Credit Suisse - Chinese Stimulus_ Necessary by riteshbhansali

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									                                                                                                                         31 May 2012
                                                                                                              Fixed Income Research
                                                                                          http://www.credit-suisse.com/researchandanalytics




                                                  Commodities Advantage:
                                                  Chinese Stimulus, Necessary
                                                  But Not Sufficient
                                                  Commodities Research



                       Research Analysts
                                                  Data Disappoint
                                Ric Deverell      Markets remained under pressure over the past week, with further evidence that
                         +44 20 7883 2523
                ric.deverell@credit-suisse.com    the Chinese government is moving to underpin growth overshadowed by the
                                                  latest developments in the ongoing European saga (the focus has now moved
                            Joachim Azria         to Spain). It was notable that while not a focus for many, economic data
                          +1 212 325 4556
              joachim.azria@credit-suisse.com     released in India and Brazil were very weak, while initial jobless claims suggest
                                                  that the US recovery may also be losing steam (remember that GDP only grew
                                  Cilline Bain    by 1.9% in Q1…).
                           +44 20 7888 7174
                 cilline.bain@credit-suisse.com   With regard to China, last week we met with a range of senior policy makers
                                                  and industrialists in Beijing. With growth still soft through May (we do not
                           Marcus Garvey
                        +44 207 883 4787          expect a substantial rebound in tomorrow’s PMI) it is now clear to us that the
             marcus.garvey@credit-suisse.com      focus for the government has moved to putting a floor under the economy.
                                                  Although this is a positive, in our view it remains unlikely that we will see a
                              Tom Kendall
                        +44 20 7883 2432          stimulus of the magnitude or speed seen in 2009 – such a response would only
                tom.kendall@credit-suisse.com     become likely if the economic outlook (both domestic and external) becomes far
                                                  worse than is currently the case. Rather, we expect the stimulus to be
                              Stefan Revielle
                            +1 212 538 6802       calibrated with the aim of returning growth in H2 back above 8%.
              stefan.revielle@credit-suisse.com   Although stronger growth in H2 (look for 8%-9%) will be a positive for
                           Andrew Shaw            commodity demand, it is unlikely to be sufficient to push prices materially
                          +65 6212 4244           higher in the near term given continued euro headwinds.
              andrew.shaw@credit-suisse.com
                                                  Given the ferocity of the storm enveloping Europe, the risks to industrial
                                  Jan Stuart      commodity prices in the near term remain predominantly to the downside.
                           +1 212 325 1013        Indeed, while we continue to expect a rebound in H2 (from oversold levels),
                  jan.stuart@credit-suisse.com
                                                  such a bounce remains contingent on the likelihood that the current three-speed
                          Ivan Szpakowski         global economy morphs into a more synchronized upswing. To that end, the
                           + 65 6212 3534         downside risks appear to be building, with growth of more than 3.5% at a global
            ivan.szpakowski@credit-suisse.com
                                                  level looking unlikely until/unless the European panic subsides.
                                  Martin Yu
                        + 44 20 7883 2150         Focus: Thermal Coal: Something’s Got To Give
                  martin.yu@credit-suisse.com
                                                  In the absence of a fillip from demand in recent weeks, the glut of coal supply
                                                  entering the seaborne market has persisted through May. Inventory cover in key
                                                  markets remains comfortable and outbound flows from the “marginal” source of
                                                  supply – the USA – continue to dampen prices. These remain subdued and are
                                                  currently languishing just above US$90/t for the Newcastle marker.
                                                  Although we do not expect US exports to fall back any time soon (gas continues
                                                  to displace coal in its core use), infrastructure systems will likely limit short-term
                                                  increases. The key to a swing in market dynamics is therefore in the hands of
                                                  higher-cost suppliers curtailing production. This may take time to emerge but
                                                  now seems inevitable, with the trigger potentially being sustained price
                                                  weakness for a while longer. Similarly, the current price malaise is sowing the
                                                  seeds for a delayed project expansion roll-out and eventual recovery further out.

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                                                                                                                                           31 May 2012


                                        In this Issue
                                        Macro View – Downside Risks Build                                                                            3
                                                China – Once More into the Breach…. .......................................... 3
                                                Europe Remains Very Dangerous – Now it’s About Spain ............ 3
                                                United States – Cracks Beginning to Appear?............................... 4
                                                India ............................................................................................... 5
                                        Focus: Thermal Coal – Something’s got to give                                                                7
                                                Oversupply still the name of the game........................................... 7
                                                US exports are unlikely to slow ...................................................... 7
                                                The market faces a war of attrition ................................................ 9
                                        Base Metals                                                                                                10
                                                Copper: Africa, China and Chile .................................................. 10
                                                Nickel: How low is too low? ......................................................... 12
                                        Precious Metals                                                                                            15
                                                Gold undecided ........................................................................... 15
                                        Bulk Commodities                                                                                           17
                                                Iron Ore – Trading places ............................................................ 17
                                        Petroleum                                                                                                  22
                                                Headed for $100 Brent ................................................................ 22
                                        Natural Gas                                                                                                24
                                                Pausing for a correction ............................................................... 24
                                        Agriculture – Watching crop conditions                                                                     25

                                        Commodity Investment Flows                                                                                 26

                                        Technical Analysis                                                                                         28
                                                Copper has reached 7448 61.8% retracement support target ..... 28
                                        Trade Recommendations                                                                                      29




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                 2
                                                                                                                          31 May 2012



                                        Macro View – Downside Risks Build
                                        Markets remained under pressure over the past week, with further evidence that the
                                        Chinese government is moving to underpin growth overshadowed by the latest
                                        developments in the ongoing European saga (the focus has now moved to Spain). The
                                        data flow also disappointed, with data from India and Brazil very soft.
                                        Given the ferocity of the storm enveloping Europe, the risk to industrial commodity prices
                                        in the near term remains predominantly to the downside. Indeed, given the likely modest
                                        magnitude of the Chinese rebound, recent events suggest that the probability of a
                                        sustained rebound in H2 (still our baseline scenario) is falling.

                                        China – Once More into the Breach …
                                        Last week we met with a range of senior policy makers and industrialists in Beijing. With
                                        growth still soft through May (we do not expect a substantial rebound in tomorrow’s PMI) it
                                        is now clear to us that the focus for the government has moved to putting a floor under the
                                        economy.
                                        This past week has seen several new stimulus measures in addition to those listed in last
                                        week’s Commodities Advantage (Commodities Advantage: Take a deep breath… ):
                                         Social Housing: Over a one-week period, the Ministry of Finance announced RMB 98
                                          billion in central government funding for social housing projects. This compares to RMB
                                          153 billion spend by the central government over all of 2011. Bank lending, local
                                          government spending, and other channels represent the bulk of financing, though.
                                         Investment Projects: Last Friday, the NDRC approved construction of three major steel
                                          projects, two of which had been long delayed, with combined investment targets
                                          exceeding RMB 130 billion. On Monday, the NDRC approved construction of a new
                                          airport in Sichuan, joining recent approvals of three other airport projects.
                                         Housing Support: Hunan province announced a series of measures to support housing
                                          demand, including discounted mortgage rates, reduced down payment requirements,
                                          and reduced government fees.
                                        As the list of stimulus measures builds, it has become clear that despite all the talk of
                                        “rebalancing,” the stimulus will be in large part driven by increased spending on
                                        infrastructure. (We have previously argued that it was highly unlikely that there would be a
                                        substantial rebalancing of the growth drivers this year – see link to end of the super cycle
                                        note).
                                        Although the intent of the government to boost growth in H2 is a positive, as we have
                                        noted, it remains highly unlikely that we will see a stimulus of the magnitude or speed seen
                                        in 2009 – such a response would only become likely if the economic outlook (both
                                        domestic and external) becomes far worse than is currently the case. Rather, we expect
                                        the stimulus to be calibrated with the aim of boosting growth in H2 back above 8%.
                                         As is always the case with this type of intervention, calibration is difficult. While the
                                          government has no doubt of its capacity to boost growth, given the general perception
                                          that the post Lehman stimulus was too big, it remains unlikely that the initial push will
                                          see growth move above 9%.

                                        Europe Remains Very Dangerous – Now it’s About Spain
                                        Markets remain very concerned about the outlook for Europe, with the focus moving to
                                        Spain this week. This is a little disturbing as to us Greece has always been an aside (it is
                                        only 2% of Euro area GDP), with the real risk contagion to Spain and Italy.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                               3
                                                                                                                                         31 May 2012


                                         Last year markets capitulated when Italian yields moved materially above 6%, with far
                                          less focus on Spain. However, notwithstanding their relatively strong fiscal position, we
                                          consider Spain to be the main vulnerability, given the disastrous state of the housing
                                          market.
                                         With 10-year yields hitting 6.7%, a similar level to that seen at the peak last year, and
                                          the ECB unceremoniously knocking back the latest bank bailout plan, markets are likely
                                          to remain on edge until yet another policy response (whatever that might be) is put in
                                          place.
                                        The risk of course is that the renewed financial panic flows over the already brittle real
                                        economy. After falling heavily in Q4, euro wide IP had begun to stabilize in Q1. However,
                                        recent surveys suggest that this improvement has now stalled, suggesting that the risk of a
                                        “triple dip” has intensified – the final PMI released tomorrow will be the last snapshot.
                                         This would of course have significant implications for the fiscal positions of many of the
                                          more stressed countries, again highlighting the counterproductive nature of the current
                                          austerity zeal.

                                        Exhibit 1: Spanish yields approaching last year’s high
                                        Percent

                                          7.5%                                   Italy                          Spain


                                          7.0%


                                          6.5%


                                          6.0%


                                          5.5%


                                          5.0%


                                          4.5%


                                          4.0%
                                             Jan-11     Mar-11       May-11       Jul-11      Sep-11   Nov-11       Jan-12   Mar-12   May-12

                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        United States – Cracks Beginning to Appear?
                                        Despite the slowdown in China, and the continued drama in Europe, so far this year the
                                        US recovery has continued more or less on track. Although initial jobless claims picked up
                                        in April, and payroll growth slowed, in the main the moderation looked to have been driven
                                        primarily by the spike in gasoline prices, suggesting that the fall in the price of gas at the
                                        pump would provide a boost to the labor market through May and into June.
                                        As we entered May, this broad story looked to be playing out, with the spike in initial
                                        claims in late April unwinding. More recently, however, it has become clear to us that
                                        looking through the volatility, claims are indeed beginning to trend up again. And while
                                        this move is only gradual at this stage, it has occurred against a backdrop of falling oil and
                                        gasoline prices, suggesting to us that something more insidious is at play. Given that the
                                        US only grew by 1.9% in Q1, any loss of momentum over coming weeks and months will
                                        make our current forecast of 4% global growth in H2 all the more difficult to achieve.
                                        We will be watching the payrolls print (the ADP suggested that employment growth in May
                                        remained relatively subdued) and the ISM release with great interest tomorrow. Further
                                        signs of a US slowdown would be likely to raise concerns that the US is indeed moving
                                        into another soft patch and would heighten anxiety about the near-term global economic
                                        outlook.

Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                              4
                                                                                                                                         31 May 2012



                                        Exhibit 2: US initial jobless claims
                                        Week 1 = 100

                                         110
                                                                        Jobless Claims '11                   Jobless Claims '12
                                         108
                                         106
                                         104
                                         102
                                         100
                                          98
                                          96
                                          94
                                          92
                                          90
                                               1            4              7           10             13     16          19        22           25

                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        India
                                        Although not normally a focus for commodity markets, the downside risks to commodity
                                        prices were amplified by the quite shocking GDP print from India for Q1. With Indian GDP
                                        growth now weaker than seen at the trough in 2009, and domestic demand around the
                                        Asian region in general still very weak, this important source of global growth has again
                                        surprised to the downside.

                                        Exhibit 3: Indian GDP
                                        Yoy change, real

                                          11
                                                                                         Indian GDP, Real YoY

                                          10

                                           9

                                           8

                                           7

                                           6

                                           5
                                            2004           2005          2006         2007           2008   2009        2010      2011
                                        Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service



                                        Commodity Performance
                                        Commodity returns were mixed last week, with lean hogs and palladium outperforming the
                                        space. The base metals and iron ore were also mildly higher. However, US natural gas
                                        was significantly lower, followed by grains and energy commodities. In year-to-date terms,
                                        soybean remains the top performer, followed by RBOB gasoline.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                5
                                                                                                                                                                           31 May 2012



 Exhibit 4: Commodity performances (as of close of May 30, 2012)
 Weekly returns, active contract                                                             Year to date returns, front month

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

  -16%   -14%    -12%   -10%       -8%   -6%   -4%      -2%          0%        2%       4%    -25%    -20%    -15%     -10%       -5%            0%          5%      10%   15%    20%


 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                                   6
                                                                                                                                        31 May 2012



                                          Focus: Thermal Coal – Something’s got to give
                                          Oversupply still the name of the game
                                          As discussed in Thermal Coal – Drowning in a sea of supply, US March thermal coal
                                          exports of 4.5 Mt, 5.4 Mt after seasonal adjustment (SA), were an all-time record and
                                          further highlighted the surplus of domestic material looking for a route into the seaborne
                                          market. Gas continues to displace coal from its core domestic use.


 Exhibit 5: US thermal coal exports                                       Exhibit 6: US thermal coal imports
 Mt, monthly, SA                                                          Mt, monthly, SA


  6                                                                        3.5

                                                                           3.0
  5
                                                                           2.5
  4
                                                                           2.0
  3
                                                                           1.5
  2
                                                                           1.0
  1
                                                                           0.5

  0                                                                        0.0
   2005       2006      2007       2008   2009   2010     2011     2012       2005       2006      2007         2008   2009   2010   2011   2012

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



                                          On an annualized basis this equated to 64.5 Mt SA, 53.2 Mt raw, March being a
                                          seasonally weak month. Furthermore, taking the first quarter as a whole, US thermal
                                          exports have been running at a seasonally adjusted annualized rate (SAAR) of 49.8 Mt, far
                                          higher than last year’s total export figure of 34.1 Mt, and even our above-consensus
                                          forecast of 37 Mt.
                                          Based on the supply and demand model that we published in April (see – The Pause That
           The ongoing supply
                                          Refreshes…), absent reduced flows from other exporters, we do not think the market can
                   glut means
                                          absorb this volume of exports until 2013, or even 2014, when we expect the US to export
           production cuts are            45 Mt and 50 Mt of thermal coal, respectively. With demand already proving relatively
             looking inevitable           robust (see – Thermal Coal – Cheaply heating the boiler), supply cuts remain the most
                                          probable factor to turn the market around within this calendar year.
                                          Further ahead, it will be a case of output expansion push-backs and continued demand-
                                          side growth that will likely set the tone for the market, but demand does not look likely to
                                          hold much short-term excitement, unless there is an unusually warm northern hemisphere
                                          summer fuelled air-conditioning spree, and push-back on expansions is likely to become a
                                          more material factor if prices continue to stagnate.

                                          US exports are unlikely to slow
                                          Private ownership of much of the country’s coal export infrastructure means that
                                          accurately gauging capacity remains a difficult task, but our US equity colleagues have
                                          estimated 2011 capacity to stand at a shade below 120 Mt/y (see – US Coal Sector –
                                          Bouncing Along the Bottom).
                                          Given the fact that exports are currently running as hard as they possibly can, this
                                          assessment is supported by the fact that combined metallurgical and thermal coal exports
                                          came in at an annualized rate of 118 Mt for March.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                              7
                                                                                                                                          31 May 2012



 Exhibit 7: Annualized US coal exports by type                                Exhibit 8: US coal export types by share
 Mt, Monthly SAAR                                                             Percent, Monthly

 150                              Thermal       Coking                                                 Coking                 Thermal
                                                                              100%
 130

 110                                                                           80%

  90                                                                           60%
  70
                                                                               40%
  50

  30                                                                           20%

  10                                                                             0%
    2005        2006      2007         2008   2009       2010   2011   2012        2005        2006   2007      2008   2009      2010   2011   2012

 Source: Credit Suisse, Customs Data                                          Source: Credit Suisse




                                              US exports are running near capacity and show no signs of decreasing
                                              On the one hand, some solace can therefore be taken by non-US thermal producers, as
                                              the total volume of coal coming out of the US should now only grow in line with
                                              incremental infrastructure expansion, rather than being able to flex immediately higher.
                                              Moreover, while BMA’s force majeure in Australia persists, and the coking market remains
                                              relatively tight, particularly at the premium end, there should be scope for metallurgical
                                              coal volumes to remain close to the 60% level of total US exports – these volumes are
                                              more valuable.
                                              On the other hand, with the EIA estimating that 722 Mt will be consumed in the US this
                                              year, against production of about 0.9 Bt and US power plant inventories of around 180 Mt,
                                              the level of production cuts required to reduce the volume of US thermal coal being offered
                                              into the export market are an order of magnitude different from those that have already
                                              been announced – just under 50 Mt of thermal.

            Other exporters are               Consequently, though further production cuts in the US seem inevitable, we do not expect
              also likely to see              this to have a material impact on the ambition of US producers to deliver their coal into the
                                              seaborne market. The volume of coal they actually can get out will be dependent on
               production cuts
                                              demand and price competition with other suppliers, but the mere fact that it is offered for
                                              sale is a key metric placing pressure on prices.

                                              The influence of marginal volumes has a high impact on prices
                                              The US is still a relatively small supplier of seaborne thermal coal, accounting for 4.4% of
                                              the traded market in 2011 (Exhibit 9). What the above therefore highlights is the extent to
                                              which relatively marginal changes can alter the market balance and that, if production cuts
                                              are to meaningfully change the near-term supply-demand balance, they will have to occur
                                              not only in the US but in other exporting nations too.
                                              Year-to-date performance for other major exporting countries has been mixed (Exhibit 10),
                                              with the net position that exports for these countries are running at 6 Mt/y above 2012
                                              forecast rates. Though this sounds like a modest figure, its magnitude is increased by the
                                              fact that, in a balanced growing market, Q1 annualized run rates would be below 2012
                                              annual forecasts as capacity additions through the year would mean latter quarters
                                              exceeded the average.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                               8
                                                                                                                                                                      31 May 2012



 Exhibit 9: Major coal exporters 2011                                                      Exhibit 10: Q1 performance of major exporters
 Mt                                                                                        Mt

                                                                                            400                  Q1 SAAR Exports            Forecast 2012 Exports
                                       RoW, 42
                            US, 34                                                          350
                                                             Australia, 148

                                                                                            300
             S.Africa, 69
                                                                                            250

                                                                                            200

        Russia, 95                                                                          150

                                                                                            100

          Colombia, 77                                                                       50
                                                                  Indonesia,
                                                                     319                        0
                                                                                                    Indonesia      Australia     S.Africa      Colombia      Russia       US

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




                                                 The market faces a war of attrition
                                                 Given current price levels, this situation is not sustainable over the long-run, with marginal
                                                 producers in both Russia and the US in particular “out of the money,”’ while Australian
                                                 miners are also feeling the pressure. In our minds, the most likely outcome remains a war
           Long-run structural                   of attrition with individual miners choosing to hold on to production as long as possible,
              demand remains                     with the collective result being a continued surfeit of thermal coal. For some, fixed costs in
           strong but the near                   the very short term are no doubt high.
              term should see                    The potential fall-out from a Greek euro exit – not our base-case scenario (see European
          high cost producers                    Economics: Greece: More likely in than out) – would change the picture, likely pushing
            gradually heading                    prices sharply lower. A muddle through, we expect, will translate into higher cost
                   for the exit                  producers gradually being forced to curtail output and capacity expansion plans being
                                                 pared back. The structural picture for thermal coal over the coming years remains one of
                                                 strong demand and we expect the seaborne market to continue growing. The current
                                                 dynamics should though act as a shake-out for uncompetitive sources of supply, these
                                                 tonnages then being replaced by material from lower cost miners as we move further
                                                 down the road.

                                                 Exhibit 11: Thermal prices remain subdued
                                                 US$/t, spot

                                                  140
                                                                                    Newc                        API #4                           API#2

                                                  130

                                                  120

                                                  110

                                                  100

                                                   90

                                                   80
                                                    Jan-11        Mar-11        May-11     Jul-11        Sep-11          Nov-11         Jan-12           Mar-12       May-12

                                                 Source: Credit Suisse, McCloskey




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                           9
                                                                                                                                                      31 May 2012



                                                 Base Metals
                                                 Copper: Africa, China and Chile
                                                 Africa
                                                 We published a report on African copper supply earlier today in cooperation with our
                                                 equity colleagues: African Copper: The untapped resource. While often overlooked,
                                                 copper production in Africa is rebounding after decades of under-investment and is
                                                 expected to be the second-largest contributor to global copper growth through to 2015
                                                 (after Latin America).
                                                 While Africa’s proven copper reserves account for only 6% of the world’s total, many
                                                 industry sources believe that the true resource base is being widely underreported due to
                                                 limited exploration work as a result of political instability and underdeveloped
                                                 infrastructure. We believe that Africa’s share of world production will continue to increase
                                                 in the near term, as significant growth projects take advantage of the rich ore grades
                                                 available in Africa’s copper belt.
                                                 However, political and infrastructure challenges will likely remain a drag on longer-term
                                                 growth and hamper miners’ ability to take advantage of the continent’s rich resources fully.
                                                 In particular, political instability, corruption and nationalization continue to limit foreign
                                                 investment in the continent, and poor existing transportation and power infrastructure are a
                                                 serious drag on the mining sector’s development.

 Exhibit 12: African copper production is rebounding                             Exhibit 13: And is projected to be the second
 from decades of under-investment                                                largest contributor to incremental growth
 kt                                                                              Share of incremental growth – 2011-2015

      2,500                                                                                                        Mongolia ROW
                                                                                                          Europe     4%      0%
                                                                                                           4%
                                                                                                 Indonesia
      2,000                                                                                         5%                                       Chile
                                                                                                                                             27%
                                                             CAGR: 11.5%                       China
                CAGR: 2.7%                                                                      7%
      1,500
                                                 CAGR: -5.8%

                                                                                   North America
      1,000                                                CAGR: 9.7%                   9%



       500
                                                                                                                                               Peru
                                                                                                                                               14%
         0
                                                                                                       Africa
              1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F                             21%
                                                                                                                                  Other L.
                                         Production (kt)                                                                          America
                                                                                                                                    9%

 Source: Wood Mackenzie, Credit Suisse                                           Source: Credit Suisse Estimates



                                                 Also, out this week related to African copper production, Zambia’s central bank reported
                                                 January-April copper production of 237 kt, down -25% from the 315 kt seen over the same
                                                 period in 2011. This continues the theme of underperforming global copper production.

                                                 China
                                                 As the destocking cycle progresses for copper in China, physical market indicators
                                                 continue to improve. The import arbitrage has moved the closest to parity so far this year,
                                                 and Chinese spot prices have also moved solidly above SHFE futures prices.
                                                 Meanwhile, metal from bonded warehouses continues to be shipped to Korea where it is
                                                 showing up in LME warehouses to the tune of 40 kt this month.


Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                         10
                                                                                                                                                      31 May 2012



 Exhibit 14: Chinese import arbitrage is the closest                                Exhibit 15: Chinese spot prices have moved firmly
 to parity year to date                                                             above SHFE futures prices
 US$/t                                                                              RMB/t

                                                                 LME Cheap            600
    400


    200                                                                               400


      0                                                                               200

   -200
                                                                                       0
   -400
                                                                                     -200
   -600

                                                              LME Expensive          -400
   -800


 -1,000                                                                              -600
      Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12             Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12

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



                                          Chile
                                          For the first time this year, Chilean copper production came close to meeting expectations
                                          in April, posting a year-on-year increase and outstripping average 2004-2010 production
                                          levels. Further increases are expected over the remainder of the year and are necessary
                                          given that Chile is expected to contribute a significant portion of incremental mined supply
                                          growth this year (we estimated 40% in our April quarterly) and that year-to-date production
                                          remains down from 2011.
                                          Expected growth in Chilean production will be heavily dependent on large increases from
                                          Escondida and Los Bronces, which will thus be important to watch moving forward.
                                          Another important mine to watch is Collahuasi (445 kt/y), which has resumed operation
                                          following the third accidental worker death this year. It is likely that additional government
                                          safety inspections will be conducted at the mine, where production has plummeted this
                                          year after also suffering from lower ore grades and severe weather.

                                          Exhibit 16: Chilean copper production improved in April
                                          kt

                                                                 2012               2011               2004-2010 Avg                2012 Days Adjusted
                                               530

                                               510

                                               490

                                               470

                                               450

                                               430

                                               410

                                               390

                                               370

                                               350
                                                     Jan   Feb       Mar      Apr       May       Jun       Jul      Aug       Sep       Oct       Nov          Dec
                                          Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                             11
                                                                                                                                                     31 May 2012


                                         This week also saw a couple of notable supply developments outside of Chile:
                                          Xstrata’s Tinataya copper mine (65 kt/y) is experiencing severe local protests, with two
                                           people killed early this week and the government declaring a state of emergency as a
                                           result.
                                          BHP will likely delay construction of the massive Olympic Dam expansion (designed to
                                           lift copper production from current 180 kt/y to an eventual 730 kt/y). BHP has stated that
                                           it will delay a decision until the end of the year, while the South Australian government
                                           has threatened to revoke permits if construction does not start by the end of the year.
                                           We believe the most likely scenario is that the project will go forward, but that
                                           construction will be delayed and permits may need to be renegotiated.

                                         Nickel: How low is too low?
                                         With LME three-month prices having fallen below US$16,500/t, the question of how low
                                         nickel prices can go is an increasingly poignant question. We believe that absent further
                                         serious macro deterioration (such as a euro breakdown), nickel prices are unlikely to be
                                         sustainable below US$16,000/t for any significant period of time.

 Exhibit 17: NPI has once again become expensive                                   Exhibit 18: … And the Chinese import arbitrage has
 relative to refined nickel                                                        returned to positive territory
                                                                                   US$/tonne
                NPI Premium (rhs)     Refined Nickel      NPI (10-15%)              2,000
 180,000                                                                 25,000                                                                       LME Cheap
                                                                                    1,000
                                                                         20,000
 170,000
                                                                         15,000         0

 160,000                                                                 10,000
                                                                                   -1,000
                                                                         5,000
 150,000
                                                                         0         -2,000

 140,000                                                                 -5,000
                                                                                   -3,000
                                                                                                                                                  LME Expensive
                                                                         -10,000
 130,000                                                                           -4,000
                                                                         -15,000

 120,000                                                                 -20,000   -5,000
      Jun-2011 Aug-2011 Oct-2011 Dec-2011 Feb-2012 Apr-2012                             Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12


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


                                         NPI under pressure
                                         Chinese NPI production has once again become expensive relative to refined nickel and
                                         with prices at these levels, we believe that much of Chinese NPI production is cash-
                                         negative. We would therefore expect further declines in NPI production should prices
                                         remain this depressed.
                                         Moreover, the nickel import arbitrage has turned positive, as the fall in LME prices has
                                         made imported nickel cheaper than domestic refined nickel. A sustained positive arbitrage
                                         would likely lead to a rebound in Chinese refined nickel imports, which have historically
                                         responded to such price declines on a lagged basis, thereby tightening the ex-China
                                         market.
                                         NPI costs are also set to rise with the announcement of new Indonesian export
                                         restrictions. These measures were in line with our expectations, as well as those of the
                                         broader market, including a 20% tax on raw material exports, a new pro-forma export
                                         registration process, and quotas limiting exports to 2009 and 2010 levels.
                                         Although we do not expect these restrictions to have a significant impact on export
                                         volumes, they will raise costs for Chinese NPI producers, for which Indonesia is the
                                         primary source of iron ore.
Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                           12
                                                                                                                                                                     31 May 2012



 Exhibit 19: Chinese nickel ore imports                                                  Exhibit 20: Chinese refined nickel imports
 tonnes                                                                                  Imports data through April

 7,000                               Indonesia        Philippines                                         Chinese Refined Imports (lhs, kt)      LME 3-month (rhs)
                                                                                         50                                                                              $50,000

 6,000                                                                                   45                                                              Imports
                                                      Exaggerated                                                                                                        $45,000
                                                                                                                                                         increase in
                                                      by imports of                      40                                                              response to
 5,000                                                low grade ore                                                                                      falling LME     $40,000
                                                      for Fe content                     35                                                              prices
                                                                                                                                                                         $35,000
 4,000                                                                                   30
                              Increasing imports to
                              support NPI growth                                         25                                                                              $30,000
 3,000
                                                                                         20
                                                                                                                                                                         $25,000
 2,000                                                                                   15
                                                                                                                                                                         $20,000
                                                                                         10
 1,000
                                                                                                                                                                         $15,000
                                                                                           5

      0                                                                                    0                                                                             $10,000
          2008           2009              2010               2011          2012            2004     2005     2006     2007     2008      2009   2010   2011     2012

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



                                                  Refined producer margins also suffering
                                                  Moreover, refined producers, both in China and in the rest of the world, are also beginning
                                                  to face margin pressures as well.

 Exhibit 21: Not only is much of Chinese nickel                                          Exhibit 22: But so now too is a not insignificant
 production cash-negative (including refined                                             portion of ex-China producers
 producers)
 US$/t                                                                                   US$/t

 25,000                                                                90%:    95%:       60,000
                                                                       $20,710 $20,824
             Shanghai Cash                       Median:
                                                                                          50,000
             Price: $19,340                      $16,786       71.4%
 20,000
                                                                                          40,000                                                             90%:    95%:
                                                                                                                                                             $17,905 $23,503
 15,000                                                                                   30,000

                                                                                                                                     Median: $12,598            85.2%
                                                                                          20,000     US$300/t Premium                                       82.2%
 10,000
                                                                                                     LME Cash
                                                                                          10,000
                                                                                                     Price: $16,224

   5,000                                                                                         0

                                                                                         -10,000
         0
                                                                                         -20,000

  -5,000                                                                                 -30,000

 Source: Brook Hunt, Credit Suisse                                                       Source: Brook Hunt, Credit Suisse



                                                  But we remain cautious on fundamentals
                                                  However, we remain cautious with respect to nickel fundamentals, as we believe the
                                                  market is moving into increasing surplus on the back of ramp-ups of several major
                                                  projects. The progress of these ramp-ups should remain crucial in determining nickel’s
                                                  precise market balance, though potential disruptions at these projects – such as legal
                                                  action taken by Brazilian prosecutors to halt production at Onca Puma – could result in a
                                                  tighter-than-expected market.
                                                  Nickel demand has also been soft year to date, with weakness in European joined by
                                                  disappointing stainless steel production in China. 300-series stainless production actually
                                                  fell year on year in China, as companies shifted to lower nickel content 200-series and
                                                  400-series stainless to protect already squeezed margins.

Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                        13
                                                                                                                                            31 May 2012


                                                 As a result of these weak demand conditions and supply growth from new mines, the
                                                 market has seen a notable surplus year to date, resulting in building LME inventories.

 Exhibit 23: Chinese 300-series stainless steel                                Exhibit 24: Resulting in a market surplus and
 production has been very weak                                                 growing LME inventories
 kt                                                                            On-warrant; kt

                                   300 Series           YoY Growth             180
 2,000                                                                  60%

 1,800                                                                         160
                                                                        50%
 1,600
                                                                               140
 1,400                                                                  40%
                                                                               120
 1,200
                                                                        30%
                                                                               100
 1,000
                                                                        20%
      800                                                                       80

      600                                                               10%     60
      400
                                                                        0%      40
      200

        0                                                               -10%    20
             Q3   Q4   Q1   Q2   Q3   Q4   Q1   Q2   Q3   Q4   Q1
            2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012               0
                                                                                  2007          2008       2009         2010         2011    2012
 Source: China Stainless Steel Council, Credit Suisse                          Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                               14
                                                                                                                                        31 May 2012



                                         Precious Metals
                                         Gold undecided
                                         In this week’s CS Gold Watch (CS Gold Watch: Treading water in a sea of uncertainty) we
                                         said that “We continue to think gold is more likely to print $1,600 than $1,500 in the short
                                         term but readily admit the stimulus to drive that move remains elusive.”
                                         That remains our view but the intraday action on Tuesday and Wednesday was a good
                                         illustration of why there is a fairly widespread lack of conviction amongst gold investors at
                                         present. After being swept down from $1,575 to $1,550 during the London afternoon, the
                                         market then appeared to be stabilizing at that level on Wednesday. After Comex opened,
                                         however, another sweep through the futures pushed the metal down to an intraday low of
                                         just above $1,532 – food for the bears one might have thought. Not so – five hours later
                                         the market had rallied back up to $1,570.
                                         One of the issues for investors trying to trade the metal at present is that OTC flows are
                                         thin as key physical players are largely absent – the Indian market has been rather
                                         traumatized by the collapse in the value of the rupee (which weak Indian GDP figures
                                         released today have done nothing to support), while Chinese dealers are yet to be
                                         convinced that a solid floor in the price has been established.
                                         Consequently the market is more vulnerable than usual to sharp futures-driven moves,
                                         which are in large part, we think, related to algorithmic/systematic trading models, playing
                                         for the moment within a $1,530 to $1,590 range. Longer-term investors are likely to remain
                                         largely on the sidelines until news of sufficient magnitude (either good or bad) appears to
                                         shock the market out of the range.
                                         In the meantime, given the attention paid to record low bond yields this week, in the charts
                                         that follow we look at how gold has performed for investors relative to both government
                                         bond indices and equity indices in the US, Germany and the UK. The results illustrate that
                                         despite the retreat from last year’s high, and the more recent flirtations with key downside
                                         support levels, over the time frame of the global financial crisis gold has performed well as
                                         an investment. And even since the start of this year it has, so far, held up as a defensive
                                         store-of-value /return-of-capital asset.

Exhibit 25: Gold in USD, US equities and bonds                           Exhibit 26: Gold in USD, US equities and bonds
Indexed to January 2007                                                  Indexed to January 2012

 350                iShares 7-10 year Bond Fund                                              iShares 7-10 year Bond Fund
                                                                          120
 300                S&P 500                                                                  S&P 500
                    Gold USD                                              115                Gold USD
 250
                                                                          110
 200
                                                                          105
 150

 100                                                                      100

  50                                                                        95

    0                                                                       90
    Jan-07     Jan-08      Jan-09     Jan-10      Jan-11     Jan-12          Jan-12       Feb-12      Mar-12       Apr-12      May-12
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse               Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                           15
                                                                                                                                       31 May 2012



Exhibit 27: Gold in EUR, German equities and bonds                      Exhibit 28: Gold in EUR, German equities and bonds
Indexed to January 2007                                                 Indexed to January 2012

 300               iShares eb.rexx German Gvt bond ETF                                     iShares eb.rexx German Gvt bond ETF
                                                                         120
                   DAX Index                                                               DAX Index
 250
                   Gold EUR                                              115               Gold EUR

 200
                                                                         110

 150
                                                                         105

 100                                                                     100

  50                                                                       95

    0                                                                      90
    Jan-07     Jan-08      Jan-09     Jan-10      Jan-11     Jan-12         Jan-12       Feb-12      Mar-12       Apr-12      May-12
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse              Source: the BLOOMBERG PROFESSIONAL™ service , Credit Suisse




Exhibit 29: Gold in GBP, UK equities and bonds                          Exhibit 30: Gold in GBP, UK equities and bonds
Indexed to January 2007                                                 Indexed to January 2012

 400              FTSE Actuaries 5-15 Yr Bond Index                      115                                              FTSE Actuaries 5-15
 350              FTSE 100                                                                                                Yr Bond Index
                                                                                                                          FTSE 100
                  Gold GBP                                               110
 300
                                                                                                                          Gold GBP
 250
                                                                         105
 200

 150                                                                     100

 100
                                                                           95
  50

    0                                                                      90
    Jan-07     Jan-08      Jan-09     Jan-10      Jan-11     Jan-12         Jan-12       Feb-12      Mar-12       Apr-12      May-12
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse              Source: the BLOOMBERG PROFESSIONAL™ service , Credit Suisse




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                          16
                                                                                                                           31 May 2012



                                        Bulk Commodities
                                        Iron Ore – Trading places
                                        The launching of a second iron ore trading platform in Singapore this week has slipped by
                                        almost unnoticed. GlobalOre – the twin to coal’s successful GlobalCoal platform – has
                                        followed on the heels of China’s CBMX on-screen iron ore trading system, an initiative of
                                        the China Iron & Steel Association, supported by the government. Major producers and
                                        mills have joined both vehicles.

                                        So why the fuss? What do the platforms bring?
                Better data on          If widely embraced, which seems likely, the emergence of truly transparent pricing will
                trades should           benefit index trading, as long as the third parties harness the data, and greater maturity in
          enhance the quality           swaps and options markets. This could be a step improvement for investors seeking
          of the three indices          greater market liquidity, while also opening up greater opportunities for both
                                        producers and consumers as a means of hedging price risks. The key is better and
                                        more open recording of physical transactions, and wider trust in the indices.
                                        However, we also argue that greater price visibility will work more in favor of
                                        suppliers – contrary to the belief within a highly fragmented steel industry – in an
                                        iron ore sector likely to remain dominated by a few majors. We think this holds true
                                        even in a market that shifts to abundant supply (this expanded supply will still be
                                        dominated by a small number of producers).
                                        The reason for this is simple; under the old annual benchmark system, which broke down
                                        during the financial crisis, producers were effectively encouraged to discount prices to
                                        secure volume – in a well-supplied market, this meant that suppliers achieved a lower
                                        (annual) price than if they knew what prices their rivals were receiving. Mills benefitted
                                        because the lack of discovery of these discounts then set the price for all suppliers at a
                                        lower threshold, which they wore for the year.
                                        We are likely to see details of rapidly rising numbers of transactions – these are already
                                        published on the CBMX website – and in our opinion this will likely signal the final
                                        death knell for longer duration price references in contracts and “pricing in arrears”
                                        as the spot market takes another big step forward.


                                        Exhibit 31: Although iron ore prices have fallen back in Q2, they remain well
                                        above longer-run historical levels
                                        US$/t


                                          $220
                                          $200
                                          $180
                                          $160
                                          $140
                                          $120
                                          $100
                                           $80
                                           $60
                                           $40
                                              2005          2006          2007           2008        2009   2010   2011   2012
                                        Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                              17
                                                                                                                                                                  31 May 2012


                                                 Iron ore prices – prone to macro fears too
                                                 But the underlying signals are not bearish (yet)
                                                 Despite prices falling back in line with most other major commodities in May, steel and iron
                                                 ore sector indicators do yet support a very bearish prognosis.
                                                  China’s steel production holding steady: CISA production data continue to point to a
                                                   steady recovery from last year’s trough, with seasonally adjusted annualized crude steel
                                                   production running at 717 Mt in May (see Exhibit 32). The concern remains that
                                                   producers sparring for market share are overproducing into relatively soft domestic
                                                   markets, but the data do not support deep gloom. Strengthening export markets for
                                                   steel – mainly Asia and the Middle East – have also helped. The main risk remains
                                                   macro sentiment and any longer lags in investment stimuli feeding through.


                                                 Exhibit 32: China’s month-on-month crude steel production continues to edge
                                                 ahead, potentially moving back to trend by Q3 2012
                                                 Mt, monthly, annualized

                                                  750

                                                  700                               Raw Annualised                SAAR
                                                  650

                                                  600

                                                  550

                                                  500

                                                  450

                                                  400

                                                  350

                                                  300

                                                  250
                                                     2005             2006             2007             2008           2009           2010          2011           2012

                                                 Source: Credit Suisse, China NBS




                                                                                              Exhibit 34: Although stocks of steel at mills have
 Exhibit 33: Recovery in China’s steel exports has                                            risen, within historical ranges, draw-downs are now
 also helped to avert any stock accumulation                                                  taking place
 Mt, monthly, SA                                                                              Ratio, large and medium sized mills’ inventories to crude steel production, SA

  8             China's net steel exports - SA          Exports SA          Imports SA
                                                                                               0 .2 8



  7                                                                                            0 .2 6



  6                                                                                            0 .2 4



  5                                                                                            0 .2 2


  4                                                                                            0 .2 0


  3                                                                                            0 .1 8


  2                                                                                            0 .1 6


  1                                                                                            0 .1 4


   0
                                                                                               0 .1 2
    2005      2006       2007          2008      2009      2010      2011       2012
                                                                                                    2003   2004    2005     2006   2007   2008   2009   2010   2011    2012
  -1

 Source: Credit Suisse, Customs Data                                                          Source: Credit Suisse, CISA




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                          18
                                                                                                                                                    31 May 2012


                                                Destocking – looking for “normalization”: Reported movements in finished steel
                                                 inventories point to a “pass through” from production to consumers, albeit at moderated
                                                 growth rates. The pace of seasonal destocking by traders has been slower than in
                                                 previous years, but has now reached the point at which inventory levels are normalizing.
                                                 Further destocking beyond Q2 is likely to be more limited, but the outcome will then
                                                 remain in the hands of demand. While erring on the side of caution on downside
                                                 risks, an H2 uptick also has potential to surprise once destocking slows.


 Exhibit 35: Further destocking taking place, but
 probably at a slower pace as levels “normalize” in                            Exhibit 36: Destocking rates point to slower demand
 H2                                                                            traction in Q1; how much further to go?
 Mt finished steel at traders, weekly                                          Index: No. of weeks since inventory peak (1=100, end of Feb / start of March)

                                                                                105                                    2007              2008             2009
  18
                Rebar               Wire rod
  16                                                                            100                                    2010              2011             2012
                HRC                 Plate
  14                                                                             95

  12                                                                             90

  10                                                                             85
    8                                                                            80
    6                                                                            75
    4
                                                                                 70
    2
                                                                                 65
   0
   Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12                              60
                                                                                       1   2   3    4     5    6   7   8   9 10 11 12 13 14 15 16 17 18 19 20

 Source: Credit Suisse, MySteel                                                Source: Credit Suisse, MySteel


                                                Iron ore supply – domestics under pressure: Run-of-mine iron ore production has
                                                 also recovered since the lows of Q1 2012 but, in seasonally adjusted terms, output
                                                 remains below 2011 peaks (see Exhibits 37 and 38). Although calibrating for average
                                                 grades of ROM is problematical, the data continue to support our postulation that
                                                 domestic iron ore in China is falling short of recent peaks. Exhibit 39 suggests that April
                                                 production on a 62% Fe equivalent basis still lies 60-70 Mt/y below the peaks of 2008
                                                 and 2011. Our interpretation of this? This volume of supply is not profitable at
                                                 prices of US$130-140/t and has effectively been displaced by lower cost imports.

 Exhibit 37: Raw run-of-mine iron ore production in                            Exhibit 38: Falling behind on a seasonally adjusted
 China – off from last year’s peaks                                            basis
 Mt, monthly, annualized                                                       Mt, monthly, seasonally-adjusted annualized rate (SAAR)

                      Chinese Iron Ore Production, Raw Annualised               1700                          Chinese Iron Ore Production, SAAR
 1700

 1500                                                                           1500

 1300                                                                           1300

 1100                                                                           1100

   900                                                                           900

   700                                                                           700

   500
                                                                                 500
   300
                                                                                 300
   100
      2005       2006       2007       2008    2009   2010     2011   2012       100
                                                                                    2005           2006        2007        2008   2009      2010   2011      2012

 Source: Credit Suisse, China NBS                                              Source: Credit Suisse, China NBS




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                            19
                                                                                                                                                           31 May 2012


                                           Mills are even more dependent on imports: Data from MySteel’s latest 55-mill survey
                                            also indicate that imports retain a much larger share of mill sinter feed than was the case
                                            a year earlier. Exhibit 40 displays the much lower level of domestic feed in stockpiles at
                                            these mills, while Exhibit 41 illustrates that domestic feed to sinter strands remains
                                            below 20%, compared to a range of 35%-40% in May 2011. In part, this could reflect an
                                            increased switch of local concentrate to pellet plants, as mills seek to extract more value
                                            from “costly” domestic feed. However, we continue to believe that this trend
                                            exposes the marginal costs of domestic iron ore supply.

                                          Exhibit 39: Adjusted for iron content, domestic supply remains 60-70 Mt/y below
                                          recent peaks
                                          Mt, monthly, seasonally-adjusted annualized rate, 62% Fe basis

                                           500                               Chinese Iron Ore Production SA, 62% Fe equivalent


                                           450


                                           400


                                           350


                                           300


                                           250


                                           200
                                                 2005             2006        2007              2008             2009          2010             2011              2012
                                          Source: Credit Suisse, China NBS




 Exhibit 40: Reduced stocks of domestic ore                                          Exhibit 41: Leading to lower use in the sinter feed
 Thousand tonnes, survey of 55 Chinese steel mills                                   Percent of domestic iron ore in sinter feed, survey of 55 Chinese steel mills

 700                                                                                 50
            Imported iron ore stocks   Domestic iron ore stocks                                                                Domestic iron ore in sinter feed
                                                                                     45
 600
                                                                                     40
 500                                                                                 35
                                                                                     30
 400
                                                                                     25
 300
                                                                                     20

 200                                                                                 15
                                                                                     10
 100
                                                                                      5
    0                                                                                 0
     Mar-11 May-11 Jul-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12                           Mar-11 May-11 Jul-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

 Source: Credit Suisse, MySteel                                                      Source: Credit Suisse, MySteel



                                           Port stocks returning to 2008-12 average levels: Finally, although port stocks remain
                                            at relatively elevated levels (~95 Mt), these tonnages too look to have normalized and
                                            continue to edge back to 2008-2012 averages in terms of ratios to steel production.
                                            Indian tonnages now represent more modest portions of remaining stocks, although
                                            inventories from non-traditional sources have grown, partly compensating for lower
                                            levels of domestic concentrate held by China’s steel mills.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                20
                                                                                                                                               31 May 2012



 Exhibit 42: Stock ratios to crude steel output are                      Exhibit 43: Iron ore stocks at port, by source – not
 returning to more normal levels                                         much Indian ore left
 Ratio, port stocks to crude steel production                            Percent, weekly

                                                                         100%             Australia            Brazil      India       Other
  2.2
                                                                          90%
  2.0
                                                                          80%
  1.8                                                                     70%

                                                                          60%
  1.6
                                                                          50%
  1.4
                                                                          40%

  1.2                                                                     30%

                                                                          20%
  1.0
                                                                          10%
  0.8                                                                      0%
     2006        2007        2008     2009      2010    2011      2012      Mar-09       Sep-09       Mar-10      Sep-10   Mar-11   Sep-11      Mar-12

 Source: Credit Suisse, MySteel                                          Source: Credit Suisse, MySteel




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                    21
                                                                                                                                      31 May 2012



                                         Petroleum
                                         Headed for $100 Brent
                                         Last week, futures Brent oil futures markets appeared to be cobbling together a floor from
                                         which to stage a long-awaited recovery. That seems like a long time ago. After the
                                         unofficial beginning of the US summer season, Monday’s Memorial Day holiday, oil
                                         markets failed to extend the bounce, which led to a fierce month-end selling frenzy that
                                         took Brent prompt month prices down another $3.50 and broke all manner of technical
                                         support. As we write, markets appear on track to deliver the desired $100/b goal.

                                         Saudi nudging and others helping
                                         Evidently the ides of May and the obvious reversal in sentiment and onset of a much
                                         dimmer outlook across almost all markets are squashing oil markets as well. Nor, we fear,
                                         does the end of the month necessarily end the selling. From our perspective too, there
                                         remains down-side risk. We will need a string of strong catalysts to turn the oil price trend.
                                         Last week we spoke of the recent arrival of aggressive sellers (Oil Sense: Sell, … sell it
                                         hard; or not?). And we said that they might shortly encounter significant resistance. Well,
                                         we believe the remaining bulls have thrown in the towel. Key words used to describe the
                                         action on oil futures screens this Wednesday, one day before the month’s end, were:
                                         “pushing,” “bullying,” and “capitulation.” Best expressing sentiment of the latter group is the
                                         phrase: “There’s no sense risking client money on lower conviction when appetite for risk
                                         has evaporated.”
                                         This shift in positioning and the arrival of data dimming the outlook for global
                                         growth as well as the inflating of downside tail-risk across Europe’s periphery all
                                         mean that an oil price rally now hinges on tail-risk at the other end (i.e., supply
                                         disruptions) and/or the much slower route of incremental data-points showing that
                                         s/d fundamentals are tightening.

Exhibit 44: Brent prompt month futures                                   Exhibit 45: Brent curve still shows some strength
$/b                                                                      $/b




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


                                         Evidently markets have been pushed to near the target ostensibly desired by Saudi Arabia,
                                         the world’s swing-producer of oil. Saudi Arabia began saying in January that oil prices
                                         were unjustifiably high and repeatedly promised to push them down to “fair” levels around
                                         $100/b. That much-hyped policy target was last repeated by the CEO of Saudi Aramco at
                                         its annual management talent event in New York.
                                         Having raised production and exports significantly in February, flows are about to be
                                         curtailed – seasonally and perhaps otherwise. These and other fundamental data-points
                                         should over the coming months help put a floor under oil prices and, in our view, prompt a
                                         rebound as well.
Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                         22
                                                                                                                                                       31 May 2012


                                            Recent data don’t support
                                            A change in the tenor of the oil s/d data would be nice. The latest data-points show that
                                            our expected re-acceleration of demand growth is nowhere in evidence yet.

                                            Monthly data for the US, for instance, show
                                            that back in March its oil demand actually              Exhibit 46: US oil demand – March
                                            contracted YoY more than in any other month             monthlies break a 4mth bullish trend
                                            since May 2009.                                         YoY growth rates of PSM compared with WPS

                                            That was a double-whammy negative surprise,
                                            as the report also broke a four-month long
                                            string of revisions of the weekly data that on
                                            average had added 250bps to growth rates. In
                                            this report, growth rates in the weeklies that
                                            were already week were revised down by
                                            170bps to an abysmal -6.4%.
                                            Revised up were only the rate of change for
                                            gasoline, jet fuel and fuel oil consumption.
                                            Most puzzling was one of the sharper
                                            contractions yet in diesel demand – which in
                                            the last few years has correlated best with             Source: EIA, Credit Suisse

                                            consumer spending.
                                            Elsewhere, we reported last week on the divide in fortunes emerging between China and
                                            other developing economies’ oil demand trajectories, when looking at YoY growth. In
                                            terms of momentum, however, it’s not at all clear that oil use across developing
                                            economies was as yet beginning to grow much in 1Q (for which we now have a more
                                            complete picture with data for all significant economies through March, see Exhibit 47).
                                            It is also clear that in China momentum was still pointing down in April as well. China’s
                                            Industrial Production growth continues to lose momentum as well.

Exhibit 47: MoM annualized change of trend SA oil                          Exhibit 48: MoM annualized change of trend SA oil
demand across EM economies, excluding China                                demand in China
SA, annualized MoM growth                                                  SA, annualized MoM growth
  15.0%
                          EM ex-China oil demand, ann trend mom              50%             China IP, ann trend mom        China oil demand, ann trend mom

                                                                             40%
  10.0%
                                                                                                                                        Oil demand falling in line
                                                                             30%
                                                                                                                                          with weak IP growth
   5.0%
                                                                             20%


   0.0%                                                                      10%

                                                                              0%
   -5.0%
                                                                            -10%


  -10.0%                                                                    -20%
        2006       2007      2008       2009      2010       2011   2012        2006         2007      2008        2009          2010        2011        2012


Source: Credit Suisse                                                      Source: Credit Suisse




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                23
                                                                                                                                                               31 May 2012



                                               Natural Gas
                                               Pausing for a correction
                                               US natural gas prices pushed lower this week, falling nearly 7% from last Friday’s close.
                                               After the ~20% rally in prices since the first of May, the US natural gas market has
                                               corrected lower due in part to continuing bearish fundamentals and record levels of excess
                                               inventories.

 Exhibit 49: Daily avg rate of injections into storage                          Exhibit 50: Net electricity generation by energy
                                                                                source, %
 (bcf/d)                                                                        (% of total, all sectors)

  20                                                                             50%
                         2012                  2011                  5 yr avg                                                 Coal

  15                                                  2011 sum avg               40%

                                                                                                                                                                        34%
  10                                                                             30%                                                             NG                     30%



   5                            5 yr sum avg                                     20%                     Nuke                                                           20%



   0                                                                             10%                                                         Hydro                      8%
                                                                                                                                   Other Renew                          6%

  -5                                                                              0%
    Mar                  May                    Jul                   Sep          Jan-10    Apr-10     Jul-10   Oct-10   Jan-11   Apr-11   Jul-11    Oct-11   Jan-12


 Source: Credit Suisse                                                          Source: Credit Suisse



                                               Switching levels seem to be subsiding in light of higher prices and higher cooling
                                               loads. While the yoy gap in working gas inventories has shrunk by 148 Bcf from its peak
                                               on March 30, it is still 732 Bcf above year-ago levels and 496 Bcf above previous five-year
                The daily rate of
                                               highs. In order to shrink the yoy surplus level to zero by the end of October, we estimate
                  injections are               the industry would need to see an average daily injection rate of ~5 Bcf/d or less during
               increasing – has                the remainder of the summer. This injection rate would be considerably lower than last
             switching peaked?                 year’s average of 11 bcf/d and the five-year average level of 10 bcf/d from June through
                                               October and seems unlikely in our view. In fact, using storage data through May 25, it
                                               appears that the average weekly rate of injections, while having lagged by 4-6 bcf/d in
                                               early May (due to coal to gas switching), are now just 2.5 bcf/d below 2011 average daily
                                               injection rates (Exhibit 49). In our view, this is an indication that switching may be
                                               subsiding due in part to higher gas prices and increased cooling loads.
                                               Meanwhile, March data for US electricity markets showed US coal consumption at
                                               record lows and gas at record highs. The EIA electric power monthly confirmed coal-to-
                                               gas switching trends we have monitored closely, showing coal consumption for the month
                                               of March in all sectors had dropped to 34% of all generation from 42% seen in March 2011
                                               (Exhibit 50). While coal’s share fell within the overall mix, natural gas increased to 30% (up
                                               from 21% in March 2011) for the first time on record as prices for gas caused record
                                               amounts of gas to be burned in place of coal due to record low prices. Meanwhile, coal
                                               inventories continue to push to record levels.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                    24
                                                                                                                                                                                                                                  31 May 2012



                                                                           Agriculture – Watching crop conditions
                                                                           Front month corn and wheat were 7.3% and 1.8% lower over the week following further
                                                                           favorable news on the new crop’s progress. The effects of the earlier and wider planting
                                                                           season are now reflected in the data, with both grains emerging earlier than average. At
                                                                           the same time, macroeconomic concerns are also weighing down on expected demand.
                                                                           We note that the broad commodities index has now given back most of the
                                                                           outperformance seen early in the year (Exhibit 51).
                                                                           The earlier planting season has allowed both corn and wheat planting to complete much
                                                                           earlier than normal. As of the May 29 crop progress report, 92% of corn planted in top 18
                                                                           producing states have emerged, up from 76% (compared to the five-year average of 69%),
                                                                           and 96% of spring wheat planted in the top 6 producing states have emerged, up from
                                                                           86% last week (compared to five-year average of 68%).
                                                                           With most of the crop emerged, the focus now turns on conditions. Although there were
                                                                           reports of warm weather in the corn belt, the percentage of crops in excellent and good
                                                                           condition remains above the median of the last five years (Exhibit 52). Likewise, spring
                                                                           wheat conditions remain significantly above the 5 year median (Exhibit 53).

                                                                           Exhibit 51: CSCB agriculture index beginning to trend lower as the broad
                                                                           commodities index continues to weaken following macroeconomic concerns
                                                                           Index

                                                                            730                                CSCB Excess Return                                                      CSCB Agriculture (rhs)                             170

                                                                            710                                                                                                                                                           165

                                                                                                                                                                                                                                          160
                                                                            690
                                                                                                                                                                                                                                          155
                                                                            670
                                                                                                                                                                                                                                          150
                                                                            650
                                                                                                                                                                                                                                          145
                                                                            630
                                                                                                                                                                                                                                          140
                                                                            610
                                                                                                                                                                                                                                          135
                                                                            590
                                                                                                                                                                                                                                          130

                                                                            570                                                                                                                                                           125

                                                                            550                                                                                                                                                           120
                                                                              Jun-11          Aug-11          Oct-11                                                      Dec-11        Feb-12          Apr-12           Jun-12
                                                                           Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Exhibit 52: Corn crop conditions                                                                                    Exhibit 53: Spring wheat crop conditions
Percentage in excellent and good condition                                                                          Percentage in excellent and good condition

                                            80                                                                                                                   90

                                                                                                                                                                 85
  Percent in excellent and good condition




                                                                                                                       Percent in excellent and good condition




                                            75
                                                                                                                                                                 80             2012
                                                    2012
                                            70                                                                                                                   75                                                         median

                                                                                                                                                                 70
                                            65
                                                                                    median                                                                       65

                                            60                                                                                                                   60                                                               2011

                                                                                                                                                                 55
                                            55                                                  2011
                                                                                                                                                                 50

                                            50                                                                                                                   45
                                                 1 2 3 4 5 6 7   8 9 10 11 12 13 14 15 16 17 18 19 20 21 22                                                           1     2      3   4     5     6     7       8   9      10       11     12

Source: USDA, Credit Suisse                                                                                         Source: USDA, Credit Suisse


Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                                                                                           25
                                                                                                                                                                                       31 May 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, May 22, 2012.
                                            Commodity indexes saw $1.9 billion of outflows in the week between May 16 and May 22.
                                            Total assets under management in commodity indexes fell by $4.7 billion after accounting
                                            for price changes to about $178.1 billion (Exhibit 55). Total contracts held in indexes also
                                            fell by about 56.9k contracts, continuing the sell-off from last week.
                                            Physically backed exchange traded products also saw net outflows of about $410 million
                                            and total assets under management fell to $121.1 billion (Exhibit 56).
                                            Total assets under management (including both indexes and physical ETFs) decreased to
                                            about $299.2 billion, from $302.3 billion a week earlier. Note that physically backed ETPs
                                            are now about 40.5% of total commodity AUM.


                                            Exhibit 54: Commodity index assets under management in contracts and
                                            dollars
                                            Thousands of contracts and US$ billions

                                                                3,500                                  AUM (Right Axis)               Contracts (Left Axis)                               270


                                                                3,400
                                                                                                                                                                                          250

                                                                3,300
                                                                                                                                                                                          230
                                              '000 Contracts




                                                                3,200




                                                                                                                                                                                                  bn, USD
                                                                                                                                                                                          210
                                                                3,100

                                                                                                                                                                                          190
                                                                3,000

                                                                                                                                                                                          170
                                                                2,900


                                                                2,800                                                                                                                      150
                                                                     07-Sep-10          21-Dec-10      05-Apr-11          19-Jul-11           01-Nov-11         14-Feb-12            29-May-12

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




 Exhibit 55: Commodity index assets under                                                              Exhibit 56: Physically backed commodity ETF
 management (in US dollars)                                                                            assets under management (in US dollars)
 US$ billions                                                                                          US$ billions

   10                                                                                            275     3                                                                                       175
                      Inflows (Left Axis)                      Index AUM (Right Axis)                                           Inflows (Left Axis)           ETF AUM (Right Axis)


                                                                                                 250     2
    5                                                                                                                                                                                            150
                                                                                                 225     1


    0                                                                                            200     0                                                                                       125


                                                                                                                                                                                      -0.410
                                                                                                 175     (1)
                                                                                        (1.92)
   (5)                                                                                                                                                                                           100
                                                                                                 150     (2)


  (10)                                                                                        125       (3)                                                                                   75
   05-Apr-11    28-Jun-11    20-Sep-11      13-Dec-11                    06-Mar-12      29-May-12       05-Apr-11     28-Jun-11          20-Sep-11        13-Dec-11    06-Mar-12        29-May-12

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




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                                                26
                                                                                                                                                                                                                31 May 2012




Exhibit 57: Commodities forecast table
Units as indicated below, updated on April 13, 2012 (see The Pause That Refreshes)
                                            2011                           2012                                              2013                                              2014         2015         LT       Avg '12 vs
                                           Yr Avg          Q1     Q2 (f)    Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)    Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f) Yr Avg (f)   Yr Avg (f)   (real)       '11%
Energy
Brent (US$/bbl)                            109.97       118.50   124.00    128.00    130.00     125.00     130.00   132.00   133.00    135.00     132.50     133.00   135.00    135.00       130.00      90.00       14%
WTI (US$/bbl)                               90.70       103.03   109.50    118.00    118.00     112.00     122.00   128.00   130.00    132.00     128.00     130.00   132.00    132.00       125.00      84.00       23%
U.S. Natural Gas (US$/MMBtu)                 4.07         2.77     2.20      2.50      3.10       2.64       3.60     3.40     3.80      4.00       3.70       4.40     4.20      4.29         4.50       4.50      -35%
U.K. NBP (GBp/Therm)                        56.40        57.45    62.00     62.00     72.00      63.40      72.00    62.00    62.00     72.00      67.00      73.00    63.00     68.00        66.00      50.60       12%
Iron Ore
Iron ore fines - 62% (China CFR) US$/t      168           142       150       160      160          153      160      160       155      155          158      135      135         135          120         90      -9%
Iron ore fines - (China CFR) US¢/dmtu       271           229       242       258      258          247      258      258       250      250          254      218      218         218          194        145      -9%
Iron ore lump - 63% (China CFR) US$/t       177           149       159       172      172          163      172      172       167      167          170      150      150         150          134        101      -8%
Iron ore pellets - 66% (China CFR) US$/t    205           184       195       205      205          197      205      205       200      200          203      179      179         179          163        131      -4%
Coking Coal
Hard coking coal (US$/t)                    289           235       210       225      235          226      245      240       235      235          239      235      235         235          235        170     -22%
Semi hard coal (US$/t)                      274           223       200       214      223          215      233      228       223      223          227      223      223         223          223        160     -22%
Semi soft coal (US$/t)                      212           157       141       151      157          151      164      161       157      157          160      157      157         157          157        132     -29%
PCI coal (US$/t)                            223           169       153       164      172          165      179      175       172      172          174      172      172         172          172        134     -26%
Thermal Coal
Thermal Coal (Newcastle FOB) US$/t          123           113       110       115      115          113      120      125       125      130          125      130      130         130          135        120      -8%
Thermal Coal (API#2 CIF) US$/t              122           100       105       110      110          106      115      120       120      125          120      125      125         125          130        120     -13%
Thermal Coal (API#4 FOB) US$/t              116           105       105       110      110          108      115      120       120      125          120      125      125         125          130        120      -7%
Base Metals
Copper (US$/MT)                             8,887        8,329    8,900     9,200     9,500      8,980      9,300    9,000    8,800     8,500      8,900      8,500    8,500     8,500        7,000      5,500        1%
Aluminium (US$/MT)                          2,424        2,188    2,300     2,500     2,600      2,395      2,700    2,700    2,700     2,700      2,700      2,600    2,550     2,550        2,650      2,400       -1%
Alumina spot (US$/MT)                        389           317      330       350       370        342        370      380      380       390        380        400      400       400          415        400      -12%
Nickel (US$/MT)                            23,015       19,654   19,500    20,500    21,500     20,290     21,500   21,000   20,500    20,000     20,750     20,000   20,000    20,000       21,000     20,000      -12%
Lead (US$/MT)                               2,405        2,097    2,150     2,250     2,400      2,225      2,500    2,600    2,700     2,800      2,650      2,950    3,100     3,100        3,300      2,000       -7%
Zinc (US$/MT)                               2,220        2,031    2,050     2,100     2,150      2,085      2,250    2,300    2,400     2,500      2,363      2,650    2,800     2,800        3,000      1,900       -6%
Tin (US$/MT)                               26,191       22,937   23,000    24,000    25,000     23,735     26,000   26,000   26,000    26,000     26,000     26,000   26,000    26,000       26,000     20,000       -9%
Precious Metals
Gold (US$/oz)                              1,571         1,690    1,720     1,810     1,840       1,765     1,920    1,860    1,740     1,660       1,795     1,500    1,450      1,450        1,350     1,300       12%
Silver (US$/oz)                            35.20         32.60    31.60     34.30     35.40       33.50     36.20    32.60    29.00     26.80       31.15     25.00    24.00      23.80        22.50     21.70       -5%
Palladium (US$/oz)                          730            685      735       785       825         760       850      890      930       950         905       965      980        980        1,010       900        4%
Platinum(US$/oz)                           1,720         1,610    1,680     1,700     1,750       1,685     1,800    1,820    1,840     1,900       1,840     1,900    1,900      1,900        1,925     1,900       -2%
Rhodium (US$/oz)                           2,010         1,430    1,500     1,550     1,600       1,520     1,900    2,200    2,250     2,350       2,175     2,600    2,950      3,000        3,200     3,200      -24%
Minerals
Zircon bulk (US$/t)                        1,880         2500      2550     2625      2725        2,600     2850     2975     3075      3200        3,025     3,300      300      3,200        2,225     1,500       38%
Rutile bulk (US$/t)                        1,055         2400      2400     2700      2700        2,550     2800     2800     2900      2900        2,850     2,800    2,800      2,700        1,650     1,000      142%
Synthetic Rutile (US$/t)                    858          2050      2050     2350      2350        2,200     2450     2450     2550      2550        2,500     2,450    2,450      2,375        1,463       890      156%
Ilmentite - sulphate 54% (US$/t)            209           325       325      350       350          338      350      350      350       350          350       325      325        300          250       200       62%
Titanium Slag - SA Chlor 86% (US$/t)        798          1750      1750     2000      2000        1,875     2050     2050     2150      2150        2,100     2,050    2,050      1,988        1,256       760      135%
Uranium spot (US$/t)                         57            52        54       56        58           55       60       65       65        70           65        70       75         75           75        65       -4%
Agriculture
Wheat-CBOT (US¢/bu)                         710            643      650       575       600         617       630      660      680       650         660       650      650        650          600       600      -13%
Corn-CBOT (US¢/bu)                          680            641      650       575       550         600       550      550      550       550         550       500      500        500          500       500      -12%
Soybeans-CBOT (US¢/bu)                     1,320         1,273    1,400     1,350     1,300       1,331     1,260    1,280    1,280     1,220       1,260     1,200    1,200      1,200        1,200     1,100       1%
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                                    Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                                  27
                                                                                                                               31 May 2012




                                               Technical Analysis
                                               Copper has reached 7448 61.8% retracement support target
                                               Copper (LME 3-month) – Daily
                               Cilline Bain
                        +44 20 7888 7174
              cilline.bain@credit-suisse.com




                                               Source: CQG, Credit Suisse


                                               Copper (LME 3-month) has been in a steady downward trend since the 8497 resistance
                                               high. This has brought the market down to our Q2 target set at the 61.8% Fibonacci
                                               retracement support level. We are now turning neutral as we do not believe there is
                                               enough downward momentum left to warrant a sustained break through 7448 61.8%
                                               Fibonacci retracement support. We also highlight that the 78.6% Fibonacci retracement of
                                               the 7131-8765 high/low swing lies close by at 7456.
                                               We believe the market is set for a rebound back up to challenge the key resistance zone
                                               of 7765/7816; however, we stress that the market needs to break out above here in order
                                               to confirm a base, and then allow for the market to rally up to the 200-day average, which
                                               lies at 8050.
                                               A sustained breach of the 7448 retracement support level, however, would pave the way
                                               for further downside risk lower to 7131 interim chart support.




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                  28
                                                                                                                                             31 May 2012




                                           Trade Recommendations
                                           Our gold recommendation to buy June-12 gold calls with $1625 strike expired on May 24
                                           out of the money. Likewise the June-12 puts in our Henry Hub trade have also expired.


 Exhibit 58: Trade recommendations scorecard – (returns at end of day, May 30, 2012)
 Based on end of day prices or latest available price, recommendations in dark blue have been closed out.
 Returns column: green means positive returns, and red means negative returns, black when zero.
    Commodity                  Position                Publication          Date Initiated        Opening      Current or    Profit/(loss)   Return
                                                                              (Closed)              Price      Close Price
   Platinum             Buy Jul 12 platinum       Platinum - ripe for a      26 Apr 2012           $10.3346       $0.1112        -$10.22       -98.9%
                        1650 / 1725 call          bounce?
                        spread at 2:3 ratio
   Henry Hub            Buy Jun-12 $2.10 put,     The Pause That              12 Apr 2012           $0.4475       $0.1150       -$0.3325       -74.3%
   Natural Gas          and buy Jan-13 $4.00      Refreshes
                        call in 2:1 ratio
   Aluminium            Buy September 2,400       The Pause That              12 Apr 2012             $33.68        $3.28        -$30.40       -90.2%
                        Calls                     Refreshes
   Palladium            Buy Sept 12               Gold: taking the            14 Mar 2012          $26.2117       $0.6532     -$25.5585        -97.5%
                        Palladium Call            short side of RV
                                                  trades
   Iron Ore             Buy Q4 2012 Iron ore      Chinese Tide                01 Mar 2012           $131.50       $128.75          -$2.75       -2.1%
                        swap                      Begins to Turn
   Aluminium            Buy Q3 aluminium          From Fear Flows             16 Jan 2012         $2,203.83     $2,001.50       -$202.33        -9.2%
                                                  Opportunity
   Iron Ore             Buy Cal-13 iron ore       From Fear Flows             16 Jan 2012           $125.25       $124.00          -$1.25       -1.0%
                        swaps                     Opportunity
   Gold                 Buy June Call, strike     China – how                 17 May 2012           $0.9070       $0.0000       -$0.9070     -100.0%
                        of $1625                  worried should we         (24 May 2012)                        (expired)
                                                  be?
   Brent crude          Buy Dec 15 Brent,         The Pause That              12 Apr 2012             $98.05       $94.71          -$3.34       -3.4%
                        stop loss at $94.50       Refreshes                 (16 May 2012)
   Lead                 Buy June 12 LME           Lead: This is the           29 Feb 2012         $2,169.50     $2,073.00        -$96.50        -4.5%
                        lead                      Dip – Buy it              (11 May 2012)
   Copper               Buy Dec-12 copper         From Fear Flows             16 Jan 2012         $8,110.00     $7,998.00       -$112.00        -1.4%
                                                  Opportunity               (11 May 2012)
   Copper               Sell Sep 12 7250 put      2012 is NOT a               19 Apr 2012             -$6.15    $100.4388     $106.5888      1,732.9%
                        and buy Sep 12 8400       Rerun of 2011             (03 May 2012)
                        / 9500 call spread
   Lead and             Buy Dec-12 lead, sell     From Fear Flows               16 Jan 2012           $71.50      $102.50         $31.00       43.4%
   Zinc                 Dec-12 zinc               Opportunity               (03 May 2012)
   Thermal Coal         Buy Newc Cal14 Sell       The Pause That               12 April 2012           $2.81        $2.46           $0.35     12.46%
                        API #2 Cal14              Refreshes                   (19 Apr 2012)
   Thermal Coal         Buy CAL13 swaps on        A Dangerous New                4 Oct 2011         $119.20       $114.24          -$5.75      -4.82%
                        dips below $120 for       Phase                      (15 Mar 2012)
                        Newcastle coal
   RBOB                 Buy the June 12           Selective Easing            15 Feb 2012           $0.7804        $1.106         $0.326      41.72%
   Gasoline             330/340 call spread       Offset by Greek           (08 Mar 2012)
                        and sell the June 12      Default Risk
                        340/350 call spread
   RBOB                 Buy the June 12 340       Selective Easing            15 Feb 2012           $8.2662      $11.4219           $3.16     38.18%
   Gasoline             call                      Offset by Greek           (08 Mar 2012)
                                                  Default Risk
   ICE Gasoil           Buy Jun-12, sell Apr-     Mixed Blessings             09 Jan 2012             -$5.75        -$2.00          $3.75     65.22%
                        12 gasoil                                           (08 Mar 2012)
   Thermal coal         Buy API4 Coal, Sell       The Relative States         15 Feb 2012             -$5.37        -$4.92          $0.45       8.4%
                        API2 Coal                 of Different Coal         (29 Feb 2012)
                                                  Markers
   Heating Oil          Buy Jun-12, sell Apr-     Mixed Blessings             05 Jan 2012             -$2.47        -$0.15          $2.32      93.9%
                        12 heating oil                                      (29 Feb 2012)
   WTI Crude            Buy Dec-13 WTI calls      Oil fundamentals:           10 Nov 2011           $3.6481       $4.2233        $0.5752       15.8%
   Oil                                            Supply-side worries       (01 Feb 2012)
 Source: Credit Suisse Locus




Commodities Advantage: Chinese Stimulus, Necessary But Not Sufficient                                                                                 29
                                        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
Disclosure Appendix
Analyst Certification
Ric Deverell, Joachim Azria, Cilline Bain, Marcus Garvey, Tom Kendall, Stefan Revielle, Andrew Shaw, Jan Stuart, Ivan Szpakowski and Martin Yu each
certify, with respect to the companies or securities that he or she analyzes, that (1) the views expressed in this report accurately reflect his or her personal
views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific
recommendations or views expressed in this report.
Important Disclosures
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For the history of any relative value trade ideas suggested by the Fixed Income research department as well as fundamental recommendations provided by
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Emerging Markets Bond Recommendation Definitions
Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate.
Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.
Corporate Bond Fundamental Recommendation Definitions
Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector.
Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are
undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These
bonds may possess price risk in a volatile environment.
Market Perform: Indicates a bond that is expected to return average performance in its sector.
Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may
be stable credits that, we believe, are overvalued or rich relative to the sector.
Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector.
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investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
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reasonable, non-material deduction based on an analysis of publicly available information.
Corporate Bond Risk Category Definitions
In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor,
designated as Market, or that it has a higher or lower risk profile, designated as Speculative and Conservative, respectively.
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have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B – obligor's capacity to meet its financial commitments is
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