          Given the strong performance of commodities so far this year, and the strong inflow into
                                          commodity indexes, it is likely that we get some outflow in fund flows as investors
                                          rebalance into the next quarter.

Exhibit 10: Comparative asset returns                                      Exhibit 11: Returns among commodity groups
Data as of close of 28 March 2012 (based on Total Return)                  Data as of close of 28 March 2012 (based on CSCB Excess Return)

            EM Equity$                                                      8.0%

     Developed Equity$
                                                                            6.0%
    Commods (SPGSCI)

   Commodities (CSCB)
                                                                            4.0%
       EM Corporates$

        EU Corporates                                                       2.0%
         Hedge Funds

            EM Bond$                                                        0.0%

  G3 Index-Linked Bond
                                                                            -2.0%
        US Corporates

    Commods (DJUBS)
                                                                            -4.0%
            G3+ Bond                                                                   CSCB      CSCB         CSCB        CSCB         CSCB          CSCB
                                                                                      Excess    Precious    Energy ER   Industrial   Agriculture Livestock ER
                     -2%   0%   2%   4%    6%    8%   10% 12% 14% 16%                 Return    Metals ER               Metals ER        ER

Source: the BLOOMBERG PROFESSIONAL™ service, Thomson Reuters DataStream,   Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                      8
                                                                                                                          29 March 2012




                                      Focus – Petroleum: US Gasoline Prices
                                      Retail price = Crude oil + refining margins + taxes
                                      What’s in the price of gasoline in the US? The authority here is the Energy Information
                                      Agency of the Department of Energy:

                                      Exhibit 12: What do we pay for in a gallon of gasoline?




                                          Crude oil: the major feedstock oil refiners manufacture gasoline. This portion of the
                                           gasoline price (~70%) is represented by the cost of crude oil purchased by refiners.
                                          Refining margin: The refining portion of the gasoline price is the spread between the
                                           cost of crude oil purchased by refiners and the wholesale price of gasoline. This
                                           spread represents both the costs and profits associated with the refining process.
                                          Distribution and marketing margin: the part of the supply chain from the refiner gate
                                           (wholesale or “rack” markets) to the gasoline station (forecourt) and the consumer’s
                                           gas tank. This margin is the retail price minus the other three price components.
                                           Proportionally it’s the smallest and has shrunk over time.
                                          Taxes: The federal government levies a flat tax of 18.4 cents on each gallon of
                                           gasoline, and each of the 50 states levies on average another 22 cts/g tax. State tax
                                           regimes vary considerably (current range is 7.5 to 37.5 cts/g).
                                      Source: EIA


                                      If the principal component is crude oil, question is which one?
                                      The short answer is that the Brent crude oil price remains the principal driver (~70% ) of
                                      what the US consumer is charged at the pump. Brent prices correlate very closely with US
                                      retail gasoline prices (see Exhibit 13). US refiners and importers manufacture and deliver
                                      gasoline across the US. Internally, the American market is fully connected, despite literally
                                      hundreds of gasoline quality differences. And critically, the marginal supply of gasoline still
                                      comes from coastal refiners and importers, who process crude oil priced in a global market
                                      (i.e., Brent linked). This globally priced crude oil from which most of the US gasoline is
                                      manufactured is the floor under its retail price.
                                      Sidebar: the benefit of much lower feedstock costs in the American hinterland accrues
                                      almost entirely to refiners in the mid-continent who have access to cheaper WTI and other
                                      inland crude oil grades (including Canada’s export streams). But, because gasoline prices
                                      are set at the refining centers (along the East, Gulf and West Coasts of the US) and
                                      because the mid-continent is still a net importer of gasoline (and price), it’s the global
                                      crude oil feedstock price that sets the floor under gasoline prices in all of t he US. In short,
                                      consumers in the mid-continent do not get the benefit of cheap inland feedstock, refiners
                                      do. And WTI prices have disconnected from retail gasoline prices (the r-square between
                                      them is only about half of that of Brent and US gasoline, see Exhibit 13).


Commodities Advantage: Pausing f or Breath                                                                                           9
                                                                                                                                           29 March 2012




                                      Exhibit 13: US retail gasoline prices have disconnected from WTI
                                      Jan-2011 = 100


                                       150              Brent     WTI       Gasoline Retail Price

                                                                                                    Gasoline retail price has tracked
                                       140                                                          Brent, until refining margins spiked


                                       130                                                Brent/Gasoline: R² = 83%


                                       120


                                       110


                                       100


                                         90                                                                       WTI/Gasoline: R² = 48%


                                         80
                                          Jan-11         Apr-11            Jul-11               Oct-11                   Jan-12

                                      Source: EIA



                                      Seasonality of gasoline – it is all about summer driving
                                      Gasoline is the most used petroleum product in the United States. The United States
                                      produces about 19 gallons of gasoline from every 42-gallon barrel of crude oil that is
                                      refined. According to the EIA, Americans used about 378 million gallons per day of
                                      gasoline in 2010 (latest annual data). Gasoline is mostly used in cars, SUVs and light
                                      trucks. Although produced year-round, gasoline is a very seasonal product, as US drivers
                                      hit the road more often in the summer, thus demand for gasoline tends to peak in summer
                                      months. In addition, it is more difficult to make summer-grade gasoline, which can
                                      exacerbate the price effect of the demand peaks.
                                          Summer versus winter specifications: Gasoline blending differs in summertime and in
                                           wintertime. Driven by concerns about pollution (smog), authorities have put ever
                                           stricter limits on the proportion of volatile organic components allowed in the
                                           extremely complex blend ingredients that make up modern gasolines. Pollution is
                                           most difficult to control in summer when much higher ambient temperatures allow for
                                           easier evaporation of harmful ingredients. Winter grade US gasoline is allowed a
                                           higher Reid vapor pressure value (rvp).
                                          The biggest difference is that in summer grade gasolines refiners are allowed much
                                           more limited use of Butanes (of which there are high and rising surpluses across
                                           much of North America). The greatest shortage in summer is typically that of octane-
                                           boosting alcalytes.

                                      What else can “shock” gasoline prices significantly: Refining margins
                                      Secondary drivers of retail prices in the US are refining margins (~15%). These can blow
                                      out when utilization rates are high and/or refiners trip off line, in summer especially.
                                      The risk of some such blow-out of refining margins has risen significantly, as five refiners
                                      that supply the East Coast have shut down or will shut down soon (see Exhibit 14).
                                      But that is the subject of another story.




Commodities Advantage: Pausing f or Breath                                                                                                           10
                                                                                                                     29 March 2012




                                      Exhibit 14: US East Coast refineries’ operating capacity




                                      Source: US Energy Information Administration.



                                      What can governments do to mitigate gasoline price rallies?
                                       SPR release
                                       Regulatory levers to pull:
                                             o Include Jones Act Waivers to get gasoline from the Gulf Coast to the Northeast
                                               (federal level)
                                             o Relaxation of summer specs (state level)
                                       Tax relief (limited)
                                       Ultimately reduce demand (e.g., as in the 1970 petrol crises, limiting access to roads on
                                        certain days for certain license plates, etc.)




Commodities Advantage: Pausing f or Breath                                                                                     11
                                                                                                                                                                                             29 March 2012




                                          Natural Gas
                                          Northwest hydro outlook improving, mixed bag out west
                                          Despite a slow start to the water year, current accumulations suggest that normal hydro
                                          output is expected in the Pacific Northwest this summer, creating a situation where gas
                                          may regain losses in demand seen last summer. Earlier this winter, the outlook was largely
                                          uncertain, with accumulated precipitation in the region reaching lows of 75% of normal at the
                                          start of the year, despite another La Nina winter. However, the most recent accumulated
                                          precipitation readings show water levels at 92.8% of normal, while major dams, the Dalles,
                                          Grande Coulee, and Lower Granite sit at 109%, 112%, and 101% of normal (but a far cry from
                                          125% normal levels seen last year). What’s more, many of the British Columbia snow basins
                                          are above normal levels, with historical maximum levels seen in much of northern BC.

                Normal hydro              All told, near normal water levels exist for the Pacific NW with risks further to the upside in
            output is expected            the coming forecasts due to positive precipitation outlooks for early spring. We forecast the
                                          more normal water year in the region to send summer gas consumption to average levels
                       this year
                                          compared to last year’s record hydro year (assuming normal summer/winter). Average
                                          hydro production during the April-Aug peak hydro months should normalize closer to 4.3
                                          bcf/d in the west (compared to 5.6 bcf/d seen in 2011), increasing gas generation by 1.3
                                          bcf/d yoy, assuming 100% replacement.

Exhibit 15: NW water supply, % of average – mostly                        Exhibit 16: April-Aug average hydro output by
normal to above normal                                                    Pacific NW water supply total @ beginning of Q2
(100 = normal water lev el)                                               Percentage of normal water supply against av erage hy dro output

                                                                                                                    125
                                                                                                                                                                                             2011
                                                                                                                    115
                                                                                % of normal water supply @ Q2 Beg




                                                                                                                                                                 2008
                                                                                                                    105                                                       2006
                                                                                                                                                          2009
                                                                                                                                                  2007
                                                                                                                     95                                          2002
                                                                                                                                           2004
                                                                                                                                                                     2012 forecast
                                                                                                                                                         2003       implies 1.3 bcfd
                                                                                                                     85
                                                                                                                                                  2010                of more gas
                                                                                                                                                          2005       demand y-o-y
                                                                                                                     75


                                                                                                                     65
                                                                                                                              2001
                                                                                                                     55


                                                                                                                     45
                                                                                                                          3          3.5        4            4.5            5          5.5          6
                                                                                                                                            Average April-Aug Hydro Output (Bcf/d)


Source: Northwest River Forecast Center                                   Source: the BLOOMBERG PROFESSIONAL™ service, EIA, Credit Suisse



          But storage surplus             However, will it be enough to reduce the growing year-over-year storage surplus in
                                          the west? As it stands through 16 March, working gas in storage in the West region is 124
           may make hydro a
                                          bcf above year-ago levels and 107 bcf above the previous five-year average. Inventory
               non-event this             scrapes indicate that Northern California may be worse off than the SoCal market,
                     summer               currently 87.5% compared to 72% for the southern tier. Luckily, significantly below normal
                                          water conditions throughout California (less than 50% of normal in some areas) may help
                                          to start chipping away at regional storage supply surplus.
                                          We worry that despite a slightly less intense hydro year in 2012, the impact on basis prices
                                          may be slightly mixed. Although we do expect AECO prices to continue to struggle for a
                                          number of reasons (ample storage, plentiful hydro, declining US export market), lower
                                          California hydro and offline nuclear capacity on Southern California may help the market
                                          regain balance. Furthermore, much of this outlook depends on summer weather, the pace
                                          of snow melt as well as environmental restrictions with nearby salmon spawning. Needless
                                          to say, current market signals are slightly mixed but overall, west gas demand should
                                          improve compared to 2011 levels, in our view.


Commodities Advantage: Pausing f or Breath                                                                                                                                                              12
                                                                                                                                                        29 March 2012




                                          Bulk Commodities
                                          Iron Ore – Signposts pointing the way?
                                          Prices continue to edge higher
                                          Three weeks ago, in Iron Ore – Waiting for signposts, we highlighted the frustrating data
                                          distortions emanating from the Chinese New Year and the difficulty this created in
                                          assessing the market’s underlying state. At the time, we expected the upcoming data to
                                          show gradual improvements in steel production run rates and be broadly supportive of iron
                                          ore prices. So far, this scenario has been borne out, with iron ore prices moving cautiously
                                          higher (Exhibit 17), against a backdrop of better global steel production figures (Exhibit 18)
                                          and an indication from CISA that Chinese mills picked up their output to 1.9 Mt/d in early
                                          March (World Steel Production – Back above 1.5 Bt/y).

Exhibit 17: Iron ore prices looking firm                                              Exhibit 18: On an improving steel backdrop
TSI 62% Iron Ore, US$/t, Spot                                                         World Crude Steel Production, Mt, Monthly , SA

                                                                                       130
  $190

                                                                                       120
  $170

                                                                                       110
  $150
                                                                                       100

  $130
                                                                                        90


  $110                                                                                  80
     Jan-10        Jul-10        Jan-11          Jul-11           Jan-12                  2005               2007               2009              2011

Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service                            Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, WSA



                                          We remain positive in our view of iron ore prices into Q2 2012 and beyond, believing that
                                          other indicators are also pointing to gradual price improvement. Chinese steel traders’
                                          inventories have, for example, registered a fifth consecutive week of decline in typical
                                          seasonal pattern, albeit at a more modest rate than that seen in recent years (Exhibit 19).
                                          In line with our forecast for continued, but slowing, steel demand growth, t he cumulative
                                          destock since the February peak equates to a 5% fall, whereas the respective figures for
                                          2010 and 2011 were 13% and 11%. In those two years China’s crude steel output grew by
                                          more than 9%, whereas this year we expect an increase of less than 7%.

                                          Exhibit 19: Chinese traders’ finished steel inventories – gradual destocking
                                          Mt, Weekly

                                           18            Rebar             Wire rod          HRC          Plate                        Dec
                                           16                                                                       Dec                           Dec
                                           14
                                           12                                                     Dec
                                                                Dec            Dec
                                           10
                                            8
                                            6
                                            4
                                            2
                                            0
                                             Mar-06              Mar-07          Mar-08            Mar-09            Mar-10             Mar-11            Mar-12
                                          Source: Credit Suisse, MySteel




Commodities Advantage: Pausing f or Breath                                                                                                                         13
                                                                                                                                                          29 March 2012



                                                Turning to iron ore inventories, iron ore stocks at port remain high at 98.4Mt, but have
                                                fallen more notably in relation to steel production given its recent uptick. Interestingly,
                                                material captured in the strong recent import figures (Exhibit 22) does not appear to
                                                account for much of these port inventories, as it has effectively been flowing straight
                                                through to mills, with much of the material at port still being tonnes purchased at prices
                                                above $160/t, which people are trying to avoid releasing until spot is trading back around
                                                similar levels.
                                                This again supports our view that prices will need to move higher over the course of the
                                                year in order to bring sufficient iron ore supply to market. At the same time we observe
                                                that the spread between 62% and 58% iron ore (Exhibit 23), though increasing, remains
                                                low as mills continue to focus on cost minimization at current run rates. This spread should
                                                gradually widen as steel production picks up and, we note, with the market tighter for
                                                higher-than-lower-grade ore, if mills’ focus turns to output maximization, then we could see
                                                this move occur at a faster pace than many have assumed.

Exhibit 20: Iron ore stocks at port still high                                 Exhibit 21: But falling in relation to steel production
Mt, Weekly                                                                     Ratio (lhs), US$/t (rhs)

  105                                                                           2.0                          Ratio of Port Stocks to Crude Steel Production          190
                                                                                                             Iron Ore spot (rhs)
   95                                                                           1.9                                                                                  180

                                                                                1.8
   85                                                                                                                                                                170
                                                                                1.7
   75                                                                                                                                                                160
                                                                                1.6
   65                                                                                                                                                                150
                                                                                1.5

   55                                                                                                                                                                140
                                                                                1.4

   45                                                                           1.3                                                                                  130


   35                                                                           1.2                                                                                  120
       2006      2007        2008            2009      2010    2011   2012       Jan-11         Apr-11        Jul-11       Oct-11           Jan-12    Apr-12

Source: Credit Suisse                                                          Source: Credit Suisse




Exhibit 22: Chinese iron ore imports                                           Exhibit 23: Fe grade spreads still tight
Mt, Monthly , SA                                                               US$/t (lhs), price dif f erential (rhs)

  70                                                                            200            Price Spread (rhs)             62% Spot               58% Spot       18%

  60                                                                                                                                                                16%
                                                                                180
  50
                                                                                                                                                                    14%
                                                                                160
  40
                                                                                                                                                                    12%
  30
                                                                                140
                                                                                                                                                                    10%
  20
                                                                                120
  10                                                                                                                                                                8%


   0                                                                            100                                                                                 6%
    2005       2006      2007         2008      2009    2010   2011   2012        Jan-11          Apr-11          Jul-11           Oct-11        Jan-12         Apr-12

Source: Credit Suisse, Customs Data                                            Source: Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                               14
                                                                                                                                            29 March 2012




                                         Thermal Coal – Chinese buying still not enough
                                         API #4 looking exposed?
                                         Chinese thermal coal imports for February continued their strong start to the year with a
                                         raw figure of 12.4Mt, which equated to 14Mt after seasonal adjustment (SA). In month-on-
                                         month terms this was essentially flat – Exhibit 24. Chinese imports have now been
                                         tracking above 160Mtpa (SA) since September and continue to be the demand driver for
                                         seaborne coal. Despite this, the current spillover from a weak Atlantic market persists in
                                         weighing down global coal prices, as we detailed in Thermal Coal – Stuck in a rut.

                                         Exhibit 24: Chinese thermal coal imports
                                         Mt, Monthly , SA

                                             18
                                             15
                                             12
                                              9
                                              6
                                              3
                                              0
                                              2005            2006             2007           2008             2009           2010   2011     2012
                                         Source: Credit Suisse, Customs Data



                                         This is a story we expect to continue, particularly with power plants enjoying better
                                         margins on lower coal costs and higher tariffs following last year’s increase in the on-grid
                                         power price (Chinese Coal and Electricity Policy Changes). With inflation now below 3.5%
                                         there is further scope for power prices to be revised higher, and this should continue to
                                         support Chinese demand for seaborne material.
                                         The combination of this, and the recovery in Indian imports, has been supportive of API
                                         #4, with South Africa exporting significant tonnage into the two growing consumers
                                         (Exhibit 25). Now though, South African material is facing greater competition from other
                                         Atlantic suppliers looking to move material into the Pacific, Colombia being the prime
                                         example. Looking at the near $14/t spread between the two markers (Exhibit 26), though
                                         off its high, API #4’s relative strength is currently hard to justify. With freight accounting for
                                         less than $10/t of the price difference, API #4 could find itself under pressure if current
                                         market dynamics continue.

Exhibit 25: South African exports to China and India                                  Exhibit 26: API #4 – Colombia premium
Mt, Monthly , SA                                                                      API #4 – Colombia FOB, Spot, US$/t

  4                                                                                    40
                                                                                                        API#4 - Colombia


  3                                                                                    30



  2                                                                                    20


  1                                                                                    10


  0                                                                                     0
  2008               2009             2010             2011               2012          Jan-10                             Jan-11           Jan-12

Source: Credit Suisse, Customs Data                                                   Source: Credit Suisse, McCloskey




Commodities Advantage: Pausing f or Breath                                                                                                            15
                                                                                                                                     29 March 2012




                                        Industrial Metals – In Limbo
                                        At the tail end of Q1, macro concerns in the US and China have again affected the base
                                        metals complex. Aluminium has slipped to levels that will keep pressure on smelter
                                        margins, while copper has continued trading sideways in a diminishing range below
                                        US$8,500/t in March. Here, a steady creeping up of bonded warehouse stocks above an
                                        estimated 600,000 t has once again raised questions about the metal’s vulnerability to a
                                        more severe retreat. The negative SHFE/LME arbitrage has prompted press speculation
                                        about imminent flows of Chinese stocks into LME warehouses.
                                        With lead and zinc also in limbo, nickel stands out as having lost the most ground, ceding
                                        most of the gains made at the start of the year. Further falls towards US$17,000/t should
                                        illicit a response in curtailments of higher cost nickel pig iron production in China and place
                                        a floor under prices, but there is scope for a little more lost ground yet.
                                        Paradoxically, signs that China’s housing markets are stabilizing have largely been
                                        ignored by investors, outweighed by the headline PMI figures and worries about broader
                                        manufacturing activity as we head into Q2. Although seasonal effects have to be taken
                                        into account, news that property sales have rebounded in the country’s tier 1 cities have
                                        not translated into meaningful price support.
                                        Trading volumes for new homes in Beijing rose month on month in February, and sales of
                                        low- to mid-cost housing in Shanghai surged compared to last month. Further, Beijing’s
                                        city government is hopeful that it will be able to reach 100,000 social housing units
                                        completed this year, signific antly above the 70, 000 unit target set by the central
                                        government. Beijing City has also revised its housing inventory data, with estimates
                                        of available housing for sale revised down from 124,000 units to 91,000 units.
                                        Moreover, only 24,000 of these units are completed units for sale, while 67,000 are
                                        units still under construction. Better news for demand down the road, but not for the
                                        immediate market mood.

Exhibit 27: A negative SHFE/LME copper arb is                             Exhibit 28: LME copper prices – moving sideways
weighing on copper market sentiment
Arb, cash, daily (US$)                                                    LME 3 Months, US$/tonne

                                                             LME Cheap
   400                                                                     11,000


   200                                                                     10,000
                                                                                                                                        Sideways
     0                                                                                                                                 since 2012
                                                                            9,000

   -200
                                                                            8,000
   -400
                                                                            7,000
   -600

                                                          LME Expensive     6,000
   -800


 -1,000                                                                     5,000
      Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12           Jan-10   May-10   Sep-10   Jan-11   May-11   Sep-11   Jan-12

Source: the BLOOMBERG PROFESSIONAL™ service                               Source: the BLOOMBERG PROFESSIONAL™ service




Commodities Advantage: Pausing f or Breath                                                                                                     16
                                                                                                                        29 March 2012




                                      Precious Metals
                                      Gold – from short-term bearish to neutral
                                      We have been bearish gold since early March (see Gold – what now?, 6 March) when the
                                      metal was trading around $1,700. Since then there have been a couple of occasions when
                                      it has looked like the price would break down through key support levels (it traded down to
                                      $1,628 on the 22nd for example). But on balance we think that the price has held up very
                                      well in the face of a considerable amount of “bad” news:
                                       A jump in US Treasury yields
                                       Falling credit spreads
                                       The absence of new Federal Reserve easing
                                       Falling emerging market inflation
                                       Increases in Indian gold import duties
                                       A reduction in Comex net non-commercial positions of ~4 million oz
                                       And in the last few days liquidation of around 650k oz of ETF positions
                                      Positioning in paper markets now appears to be very light.
                                      Albeit cliched, it appears that an old trading adage may be appropriat e at this
                                      juncture: a market that does not respond to bearish news must be a bullish market.
                                      Although we retain our relative value preference for other metals (see Gold: taking the
                                      short side of RV trades) we are now neutral on the short-term outlook for gold and are
                                      looking for signals to turn outright bullish.

                                      April could be a key month
                                      Fed President Bernanke this week highlighted that generating further substantial
                                      improvement in t he US employment situation may require further accommodative
                                      policy. The trend in the weekly initial jobless claims remains encouraging, but our
                                      economists and strategists still think additional easing from the Fed is likely, noting
                                      after the last FOMC meeting on 13 March that:
                                      “We still believe that the next move from the FOMC will be in the direction of more
                                      accommodative policy, and we suspect it will tak e the form of unsterilized Treasury
                                      and MBS purchases [i.e., outright QE3]. But it is our sense that policy is on hold until
                                      we get the next slowdown scare in the economic data (FOMC Meeting Review: A
                                      Break in the Action).
                                      That, in our opinion, would undoubtedly be positive for gold.
                                      The two-day FOMC meetings in April (24/25h) and June (19/20) are likely to be critical
                                      - if there is going to be furt her easing, it will likely be announced at either of those t wo
                                      meetings, prior to the scheduled conclusion of Operation Twist at the end of June.
                                      The one caveat that prevents us turning outright bullish is that for the moment
                                      physical flows are still pretty thin. We will want to see those flows pick up as Q2 gets
                                      going and as the Indian jewelry market returns to some kind of normalcy.




Commodities Advantage: Pausing f or Breath                                                                                        17
                                                                                                                                               29 March 2012




                                             Agriculture: Waiting on Data
                                             Chinese prices to support corn and soybeans
                                             Grain prices fell over the week following reports of improving conditions for planting in the
                                             United States. On the other hand, soybeans remained supported.
                                             As recently highlighted in the North American Fertilizer team’s note (see Previewing
                                             datapoints in the week ahead...), the market is focusing its attention on key upcoming
                                             reports (Prospective Plantings report and Grain Stocks report), which are scheduled to
                                             publish at the end of the quarter. We believe that given current planting economics (ratio
                                             between corn and soybean prices), corn acreage will increase even further than already
                                             revealed during the February Ag Outlook Forum. Further, with the continuation of
                                             favorable weather conditions and reports that La Nina has faded, an earlier and wider
                                             planting season could mean better corn planting for the upcoming crop. Overall, this would
                                             be bearish corn prices.
                                             However, despite this, Chinese prices in corn and soybean indicate that further Chinese
                                             purchases from the seaborne market are over in coming months. Following the recent fall
                                             in US corn prices, Chinese corn prices have risen above imported corn prices even after
                                             accounting for taxes. On previous occasions, the cross between those prices were
                                             followed by large Chinese purchases in the grain.
                                             At the same time, Chinese soybean crushing margins continue to improve as well, now
                                             rising decisively above break even. That, together with lowered production estimates from
                                             South America, should continue to support prices at these levels.

Exhibit 29: Domestic Chinese corn is now above                                Exhibit 30: Soybean margins continue to return to
imported corn                                                                 positive, adding further support to US soybean
CNY per metric ton                                                            CNY per metric ton (LHS) and US cents per bushel (RHS)

                            Corn spot price (Dalian)                           700                   Chinese soybean crushing margins (LHS)              1600
  3,200
                            Chinese corn import price (incl taxes)                                   CBoT Soybean front month (RHS)
  3,000                                                                                                                                                  1500
                                                                               500
  2,800                                                                                                                                                  1400
  2,600                                                                        300
                                                                                                                                                         1300
  2,400
                                                                               100                                                                       1200
  2,200

  2,000                                                                                                                                                  1100
                                                                               -100
  1,800
                                                                                                                                                         1000
  1,600                                                                        -300
                                                                                                                                                         900
  1,400
  1,200                                                                        -500                                                                      800
     Jan-09    Jul-09    Jan-10     Jul-10      Jan-11    Jul-11     Jan-12       Jan-09    Jul-09    Jan-10    Jul-10   Jan-11     Jul-11    Jan-12

Source: the BLOOMBERG PROFESSIONAL™ service, Shanghai JCI, Credit Suisse      Source: the BLOOMBERG PROFESSIONAL™ service, Shanghai JCI, Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                 18
                                                                                                                                                                   29 March 2012




                                          Commodity Investment Flows
                                          Investment flow estimates below are based on last week ’s CFTC commitment of traders
                                          report and the latest set of index investment data up till Tuesday, 20 March 2012.
                                          Index-linked commodity assets under management saw $460 million of outflows, and total
                                          index-linked assets under management fell by $4.2 billion to about $237.3 billion (Exhibit
                                          32), pausing the streak of rising commodity investments. Total contracts held in indexes
                                          also fell by about 10.7k contracts, led by decreases in contracts held in crude oil and oil
                                          products. This was partially offset by an increase in contracts held in corn.
                                          Physically backed exchange-traded products also saw net outflows of about $128 million
                                          and total assets under management fell to $130.7 billion (Exhibit 33).
                                          Total assets under management (including both indexes and ETFs) decreased to about
                                          $368.1 billion, from $374.8 billion a week earlier.

                                          Exhibit 31: Commodity index assets under management in contracts and dollars
                                          Thousands of contracts and US$ billions

                                                            3,800                             AUM (Right Axis)               Contracts (Left Axis)                       280

                                                                                                                                                                         260
                                                            3,600
                                                                                                                                                                         240
                                                            3,400
                                           '000 Contracts




                                                                                                                                                                         220




                                                                                                                                                                               bn, USD
                                                            3,200                                                                                                        200

                                                                                                                                                                         180
                                                            3,000
                                                                                                                                                                         160
                                                            2,800
                                                                                                                                                                         140

                                                            2,600                                                                                                        120
                                                                06-Jul-10       19-Oct-10     01-Feb-11          17-May-11          30-Aug-11          13-Dec-11   27-Mar-12

                                          Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse




Exhibit 32: Commodity index assets under                                                      Exhibit 33: Physically backed commodity ETF
management (in US dollars)                                                                    assets under management (in US dollars)
US$ billions                                                                                  US$ billions

  10                                                                                    275      150                          Change in Contracts (Left Axis)            3,800
                    Inflows (Left Axis)               Index AUM (Right Axis)
                                                                                                                              Contracts (Right Axis)
                                                                                                                                                                         3,600
                                                                                        250      100
                                                                                                                                                                    68.46 3,400
   5
                                                                                        225       50                                                                     3,200
                                                                                 1.35
                                                                                                                                                                         3,000
   0                                                                                    200        0
                                                                                                                                                                         2,800

                                                                                        175      (50)                                                                    2,600
   (5)
                                                                                                                                                                         2,400
                                                                                        150     (100)
                                                                                                                                                                         2,200

 (10)                                                                                   125     (150)                                                                    2,000
  25-Jan-11    19-Apr-11     12-Jul-11    4-Oct-11                  27-Dec-11   20-Mar-12                         Apr-11                        Oct-11               Mar-12

Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse                              Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Pausing f or Breath                                                                                                                                        19
Commodities Advantage: Pausing for Breath



                                            Exhibit 34: Commodities forecast table
                                            Units as indicated below

                                                                                                           2011                                2012                                             2013                             2014         2015         LT
                                                                                         2010
                                                                                                     Q3        Q4   Yr Avg   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)   Yr Avg (f)   (real)
                                            Energy
                                            Brent (US$/bbl)                              83.13    112.09   109.54   109.97   100.00   100.00   110.00     110.00    105.00    105.00   115.00   120.00     120.00     115.00      120.00       125.00      90.00
                                            WTI (US$/bbl)                                79.61     89.54    92.18    90.70    90.00    92.00   106.00     108.00     99.00    103.00   113.00   118.00     118.00     113.00      117.75       119.00      84.00
                                            U.S. Natural Gas (US$/MMBtu)                  4.38      4.05     3.61     4.07     3.20     3.30     3.60       3.90      3.50      4.60     4.50     4.80       4.90       4.70        5.10         5.50       5.50
                                            Iron Ore
                                            Iron ore fines - 62% (China CFR) US$/t        147        177      141     168      140      150        160      160        153      160      160        155      155         158          135          120         90
                                            Iron ore fines - (China CFR) US¢/dmtu         237        285      228     271      226      242        258      258        246      258      258        250      250         254          218          194        145
                                            Iron ore fines - 62% (Pilbara FOB) US$/t      136        169      132     160      131      140        150      150        143      150      150        145      145         147          126          112         82
                                            Iron ore fines - (Pilbara FOB) US¢/dmtu       220        273      213     258      211      226        241      241        230      241      241        234      234         238          204          181        132
                                            Iron ore lump - 64% (Pilbara FOB) US$/t       162        194      155     186      154      165        176      176        168      176      176        171      171         174          149          132        100
                                            Iron ore lump - (Pilbara FOB) US¢/dmtu        253        303      243     291      241      258        276      276        263      276      276        267      267         272          233          207        157
                                            Iron ore pellets - 66% (Tubarao FOB) US$/t    188        212      168     205      167      178        190      190        181      190      190        184      184         187          161          143        108
                                            Iron ore pellets - (Tubarao FOB) US¢/dmtu     285        321      255     310      252      270        288      288        275      288      288        279      279         284          244          217        164
                                            Coking Coal
                                            Hard coking coal (US$/t)                      190        315      285     289      235      220        235      245        234      245      240        235      235         239          235          235        170
                                            Semi hard coal (US$/t)                        180        299      271     274      223      209        223      233        222      233      228        223      223         227          223          223        160
                                            Semi soft coal (US$/t)                        140        212      191     212      157      147        157      164        156      164      161        157      157         160          157          157        132
                                            PCI coal (US$/t)                              146        230      205     223      169      158        169      176        168      176      173        169      169         172          169          169        134
                                            Thermal Coal
                                            Thermal Coal (Newcastle FOB) US$/t            99         122      116     123      115      125        130      135        126      138      138        138      138         138          140          140        120
                                            Thermal Coal (API#2 CIF) US$/t                93         124      115     122      113      123        128      133        124      136      136        136      136         136          138          138        120
                                            Thermal Coal (API#4 FOB) US$/t                92         117      107     116      110      120        125      130        121      134      134        135      135         135          138          138        120
                                            Base Metals
                                            Copper (US$/MT)                               7,594    9,245    7,518    8,887    8,200    8,900    9,200      9,500     8,950     9,300    9,000    8,800      8,500      8,900       8,500        7,000      5,500
                                            Aluminium (US$/MT)                            2,233    2,440    2,101    2,424    2,200    2,400    2,500      2,600     2,425     2,700    2,700    2,700      2,700      2,700       2,550        2,650      2,400
                                            Alumina spot (US$/MT)                          332       378      380      389      310      330      350        370       340       370      380      380        390        380         400          415        400
                                            Nickel (US$/MT)                              21,901   22,567   18,382   23,015   20,500   21,500   22,000     22,000    21,500    23,000   23,000   23,500     24,000     23,375      24,000       24,000     20,000
                                            Lead (US$/MT)                                 2,187    2,524    1,994    2,405    2,050    2,150    2,250      2,400     2,213     2,500    2,600    2,700      2,800      2,650       3,100        3,300      2,000
                                            Zinc (US$/MT)                                 2,207    2,280    1,910    2,220    2,000    2,050    2,100      2,150     2,075     2,250    2,300    2,400      2,500      2,363       2,800        3,000      1,900
                                            Tin (US$/MT)                                 20,441   25,355   20,885   26,191   22,000   23,000   24,000     25,000    23,500    26,000   26,000   26,000     26,000     26,000      26,000       26,000     20,000
                                            Precious Metals
                                            Gold (US$/oz)                                1,227     1,705    1,682    1,571    1,650    1,720     1,810     1,840     1,755     1,920    1,860     1,740     1,660      1,795        1,450        1,350     1,300
                                            Silver (US$/oz)                              20.28     38.87    31.81    35.20    30.00    31.60     34.30     35.40     32.80     36.20    32.60     29.00     26.80      31.20        23.80        22.50     21.70
                                            Palladium (US$/oz)                            530        752      629      730      675      735       785       825       755       850      890       930       950        905          980        1,010       900
                                            Platinum(US$/oz)                             1,611     1,770    1,535    1,720    1,510    1,540     1,590     1,640     1,570     1,780    1,820     1,840     1,900      1,835        1,900        1,925     1,900
                                            Rhodium (US$/oz)                             2,495     1,893    1,588    2,010    1,350    1,500     1,550     1,600     1,500     1,900    2,200     2,250     2,350      2,175        3,000        3,200     3,200
                                            Minerals
                                            Zircon bulk (US$/t)                           875       2200     2420    1,880    2500     2550      2625      2725      2,600     2850     2975      3075      3200       3,025        3,200        2,225     1,500
                                            Rutile bulk (US$/t)                           550       1325     1355    1,055    2450     2450      2700      2700      2,575     2800     2800      2900      2900       2,850        2,700        1,650     1,000
                                            Synthetic Rutile (US$/t)                      438       1100     1050      858    2000     2000      2175      2175      2,088     2275     2275      2400      2400       2,338        2,188        1,375       830
                                            Ilmentite - sulphate 54% (US$/t)               84        250      265      209     250      250       275       275        263      300      300       350       350         325          300          250       200
                                            Titanium Slag - SA Chlor 86% (US$/t)          431       1075     1075      798    1450     1450      1600      1600      1,525     1700     1700      1800      1800       1,750        1,625        1,094       675
                                            Uranium spot (US$/t)                           47         52       54       57      52       54        56        58         55       60       65        65        70          65           75           75        65
                                            Agriculture
                                            Wheat-CBOT (US¢/bu)                           647        691      618      710      600      600       650       650       625       660      680       680       650        670          650          650       600
                                            Corn-CBOT (US¢/bu)                            459        698      623      680      600      600       575       575       590       550      550       550       550        550          500          500       500
                                            Soybeans-CBOT (US¢/bu)                       1,048     1,358    1,183    1,320    1,175    1,200     1,250     1,300     1,231     1,260    1,280     1,280     1,220      1,260        1,200        1,200     1,100
                                            Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                                                                                                                                                                                                                                                    29 March 2012
20
                                                                                                                               29 March 2012




                                                Technical Analysis
                                                Gold bases out and begins next upward phase for $1800
                                Cilline Bain
                        +44 20 7888 7174        Gold (Spot) – Daily
               cilline.bain@credit-suisse.com




                                                Source: CQG, Credit Suisse


                                                Gold (Spot) has gained traction at 1628, ahead of our recent retracement target support
                                                zone of 1625/0. We believe the market is basing out here at current levels, with the recent
                                                rally higher to 1697 so far marking the beginning of the next upward phase. We highlight
                                                the next hurdle lies at the topping trendline of 1702, with the more meaningful chart
                                                resistance zone located marginally above here at 1717/26. We anticipate an eventual
                                                upside break through these resistance hurdles and for Gold to retest the key neckline
                                                resistance zone of 1791/1803. Looking out longer term we highlight that through this
                                                neckline resistance zone would complete a long-term inverted head and shoulders,
                                                allowing for a move back to retest the 1921 high, and then our longer-term target placed at
                                                2000
                                                Only a breakdown through the 1628/5/0 support zone allows for risk lower to 1576, and
                                                possibly then the 1522 low.
                                                Trade Update (Spot): Currently long from 1675, targeting 1800, stop at 1615.




Commodities Adv antage: Pausing f or Breath                                                                                              21
                                                                                                                                                                 29 March 2012




Trade Recommendations
Exhibit 35: Trade recommendations scorecard – (returns at end of day, 28 March 2012)
Based on end of day prices or latest av ailable price, recommendations in dark blue hav e been closed out, recommendations in green are initiated today
Returns column: green means positiv e returns, and red means negativ e returns, black when zero.

                                                                                                      Date Initiated    Opening     Current or
  Commodity                      Position                            Publication                          (Closed)        Price    Close Price   Profit/(loss)         Return
  Gold and             Sell Q2 Gold call, Buy Sept      Gold: taking the short side of RV trades    14 March 2012        -$0.55       -$13.21       ($12.66)       (2301.76%)
  Palladium            12 Palladium Call
  Iron Ore             Buy Q4 2012 Iron ore sw ap       Chinese Tide Begins to Turn                   01 Mar 2012       $131.50       $133.50          $2.00           1.52%
  Lead                 Buy June 12 LME lead             Lead: This is the Dip – Buy it                29 Feb 2012      $2,169.50    $1,990.00     ($179.50)           (8.27%)
  Copper               Buy Dec-12 copper                From Fear Flows Opportunity                   16 Jan 2012      $8,110.00    $8,359.00       $249.00            3.07%
  Aluminium            Buy Q3 aluminium                 From Fear Flows Opportunity                   16 Jan 2012      $2,203.83    $2,188.67       ($15.16)          (0.69%)
  Lead and Zinc        Buy Dec-12 lead, sell Dec-       From Fear Flows Opportunity                   16 Jan 2012        $71.50       -$10.00       ($81.50)        (113.99%)
                       12 zinc
  Iron Ore             Buy Cal-13 iron ore swaps        From Fear Flows Opportunity                   16 Jan 2012       $125.25       $127.50          $2.25           1.80%
  Thermal Coal         Buy CAL13 swaps on dips          A Dangerous New Phase                           4 Oct 2011      $119.20       $114.24         -$5.75          (4.82%)
                       below $120 for Newcastle coal                                               (15 March 2012)

  RBOB Gasoline        Buy the June 12 330/340          Selective Easing Offset by Greek               15 Feb 2012      $0.7804        $1.106         $0.326          41.72%
                       call spread and sell the June    Default Risk                               (08 March 2012)
                       12 340/350 call spread
  RBOB Gasoline        Buy the June 12 340 call         Selective Easing Offset by Greek               15 Feb 2012      $8.2662      $11.4219          $3.16          38.18%
                                                        Default Risk                               (08 March 2012)
  ICE Gasoil           Buy Jun-12, sell Apr-12 gasoil   Mixed Blessings                                09 Jan 2012       -$5.75        -$2.00          $3.75          65.22%
                                                                                                   (08 March 2012)
  Thermal coal         Buy API4 Coal, Sell API2         The Relative States of Different Coal          15 Feb 2012       -$5.37        -$4.92          $0.45            8.4%
                       Coal                             Markers                                      (29 Feb 2012)
  Heating Oil          Buy Jun-12, sell Apr-12          Mixed Blessings                                05 Jan 2012       -$2.47        -$0.15          $2.32           93.9%
                       heating oil                                                                   (29 Feb 2012)
  WTI Crude Oil        Buy Dec-13 WTI calls             Oil fundamentals: Supply-side                 10 Nov 2011       $3.6481       $4.2233       $0.5752            15.8%
                                                        worries                                      (01 Feb 2012)
  Nat Gas (US)         Buy puts on Mar-12 Henry Hub     From Fear Flows Opportunity                    17 Jan 2012      $0.1543       $0.0769     ($0.0774)           (50.2%)
                                                                                                     (25 Jan 2012)
  Gold                 Buy 1650/1850 call spread        What’s up (down) with gold?                   15 Dec 2011      $38.8786      $49.2867      $10.4081            26.8%
                                                                                                     (12 Jan 2011)
  Gold                 Buy March 12 call spread         A Dangerous New Phase                            3 Oct 2011    $58.1063      $73.8803      $15.7740            27.1%
                       w ith strikes at $1,700/$1,900                                                (07 Dec 2011)
  Gold                 Buy Dec 11 futures on dips       Autumn Resolutions                             30 Aug 2011     $1,800.00    $1,740.90       ($59.10)           (3.3%)
                       under $1800                                                                   (07 Dec 2011)
  Iron Ore             Buy CAL-12 iron ore swaps        Iron Ore: Looking for a Bounce                 27 Oct 2011      $118.50       $127.25          $8.75            7.4%
                                                                                                     (21 Nov 2011)
  Lead and Zinc        Buy Jan-12 LME lead, sell        Relative Value Opportunity in Lead-           09 Nov 2011        $44.00       $109.00         $65.00          147.7%
                       Jan-12 LME zinc                  Zinc Spread                                  (14 Nov 2011)
  Iron ore             Buy Q2 2012 futures on dips      A Dangerous New Phase                          17 Oct 2011      $133.50       $136.00          $2.50            1.9%
                       to $135                                                                       (09 Nov 2011)



Source: Credit Suisse Locus




Commodities Adv antage: Pausing f or Breath                                                                                                                                22
                                         GLOBAL COMMODITIES RESEARCH

                    Ric Deverell, Managing Director                                        Eric Miller, Managing Director
                 Global Head of Commodities Research                            Global Head of Fixed Income and Economic Research
                             +44 20 7883 2523                                                       +1 212 538 6480
                      ric.deverell@credit-suisse.com                                        eric.miller.3@credit-suisse.com




LONDON                                                                                       One Cabot Square, London E14 4QJ, United Kingdom


Tom Kendall, Director                         Marcus Garvey, Analyst                          Martin Yu, Analyst
Head of Precious Metals Research              +44 20 7883 4787                                +44 20 7883 2150
+44 20 7883 2432                              marcus.garvey@credit-suisse.com                 martin.yu@credit-suisse.com
tom.kendall@credit-suisse.com




TECHNICAL ANALYSIS
Cilline Bain, Associate
+44 20 7888 7174
cilline.bain@credit-suisse.com




NEW YORK                                                                                                11 Madison Avenue, New York, NY 10010


Jan Stuart, Managing Director                  Joachim Azria, Associate                        Stefan Revielle, Associate
Head of Energy Research                       +1 212 325 4556                                 +1 212 538 6802
+1 212 325 1013                               joachim.azria@credit-suisse.com                 stefan.revielle@credit-suisse.com
jan.stuart@credit-suisse.com




SINGAPORE                                                                                                 One Raffles Link, Singapore 039393

Andrew Shaw, Director                         Ivan Szpakowski, Associate
Head of Base Metals & Bulks Research          +65 6212 3534
+65 6212 4244                                 ivan.szpakowski@credit-suisse.com
andrew.shaw@credit-suisse.com
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