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Commodities Quarterly Danske Analyse Danske Bank Powered By Docstoc
					Investment Research
                                                                                                                                              06 August 2012




Commodities Quarterly
Stronger in H2, weaker in 2013
Short view: Weaker market balances in 2013 ...................................................................... 2
                                                                                                                                              Key points
Metals may bounce back if we are right that the Fed announces another round of
quantitative easing and that China avoids a hard landing but oil faces weakness next year                                                         The global cyclical downturn has
on slowing demand growth and OPEC overproduction. Also, watch out for a                                                                           led to widespread sell-offs in
normalisation in grain prices as the weather premium is set to be priced out next season.                                                         commodities since mid-spring.
Focus: Super-cycle fragmented ........................................................................................................... 4       However, grain prices have
                                                                                                                                                  surged lately on adverse weather
The decade-long commodities super-cycle is now showing signs of fatigue. We stress that
                                                                                                                                                  and oil prices have recovered on
although the cyclical sell-off seen lately should not be mistaken for a new structural
                                                                                                                                                  geopolitical concerns.
trend, it may be time to consider whether some prices have reached a plateau.
                                                                                                                                                  In the near term, commodities will
Oil: Excess supply despite loss of Iran ............................................................................................ 6
                                                                                                                                                  be in the hands of the Fed and
We now predict stock builds in oil in both 2012 and 2013 as a weakening demand outlook                                                            China. We look for both to
and a lack of OPEC reaction look set to imply overproduction despite the loss of Iranian                                                          support prices in H2 as QE3 is
crude due to EU and US sanctions against the country.                                                                                             announced and China avoids a
Focus: New oil demand-supply model ......................................................................................... 14                   hard landing.

We present a new framework for forecasting supply, demand and prices in the oil market.                                                           Looking into 2013 however,
                                                                                                                                                  market surpluses will emerge for
Base metals: Diverging prospects ................................................................................................ 20              some products. Notably, we see
Metals are in for a rebound in H2 if we are right in predicting that both China and the                                                           this happening in oil as OPEC fails
Fed will deliver. However, we see general downside to prices next year. Copper is the                                                             to curb production in face of
exception though, as the production potential remains bleak.                                                                                      weaker demand. A weaker dollar
                                                                                                                                                  on a 6-12M horizon should limit
Grains: Weather premium is here to stay............................................................................... 29
                                                                                                                                                  downside however.
Elevated grain prices are here to stay in H2, as further weather disruptions are likely
                                                                                                                                                  Longer term, we think there will
with El Niño set to return this autumn. A normalisation is likely in 2013 and not least
                                                                                                                                                  be increasing divergence
wheat could see a significant downward correction from current highs.
                                                                                                                                                  between commodity prices as the
 Commodities super-cycle intact but sectoral differences emerging                                                                                 super-cycle is set to become
                                                                                                                                                  more fragmented due to
    12
                                                 Commodities super-cycle component                                                                differences in supply prospects.
    10
      8
      6
      4                                                                                                                                       Commodities Research:
      2                                                                                                                                       Chief Analyst
      0                                                                                                                                       Arne Lohmann Rasmussen
     -2                                                                                                                                       +45 4521 8532
                                                                                                                                              arr@danskebank.dk
     -4
     -6                                                                                                                                       Senior Analyst
     -8                                                                                                                                       Christin Tuxen
      Jan-70                       Jan-80                        Jan-90                       Jan-00                       Jan-10             +45 4513 7867
                                                                                                                                              tux@danskebank.dk
 Source: Reuters EcoWin, Eviews, Danske Markets

                                                                                                                                              Bloomberg: DRFX <GO>




Important disclosures and certifications are contained from page 42 of this report.
                                                                                                                                              www.danskeresearch.com
Commodities Quarterly




Short view: Weaker market balances
in 2013
While the overall direction for commodities over the past three months has been “south”,
                                                                                                                          Quarterly changes
July witnessed a marked recovery in oil and grains. As we discuss in details in Oil:
Excess supply despite loss of Iran and Grains: Weather premium is here to stay the                                                             %, 3M chg

recent price increases in these areas have chiefly been driven by supply-side concerns.                                       LIFFE Wheat
Indeed, base metals that are more sensitive to the cyclical outlook have continued their                                              Gold
early summer slide.                                                                                                                 Copper

In the medium term, beyond 2012, we see a clear risk of weakness in demand as our                                               Aluminium
economists now forecast a relatively weak growth outlook for 2013, that is, notably                                        NYMEX nat gas
weaker than that of the IMF.                                                                                               ICE Brent crude

In the near term, i.e. the rest of H2, commodities are likely to mainly be subject to three                                                  -20 -10 0 10 20 30
main drivers (some of which may look familiar):
                                                                                                                          Source: Bloomberg, Danske Markets.
      1.    Further easing from the Fed (QE3)

      2.    The outlook for China

      3.    The euro debt crisis

On the first point, we think that another round of quantitative easing (QE3) will be
announced by the Fed around late August/mid-September time. Arguably, past
announcements of large-scale bond purchases by the Fed have sparked a rally in risky
assets including commodities and are likely to do so again if our economists’ forecasts
prove correct.

Fed balance sheet and oil prices
 150                                                                QE2           MEP1       USD 10^12 3.50
           USD/bbl
 130                                Fed Reserve banks                                                            3.00
                                    total assets >>
 110                                                                                                             2.50

     90                                                                                                          2.00
                QE1
                                                                                                     Rates
     70                                                                                              low     MEP2
                                                                                                              1.50
                                                                                                     to late
     50                             << ICE Brent crude                         Rates low             2014     1.00
                                                                               to mid 2013
     30                                                                                                          0.50
      Jan    May Sep      Jan    May Sep           Jan     May Sep            Jan     May Sep           Jan
                08                  09                        10                         11               12
                            Note: QE is quantitative easing, MEP is maturity extension programme (i.e. Operation Twist)
                                                                                    MEP1
Source: Reuters EcoWin, Danske Markets.




Regarding China, recent data has strengthened our economists’ view that China will see a
turnaround in H2 on the back of past monetary easing. Indeed, the property market is
showing some signs of stabilisation although it is still too early to call a firm rebound. A
key worry is however Asia ex-China where PMIs continue to show weakness and thus
limit the Chinese export potential in the near term. However, on the whole, it now appears
that fears of a hard landing for China have been overdone.
                                                                                                    Rates low
Finally, the euro-debt crisis has continued to haunt the markets and speculation regarding
                                                                             to late
                                                                             2014
the sustainability of the especially Spanish situation has shown no signs of fading. The                                   Senior Analyst
                                                                                                                           Christin Tuxen
question of how the ECB will react to elevated peripheral interest rates remains open even                                 +45 4513 7867
after the August rate decision. However, with ECB president, Mario Draghi, continuing to                                   tux@danskebank.dk

stress that the Governing Board will do ‘whatever it takes’ to save the single currency and
hinting that the ECB will support any EFSF/ESM buying of notably Spanish and Italian

2|    06 August 2012
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Commodities Quarterly




bonds, our rate strategists are confident that the euro crisis will not be allowed to spiral
out of control.


Chinese PMI and base metals                                    Commodities and EUR/USD
65.0                                                    6000   1.475                                                775
       diff index                                                      USD
62.5                                              index 5500   1.450                                           index 750
60.0          << China NBS PMI manuf                    5000   1.425                                                725
                                            LMEX>>                                                  GSCI, spot >>
57.5                                                    4500   1.400                                                700
55.0                                                    4000   1.375                                                675
52.5                                                    3500   1.350                                                650
50.0                                                    3000   1.325                                                625
47.5                                                    2500   1.300                                                600
45.0                                                    2000   1.275                                                575
42.5                                                    1500   1.250                                                550
40.0                                                    1000   1.225                 << EUR/USD                     525
37.5                                                     500   1.200                                                500
        05     06   07    08    09     10    11    12              Aug       Oct    Dec   Feb     Apr    Jun
                                                                               11                   12

Source: Reuters EcoWin, Danske Markets.                        Source: Reuters EcoWin, Danske Markets.



Clearly, the first and the third factors (Fed QE and euro debt fears) have important
implications for EUR/USD and thus for commodities in turn. Both could weaken the
domestic currency respectively, all else being equal, but our FX strategists think that
dollar-negative factors (including the risk of the so-called ‘fiscal cliff’ in the US next
year) will dominate on a 6M horizon and thus look for upside in EUR/USD – not least on
the grounds that EUR short positioning is at extreme levels at the moment, thus limiting
further downside potential. This would in itself lift dollar-denominated commodity prices.
We emphasise though that there is a small but non-negligible risk of a further drop in the
euro if policymakers fail to act, which underlines the importance of hedging USD
expenses.

For longer-term price developments, there are now signs that the commodity super cycle
which we, among others, have argued to have been in place since the early 2000s may be
coming to an end; we discuss this further in Focus: Super-cycle fragmented. This                                            Danske Markets’ relative forecasts
suggests that the price surges seen in the past decade will not continue unabated and that                                  110.0                                      110.0
                                                                                                                                    index (Sep-2012=100)
commodity-specific fundamentals should be watched as a guide to the future direction of                                     107.5                      LME copper      107.5
prices.                                                                                                                     105.0                                      105.0

                                                                                                                            102.5                                      102.5
We have generally revised our forecasts lower since June (except for grains where
                                                                                                                            100.0                                      100.0
upward corrections were made in our Commodities Update mid July) to reflect an outlook
                                                                                                                             97.5                          CBOT corn    97.5
for weaker market balances next year (copper is a notable exception though). Metals may
                                                                                                                             95.0                                       95.0
well bounce back in H2 if we are right that the Fed announces another round of
                                                                                                                             92.5                                       92.5
quantitative easing and that China avoids a hard landing, but not least oil faces weakness                                                           ICE Brent
                                                                                                                             90.0                                       90.0
next year on slowing demand growth and OPEC overproduction. Also watch out for a                                                       12                     13

normalisation in grains prices as the weather premium is set to be priced out next season.
                                                                                                                            Source: Reuters EcoWin, Danske Markets.
Clients looking to hedge 2013 commodity exposure should thus consider locking in
prices early in H2, or wait for a possible setback in early 2013.




3|     06 August 2012
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Commodities Quarterly




Focus: Super cycle fragmentated
The general weakness in commodity prices in the year so far has led some to question
                                                                                                 Identifying a super-cycle
whether the ‘super cycle’ created by rising demand and waning supply across
commodities is now coming to an end. We stress that although the cyclical sell-off seen             To identify long-term cycles in
lately should not be mistaken for a new structural trend, now may indeed be time to                 commodity prices we do as
consider whether prices of some commodities have reached a plateau.                                 follows:
Emerging market demand growth is likely to still be considerable for years to come as               1.) Remove price fluctuations
these countries catch up with the developed world but consumption in the latter is starting         associated with the business
to stall in some areas as saturation effects and efficiency gains are increasingly                  cycle using a Hodrick-Prescott
dominating. At the same time, the past decade of rising prices has led producers to                 filtering
expand capacity where possible and improved technology has helped to dampen costs in
                                                                                                    2.) Find the first principal
some areas. This is, for example, the case for aluminium where production capacity is
                                                                                                    component for a set of
now significant relative to consumption. Also, the downward pressure on natural gas
                                                                                                    commodity prices to obtain the
prices seen over the past few years as a result of the unlocking of large shale gas reserves
                                                                                                    postulated super-cycle
illustrates that technological advances could unlock supplies that were previously deemed
                                                                                                    component
unprofitable. In this respect, it is noteworthy that light tight oil (also known as shale oil)
is now showing a significant potential as an additional source of future oil supply in
North America.

Revisiting our super-cycle indicator, which arguably unlocks a common factor across
different smoothed commodity prices where the cyclical component has presumably been
removed (see Commodities 2011: Five themes to drive the markets this year) and taking
the latest price developments into account, it is clear that there is increasing divergence
between the complexes. In grains, soaring prices continue to be the order of the day
whereas the energy complex is now clearly marked by the increase in the supply of
natural gas brought about by the US shale gas adventure. For base metals, the super-cycle
component now appears to have evened out in the past few years.


Long cycles in commodity prices
     12
     10                       All         Energy          Ags     Metals
       8
       6
       4
       2
       0
      -2
      -4
      -6
      -8
       Jan-70            Jan-80                  Jan-90         Jan-00             Jan-10

Source: Reuters EcoWin, Eviews, Danske Markets




We think that the agricultural complex is likely to continue to see some upward price
pressure not least due to the production disruptions, which will most likely continue to
influence the sector as a result of climate changes. Base metals could see increased
divergence as some metals are in plenty supply (e.g. aluminium) whereas others are
becoming increasingly hard to get out of the ground (e.g. copper). Energy is to some              Senior Analyst
extent the most uncertain of the three: the prospects for shale oil and resources in the          Christin Tuxen
                                                                                                  +45 4513 7867
Arctic region have gained a good deal of attention lately but it remains uncertain to what        tux@danskebank.dk
extent these new potential sources of oil will be able to create a market revolution as the
one seen in natural gas. We doubt that it will do so on a 2Y horizon at least.

4|    06 August 2012
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Commodities Quarterly




Thus, taken together, although we now warn against extrapolating the super cycle into the
next decade across commodities, caution for not least consumers is still warranted. While
synchronised price rises over longer time spans may be a thing of the past, we do not look
for large price declines in the medium term either, and we emphasise that one should
watch out for divergence within the commodities sphere. Oil supply remains prone to
geopolitical risk as the past month's US-Iran tensions have highlighted and the recent
surge in grains illustrates a finely balanced grains market in the hands of extreme weather
events. And for copper and some other mined metals the story of waning supply remains
very much alive.




5|   06 August 2012
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Commodities Quarterly




Oil: Excess supply despite loss of Iran
Following a peak of USD125/bbl for Brent in early spring, oil prices fell below USD90 in
                                                                                                                         Quarterly changes
mid-June. A strong recovery has been seen since then with Brent briefly above USD108
on a few occassions. The resilience seen in equities is not enough to explain the recent                                                     %, 3m chg
move higher in oil prices. Rather, the oil rollercoaster has been fuelled largely by                                             API2 coal
geopolitically motivated supply-side concerns, defying the downtrend in EUR/USD since                                      NYMEX nat gas
                                                                                                                               1.0% fuel oil
late June. Elsewhere in the energy complex, coal prices are little change over the past
                                                                                                                               3.5% fuel oil
three months whereas natural gas has gained in the US. Prices for light oil products have                                            ULSD
generally dropped less than that of crude, resulting in a widening of crack spreads                                                Jet fuel
recently.                                                                                                                        ICE gasoil
                                                                                                                         NYMEX WTI crude
ICE Brent vs. S&P 500                                        ICE Brent vs. EUR/USD                                         ICE Brent crude

130                                                   1450   130                                                 1.400                       -25-15 -5 5 15 25
      USD/bbl       << ICE Brent crude oil                         USD/bbl
                                              index                                               USD per EUR
125                                                   1425   125                                                 1.375
                                                                                           << ICE Brent in USD           Source: Bloomberg, Danske Markets
120                                   S&P 500 >>      1400   120                                                 1.350

115                                                   1375   115                                                 1.325

110                                                   1350   110                                                 1.300

105                                                   1325   105                                                 1.275

100                                                   1300   100                                                 1.250

 95                                                   1275    95                                                 1.225
                                                                                     EUR/USD >>
 90                                                   1250    90                                                 1.200

 85                                                   1225    85                                                 1.175
      Jan   Feb   Mar   Apr    May    Jun    Jul                   Jan   Feb   Mar   Apr   May    Jun   Jul
                         12                                                           12

Source: Reuters EcoWin, Danske Markets                       Source: Reuters EcoWin, Danske Markets


While continued geopolitical concerns are likely to provide a floor for prices, the cyclical
environment could continue to be a headwind for oil with both the US and the eurozone
currently caught in a slump. In contrast, we think that Chinese energy demand could
bounce back more quickly than markets expect at the moment and combined with the
likelihood of further monetary easing – not least from the Fed – oil prices are, in our
view, unlikely to see a massive sell-off heading into 2013. However, with Saudi Arabia
seemingly ready to make up for lost output from sanctions-hit Iran, we are not looking
towards immediate price surges either.

Overall, we look for crude oil prices to stay around current levels in H2 as the
geopolitical risk premium could remain high and markets await the fallout from the
sanctions against Iran. But we now see clear weakness in 2013 as OPEC currently looks
unlikely to be able to coordinate a production response to slowing in demand growth that
we project further out. Crack spreads are also likely to come under pressure next year as
industrial demand weakens and capacity stays ample.

We have set up a new model for the oil market which we use to arrive at oil demand and
supply forecasts in the following; details of this are discussed in Focus: New oil supply-
demand model.

Demand: non-OECD consumption to overtake OECD in 2013
On the whole, the demand outlook for most of the OECD is bleak at the moment with
both the US and Europe caught in slowdowns. Simultaneously, Japanese oil demand,
which has been artificially high of late due to the closure of nuclear facilities following
the 2011 tsunami, is set to wane as some nuclear power plants are about to be restarted.                                 Senior Analyst
                                                                                                                         Christin Tuxen
Thus Japanese demand for e.g. residual fuel and crude for direct burn is set to decline                                  +45 4513 7867
going forward. Our economists now look for real GDP growth next year in the OECD                                         tux@danskebank.dk
region to be lower than that of the IMF (which the IEA bases its oil demand forecasts
upon), i.e. Danske 1.5% y/y vs. IMF 1.9%, on broad-based weakness across the region.
As a result, our forecast for OECD demand is 45.3 mb/d in 2012 and 44.8 mb/d in 2013,
6|    06 August 2012
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Commodities Quarterly




with the drop in annual growth mainly driven by efficiency gains which outweigh the
effects of lower prices in 2012 compared with last year.

Once again a demand recovery will be dependent on the non-OECD region. China
remains key in this respect and any announcements from the People’s Bank of China and
the government on easing policies would be likely to be instrumental in driving demand
and prices in turn. If our economists’ call for a Chinese turnaround to manifest itself
during H2 proves correct, this should lift non-OECD demand. On non-OECD for 2012,
we are in line with the IMF and see GDP growth at 5.5% y/y but expect stronger growth
in 2013 where we look for 9.0%. Our non-OECD demand forecast for 2012 is 44.6 mb/d
but we see a somewhat higher level in 2013 despite efficiency gains, i.e. 45.8 mb/d.
Crucially, this implies that 2013 will be an inflection point in the sense that the level of
non-OECD demand will overtake that of the OECD countries for the first time.

OECD vs. non-OECD demand

 55                                                                                       55
       mb/d                                                                       mb/d
 50                                                                                       50
 45                                                                                       45
                        OECD oil consumption (sa)
 40                                                                                       40
 35                                                                                       35
 30                                                          non-OECD (sa)                30
 25                                                                                       25
 20                                                                                       20
       95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11


Source: DOE/EIA, Danske Markets.




Oil demand forecasts

(mb/d)                             2010             2011           2012               2013
OECD                               46.3             45.7            45.3                 44.8
Non-OECD                           42.1             43.4            44.6                 45.8
Total                              88.4             89.1            89.9                 90.6
Source: IEA, Danske Markets.



Supply: Iranian crude to be lost but Saudis come to rescue
Geopolitical events have moved back to take centre stage as the international community
has enacted a range of sanctions against Iran’s nuclear activities. The US has stepped up
its stance towards Iran throughout this year and further tightened its grip in late June. The
EU’s import ban on Iranian crude and products came into effect on 1 July. Still, exports
have not ceased entirely: the US has granted waivers to a range of countries including
China, Japan and India, which enable imports to be made, albeit at lower volumes, to the
extent that insurance and payment facilitation can be secured.




7|    06 August 2012
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Commodities Quarterly




In response to the US and EU sanctions, Iran has threatened to block the Strait of
                                                                                                 Main importers of Iranian crude
Hormuz. With around 20% of the oil traded globally (close to 17 mb/d) passing through
the strait this poses a key risk to world oil supplies. However, some neighbouring oil-                 Iranian oil exports (tb/d); H1 2011
exporting countries such as the United Arab Emirates (UAE) and Saudi Arabia have been
                                                                                                  600
looking to bypass the Hormuz passage via pipelines as a result. Iranian tankers have also         500
reportedly turned off communication equipment which makes it increasingly difficult to            400
track oil movements, including the volumes held in floating storage. Coupled with reports         300
                                                                                                  200
that the US military is stepping up its presence in the Gulf and recent events in Syria (a        100
fairly insignificant oil producer with 350 kb/d but fears of contagion persist not least after      0
the recent surge in food prices which arguably helped kick-start the Arab Spring), the
geopolitical risk spiral shows no immediate signs of abating.

Saudi Arabia has upped production markedly with output now above the 10 mb/d. In                 Source: EIA/DOE, Danske Markets
addition, Libyan production has rebounded strongly this year although ongoing protests
are proving a continued risk to exports. This has been key in directing oil prices down
from the March highs.

Outside of OPEC, the recent strike by Norwegian oil workers had added to production
concerns, depressing output in June and July. The IEA estimates that Norwegian production
will fall by as much as 410 kb/d from May to 1.6 mb/d in July. Thus, although a more
widespread strike by oil workers in Norway was averted by government intervention, the
supply disruption will still be felt in the already tight Brent market where both Norwegian
and UK facilities are fighting technical problems and unplanned outages/maintenance.

Finally, the forecasts for an active hurricane season and Gulf of Mexico maintenance add
to weakness in production ahead of the seasonally strong Q3. Indeed, we think the supply
side will provide a floor to prices in H2.

Middle East oil infrastructure with Strait of Hormuz




                                                                          Strait of Hormuz




Source: Bloomberg, Danske Markets




8|   06 August 2012
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Commodities Quarterly




Going forward, the OPEC response to the likely drop in Iran’s exports will be key. In its
monthly report from May, the IEA estimated that EU and US sanctions would ultimately
decrease Iranian crude exports by 800 kb/d to 1 mb/d compared with 2011 levels. So far,
Iranian production is down close to 400 kb/d at around 3.2 mb/d in June from an average
3.58 mb/d in 2011. However, a step-up in exports is likely to have been achieved ahead of
the EU sanctions taking effect and we think there is a risk that the market will be
surprised by the size of the actual drop in Iranian exports likely during H2.

OPEC production and quotas                       Oil production in selected countries

                   OPEC-12 prod (mb/d)           15000                Saudi Arabia (kb/d)
     40            OPEC-11 quota
                   OPEC-12 capacity                                   Libya
                   OPEC-12 quota                                      Iran
                                                 10000


     30
                                                  5000


                                                       0
     20
      2000          2005            2010
Source: Bloomberg, Danske Markets                Source: Bloomberg, Danske Markets


In case of a tightening oil market, OPEC has the capacity to increase production by some
3 mb/d if needed according to spare capacity estimates by the IEA. However, this
includes countries such as Iraq, Iran, Libya and Nigeria which arguably cannot be relied
upon for output increases at the moment. ‘Effective spare capacity’ is probably closer to
2.35 mb/d. At the cartel’s semi-annual meeting in mid-June, OPEC members decided to
keep the collective 30 mb/d target unchanged and emphasised the importance of adherence
to the agreed ceiling. Indeed, compliance has slipped – as usual within OPEC – and
although some weakness was seen in June, output was close to 1.8 mb/d above the target.


OPEC spare capacity

     14            June 2012 production (mb/d)      Sustainable prod capacity
     12
     10
      8
      6
      4
      2
      0




Source: IEA, Danske Markets




9|    06 August 2012
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Commodities Quarterly




We think OPEC will come to the rescue if supply falls short to the extent that capacity         Budget breakeven costs for current oil
allows. Price hawks such as Iran and Venezuela have called for an emergency meeting to          production
curb production, but Saudi Arabia, which is key to spare capacity, appears to have little
                                                                                                           Budget break-even
interest in this. The Saudis are wary of the effect a continued rise in oil prices could have    120       (approx) (USD/bbl)
on the fragile global economic environment and, at the same time, happy to make up for           100
                                                                                                  80
lost Iranian exports and incur a higher revenue. Breakeven costs are as low as USD10 for          60
Saudi Arabia whereas prices in the USD75-95 range permit a balanced government                    40
                                                                                                  20
budget; thus, in the current environment, the kingdom should be happy to sustain output
                                                                                                   0




                                                                                                            Saudi …
                                                                                                          Algeria



                                                                                                             Iran
                                                                                                           Russia
                                                                                                             UAE




                                                                                                          Nigeria
                                                                                                            Libya
                                                                                                           Kuwait
at recent elevated levels and thus help to avert an overly tight market.




                                                                                                           Angola




                                                                                                        Venezuela
                                                                                                            Qatar




                                                                                                         Ecuador
We have pencilled in non-OPEC supplies in line with IEA projections for 2012-13. With
respect to OPEC output, assuming growth in proven reserves to continue at the historical
3.5% y/y and a drop in average prices compared with 2011, we would expect OPEC
                                                                                                Source: IEA, Danske Markets
supply to be close to 30.0 mb/d under normal circumstances. However, the return of
Libya, sanctions against Iran and the Saudi response imply that the usual OPEC reaction
function must be amended somewhat. We think OPEC might actually end up
overshooting production-wise this year as production coordination between members
seems to have deteriorated of late. We thus look for output from the cartel to average 31
mb/d in 2012 as the drop in Iranian production is outweighed by the rise of around 1.75
mb/d that notably Libya and the Saudis have contributed so far this year. In 2013, we see
output from the OPEC region at 30.9 mb/d.

Oil supply forecasts

(mb/d)                         2010              2011              2012               2013
OECD                           18.8               18.8              19.5                20
non-OECD                       29.8               29.9              29.6               29.7
OPEC crude                     29.2               29.8              31.0               30.9
OPEC NGLs                       5.4                5.8               6.2                6.5
Misc                            4.1                4.1               4.1                4.1
Total                          87.3               88.4              90.4               91.2
Source: IEA, Danske Markets.




10 |   06 August 2012
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Commodities Quarterly




In the longer term, the supply side is increasingly focused on the potential in Brazilian
deepwater pre-salt drilling and the Arctic region which is now becoming a more realistic
source of fossil fuels due to global warming. Also, recently light tight oil, also known as
shale oil, has become a key energy focus area in the US where this source of oil could add
as much as 1.4 mb/d to US oil production by 2020.

US shale gas resources




Source: Bloomberg, Danske Markets



Balance: stock builds to limit price upside
At present, OECD forward-demand cover is running at 58.9, close to the five-year
                                                                                                OECD forward-demand cover
average. This however masks large differences within the OECD region with inventories
well below the five-year average in Europe and well above in the US. The large unknown           days
                                                                                                 63          2012
is of course non-OECD stocks with not least China key at the moment as the country is            61
                                                                                                                       2011
the largest taker of Iranian crude.                                                              59
                                                                                                 57              mean
We look for the global market balance to see stock builds both this year and in 2013             55              2007-2011
which should help to limit any upward pressure on oil prices. However, a geopolitical risk       53
premium will likely continue to be priced given the unrest in Syria and Iran’s ongoing           51
                                                                                                 49                  Min/max
conflict with the international community.                                                                           2007-2011
                                                                                                 47
                                                                                                        Sep
                                                                                                        May




                                                                                                        Nov
                                                                                                        Apr
                                                                                                        Mar




                                                                                                        Oct


                                                                                                        Jan
                                                                                                        Jan




                                                                                                        Jun
                                                                                                        Feb




                                                                                                        Dec
                                                                                                        Aug
                                                                                                         Jul




Also, a floor around USD90 will probably be kept under prices from the fact that Saudi
Arabia, the marginal producer within OPEC at the moment, is keen to keep prices within
                                                                                                Source: IEA, Danske Markets
a range that is acceptable for both producers and consumers (read: oil prices at a level that
balances its government budget subject to not causing demand destruction in the long
run). Thus should production reach excessive levels and depress prices, the Saudis would
most likely scale back part of the recent ramp-up in production and try to exert pressure
on other OPEC countries to do the same in order to stabilise prices.

Oil market balance

(mb/d)                          2010             2011              2012               2013
Global                              -1.1           -0.7               0.6               0.6
Source: IEA, Danske Markets.




11 |   06 August 2012
                                                                                                www.danskeresearch.com
Commodities Quarterly




The forward curve has flattened somewhat over the past three months, seeing both a level
shift downward and a less negative slope, i.e. the backwardation has become less
pronounced. In the option market, volatility has generally increased over this period and
the skew for Brent crude for December 2012 delivery has become slightly less negative
over the past month. This suggests that while the market was previously mainly worried
that a price collapse could be seen, risks are now somewhat more evenly dispersed, but
the risk reversal (here shown for 1M WTI) remains negative.

Following a massive liquidation of long oil positions during the spring, longs have again
been added by non-commercials since late June. Long positioning remains well below the
spring highs however and we think there is potential for more to be added as the effect of
the Iranian sanctions become clear to market participants.

ICE Brent forward curve                                      Oil risk reversal                          Speculation in oil at NYMEX
 112.5                                               112.5                                              275                                                          110
                                                                                                              1000 contracts
                                           USD/bbl                      Risk reversal, WTI 1M 25Delta                            WTI oil >>                USD/bbl
 110.0                                               110.0                                              250   Net long oil                                           105

 107.5
                           3M ago
                                                     107.5
                                                               2 calls expensive rel to puts                     << Non-com positions
                                                                                                        225                                                          100
                                                               1
 105.0                                               105.0
                                                               0                                        200                                                          95
 102.5                                               102.5    -1
                                                                                                        175                                                          90
 100.0                                               100.0    -2
                                                              -3                                        150                                                          85
  97.5                                                97.5
                                                              -4
                                                                                                        125                                                          80
  95.0
                       Last valid
                                                      95.0    -5
  92.5                                                92.5    -6 puts expensive rel to calls            100                                                          75
         2   6   10   14   18   22   26   30   34              Dec-10     Feb-11       Apr-11             Aug           Oct    Dec         Feb    Apr     Jun
                                                                                                                          11                         12

Source: Reuters EcoWin, Danske Markets                       Source: Bloomberg, Danske Markets          Source: Reuters EcoWin, Danske Markets




We look for crude oil to stay above USD100 in Q3 as the loss of Iranian crude clashes
with seasonally strong demand topped with a likely announcement of QE3 from the Fed
which should bolster risk appetite. However, heading into 2013, some downward pressure                   Danske forecast vs forward
on prices is likely to be felt as evident from our forecast for a loosening market balance.              130                                                          130
                                                                                                                   USD/bbl
                                                                                                         120                                                          120
However, upward pressure from a weaker dollar drags in the opposite direction. We look                                        ICE Brent
                                                                                                         110       incl. Danske forecast                              110
for Brent to average USD111 per barrel this year (prev. USD107) and edge lower to
                                                                                                         100                                                          100
USD103 in 2013 (prev. USD116). This still leaves us above the forward curve over our                      90                                                           90
                                                                                                                                                          Forward
forecast horizon but we are now in fact in line with forward pricing for late 2013.                       80                                                           80

                                                                                                          70                                                           70
On the Brent-WTI differential, we look for a gradual but slow narrowing of the elevated
                                                                                                          60                                                           60
spread in coming quarters as infrastructure is expanded in the US around Cushing                          50                                                           50
Oklahoma.                                                                                                 40                                                           40
                                                                                                                      09       10            11      12         13

Crack spreads: under pressure
The premium of light oil such as kerosene and gasoil over crude has generally edged                      Source: Reuters EcoWin,Bloomberg, Danske
                                                                                                         Markets
higher this year as refiners have benefited from the drop in crude prices seen since early
spring. Since the drop from the elevated levels seen in mid-2008, crack spreads of light
oils have moved largely with the global economic cycle as this is a key determinant on
the demand side. Levels are far from those seen in 2008 as refinery capacity additions
have depressed refiners’ margins in recent years. Fuel-oil crack spreads narrowed earlier
in the year – probably as Japan brought this for electricity generation use in the face of
nuclear power plant closures – but the discount with which fuel oil trades to crude has
widened again recently.

Light, sweet Libyan oil is now returning to the market while Iran’s more sour oil is set to
decline in supply; meanwhile the Saudis add their crude which is usually somewhat more
sour than its Iranian counterpart. On the whole, we are probably not going to see major
movements in the type and quality of oil produced within OPEC in the near term as
Libyan light and Saudi heavy additions may broadly offset each other. A weak outlook
12 |     06 August 2012
                                                                                                        www.danskeresearch.com
Commodities Quarterly




for the industrial sector however implies that any upward pressure on light cracks should
be limited in coming quarters. Similarly, heavy cracks may widen further as shipping
demand growth wanes.

On the whole, we see no clear direction for light-heavy spreads going forward as both
ranges of the crack sphere will likely be under pressure.


Light crack spreads                                                          Heavy crack spreads
50                                                                   50       0                                                                   0
                                                          USD/bbl                                                     1% crack
       USD/bbl                                                                     USD/bbl
45                                                                   45
                                                                             -10                                                                -10
40                                                                   40
                           Jet fuel kerosene,
35                         crack spread                              35
                                                                             -20                                                                -20
30                                                                   30
25                                                                   25      -30                                                                -30

20                                                                   20                                          3.5% fuel-oil crack spread
                                                                             -40                                                                -40
15                                                                   15
10                                                                   10      -50                                                                -50
 5                                                                       5
                                                Gasoil crack
                                                                                                                                                      Crude oil: short-term financial
 0                                                                       0   -60                                                                -60
       07        08           09          10         11         12                 07        08        09           10         11        12           indicators
                                                                                                                                                      140                                                             140
                                                                                                                                                             USD/bbl
Source: Reuters EcoWin, Danske Markets                                       Source: Reuters EcoWin, Danske Markets                                   135
                                                                                                                                                                  Actual (ICE Brent)
                                                                                                                                                                                                                      135
                                                                                                                                                      130                                                             130
                                                                                                                                                      125                                                             125

Hedging: lock in oil expenses at current levels – or wait for 2013                                                                                    120                                                             120
                                                                                                                                                      115                                                             115
Our long-term fair-value model hints that Brent is slightly overvalued compared with the                                                              110                                                             110
                                                                                                                                                      105                          Model                              105
model-implied fair value. In the current situation we would however interpret this as a                                                               100                                                             100
justifiable geopolitical risk premium considering recent developments in the Middle East                                                               95                                                              95
                                                                                                                                                       90                                                              90
and we see no imminent signs that this will diminish. Clients on the consumer side should                                                                                                  +/- 2 std dev
                                                                                                                                                       85                                                              85
in our view consider two options: use the backwardated crude forward curve to hedge                                                                      Oct      Dec   Jan   Feb Mar Apr May Jun               Jul
                                                                                                                                                                11                     12
2013 exposure now at prices below the current spot level, or wait for a downward level
shift in prices early 2013.                                                                                                                           Source: Reuters EcoWin, Danske Markets

We stress however that H2 is likely to see sustained upward pressure on prices and thus
that sustained weakness should not be expected until some time next year and that this
may be limited by a weaker dollar. Indeed, our short-term financial model for crude oil
suggests that prices are not far from reasonable levels considering, among other things,
equity markets and the level of EUR/USD. Also, hedging USD expenses (relevant for
most commodities) may be advisable considering the non-negligible risk of further EUR
downside.

In gasoil we see no signs of clear mispricing relative to fair value whereas in contrast fuel
oil prices are now somewhat below the level suggested as reasonable by our models. This
suggests that clients who are buyers of fuel oil could potentially do well to take advantage
of the recent widening of the fuel discount and lock in current prices.

Crude-oil long-term fair value                                               Gasoil long-term fair value                                              Fuel-oil long-term fair value
175                                                                          1750 USD/ton                                                             1200                                                            1200
       USD/bbl                                                                                                                                        1100 USD/ton                                                    1100
150                                                                          1500                                                                     1000                                                            1000
                                          ICE Brent 1-pos - actual                                ICE gasoil 1-pos - actual                                          Fuel oil 1% NWE CIF - actual
                                                                                                                                                       900                                                             900
125                                                                          1250
                                                                                                                                                       800                                                             800
                                                                                                                                                       700                                                             700
100                                                                          1000
                                                                                                                                                       600                                                             600
                                                            Fair value
                                                                                                                                                       500                                                             500
 75                                                                           750
                                                                                                                                       Fair value      400                                                             400
                                                                                                                                                                                               Fair value
 50                                                                           500                                                                      300                                                             300
                                                  +/- 2 std. dev.                                                                                      200                                                             200
                                                                                                                                    +/- 2 std. dev.                                            +/- 2 std. dev.
 25                                                                           250                                                                      100                                                             100
            06        07         08       09       10          11    12                 06        07        08        09       10       11      12             06       07    08       09       10         11    12



Source: Reuters EcoWin, Danske Markets                                       Source: Reuters EcoWin, Danske Markets                                   Source: Reuters EcoWin, Danske Markets




13 |    06 August 2012
                                                                                                                                                      www.danskeresearch.com
Commodities Quarterly




Focus: New oil supply-demand model
In this section, we introduce our new supply-demand model for the global oil market. The
                                                                                                 Modelling procedure
aim of the model is to capture some of the main structural relationships of demand and
supply in the oil market, allowing us to arrive at forecasts for the global market balance            Estimate long-run supply and
and, in turn, the price of oil.                                                                       demand equilibrium relations in
                                                                                                      levels  Use for forecast of oil-
For supply and demand, our modelling approach is based on the Engle-Granger two-step
procedure, the results of which we use in a third step to model oil prices:                           market balance

       1.   We first perform static regressions (in levels) of (i) oil demand on Brent oil            Check for short-run equilibrium
            price and real GDP and (ii) oil supply on Brent oil price and proven oil reserves.        correction in first differences for
            Assuming that the linear combination of the (non-stationary) variables defined            supply and demand, respectively
            by the regressions constitute a cointegrating relationship, we can interpret these         Qualify interpretation of long-
            as long-run equilibrium relations. We check this by testing that the residuals are        run relations
            stationary.                                                                               Model the change in oil prices as a
       2.   To qualify our interpretation of the above regressions as supply and demand               function of lagged disequilibria and
            relations, via dynamic adjustment regressions (in first differences), we test             selected other variables 
            whether these equilibrium relations correct to deviations from the long-run               Forecast changes in oil prices
            equilibrium, i.e. the so-called error correction model (ECM) term. That is, we
            check whether there is a tendency for e.g. demand to increase this period if the
            previous period saw demand below the level suggested by the postulated
            demand relation.

       3.   Finally, to assess the price impact of disequilibria on the supply and demand
            side, we estimate a model for the (change in the) oil price, where we allow for a
            range of lagged variables including deviations from the supply and demand
            relations to potentially affect prices, i.e. we estimate an equilibrium-correction
            model (ECM).

An important by-product of the above is that we can use the estimated supply and demand
relations together with our economists’ global GDP forecasts and our own assumptions
for proven reserves to set a forecast for the global oil market balance, i.e. whether
inventories increase or decrease. All data are annual ranging from 1995-2011; oil demand
and supply data are from the US Department of Energy, GDP data from the World Bank,
and proven reserves from the BP Statistical Review. All data are modelled in logs.



Oil demand: marked differences in income elasticity                                              Oil demand
On the demand side, we have performed regressions of oil demand on Brent oil price and           55                                                  55
                                                                                                      mb/d                                    mb/d
real GDP for a range of different countries/regions: US, euro area, and China; OECD and
                                                                                                 50                                                  50
non-OECD; world. This allows us to investigate the impact that changes in oil price and                                          OECD
                                                                                                 45                                                  45
income have on the demand for oil in each of these regions and compare. Inclusion of
other explanatory variables such as number of car registrations, prices of substitutes, etc.     40                                                  40
                                                                                                                            non-OECD
have been omitted to keep the model clear and interpretable. In our final forecast for           35                                                  35
world demand we nevertheless make a correction in order to factor in the effect of
                                                                                                 30                                                  30
omitted variables as well as a time-varying oil intensity. The latter is crucial as the
competitiveness of alternative energy sources and technologies have made non-oil                 25                                                  25
                                                                                                      96     98   00   02   04   06     08   10
consuming products more commercially viable over time.
                                                                                                 Source: Reuters EcoWin, Danske Markets.
The results on the demand side are illustrated below. Firstly, it should be noted that the
price elasticities for China, the non-OECD area and globally are small and rather
insignificant from an economic point of view (ranging between 0.00 and 0.01). Notably,           Assistant Analyst
the signs of the price elasticities in these regions are counter-intuitive as one would          Christian Curtz Henriksen
                                                                                                 chrhe@danskebank.dk
usually expect an increase in the price of oil to have a negative effect on oil demand. The
limited impact that changes in oil price have on the demand for oil is mainly due to the
14 |    06 August 2012
                                                                                                 www.danskeresearch.com
Commodities Quarterly




fact that oil is a rather basic commodity which makes it hard to instantaneously reduce oil
consumption without impairing consumers’ general welfare. This price inelasticity is a
natural source of high price volatility and helps explain the huge fluctuations seen in oil
prices, especially over the last couple of years. However, in the long run higher and more
volatile oil prices undoubtedly encourage switching to alternative energy sources and
more fuel-efficient vehicles. This trend is already very common in most of the OECD
countries which makes them more responsive to changing oil prices. This is reflected in
the negative and marginally more significant price elasticities in these countries (ranging
between -0.07 and -0.04).



Oil demand elasticities

                                           Income    Price

   0.80
   0.70
   0.60
   0.50
   0.40
   0.30
   0.20
   0.10
   0.00
  -0.10
  -0.20
             China           US          Euro zone     OECD     Non-OECD        World

Source: Reuters EcoWin, Danske Markets




On the other hand, the size of the income elasticities in all cases clearly indicates that
                                                                                                Real GDP
economic activity has a significant positive relationship with oil demand for all regions
                                                                                                250                                                 250
(ranging between 0.27 and 0.72) and underlines the sensitivity of oil markets to business             index (1995=100)

cycles. Historically, economic activity used to have an even bigger impact but its              225                                                 225
                                                                                                                                    non-OECD
significance has fallen in recent decades and is also expected to continue to fall in the       200                                                 200

future due to efficiency gains, use of alternative energy sources, etc.
                                                                                                175                                                 175

For China the estimated income elasticity is 0.72, indicating that for each 10% increase in     150                                      OECD       150
real GDP in China, Chinese oil demand increases by 7.2%. The dependence on oil to
                                                                                                125                                                 125
sustain economic growth is thus rather high in China compared to the US and the euro
                                                                                                100                                                 100
zone with income elasticities of 0.38 and 0.27, respectively. These differences are also
                                                                                                      96    98   00      02   04   06   08     10
reflected in the income elasticities of the OECD and non-OECD areas, which are seen at
0.44 and 0.58, respectively.                                                                    Source: Reuters EcoWin, Danske Markets.


The reason that China and non-OECD countries in general have higher oil demand per
unit of GDP is mainly that they are at an earlier stage of economic development
compared to e.g. Europe and the US. Indeed, differences derive from the fact that many
emerging markets are still trailing behind the developed world with respect to investments
in more fuel-efficient machineries, vehicles, appliances, etc. The utilisation of alternative
energy sources is also less common but will likely increase in the future as high oil prices
induce switching to alternatives. Furthermore, the politicians’ ambitions to curb oil
demand have also been more ambitious in the OECD countries than in non-OECD
countries where subsidies to fossil fuels are still widespread.

The combination of higher income elasticity in the non-OECD area as well as faster
economic growth over the last decade explains the convergence of oil demand between
the OECD and non-OECD area.




15 |   06 August 2012
                                                                                                www.danskeresearch.com
Commodities Quarterly




To arrive at an estimate for global oil demand we use the estimated demand relations for
the OECD and non-OECD area together with our economists’ forecasts for GDP growth
this year and the next.



Oil supply: an OPEC reaction function
On the supply side, we have estimated price and reserve elasticities by regressing oil
                                                                                                Oil supply: OPEC and non-OPEC
supply on Brent oil price and proven reserves for the OPEC and non-OPEC area. In the
                                                                                                55                                                                 55
regressions we have temporarily disregarded the effects of geopolitical shocks on the oil             mb/d                  non-OPEC
supply by not including any dummies, but adjust for it in our final forecast of oil supply.     50                                                                 50


                                                                                                45                                                                 45
The results from the regressions of oil supply are illustrated below. As expected, the
supply of oil is positively related to an increase in oil prices and in proven oil reserves.    40
                                                                                                                                    OPEC
                                                                                                                                                                   40

This is especially true in the OPEC area, where the estimated reserve elasticity is 0.22 vs     35                                                                 35
0.11 for non-OPEC, i.e. a 10% increase in proven reserves imply a 1.1% rise in supply.
                                                                                                30                                                                 30
The estimated price elasticity is 0.09 for OPEC vs. 0.05 for the non-OPEC region. Thus,
                                                                                                25                                                                 25
OPEC reacts more swiftly to both factors than countries outside of the cartel, illustrating
                                                                                                      96     98   00   02      04    06        08    10    12
that the OPEC response is more like an actual reaction function where the cartel changes
output deliberately in the face of price changes and has relatively cost-effective access to    Source: Reuters EcoWin, Danske Markets.

drill their oil reserves compared with the non-OPEC region, which generally produce as
much as possible given capacity at any given point in time.

Oil supply elasticities
                                    Proven reserves     Price
       0.25

       0.20

       0.15

       0.10

       0.05

       0.00
                             OPEC                               Non-OPEC

Source: Reuters EcoWin, Danske Markets



Hence, our relation for non-OPEC supply has a less obvious interpretation than that of
OPEC; indeed, equilibrium correction is more pronounced for OPEC. As a result, when            Proven reserves: OPEC and non-OPEC
making projections for non-OPEC output, we rely on those from the International Energy         1200                                                             1200
                                                                                               1100 bn bbl                        OPEC                          1100
Agency (IEA). For OPEC crude supply, the IEA do not (for political reasons) provide an         1000                                                             1000
outright forecast; rather the IEA calculates the so-called “call on OPEC and stock              900                                                              900
                                                                                                800                                                              800
change”, i.e. how much OPEC must supply to exactly balance the world market
                                                                                                700                                                              700
conditional on IEA projections for demand and non-OPEC production. Thus we employ               600                                                              600
                                                                                                500                                                              500
our OPEC reaction function for this purpose and make necessary amendments to take                                       non-OPEC
                                                                                                400                                                              400
extraordinary OPEC decisions into account.                                                      300                                                              300
                                                                                                200                                                              200
Similarly to the demand side, we use the estimated elasticities together with our own           100                                                              100
                                                                                                      96     98   00   02    04     06    08    10    12
projections for proven reserves. While the latter is subject to a great deal of uncertainty,
as a starting point we use the compounded annual growth rate of 3.4% over the last three       Source: BP Statistical Review 2012.
decades. This seems reasonable in the absence of unusual new findings as smaller
discoveries in mature basins are being offset by larger discoveries in more remote places.




16 |   06 August 2012
                                                                                               www.danskeresearch.com
Commodities Quarterly




Forecasting changes in oil prices
Having checked that both the demand and supply relations constitute stationary relations
and that these qualify for the postulated interpretations, we use deviations from the             Deviations from demand equilibrium
equilibrium relations (measures of disequilibria on the supply and demand side,                   0.03                                                                                              0.03



respectively) in order to predict changes in oil prices (see charts). As opposed to the           0.02
                                                                                                           Global demand
                                                                                                                                                                                                    0.02

                                                                                                           equilibrium
demand models described in the previous sections which were split into OECD/non-                  0.01                                                                                              0.01



OECD, we consider here global oil demand, i.e. a single equilibrium relation. It turns out        0.00                                                                                              0.00



the main explanatory factor on the supply side is the lagged change in OPEC supply                -0.01                                                                                             -0.01


(rather than deviations from the supply relations). Lagged changes in EUR/USD and the             -0.02                                                                                             -0.02


oil price itself are also included. With this specification all coefficients are statistically    -0.03                                                                                             -0.03


significant at the 10% level and have intuitive signs; the explanatory power of our ECM           -0.04                                                                                             -0.04

model (R2 = 52%) outperforms (on this goodness of fit measure) a simple autoregressive            -0.05                                                                                             -0.05

model with four lags (AR4) of the first differences in oil price (R 2 = 32%).                             94   95   96   97   98   99   00   01   02   03   04   05   06   07   08   09   10   11



                                                                                                  Source: Danske Markets.
Looking at recent developments, we note that the long-run demand model suggests that
global oil consumption was below the level suggested by fundamentals in 2011. All else
equal, this should imply a move lower in oil prices in 2012 according to our model.               Deviations from supply equilibrium
Similarly, the long-run supply model suggests that global oil supply was below the level          0.05                                                                                              0.05


dictated by fundamentals last year, hinting at upward pressure on oil prices this year. The       0.04                                                                                              0.04


EUR/USD spot exchange rate declined during the course of 2011 and which drags the                 0.03                                                                                              0.03



2012 oil-price forecast in a negative direction as does last year’s oil-price increase (mean-     0.02
                                                                                                           Global supply
                                                                                                           equilibrium
                                                                                                                                                                                                    0.02


                                                                                                  0.01                                                                                              0.01
reversion effect). On the whole, our simple oil-price model suggests oil prices should fall
                                                                                                  0.00                                                                                              0.00
slightly this year and average 92USD/bbl this year (from USD107 in 2011) (only one-step
                                                                                                  -0.01                                                                                             -0.01

ahead forecasting possible and hence no 2013 forecast is provided). The model is                  -0.02                                                                                             -0.02


naturally not able to capture all the shocks and sudden market movements affecting the            -0.03                                                                                             -0.03


oil price, but when compared to e.g. a simple AR4 model, it proves to be a useful tool            -0.04                                                                                             -0.04



when forecasting broad movements in the oil price, and not least in understanding how             -0.05
                                                                                                          94   95   96   97   98   99   00   01   02   03   04   05   06   07   08   09   10   11
                                                                                                                                                                                                    -0.05



disequilibria on both the demand side and OPEC reactions affect the oil market.
                                                                                                  Source: Danske Markets.




Forecasting oil prices (in levels)
 120 USD/bbl                                                                            120
                                          Actual - ICE Brent         AR(4) model
 110                                                                                    110
 100                                                                                    100
  90                                                                Forecast 2012:       90
  80                                                                USD92/bbl            80
  70                                                                                     70
  60                                                           Danske ECM model          60
  50                                                                                     50
  40                                                                                     40
  30                                                                                     30
  20                                                                                     20
  10                                                                                     10
      98     00           02      04      06      08      10   12     14      16


Source: Reuters Ecowin, Danske Markets.




17 |   06 August 2012
                                                                                                 www.danskeresearch.com
Commodities Quarterly




Energy charts
Crude oil prices                                                                    WTI futures curve
       150 USD/barrel                                       USD/barrel        150          90.5                                                                                                        90.5
       140                                                                    140                  USD/barrel                                                                      USD/barrel
       130                                                                    130          90.0                                                                                                        90.0
                 WTI 1-pos, NYMEX           Brent, 1-pos
       120                                                                    120          89.5                                                                                                        89.5
       110                                                                    110
       100                                                                    100          89.0                                                                                                        89.0
        90                                                                     90
        80                                                                     80          88.5                                                                                                        88.5
        70                                                                     70
                                                                                           88.0                                                                                                        88.0
        60                                                                     60
        50                                                                     50          87.5                                                                                                        87.5
        40                                                                     40                                                              Last valid
                                                                                           87.0                           One month ago                                                                87.0
        30                                                                     30
             06         07        08   09   10         11           12                             1          3     5        7    9       11        13      15    17      19       21        23



Source: Ecowin                                                                      Source: Ecowin




Natural Gas, Henry Hub, 1-pos                                                       Fuel Oil, 3.5% CIF NWE
       14                                                                     14     800                                                                                                      USD/ton         800
             USD/mmBtu                                          USD/mmBtu                  USD/ton
       13                                                                     13
       12                                                                     12     700                                                                                                                      700
       11                                                                     11
       10                                                                     10     600                                                                                                                      600
        9                                                                      9
                                                                                     500                                                                                                                      500
        8                                                                      8
        7                                                                      7
                                                                                     400                                                                                                                      400
        6                                                                      6
        5                                                                      5     300                                                                                                                      300
        4                                                                      4
        3                                                                      3     200                                                                                                                      200
        2                                                                      2
        1                                                                      1     100                                                                                                                      100
               06        07      08    09   10             11         12                   04           05           06          07            08           09            10            11             12



Source: Ecowin                                                                      Source: Ecowin




Gasoline RBOB, 1-pos NYMEX                                                          RBOB gasoline futures curve
       400                                                                    400          2.90                                                                                               2.90
              c/gallon                                            c/gallon                         USD/gallon                                                                      USD/gallon 2.85
                                                                                           2.85
       350                                                                    350
                                                                                           2.80                                                                                                        2.80
       300                                                                    300          2.75                                                                                                        2.75

       250                                                                    250          2.70                                                                                                        2.70
                                                                                           2.65                                                                                                        2.65
       200                                                                    200
                                                                                           2.60                                                                                                        2.60
       150                                                                    150          2.55                                                                                                        2.55
                                                                                           2.50                                                                                                        2.50
       100                                                                    100
                                                                                           2.45              Last valid                                                                                2.45
        50                                                                    50                                                                                      One month ago
                                                                                           2.40                                                                                                        2.40
                 06      07      08    09   10         11           12
                                                                                                    0         1      2       3        4    5         6       7        8        9    10       11


Source: Ecowin                                                                      Source: Ecowin




Heating oil, 1-pos NYMEX                                                            Coal, 1-pos, API2
       4.5                                                                    4.5      225                                                                                                              225
             c/gallon                                              c/gallon                       USD/ton                                                                                USD/ton
       4.0                                                                    4.0      200                                                                                                              200
                                                                                                             Coal API2 1.pos. future
                                                                                       175                                                                                                              175
       3.5                                                                    3.5
                                                                                       150                                                                                                              150
       3.0                                                                    3.0
                                                                                       125                                                                                                              125
       2.5                                                                    2.5
                                                                                       100                                                                                                              100
       2.0                                                                    2.0
                                                                                           75                                                                                                               75
       1.5                                                                    1.5          50                                                                                                               50

       1.0                                                                    1.0          25                                                                                                               25
                06       07      08    09   10         11            12                           03         04         05       06       07         08          09       10        11            12



Source: Ecowin                                                                      Source: Ecowin




18 |        06 August 2012
                                                                                                                                 www.danskeresearch.com
Commodities Quarterly




Electricity price, Nordpool, 1-pos, quarterly                                         Emission rights, CO2, ICE ECX
 90                                                                              90     35                                                                                            35
        EUR/mwh                                                  EUR/mwh                        EUR/mt                                                                      EUR/mt
                                                                                                                          Carbon Dioxide, emission right
 80                                                                              80     30                                                                                            30
               1. pos. quarterly forward
 70                                                                              70
                                                                                        25                                                                                            25
 60                                                                              60
                                                                                        20                                                                                            20
 50                                                                              50
                                                                                        15                                                                                            15
 40                                                                              40
                                                                                        10                                                                                            10
 30                                                                              30

 20                                                                              20
                                                                                            5                                                                                          5
         04      05        06        07     08     09       10   11       12                      05       06         07          08         09            10          11     12



Source: Ecowin                                                                        Source: Ecowin




Bunker fuel oil and crack spread                                                      Total crude oil stock, EIA
   150                                                                         150
                                                                                                                                                                               mb
                                                                                      380 mb
             USD/barrel
   125                                                                         125                                                             2012                                    380
                                                   ICE Brent
   100                                                                         100
                   Fuel oil 3.5% CIF NWE                                              360                                                                                              360
       75                                                                      75                                                                                    2011
                                                                                      340                                                                                              340
       50                                                                      50
                                                                                                                     Mean 2006-2010
       25                                                                      25     320                                                                                              320
        0                                                                       0     300                                                                                              300
       -25                                                                     -25
                                                                                      280                                               Min/max last 5 years                           280
       -50                             Fuel-oil crack spread                   -50
                                                                                                W         W     W                    W                     W                 W
       -75                                                                     -75               1         7         13               25                        37               49
          02          04             06       08         10       12

                                      2007
Source: Ecowin                                                                        Source: Ecowin




Gasoline stock, EIA                                                                   Gasoline crack spread, NYMEX 1-pos
                                                                                      45                                                                                                   45
 250 mb                                    Min/max last 5 years       mb 250                    USD/barrel
                   2011                                                               40                                                                               USD/barrel          40
                                                                                      35                                                                                                   35
 230                                                                            230
                                                                                      30                                                                                                   30
                                                                                      25                                                                                                   25
 210                                                                            210   20                                                                                                   20

 190
                                      2007
                                    2012 Mean 2005-2009                         190
                                                                                      15                                                                                                   15
                                                                                      10                                                                                                   10
                                                                                       5                                                                                                      5
 170                                                                            170    0                              Min/Max                                                                 0
         W       W         W              W             W             W                -5
                                                                                                                      last 5
                                                                                                                                                                                            -5
          1       7            13          25               37            49          -10                                                                                                  -10
                                                                                                 06            07     years 09
                                                                                                                        08                            10               11      12




Source: Ecowin                                                                        Source: Ecowin




Distillate stock, EIA                                                                 Heating oil crack, NYMEX 1-pos
                                                                                         -30                                                                                            -30
 180 mb                                                                mb 180                     USD/barrel                                                         USD/barrel
                                                                                         -40                                                                                            -40
                   2011                                                                  -50                                                                                            -50
 160                                                                            160      -60                                                                                            -60
                                                                                         -70                                                                                            -70
 140                                                                            140      -80                                                                                            -80
                              Min/Max 2005-2009
                                     Mean                                                -90                                                                                            -90
 120                          last 5                                            120    -100                                                                                           -100
                           2012                                                        -110                                                                                           -110

 100                          years Min/max last 5 years                        100    -120                                                                                           -120
                                                                                       -130                                                                                           -130
         W       W         W              W             W             W                -140                                                                                           -140
          1       7            13          25               37            49           -150                                                                                           -150
                                                                                                     06         07          08          09          10               11     12



Source: Ecowin                                                                        Source: Ecowin




19 |     06 August 2012         Min/Max
                                                                                                                           www.danskeresearch.com
                                last 5
Commodities Quarterly




Base metals: Diverging prospects
Following a strong January, base metals traded at the London Metal Exchange (LME)
                                                                                                                                           Quarterly changes
have generally been trending lower. Copper is little changed year-to-date whereas
aluminium and notably nickel are down compared with their New Year levels. LME steel                                                                             %, 3m chg
                                                                                                                                                      Gold
billet prices have plummeted this year albeit the drop is less pronounced for the NYMEX
                                                                                                                                                     Steel
hot rolled coil contract. Patterns seen in stocks-to-consumption ratios have been diverging
                                                                                                                                                      Zinc
however with notably the copper market tightening (on this measure) while nickel                                                                    Nickel
fundamentals appear to have eased somewhat. Also, the familiar picture of plentiful                                                                   Lead
aluminium stocks remains.                                                                                                                          Copper
                                                                                                                                             Aluminium
LME 3M prices                                                           LME metal stocks to consumption
                                                                                                                                                             -25 -20 -15 -10 -5               0
120                                                               120   15.0                                                        15.0
       index (01/01/12=100)                                                    % annual cons
                                                                                                                                           Source: Bloomberg, Danske Markets.
115                                                               115
                                              Aluminium                 12.5                                                        12.5
                                                                                                         Aluminium
110                                                               110
                                                                        10.0                                                        10.0
105                                                               105

100                                                               100    7.5                                                         7.5
                                                                                                     Nickel
 95                                                                95
                                                                         5.0                                                         5.0
                                                                                                               Zinc
 90                                                                90                                                      Copper
                                                                         2.5                                                         2.5
 85                LME 3M copper                                   85
                                     Zinc           Nickel
 80                                                                80    0.0                                                         0.0
        Jan       Feb   Mar    Apr   May      Jun      Jul                      07     08       09        10          11      12
                                12


Source: Reuters EcoWin, Danske Markets.                                 Source: Reuters EcoWin, Danske Markets.




China avoiding a hard landing
Global growth concerns in general and worries over China in particular have weighed on
                                                                                                                                           Chinese imports
metal prices and curbed upside in recent months. Our economists are, however, fairly
                                                                                                                                           125                                                       125
confident that China will avoid a hard landing: recent data has been better than feared and                                                       % y/y          Aluminium                   % y/y
importantly there are now some first signs of a stabilisation in the property market, which                                                100                                                       100

has been a key concern for the country. The People’s Bank of China (PBoC) has cut                                                           75                                             Copper    75

reserve requirements as well as policy rates and these easing measures appear to                                                            50                                                       50

gradually be working their way through to the real economy. Our economists expect GDP                                                       25                                                       25
                                                                                                                                                                                           Zinc
growth to revert back above trend in H2 and stay above 8% q/q (annualised) in 2013.                                                          0                                                        0

Overall, this outlook bodes well for the cyclical metals. Still, after a strong start to to                                                 -25                                                      -25
2012, Chinese import growth in metals declined in H1 – not least nickel was hit by                                                                                           Nickel
                                                                                                                                            -50                                                      -50
weakness, likely as stainless steel producers cut back production and hence demand for                                                                    11                          12

nickel in face of falling steel prices.
                                                                                                                                           Source: Reuters EcoWin and Danske Markets



Chinese GDP and industrial prod                                         Chinese housing market
30     % q/q AR           <<Industrial                             16   20 Diffusion                                                170
                                                     % q/q AR                                                  Index (2006=100)
                          production                                    10                                                          160
25                                                                 14
                                                                         0                                                          150

20                           GDP growth>>                          12   -10                                                         140
                                                     forecast
                                                                        -20                                                         130
15                                                                 10
                                                                        -30                                                         120
                                                                        -40                                                         110
10                                                                  8
                                                                        -50                           Home sales >>                 100
 5                                                                  6   -60                                                          90
                                                                                                                                           Senior Analyst
                                                                        -70                                                          80    Christin Tuxen
 0                                                                  4
                                                                        -80                                                          70    +45 4513 7867
                                                                                          << Demand-supply balance
 -5                                                                 2   -90                                                          60    tux@danskebank.dk
        07        08    09      10       11     12           13                07    08        09        10           11      12




Source: Reuters EcoWin and Danske Markets                               Source: Reuters EcoWin and Danske Markets


20 |     06 August 2012
                                                                                                                                           www.danskeresearch.com
Commodities Quarterly




Our economists think that an overly dire outlook is priced in for China in the coming
quarters, not least considering the significant room for manoeuvre available to both fiscal
and monetary policy makers in the country. Add the fact that the structural story for
China (for example, population growth, and urbanisation) in our view remains intact and
we thus still look for some underlying upward pressure on metal prices going forward.


Longer term, watch cost pressure
The combination of rising operating costs within the mining industry, high capital              Copper production at major mines
intensity of mine projects and restrictions on access to financing are increasingly posing a    (kt/year)
potential threat to longer-term supply. According to Brook Hunt, marginal cash operating         600             Andia (Chile)
costs for particularly nickel and copper have more than trebled since the 1980s, mainly                          El Teniente (Chile)
due to a shortage of skilled labour. In certain locations, shortages of water and power are                      Olympic Dam (Australia)
also acute and, at best, raising costs if not actually hampering operations. At the same         400
time, the average capital intensity of metal projects has surged for nickel in particular but
also copper where the required incentive price of Greenfield projects is estimated to be
                                                                                                 200
close to USD6,000 per MT over the next ten years compared with USD3,500 in the past
decade. A key reason for this is geology: lower ore grades mean that more rock material
must be processed in order to obtain the same amount of refined metal compared with                 0
earlier. Despite low interest rates across most developed markets, credit restrictions are           1990 1995 2000 2005 2010

potentially leading some mining companies to defer spending plans simply due to a lack          Source: Bloomberg, Danske Markets.

of financing. On the whole, these factors combine to make the outlook for much needed
capacity extensions in, for example, nickel and copper, bleak.

As a result of waning production prospects, deficits are likely to emerge for a range of
metals looking 5-10 years ahead. Projections from Brook Hunt suggest that zinc is in for a
significant deficit by 2025 even taking ‘possible’ (vs ‘probable’) supply into account due
to a pronounced decline in zinc ore grades, from close to 8% in 2000 to now standing
close to 2%. Nickel will be more or less balanced contingent on “possible” supply sources
delivering, with around a third of supply deriving from scrap. For copper, a balanced
market would require that both secondary sources are exploited and that new mines start
producing; supply prospects are decent but costs are set to remain high as the capital
intensity of Greenfield projects is markedly higher than Brownfield ones. In contrast,
aluminium could be in for a marked rise in production and a sustained deficit is unlikely
to be seen within the next decade.

Copper cost curve                                Aluminium cost curve                           Nickel cost curve




Source: Brook Hunt, Danske Markets.              Source: Brook Hunt, Danske Markets.            Source: Brook Hunt, Danske Markets.




21 |   06 August 2012
                                                                                                www.danskeresearch.com
Commodities Quarterly




The supply response to changes in prices depends crucially on the form of the cost curve
for each metal. Recall that the cost curve illustrates the percentage of producers that break
even at different price levels. Hence, the slope of the cost curve is important as it shows
how responsive producers are when prices changes: the steeper the cost curve, the larger
the supply response to changing prices. However, as cost curves are often not linear, the
level of the curve relative to actual prices is also key as this determines the response of
the marginal producer when prices change.

In aluminium, the curve is fairly flat around the current price level suggesting a high          Danske Markets relative metals
degree of responsiveness to price changes; at current prices only 40% of producers are           forecasts
making a profit but should prices rise above USD2,000 per MT, more than half of                  108
                                                                                                       index (Sep-12=100)
                                                                                                                                                             108

aluminium smelters would at least break even in producing and thus lure more supply to           107                            Copper                       107

                                                                                                 106                                                         106
the market. In contrast, the copper cost curve is very steep at current prices and is close to                                                  Gold
                                                                                                 105                                                         105
full production, suggesting that additional supply would require much higher prices (to
                                                                                                 104                                                         104
                                                                                                                                         Nickel
the extent that it is at all technologically feasible to increase output). The nickel curve is   103                                                         103
similar to copper but the intersection with the current price level is at a point where the      102                                                         102

curve is almost flat and thus a small increase in prices at present levels would provide a       101                                                         101
                                                                                                                                                Aluminium
                                                                                                 100                                                         100
relatively large increase in supply.
                                                                                                  99                                                          99
                                                                                                          12                        13
This generally suggests that there is little downside to copper prices at current levels of
demand as a price drop would quickly wipe out supply. Aluminium prices should be kept            Source: EcoWin, Danske Markets.
in check on both sides: a drop would depress supply whereas a rise would spark more
output. For nickel, the situation is a mix of the two: at current prices, production reacts
swiftly to prices but should the outlook for a market that could easily move into a deficit
hold true, then the price increase could be significant as a move towards the steep end of
the cost curve would be seen.


Copper: to benefit from Chinese swivel
LME copper saw a pronounced sell-off during the month of May and after stabilising
                                                                                                 Copper: LME price and stocks
around the USD7,400 level in June, prices have edged higher during the past month. We
                                                                                                 600000                                                 12000
are still far below the records of early 2011 though. Copper stocks at the LME have              550000 MT                   Copper, LME     USD/MT 11000

dropped markedly from the highs of late 2011 notwithstanding a mid-2012 increase but             500000 << LME stocks                                   10000
                                                                                                 450000                                                     9000
inventories have stabilised of late.                                                             400000                                                     8000
                                                                                                 350000                                                     7000
Physical premia dropped in May in both China and Europe but have since increased,                300000                                                     6000
suggesting that the physical market has tightened a little. Scrap discounts, i.e. the price of   250000                                                     5000
                                                                                                 200000                                                     4000
secondary material relative to the price of LME grade A copper, have eased as the use of
                                                                                                 150000                                                     3000
scrap has risen. Treatment and refining charges (TC/RC) picked up earlier in the year but        100000                                                     2000
                                                                                                  50000                                                     1000
have dropped somewhat again of late, hinting that mining output is waning and thus
                                                                                                          07    08      09        10       11      12
refiners are lowering their charges to attract business from miners.
                                                                                                 Source: Reuters EcoWin, Danske Markets


Physical premium                                  Scrap discount

           Copper grade A Europe premium                  Copper scrap EU (EUR/1000kg)
       120 (USD/ton)                              7000
       100                                        6000
                                                  5000
        80
                                                  4000
        60
                                                  3000
        40                                        2000
        20                                        1000
         0                                           0
         2006      2008        2010                   2006     2008        2010

Source: Bloomberg, Danske Markets                 Source: Bloomberg, Danske Markets



22 |    06 August 2012
                                                                                                 www.danskeresearch.com
Commodities Quarterly




The market continues to be in a global deficit as has been the case for some years now.
New mines are being set up and existing ones extended but as discussed above, costs are
high. In the year to March both mine and refined production picked up a little, notably
due to a significant ramp-up in China and Australia whereas Chilean output has been
largely unchanged. The Escondida mine is set for a major expansion but elsewhere in
Chile the national mining company, Codelco, is struggling to sustain output as mines are
ageing. The Grasberg mine in Indonesia is another example of falling production at
existing mines with supply down 75% on the year.

Expansions to copper mines 2011-14 (top five)

                        Copper mine capacity (Kt) - 2011              2012         2013         2014
  1000
       800                                                       Global production 2011: 7,560
       600
       400
       200
        0
                       Chile              Chile               Chile             Mongolia                  Peru
                 Escondida             Los Bronces        Ministro Mina         Oyu Tolgoi          Antapaccay
                                                             Hales

Source: Brook Hunt, Danske Markets.




Consumption of refined material has increased in China while demand in the EU, Russia
                                                                                                                               US durable goods and copper demand
and Japan alike has faltered. The weakness in Chinese import growth thus partly derives
                                                                                                                               40                                                        40
from the fact that domestic production has been upped markedly. In the US, recent data                                               % y/y                                       % y/y
                                                                                                                               30                    NAFTA copper consumption            30
on durable goods orders underline that demand is rather soft at the moment with knock-on                                                  US durable goods orders
                                                                                                                               20                                                        20
effects for copper consumption in the NAFTA region.
                                                                                                                               10                                                        10

                                                                                                                                0                                                         0
Refined market balance                                          Asian copper market deficit
                                                                                                                               -10                                                       -10
 200000                                 mn MT/month 2.25       1.2                                                       1.2
            MT/month
                                                                                                                               -20                                                       -20
 150000                  << Copper market balance      2.00    1.1 MT/month                                              1.1
                                           Supply >>           1.0                                                       1.0   -30                                                       -30
                                           Demand >>
 100000                                                1.75
                                                               0.9                                                       0.9   -40                                                       -40
  50000                                                1.50    0.8                                                       0.8         96      98   00   02   04   06    08   10    12
                                                               0.7                                                       0.7
        0                                              1.25
                                                               0.6              Asia copper consumption                  0.6
 -50000                                                1.00    0.5                                                       0.5   Source: WBMS, Reuters EcoWin, Danske Markets
                                                               0.4                                                       0.4
-100000                                                0.75
                                                               0.3                         Asia copper production        0.3
-150000                                                0.50    0.2                                                       0.2

-200000                                                0.25    0.1                                                       0.1
            07   08       09      10      11      12                  07   08        09        10         11        12




Source: WBMS, Reuters EcoWin, Danske Markets                    Source: WBMS, Reuters EcoWin, Danske Markets


The H1 sell-off has implied a downward level shift in the copper forward curve. But the
front end has changed shape and is now in a small contango with 2013 prices some
USD20 per MT above spot. The curve remains in backwardation beyond 2013 as has
been the case since early 2009 hinting at tightness in the shorter term whereas prices are
expected to weaken further out. The option skew in copper is clearly negative, suggesting
that the market is wary of a relatively large drop in copper prices by the end of this year.
In our view, this reflects an overly pessimistic view on the outlook for demand.




23 |    06 August 2012
                                                                                                                               www.danskeresearch.com
Commodities Quarterly




Earlier this year, investors turned bearish on copper according to COMEX data. In the
aftermath of the financial crisis of 2008, copper quickly became an investor favourite but
recent fears of a hard landing in China have led some to question the potential of the red
metal. Thus, from a pure positioning point of view, there should be potential for copper to
fight back in the near term.

LME copper forward curve                                          COMEX non-com positioning in copper
 8300                                                      8300   50                                                    11000
                                                USD/MT
 8200                                                      8200         1000 contracts                        USD/MT
                                                                  40                                                    10000
 8100                                                      8100                Copper, 3M LME >>
                                            3M ago                30                                                    9000
 8000                                                      8000
                                                                  20                                                    8000
 7900                                                      7900
 7800                                                      7800   10                                                    7000
 7700                                                      7700    0                                                    6000
 7600               Last valid                             7600
                                                                  -10                                                   5000
 7500                                                      7500
                                                                  -20                                                   4000
 7400                                                      7400
 7300                                                      7300   -30                                                   3000
                                                                                                                                  Copper forecast vs forward
                                                                  -40           << Non-com net long pos. (COMEX)        2000
 7200                                                      7200
        1   5   9       13       17   27   39    51   63                07    08         09     10       11        12             10000                                                        10000
                                                                                                                                             USD/ton
                                                                                                                                   9000                                                         9000

                                                                                                                                   8000                                                         8000
Source: Reuters EcoWin, Danske Markets                            Source: Reuters EcoWin, Danske Markets
                                                                                                                                   7000                                             Forward     7000

                                                                                                                                                       LME copper
                                                                                                                                   6000                incl. Danske forecast                    6000

                                                                                                                                   5000                                                         5000
On balance, we think the market has turned overly bearish on copper. The most
                                                                                                                                   4000                                                         4000
cyclically-sensitive base metal, in our view, stands to benefit from a turnaround in
                                                                                                                                   3000                                                         3000
Chinese demand and the improvement in risk sentiment that QE3 should provide. We                                                              09         10        11          12        13
think the market is currently overly optimistic regarding copper output but a key risk is
                                                                                                                                  Source: Bloomberg, EcoWin, Danske Markets
that supply could surprise on the upside. We look for copper to average USD7,940 in
2012 (prev. USD7,890) and USD8,150 in 2013 (prev. USD8,300). This is still clearly
above forward pricing.



Aluminium: braced for weakness
The price of aluminium has continued to decline this year as LME inventories have stabilised                                     Aluminium: LME price and stocks
at record high levels. Prices are now almost USD1,000 below the post-crisis peak reached in
                                                                                                                                 5500                                                          3750
                                                                                                                                        1000 MT          Aluminium, LME 3M >> USD/MT
early 2011. Hence although financing deals, in which the contango forward curve is exploited                                     5000                                                          3500
                                                                                                                                        << LME stocks
such that metal is brought in the spot market and sold forward at a premium, are likely to                                       4500                                                          3250

continue to be widespread, aluminium is starting to bow to its weak fundamentals.                                                4000                                                          3000
                                                                                                                                 3500                                                          2750

On a global scale, the aluminium market balance continues to see a surplus as has been the                                       3000                                                          2500
                                                                                                                                 2500                                                          2250
case every month with a few exceptions since 2008. Production continues to be upped in
                                                                                                                                 2000                                                          2000
Asia driven largely by Chinese additions, whereas facilities are being closed down in mainly                                     1500                                                          1750
Africa and western Europe. Expansions to smelting capacity are almost solely being seen in                                       1000                                                          1500
                                                                                                                                 500                                                           1250
China.
                                                                                                                                        07      08          09        10            11    12

Demand remains healthy on a global scale with softness in Europe offset by Asian and North
American strength in the past 12 months. Car sales in both the US and China have been                                            Source: Reuters EcoWin and Danske Markets
healthy this year, thus adding to demand for aluminium from the automotive industry.




24 |    06 August 2012
                                                                                                                                www.danskeresearch.com
Commodities Quarterly




Aluminium: global market balance                          Asian aluminium deficit
 600000                                         4.25      2.5                                                   2.5
                                                                                                                       Car sales
            MT/month                                          mn MT/month
                       << Aluminium mn MT/month           2.4                                                   2.4
 500000                market balance           4.00                    Asia alu consumption                           125                                                                    125
                                                          2.3                                                   2.3                                                                   % y/y
                                                                                                                              % y/y
                             Demand >>                    2.2                                                   2.2
 400000                                            3.75                                                                100             China, passenger cars,                                 100
                         Supply >>                                                                                                             domestic sales
                                                          2.1                                                   2.1
 300000                                            3.50   2.0                                                   2.0     75                                                                     75
                                                          1.9                                                   1.9
 200000                                            3.25
                                                          1.8                                                   1.8     50                                                                     50
 100000                                            3.00   1.7                                                   1.7
                                                          1.6                                                   1.6     25                                                                     25
                                                                                       Asia alu production
        0                                          2.75   1.5                                                   1.5
                                                                                                                         0                                                                      0
                                                          1.4                                                   1.4
-100000                                            2.50
                                                          1.3                                                   1.3
                                                                                                                        -25                                                                    -25
-200000                                            2.25   1.2                                                   1.2
                                                                                                                                                                US motor vehicle sales
            07    08    09     10        11   12              07    08       09        10         11       12           -50                                                                    -50
                                                                                                                                  06       07      08       09         10        11    12



Source: WBMS, Reuters EcoWin, Danske Markets              Source: WBMS, Reuters EcoWin, Danske Markets
                                                                                                                       Source: Reuters EcoWin, Danske Markets




Aluminium premia remain relatively high despite the market surplus and elevated LME
inventories. A tight physical market despite a large stock overhang points to financial
deals still omnipresent with the light metal. While no official statistics provide a precise
overview of how much LME material is tied up in cash-and-carry trading, the fact that
warehousing costs and funding costs remain low enough to incentivise buying aluminium
spot and selling it forward suggests that this practice is still widely used as has been the
case since the contango forward curve appeared back in 2007.

Current cost pressures are significant with alumina prices at levels not seen since 2008,
before the escalation of the financial crisis and energy prices remain at relatively high
levels, both adding to aluminium production costs.

Physical premia                                           Alumina

                 Aluminium HG (99.7%) ingot EU                           Alumina spot FOB (USD/ton)
       600       premium (USD/ton)                            500

       500                                                    400
       400                                                    300
       300
                                                              200
       200
                                                              100
       100
        0                                                         0
        2006            2008         2010


Source: Bloomberg, Danske Markets.                        Source: Bloomberg, Danske Markets.

                                                                                                                       Aluminium forward curve
                                                                                                                       2600 USD/MT                                                           2600
The option market has seen volatility drop over the past three months but the market
                                                                                                                       2500                                                                  2500
continues to price in a large probability of price declines in aluminium compared to price
                                                                                                                       2400                        3M ago                                    2400
increases for e.g. December 2012, i.e. a negative risk reversal. However, we think the
                                                                                                                       2300                                                                  2300
fears of price declines for this year are overdone as exceptionally low interest rates hint
                                                                                                                       2200                                                                  2200
that it will continue to be profitable to roll over financial deals and thus tie up a good deal
                                                                                                                       2100                                                                  2100
of LME metal that way round.
                                                                                                                       2000                                                                  2000
                                                                                                                                                            Last valid
                                                                                                                       1900                                                                  1900

                                                                                                                       1800                                                                  1800
                                                                                                                              1        5     9     13    17       27        39   51     63



                                                                                                                       Source: Reuters EcoWin, Danske Markets.




25 |    06 August 2012
                                                                                                                      www.danskeresearch.com
Commodities Quarterly




We see very limited upside to aluminium prices over our forecast horizon as large LME
                                                                                                                                     Aluminium forecast vs forward
inventories and plenty of production capacity should keep prices within the range seen in
                                                                                                                                     2750                                             2750
the past year. But, similarly to copper, the predicted return of China and the Fed should                                                                                   USD/ton

limit any downside in H2 and in 2013 our outlook for energy prices to stay lofty should                                              2500                                             2500

give some support to prices despite a well-supplied market. With interest rates set to stay                                          2250                                             2250

close to zero for years to come, the unwinding of financial deals does not appear to be in
                                                                                                                                     2000                                             2000
the cards for the foreseeable future and hence the aluminium market could continue to be                                                                                    Forward
                                                                                                                                     1750                                             1750
‘artificially’ tight. We look for aluminium to average USD1,925 (prev.USD1,944) in                                                                  LME aluminium
                                                                                                                                                    incl. Danske forecast
2012 and USD1,850 (prev. USD2,138) in 2013. While we are above market pricing in the                                                 1500                                             1500

near term, we see more downside than forwards late 2013.                                                                             1250                                             1250
                                                                                                                                            09     10       11         12    13




Hedging: we recommend to lock in copper expenses                                                                                     Source: Bloomberg, Reuters EcoWin, Danske
                                                                                                                                     Markets
Our long-term fair-value models in fact disagree with our own view at present: copper is
seen above fair value whereas aluminium is below according to the latest run of our
models. Nevertheless, given that we have pencilled in some capped upside for most base
metals in 2013, consumers should generally consider locking in current prices, which we
view as attractive from a buying point of view. This is not least the case for copper
whereas for aluminium consumers may consider waiting for a 2013 sell-off before
locking in expenses.


LME copper: long-term fair value model                              LME alu: long-term fair value model
16000                                                               4000
15000      USD/ton                                                         USD/ton
14000                                                               3500                                                Actual
13000                                                                                                     (Aluminium, LME 3M)
12000                                                    Actual
                                              (Copper, LME 3M)      3000
11000
10000
                                                                                           Model
 9000                                                               2500
 8000
 7000                                                               2000
 6000
 5000                                                                                +/- 2 std. dev.
                                                     Model          1500
 4000
 3000
                       +/- 2 std. dev.
 2000                                                               1000
        07        08       09            10        11        12            07      08         09        10           11      12




Source: Reuters EcoWin, Danske Markets.                             Source: Reuters EcoWin, Danske Markets.

With respect to timing of any hedging decision, our short-term financial models currently
provide no clear indications of mispricing which could indicate a near-term correction.
We stress however that major setbacks are unlikely unless we are wrong in projecting a
return of China and the Fed in Q3. As a result, current forward pricing is in our view
rather attractive, notwithstanding the near-term contango situation for copper which has
recently appeared.

LME copper: short-term financial                                    LME aluminium: short-term financial
indicators                                                          indicators
 9000                                                        9000   2400                                                     2400
        USD/ton                                                            USD/ton
 8750                      Actual (Copper, LME 3M)           8750                       Model
                                                                    2300                                                     2300
 8500                                                        8500
                                                                    2200                                                     2200
 8250                                                        8250

 8000                                                        8000   2100                                                     2100

 7750                         +/- 2 std dev                  7750   2000                                                     2000
 7500                                                        7500
                                                                    1900                              Actual                 1900
 7250                                    Model               7250                        (Aluminium LME 3M)
                                                                    1800                                                     1800
 7000                                                        7000
                                                                                                             +/- 2 std dev
 6750                                                        6750   1700                                                     1700
     Oct      Dec Jan Feb Mar Apr May Jun            Jul                Oct       Dec Jan Feb Mar Apr May Jun          Jul
            11                 12                                               11                 12


Source: Reuters EcoWin, Danske Markets.                             Source: Reuters EcoWin, Danske Markets.

26 |    06 August 2012
                                                                                                                                    www.danskeresearch.com
Commodities Quarterly




Base metals charts
Copper, LME                                                                                           Copper forward curve, LME
 1.0                                                                                        11000      7750                                                                                                        7750
        Mill.ton                                           Copper, LME              USD/ton 10000             USD/ton                                                                                   USD/ton
 0.9                                                                                                   7700                                                                                                        7700
                   << LME stocks
 0.8                                                                                           9000
                                                                                                       7650                                                                                                        7650
 0.7                                                                                           8000
                                                                                                       7600                                                                                                        7600
 0.6                                                                                           7000
 0.5                                                                                           6000    7550                                                                                                        7550
 0.4                                                                                           5000    7500                                                                                                        7500
 0.3                                                                                           4000    7450                                                                                                        7450
 0.2                                                                                           3000
                                                                                                       7400                                                                                                        7400
 0.1                                                                                           2000
                                                                                                       7350                                                                                                        7350
 0.0                                                                                           1000                                                                  Last valid           Month ago
    96           98          00        02        04         06        08      10      12               7300                                                                                                        7300
                                                                                                              1         2       3       4       5       6        7      8    9 10 11 12 13 14 15 16 17 18


Source: Ecowin                                                                                        Source: Ecowin




Nickel, LME                                                                                           Nickel forward curve, LME
 225000                                                                                     55000        17000                                                                                                  17000
 200000       Thousand ton                                                          USD/ton 50000                    USD/ton                                                                          USD/ton
                                                                                                         16750                                                                                                  16750
 175000                                                                                       45000
                        << Stocks, LME       Nickel, LME >>
 150000                                                                                       40000      16500                                                                                                  16500
 125000                                                                                       35000      16250                                                                                                  16250
 100000                                                                                       30000
   75000                                                                                      25000      16000                                                                                                  16000

   50000                                                                                      20000      15750                                                                                                  15750
   25000                                                                                      15000
                                                                                                         15500                                                                                                  15500
          0                                                                                   10000
  -25000                                                                                      5000       15250                                              Month ago        Last valid                         15250
  -50000                                                                                         0
                                                                                                         15000                                                                                                  15000
        96             98         00        02        04      06         08   10      12
                                                                                                                     1      2       3       4       5       6       7   8    9 10 11 12 13 14 15 16 17 18


Source: Ecowin                                                                                        Source: Ecowin




Zinc                                                                                                  Zinc forward curve, LME
  1.1                                                                                       5500       1910                                                                                                     1910
  1.0    Mill. ton                                                                  USD/ton 5000                USD/ton                                                                                 USD/ton 1900
                                                                                                       1900
                            << LME stocks
  0.9                                                                                         4500     1890                                                                                                       1890
  0.8                                                                                         4000     1880                                                                                                       1880
                                  Zinc, LME >>
  0.7                                                                                         3500     1870                                                                                                       1870
  0.6                                                                                         3000     1860                                                                                                       1860
  0.5                                                                                         2500     1850                                                                                                       1850
  0.4                                                                                         2000     1840                                                                                                       1840
  0.3                                                                                         1500     1830                                                                                                       1830
  0.2                                                                                         1000
                                                                                                       1820                                                                                                       1820
  0.1                                                                                          500
                                                                                                       1810                                                                           Month ago                   1810
  0.0                                                                                            0                                                              Last valid
                                                                                                       1800                                                                                                       1800
     96          98          00        02        04          06       08      10       12
                                                                                                                1       2       3       4       5       6        7      8    9    10 11 12 13 14 15 16 17 18


Source: Ecowin                                                                                        Source: Ecowin




Lead, LME                                                                                             Lead forward curve, LME
  400000                                                                                      4000       1950                                                                                                  1950
               Thousand ton                                                         USD/ton                         USD/ton                                                                            USD/ton 1940
                                                                                                         1940
  350000                                                                                      3500
                      << Stocks, LME
                                                            Lead, LME >>                                 1930                                                                                                   1930
  300000                                                                                      3000
                                                                                                         1920                                                                                                   1920
  250000                                                                                      2500       1910                                                                                                   1910

  200000                                                                                      2000       1900                                                                                                   1900
                                                                                                         1890                                                                                                   1890
  150000                                                                                      1500
                                                                                                         1880                                                                                                   1880
  100000                                                                                      1000       1870                                                                                                   1870

   50000                                                                                       500       1860                                                                                                   1860
                                                                                                         1850                                                                                                   1850
           0                                                                                     0                                                              Last valid            Month ago
                                                                                                         1840                                                                                                   1840
            96          98        00        02        04         06      08    10      12
                                                                                                                    1       2       3       4           5       6       7    8    9   10 11 12 13 14 15 16


Source: Ecowin                                                                                        Source: Ecowin



27 |      06 August 2012
                                                                                                                                                              www.danskeresearch.com
Commodities Quarterly




Aluminium, LME                                                                                                      Aluminium forward curve, LME
 8                                                                                                     3500          2100                                                                                                                2100
       Mill. ton                                                                               USD/ton 3250                   USD/ton                                                                                         USD/ton
 7
                                                                                                                     2050                                                                                                                2050
 6                << LME stocks                                                                              3000
 5                                                                                                           2750
                                            Aluminium, LME >>                                                        2000                                                                                                                2000
 4                                                                                                           2500
 3                                                                                                           2250    1950                                                                                                                1950
 2                                                                                                           2000
 1                                                                                                           1750    1900                                                                                                                1900
 0                                                                                                           1500
                                                                                                                     1850                                                                                                                1850
-1                                                                                                           1250
                                                                                                                                                                                 Month ago           Last valid
-2                                                                                                           1000
                                                                                                                     1800                                                                                                                1800
  78 86            90        92   94    96       98    00       02      04        06   08     10      12                      1       2       3        4   5        6        7     8       9    10 11 12 13 14 15 16 17 18




Source: Ecowin                                                                                                      Source: Ecowin




Tin, LME                                                                                                            Tin forward curve, LME
  40000                                                                                                40000         19000                                                                                                            19000
              Ton                                                                           USD/ton                               USD/ton                                                                                   USD/ton
  35000                                                                                                35000         18750                                                                                                            18750
                                                                     Tin, LME >>
                        << Stocks, LME
  30000                                                                                                30000
                                                                                                                     18500                                                                                                            18500
  25000                                                                                                25000
                                                                                                                     18250                                                                                                            18250
  20000                                                                                                20000
                                                                                                                     18000                                                                                                            18000
  15000                                                                                                15000

  10000                                                                                                10000         17750                                                                                                            17750

     5000                                                                                                  5000      17500                                                                                                            17500
                                                                                                                                                                    Last valid                  Month ago
            0                                                                                                0       17250                                                                                                            17250
             96         98        00        02        04        06           08        10      12
                                                                                                                                  1       2        3       4        5        6    7        8    9    10 11 12 13 14 15 16


Source: Ecowin                                                                                                      Source: Ecowin




Spread between Shanghai and LME                                                                                     Metal price index and the ISM
  2500                                                                                                 12000         100                                                                                                                    65
             USD/ton                                                                        USD/ton
                                                                                                                            % y/y                      << Metal price index (HWWI)                                                  Index
  2250                             Shanghai Copper 1M>>                                                11000
                                                                                                                      75                                                                                                                    60
  2000                                                                                                 10000                                                                                             ISM >>
  1750                                                                  << Spread                          9000       50                                                                                                                    55

  1500                                                                                                     8000       25                                                                                                                    50
  1250                                                                                                     7000
                             LME 3M Copper >>                                                                          0                                                                                                                    45
  1000                                                                                                     6000
     750                                                                                                   5000       -25                                                                                                                   40
     500                                                                                                   4000       -50                                                                                                                   35
     250                                                                                                   3000
                                                                                                                      -75                                                                                                                   30
        0                                                                                                  2000
                    08                 09                  10                 11              12                         90        92             94           96        98           00        02        04      06   08     10    12



Source: Ecowin                                                                                                      Source: Ecowin




Steel Billets, LME                                                                                                  Stainless steel
       1300                                                                                   1300                       6000                                                                                                       6000
       1200       USD/ton                                                             USD/ton 1200                                    USD/ton                                                                               USD/ton 5500
                                                  Steel Billet future, LME Mediterranean                                 5500
       1100                                                                                   1100                       5000                                                                                                       5000
                                                                                                                                                  Stainless steel, CR type 304
       1000                                                                                           1000               4500                                                                                                       4500
        900                                                                                            900               4000                                                                                                       4000
        800                                                                                            800
                                                                                                                         3500                                                                                                       3500
        700                                                                                            700
                                                                                                                         3000                                                                                                       3000
        600                                                                                            600
                      Steel Billet future, LME Far East                                                                  2500                                                                                                       2500
        500                                                                                            500
                                                                                                                         2000                                                                                                       2000
        400                                                                                            400
        300                                                                                            300               1500                                                                                                       1500

        200                                                                                            200               1000                                                                                                       1000
                        08              09                 10                 11              12                                      01          02       03           04       05        06       07     08     09   10   11 12



Source: Ecowin                                                                                                      Source: Ecowin




28 |     06 August 2012
                                                                                                                                                                         www.danskeresearch.com
Commodities Quarterly




Grains: Weather premium is here to
stay
Grain prices have soared of late as dry weather in the US has hampered crop progress for
                                                                                               Quarterly changes
especially soybeans and corn. In comparison, price movements for exotics have been
relatively calm in the past three months. Adverse weather conditions are likely to hamper                                  %, 3M chg
                                                                                                     ICE Cocoa
farming conditions in H2 as El Nino is set to return and thus we expect the current                  ICE Coffee
elevated weather risk premium in grains to stay for another few months.                              ICE Sugar
                                                                                               CBOT Soybeans
                                                                                                    CBOT Corn
US drought threatening this year’s harvest                                                        LIFFE Wheat
Earlier in the year, soybean prices started to rise on the back of South American                 CBOT Wheat
production losses caused by a strong La Nina. This coincided with healthy Chinese                                 -10 0 10 20 30 40 50
imports of the grain, leading US exports to rise markedly. In the rest of the grains sector,   Source: Bloomberg, Danske Markets.
however, things have until recently been relatively calm and price spill-overs from the
soybeans surge have been limited despite the substitution potential. But, the July WASDE
report from the US Department of Agriculture (USDA) saw downward revisions to
estimates of ending stocks of all major grains due to production shortfalls and grains
prices have surged as a result.

Grains prices spike as drought threatens this year’s harvest
 275      index (Jan-2007=100)                                                        275
 250                                                              Corn,               250
 225                                                              CBOT                225
 200                                                                                  200
                                               Soybeans,
 175                                           CBOT                                   175
 150                                                                                  150
 125                                                                                  125
 100                                                          Milling wheat, Wheat,   100
                                                           Matif (NYSE Liffe) CBOT
   75                                                                                   75
             07            08             09         10            11          12


Source: Reuters EcoWin, Danske Markets.




However, over the past month it has become increasingly evident that the drought in the
US, the world’s largest producer of soybeans and maize and ranked third (after China and
India) for wheat, is threatening this year’s harvest. Extreme drought is currently being
witnessed in Colorado and Georgia and surrounding states – notably those within the US
mid-west Corn Belt – and USDA has recently named more than 1,000 counties in the 26
states’ natural-disaster areas. Rainfall has been very sparse this year compared with
normal.




                                                                                                Senior Analyst
                                                                                                Christin Tuxen
                                                                                                +45 4513 7867
                                                                                                tux@danskebank.dk




29 |    06 August 2012
                                                                                               www.danskeresearch.com
Commodities Quarterly




US drought monitor




Source: Climate Prediction Center, NCEP, NWS, NOAA.



Simultaneously, dry weather in the Black Sea region serves as a reminder of the 2010
experience when wildfires in Russia destroyed a major part of the local wheat crop and
prices spiralled to record highs. A considerable weather-related risk premium has thus
been priced in. In India, a key producer of rice and wheat, rainfall has been deficient as
the monsoon has yet to manifest itself this year.

In contrast, the world’s no. 1 producer of wheat and rice, China, is in for a plentiful
harvest of both crops this year; indeed, the prices of these grains have risen by far less
than soy and corn.

The June acreage report from USDA showed that acres devoted to corn rose significantly
this season at the expense of wheat, compounding the trend seen in recent years. With
farm land more or less fixed in size, substitution effects are key to agricultural prices as
land devoted to different grains depends on current and expected future prices, technical
growing issues aside.

The latest data from the USDA on crop progress in the US saw the assessment of all
major grains except winter wheat downgraded, as has been the trend since the first
estimates of crop conditions came out earlier in the year. Notably, the proportion of corn
rated good/excellent has dropped from being close to 80% in May to now standing at a
mere 40%. The wheat crop looks somewhat better with both the winter and spring type
above 50%.

Thus, although plantings of corn have increased, dismal crop conditions could eventually
lead this year’s harvest to disappoint significantly as yields are in for a marked decline.




30 |   06 August 2012
                                                                                               www.danskeresearch.com
Commodities Quarterly




Planted acres                                    Crop progress (% excellent/good)
                     Corn (1000 acres)
100000               Soybeans                     100        Corn (%)          Soybeans (%)
                     Wheat
                                                   80
  80000
                                                   60

  60000                                            40

                                                   20
  40000
                                                    0
                                                    May/12          Jun/12           Jul/12

Source: Bloomberg, Danske Markets.              Source: Bloomberg, Danske Markets.



While supply-side issues have been in focus lately, the demand side remains instrumental
                                                                                                Chinese imports of corn
for medium-term price developments. Notably, Chinese imports of corn have faded
markedly from the highs seen earlier this year while China’s demand for foreign soybeans                              Corn (1000 tons)
                                                                                                       800
and wheat has stayed near record highs.                                                                700
                                                                                                       600
                                                                                                       500
                                                                                                       400
Grains markets tightening again                                                                        300
                                                                                                       200
Although world stocks of soybeans were at a record high at the end of the 2010/11                      100
season, inventories fell last year and are projected only slightly up this year; the                     0

stocks-to-use ratio looks set to continue to hover just above the key 20% level (the range
20-40% is usually viewed as the ‘goldilocks’ interval for grains stocks: neither too hot,
nor too cold – just about right). Inventories of wheat relative to demand should remain
                                                                                                Source: Bloomberg, Danske Markets.
reasonably comfortable whereas corn is likely to see little improvement and stay around
15%.


Grain stocks-to-use ratios


       60           Wheat stocks-to-use (%)             Corn                Soybeans

       50

       40

       30

       20

       10

        0
         1964            1974            1984         1994              2004
                                                                                                US ethanol production
                                                                                                175                                                         175
Source: Bloomberg, Danske Markets.                                                                     % y/y                                        % y/y
                                                                                                150                                                         150
                                                                                                125                                                         125
                                                                                                                     CBOT corn 1-pos
                                                                                                100                                                         100
                                                                                                          US fuel ethanol
These figures would suggest that corn may be in for a significant further price surge            75       production                                        75
                                                                                                 50                                                         50
should the weather risk premium prove justifiable as the harvest results tick in later in the
                                                                                                 25                                                         25
year. However, growth in US fuel-ethanol production, which has been a key driver of               0                                                          0

corn prices and linking the grain to oil prices in recent years, has decelerated lately along    -25                                                        -25
                                                                                                 -50                                                        -50
with oil prices. This suggests that the pressure on corn from the energy sector is less                                                ICE Brent crude
                                                                                                 -75                                                        -75
strong than would otherwise have been the case.                                                     00         02    04     06     08        10      12




                                                                                                Source: Reuters EcoWin, Danske Markets.




31 |   06 August 2012
                                                                                                www.danskeresearch.com
Commodities Quarterly




Our fair-value estimates for the three major grains all present a similar picture of prices
having moved away from fundamentals lately, although part of the recent ascent for
soybeans can be justified by the downgrades to ending stocks. A significant weather risk
premium is, in our view, priced in across the grains sector at the moment and thus a
significant correction in prices should not be expected before the US harvest is
completed. In Matif milling wheat we reckon that the risk premium is around 5% and thus
that the fair value is just below EUR250 per tonne.



Wheat fair value                                                  Corn fair value                                           Soybeans fair value
7.25 USD/bu                                               7.25    7.25                                      USD/bu 7.25     7.25 USD/bu                                          7.25
                                                 USD/bu                USD/bu                                                                                           USD/bu
7.00                                                      7.00    7.00                                               7.00   7.00                                                 7.00
                    CBOT wheat - actual                                                  CBOT corn- actual                                   CBOT wheat - actual
6.75                                                      6.75    6.75                                               6.75   6.75                                                 6.75
                                                                  6.50               Fair value                      6.50                           Fair value
6.50                                                      6.50                                                              6.50                                                 6.50
                                                                  6.25                                               6.25
6.25                                                      6.25                                                              6.25                                                 6.25
                                                                  6.00                                               6.00
6.00             Fair value                               6.00                                                              6.00                                                 6.00
                                                                  5.75                                               5.75
5.75                                                      5.75    5.50                               +/- 2 std. dev. 5.50   5.75                             +/- 2 std. dev.     5.75
5.50                           +/- 2 std. dev.            5.50    5.25                                               5.25   5.50                                                 5.50
       07   08         09       10         11      12                  07  08       09         10       11       12                07   08     09       10         11      12




Source: Reuters EcoWin, Danske Markets.                           Source: Reuters EcoWin, Danske Markets.                   Source: Reuters EcoWin, Danske Markets.




Return of El Niño to keep weather premium and volatility high
Weather forecasts from the US National Oceanic and Atmospheric Administration
(NOAA) suggest that a transition from El Niño Southern Oscillations (ENSO) – neutral
conditions to El Niño in the northern hemisphere during H2 – is highly likely and thus
that abnormal weather conditions could exist for the remainder of 2012. The Oceanic
Nino Index (ONI), compiled by NOAA, is thus projected to rise above the 0.5 level,
which indicates El Niño effects. These forecasts are backed by Australia’s Government
Bureau of Meteorology, whose Southern Oscillation Index (SOI) is already within the El
Niño region, i.e. below -8. Hence, in the near term, the risk of extreme weather events
suggests that the weather premium is likely to remain significant.

Oceanic Nino Index (ONI)                                         Southern Oscillation Index (SOI)

            ONI               La Nina             El Nino                   SOI           La Nina             El Nino
    2                                                              30
  1.5                                                              20
    1                                                              10
  0.5
                                                                    0
    0
 -0.5                                                             -10
   -1                                                             -20
 -1.5                                                             -30
   -2                                                             -40
    2000                  2005                   2010               2000             2005                    2010

Source: National Oceanic and Atmospheric                         Source: Australian Government Bureau of
Administration Danske Markets.                                   Meteorology, Danske Markets.




During El Niño, the warm phase of ENSO, winters are often warmer/drier than average in
the northern part of North America and cooler/wetter in the southern states and Mexico.
In South America, drier-than-normal conditions are likely in Brazil whereas wet weather
is usually seen in Argentina.




32 |   06 August 2012
                                                                                                                            www.danskeresearch.com
Commodities Quarterly




However, El Niño is not necessarily a one-way negative factor for crop development;
indeed, we cannot rule out that the risk premium could drop again if El Niño provides
favourable conditions when farmers start planting for the coming season in the southern
hemisphere during H2. Timing is key here as too much or too little precipitation, heat,
etc. during key stages in the crop cycle from planting over pollination to harvest can make
a significant difference to yields in either direction.

El Nino effects: Dec-Feb                                   El Nino effects: Jun - Aug




Source: NOAA/NWS.                                          Source: NOAA/NWS.




In the near term, positioning risk is significant for soybeans with speculative longs close
to a record high, suggesting little room for more investors buying the grain. Wheat longs
have been added in recent weeks after non-commercials have been net short for more than
a year; we are still some way below the 2010 highs though. In corn, upside risk from a
relatively low level of speculative longs is, in our view, considerable with corn net long
positioning far from the levels seen in 2010-11.



Wheat – speculative positioning                            Corn – speculative positioning                              Soybeans – speculative positioning
 60                                                 1500   500                                                  1100   400                                          USd/bu 1800
    no contracts << Wheat,                   USd/bu 1400
                                                                                                       USd/bu
 50              net long non-com pos                          1000 contracts                                          350 1000 contracts                                  1700
                                                           450                                                  1000
 40                                                 1300                 << Corn,                                                           << Soybeans,
                                                           400           net long non-com pos                    900   300                  net long non-com pos           1600
 30                                                 1200
                                                                            CBOT corn, 1-pos >>                        250                                                 1500
 20                                                 1100   350                                                   800
 10                                                 1000                                                               200                                                 1400
                                                           300                                                   700
  0                                                  900                                                               150                                                 1300
                                                           250                                                   600
-10                                                  800                                                               100                                                 1200
-20                                                  700   200                                                   500
                                                                                                                        50                                                 1100
-30                                                  600   150                                                   400     0                                                 1000
-40                                                  500
                                                           100                                                   300    -50                                                 900
-50                                                  400
                                                                                                                                                 CBOT soybeans, 1-pos >>
-60                                                  300    50                                                   200   -100                                                 800
        CBOT Wheat 1-pos >>
-70                                                  200     0                                                   100   -150                                                 700
     07     08        09       10       11     12                07    08       09       10       11     12                   07   08       09        10       11     12


Source: Reuters EcoWin, Danske Markets.                    Source: Reuters EcoWin, Danske Markets.                     Source: Reuters EcoWin, Danske Markets.




Look for prices to stay elevated in H2 – corn has the most upside
Overall, we think that the weather risk premium is here to stay in grains and that markets
will await the specific effects on agricultural production from the forecast El Niño before
pricing it out. Oil prices together with substitution effects from soybeans in feed demand
and the potential for more speculative longs to be added should sustain the recent rise in
corn. Further price increases in soy and wheat may also be seen during the autumn but
looking into 2013 we think the potential for the current price levels to be sustained is
limited for these two and we have pencilled in minor setbacks. Corn should, however,
continue to enjoy some upward pressure from oil prices, which we forecast to increase
gradually during the course of 2013 and may therefore trade more or less flat next year on
average.




33 |   06 August 2012
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At present, forward curves for corn and soybeans are in backwardation, i.e. the market
expects lower prices for the rest of the year. At the same time, the option market is
pricing in a relatively large probability of a rise in soybeans by November 2012, thus
suggesting that risks are skewed to the upside. For corn, both forward and option pricing
is, in our view, underestimating the risk of further price increases.

Wheat: forecast vs forward                                  Corn: forecast vs forward                             Soybeans: forecast vs forward
900                                                   900   800                                             800   1700                                                          1700
       USc/bushel                                                                                                         USc/bushel
                                Forward                               USc/bushel
850                                                   850   750                                             750
                                                                                                                  1600                                                          1600
800                                                   800   700                                             700
                                                                CBOT corn                                         1500                                                          1500
                                                                                                                             CBOT soybeans
750                                                   750   650 incl. Danske forecast             Forward   650
                                                                                                                             incl. Danske forecast
                                                                                                                  1400                                                          1400
700                                                   700   600                                             600
                                                                                                                                                                    Forward
650                                                   650   550                                             550   1300                                                          1300

600                                                   600   500                                             500
                                                                                                                  1200                                                          1200
                         CBOT wheat
550                      incl. Danske forecast        550   450                                             450
                                                                                                                  1100                                                          1100
500                                                   500   400                                             400
                                                                                                                  1000                                                          1000
450                                                   450   350                                             350

400                                                   400   300                                             300   900                                                            900
          09        10    11            12       13                  09            10   11   12       13                    09          10           11        12        13


Source: Bloomberg, Danske Markets.                          Source: Bloomberg, Danske Markets.                    Source: Bloomberg, Danske Markets.



On the whole, we could see inflation rates spike temporarily due to elevated grains prices,
causing a return of ‘agflation’, i.e. inflation caused by rising prices for agricultural
products. This could spook some central banks. However, as the recent surge is, in our
view, largely caused by a weather premium, which should eventually be priced out, we do                           Danske Markets relative grains
not project sustained price rises, which implies that inflation spikes from this cause                            forecasts
should be transitory. That said, structurally increasing demand from emerging markets are                         100.0
                                                                                                                                                          index (Sep-12=100)
                                                                                                                                                                               100.0

likely to continue to be a positive for grains prices and we thus do not forecast major                            97.5                                                         97.5
                                                                                                                                                                CBOT Corn
price setbacks on a medium-term horizon.                                                                           95.0                                                         95.0

                                                                                                                   92.5                                        CBOT soybeans    92.5
We look for Matif milling wheat to average EUR229 per ton this year (June Commodities
                                                                                                                   90.0                                                         90.0
Update: EUR212) and EUR220 in 2013 (unchanged from June forecast). We advise
                                                                                                                   87.5                                                         87.5
clients who are net sellers of wheat to lock in current price levels as a setback in 2013 is
                                                                                                                   85.0                                                         85.0
highly likely in our view. Otherwise, our projections are not too far from forwards but it                         82.5                                                         82.5
                                                                                                                                                          CBOT wheat
is worth noting that we see limited downside in corn as this grain has more supportive                             80.0                                                         80.0
fundamentals from both the demand and inventory side.                                                                         12                          13


                                                                                                                  Source: Reuters EcoWin, Danske Markets.




34 |     06 August 2012
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Commodities Quarterly




Agricultural charts
Sugar                                                                                                                 Soybeans
  40                                                                                                            40     2000                                                                                             2000
        USD/lbs                                                                                    USD/lbs                    USD/bushel                                                             USD/bushel
  35                                                                                                            35     1750                                                                                             1750
                Sugar no 11, NYBOT                                                                                                  Soybeans
  30                                                                                                            30     1500                                                                                             1500
  25                                                                                                            25
                                                                                                                       1250                                                                                             1250
  20                                                                                                            20
                                                                                                                       1000                                                                                             1000
  15                                                                                                            15
                                                                                                                        750                                                                                              750
  10                                                                                                            10
                                                                                                                        500                                                                                              500
   5                                                                                                             5
                                                                                                                        250                                                                                              250
   0                                                                                                             0
        00      01       02        03    04    05      06     07        08        09        10    11       12                 00    01        02     03    04    05   06    07     08    09         10     11     12



Source: Ecowin                                                                                                        Source: Ecowin




Wheat                                                                                                                 Corn
 1300                                                                                                   325             900                                                                                             900
 1200     EUR/ton                                                                            USD/bushel 300                   USD/bushel                                                                 USD/bushel
                                                                                                                        800                                                                                             800
 1100                                                                                                           275
                    << Wheat, CBOT                                                                                      700
                                                                                                                                    Corn
                                                                                                                                                                                                                        700
 1000                                                                                                           250
  900                                    Milling Wheat, Liffe >>                                                225     600                                                                                             600
  800                                                                                                           200
                                                                                                                        500                                                                                             500
  700                                                                                                           175
  600                                                                                                           150     400                                                                                             400
  500                                                                                                           125     300                                                                                             300
  400                                                                                                           100
                                                                                                                        200                                                                                             200
  300                                                                                                           75
  200                                                                                                           50      100                                                                                             100
          00        01    02       03    04    05       06      07      08    09        10        11       12                 00    01        02     03    04    05   06    07     08    09         10     11     12



Source: Ecowin                                                                                                        Source: Ecowin




Nominal prices                                                                                                        Real prices
 300                                                                                                            300     225                                                                                             225
        1974=100                                                                                        Index                 1974=100                                                                          Index
                                                                                                                        200                                                                                             200
 250                                                                                                            250
                Wheat                                    Corn                                                           175                                                                                             175
 200                                                   Soybeans                                                 200     150                   Wheat                                                                     150
                                                                                                                        125                                                                                             125
 150                                                                                                            150                                  Soybeans
                                                                                                                        100                                                                                             100
                                                                                                                                                                           Corn         Sugar
 100                                                                                                            100      75                                                                                             75
                                                                                                                         50                                                                                             50
  50                                                                                                             50
                                                                                                                         25                                                                                             25
                                                                                                       Sugar
   0                                                                                                              0       0                                                                                              0
        71     74    77       80    83    86   89      92     95     98      01        04    07       10                      71   74    77     80    83    86   89   92   95     98    01     04    07      10



Source: Ecowin                                                                                                        Source: Ecowin




Pig prices                                                                                                            Feeder cattle
  120                                                                                                         15       170                                                                                          170
         USc/pound                 << Lean hogs                                                                               USc/pound
  110                                                                                                  DKK/kg 14       160                                                                                USc/pound 160
                                                       Denmark, average pork prices >>
  100                                                                                                            13    150          Feeder cattle                                                                       150
   90                                                                                                            12    140                                                                                              140
   80                                                                                                            11    130                                                                                              130
   70                                                                                                            10    120                                                                                              120
   60                                                                                                             9    110                                                                                              110
   50                                                                                                             8    100                                                                                              100
   40                                                                                                             7     90                                                                                               90
   30                                                                                                             6     80                                                                                               80

   20                                                                                                             5     70                                                                                               70
     90        92        94        96    98       00     02        04        06        08        10        12                 00   01      02        03    04    05   06   07      08     09        10     11      12



Source: Ecowin                                                                                                        Source: Ecowin




35 |    06 August 2012
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Commodities Quarterly




Precious metals charts
Gold, spot                                                                                    Forward curve, Gold, Nymex
  2000                                                                                 2000     1690                                                                                                 1690
            USD/troy oz                                                  USD/troy oz            1680   USD/troy oz                                                                       USD/troy oz 1680
  1750                                                                                 1750
                                                                                                1670                                                                                                   1670
                  Gold
  1500                                                                                 1500     1660                                                                                                   1660
                                                                                                1650                                                                                                   1650
  1250                                                                                 1250
                                                                                                1640                                                                                                   1640
  1000                                                                                 1000     1630                                                                                                   1630
                                                                                                1620                                                                                                   1620
   750                                                                                 750
                                                                                                1610                                                                                                   1610
   500                                                                                 500      1600                                                                                                   1600
                                                                                                1590                                                                                                   1590
   250                                                                                 250                                                            Month ago         Last valid
                                                                                                1580                                                                                                   1580
            00    01      02   03   04     05   06   07   08   09   10     11    12
                                                                                                       1       2   3   4       5   6     7   8    9 10 11 12 13 14 15 16 17 18 19


Source: Ecowin                                                                                Source: Ecowin




Silver, spot                                                                                  Forward curve, Silver, COMEX
   50                                                                                 50        27.9                                                                                                 27.9
           USD/troy oz                                                    USD/troy oz 45               USD/troy oz                                                                       USD/troy oz 27.8
   45                                                                                           27.8
   40            Silver                                                                40       27.7                                                                                                   27.7
   35                                                                                  35       27.6                                                                                                   27.6
   30                                                                                  30       27.5                                                                                                   27.5
   25                                                                                  25       27.4                                                                                                   27.4
   20                                                                                  20       27.3                                                                                                   27.3
   15                                                                                  15       27.2                                                                                                   27.2
   10                                                                                  10       27.1                                                                                                   27.1
       5                                                                                5       27.0                                                                                                   27.0
                                                                                                                                   Last valid                    Month ago
       0                                                                                0       26.9                                                                                                   26.9
           00    01      02    03   04     05   06   07   08   09   10      11    12
                                                                                                           1           2             3           4          5           6            7         8


Source: Ecowin                                                                                Source: Ecowin




Platinum, spot                                                                                Future curve, Platinum, Nymex
  2250                                                                                 2250     1490                                                                                                 1490
            USD/troy oz                                                  USD/troy oz            1480   USD/troy oz                                                                       USD/troy oz 1480
  2000                                                                                 2000
                  Platinum                                                                      1470                                                                                                   1470
  1750                                                                                 1750
                                                                                                1460                                                                                                   1460
  1500                                                                                 1500     1450                                                                                                   1450

  1250                                                                                 1250     1440                                                                                                   1440
                                                                                                1430                                                                                                   1430
  1000                                                                                 1000
                                                                                                1420                                                                                                   1420
   750                                                                                 750      1410                                                                                                   1410
   500                                                                                 500      1400                                                                                                   1400
                                                                                                1390                                                                                                   1390
   250                                                                                 250                                                   Last valid          Month ago
            00   01       02   03   04     05   06   07   08   09   10     11    12             1380                                                                                                   1380
                                                                                                           1               2             3            4             5          6              7


Source: Ecowin                                                                                Source: Ecowin




Palladium, spot                                                                               Future curve, Palladium, Nymex
  1100                                                                               1100      587.5                                                                                                   587.5
            USD/troy oz                                                  USD/troy oz 1000              USD/troy oz                                                                       USD/troy oz
  1000                                                                                         585.0                                                                                                   585.0
   900                                                                                 900     582.5                                                                                                   582.5
   800                                                                                 800
                                                                                               580.0                                                                                                   580.0
   700                                                                                 700
                               Palladium                                                       577.5                                                                                                   577.5
   600                                                                                 600
   500                                                                                 500     575.0                                                                                                   575.0

   400                                                                                 400     572.5                                                                                                   572.5
   300                                                                                 300     570.0                                                                                                   570.0
   200                                                                                 200     567.5                                                                                                   567.5
   100                                                                                 100                                                      Month ago       Last valid
                                                                                               565.0                                                                                                   565.0
            00    01      02   03   04     05   06   07   08   09   10     11    12
                                                                                                           1               2             3            4             5          6              7


Source: Ecowin                                                                                Source: Ecowin




36 |       06 August 2012
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Commodities Quarterly




Historical commodity prices
                                     06/08/2012     Month ago           Year ago                This year
                                        Price      Price    %, m/m    Price     %, y/y   Start level YTD change,
                                                                                                         %
   Energy (1st position)
   NYMEX WTI (USD/bbl)                  91.1       84.4       7.8     86.9         4.8      98.8        -7.9
   ICE gasoil (USD/MT)                 923.5      904.8       6.3    912.5        1.2      924.0        -0.1
   ICE Brent (USD/bbl)                 108.3       98.2      10.3    109.4        -1.0     107.4        0.9
   ICE Carbon, Dec-12 (EUR/MT)           7.1        8.1     -11.6     11.9       -36.3       7.3        -2.6
   Electricity Nord Pool (EUR/mwh)      27.7       29.8      -6.9       -           -         -           -
   TTF Natural Gas (EUR/mwh)            23.7       24.7      -4.1     21.5        10.3      21.8         8.6
   NYMEX Natural Gas (USD/mmBTU)         2.8        2.8       1.2      3.9       -28.7       3.0        -6.1
   API2, steam coal (USD/MT)            94.5       90.4       4.5    126.2       -25.1     109.5       -13.7

   Base metals (LME 3M, USD/MT)
   Aluminium                            1,855      1,896    -2.12     2,402     -22.74     2,020       -8.13
   Copper                               7,425      7,529    -1.38     9,039     -17.86     7,598       -2.28
   Lead                                 1,887      1,860     1.43    2,361      -20.10     2,035       -7.30
   Nickel                              15,598     16,150    -3.42    22,505     -30.69    18,710      -16.63
   Zinck                                1,836      1,844    -0.46     2,200     -16.57     1,845       -0.52

   Precious metals (spot, USD/oz)
   Gold                                1,608.5    1,578.3    1.9     1,657.1      -2.9    1,576.4        2.0
   Silver                               27.8       27.0      2.8       38.3      -27.5      28.2        -1.5

   Agriculturals (front month)
   CBOT Wheat (USd/bushel)              899.8      821.5      9.5     817.8      10.0      719.8       25.0
   Matif Mill Wheat (€/t)               260.5      234.0     11.3     200.3      30.1      202.5       28.6
   CBOT Corn (USd/bushel)               806.0      743.3      8.4     693.0      16.3      646.5       24.7
   CBOT Soybeans (USd/bushel)          1,624.3    1,619.8     0.3    1,331.5      22.0    1,198.5      35.5
   NYBOT Sugar (USd/lb)                  22.0       22.3     -1.2      27.5      -20.2      23.3       -5.7

   Commodity indices
   Reuters/CRB TR                       300.7      286.9      4.8     326.8       -8.0     305.3       -1.5
   S&P GSCI Energy TR                  1,052.6     995.8      5.7    1,083.1      -2.8    1,085.9      -3.1
   S&P GSCI Industrial Metals TR       1,444.8    1,531.3    -5.7    1,960.6     -26.3    1,547.4      -6.6
   S&P GSCI Agriculture TR              858.2      771.6     11.2     798.2       7.5      694.9       23.5
   S&P GSCI Precious Metals TR         2,073.6    2,097.5    -1.1    2,288.6      -9.4    2,041.7       1.6
   AIG                                  142.9      136.9      4.4     156.1       -8.5     140.7       1.6
   Rogers commodity index TR           3,657.6    3,478.6     5.2    3,827.7      -4.4    3,626.5       0.9

   Steel prices
   LME steel billet (EUR/t)            369.3      387.5      -4.7    602.7       -38.7     533.5        10.2
   NYMEX hot rolled coil (USD/st)      640.0      605.0       5.8    670.0        -4.5     725.0       -11.7
Source: Bloomberg, Danske Markets.




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Commodities Quarterly




Commodity-price forecasts
                                                2012                                2013                                        AVERAGE
                                     06/08/12   12Q1     12Q2     12Q3     12Q4     13Q1     13Q2     13Q3     13Q4     2011      2012  2013
 Energy:
 front month (USD/bbl)
 NYMEX WTI                              91       103      93       94        94       94       94       92       94       95       96     94
 ICE Brent                             108       118      109      110      108      106      104      100      100      111      111    103

 Base metals:
 LME 3M (US$/t)
 Aluminium                             1,856     2,219    2,019    1,925   1,950    1,940     1,930   1,920    1,910    2,423 2,028 1,925
 Copper                                7,426     8,329    7,829    7,700   7,900    8,000     8,100   8,200    8,300    8,829 7,940 8,150
 Zinc                                  1,836     2,042    1,932    1,850   1,875    1,865     1,855   1,845    1,835    2,213 1,925 1,850
 Nickel                               15,598    19,709   17,211   16,500   16,750   16,850   16,950   17,050   17,150   22,878 17,542 17,000
 Steel                                  387       522      457      400     410      405       400     395      390      559    489    398

 Precious Metals:
 spot (US$/oz)
 Gold                                 1,609     1,690    1,612    1,650 1,675 1,700 1,725 1,750 1,775                   1,571    1,657   1,738

 Agriculturals:
 front month
 Matif Mill Wheat (€/t)                261       210      212      250   245   235   225   215   205                     217      229     220
 CBOT Wheat (USd/bushel)               887       643      641      850   846   825   802   766   731                     708      745     781
 CBOT Corn (USd/bushel)                806       641      618      775   765   755   745   735   725                     679      700     740
 CBOT Soybeans (USd/bushel)           1,624     1,272    1,426    1,600 1,575 1,525 1,475 1,425 1,375                   1,317    1,468   1,450

Source: Bloomberg, Danske Markets.




38 |   06 August 2012
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Commodities Quarterly




Commodities at Danske Markets

Commodities Research:
Arne Lohmann Rasmussen           Chief Analyst, Head of Strategy      +45 45 12 85 32        arr@danskebank.dk
Christin Tuxen                             Senior Analyst, PhD        +45 45 13 78 67        tux@danskebank.dk


Commodities Sales:
Martin Vorgod                           Chief Dealer (Denmark)        +45 45 14 32 86      mavo@danskebank.dk
Michael Winther                        Senior Dealer (Denmark)        +45 45 14 67 67      miwin@danskebank.dk
Kasper Mortensen                              Dealer (Denmark)        +45 45 14 72 80       kam@danskebank.dk
Antti Malava                             Senior Dealer (Finland)   +358 (0) 105462057     antt@danskebank.com
Anders Winnæss                          Senior Dealer (Norway)        +47 23 13 91 57            awin@fokus.no
Patrick Aran Shawcross          Senior Dealer (Northern Ireland) +44 (0) 28 9089 1111   psha@northernbank.co.uk
Paul Nagle                               Senior Dealer (Ireland)       +35314844610        pna@danskebank.com




39 |   06 August 2012
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Commodities Quarterly




Disclosure
This research report has been prepared by Danske Research, a division of Danske Bank A/S ("Danske Bank").
The authors of this report are Arne Lohmann Rasmussen, Chief Analyst and Christin Tuxen, Senior Analyst.

Analyst certification

Each research analyst responsible for the content of this research report certifies that the views expressed in the
research report accurately reflect the research analyst’s personal view about the financial instruments and issuers
covered by the research report. Each responsible research analyst further certifies that no part of the compensation
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The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’
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Research analysts are remunerated in part based on the over-all profitability of Danske Bank, which includes
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Calculations and presentations in this research report are based on standard econometric tools and methodology
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Major risks connected with recommendations or opinions in this research report, including as sensitivity analysis
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Please see the front page of this research report for the first date of publication. Price-related data is calculated
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This research has been prepared by Danske Markets (a division of Danske Bank A/S). It is provided for
informational purposes only. It does not constitute or form part of, and shall under no circumstances be
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The opinions expressed herein are the opinions of the research analysts responsible for the research report and
reflect their judgment as of the date hereof. These opinions are subject to change, and Danske Bank does not


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undertake to notify any recipient of this research report of any such change nor of any other changes related to the
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