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					                                                                                                                    12 October 2012
                                                                                                    Securities Research & Analytics
                                                                                           http://www.credit-suisse.com/researchandanalytics




                                                     Commodity Forecasts: The Best
                                                     of Times, The Worst of Times
                                                     Connection Series




 The Credit Suisse Connections Series
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                             Research Analysts       Source: Credit Suisse


                    COMMODITIES RESEARCH
                                      Ric Deverell
                                                     “Sluggish and Bumpy Growth”
                   ric.deverell@credit-suisse.com    As with other risk assets, prices in commodity markets during Q3 were in large
                                +44 20 7883 2523
                                                     part driven by the latest efforts of the world’s largest central banks to stabilize
                                   Tom Kendall       the global financial system and to stimulate growth. To that end, the OMT and
                  tom.kendall@credit-suisse.com      QE infinity have had the desired initial effect, with markets substantially
                              +44 20 7883 2432
                                                     reducing the perceived risk of another euro area crisis and looking forward to a
                               Andrew Shaw           growth rebound over coming months.
                andrew.shaw@credit-suisse.com
                              +65 6212 4244
                                                     For commodities and risk assets in general, the key question is whether the
                                                     better news has already been priced.
                                       Jan Stuart
                    jan.stuart@credit-suisse.com
                                                     Our analysis suggests that many commodity prices have run ahead of their
                                +1 212 325 1013      fundamentals, with a combination of supply shocks (grains, oil, and platinum)
                                                     and a substantial relief rally pushing prices above levels that would normally be
                            EQUITY RESEARCH
                                                     associated with the still well-below-average growth seen in Q3. This suggests
                                    David Hewitt
                david.hewitt.2@credit-suisse.com     that unless we see a rapid rebound in global growth (something we consider
                                 +65 6212 3064       unlikely) many prices will consolidate over Q4 (we expect the CSCB to give
                                                     up some of the recent gains), with the risk of a substantial correction if, as
                                Paul McTaggart
               paul.mctaggart@credit-suisse.com      we expect, the pace of the growth rebound disappoints.
                               +61 429 328 247       Moving into 2013, our base-case scenario is for global growth to continue to
                                Michael Shillaker    improve gradually. This is likely to see most industrial commodity prices
             michael.shillaker@credit-suisse.com     increase modestly (the CSCB should increase nearly 10% Q4 to Q4),
                               +44 20 7888 1344      although the risks remain to the downside.
                             Edward Westlake         With growth unlikely to return to the pace seen in the 2000s, the commodity bull
             edward.westlake@credit-suisse.com       market looks to be over. Despite this, many opportunities remain, with prices
                              +1 212 325 6751
                                                     likely to move substantially over the cycle, with large variations in intra
   (For a full list of contributors, see page 179)   commodity performance (neither the best nor worst of times).




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                                                                                                                                  12 October 2012




                                  Table of Contents
                                  Editor’s Summary: It Was the Best of Times, It Was the Worst of Times                                      4
                                         The outlook........................................................................................ 6

                                  Summary of Commodity Forecasts                                                                             10

                                  Macro Outlook: “The Economy, Stupid!”                                               12
                                        The Fed’s rational irresponsibility versus the fiscal cliff … ............... 14
                                            China – Weak but not weak enough ................................................ 16
                                            Japan – Back in recession ............................................................... 19

                                  Petroleum: Riding the (Wide) Range                                                                  20
                                         $110/b Brent +/- $10........................................................................ 20
                                            Base case and scenarios ................................................................ 21
                                            Fundamentals – Demand growth remains unconvincing ................. 25
                                            Supply: Non-OPEC ex-US disappoints still more ............................ 29
                                            US supply growth potential is very large .......................................... 30
                                            Inventories: downstream tightness holds upside price risk .............. 31
                                            Longer term ..................................................................................... 32
                                            Positioning/risk ................................................................................ 33
                                            Forecasts......................................................................................... 35

                                  Natural Gas                                                                                38
                                        Global LNG remains structurally tight .............................................. 38
                                            North America – The good, the bad, and the ugly ........................... 41
                                            UK NBP – Anemic demand, balancing supply ................................. 48

                                  Steel                                                                                     52
                                            Caught between a rock and a hard place ........................................ 52

                                  Bulks                                                                                                 60
                                            Iron Ore – End of an era .................................................................. 60
                                            Metallurgical Coal – Fault lines widen ............................................. 71
                                            Thermal Coal – A dim and distant light ............................................ 77




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                      2
                                                                                                                                     12 October 2012




                                  Base Metals                                                                87
                                       Copper – Vulnerable without real demand improvement ................. 87
                                            Aluminum – High premiums, vulnerable prices ............................... 96
                                            Alumina – Indonesian ban creates change .................................... 102
                                            Nickel – Short window for higher prices......................................... 111
                                            Zinc – Squeezed today, but more surpluses tomorrow.................. 117
                                            Lead – Moving into the spotlight .................................................... 122
                                            Tin – Squeezed, but supply returning ............................................ 127

                                  Gold and Silver                                                                      131
                                        Key points: Further QE more likely than not .................................. 131
                                            Silver ............................................................................................. 134
                                            Forecasts....................................................................................... 136

                                  PGMs: South African Situation Dominates                                                    137
                                       South African supply struggles ...................................................... 138
                                            Demand: The missing link ............................................................. 140

                                  Mineral Sands                                                                               145
                                        Surpluses beginning to weigh ........................................................ 145
                                            Titanium feedstocks....................................................................... 149

                                  Uranium: Utilities in a “Wait-and-See” Mood                                                                 154

                                  Agriculture                                                                                             159
                                         Overview ....................................................................................... 159
                                            Corn – High(er) prices to ration demand ....................................... 160
                                            Soybeans – Watching South American production ....................... 164
                                            Wheat – Global supply risks .......................................................... 168

                                  Financial Flows                                                                 172
                                        Q3 2012 summary of commodity-linked flows ............................... 172

                                  Technical Analysis                                                                  175
                                        The CSCB Index is threatening a small top ................................... 175
                                            Gold pivotal resistance remains at $1803...................................... 176
                                            Crude Oil remains under pressure ................................................ 177
                                            Copper setbacks should find support at $7850/16 ........................ 178

                                  Contributors                                                                                                179



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                         3
                                                                                                                                                                    12 October 2012




                                          Editor’s Summary: It Was the Best of Times, It
                           Ric Deverell
                                          Was the Worst of Times1
        ric.deverell@credit-suisse.com
                     +44 20 7883 2523
                                          Late last year our chief economist, Neal Soss, noted that financial life is being buffeted by
                                          two powerful but diametrically opposite financial forces (see Piecing Together or Falling to
                                          Pieces?). On the one side we have the policy postures of the major central banks –
                                          “monetary conditions,” and on the other side we have the terms and standards of access
                                          to credit in open markets – “credit conditions.”
                                          The latest salvo in this epic tussle was the key consideration in Q3, in our view, and
                                          remains a fundamental factor underpinning the outlook for commodity prices (and risk
                                          assets more broadly). As has generally been the case over recent years, the sheer force
                                          of monetary conditions is likely to predominate most of the time, although this
                                          central scenario will probably be accompanied by occasional outbursts of volatility
                                          as the underlying fundamental/credit forces become visible.
                                          While markets have been energized by the central bank interventions, over coming
                                          months pricing for many risk assets will in large degree be determined by the
                                          success of those policies in engineering a rebound in global growth.
                                               As we discussed in Commodities Advantage: The Ben and Mario Show, history
                                               suggests that the gains in prices will only be sustained if growth rebounds.
                                                          Or to paraphrase Bill Clinton’s campaign strategist, James Carville, it is “The
                                                          economy, stupid.”

                                          Exhibit 1: Commodities rebound in Q3 overdone – look out for some payback
                                          Annualized quarterly change in global GDP, and quarterly change in CCI (deflated by CPI) with forecasts

                                                                    Global GDP, ann qoq                                     Current estimate/forecast
                                              5.0%                  Real CCI, qoq (rhs)                                     CCI estimate based on forecasts                  20.0%


                                                                                                                                                                             15.0%
                                              4.5%

                                                                                                                                 Divergence in                               10.0%
                                              4.0%                                                                                  Q3-12
                                                                                                                                                                             5.0%
                                              3.5%
                                                                                                                                                                             0.0%

                                              3.0%
                                                                                                                                                                             -5.0%

                                              2.5%
                                                                                                                                                                             -10.0%
                                                                                                                                         Q3 estimate: 2¾%
                                              2.0%                                                                                                                           -15.0%
                                                        3Q-10              1Q-11              3Q-11               1Q-12              3Q-12              1Q-13
                                          Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                          In the near term the key question for commodity markets is whether the good news
                                          has already been priced.
                                               The backward looking data show that while commodity prices rallied substantially in Q3
                                               (the CSCB was up 12% from July to September) global growth remained well below
                                               average – commodities are anticipating a better future rather than reflecting
                                               current underlying conditions.


                                          1   "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of
                                               belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was
                                               the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all
                                               going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on
                                               its being received, for good or for evil, in the superlative degree of comparison only." Charles Dickens. A Tale of Two Cities.

Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                               4
                                                                                                                                                           12 October 2012



                                            Growth is starting to rebound, but we continue to expect the bounce to be modest at
                                            best – in the World Economic Outlook released earlier this week the IMF warned that
                                            “The prospects are for sluggish and bumpy growth,” and that “Risks for a serious global
                                            slowdown are alarmingly high.”
                                                      Our recent trip to China (see China Commodities Tour: Still Weak After All These
                                                      Months) suggests that the prospect of a rapid rebound is more remote than many
                                                      analysts realize.
                                                      In their late September update our economists significantly downgraded their
                                                      growth forecasts (see Global Economy Monthly Review – From unavailable to
                                                      unremunerative). They now expect global GDP growth to improve only modestly
                                                      in Q4, to 3.3% saar, up from 2.7% saar in Q3.
                                        Given the likelihood that the rebound will be tepid, we believe that many commodity
                                        prices have moved too far too fast, with a dip the most likely outcome in Q4.
                                        While growth should recover a little in 2013, absent another euro-driven financial shock,
                                        and assuming we avoid the worst of the US fiscal cliff, we expect it to remain relatively
                                        subdued. Nonetheless, with growth moving a little above average in H2, many industrial
                                        commodity prices are likely to move higher over the year (the CSCB should
                                        increase nearly 10%), although the risks remain to the downside.
                                        With global growth unlikely to return to the rapid rates seen during 2003-2007 anytime
                                        soon, it has become increasingly clear that the upward trend in industrial commodity
                                        prices has come to an end. However, in our view a collapse is also unlikely, with
                                        commodity prices likely to move in a more contained range than seen in the dramatic
                                        period from 2007-2011.

                                        Exhibit 2: Bull market ended in 2006 – we expect dip in Q4 and rebound next year
                                        Index level, real in 2010$ deflated by US CPI

                                            1100                                      CSCB Excess Return (real)               Forecast

                                            1000                                                                              Oil bubble
                                             900

                                             800

                                             700                                                                                              Back to the future

                                             600                     Bull market
                                             500

                                             400

                                             300
                                                                                                                 Post-Lehman prices
                                             200
                                                2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        While little recognized, it is notable that the consistent, upward trend actually ended in
                                        2006 – between 2007 and 2010 prices were extraordinarily volatile but with no clear trend 2.
                                            Food and oil prices spiked in early 2008 (the oil bubble).
                                            Most prices collapsed with the global economy in late 2008.
                                            Prices then rebounded as the largest stimulus in history took hold.

                                        2   Note that this result is highly subject to the index used, and the inherent weighting among commodities. There is really no such
                                            thing as an "average" commodity.

Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                     5
                                                                                                                            12 October 2012



                                        From early 2011, however, markets began to find a new post Lehman equilibrium, which
                                        increasingly looks to be near the level seen in early 2006. This suggests that the
                                        opportunities in the future will be more about cyclical moves in individual commodity prices
                                        and divergences among commodities, rather than following strong and persistent trends.
                                         Or to paraphrase Dickens, neither the best of times nor the worst of times. More a
                                          return to normal transmission, with individual fundamentals likely to reassert themselves.

                                        The outlook
                                        In the near term we expect many prices to retrace some of the recent gains, with US
                                        natural gas and the base metals likely to see the largest corrections relative to current
                                        market pricing (see Exhibit 3).

                                        Exhibit 3: Commodities forecasts – Q4 2012 forecast against forward
                                        Q4 2012 forecast market expectations for that period, data as of October 10, 2012




                                        Source: the BLOOMBERG PROFESSIONAL™ service



                                        Over a 12-month time horizon, however, we expect the price of crude oil, palladium, and
                                        lead to be above current market pricing, while the grains, iron ore, and copper are likely to
                                        become cheaper than the market currently expects.

                                        Exhibit 4: Commodities forecasts – Q4 2013 forecast against forward
                                        Q4 2013 forecast market expectations for that period, data as of October 10, 2012




                                        Source: the BLOOMBERG PROFESSIONAL™ service




Commodity Forecasts: The Best of Times, The Worst of Times                                                                               6
                                                                                                                          12 October 2012



                                        Summary of the outlook for individual commodities
                                        Crude Oil – modest upward revision
                                        From bullish to bearish and back again, the Brent market, and many analysts (including
                                        us…), spent the past year oscillating between two extremes. Zoom out from the day-to-
                                        day market swings, however, and it quickly becomes apparent to us that Brent has
                                        essentially moved sideways in a large range since late 2010, with quarterly average prices
                                        falling between $105 and $120 for seven straight quarters.
                                        Given this, in adjusting our forecast we are mostly marking-to-market the balance of the
                                        year and keep our quarterly averages for 2013-2014 within the $105-$120 price range.
                                        Though oil demand should continue to recover modestly, swing-producer Saudi Arabia is
                                        likely to continue to massage supply (with or without the aid of strategic petroleum
                                        inventories) so that prices do not stray far from their “acceptable” price range.
                                        Of course, there are still a multitude of risks, both bullish and bearish, arrayed to either
                                        side of our base-case scenario.

                                        Global Gas – unchanged
                                        Recent signs of relative weakness in global LNG markets do not mean that the tightness
                                        caused by Japan’s early 2011 nuclear disaster will fade altogether. Japan is no closer to
                                        resolving its power generation dilemma, and its utilities also have to renegotiate long-term
                                        supply deals that are rolling off. In addition, new consumers for long-term deals are waiting in
                                        the wings. On the supply side, promising new discoveries are years away from a final
                                        investment decision while the next batch of new developments still remains years away from
                                        first gas. We don’t think that incremental additions to existing supply terminals and the two
                                        new 2012 plants can tip the LNG balance back into oversupply within the next few years.

                                        North American Gas – unchanged
                                        Enhanced sensitivity of coal-to-gas switching to natural gas price levels has kept summer
                                        gas prices range bound. The views we expressed in our quarterly outlook found at least
                                        partial support, as year-on-year (yoy) power demand growth ebbed and flowed with gas
                                        prices above and below $3/MMbtu in the third quarter. By that same dynamic, however,
                                        recent strength in Q4 2012 futures prices could reverse parts of the yoy upside in winter
                                        2012-2013 power demand. Add surprisingly strong supply, and we remain worried.
                                        We generally think gas prices modestly improve into 2013 as storage levels push toward
                                        more normal levels. But we cannot turn bullish relative to the forward curve in the short to
                                        medium term (i.e., before 2015), until we see pronounced declines in US gas supply. And
                                        so, despite the recent upturn in US gas prices and despite having undershot actual prices
                                        in the third quarter of $2.81/MMbtu by 30 cents (12%) in Q3, we are leaving our relatively
                                        subdued forecast through 2014 unchanged and note further downside risk.

                                        UK (NBP) Gas – broadly unchanged
                                        Prices at the UK’s National Balancing Point have fallen over the last year, but in our view
                                        they remain high, propped up by tight post-Fukushima LNG markets. A combination of
                                        poor economic growth, power-generation economics favoring coal over gas, and efficiency
                                        gains is consistently moving natural gas demand lower in Northwest Europe. But with
                                        lower supply from LNG, the market is more easily balanced by variable pipeline imports
                                        from Norway. In fact, recent contract negotiations between Russia’s Gazprom and
                                        European consumers resulted in price reductions for pipeline imports into continental
                                        Europe, leaving increased volumes of Norwegian gas to be sent to Great Britain. From our
                                        viewpoint, without resolution from the nuclear situation in Japan, which as previously noted
                                        is not expected until summer 2013 at the earliest, prices at NBP should stay supported.
                                        We leave our forecasts unchanged.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                              7
                                                                                                                         12 October 2012



                                        Bulk Commodities
                                        Iron Ore – large downward revision
                                        The era of windfall pricing for iron ore miners has come to a close. Although there remains
                                        room for a cyclical price increase in early 2013 (to a quarterly average of US$120/t in Q1),
                                        aided by seasonal factors and a restocking phase, we believe the market is witnessing a
                                        structural shift to lower prices, reflected by the steady ebbing of spot prices in our base-
                                        case view. Even with 4% p.a. global steel production growth, firmly planned expansions to
                                        iron ore supply far exceed incremental demand and can only be accommodated by
                                        displacing existing marginal sources of production and halting installation of unnecessary
                                        new mines. If China’s higher-cost supply proves harder to dislodge than we currently
                                        forecast, or world steel production fails to step up from recent growth rates of 2.2% p.a.,
                                        the scene would be set for fierce competition between suppliers and a more precipitous
                                        fall in prices to rebalance the market.

                                        Metallurgical Coal – modest downward revision
                                        Metallurgical coal has suffered a precipitous fall over the past three months, with spot
                                        volumes trading below US$150/t FOB Australia and benchmark quarterly contracts settling
                                        at $170/t, down from $225/t. With the demand-side dynamics of iron ore and the supply-
                                        side dynamics of thermal coal, met coal has endured particularly torrid short-term
                                        fundamentals, from which we forecast only a modest recovery – gradually back towards
                                        $190/t by 2015. Continued supply surpluses in coming years, combined with the
                                        aforementioned lower growth profile for steel production, make it unlikely that met coal will
                                        return to prices substantially above $200/t.

                                        Thermal Coal – modest downward revision
                                        Prices are expected to remain trapped in a subdued range for the remainder of this year and
                                        into 2013, supported by marginal costs of production and relatively robust demand on the
                                        one hand, yet capped by a persistent surfeit of supply on the other. The market should,
                                        however, move into a more balanced position through 2013, creating the possibility for prices
                                        to stabilize around US$100/t in late 2013 and into 2014. At this point, price volatility should
                                        also return to the coal market, with the loosening of these fundamental caps and collars.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                             8
                                                                                                                      12 October 2012



                                        Base Metals – modest upward revisions
                                        Base metals have rallied on the back of central bank easing and improving macro
                                        sentiment. However, an improvement in real demand is required to hold on to recent gains,
                                        much less move prices higher. Outside of demand, a major influence on base metals is
                                        the shortage of available metal in LME warehouses and the supply response to
                                        rebounding prices.
                                        Nickel represents our preferred metal in the short term, as supply difficulties have
                                        temporarily brought the market closer to balance. Tin is our least preferred, as supply is
                                        expected to re-emerge in response to higher prices. Copper looks to be moving into
                                        surplus as mined supply emerges, though hypothetical incentive pricing is now around
                                        US$6,500/t. Aluminum supply is rebounding and aluminum likely faces a continued high
                                        premium and low price environment. Lead is seeing a stronger pull from the US and
                                        bullish mid-term fundamentals. Zinc is increasingly resembling aluminum and has seen
                                        major mine closures delayed.

                                        Gold and Silver – stronger for longer
                                        Gold and silver performed as expected during Q3, reacting strongly to the promise and
                                        delivery of additional quantitative easing. That was instrumental in drawing investors back
                                        to the metals after a rather quiet H1. In light of the Fed’s open-ended commitment to asset
                                        purchases, the shift in language on rates, and the potential for an additional program of
                                        Treasury buying once Operation Twist expires, we have shifted our gold forecast
                                        moderately upwards and outwards. Our Q4 forecast average of $1,760/oz remains
                                        unchanged – we expect a period of consolidation after the strong run in September – but
                                        we have lifted our forecasts for 2013 through 2015.
                                        Silver outperformed gold in August and early September as risk assets more generally
                                        were well bid. That has led us to push up our Q4 forecast average by 4% to $32/oz. Given
                                        the changes to our gold forecast we have also moved our projections for the silver price
                                        upward from 2013 through to 2015.

                                        Platinum Group Metals – platinum revised up, palladium trimmed
                                        We had previously incorporated a certain amount of supply disruption in South Africa into
                                        our price forecasts but the deepening labor crisis in the country has led us to push those
                                        numbers up moderately. We now forecast an average of $1,620/oz in Q4 for platinum, up
                                        from $1,560 previously but well below spot at the time of writing, as we think a correction
                                        in price is imminent. However, we have edged our 2013 numbers up by 1%-2%. In
                                        contrast, our previous palladium forecasts appear overly optimistic in light of the
                                        sluggishness of global growth. We have cut our palladium forecasts sharply from Q4
                                        onwards. We now forecast an average of $640 for the current quarter and have cut our
                                        2013 average from $905 to $700.

                                        Grains – modest upward revision
                                        Following the effects of the US summer drought, we expect prices to trend lower slowly
                                        over the next few months. In the near term, we believe the focus for corn and soybeans
                                        will shift towards South American production, which is currently expected to rebound from
                                        last year’s poor output. At the same time, we think there will be increased scrutiny of
                                        wheat-related news, particularly given the depths to which expected global production has
                                        fallen, on the back of the latest Russian and Ukrainian projections.
                                        Against this backdrop we expect prices to remain elevated but to trend lower towards the
                                        end of the year. As such, we have adjusted our corn and soybean forecasts to $7.25 and
                                        $15 per bushel, and wheat forecasts to $8.50 per bushel in Q4 2012.
                                        For a summary of our trade recommendations go to Trading Recommendations: The Best
                                        of Times, The Worst of Times.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                         9
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Summary of Commodity Forecasts
                                                             Exhibit 5: Global Commodities Research price forecast summary
                                                             Units as stated below, quarterly and annual averages, annual figures may be rounded, revised forecasts are above previous forecasts, arrows indicate near-term forecast revision changes

                                                                                                              2011                          2012                                                2013                                                 2014                             2015        LT
                                                                                                           Yr Avg (a)   Q1 (a)   Q2 (a)   Q3 (a)    Q4 (f)   Yr Avg (f)    Q1 (f)    Q2 (f)    Q3 (f)    Q4 (f)   Yr Avg (f)    Q1 (f)    Q2 (f)    Q3 (f)    Q4 (f)   Yr Avg (f)   Yr Avg (f)   (real)
                                                             Energy
                                                             Brent (US$/bbl)                          ▲      109.97     118.28   108.95   109.62   105.00     110.00      110.00    115.00    115.00    120.00     115.00      115.00    110.00    110.00    105.00     110.00       100.00      90.00
                                                                previous                                     109.97     118.50   108.95    95.00    95.00      104.00     100.00    100.00    105.00    105.00      103.00     110.00    115.00                          115.00          100     90.00
                                                             WTI (US$/bbl)                            ▲       90.70     102.91    93.43    92.51    89.00       94.00      97.00    106.00    108.00    113.00     106.00      107.00    102.00    102.00     97.00     102.00         93.50     83.50
                                                                previous                                       90.70    102.91    93.43    84.00    82.00       91.00      91.00     95.00    101.00    101.00       97.00     106.00    111.00                          111.00           94     84.00
                                                             U.S. Natural Gas (US$/MMBtu)                      4.07       2.77     2.26     2.81     3.10        2.74       3.60      3.40      3.80      4.00        3.70       4.40      4.20      4.20      4.40        4.30         4.50      4.50
                                                                previous                                        4.07      2.77     2.26     2.50     3.10        2.66       3.60      3.40      3.80      4.00        3.70       4.40      4.20                            4.30         4.50       4.50
                                                             U. K. NBP (GBp/Therm)                    -       56.40      57.50    56.00    57.00    65.00       59.00      65.00     58.00     58.00     68.00       62.00      73.00     63.00     63.00     73.00       68.00        66.00     50.60
                                                                previous                                       56.40     57.50    56.00    53.00    65.00       58.00      65.00     58.00     58.00     68.00       62.00      73.00     63.00                           68.00        66.00     50.60

                                                             Iron Ore
                                                             Iron ore fines - 62% (China CFR) US$/t   ▼         168       142      140      112      110          126       120       115       110       100          111        95        95        95        95           95           90         90
                                                                previous                                        168       142      140      135      140          139       145       150       145       140          145       135       130                              128          115         90
                                                             Iron ore fines - (China CFR) US¢/dmtu              271       229      225      181      177          203       194       185       177       161          179       153       153       153       153          153          145       145
                                                                previous                                        271       229      225      218      226          224       234       242       234       226          234       218       210                              206          185       145
                                                             Coking Coal (contract)
                                                             Hard coking coal (US$/t)                 ▼         289       235      210      225      170          210       170       170       175       175          173       180       180       185       185          183          190       170
                                                                previous                                        289       235      210      225      215          221       210       210       210       210          210       205       205                              205          200       170
                                                             Semi soft coal (US$/t)                             212       157      141      141      117          139       119       119       123       123          121       126       126       130       130          128          133       130
                                                                previous                                        212       157      141      141      144          146       141       141       141       141          141       137       137                              137          134       134
                                                             PCI coal (US$/t)                                   223       172      153      164      125          154       125       125       128       128          127       131       131       135       135          133          139       130
                                                                previous                                        223       172      153      162      155          161       151       151       151       151          151       148       148                              148          144       134
                                                             Thermal Coal
                                                             Thermal Coal (Newcastle FOB) US$/t       ▼         123       113       95       86       90           96        95        95       100       100           98       105       105       110       110          108          118       110
                                                                previous                                        123       113       95       90        95          98         95      100       100       105          100       105       110                              110          120       120
                                                             Thermal Coal (ARA CIF) US$/t                       122       100       90       91       90           93        95        95       100       100           98       105       105       110       110          108          118       110
                                                                previous                                        122       100       90       90        95          94         95      100       100       105          100       105       110                              105          120       120
                                                             Thermal Coal (RBCT FOB) US$/t                      117       105       94       89       89           94        94        94         99       99           97       104       104       109       109          107          117       110
                                                                previous                                        117       105       94       89        94          96         94        99        99      104           99       104       109                              109          119       120
                                                             Uranium
                                                             Uranium spot (US$/t)                     ▼           57       52       52       48       48           50        52        55         58       60           56        65        65        65        65           65           70         65
                                                                previous                                          57       52       52       52        54          53         55        55        60        65          59         65        65                              65           70         65

                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                                          12 October 2012
10
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 6: Global Commodities Research price forecast summary of changes
                                                             Units as stated below, quarterly and annual averages, annual figures may be rounded, revised forecasts are above previous forecasts, arrows indicate near-term forecast revision changes

                                                                                                              2011                          2012                                                2013                                                 2014                           2015        LT
                                                                                                           Yr Avg (a)   Q1 (a)   Q2 (a)   Q3 (a)    Q4 (f)   Yr Avg (f)    Q1 (f)    Q2 (f)    Q3 (f)    Q4 (f)   Yr Avg (f)    Q1 (f)    Q2 (f)                     Yr Avg (f)   Yr Avg (f)   (real)
                                                             Base Metals
                                                             Copper (US$/t)                           ▲       8,887      8,329    7,860    7,720    7,800       7,927      8,000     8,300     8,000     7,700       8,000      7,600     7,500     7,500    7,400      7,500        7,000      5,500
                                                                previous                                       8,887     8,329    7,860    7,300    7,500       7,747      7,800     8,300     8,000     7,700       7,950      7,500     7,500                         7,500        7,000      5,500
                                                             Aluminium (US$/t)                        ▲       2,424      2,188    1,987    1,929    2,020       2,031      2,100     2,150     2,200     2,250       2,175      2,300     2,350     2,350    2,400      2,350        2,400      2,250
                                                                previous                                       2,424     2,188    1,987    1,920    2,000       2,024      2,050     2,150     2,200     2,250       2,163      2,300     2,300                         2,350        2,400      2,250
                                                             Alumina spot (US$/t)                     ▲         378       317      317      316      330          320       350       350       375       375          363       400       400       400      400         400          415       400
                                                                previous                                        389       317      317      310      315          315       315       325       340       340          330       400       400                            400          415       400
                                                             Nickel (US$/t)                           -      23,015     19,654   17,157   16,354   18,000     17,791      18,500    19,000    19,000    19,000     18,875      19,500    20,000    20,000   20,500    20,000       21,000      20,000
                                                                previous                                     23,015     19,654   17,157   17,000   18,000      17,953     18,500    19,000    19,000    19,000      18,875     20,000    20,000                        20,000       21,000     20,000
                                                             Lead (US$/t)                             ▲       2,405      2,097    1,979    1,983    2,130       2,047      2,200     2,300     2,350     2,450       2,325      2,550     2,600     2,650    2,700      2,625        3,000      2,000
                                                                previous                                       2,405     2,097    1,979    1,850    1,900       1,957      2,000     2,100     2,200     2,200       2,125      2,500     2,500                         2,500        3,000      2,000
                                                             Zinc (US$/t)                             ▲       2,220      2,031    1,930    1,892    2,000       1,963      2,100     2,150     2,200     2,250       2,175      2,350     2,400     2,450    2,500      2,425        2,800      1,900
                                                                previous                                       2,220     2,031    1,930    1,800    1,850       1,903      1,900     2,000     2,050     2,100       2,013      2,250     2,400                         2,400        2,800      1,900
                                                             Tin (US$/t)                              ▲      26,191     22,953   20,550   19,287   20,000     20,698      21,000    21,000    21,500    22,500     21,500      23,000    23,000    23,000   23,000    23,000       24,000      20,000
                                                                previous                                     26,191     22,953   20,550   18,500   19,500      20,376     20,500    21,000    21,500    22,500      21,375     23,000    23,000                        23,000       24,000     20,000

                                                             Precious Metals
                                                             Gold (US$/oz)                            ▲       1,571      1,689    1,612    1,653    1,760       1,680      1,790     1,820     1,870     1,880       1,840      1,820     1,750     1,730    1,690      1,750        1,500      1,300
                                                                previous                                       1,571     1,690    1,615    1,670    1,760       1,680      1,820     1,760     1,680     1,600       1,720      1,500     1,500                         1,500        1,400      1,300
                                                             Silver (US$/oz)                          ▲       35.20      32.59    29.48    29.94    32.00       31.00      33.80     33.70     32.80     31.90       33.10      31.40     31.30     31.50    31.30      31.40        26.30      22.40
                                                                previous                                       35.20     32.70    29.60    28.80    30.90       30.50      32.50     30.30     28.00     25.80       29.20      25.40     25.40                         25.40        23.30      21.70
                                                             Palladium (US$/oz)                       ▼         730       685      625      613      640          640       660       680       720       730          700       760       790       810      830         800          850       900
                                                                previous                                        730       685      625      610      650          640       690       710       720       750          720       800       800                            800          840       900
                                                             Platinum (US$/oz)                        ▲       1,720      1610     1510     1500     1620        1,560      1660      1680      1730      1760        1710       1750      1800      1820     1840       1,800        1,850      1,900
                                                                previous                                       1,720     1,610    1,510    1,470    1,560       1,540      1,630     1,660     1,690     1,730       1,680      1,800     1,800                         1,800        1,850      1,900
                                                             Rhodium (US$/oz)                         ▼       2,010      1460     1500     1175     1200        1,330      1400      1550      1750      1850        1640       1900      2000      2200     2500       2,150        2,500      3,000
                                                                previous                                       2,010     1,460    1,500    1,350    1,400       1,430      1,500     1,550     1,750     1,950       1,690      2,200     2,500                         2,500        2,800      3,200

                                                             Minerals
                                                             Zircon bulk (US$/t)                      ▼       1,880      2500     2500     2500     2400        2,480      2300      2200      2200      2100        2,200      2,000     1,900     1,900    1,800      1,900        1,700      1,500
                                                                previous                                       1880      2,500    2,500    2,500    2,500        2500      2,500     2,500     2,500     2,500       2,500      2,500     2,500                         2,500        1,875      1,500
                                                             Rutile bulk (US$/t)                      -       1,055      2400     2400     2400     2400        2,400      2000      2000      2000      2000        2,000      1,750     1,750     1,400    1,400      1,575        1,125      1,000
                                                                previous                                       1055      2,400    2,400    2,400    2,400        2400      2,400     2,400     2,400     2,400       2,400      2,400     2,400                         2,400        1,650      1,000
                                                             Synthetic Rutile (US$/t)                 -         858      2050     2050     2050     2050        2,050      1850      1850      1850      1850        1,850      1,625     1,625     1,300    1,300      1,463        1,025       890
                                                                previous                                        858      2,050    2,050    2,050    2,050        2050      2,050     2,050     2,050     2,050       2,050      2,050     2,050                         2,050        1,450       890
                                                             Ilmentite - sulphate 54% (US$/t)         -         209       325      325      300      300          313       300       300       300       300          300       250       250       250      250         250          225       200
                                                                previous                                        209       325      325      350      350          338       350       350       350       350          350       300       300                            300          250       200
                                                             Titanium Slag - SA Chlor 86% (US$/t)     -         798      1750     1750     1750     1750        1,750      1700      1700      1700      1700        1,700      1,500     1,500     1,200    1,200      1,350          925       760
                                                                previous                                        798      1,750    1,750    1,750    1,750        1750      1,750     1,750     1,750     1,750       1,750      1,750     1,750                         1,750        1,225       760

                                                             Agriculture
                                                             Wheat-CBOT (US¢/bu)                      ▲         710       643      641      869      850          750       825       800       750       700          770       700       675       650      650         670          650       600
                                                                previous                                        710       643      641      800      750          710       750       725       700       700          720       650       650                            650          600       600
                                                             Corn-CBOT (US¢/bu)                       ▲         680       641      618      781      725          690       700       625       550       550          610       550       525       500      500         520          500       500
                                                                previous                                        680       641      618      700      700          660       650       625       550       550          590       500       500                            500          500       500
                                                             Soybeans-CBOT (US¢/bu)                   ▲       1,320      1,273    1,425    1,674    1,500       1,470      1,450     1,450     1,300     1,300       1,380      1,250     1,250     1,200    1,200      1,230        1,200      1,100
                                                                previous                                       1,320     1,273    1,425    1,550    1,500       1,440      1450      1400      1280      1220        1,340      1,200     1,200                         1,200        1,200      1,100

                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                                        12 October 2012
11
                                                                                                                                        12 October 2012




                                        Macro Outlook: “The Economy, Stupid!”
                                        The global economy has been highly volatile over the past year,                       with global industrial
                                        production growth (3mma saar) moving in a choppy range between                        around zero and 8%.
                                        Looking through this volatility, however, it is clear that the European               financial panic earlier
                                        in the year has had a substantial impact on output, with global GDP                   growth dipping below
                                        3% in Q2 (saar) and remaining near that pace in Q3.
                                        Thankfully, the Ben and Mario show, and their latest salvos against the “financial forces of
                                        darkness”, the OMT and QE infinity, have achieved the initial objectives, with the European
                                        tail risk much diminished, and the preconditions for a growth rebound falling into place.
                                           Global IP momentum, the CSBMI, and more recently the global PMI, have all begun to
                                           suggest that growth momentum is improving as we enter Q4, although the pace of the
                                           rebound so far is tepid at best.
                                        Our economists expect global GDP growth to recover to 3.3% saar in Q4 and to 3.7% by
                                        Q2 next year (see Global Economy Monthly Review – From unavailable to
                                        unremunerative), up from about 2.75% saar in Q3. They note, however, that while it
                                        appears unlikely that the economy will fall back into a Great Recession-like abyss, barring
                                        outright policy failures; there is equally little prospect of getting back to the strong rates of
                                        growth seen in the middle of the last decade anytime soon.

                                        Exhibit 7: Global IP growth 3mma against CSBMI 3mma
                                        3mma of annualized monthly changes of Global IP, and 3mma of CSBMI (right axis)

                                                             Global IP, ann 3MMA of mom change              forecast
                                          15.0%              long run average                               CSBMI, 3mma (right axis)              2.5


                                                                                                                                                  1.5
                                          10.0%

                                                                                                                                                  0.5
                                           5.0%

                                                                                                                                                  -0.5

                                           0.0%
                                                                                                                                                  -1.5

                                          -5.0%
                                                                                                                                                  -2.5


                                         -10.0%                                                                                                   -3.5
                                               2000           2002           2004          2006         2008           2010      2012
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                          12
                                                                                                                                                  12 October 2012




                                        Exhibit 8: Commodities rebounded in Q3 – will growth follow? Or will
                                        commodities retrace?
                                        Annualized quarterly change in global GDP, and quarterly change in CCI (deflated by CPI) with forecasts

                                                             Global GDP, ann qoq                             Current estimate/forecast
                                          5.0%               Real CCI, qoq (rhs)                             CCI estimate based on forecasts             20.0%


                                                                                                                                                         15.0%
                                          4.5%

                                                                                                                 Divergence in                           10.0%
                                          4.0%                                                                      Q3-12
                                                                                                                                                         5.0%
                                          3.5%
                                                                                                                                                         0.0%

                                          3.0%
                                                                                                                                                         -5.0%

                                          2.5%
                                                                                                                                                         -10.0%
                                                                                                                        Q3 estimate: 2¾%
                                          2.0%                                                                                                           -15.0%
                                                  3Q-10            1Q-11           3Q-11             1Q-12           3Q-12            1Q-13
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                        Super Mario and tail risks
                                        The main catalyst for the resurgence in risk appetite over the past two months has been
                                        the ECB’s extraordinary moves to settle European financial markets (European Economics
                                        and Strategy: ECB – Over to you politicians). While many uncertainties remain, the largest
                                        positive to us is the fact that Draghi has demonstrated that in addition to his obvious
                                        economic credibility (he has a PhD in Economics from the Massachusetts Institute of
                                        Technology – arguably the best macro school in the world …), he is also an astute
                                        politician, well able to collaborate with other European leaders.
                                           It is obvious to us that his experience at the Italian Treasury, where he dealt with a new
                                           finance minister every year or so for a decade has assisted in his ability to deal with the
                                           political classes.
                                        Draghi’s sure-footed approach (and the fact that he has at least to date effected policy
                                        despite the Bundesbank’s opposition) has for the moment assured markets that the
                                        continent is in good hands and that the tail risk of a significant euro area issue in coming
                                        months has been significantly reduced.
                                           Our economists now expect modest growth to resume next year. Indeed, IP has
                                           performed much better than the PMI over recent months, suggesting that a modest
                                           rebound may already be underway – a much better outcome than most are currently
                                           factoring.
                                                    It is notable, however, that the quid pro quo for the new ECB policy is further
                                                    fiscal tightening, which in turn is likely to keep growth subdued at best.
                                        While the outlook is clearly on the improve, recent history suggests that we should never
                                        underestimate the capacity of the European political classes to seize defeat from the jaws
                                        of victory.
                                           At the risk of stating the obvious, there are still significant structural impediments to a
                                           lasting recovery in Europe (see Commodities Forecast Update: The Danger Zone). And
                                           in the near term, it is likely that the markets will test Spain’s appetite for assistance at
                                           some stage in coming months.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                      13
                                                                                                                                                        12 October 2012




 Exhibit 9: Has European IP already started to                                      Exhibit 10: Peripheral yields have fallen – not bad as
 rebound?                                                                           no bonds have yet been bought …
 EU manuf’g PMI new orders and Euro IP, 3mma of annualized monthly change           Spanish and Italian 2-year yields

                       Euro IP Ex Construction MoM SA, rhs                           9.0%
 65.0                                                                        25%                                    Italy 2y          Spain 2y
                       EU Manuf PMI New Orders
                       Euro IP Ex Construction ann 3MMA MoM SA, rhs                  8.0%
                                                                             20%
 60.0
                                                                                     7.0%
                                                                             15%
 55.0                                                                                6.0%
                                                                             10%
                                                                                     5.0%
 50.0                                                                        5%
                                                                                     4.0%
                                                                             0%
 45.0                                                                                3.0%
                                                                             -5%
                                                                                     2.0%
 40.0
                                                                             -10%    1.0%
                                                                Divergence
 35.0                                                                        -15%    0.0%
     2007       2008         2009        2010        2011        2012                    2005     2006     2007     2008       2009      2010    2011      2012
 Source: the BLOOMBERG PROFESSIONAL™ service, Markit, Credit Suisse                 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                             The Fed’s rational irresponsibility versus the fiscal cliff …
                                             Over the past year the US has once again shown itself to be the most stable part of the
                                             developed world economy. However despite this, growth slowed to a near standstill in Q3,
                                             with our economists expecting GDP to have grown by only 1.3% saar. Thankfully, growth
                                             looks to have stabilized over recent months, with the recent uptick in the ISM a clear
                                             positive. Despite this, it is hard to see growth rebounding strongly until the fiscal cliff is
                                             dealt with in one way or another, which in effect means early next year at the earliest.
                                                As our economists highlight, low interest rates are clearly beginning to work on the
                                                interest-sensitive sectors – with housing and car sales the most obvious beneficiaries.
                                                         Note that in our view the housing sector remains key to the longer-term health of
                                                         the economy. While it is likely to be some time before housing construction can
                                                         make a substantial contribution to growth (the base is too low), increasing house
                                                         prices are a clear positive for the small business sector, where most owners
                                                         finance expansion through a house mortgage.
                                                On the other hand, several sectors that punched above their weight earlier in the
                                                expansion – exports, business investment, and federal spending – are no longer doing so.
                                                         Fiscal policy is already tightening, with real federal spending falling in six of the
                                                         past seven quarters. And while our economists expect the worst of the possible
                                                         January tightening to be averted, they still expect policy to be tightened by 1½
                                                         percentage points of GDP next year, exerting a substantial drag on the economy.
                                                         The uncertainty surrounding fiscal policy has seen business investment growth
                                                         slow over recent months, with business clearly in a wait-and-see-mode (Exhibit 11).
                                             With politicians continuing to delay any decisions on fiscal policy (or anything else for that
                                             matter), the Fed has once again taken upon itself to step into the fray, demonstrating that
                                             it is really the only stimulatory game in town at present. While the impact of QE infinity on
                                             the price of money is likely to be minimal – yields really can’t move much lower – to fully
                                             understand Bernanke’s thinking it is useful to step back in time.
                                                In the early 2000s, Bernanke, and his then MIT professorial colleague, Paul Krugman,
                                                wrote extensively on the failings of Japanese monetary policy at that time.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                          14
                                                                                                                                                       12 October 2012



                                            They both felt that the Japanese authorities had been too timid in dealing with the
                                            Japanese liquidity trap. While purchasing bonds was part of the recommendation put
                                            forward by the erstwhile academics, another part of their “solution” was for monetary
                                            policy to behave in an “irresponsible fashion.” In essence they argued that the central
                                            bank should commit to generating inflation as a way of increasing inflation expectations
                                            and thereby reducing real interest rates.
                                            We think this is the main goal for Bernanke and his QE infinity experiment. While the
                                            end result is far from clear, the chairman is making every effort to ensure that history
                                            does not judge him for doing too little to close the US output gap.

 Exhibit 9: US house prices are rebounding, although
 the pace of growth may be showing early signs of
 slowing                                                                            Exhibit 11: But business investment has hit a wall
 Case-Shiller house price monthly change, saar                                      US core capex – core capex shipment spread

  25.0%                                                                               8

  20.0%                                                                               6

  15.0%                                                                               4
  10.0%
                                                                                      2
   5.0%
                                                                                      0
   0.0%
                                                                                     -2
   -5.0%
                                                                                     -4
  -10.0%
                                                                                     -6                                                                          Jul '12
  -15.0%

  -20.0%                                                                             -8

  -25.0%                                                                            -10
        2005    2006     2007    2008     2009     2010      2011      2012               '92   '94     '96   '98   '00    '02   '04     '06     '08     '10     '12
 Source: the BLOOMBERG PROFESSIONAL™ service                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                         Exhibit 12: Will QE infinity succeed in boosting inflation expectations, and
                                         therefore reducing the real interest rate?
                                         Fed’s five-year forward breakeven inflation rate




                                           3.5%




                                           3.0%




                                           2.5%




                                           2.0%




                                           1.5%
                                               2000             2002              2004                2006          2008               2010               2012
                                         Source: the BLOOMBERG PROFESSIONAL™ service, Federal Reserve




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                             15
                                                                                                                                          12 October 2012




                                        China – Weak but not weak enough
                                        In the last week of September Credit Suisse held its annual commodities tour of China
                                        (see China Commodities Tour: Still Weak After All These Months). Over the course of the
                                        week we met with numerous large companies involved in the consumption and production
                                        of commodities and commodity-intensive products. We also met with policymakers and
                                        international institutions with an eye on China.
                                        From a macroeconomic perspective there was a near universal feeling that the much
                                        forecast rebound in growth has yet to materialize. While Q1 looks to have been the
                                        weakest quarter for GDP (6.6% saar), the risk is that Q3 prints weaker than the 7.4% saar
                                        seen in Q2. While the authorities are cautiously optimistic that growth will recover a little in
                                        Q4, they note that final inventories of manufactured goods remain high, suggesting a
                                        continued drag on manufacturing production into the new year.
                                           In year-on-year terms, GDP growth for Q3 will drop out the 10% saar seen last year,
                                           suggesting that it could be substantially weaker than the current consensus forecasts
                                           (official release on 18 October).

                                        Exhibit 13: China’s GDP growth to remain in the 7%-8% range: “the new normal”
                                        Quarterly Chinese GDP in annualized quarterly change terms and yearly change terms


                                                                    QoQ annualized               YoY                   1977 to Present Average
                                         14%

                                         13%

                                         12%

                                         11%
                                                                                                                                                 Assuming
                                         10%                                                                                                       Q3 at
                                                                                                                                                 7.4% saar
                                          9%

                                          8%

                                          7%

                                          6%
                                               2004          2005         2006       2007      2008        2009        2010      2011        2012
                                        Source: the BLOOMBERG PROFESSIONAL™ service



                                        While government infrastructure spending has rebounded a little, it has only been
                                        sufficient to offset the continued weakness in investment in manufacturing capacity by the
                                        private sector (a direct result of ongoing overcapacity) so far.
                                           Note that after surging in Q2, in the first two months of Q3 infrastructure spending
                                           growth slumped again despite a rush of new announcements (Exhibit 15).
                                        Similarly, while housing sales have begun to recover (as highlighted in Chinese Real
                                        Estate and Basic Materials Demand: The Tide Is Turning...), the government remains
                                        highly reluctant to stoke demand in this all important sector, with most people we met
                                        expecting restrictions to remain in place, effectively capping the rebound.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                               16
                                                                                                                                                                         12 October 2012




                                                                                                   Exhibit 15: With the surge in infrastructure
 Exhibit 14: FAI looks to have slowed a little in Q3                                               spending in Q2 fading away
 Chinese fixed asset investment, qoq saar and yoy                                                  Chinese infrastructure fixed asset investment, qoq saar and yoy

  60%                         QoQ SAAR               YoY (right axis)                      45.0%    100%                         QoQ SAAR           YoY (right axis)                50.0%

                                                                                           40.0%                                                                                    45.0%
                                                                                                     80%
  50%
                                                                                                                                                                                    40.0%
                                                                                           35.0%
                                                                                                     60%                                                                            35.0%
  40%                                                                                      30.0%
                                                                                                                                                                                    30.0%
                                                                                           25.0%     40%
  30%                                                                                                                                                                               25.0%
                                                                                           20.0%     20%
                                                                                                                                                                                    20.0%
  20%                                                                                      15.0%
                                                                                                        0%                                                                          15.0%
                                                                                           10.0%
                                                                                                                                                                                    10.0%
  10%
                                                                                                    -20%
                                                                                           5.0%                                                                                     5.0%

   0%                                                                                      0.0%     -40%                                                                            0.0%
        2005    2006     2007        2008     2009     2010      2011        2012                            2005      2006   2007    2008   2009      2010     2011      2012
 Source: NBS, Credit Suisse                                                                        Source: NBS, Credit Suisse




 Exhibit 16: All three main indicators of real estate
 activity – starts, completions, and sales – have                                                  Exhibit 17: Though volatile, land sales also
 turned upwards                                                                                    rebounded strongly in August
 Trended qoq, seasonally adjusted, Q3 2012 based on July and August data                           Million square meters

                          Sold               Completed                  Started                    45
  30%

  25%
                                                                                                   40
  20%

  15%                                                                                              35
  10%

   5%                                                                                              30

   0%
                                                                                                   25
  -5%

 -10%
                                                                                                   20
 -15%

 -20%                                                                                              15
     2006        2007         2008          2009       2010        2011             2012             2004       2005      2006   2007    2008   2009        2010       2011      2012

 Source: NBS, CEIC, Credit Suisse                                                                  Source: NBS, CEIC, Credit Suisse




                                                   Consistent with the official data and the PMIs, several of the basic materials traders we
                                                   met on our trip were of the view that industrial production growth was still slowing – official
                                                   sector and other market participants alike expressed surprise at the persistence of the
                                                   slowdown, with many pointing to continued very weak exports as a key factor.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                              17
                                                                                                                                                 12 October 2012




                                        Exhibit 18: IP Growth remains weak
                                        Average of NBS and Markit PMI new orders against annualized monthly trend change in Chinese IP

                                          65.0                           Average PMI New Orders      Chinese IP ann mom trend sa (right axis)            30%


                                                                                                                                                         25%
                                          60.0
                                                                                                                                                         20%

                                          55.0
                                                                                                                                                         15%


                                                                                                                                                         10%
                                          50.0

                                                                                                                                                         5%
                                          45.0
                                                                                                                                                         0%


                                          40.0                                                                                                           -5%
                                              2006              2007           2008          2009          2010           2011            2012
                                        Source: NBS, Markit, Credit Suisse

                                        Despite the ongoing weakness, expectations for a further stimulus in the near term
                                        remain low. The general feeling was that, faced with continued weakness in the external
                                        sector, policymakers are broadly happy with growth in the current 7%-8% range –
                                        suggesting that things would need to get worse before the government would unleash
                                        another substantial stimulus.
                                           A key factor in this calculus remains the labor market, where despite the
                                           slowdown there is little sign of significant stress – note that the data are poor in this
                                           area so policymakers rely heavily on anecdotal information.
                                           When pushed, several suggested that growth would need to dip below 7% before more
                                           substantial stimulus would be forthcoming.

                                        Exhibit 19: Policy has already been eased, but the growth rebound in new loans
                                        remains relatively subdued
                                        In billions of RMB, 3m/3m change, sa

                                         100.0%

                                          80.0%

                                          60.0%

                                          40.0%

                                          20.0%

                                            0.0%

                                          -20.0%

                                          -40.0%

                                          -60.0%

                                          -80.0%
                                                   2005           2006           2007         2008         2009           2010            2011       2012
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        While a couple of government officials felt that another substantial stimulus would emerge
                                        once the leadership transition had been locked down, they believed that this would not be
                                        until after the Chinese New Year at the earliest.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                     18
                                                                                                                             12 October 2012




                                        Japan – Back in recession
                                        Our economists believe that the Japanese economy has dipped back into recession in the
                                        second half of 2013. IP fell by 2.3% in the first two months of Q3, with the economists
                                        expecting GDP to contract by about 1% saar in both Q3 and Q4, before beginning a
                                        modest recovery next year. The slowdown is being driven mainly by the continued weak
                                        external sector, as well as the expiration of a consumption stimulus measure. While the
                                        Bank of Japan has joined other central banks in further expanding its balance sheet, we
                                        think that this new stimulus is mainly aimed at the strong yen, with developments in the
                                        external sector the key to the Japanese growth outlook; growth in our view remains
                                        essentially derivative.

                                        Exhibit 20: Japanese GDP and IP – likely to be lower in Q3
                                        GDP qoq saar, and IP qoq, Q3 2012 estimated based on two months of data

                                           15.0%                                      GDP saar qoq     IP qoq

                                           10.0%


                                             5.0%


                                             0.0%


                                            -5.0%

                                                                                                                    IP continued to
                                           -10.0%
                                                                                                                  weaken in the first
                                                                                                                  2 months of Q3-12
                                           -15.0%


                                           -20.0%
                                                     2009                      2010                      2011         2012
                                        Source: the BLOOMBERG PROFESSIONAL™ service




Commodity Forecasts: The Best of Times, The Worst of Times                                                                               19
                                                                                                                           12 October 2012




                                         Petroleum: Riding the (Wide) Range
                                         $110/b Brent +/- $10
             Commodities Research
                            Jan Stuart   Intro: The oil market continues to be dominated by the tug-of-war between macro
         jan.stuart@credit-suisse.com    concerns (euro issues and China in particular) and geopolitical risks (concerns about
                    +1 212 325 1013
                                         political instability in the Middle East). Looking through the substantial volatility, however,
                       Stefan Revielle   oil prices have now been essentially range bound for the past 20 months, with quarterly
     stefan.revielle@credit-suisse.com   average prices falling between $105 and $120 for seven straight quarters.
                      +1 212 538 6802
                                         As the large swings have unfolded, our tendency has been to overanalyze each move and
                  Equity Research
                  Edward Westlake
                                         to extrapolate the latest swing in our forecasts. Evidently this has been a mistake. The
  edward.westlake@credit-suisse.com      benefit of hindsight reveals that, contrary to much of the analysis on the Street,
                   +1 212 325 6751       “fundamentals” have remained broadly stable for the past 18 months. In part that is
                         David Hewitt
                                         because, despite the innate skepticism in the market, the “central bank of oil” (Saudi
     david.hewitt.2@credit-suisse.com    Arabia) has acted to ensure that the market has in the main remained relatively tight but
                      +65 6212 3064      ultimately adequately supplied.
                                         For our new forecasts we assume that this broad dynamic will persist. We are mostly
                                         marking-to-market the balance of the year, while we keep quarterly averages for 2013-
                                         2014 in that range near $110/b Brent as well.
                                           While we expect demand to continue to recover over the next year, in line with our
                                           broader economic forecasts, we expect the upswing to be relatively modest.
                                           Under this scenario, it is likely that the Kingdom of Saudi Arabia will be able to continue
                                           to massage supply to maintain the broad range.
                                                    If prices dip below the range, Saudi Arabia will likely reduce production (as it did
                                                    in late 2010).
                                                    If demand recovers more quickly than we anticipate, the Saudis should be able to
                                                    increase production to offset the increased demand. In addition, the market is
                                                    now well aware of the risk of a further SPR release.

                                         Exhibit 21: Revealed preference – Saudi Arabia likes Brent around $110
                                         ($/b)




                                         Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                             20
                                                                                                                         12 October 2012



                                        Of course, a multitude of risks, which are generally fairly evenly arrayed to either side,
                                        suggest that oil prices could diverge meaningfully from this base case – possibly both the
                                        upside and downside during the forecast horizon. And we have again included two
                                        scenarios each to the bullish and bearish side.
                                        In our base case we project a relatively uneventful end of 2012 and further growth in the
                                        “call on OPEC and inventories” next year (see Exhibit 25).
                                                   In 2013, slightly more oil demand growth globally (+1.6%, yoy), mostly derives
                                                   from zero demand declines in the OECD economies. We factor in a relatively
                                                   muted expansion of oil use in Emerging Market economies of some +3.4%.
                                                   From the supply side, only about two-thirds of this expansion can, we think, be
                                                   met from non-OPEC producers. The US should continue to deliver near-record
                                                   per annum growth, but the best we can project for non-OPEC outside North
                                                   America is net no decline.
                                        So all else being equal, s/d fundamentals should tighten modestly next year and prices
                                        should rise marginally for the tenth time in the 11 years since 2002. From then on,
                                        however, we now think that a longer run, relatively modest price decline will set in.
                                        Longer term, the more important new feature in our price-deck is the introduction of
                                        a downturn in oil price trends beginning in 2014. Timing is necessarily quite tentative.
                                        We note the fairly recent emergence of four broad themes that should turn the uptrend of
                                        oil prices into a long cyclical downturn. Our supply/demand model now features modestly
                                        growing spare capacity beginning in 2014, see Exhibit 26. It includes the following:
                                           “Optimistic” volume growth for “unconventional” oil production – principally in the US.
                                           Optimistic projections of deep water contributions.
                                           Accelerating demand erosion via substitution (by natural gas and coal and renewables).
                                           Aggressive estimates of efficiency gains further cut oil use (e.g., China and US car
                                           fleets).
                                        Until now we were confident of projections of looming scarcity of oil. The biggest
                                        contributor to our new view has been high confidence of large-scale production
                                        growth in the US. We recently introduced as the basis for this view a very granular US oil
                                        production model: US Oil Production Outlook.

                                        Base case and scenarios
                                        “…we feel that the preconditions for a stronger 2013 are progressively falling into place.”
                                        Even over the course of this year, oil market supply and demand fundamentals have
                                        improved. The marked surplus of the early part of the year appears to have shifted into a
                                        deficit in July/August, Exhibit 22. This turn in fundamentals is clearer still in a momentum
                                        chart, see Exhibit 23, while supply grew fast earlier this year, it began to decelerate in
                                        March and fell steeply in July, thanks in no small part to the full impact of import sanctions
                                        on Iran’s crude oil exports, as well as seasonal non-OPEC declines. Demand growth, in
                                        contrast, re-emerged in February and accelerated by May to a quite respectable pace ~2%
                                        annualized, see Exhibit 23. That pace may have waned a little in July/August, but did not
                                        collapse, despite the fears that depressed market sentiment in May/June.
                                        Not coincidentally, oil prices have recovered 25% since their 21 June trough and have
                                        traded much of Q3 in the upper half of our forecast range of $100/b Brent +/- $10.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                            21
                                                                                                                                                                          12 October 2012




 Exhibit 22: In Q3 a supply deficit opened up                                              Exhibit 23: Demand growth momentum is still iffy
 Million barrels per day (Mb/d), sa                                                        Annualized mom trend of sa monthly data

    92                        Global Demand                 Global Supply                    8.0%             Global Demand, ann trend mom             Global Supply, ann trend mom

                                                                                             6.0%
    91

                                                                                             4.0%
    90
                                                                                             2.0%
    89
                                                                                             0.0%

    88
                                                                                            -2.0%

    87
                                                                                            -4.0%


    86                                                                                      -6.0%
     Jan-10    May-10    Sep-10   Jan-11          May-11     Sep-11      Jan-12   May-12        Jan-10    May-10    Sep-10     Jan-11        May-11   Sep-11     Jan-12    May-12

 Source: Credit Suisse                                                                     Source: Credit Suisse



                                                     Looking out into 2013, we see the pieces of a moderately firmer year in oil s/d as well.
                                                     Once again our view contrasts with that of the consensus, as exemplified by the oil
                                                     balances of the International Energy Agency in Paris, see Exhibit 24 and Exhibit 25.
                                                     For 2013, we are forecasting a modest acceleration of oil demand growth driven by the
                                                     following:
                                                       A halt in the decline of OECD oil consumption – while the IEA sees a contraction.
                                                                      Oil consumption in North America, we believe, will bounce as a US recovery
                                                                      gains more traction. That rebound more than compensates for a small net-decline
                                                                      in Europe.
                                                                      Oil use in Japan should fall by about 3%, yoy, or a little more than 100,000
                                                                      barrels per day (kb/d), as both natural gas and coal gain more share of the
                                                                      power-generation market. We also assume that by year’s end ~25% of Japan’s
                                                                      52 idle nuclear units are back on.
                                                       Oil demand in Emerging Markets should grow a little faster next year, as China’s oil use
                                                       recovers moderately (from +3% in 2012 to +5%), but stays below trend.

 Exhibit 24: Our 2012 oil demand growth vs. IEA                                            Exhibit 25: … and how we differ on the supply side
 Mb/d                                                                                      Mb/d

  1.7                             Credit Suisse            Consensus (IEA)                  1.0                              Credit Suisse            Consensus (IEA)


                                                                                            0.8
  1.2
                                                                                            0.6

  0.7                                                                                       0.4

                                                                                            0.2
  0.2
                                                                                            0.0

 (0.3)                                                                                     (0.2)

                                                                                           (0.4)
 (0.8)                                                                                                             Non-OPEC                       Call on OPEC Crude and Stocks
           2013 Global                                      OECD              Non-OECD

 Source: IEA, Credit Suisse                                                                Source: IEA, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                            22
                                                                                                                                             12 October 2012



                                        On the supply side we’re projecting more growth coming from non-OPEC than the IEA,
                                        which is unusual. The big difference is our expectation of much faster expanding oil
                                        production across the US (see below).
                                        In all, the “call on OPEC plus inventories” rises in 2013 by about 600 kb/d, which is a
                                        roughly similar increment to that of this year. Of course, more important than the arithmetic
                                        is how Saudi oil policy responds. In our view, Saudi Arabia will most likely have to cede
                                        some of the gains it made this year (not all) to accommodate increases from Iraq and Iran,
                                        as smaller gains and losses among other OPEC members roughly balance out.

                                        Exhibit 26: Our s/d balance includes modestly higher spare capacity in 2014-2015
                                        Mb/d

                                                                      Demand                         2011    2012E   2013E   2014E   2015E
                                                                      Global                         89.6    90.7    92.2    93.2    94.2
                                                                           YoY Grow th, %            1.2%    1.2%    1.6%    1.1%    1.1%
                                                                      OECD                           46.6    46.4    46.4    46.0    45.5
                                                                           YoY Grow th, %            -0.8%   -0.4%   0.0%    -0.8%   -1.1%
                                                                      Non-OECD                       43.0    44.3    45.8    47.2    48.7
                                                                           YoY Grow th, %            3.3%    2.9%    3.4%    3.0%    3.2%
                                                                      Supply                         2011    2012E   2013E   2014E   2015E
                                                                      Global                         88.6    90.6    92.2    93.3    94.3
                                                                           YoY Grow th, net mb/d     0.8     2.0     1.6     1.1     1.0
                                                                      Non OPEC                       50.5    50.9    51.8    53.1    54.7
                                                                           YoY Grow th, net mb/d      0.1     0.4     0.9     1.4     1.5
                                                                           North America             15.5    16.6    17.4    18.3    19.2
                                                                             YoY Grow th, net mb/d    0.5     1.1     0.8     0.9     0.9
                                                                      Non OPEC less NA               35.0    34.3    34.4    34.9    35.5
                                                                          YoY Grow th, net mb/d      -0.5    -0.7     0.0     0.5     0.6
                                                                      Processing gain                 2.4     2.5     2.5     2.6     2.6
                                                                      OPEC                           35.7    37.2    37.9    37.5    37.0
                                                                           YoY Grow th, net mb/d      0.6     1.6     0.7    -0.4    -0.6
                                                                      Opec Crude Oil                 30.3    31.6    32.4    31.9    31.3
                                                                           YoY Grow th, net mb/d      0.3     1.4     0.7    -0.4    -0.6
                                                                      Balance, stocks
                                                                      Implied inventory change       -1.0    -0.1     0.0     0.0     0.0

                                                                      Spare Capacity
                                                                      (All Saudi Arabia)              2.4     1.9     1.9     2.5     2.9
                                                                      % of total supply              2.7%    2.1%    2.1%    2.7%    3.1%
                                        Source: IEA, JODI, Credit Suisse




                                        Medium-term outlook loses a structural bias toward higher prices
                                        For much of the last ten years it has seemed obvious to us that the global spare capacity
                                        of oil supply would continue to shrink. Indeed, scarcity pricing, we figured, would remain
                                        part of the oil price dynamic for a few more years at least; no longer.
                                        In this summary of our quite detailed supply demand model, it is clear that global spare
                                        capacity begins to grow again after next year, see Exhibit 26.
                                        We make some big assumptions here, but broadly speaking the fact that a very large and
                                        growing piece of oil supply, namely that in the US and Canada, can grow materially faster
                                        or slower in response to price, to us means that effectively oil prices are capped or will
                                        soon be capped, until something significantly changes to capacity elsewhere and/or oil
                                        demand growth re-accelerates much faster than we think.

                                        Price paths
                                        In our view, oil prices will continue to move in a range rather than trending up or down
                                        through 2015. Within that range we project a few distinct patterns:
                                           Near term, we see downside risk as, broadly speaking, commodity prices (oil included)
                                           appear to have overshot their mark. Through end year, physical crude oil markets
                                           should be vulnerable to a late, but otherwise normal seasonal loosening of s/d balances.

Commodity Forecasts: The Best of Times, The Worst of Times                                                                                               23
                                                                                                                                                     12 October 2012



                                                    We pegged the Q4 Brent average at $105/b, down 5% qoq. This year’s average price of
                                                    $110.50/b would be less than 1% higher than that of 2011.
                                                    Next year, as balances generally tighten, benchmark crude oil prices should move
                                                    into the upper half of the range. In our base case, more or less normal seasonal
                                                    quarterly patterns yield a 2013 average of $115/b, up nearly 5% on this year.
                                                    Starting in 2014, we foresee rising spare capacity as demand growth underperforms
                                                    the trends seen last decade, while non-OPEC production ramps higher. Consequently,
                                                    Brent prices begin to slip structurally, for the first time since 2002. We forecast Brent
                                                    averages of $110/b in 2014, and $100/b in 2015.
                                                    We’re leaving unchanged our long-range target of $90/b (real 2011 dollars). We need
                                                    greater confidence in the rising tide of non-OPEC oil production being sustainable at
                                                    lower oil prices before moving this target – which for now also straddles a rough median
                                                    of Mideast producer government budget break-even prices.

 Exhibit 27: CSBMI vs. global PMI                                                         Exhibit 28: New base case vs. scenarios
 Index levels                                                                             $/b
 2                                                             CSBMI peaked Jan12         $160
                                                               PMI peaked Apr12                                                              (supply shock)
                                                                                     62
 1                                                                                        $140
                                                                                     57
                                                                                                                                                                   (a)
 0                                                                                        $120
                                                                                     52
                                                                                                                                                                (Base)
                                                                                          $100
 -1                                                                                  47

                                                                                           $80                                                                    (b)
                                                                                     42
 -2
                                                              CSBMI troughed Jun12         $60
                                                               PMI troughed Aug12?   37
 -3                                                                                                                                       (credit crunch)
                CSBMI, 3m ma                                                               $40
                                                                                     32
                Global PMI Mfg. New Orders, rhs
 -4                                                                                        $20
                                                                                     27

 -5                                                                                  22     $0
  01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 01/11 01/12                     12/1/2006     12/1/2008   12/1/2010    12/1/2012          12/1/2014

 Source: Credit Suisse                                                                    Source: Credit Suisse




                                                  Brent-WTI differentials
                                                  One more market surprise this year has been the generally much wider-than-anticipated
                                                  discount of WTI (the land-locked US crude oil benchmark) to Brent (which is normally
                                                  more reflective of internationally traded oil and global s/d balances).
                                                  We expect to see this differential narrow very significantly: to $7 and lower next year.
                                                           First, this quarter should be less extreme. As most of the weakness has been
                                                           flagged and priced already, Q4 averages should shrink to $13, from $17/b in Q3.
                                                           The resulting annual average of ~$15/b would be more than 20% narrower than
                                                           that of 2011.
                                                           Next year, the completion of significant pipeline infrastructure between Cushing,
                                                           West Texas, and the Gulf Coast refiners should reduce WTI/LLS differentials to
                                                           approximately the pipeline tariff, or ~ $5/b from Q2 onward, or earlier.
                                                           We’re assuming that imports will still be required more often than not and that
                                                           therefore LLS averages Brent parity through the balance of 2013.
                                                           By 2014 and beyond, however, US appetite for imported low-sulfur, light
                                                           feedstock should be zero, and its domestic price will link to global markets via
                                                           other benchmarks.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                           24
                                                                                                                                                                                                                       12 October 2012



                                                            Scenarios
                                                            We have written previously this year about large tail risks, uncertainty, and the fragile
                                                            state of both the global economy and political stability across a long list of significant oil-
                                                            producing countries. We obviously cannot stop doing this, but we will be brief.

 Exhibit 29: Brent and WTI forecast decks, our base case and two scenarios to either side
 Units as indicated below

 'Proposed new CS Base Case --Range of $100-120. No high conviction fundam entals direction dow n or up from that. Avg annual price rises one m ore year, 2013 and com pletes 11-year uptrend; then sets in decline

                                                                                     2012                                              2013                                             2014                             2015       Long term
         Oil Actuals & Forecasts ($US/b)      2010*    2011*
                                                                  Q1*       Q2*      Q3*      Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)    Yr Avg (f)   Yr Avg (f)     (real)
 Brent                                        83.13    109.97    118.28   108.95    109.62   105.00     110.46      110.00   115.00   115.00   120.00    115.00      115.00   110.00   110.00   105.00     110.00       100.00        90.0
     previous                                                                        95.00    95.00     104.35      100.00   100.00   105.00   105.00    102.50      110.00   115.00   115.00   120.00     115.00       100.00        90.00
                      Net Change                                                     14.60     10.00      6 .10      10.00    15.00    10.00    15.00     12 .5 0     5.00     -5.00    -5.00    -15.00     - 5 .0 0     0 .0 0        0.00
                       % Change                                                       15%        1
                                                                                                1%        6%         10%      15%      10%       14%       12 %        5%       -4%      -4%     -13%        -4%           0%           0%
       Consensus*                                                                             108.30     111.3      109.60   108.00   110.40   109.30    110.20                                             113.2       111.00
                     Net Difference                                                            -3.30     - 0 .8 0    0.40     7.00     4.60     10.70      4 .8                                              - 3 .2      - 11.0
                      % Difference                                                              -3%        - 1%      0%       6%       4%        10%       4%                                                -3%         - 10 %
       Fw d Curve*                                                                            112.63    112.37      105.12   109.67   108.10   106.52    107.35      99.74    103.61   102.24    100.90    101.62        96.98
                     Net Difference                                                            -7.60     - 1.9 0     4.90     5.30     6.90     13.50     7 .6 0      15.30    6.40     7.80       4.10      8 .4 0      3 .0 0
                      % Difference                                                              -7%       -2%        5%       5%       6%        13%       7%          15%     6%       8%         4%         8%          3%
 WTI                                          79.61    90.70     102.91    93.43    92.51     89.00     94.46       97.00    106.00   108.00   113.00    106.00      107.00   102.00   102.00   97.00      102.00        93.50        83.5
       previous                                                                      84.00    82.00      90.58      91.00    95.00    101.00   101.00     97.00      106.00   111.00   111.00    1 6.00
                                                                                                                                                                                                  1        111.00        94.00        84.0
                      Net Change                                                      8.50     7.00      3 .9 0      6.00     1 .00
                                                                                                                               1       7.00     12.00     9 .0 0      1.00     -9.00    -9.00    -19.00     - 9 .0 0     - 0 .5 0      -0.50
                       % Change                                                       10%      9%         4%         7%       12%      7%        12%       9%         1 %       -8%      -8%      -16%        -8%          - 1%         -1%
       Consensus*                                                                             93.80      95.66      97.70    97.80    101.00   100.80    101.50                                            102.80       104.50
                     Net Difference                                                             1
                                                                                               1 .20     - 1.2 0     -0.70    8.20     7.00     12.20     4 .5 0                                            - 0 .8 0     - 11.0 0
                      % Difference                                                             12%        - 1%        -1%     8%       7%        12%       4%                                                 - 1%         - 11%
       Fw d Curve*                                                                            95.33      96.04      94.72    96.83    96.46    95.58      95.90      99.74    93.73    92.80     97.86      96.03        97.19
                     Net Difference                                                            -6.30     - 1.6 0     2.30     9.20      1
                                                                                                                                       1 .50    17.40     10 .10      7.30     8.30     9.20     -0.90       6 .0 0      - 3 .7 0
                      % Difference                                                              -7%       -2%        2%       10%      12%       18%       11%        7%       9%       10%       -1%         6%           -4%
 WTI - Brent Spread                           -3.52    -19.27    -15.37    -15.51   -17.11    -16.00    -16.00      -13.00    -9.00    -7.00    -7.00     -9.00       -8.00    -8.00    -8.00    -8.00      -8.00        -6.50        -6.50

 Disaster scenario. Big assum ption: Policy error and/or other catalysts m elt dow n confidence. A true credit crunch ratchets activity dow n fast. Dem and plum m ets. Also, next recovery takes longer to achieve.

                                                                                      2012                                             2013                                             2014                             2015       Long term
 Oil Actuals & Crisis bear-case ($US/b)       2010*    2011*
                                                                  Q1*        Q2*      Q3*     Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)    Yr Avg (f)   Yr Avg (f)     (real)
 Brent                                        83.13    109.97    118.28    108.95   109.62    55.00      98.00      55.00    70.00    70.00    80.00      69.00      80.00    80.00    90.00    90.00       85.00        90.00        90.00
 WTI                                          79.61     90.70    102.91     93.43    92.51    45.00      83.00      50.00    61.00    63.00    73.00      62.00      72.00    72.00    82.00    82.00       77.00        83.50        83.50
 WTI - Brent Spread                           -3.52    -19.27    -15.37    -15.51   -17.11    -10.00    -15.00      -5.00    -9.00    -7.00    -7.00      -7.00      -8.00    -8.00    -8.00    -8.00       -8.00        -6.50        -6.50

 Econom ic crisis is not averted entirely. Dem and grow th erodes further. Supply side grow th, m eanw hile, accelerates. Much like w ith US natgas, m arket underestim ates upstream efficiency gains and potential.
                                                                                     2012                                              2013                                             2014                             2015       Long term
         Oil Actuals & Forecasts ($US/b)      2010*    2011*
                                                                  Q1*       Q2*      Q3*      Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)    Yr Avg (f)   Yr Avg (f)     (real)
 Brent                                        83.13    109.97    118.28    108.95   109.62    75.00     103.00      70.00    75.00    85.00    90.00      80.00      85.00    90.00    90.00    80.00       86.00        80.00        75.00

 Scarcity is not dead. Global grow th resum es a little quicker to a pace nearer that of 2002-2008. And on the supply side declines of the base keep upw ard pressure on the right side of the cost-curve.

                                                                                     2012                                              2013                                              2014                            2015       Long term
         Oil Actuals & Forecasts ($US/b)      2010*    2011*
                                                                  Q1*       Q2*      Q3*      Q4 (f) Yr Avg (f)     Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)    Yr Avg (f)   Yr Avg (f)      (real)
 Brent                                        83.13    109.97    118.28    108.95   109.62    115.00  113.00        115.00   120.00   120.00   120.00    119.00      125.00   125.00   125.00   125.00     125.00       140.00        110.00

 Mideast supply shock. Markets price for accute scarcity, as 2m b/d is offline for 2 m onths. SPR et al released m oderates prices. Dem and plunge does dam age too. Prices recover, only for intense supply respond to underm ine
 things along the lines of our base case.
                                                                                      2012                                            2013                                           2014                         2015     Long term
       Oil Actuals & Forecasts ($US/b)      2010*    2011*
                                                                 Q1*         Q2*      Q3*      Q4 (f) Yr Avg (f) Q1 (f)    Q2 (f)    Q3 (f)   Q4 (f) Yr Avg (f) Q1 (f)    Q2 (f)   Q3 (f)     Q4 (f) Yr Avg (f) Yr Avg (f)   (real)
 Brent                                      83.13    109.97     118.28     108.95    109.62    150.00    122.00   130.00   100.00    90.00    90.00   103.00    110.00    125.00  125.00     120.00    120.00    100.00      90.00

 Source: Credit Suisse



                                                            The key characteristics in the headers above the alternative paths speak for themselves.
                                                            On the bullish cases we show the difference between a relatively benign “return to strong
                                                            growth” case, involving ongoing price appreciation flowing from mild scarcity, and a
                                                            “supply shock” case with associated capacity loss. The more “benign” case does involve
                                                            rising long-run prices. On the bearish side we have a milder scenario, involving a “benign,
                                                            growth recession” and associated cost deflation, which would also lower the long-run price.
                                                            The extreme case, of course, is disaster pricing around a global depression/financial
                                                            meltdown.

                                                            Fundamentals – Demand growth remains unconvincing
                                                            The good news from the data on oil demand this year is that growth remains on track for
                                                            something north of 1% yoy (i.e., more than 1 Mb/d). The bad news is that not much of that
                                                            2012 expansion is structural or otherwise something on which to pin a bullish trend. As
                                                            noted earlier in this report, greater global economic growth can accelerate rising demand-
                                                            trends for commodities, but without that we cannot turn very bullish, even on oil.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                     25
                                                                                                                          12 October 2012




                                        Exhibit 30: Oil demand yoy deltas: data for 2012 through July, forecast for 2013
                                        kb/d


                                           500
                                           400
                                                                                    2012 ytd             2013E
                                           300
                                           200
                                           100
                                               0
                                          -100
                                          -200
                                          -300
                                          -400




                                                        Argentina




                                                               USA
                                                               Italy
                                                              India




                                                                Iran


                                                           Mexico
                                                          Australia




                                                           Canada
                                                         Germany

                                                     Other Europe
                                                             Japan

                                                             China
                                                             Brazil
                                                      Saudi Arabia




                                                      South Africa




                                                                  UK
                                                        Other Asia
                                                      Other Africa


                                                        Venezuela




                                                              Chile

                                                             Egypt
                                                         Other ME




                                                          Thailand
                                                      South Korea




                                                           France
                                        Source: Credit Suisse Securities Research



                                        There are several significant developments visible in the demand data that have come in
                                        over the summer – as illustrated in the eight charts of seasonally adjusted data that break
                                        down the relatively pronounced upturn in level oil demand from its first quarter trough.
                                           Trough to peak, seasonally adjusted oil demand grew across both mature and emerging
                                           economies, but given the depth of the trough this expansion was not very large
                                           (~1Mb/d), or consistent; and the July/August data suggest a leveling off.
                                           Somewhat ironically, the mature economies of the OECD contributed significantly to this
                                           year’s increase – though only after contributing the most to the earlier downturn.
                                                     Within that OECD category, Japan’s gain trumps all else, but is a one-year only
                                                     step.
                                                     US and European contributions may prove rather short-lived as well, if the
                                                     July/August data portend a new trend. That, or a pending rebound in IP/GDP
                                                     growth, flagged by the lazy turn in the CSBMI, brings about a sustained rise, see
                                                     Exhibit 27.
                                           Across Emerging Markets oil use is growing slower than trend, especially in China. And
                                           we see no reason to adjust our more cautious take on future growth, which we
                                           introduced in early July Commodities Forecast Update: The Danger Zone.
                                                     Weakness in China has everything to do with sideways-trending middle distillate
                                                     demand from 2H 2011 through much of the first half of this year. Only in the
                                                     August data is consumption of diesel, which accounts for more than 40% of
                                                     China’s oil demand, beginning to grow at more than 5% yoy. That said, gasoline
                                                     and jet fuel use is expanding at near 10% trend growth rates this year.
                                                     Oil use has risen about normally in the Mideast, Latin America and to a lesser
                                                     extent Africa. Even though, evidently, economic growth plays a role in these
                                                     economies demand growth as well. Another reason includes the lack of
                                                     substitution with natural gas in the power-generation, desalination and heavy
                                                     industrial sectors. Finally, conflicts and/or government instability also promotes
                                                     the use of diesel for power generation.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                            26
                                                                                                                                                                  12 October 2012




                                        Exhibit 31: Global demand (Mb/d)                                           Exhibit 32: EM demand (Mb/d)
                                         92                      monthly SA                 SA 3mth MA
                                                                                                                   45                   monthly SA              3mth Avg SA




                                         91                                                                        44


                                         90                                                                        43



                                         89                                                                        42



                                         88                                                                        41
                                          Jan-11   Apr-11   Jul-11       Oct-11   Jan-12    Apr-12        Jul-12    Jan-11 Apr-11     Jul-11       Oct-11 Jan-12 Apr-12       Jul-12



                                        Exhibit 33: … OECD                                                         Exhibit 34: … China
                                          48                   monthly SA                   3mth Avg SA            10.5                  monthly SA            3mth Avg SA



                                          47
                                                                                                                   10.0

                                          46


                                                                                                                    9.5
                                          45


                                          44
                                           Jan-11 Apr-11     Jul-11      Oct-11 Jan-12 Apr-12             Jul-12
                                                                                                                    9.0
                                                                                                                      Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12


                                        Exhibit 35: … US                                                           Exhibit 36: … EM Asia (ex. China)
                                        19.5                 monthly SA                    3mth Avg SA             12.0               monthly SA                3mth Avg SA




                                                                                                                   11.5
                                        19.0



                                                                                                                   11.0
                                        18.5


                                                                                                                   10.5
                                        18.0                                                                          Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
                                           Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12


                                        Exhibit 37: … Europe                                                       Exhibit 38: … Middle East
                                        16.0                monthly SA                     3mth Avg SA                                monthly SA                3mth Avg SA

                                                                                                                    8.0


                                        15.5
                                                                                                                    7.5


                                        15.0
                                                                                                                    7.0



                                        14.5                                                                        6.5
                                           Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12                           Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

                                        Source: IEA, Credit Suisse Commodities Research                            Source: IEA, Credit Suisse Commodities Research




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                             27
                                                                                                                                                                        12 October 2012



                                        Country-specific contributions/losses to oil demand in 2012 and 2013
                                        Oil demand growth this year remains heavily tilted toward the eastern hemisphere. Oil
                                        demand around the Atlantic Basin began the year in full retreat – aided by the dampening
                                        effect of a much milder-than-normal winter. That said, this year is an odd one.
                                        By country yoy deltas show that Japan is the biggest gainer, adding nearly twice as much
                                        as China to average oil demand in the year to date, with complete data through July, see
                                        Exhibit 30. Oil use in the US has fallen the most, while unsurprisingly the rest of the right-
                                        hand side of that chart is populated by European economies.
                                        Note as well that Saudi Arabia’s oil consumption is on track for another 5%, or ~150 kb/d,
                                        gain, despite having significantly more domestic natural gas available. The smaller GCC
                                        economies add some 100 b/d again as well.
                                        In the chart and the table below (see Exhibit 39) we detail forecast tracks by country.
                                        Among the bigger year-to-year shifts we see the following:
                                           Oil consumption in Japan should moderate next year. We forecast a loss of nearly a
                                           third of this year’s 400 kb/d power-generation-driven increment. Though we assume that
                                           very few nuclear plants restart (about 25% in operation at end 2013), both LNG and
                                           coal-fired power generation should capture share from more expensive oil next year.
                                           More growth in China and the export economies surrounding it.
                                           A modest bounce in US oil consumption.

                                        Exhibit 39: Oil demand by economy and region
                                        (% yoy Growth)

                                         1,0 0 0 b/ d            Base                    by quarter (2012)                              by year (2010-14)                         Trend
                                                                  2 0 11      1Q 12        2 Q 12     3 Q 12 E   4 Q 12 E   2 0 10    2 0 11     2 0 12 E   2 0 13 E   2 0 14 E   2 0 0 7 - 11

                                         G lo ba l               8 9 ,6 0 0   0 .4 %       1.6 %       1.0 %      1.8 %     3 .7 %    1.2 %       1.2 %      1.6 %      1.1%        1.0 %
                                            OECD                 46,560        -1.7%        0.5%       -0.7%      0.3%       1.2%     -0.8%       -0.4%      0.0%       -0.8%       -1.5%
                                            Emerging M arkets    43,040        2.8%         2.8%       2.8%       3.4%      6.7%       3.3%       2.9%       3.4%       3.0%        4.2%

                                         O E C D A m e ric a s   2 4 ,0 7 0   - 3 .2 %     - 0 .2 %   - 0 .7 %    0 .7 %    1.9 %     - 0 .2 %   - 0 .8 %   0 .8 %     - 0 .4 %    - 1.3 %
                                            Canada                2,290       -4.7%         2.5%       0.4%        1%
                                                                                                                   .1       3.9%       2.5%       -0.2%      0.7%       0.7%        0.6%
                                            M exico                2,130       0.4%         1.0%       0.8%       1.3%      0.5%       2.5%       0.9%       1.3%       0.2%         0.1%
                                            USA                    9,01
                                                                  1 0         -3.5%        -0.7%         .1
                                                                                                       -1 %       0.7%      2.2%      -0.9%         .1
                                                                                                                                                  -1 %       0.7%       -0.6%       -1.6%
                                         S o ut h A m e ric a    6 ,2 8 0     3 .2 %       3 .3 %      1.5 %      1.6 %     6 .4 %    2 .5 %     2 .4 %      1.9 %      1.6 %      3 .6 %
                                            B razil               3,020        4.8%         5.0%       1.8%       1.8%      9.7%       3.8%       3.3%       2.3%       2.2%        5.7%
                                            Venezuela               710        5.1%         5.0%       2.1%       2.1%      -2.0%      2.6%       3.4%       2.1%       2.0%        0.7%
                                            A rgentina             630         2.8%         2.2%       2.6%       1.5%       8.1%     -9.2%       2.2%       2.5%       -0.4%        1.3%
                                         E uro pe                15 ,3 3 0    - 3 .0 %     - 2 .1%    - 2 .1%    - 0 .7 %   - 0 .1%   - 2 .0 %   - 1.9 %    - 0 .5 %   - 1.8 %     - 1.7 %
                                            France                 1,790         .1
                                                                               -1 %        -2.5%       2.0%       0.8%      -2.0%     -2.2%       -0.2%      0.0%       -1.6%       -2.1%
                                            Germany               2,400       -3.2%         1.0%       0.4%       3.0%      0.7%      -2.8%       0.3%       2.1%       -0.5%       -1.8%
                                            Italy                  1,450      -10.5%       -9.8%       -5.9%      -3.5%     0.0%      -5.9%       -7.4%      -0.9%      -4.3%       -3.9%
                                            UK                      ,61
                                                                   1 0        -5.5%        -4.5%       -3.4%      -3.7%     -0.7%      -1.4%      -4.3%      -1.3%      -2.5%       -2.3%
                                            Oth Euro pe           8,080        -1.4%        -1.0%      -2.7%        .1
                                                                                                                  -1 %      0.2%       -1 %
                                                                                                                                         .1       -1.6%        .1
                                                                                                                                                             -1 %       -1.7%       -1.0%
                                         F SU                    4 ,3 2 0     2 .9 %       2 .6 %      2 .7 %     2 .2 %    3 .1%     4 .1%      2 .6 %     2 .2 %      1.5 %       2 .1%
                                         M ide a s t              7 ,2 10     2 .3 %       5 .7 %      2 .0 %     4 .3 %    5 .8 %    2 .3 %     3 .6 %     3 .9 %     2 .7 %      3 .8 %
                                            Saudi A rabia         2,900        3.4%         5.9%       3.2%       7.5%      7.8%       5.0%       5.0%       5.7%       3.4%        6.5%
                                            Iran                   1,750      -0.2%         3.7%       -3.0%      -1.0%     -1.4%     -2.4%       -0.1%      0.0%       1.0%        -0.6%
                                         A f ric a               3 ,4 3 0     2 .9 %       2 .0 %      3 .1%      3 .0 %    6 .6 %    - 1.7 %    2 .7 %     2 .6 %      2 .1%      3 .7 %
                                         A s ia - P a c          2 8 ,9 6 0   3 .4 %       3 .4 %      3 .2 %     3 .1%     6 .1%     3 .4 %     3 .3 %     2 .6 %      3 .1%       3 .1%
                                            China                 9,730        2.8%         1.2%       3.6%       4.6%      1 %
                                                                                                                             2.1       5.8%       3.0%       4.9%       5.4%        6.6%
                                            India                 3,470        5.3%         4.7%       5.6%       3.7%       1.2%      4.5%       4.8%       3.7%       3.8%        4.4%
                                            Japan                 4,460        9.4%        10.0%       2.5%       0.1%      0.7%       0.6%       5.3%       -2.6%      -0.8%       -2.9%
                                            So uth Ko rea         2,230       -2.2%         7.2%       2.3%       2.0%      3.7%       -1.7%      2.2%       -0.3%      1.2%        0.5%
                                        Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                  28
                                                                                                                                                                                               12 October 2012




                                                   Supply: Non-OPEC ex-US disappoints still more
                                                   Global oil supplies grew meaningfully late last year and through the first quarter of 2012,
                                                   but have since then roughly tracked sideways, see Exhibit 22.

Exhibit 40: Monthly crude oil production from non-                                                     Exhibit 41: … though flows from North America are
OPEC showed promise after the GFC                                                                      growing fast, declines elsewhere undermine total
Historical data of all crude oil (excludes ngls and biofuels) in kb/d                                  Yoy delta for non-OPEC oil production by quarter in kb/d
   43
                                                                                                         1800                                                                                                    1800
                                                                                                                            Non-OPEC ex. North America            North America           Non-Opec


   42                                                                                                    1400                                                                                                    1400


   41                                                                                                    1000                                                                                                    1000


   40                                                                                                       600                                                                                                  600



   39                                                                                                       200                                                                                                  200



   38                                                                                                       -200                                                                                                 -200



   37                                                                                                       -600                                                                                                 -600



   36                                                                                                   -1000                                                                                                    -1000
                                                                                                                    1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
    Jan-95   Jan-97     Jan-99   Jan-01   Jan-03   Jan-05     Jan-07   Jan-09     Jan-11

Source: Credit Suisse                                                                                  Source: Credit Suisse



                                                   To date, our rather skeptical take on the large additions forecast by others has mostly
                                                   found support, see Exhibit 40.

                                                   Exhibit 42: Oil supply by region
                                                   kb/d

                                                                           Base                      Y-o-Y Grow th by quarter ('000 b/d)                                      Y-o-Y Grow th           Q-o-Q Grow th
                                                                         2011       1Q11    2Q11     3Q11          4Q11      1Q12      2Q12      3Q12E    4Q12E    2010       2011    2012E   2013E       2Q12
                                                   Global Oil           88,610      1,710     30      170          1,140     1,950     2,960     1,950    1,070    2,480       760    1,980   1,600        -40
                                                   Opec all oil         35,680      1,040    240      110          1,080     1,380     2,230     1,590    1,030    1,220       615    1,555    675         630
                                                   Non Opec             50,510       580    -310      -30           -30       520       680       310      -10     1,160        50     375     875        -720

                                                   North Am erica       16,090       470     380      510           880      1,240     1,280     1,180     730       665      560     1,105   845          -50
                                                     US                  9,040       240     430      300           650       980       830      1,000     590       505      405      850    825           0
                                                     Canada              3,510       220     -60      220           220       310       460       200      180       155      150      285    160          -80
                                                     Mexico              2,930        -20     -10      -30           -10      -50       -30        -30     -60       -20       -20     -45    -155          10
                                                   South Am erica        8,080       180     -160     -150            20      -80      -140       -150    -310       220       -30    -170      30        -210
                                                     Venezuela           2,740        -40    -140     -160          -100     -150      -130       -110    -140       -15      -110    -130    -140         -30
                                                     Brazil              2,570        100     -70      -80           -30       60       -50        -30    -190       120       -20     -55      80        -170
                                                     Argentina            690         -20    -100      -40            20      -30        30        -30      20       -15       -35      -5      20         -20
                                                   Europe                4,670       -430    -370     -190          -370     -180      -100       -340    -300      -310      -335    -230    -185        -190
                                                     Norw ay             2,020       -210    -150       60          -120      -20        20       -190    -130      -220      -105     -80     -35        -110
                                                     United Kingdom      1,090       -230    -220     -270          -230     -160      -140       -130    -150      -105      -240    -145    -125         -90
                                                   FSU                  13,900        230     100       60            20      110        60        130     190       260       100     125     200         -90
                                                     Russia             10,670       170      150      190           140      180       110        100      90       245       160     120     -35         -30
                                                     Kazakhstan          1,640        50       40      -30           -20      -40       -20         20     -30        60        10     -15     245         -50
                                                     Azerbaijan           920         -20    -110     -140          -130      -70       -70        -30    110        -20      -100     -15      -5         -30
                                                   Middle East          28,040      1,880   2,190    2,080         2,330     1,100      550        -40    210      1,095     2,120     450    600         500
                                                     Saudi Arabia       11,080       860      970      600          1,210     770       730       440      110       660       910     505    -250         560
                                                     Iran                4,280         0      -70       80           130     -160      -770      -1,200   -740        15        35    -720     320        -520
                                                     UAE                 3,250        460     480      370           170       70        10        190     200        95       370     120     130          70
                                                     Kuw ait             2,870        150     250      430           530      500       420        220      90        45       340     305      25          30
                                                     Iraq                2,820        240     430      420           290       50       230        480     530        20       345     325     310         300
                                                   Africa                8,970       -780   -2,000   -1,840        -1,450    -170      1,340     1,180     630       185     -1,520    745     205          70
                                                     Nigeria             2,370        -10     -70      -60          -270     -210       -40         30      90       240      -105     -35      70          50
                                                     Algeria             1,750       110       80        0           -90      -70        10       -120     -80       -95        25     -65    -115          10
                                                     Libya                480        -670   -1,670   -1,700        -1,090     230      1,470     1,520    940         60     -1,285   1,045   225         190
                                                     Angola              1,690       -220    -240      -90           50        90       140         60     -10       -35      -125      70      15         -40
                                                   Asia                  8,870       150     -120     -310          -280      -70       -30         0      -80      365       -140     -45     -90         -70
                                                     Indonesia            930         -50     -70      -40           -20      -30       -50        -90     -80        -5       -40     -65     -10         -30
                                                     China               4,100        200     100      -90          -210      -70      -100         50     100       285        -5      -5      35         -50
                                                     India                890          50      50        0           -30        0       -10          0     -20        80        15     -10     -10          10
                                                   Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                         29
                                                                                                                        12 October 2012



                                        The fact remains that the industry is singularly unimpressive at adding meaningful growth
                                        from Europe, Latin America, Africa, Asia, or the FSU, see Exhibit 41. In the above table,
                                        Exhibit 42, we detail data, by significant oil producer, on a quarterly basis. Through August,
                                        non-OPEC oil production, from outside North America, is down nearly 700 kb/d on
                                        average daily levels achieved through August last year.
                                        Though seasonal patterns and modest year-end capacity additions should add to flows,
                                        going into 2013 we expect no large upside surprise in the shorter term, see Exhibit 52.
                                        Further out into 2013 and 2014, we again give the benefit of the doubt to the case for
                                        industry and new project-driven crude oil production growth. Standing out in this regard
                                        are Kashagan in the Caspian, the string of new sub-salt additions waiting in the wings
                                        offshore Brazil, and a slew of deep water projects elsewhere around the world. In addition,
                                        we expect to see Russia continue to add incrementally every year, while producers
                                        including Oman, Colombia, and others should also, at the very least, be able to sustain
                                        current flow levels. However, the risk is clearly to the downside, as base decline rates are
                                        accelerating, while options to redevelop aging fields also take time and effort (read money)
                                        to make much of a difference.

                                        US supply growth potential is very large
                                        The big exception to the latest down-cycle in non-OPEC performance is, for now, the US
                                        upstream. Regulatory and fiscal stability here have combined with super-normal high oil
                                        prices and a collapse in the value of natural gas to spur an enormous upturn in
                                        investments across frontier oil plays across the US. Even the Gulf of Mexico is again
                                        benefiting and ramping up activity But the hottest are the “oily” unconventional and outright
                                        shale plays onshore. The Eagle Ford, Bakken, and Permian and to a lesser degree the
                                        Nobrara, Mississippian, and Granite Wash are all basins to watch.
                                        Based on a conservative set of assumptions, including continued high oil prices, 27%
                                        growth in the oil well count by 2016, and a 25% improvement in the 30-day initial
                                        production (IP) rate per well, our new and extremely granular well-by-well model of US oil
                                        production says crude oil and condensate production in the US could reach ~10 Mb/d by
                                        2020, compared with 5.7 Mb/d in 2011.
                                        At current costs, shale project economics suggest a breakeven price around US $60-75/b.
                                        However, over the near term, in order to sustain ~27% growth in the oil well count, and
                                        reach ~10 Mb/d of production, the US oil industry needs ~$95/b Brent, or ~$88 WTI, for
                                        self-generated cash flow to fund the required capex. This could be lowered by external
                                        funding, but we have already seen some companies reduce capex when WTI recently fell
                                        below $90/b. As volumes rise, required prices could drift down toward $75/b WTI.
                                        But it is important to remember that the average recovery of a shale gas well is 3x-5x the
                                        recovery of the typical shale oil well on a BTU basis. And once gas prices recover, oil wells
                                        need to remain attractive enough to attract investment. In the short term, growth can be
                                        maintained. However, we don’t yet know the terminal decline rates from new oil shale
                                        plays and physics suggests that the oil shale decline rate could be higher than that of its
                                        gas counterparts.
                                        In North America, accommodating an additional 600 kb/d p.a. of growth from the US and
                                        300 kb/d p.a. from Canada will require new trunk-line pipes and gathering systems. Our
                                        short-term model suggests WTI-LLS will remain wide through 4Q12, but narrow as
                                        Seaway, the southern leg of the Keystone XL and Permian pipes are built out through
                                        2013. Even as WTI-LLS spreads narrow, it is likely that a wider discount will remain for
                                        Bakken and Canadian Heavy crude through 2014, again see US Oil Production Outlook.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                          30
                                                                                                                                                                                    12 October 2012




 Exhibit 43: Total US oil production (excluding NGL)                                                Exhibit 44: Shale rig count and total wells drilled
 Left axis: (kb/d); Right axis (oil rigs)                                                           Left axis: (wells drilled); Right axis (oil rigs)

 12,000              US Oil Production                  Oil Shale Rig Count                 1400     18,000                                                                                   1,400

 10,000                                                                                     1200     16,000                                                                                   1,200

                                                                                            1000                                                                                              1,000
   8,000                                                                                             14,000
                                                                                            800                                                                                               800
   6,000                                                                                             12,000
                                                                                            600
                                                                                                                                                                                              600
   4,000                                                                                                                                                            Wells Drilled
                                                                                            400      10,000
                                                                                                                                                                    US Shale Oil Rig
                                                                                                                                                                                              400
   2,000                                                                                    200                                                                     Count
                                                                                                       8,000                                                                                  200
          0                                                                                 0
              2000       2004       2008           2012E    2016E                  2020E               6,000                                                                                  0
                                                                                                            2011         2013            2015     2017         2019            2021

 Source: Credit Suisse                                                                              Source: Credit Suisse



                                                    Globally, North American production growth helps to increase spare capacity from 2% to
                                                    3%, but markets will likely remain stressed until the next wave of global offshore growth or
                                                    global shale starts to kick in, which we anticipate for the second half of the decade.

                                                    Inventories: downstream tightness holds upside price risk
                                                    Thanks to a multi-month supply surplus in the first half, crude oil inventory is adequate at
                                                    worst across Europe and much of Asia, and plentiful if not depressingly full in the US.
                                                    Aside from reported totals across the OECD and in independent tanks, see Exhibit 46,
                                                    producer inventory is rich as well (e.g., Saudi); China has grabbed the opportunity to
                                                    squirrel away nearly 69 Mb of oil to replenish commercial tanks and begin filling the
                                                    second stage of its multi-decade built up of a strategic reserve.

 Exhibit 45: Key product remains in short supply                                                    Exhibit 46: Reported OECD on-land crude oil stocks
 Reported inventory of middle distillates relative to their five-year average (Mb)                  US, ARA, Japan, Singapore

                                  Surplus onland                floating storage
                                                                                                      1060
    220                                                                                                                     5y Max Min           5yr avg             2012              2011


    180                                                                                               1030


    140                                                                                               1000

    100
                                                                                                       970

     60
                                                                                                       940
     20
                                                                                                       910
    -20

                                                                                                       880
    -60                                                                                                      Jan   Feb   Mar     Apr      May   Jun     Jul   Aug     Sep       Oct    Nov    Dec
       Jul-07            Jul-08         Jul-09         Jul-10                  Jul-11      Jul-12

 Source: Credit Suisse                                                                              Source: Credit Suisse



                                                    That picture of plenty does not apply downstream. Critically, inventories of middle
                                                    distillates (diesel, heating oil, and kerosene) have fallen well below their five-year norms,
                                                    see Exhibit 45. Playing the implied structural tightness in middle distillates remains one of
                                                    our favorite short-term trading strategies, Commodities Advantage: Spanish impedimenta.
                                                    We expect that only the slew of new refiner capacity additions can begin to unwind this
                                                    multi-year tightening. That unwind will probably begin after the coming winter.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                          31
                                                                                                                                            12 October 2012




                                        Longer term
                                        The most expensive industry projects are unconventional (those costs, all-in, come down
                                        over time). Moreover, costs deflate as activity deflates and/or services are commoditized.
                                        Add in wobbles in global economic growth and dimmer prospects for a return to the
                                        “normal pace” of the pre-GFC years and it’s understandable that long-dated futures prices
                                        fall well short of their 2008 highs and instead have gravitated to ~$100/b (Exhibit 47).
                                        That said, decline rates in the existing base run from 2%-3% per annum in the better run
                                        OPEC provinces to the low teens p.a. for deep water and shale oil developments.

                                     Exhibit 47: Long-dated Brent price clears ~$100
                                     $/b; two-year out Brent futures prices with two standard deviations around the 2011/2012 mean


                                       $130

                                       $120

                                       $110

                                       $100

                                        $90

                                        $80

                                        $70
                                              J-11           A-11           J-11           O-11            J-12           A-12       J-12            O-12
                                     Source: Credit Suisse



                                        And in the broader picture, marginal producers remain the sovereigns. Running big oil-
                                        exporting countries generally involves rising costs and thus rising budget break-even oil
                                        prices. So long as Saudi Arabia remains the sole swing-producer, considerations of
                                        budget break-even oil prices retain some relevance, we think.
                                        However, should prices really begin to fall and spare capacity blow out, a different problem
                                        arises. It has proved notoriously difficult for OPEC to manage markets once spare capacity
                                        needs to be shared. And that ultimate prop under prices could prove fragile again.
                                        For now, we’re keeping our own long-run prices unchanged at $90/b Brent (2011 dollars).




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                              32
                                                                                                                                                                  12 October 2012




                                            Positioning/risk
                                            Near term a modest oil price retreat could be driven by fading risk-on momentum (China
                                            news, euro policy execution risk, and US policy risk) combined with fading supply-risk (e.g.,
                                            timing of a potential Israeli first-strike has again shifted six months down the line).

 Exhibit 48: Non-commercial net length appears to                                          Exhibit 49: We like looking at Managed Money’s
 be near previous highs, but this measure is fuzzy                                         position in Brent, where there is room to maneuver
 $120               WTI Px ($/b)        WTI Non-Commercial Net Length          300         $140         Brent Px ($/b)             Brent MM Net Length as a percentage of OI   16%




                                                                                      d
                                                                                           $135                                                                                14%
 $110                                                                          250
                                                                                           $130




                                                                                      Th
                                                                                                                                                                               12%
                                                                                           $125
 $100                                                                          200
                                                                                           $120                                                                                10%

  $90                                                                          150         $115                                                                                8%
                                                                                           $110                                                                                6%
  $80                                                                          100
                                                                                           $105
                                                                                                                                                                               4%
                                                                                           $100
  $70                                                                          50
                                                                                            $95                                                                                2%

  $60                                                                          0            $90                                                                                0%
    Jan-11     Apr-11     Jul-11   Oct-11   Jan-12     Apr-12   Jul-12                        Jan-11     Apr-11      Jul-11       Oct-11    Jan-12    Apr-12    Jul-12

 Source: CFTC, Credit Suisse                                                               Source: CFTC, Credit Suisse



                                               Positioning is seen as a negative, as speculative net length is already “extremely high,”
                                               limiting the upside of recent policy easing and positive macro news in the US.
                                               At first blush it appears that asset managers’ net long positions in oil are near their
                                               record highs. For example, non-commercial net length in WTI is already close to the
                                               levels reached in March 2011, ~271,887 contracts, see Exhibit 48.
                                               However, dig deeper and it becomes clear that the category we care about most,
                                               Managed Money in Brent, is still well below previous highs. Currently, Managed Money’s
                                               net length in Brent, as a percentage of total OI, is just ~8.5%, close to the two-year
                                               average and ~30% below its March peak YTD, Exhibit 49.

 Exhibit 50: Brent futures curve-shape and flat price                                      Exhibit 51: Gasoil curve illustrates tightness
 Shows that transitions between episodes of fundamental weakness and                       ICE gasoil contract month one-month 6, $/Mt
 strength (as reflected in curve shape) coincide with big moves in flat price, $/b.

  $130                                                                          $10         $60
                                                                                                                                     2011               2012
                                                     Brent front                            $50
                                                     month price ($/b)                      $40
                                                                                                       Backwardation: Bullish

  $120                                                                          $5          $30

                                                                                            $20

                                                                                            $10
  $110                                                                          $0           $0

                                                                                           -$10

             Brent futures contracts 1-6:                                                  -$20
  $100       positive means                                                     -$5                                                                  Contango: Bearish
                                                                                           -$30
             backwardation, negative
             means contango                                                                -$40
                                                                                              Oct-11       Dec-11        Feb-12         Apr-12       Jun-12      Aug-12

   $90                                                                          -$10
     Jan-12 Feb-12Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12

 Source: Credit Suisse                                                                     Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                     33
                                                                                                                                                                          12 October 2012



                                                       We’d also point out that fundamentals do still matter as well. And in the near term they
                                                       limit downside risk.
                                                       Near term s/d drives the shape of futures curves. Big changes in the shape of Brent
                                                       curves, in turn, coincide neatly with big swings in flat price, even this year, see Exhibit
                                                       50. We expect that the underlying downstream strength in middle distillates will keep in
                                                       place a bid for the marginal Brent barrel through the remainder of the year, probably well
                                                       into next year, see Exhibit 51. And therefore we expect the Brent curve to stay in
                                                       backwardation at least through winter.
                                                   Difficult to capture, of course, is the risk of supply disruptions and/or longer-term capacity
                                                   degradation in any of the sovereign producers of North Africa and the Mideast.

 Exhibit 52: Iraq and Saudi make up for Iran’s loss …                                   Exhibit 53: Iran’s currency collapses, what’s next?
 Monthly production data through August, indicators for Sept and forecast, kb/d         Iran’s rial to the US dollar

   4,000                         Iran       Iraq        Saudi Arabia           10,000
                                                                                         37,000
                                                                                                                                                                Riots in Tehran as
   3,750                                                                       9,750                                                                            Rial plunges Oct 2,3
                                                                                         33,000

   3,500                                                                       9,500                        Official Bank Rate         Unofficial Market Rate
                                                                                         29,000

   3,250                                                                       9,250                                                            EU and US sanctions
                                                                                         25,000
                                                                                                                                                fully implementated
                                                                                                                                                on July 1
                                                                                                         EU import embargo
   3,000                                                                       9,000     21,000


                                                                                                    U.S. CBI Sanctions
   2,750                                                                       8,750     17,000



   2,500                                                                       8,500     13,000
           J    F        M   A          M   J      J     A    S    O   N   D
                                                                                          9,000
                                                                                              Sep-11 Oct-11 Nov-11Dec-11 Jan-12 Feb-12Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12


 Source: Credit Suisse                                                                  Source: FT, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                               34
                                                                                                                                                               12 October 2012




 Forecasts
 Exhibit 54: Brent crude forecast comparison                                          Exhibit 55: Brent crude historical price and forecast
 US$/b                                                                                US$/b

             Credit Suisse Forecast    Forward Curve       Bloomberg Forecast Mean     $160
                                                                                                          Brent front month                  Quarterly avg forecasts
  $125
                                                                                       $140
  $120

  $115                                                                                 $120

  $110
                                                                                       $100
  $105

  $100                                                                                  $80

   $95
                                                                                        $60
   $90
                                                                                        $40
   $85

   $80                                                                                  $20
           Q4 12        Q1 13         Q2 13        Q3 13         Q4 13        Q1 14        2005   2006   2007     2008        2009   2010     2011      2012      2013

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




 Exhibit 56: WTI crude forecast comparison                                            Exhibit 57: WTI crude historical price and forecast
 US$/b                                                                                US$/b

             Credit Suisse Forecast    Forward Curve       Bloomberg Forecast Mean     $160                  WTI front month         Quarterly avg forecasts
  $120

  $115                                                                                 $140

  $110
                                                                                       $120
  $105

  $100                                                                                 $100

   $95
                                                                                        $80
   $90

   $85                                                                                  $60

   $80
                                                                                        $40
   $75

   $70                                                                                  $20
           Q4 12        Q1 13         Q2 13        Q3 13         Q4 13        Q1 14        2005   2006   2007     2008        2009   2010     2011      2012      2013


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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                 35
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 58: Global oil demand estimates
                                                             Mb/d, unless otherwise specified

                                                                    Demand                               2010    Q1-'11   Q2-'11   Q3-'11   Q4-'11   2011    Q1-'12   Q2-'12   Q3-'12E   Q4-'12E   2012E   Q1-'13E   Q2-'13E   Q3-'13E   Q4-'13E   2013E   Q1-'14E   Q2-'14E   Q3-'14E   Q4-'14E   2014E    2015E
                                                                    Global                               88.6     89.4    88.6     90.1     90.3     89.6    89.7     90.0      91.0      91.9     90.7     91.4      91.4      92.5      93.3      92.2     92.4      92.4      93.5      94.4     93.2     94.2
                                                                      YoY Grow th, net mb/d               3.2     2.4      0.5      0.8      0.4      1.0     0.4      1.4       0.9       1.6      1.1      1.7       1.4       1.5       1.5      1.5      1.0       1.0       1.0       1.1       1.0      1.0
                                                                      YoY Grow th, %                     3.7%    2.7%     0.6%     0.9%     0.4%     1.2%    0.4%     1.6%      1.0%      1.8%     1.2%     1.9%      1.5%      1.6%      1.6%      1.6%    1.1%      1.1%      1.1%       1.2%     1.1%     1.1%

                                                                    OECD                                 46.9     47.1    45.4     47.0     46.8     46.6    46.3     45.6      46.6      46.9     46.4     46.6      45.5      46.6      46.8      46.4     46.2      45.1      46.2      46.5     46.0     45.5
                                                                      YoY Grow th, net mb/d               0.6     0.4      -0.7     -0.4     -0.7    -0.4     -0.8     0.2      -0.3       0.1      -0.2     0.3      -0.1      -0.1       -0.1     0.0      -0.3      -0.3      -0.4      -0.3     -0.3     -0.5
                                                                      YoY Grow th, %                     1.2%    0.9%     -1.4%    -0.9%    -1.5%    -0.8%   -1.7%    0.5%     -0.7%      0.3%     -0.4%    0.5%      -0.3%     -0.2%     -0.2%     0.0%    -0.7%     -0.8%     -0.8%     -0.7%     -0.8%    -1.1%
                                                                    Americas                             24.1     24.2    23.8     24.2     24.0     24.1    23.5     23.8      24.0      24.2     23.9     23.9      23.9      24.1      24.3      24.0     23.8      23.8      24.0      24.2     24.0     23.5
                                                                      YoY Grow th, net mb/d               0.5     0.5      -0.2     -0.3     -0.2    -0.1     -0.8     0.0      -0.2       0.2      -0.2     0.4       0.1       0.1       0.1      0.2      -0.1      -0.1      -0.1      -0.1     -0.1     -0.5
                                                                      YoY Grow th, %                     1.9%    2.0%     -1.0%    -1.1%    -0.8%    -0.2%   -3.2%    -0.2%    -0.7%      0.7%     -0.8%    1.8%      0.4%      0.3%      0.6%      0.8%    -0.4%     -0.4%     -0.4%     -0.4%     -0.4%    -2.0%
                                                                    Europe                               15.0     14.5    14.4     15.1     14.4     14.6    14.1     14.1      14.7      14.3     14.3     13.9      14.0      14.7      14.3      14.2     13.7      13.7      14.4      14.1     14.0     13.9
                                                                      YoY Grow th, net mb/d               0.0     -0.1     -0.2     -0.2     -0.7    -0.3     -0.5     -0.3     -0.3      -0.1      -0.3    -0.2      -0.1       0.0       0.0      -0.1     -0.3      -0.3      -0.3      -0.3     -0.3     -0.1
                                                                      YoY Grow th, %                     -0.1%   -1.0%    -1.2%    -1.5%    -4.8%    -2.2%   -3.2%    -2.2%    -2.2%     -0.8%     -2.1%   -1.2%      -0.8%     -0.2%     -0.1%    -0.6%    -1.9%     -1.9%     -1.9%     -1.9%     -1.9%    -0.6%
                                                                    Asia Pacific                          7.8     8.3      7.1      7.7      8.3      7.9     8.8      7.7       7.9       8.4      8.2      8.8       7.6       7.7       8.2      8.1      8.8       7.6       7.8       8.2       8.1      8.1
                                                                      YoY Grow th, net mb/d               0.1     0.1      -0.2     0.0      0.2      0.0     0.4      0.6       0.2       0.1      0.3      0.0      -0.1      -0.1       -0.2     -0.1     0.0       0.0       0.0       0.0       0.0      0.0
                                                                      YoY Grow th, %                     1.6%    0.7%     -3.4%    0.6%     2.7%     0.2%    5.1%     8.0%      2.3%      0.8%     4.0%     0.0%      -1.4%     -1.6%     -2.5%    -1.4%    0.0%      0.1%      0.1%       0.1%     0.1%     0.6%

                                                                    Non-OECD                             41.7     42.2    43.2     43.2     43.5     43.0    43.4     44.5      44.4      45.0     44.3     44.8      45.9      45.9      46.5      45.8     46.2      47.3      47.3      48.0     47.2     48.7
                                                                      YoY Grow th, net mb/d               2.6     2.0      1.2      1.3      1.1      1.4     1.2      1.2       1.2       1.5      1.3      1.4       1.5       1.5       1.5      1.5      1.4       1.4       1.4       1.4       1.4      1.5
                                                                      YoY Grow th, %                     6.7%    4.9%     2.8%     3.0%     2.5%     3.3%    2.8%     2.8%      2.8%      3.4%     2.9%     3.3%      3.3%      3.5%      3.4%     3.4%     3.0%      3.0%      3.0%       3.1%     3.0%     3.2%
                                                                    Former Soviet Union                   4.2     4.2      4.4      4.6      4.1      4.3     4.3      4.5       4.7       4.2      4.4      4.4       4.6       4.8       4.3      4.5      4.5       4.6       4.9       4.4       4.6      4.7
                                                                      YoY Grow th, net mb/d               0.1     0.1      0.3      0.3      -0.1     0.2     0.1      0.1       0.1       0.1      0.1      0.1       0.1       0.1       0.1      0.1      0.1       0.1       0.1       0.1       0.1      0.1
                                                                      YoY Grow th, %                     3.1%    3.4%     8.5%     7.5%     -2.7%    4.1%    2.9%     2.6%      2.7%      2.2%     2.6%     2.1%      2.2%      2.2%      2.2%     2.2%     1.5%      1.5%      1.5%       1.5%     1.5%     2.7%
                                                                    China                                 9.2     9.6      9.8      9.7      9.9      9.7     9.9      9.9      10.0      10.3     10.0     10.3      10.4      10.5      10.8      10.5     10.9      10.9      11.1      11.4     11.1     11.7
                                                                      YoY Grow th, net mb/d               1.0     0.9      0.4      0.6      0.3      0.5     0.3      0.1       0.3       0.5      0.3      0.5       0.5       0.5       0.5      0.5      0.6       0.6       0.6       0.6       0.6      0.6
                                                                      YoY Grow th, %                     12.1%   10.4%    4.3%     6.1%     2.9%     5.8%    2.8%     1.2%      3.6%      4.6%     3.0%     4.8%      4.9%      5.1%      4.9%     4.9%     5.4%      5.4%      5.4%       5.4%     5.4%     5.1%
                                                                    Other emerging Asia                  11.0     11.4    11.6     10.9     11.6     11.4    11.7     11.9      11.3      12.0     11.7     12.1      12.3      11.7      12.4      12.1     12.4      12.6      12.0      12.8     12.5     12.9
                                                                      YoY Grow th, net mb/d               0.5     0.4      0.3      0.3      0.6      0.4     0.3      0.3       0.4       0.4      0.3      0.4       0.4       0.4       0.4      0.4      0.4       0.4       0.4       0.4       0.4      0.4
                                                                      YoY Grow th, %                     4.8%    4.0%     2.8%     3.0%     5.1%     3.7%    2.7%     2.5%      3.6%      3.4%     3.0%     3.4%      3.4%      3.5%      3.5%     3.4%     3.1%      3.1%      3.0%       3.1%     3.1%     2.9%
                                                                    South America                         6.1     6.0      6.2      6.5      6.4      6.3     6.2      6.4       6.6       6.5      6.4      6.3       6.5       6.7       6.7      6.5      6.4       6.6       6.9       6.8       6.7      6.8
                                                                      YoY Grow th, net mb/d               0.4     0.2      0.1      0.2      0.2      0.2     0.2      0.2       0.1       0.1      0.1      0.1       0.1       0.1       0.1      0.1      0.1       0.1       0.1       0.1       0.1      0.1
                                                                      YoY Grow th, %                     6.4%    3.0%     1.6%     2.4%     2.9%     2.5%    3.2%     3.3%      1.5%      1.6%     2.4%     1.7%      1.8%      2.0%      1.9%     1.9%     1.6%      1.6%      1.6%       1.6%     1.6%     2.0%
                                                                    Mideast                               7.1     6.8      7.2      7.6      7.2      7.2     7.0      7.6       7.7       7.6      7.5      7.2       7.9       8.0       7.9      7.8      7.4       8.1       8.2       8.1       8.0      8.2
                                                                      YoY Grow th, net mb/d               0.4     0.2      0.1      0.1      0.2      0.2     0.2      0.4       0.2       0.3      0.3      0.3       0.3       0.3       0.3      0.3      0.2       0.2       0.2       0.2       0.2      0.2
                                                                      YoY Grow th, %                     5.8%    3.3%     1.7%     1.0%     3.3%     2.3%    2.3%     5.7%      2.0%      4.3%     3.6%     3.9%      3.7%      4.0%      3.9%     3.9%     2.7%      2.6%      2.8%       2.9%     2.7%     2.6%
                                                                    Africa                                3.5     3.6      3.4      3.3      3.5      3.4     3.7      3.5       3.4       3.6      3.5      3.8       3.6       3.4       3.7      3.6      3.8       3.7       3.5       3.8       3.7      3.8
                                                                      YoY Grow th, net mb/d               0.2     0.1      -0.1     -0.2     -0.1    -0.1     0.1      0.1       0.1       0.1      0.1      0.1       0.1       0.1       0.1      0.1      0.1       0.1       0.1       0.1       0.1      0.1
                                                                      YoY Grow th, %                     6.6%    2.8%     -2.7%    -4.9%    -1.8%    -1.7%   2.9%     2.0%      3.1%      3.0%     2.7%     2.5%      2.6%      2.7%      2.6%     2.6%     2.1%      2.1%      2.1%       2.1%     2.1%     3.1%



                                                             Exhibit 59: Global oil stock balance estimates
                                                             Mb/d, unless otherwise specified

                                                                     Balance, stocks                      2010   Q1-'11   Q2-'11   Q3-'11   Q4-'11   2011    Q1-'12   Q2-'12   Q3-'12E   Q4-'12E   2012E   Q1-'13E   Q2-'13E   Q3-'13E   Q4-'13E   2013E   Q1-'14E   Q2-'14E   Q3-'14E   Q4-'14E   2014E    2015E
                                                                     Implied inventory change             -0.7     -0.7    -1.0     -1.9     -0.3     -1.0    0.9      0.5      -0.8      -0.9     -0.1      0.3       0.7      -0.4      -0.4      0.0      0.3       0.7      -0.3      -0.4      0.0      0.0
                                                                     Reported oil inventory:
                                                                     OECD stock change                    0.1      -0.4     0.5     -0.2     -0.7     -0.2    0.4      0.5      -0.1      -0.6      0.0      0.2       0.3      -0.1      -0.5      0.0
                                                                     OECD inv entory (billion barrels)    2.68    2.64     2.69     2.67     2.61    2.61     2.65     2.69     2.69      2.63     2.63
                                                                     Cov er, day s demand                 56.9    58.3     57.2     57.1     56.3    56.3     58.1     57.8     57.3      56.4     56.4     58.1      57.3      56.8      56.6     56.6
                                                                     'Call on Opec & stocks"              30.7    30.8     30.9     32.1     31.2    31.3     30.3     31.2     32.5      32.7     31.7     31.8      31.6      32.8      33.1     32.3     31.3      31.1      32.4      32.6     31.9     31.3




                                                                                                                                                                                                                                                                                                                     12 October 2012
                                                                        YoY Grow th, net mb/d             1.5      1.3      0.4      0.6      0.1     0.6     -0.4     0.4       0.4       1.5      0.5      1.4       0.4       0.3       0.3      0.6     -0.5      -0.5      -0.5      -0.4     -0.5     -0.6
                                                                        YoY Grow th, %                    5.0%    4.5%     1.3%     1.8%     0.3%    2.0%    -1.5%    1.3%      1.1%      4.8%     1.4%     4.7%      1.1%      1.0%      1.1%     1.9%    -1.5%     -1.5%     -1.4%     -1.3%     -1.4%    -1.8%

                                                             Source: Credit Suisse
36
Commodity Forecasts: The Best of Times, The Worst of Times




                                                             Exhibit 60: Global oil supply estimates
                                                             Mb/d, unless otherwise specified

                                                             Supply                             2010    Q1-'11   Q2-'11   Q3-'11   Q4-'11   2011    Q1-'12   Q2-'12   Q3-'12E   Q4-'12E   2012E    Q1-'13E   Q2-'13E   Q3-'13E   Q4-'13E   2013E   Q1-'14E   Q2-'14E   Q3-'14E   Q4-'14E   2014E   2015E
                                                             Global                             87.9     88.7    87.6     88.2      89.9    88.6     90.6     90.6     90.2      91.0      90.6     91.7      92.1      92.1      92.9     92.2     92.7      93.1      93.2      94.0     93.3    94.3
                                                               YoY Grow th, net mb/d            2.5      1.7      0.0      0.2      1.1     0.8      1.9      3.0      1.9       1.1       2.0      1.1       1.5       1.9       1.9      1.6      1.0       1.0       1.1       1.1      1.1     1.0
                                                               YoY Grow th, %                   2.9%    2.0%     0.0%     0.2%     1.3%     0.9%    2.2%     3.4%      2.2%      1.2%     2.2%      1.2%      1.7%      2.1%      2.1%     1.8%     1.1%      1.1%      1.2%      1.2%     1.1%    1.1%
                                                             Non OPEC                           50.5     50.9    50.0     50.1      51.1    50.5     51.4     50.7     50.4      51.1      50.9     51.6      51.7      51.6      52.2     51.8     53.0      53.1      52.9      53.6     53.1    54.7
                                                               YoY Grow th, net mb/d             1.2     0.6      -0.3     0.0      0.0      0.1     0.5      0.7       0.3       0.0      0.4       0.2       1.0       1.1       1.1      0.9      1.4       1.4       1.4       1.4      1.4     1.5
                                                               YoY Grow th, %                   2.4%    1.2%     -0.6%    -0.1%    -0.1%    0.1%    1.0%     1.4%      0.6%      0.0%     0.7%      0.4%      2.1%      2.2%      2.2%     1.7%     2.7%      2.7%      2.7%      2.7%     2.7%    2.9%
                                                             North America                      14.9     15.2    15.1     15.4      16.2    15.5     16.5     16.4     16.5      16.9      16.6     17.2      17.3      17.4      17.7     17.4     18.0      18.1      18.3      18.6     18.3    19.2
                                                               YoY Grow th, net mb/d             0.6     0.4      0.4      0.5      0.9      0.5     1.2      1.3       1.2       0.7      1.1       0.7       0.9       0.9       0.8      0.8      0.8       0.9       0.9       0.9      0.9     0.9
                                                               YoY Grow th, %                   4.5%    3.0%     2.4%     3.3%     5.6%     3.6%    8.1%     8.3%      7.6%      4.4%     7.1%      4.4%      5.4%      5.3%      5.0%     5.0%     4.9%      4.9%      5.0%      5.0%     4.9%    5.1%
                                                             South America                       4.5     4.6      4.5      4.6      4.7      4.6     4.7      4.5       4.5       4.5      4.6       4.6       4.7       4.7       4.8      4.7      5.0       5.1       5.1       5.2      5.1     5.6
                                                               YoY Grow th, net mb/d             0.2     0.2      0.0      0.0      0.1      0.1     0.1      0.0      -0.1      -0.2      0.0       0.0       0.2       0.2       0.2      0.2      0.4       0.4       0.4       0.4      0.4     0.5
                                                               YoY Grow th, %                   5.2%    4.0%     -1.0%    0.0%     2.4%     1.3%    1.5%     -0.5%    -1.4%     -3.8%     -1.1%    -0.9%      4.9%      4.4%      5.3%     3.4%     8.4%      8.6%      8.5%      8.3%     8.4%    10.1%
                                                             Europe                              4.5     4.4      4.2      4.0      4.2      4.2     4.2      4.0       3.6       3.9      3.9       4.0       3.8       3.5       3.7      3.8      3.8       3.6       3.3       3.5      3.6     3.4
                                                               YoY Grow th, net mb/d            -0.3     -0.4     -0.4     -0.2     -0.4    -0.4     -0.2     -0.1     -0.4      -0.3      -0.2     -0.2      -0.2      -0.2      -0.2     -0.2     -0.2      -0.2      -0.2      -0.2     -0.2    -0.2
                                                               YoY Grow th, %                   -6.8%   -9.1%    -8.5%    -4.9%    -8.6%    -7.8%   -4.2%    -2.6%    -8.8%     -7.3%     -5.7%    -5.5%     -5.8%     -4.3%     -4.1%     -4.9%   -4.9%     -4.8%     -4.6%     -4.7%     -4.7%   -5.7%
                                                             FSU                                13.6     13.7    13.7     13.6      13.6    13.7     13.8     13.7     13.8      13.8      13.8     13.8      13.9      14.0      14.1     14.0     14.0      14.2      14.3      14.3     14.2    14.5
                                                               YoY Grow th, net mb/d             0.3     0.2      0.1      0.1      0.0      0.1     0.1      0.1       0.1       0.2      0.1       0.0       0.2       0.3       0.3      0.2      0.2       0.2       0.2       0.2      0.2     0.3
                                                               YoY Grow th, %                   1.9%    1.6%     0.7%     0.4%     0.1%     0.7%    0.7%     0.4%      0.9%      1.4%     0.9%      0.1%      1.7%      2.0%      1.9%     1.4%     1.5%      1.6%      1.7%      1.7%     1.6%    2.0%
                                                             Russia                             10.5     10.6    10.6     10.7      10.7    10.7     10.8     10.8     10.8      10.8      10.8     10.8      10.8      10.7      10.7     10.8     10.9      10.9      10.8      10.8     10.9    11.1
                                                               YoY Grow th, net mb/d             0.2     0.2      0.2      0.2      0.1      0.2     0.2      0.1       0.1       0.1      0.1       0.0       0.0      -0.1      -0.1      0.0      0.1       0.1       0.1       0.1      0.1     0.2
                                                               YoY Grow th, %                   2.4%    1.6%     1.5%     1.8%     1.3%     1.5%    1.7%     1.0%      1.0%      0.8%     1.1%      0.4%      0.0%     -0.7%     -1.1%     -0.3%    1.0%      1.0%      1.0%      1.0%     1.0%    2.0%
                                                             Africa                              2.6     2.7      2.5      2.6      2.6      2.6     2.4      2.3       2.3       2.3      2.3       2.3       2.3       2.3       2.4      2.3      2.3       2.3       2.4       2.4      2.3     2.4
                                                               YoY Grow th, net mb/d             0.0     0.0      -0.1     0.0      0.0      0.0     -0.2     -0.2     -0.3      -0.3      -0.3     -0.1       0.0       0.0       0.1      0.0      0.0       0.0       0.0       0.0      0.0     0.0
                                                               YoY Grow th, %                   0.5%    0.6%     -4.2%    0.6%     -1.9%    -1.2%   -8.3%    -9.3%    -12.3%    -12.1%    -10.5%   -4.8%      1.8%      2.2%      2.2%     0.3%     0.3%      0.5%      0.7%      1.0%     0.6%    1.2%
                                                             Mideast                             1.7     1.8      1.7      1.7      1.5      1.6     1.4      1.4       1.5       1.5      1.4       1.4       1.4       1.4       1.4      1.4      1.5       1.4       1.4       1.4      1.4     1.4
                                                               YoY Grow th, net mb/d             0.0     0.0      -0.1     0.0      -0.3    -0.1     -0.4     -0.2     -0.2       0.0      -0.2      0.1       0.0      -0.1      -0.1      0.0      0.0       0.0       0.0       0.0      0.0     0.0
                                                               YoY Grow th, %                   1.3%    2.2%     -4.4%    -2.7%    -15.2%   -5.1%   -22.0%   -14.1%   -13.7%    -1.6%     -13.3%    4.8%      0.1%     -3.6%     -4.9%     -1.0%    0.9%      1.2%      1.4%      1.6%     1.3%    0.5%
                                                             Asia                                8.5     8.5      8.3      8.3      8.3      8.3     8.4      8.3       8.3       8.2      8.3       8.2       8.2       8.2       8.2      8.2      8.2       8.2       8.2       8.2      8.2     8.2
                                                               YoY Grow th, net mb/d             0.3     0.1      -0.1     -0.3     -0.3    -0.2     -0.1     0.0       0.0      -0.1      -0.1     -0.2      -0.1      -0.1       0.0     -0.1      0.0       0.0       0.1       0.1      0.0     0.0
                                                               YoY Grow th, %                   4.2%    1.6%     -1.7%    -3.8%    -3.5%    -1.9%   -1.0%    -0.5%    -0.2%     -1.1%     -0.7%    -2.3%     -1.4%     -0.8%     -0.4%     -1.2%    0.5%      0.5%      0.6%      0.7%     0.6%    -0.5%
                                                             Processing gain                     2.3     2.4      2.4      2.5      2.4      2.4     2.4      2.5       2.5       2.5      2.5       2.5       2.5       2.6       2.5      2.5      2.5       2.6       2.6       2.6      2.6     2.6
                                                             OPEC                               35.1     35.4    35.2     35.7      36.4    35.7     36.8     37.4     37.2      37.5      37.2     37.6      37.9      38.0      38.2     37.9     37.3      37.5      37.6      37.8     37.5    37.0
                                                               YoY Grow th, net mb/d             1.2     1.0      0.2      0.1      1.1      0.6     1.4      2.2       1.6       1.0      1.6       0.8       0.4       0.8       0.7      0.7     -0.4      -0.4      -0.4      -0.4     -0.4    -0.6
                                                               YoY Grow th, %                   3.6%    3.0%     0.7%     0.3%     3.0%     1.8%    3.9%     6.3%      4.5%      2.8%     4.4%      2.2%      1.1%      2.0%      1.9%     1.8%    -1.0%     -1.0%     -1.0%     -1.0%     -1.0%   -1.5%
                                                             Opec Crude Oil                     29.9     30.1    29.9     30.2      30.9    30.3     31.2     31.8     31.7      31.8      31.6     32.1      32.3      32.4      32.6     32.4     31.6      31.9      32.0      32.2     31.9    31.3
                                                               YoY Grow th, net mb/d             0.8     0.7      -0.1     -0.1     0.9      0.3     1.1      1.9       1.4       1.0      1.4       0.8       0.5       0.8       0.8      0.7     -0.4      -0.4      -0.4      -0.4     -0.4    -0.6
                                                               YoY Grow th, %                   2.7%    2.3%     -0.3%    -0.2%    2.8%     1.1%    3.8%     6.5%      4.7%      3.1%     4.5%      2.6%      1.6%      2.5%      2.5%     2.3%    -1.4%     -1.4%     -1.4%     -1.4%     -1.4%   -1.8%
                                                                Opec 11                         27.5     27.4    27.0     27.4      28.1    27.5     28.5     28.7     28.4      28.5      28.5     28.7      28.9      29.0      29.1     28.9     28.2      28.4      28.5      28.6     28.4    27.6
                                                                    YoY Grow th, net mb/d        0.8     0.4      -0.5     -0.5     0.6      0.0     1.1      1.7       1.0       0.4      1.0       0.3       0.2       0.6       0.6      0.4     -0.5      -0.5      -0.5      -0.5     -0.5    -0.8
                                                                    YoY Grow th, %              2.8%    1.6%     -2.0%    -1.8%    2.1%     0.0%    4.0%     6.4%      3.5%      1.6%     3.8%      0.9%      0.6%      2.2%      2.1%     1.4%    -1.9%     -1.9%     -1.9%     -1.9%     -1.9%   -2.8%
                                                             Opec non-crude                      5.1     5.3      5.4      5.4      5.5      5.4     5.6      5.6       5.6       5.6      5.6       5.6       5.6       5.5       5.5      5.6      5.6       5.6       5.6       5.6      5.6     5.6
                                                               YoY Grow th, net mb/d             0.4     0.4      0.3      0.2      0.2      0.3     0.2      0.3       0.2       0.1      0.2       0.0      -0.1       0.0      -0.1     -0.1      0.1       0.1       0.1       0.1      0.1     0.0
                                                               YoY Grow th, %                   9.4%    7.5%     6.9%     3.4%     4.2%     5.4%    4.5%     5.4%      2.9%      1.3%     3.5%      0.1%     -1.5%     -0.7%     -1.4%     -0.9%    1.1%      1.1%      1.1%      1.1%     1.1%    0.3%

                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                                           12 October 2012
37
                                                                                                                                             12 October 2012




             Commodities Research
                                         Natural Gas
                            Jan Stuart
         jan.stuart@credit-suisse.com
                                         Global LNG remains structurally tight
                    +1 212 325 1013      Recent signs of relative weakness in global LNG markets do not mean that the tightness
                       Stefan Revielle
                                         caused by Japan’s early 2011 nuclear disaster will fade altogether. Japan is no closer to
     stefan.revielle@credit-suisse.com   resolving its power-generation dilemma, and its utilities also have to renegotiate long-term
                      +1 212 538 6802    supply deals that are rolling off. In addition, new consumers for long-term deals are waiting
                                         in the wings. On the supply side promising new discoveries are years away from FID,
                  Equity Research
                  Edward Westlake        while the next batch of new developments still remains years away from first gas. We don’t
  edward.westlake@credit-suisse.com      think that incremental additions to existing supply terminals and the two new 2012 plants
                   +1 212 325 6751       can tip the LNG balance back into oversupply in the next few years, (see Global LNG
                         David Hewitt
                                         Sector - update. 'Tighter then looser').
     david.hewitt.2@credit-suisse.com
                      +65 6212 3064      Exhibit 61: Global gas benchmarks
                 Andrey Ovchinnikov      $/MMbtu
          andrey.ovchinnikov@credit-
                          suisse.com       $20

                    +7 495 967 8360        $18

                       Arun Jayaram        $16
      arun.jayaram@credit-suisse.com
                                           $14
                    +1 212 538 8428
                                           $12
                           Mark Lear
         mark.lear@credit-suisse.com       $10
                   +1 212 538 0239
                                            $8

                        Dan Eggers          $6
       dan.eggers@credit-suisse.com
                   +1 212 538 8430          $4

                                            $2
                           Kim Fustier       Jan-10              Jul-10              Jan-11              Jul-11      Jan-12              Jul-12
        kim.fustier@credit-suisse.com
                                                                          JKM        HH Prompt          NBP Prompt   Jap LNG Imp Price
                    +44 20 7883 0384
                                         Source: the BLOOMBERG PROFESSIONAL™ service, Platts, Credit Suisse
                      Mark Freshney
     mark.freshney@credit-suisse.com
                   +44 20 7888 0887      What’s new?
                                           True, since reaching a peak in May of ~$18/Mmbtu, Asia Pacific LNG spot prices have
                                           fallen by a third and well below oil parity. Mild summer weather and high inventories in
                                           Japan pushed demand in the largest global importer below year-ago levels for the first
                                           time in 16 months in August. But the coming winter’s demand pull should help Asia spot
                                           prices rebound within months – leaving only the odd shoulder season spot-LNG cargo
                                           headed for Europe. In addition, summer demand from Latin America should help shore
                                           up LNG markets at the margin as well.
                                           Supply side support – Angola had hoped to add 5 Mt/y (0.66 Bcf/d) of new capacity
                                           much sooner than the currently targeted “end-Q4.” Incremental spot cargoes from
                                           Nigeria LNG (NLNG), Trinidad and Abu Dhabi’s Adgas, meanwhile, have been tendered
                                           for, partly assisted by maintenance shutdowns at Qatargas and Indonesia’s Tangguh.
                                           Earlier, the start-up of regular deliveries to Japanese utilities from Australia’s Pluto LNG
                                           reduced tension on spot LNG markets as well.

                                         Demand
                                         Despite a strong start to the year, Japanese summer demand weakness drove APAC spot
                                         prices lower beginning in July. Japanese LNG imports still reached record levels,
                                         averaging 12.1 Bcf/d (versus 10.6 Bcf/d in 2011 Jan-Aug). However, latest monthly
                                         customs statistics show the absence of the normal seasonal bump-up in deliveries from
                                         May to July. Instead, relatively mild weather extreme power conservation efforts and
                                         ample coal and oil burning pushed August LNG deliveries 3% or 360 Mcf/d below August
                                         2011 levels (Exhibit 62).


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                               38
                                                                                                                                                             12 October 2012




                                        Exhibit 62: Japanese LNG imports
                                        Bcf/d

                                                14

                                                13

                                                12

                                                11

                                                10

                                                  9

                                                  8

                                                  7

                                                  6
                                                      Jan    Feb       Mar        Apr       May       Jun        Jul       Aug       Sep       Oct       Nov       Dec

                                                                                        2009          2010          2011           2012

                                        Source :GTIS, Credit Suisse



                                        Short-term and long-term nuclear outlook remains uncertain. The Nuclear Regulatory
                                        Authority, which is legally bound to review and redraft nuclear plant safety measures by
                                        next summer, plans to release an outline of the new standards by March. The
                                        announcement is likely to keep the additional 48 of 50 reactors 3 offline until summer of
                                        2013 at the earliest. Adding to the ambiguity, following the September 14 announcement
                                        for plans to phase out nuclear power entirely, the Japanese cabinet dropped the 2040
                                        target date a few weeks later, buckling under pro-business domestic opposition. And
                                        general elections later this year further cloud Japan’s energy future.

                                        Shifting fortunes of large-scale new supplies
                                        Australia has overtaken Qatar as the largest exporter of LNG to Japan. The start-up of
                                        Pluto LNG sent Australian exports to 2.6 Bcf/d in August, a growth of 0.3 Bcf/d or 14% yoy
                                        (Exhibit 63) . The major Japanese off takers of Pluto LNG include Kansai Electric Power
                                        and Tokyo Gas; both received their first shipments under long-term contracts this summer.
                                        In addition, according to Wood Mackenzie, an additional 36 Mcf/d (8%) of Pluto’s current
                                        capacity is available as spot cargoes, likely targeting Asian buyers.
                                        A chart of Qatar’s LNG exports by destination makes clear that flows from the world’s
                                        largest exporter were adjusted to accommodate both Pluto and the absence of a summer
                                        lift in Japan’s imports. Qatari LNG exports to South Korea, China, and India remained
                                        strong, while exports to Japan have slipped from their March peak (Exhibit 64).
                                        Going forward much of the tenor in spot markets will be determined by the following:
                                            How quickly (if at all) Japan’s nukes come back on line.
                                            When and with whom Japan’s utilities will sign new batches of long-term contracts.
                                            And when other buyers (S Korea, India, China) will follow suit.
                                            And of course, on the supply side producers have choices to make with regard to the
                                            mix of term and spot supplies and how firmly to hold on to oil-indexation.




                                        3   Kansai Electric restarted the No. 3 and No. 4 nuclear reactors at its Ooi nuclear plant on July 1 and July 18, respectively, which
                                            accounted for 2.32 GW of the country's 46.15 GW of nuclear capacity.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                   39
                                                                                                                                                                                                12 October 2012




 Exhibit 63: Japanese supply by country                                                                          Exhibit 64: Qatari exports by major country
 Bcf/d                                                                                                           Bcf/d
   14                                                                                                              6
   12
                                                                                                                   5
   10

    8                                                                                                              4
    6
                                                                                                                   3
    4

    2                                                                                                              2
    0
         8/11   9/11   10/11   11/11   12/11   1/12   2/12     3/12     4/12   5/12    6/12    7/12       8/12     1
           Australia               Qatar                     Malaysia                 Russia
                                                                                                                   0
           Indonesia               UAE                       Brunei                   Equatorial Guinea
                                                                                                                   Jan-11     Mar-11 May-11     Jul-11     Sep-11 Nov-11     Jan-12     Mar-12 May-12        Jul-12
           Nigeria                 Oman                      Total                                                                South Korea            China        EU              Japan          India
 Source: GTIS, Credit Suisse                                                                                     Source: GTIS, Credit Suisse



                                                       Among the nearer term unknowns in the procurement of long-term contracts are looming
                                                       decisions about US and Canadian exports.
                                                             In the US, the Department of Energy delayed its long-awaited report on the economic
                                                             implications of US LNG exports until year-end.
                                                                            Until then we do not expect approvals of export schemes targeting non-Free
                                                                            Trade Agreement (non-FTA), leaving a string of projects in limbo, see Exhibit 65.
                                                                            Aside from Sabine Pass, which was fully approved earlier this year, so far only
                                                                            Golden Pass (also on the Gulf Coast) has been given clearance.
                                                       To date, there are a total of 16 US greenfield and brownfield projects that have applied for
                                                       FTA or non-FTA LNG export approval. Aggregate capacity would be 21 Bcf/d with the
                                                       15bcf/d for non-FTA projects added to that for Golden Pass and Sabine Pass. We agree
                                                       with our colleagues in Equities Research that a 6 Bcf/d export cap (in line with EIA’s low
                                                       modeled case), seems a reasonable outcome to what promises to be a hard-fought
                                                       political lobbying exercise in the coming months (or years).
                                                       Of course, exports from the US make sense economically. Based on industry cost
                                                       estimates, shipments from the US Gulf Coast to Asia are competitive using the current
                                                       2015 US futures strip (Exhibit 66). Even with the late summer drop in prompt JKM prices,
                                                       from their peak in May of $18/MMbtu to September’s $13-$14/MMbtu, all-in cost for
                                                       delivered LNG prices to Asia in the $9-$11 range look attractive.

 Exhibit 65: Non-FTA application status                                                                          Exhibit 66: Sabine pass delivered cost to Asia
 Bcf/d                                                                                                           $/MMbtu
                                                                                                                                                                          High cost fuel case
 Export Project                                          Capacity                                     Status       $12.0
                                                                                                                                                                                  $0.65
 Sabine Pass                                                          2.1                       Approved
                                                                                                                   $10.0                                          $2.80
 Freeport                                                             1.5                     DOE Review                                                                          $0.40
 Lake Charles                                                         2.1                     DOE Review               $8.0
 Cove Point                                                           1.0                     DOE Review                                         $2.50                      Low cost fuel case

 Freeport Expansion                                                   1.5                     DOE Review               $6.0      Cal 15
 Cameron                                                              1.6                     DOE Review                         $4.19
                                                                                                                       $4.0
 Gulf Coast                                                           2.9                     DOE Review
 Jordan Cove                                                          0.8                     DOE Review
                                                                                                                       $2.0
 Oregon LNG                                                           1.3                     DOE Review
 Total                                                               14.8                                               $-
                                                                                                                               Henry Hub        Capacity         Shipping          Fuel         Delivered Cost
                                                                                                                                                Charge

 Source: FERC, Credit Suisse                                                                                     Source: Cheniere Energy, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                        40
                                                                                                                                                                                                 12 October 2012




                                                   North America – The good, the bad, and the ugly
                                                   In our July quarterly outlook, we noted that the enhanced sensitivity of coal-to-gas
                                                   switching to natural gas price levels would keep summer gas prices range bound. Our
                                                   view was at least partly supported, as yoy power demand growth ebbed and flowed with
                                                   gas prices above and below $3/MMbtu in the third quarter. By that same dynamic,
                                                   however, recent strength in Q4 2012 futures prices could reverse parts of the yoy upside
                                                   in winter 2012-2013 power demand. Add surprisingly strong supply, and we remain
                                                   worried.
                                                   We generally think gas prices modestly improve into 2013 as storage levels push toward
                                                   more normal levels. But we cannot turn bullish relative to the forward curve in the short to
                                                   medium term (i.e., before 2015) until we see pronounced declines in US gas supply. And
                                                   so, despite the recent upturn in US gas prices and despite having undershot actual prices
                                                   in the third quarter of $2.81/MMbtu by 30cts (12%) in Q3, we are leaving our relatively
                                                   subdued forecast through 2014 unchanged and note further downside risk. Here is a
                                                   summary of the major moving parts; see Exhibit 85 for our full S&D.
                                                      We revise up our supply estimates for Q4 2012 and 2013. More well completions in
                                                      the Haynesville and Barnett shale plays have pushed up annual average total dry gas
                                                      production forecasts by 0.4 Bcf/d and 0.7 Bcf/d in 2012 and 2013, respectively. That
                                                      said, we do expect to see production begin to fall this quarter as shrinking flows from the
                                                      Haynesville should outweigh the effect of added supply infrastructure unlocking still
                                                      more gas from the Marcellus. Risk factors, in this context, are rising associated gas
                                                      production from oil drilling and ethane rejection raising the BTU content of pipeline gas.
                                                      Demand forecasts for 2012 were revised up due to power demand, but 2013
                                                      should see lower switching as prices gradually increase. Record levels of coal-to-
                                                      gas switching were seen during the summer of 2012, helping to tighten the balance
                                                      following the mild 2011-2012 winter. However, if coal prices stay weak, gas prices need
                                                      to stay low to hold on to market share until more structural factors (coal-plant
                                                      retirements, industrial demand, natural gas vehicles) increase base-load gas demand.
                                                      Weather will also have an impact on 2013 switching dynamics, but we cannot trade it.
                                                      Storage avoided a disaster scenario this summer while winter 2012-2013 risks are
                                                      clear on both sides. A slightly tighter yoy balance for winter 2012-2013 should leave
                                                      1.76 Tcf of gas in storage at end winter, nearly 30% less than at the end of last winter,
                                                      though still above five-year average levels. More material production declines from key
                                                      shale plays and conventional resources should help end-summer 2013 storage levels
                                                      reset back to five-year normal levels at 3.7 Tcf.
                                                      2012 prices will likely average over $1 less than 2011, but 2013 sees a $1 increase
                                                      as the supply/demand balance gradually improves over the next 14 months.

Exhibit 67: US natural gas price forecasts
$/MMbtu
                                                                 2012                                             2013                                            2014                             2015       Long term
        US Henry Hub (US$/MmBtu)   2010*   2011*
                                                   Q1*    Q2*    Q3*     Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Yr Avg (f)     (real)
 Actuals and Forecasts             4.32    4.04    2.77   2.26   2.81    3.10       2.74       3.60     3.40     3.80     4.00        3.70      4.40     4.20     4.20     4.40       4.30         4.50          4.50
     Previous                                                    2.50    3.10       2.66       3.60     3.40     3.80     4.00        3.70      4.40     4.20     4.20     4.40       4.30         4.50          4.50
                   Net Change                                    0.30     0.00       0.10       0.00     0.00     0.00     0.00       0.00       0.00     0.00    0.00      0.00      0.00         0.00         0.00
                   % Change                                      12.0%   0.0%       3.8%       0.0%     0.0%     0.0%     0.0%       0.0%       0.0%     0.0%     0.0%     0.0%       0.0%         0.0%         0.0%
     Consensus*                                                          2.90       2.60       3.20     3.20     3.30     3.60       3.40                                             4.00         4.90
                  Net Difference                                         0.20       0.10        0.40    0.20      0.50     0.40      0.30                                             0.30          -0.40
                  % Difference                                           6.9%       3.8%       12.5%    6.3%     15.2%    11.1%      8.8%                                             7.5%         -8.2%
     Fwd Curve*                                                          3.26       2.76       3.86     3.82     3.90     4.07       3.91       4.29     4.10     4.16     4.32       4.21         4.39
                  Net Difference                                          -0.20     0.00        -0.30    -0.40    -0.10    -0.10      -0.20     0.10     0.10     0.00     0.10       0.10         0.10
                  % Difference                                           -6.1%      0.0%       -7.8%    -10.5%   -2.6%    -2.5%      -5.1%      2.3%     2.4%     0.0%     2.3%       2.4%         2.3%

Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                             41
                                                                                                                                                                                                                    12 October 2012



                                                                 Upward revisions on supply – unconventionals outperform (again)
                                                                 Latest production data show gas supply has remained essentially flat despite another 50%
                                                                 decline in the number of rigs drilling for gas this year. In July, dry gas production averaged
                                                                 65.3 Bcf/d in the lower 48, flat with both June and last year. More recent pipeline scrapes
                                                                 suggest that level was quickly reached again after hurricane disruptions in the Gulf of
                                                                 Mexico. And we’ve delayed the onset of declines by another quarter.

 Exhibit 68: Dry gas production vs. rig counts                                                                        Exhibit 69: Yoy change in dry gas supply
 Rigs and Bcf/d                                                                                                       Bcf/d

     1800                                                                                                68                   6
                                                                                                                                                                                                   Forecast     Actual
     1600                                                                                                66
                                                                                                                              5
                                      No supply growth in 2012,
     1400                             but no declines either                                             64
                                                                                                                              4
     1200                                                                                                62

     1000                                                                                                60                   3

       800                                                                                               58                   2
       600                                                                                               56
                                                                                                                              1
       400                                                                                               54
                                                                                                                              0
       200                                                                                               52

          0                                                                                              50                -1
          Jan-08       Sep-08        May-09        Jan-10        Sep-10       May-11           Jan-12
                                                                                                                           -2
                                dry gas production                   Gas Rigs            oil rigs                            Jul-10          Jan-11         Jul-11         Jan-12        Jul-12        Jan-13       Jul-13

 Source: Smith Bits, EIA, Credit Suisse                                                                               Source: EIA, Credit Suisse



                                                                 Marcellus debottlenecking in Q4 should bring untapped supply to market. The
                                                                 Northeast Marcellus shale stands out as the larger engine of growth. We model Q3 2012
                                                                 exit rates of 6 Bcf/d (+2.5 Bcf/d yoy) and a further increase of 400 Mcf/d by year-end,
                                                                 thanks to over 3 Bcf/d of gathering and pipeline projects due to come on-line during Q4
                                                                 (Exhibit 71). As further constraints on getting supply to major interstate pipelines will still
                                                                 remain4, we see the build-out in supply in the Marcellus as more of an infrastructure story
                                                                 than one about a growing number of drilled but uncompleted wells.

                                                                                                                      Exhibit 71: Unconventional shale supply and
 Exhibit 70: Marcellus infrastructure project slate                                                                   forecast
 Bcf/d                                                                                                                Capacity in Mcf/d
                            Project Name                                       Sponsor        ISD Capacity (mmcfd)     8
 PA- Marcellus - Empire State-Millenium lateral                        National Fuel         Jan-12             300
 NY- Marcellus - National Fuel Northern Access                         National Fuel         Oct-12             320    7
 NY- Marcellus - Northeast Supply Diversification (NSD)                El Paso Tennessee Gas Nov-12             150
                                                                                                                       6
 NY/PA- Marcellus - Millenium Mainline Expansion                       Millenium Pipeline    Nov-12             225
 PA- Marcellus - Dominion Appalachian Gateway                          Dominion              Nov-12             484    5
 PA- Marcellus - Dominion Ellisburg to Craigs                          Dominion              Nov-12             150
 PA- Marcellus - Dominion Marcellus Northeast                          Dominion              Nov-12             200    4
 PA- Marcellus - Tennessee Z4 300 Line (National Fuel Line N Ph 2)     National Fuel         Nov-12             150
 PA- Marcellus - TETCO market Zone 3 (TEAM)                            Spectra/TETCO         Nov-12             200    3
 PA- Marcellus - Transco - Leidy STO hub                               Transco               Nov-12             300
                                                                                                                       2
 WV- Marcellus - Dominion Appalachian Gateway                          Dominion              Nov-12             484
 WV/PA- Marcellus - EQT Midstream Project 2012                         EQT Midstream         Nov-12             230    1
   2012 total                                                                                                3,193
 NY- Marcellus - Northeast Upgrade                                     El Paso Tennessee Gas Nov-13             636    0
 PA- Marcellus - Empire North to Chippawa                              National Fuel Empire  Nov-13             275     Jan-10        Jul-10       Jan-11         Jul-11        Jan-12        Jul-12      Jan-13         Jul-13
 PA- Marcellus - Tennessee Z4 (Generic)                                El Paso               Nov-13             900               Series12                    Barnett                    Cana-Woodford             Eagle Ford
 PA- Marcellus - Transco - Leidy STO hub (National Fuel W-E Ph 2)      National Fuel         Nov-13             225               Fayetteville                Haynesville                Marcellus                 Missippian
 WV- Marcellus - Dominion Marcellus 404                                Dominion              Nov-13             300
                                                                                                                                  Niobrara - Vertical         Niobrara- Horizontal       Permian                   Granite Wash
   2013 total                                                                                                2,336

 Source: Wood Mackenzie, Credit Suisse                                                                                Source: HPDI, Smith Bits STATS, Credit Suisse




                                                                 4   Entry onto Transco via the Leidy Line still looks limited with only approximately 500 Mmcf/d of unsubscribed capacity available
                                                                     for new supply.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                        42
                                                                                                                                                                        12 October 2012



                                             Ethane rejection: Richer BTUs increase gas supply
                                             Continued weakness in NGL markets, particularly for ethane, has increased the likelihood
                                             of ethane rejection, which could have important implications for natural gas supply.
                                             Specifically, we think low ethane frack spreads and ethane prices, particularly within the
                                             Conway market, are causing processors to reject as much ethane as pipeline
                                             specifications will allow (Exhibits 72 and 73). We estimate the higher BTU content is
                                             equivalent to increases of 350-500 Mcf/d of additional gas supply.
                                             Typically, negative or near-negative ethane fractionation spreads have caused processors
                                             to reject ethane, electing to keep it within the gas stream rather than processing them into
                                             marketable products. Generally, ethane supply temporarily falls, which typically helps to
                                             correct NGL prices in the short term. However, before NGL markets improve, rejections
                                             are likely, leaving natural gas with a higher BTU content. Rejecting ethane does come with
                                             its downfalls, as it can inadvertently reject propane as well (hurting rejection economics)
                                             as well as threatening pipeline BTU specifications which average ~1.9 gallons per Mcf
                                             (GPM) within the US.

 Exhibit 72: Ethane contribution to total NGL frack                                       Exhibit 73: Conway – ethane to natural gas price
 spread                                                                                   differentials – rejection likely ongoing at Conway
 $/MMbtu                                                                                  $/MMbtu
  $14
                                                                                             $25
  $12
                                                                                             $20
  $10                                                                                                                                 Positive Spread: Processors frack ethane

   $8                                                                                        $15


   $6                                                                                        $10

   $4
                                                                                              $5
   $2
                                                                                              $0
   $0
                                                                                                                                     Negative Spread: Processors reject ethane
  -$2                                                                                        -$5
    Jan-00     Jan-02     Jan-04      Jan-06         Jan-08      Jan-10        Jan-12          Jan-06     Jan-07     Jan-08       Jan-09          Jan-10       Jan-11        Jan-12
                                                                                                         Spread       Ethane - Conway ($/Mmbtu)            Natural Gas ($/Mmbtu)
                 NGL Frac Spread ($/MMBtu)           Ethane Contr. ($/MMBtu)

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



                                             So what does it all mean for natural gas supply? In 2013 ethane rejection could range
                                             between 125,000 and 250,000 barrels per day. That is equivalent to dry gas supplies of
                                             250-500 Mcf/d. We think ethane markets remain oversupplied through 2014 5. Risks to this
                                             outlook include further reductions in rig counts and production output altogether.

                                             Demand
                                             Demand forecasts for 2012 revised up on coal-to-gas-switching trends this summer,
                                             but higher prices in 2013 should return parts of that incremental demand to coal.
                                             Record levels of coal-to-gas switching were seen during the summer of 2012, helping to
                                             tighten the storage balance and causing us to revise our 2012 power demand up by 1
                                             Bcf/d. Into 2013, given our expectations for supply, there is a severe lack of fundamental
                                             factors (outside of a cold winter) available to help balance the market. As such, gas will
                                             need to continue to price at levels to hold onto a portion of the coal-to-gas switching gains
                                             seen this year. Based on our sensitivity analysis between switching and spot gas prices,
                                             spot prices much above current trading levels near $3.50 for any length of time may hinder
                                             a repeat of 2012 power demand. Weather will also have an impact on 2013 switching
                                             dynamics, but significant uncertainty on any long-range forecasts gives us little conviction
                                             either way right now.


                                             5   Periods of rejection are assumed to be sporadic depending on processing economics and are unlikely to be sustained through
                                                 the year.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                            43
                                                                                                                                                                                      12 October 2012



                                                              Latest governmental power generation data confirm a record summer for gas. In the
                                                              latest Electric Power Monthly for July, EIA showed that already record total consumption
                                                              for natural gas in June increased by 1.5% or 23,583 thousand MWh, meeting 33.6% of
                                                              total generation needs for the month (versus 28.7% in 2011). Meanwhile, after bottoming
                                                              in April coal also increased market share for the third consecutive month, indicating a
                                                              partial switch back to coal during the peak summer demand months (Exhibit 74).

                                                                                                                      Exhibit 75: 2012 vs. five-year average and 2011
 Exhibit 74:Total generation by fuel type                                                                             power demand
 % of total generation                                                                                                Bcf/d

                                                                                                                           14
    50%
                                                                                                                                                    2012 vs 2011    2012 vs 5yr Avg
                                              Coal
                                                                                                                           12
    40%                                                                                                 38.7%
                                                                                                                           10
                                                                                                        33.6%

                                                                     NG
    30%                                                                                                                       8


                                                                                                                              6
    20%                Nuke                                                                             16.6%

                                                                                                                              4
    10%                                                       Hydro
                                                                                                         6.5%                 2
                                                   Other Renew
                                                                                                         3.7%

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

 Source: EIA, Credit Suisse                                                                                           Source: EIA, Credit Suisse



                                                              Seasonal downturn in power demand and higher prices lowering yoy switching. We
                                                              continue to highlight falling power demand levels in the US, partly due to slightly higher
                                                              gas prices, but mostly attributable to lower total electricity loads and cooler weather in the
                                                              months leading into winter. As shown in Exhibit 75, after peaking at a year-over-year
                                                              growth rate of ~10 Bcf/d in July, September averaged just 3 Bcf/d over 2011 and 4 Bcf/d
                                                              above five-year average demand levels.
                                                              Switching sensitivities to gas prices should hold into next year. In 2012, spot prices
                                                              and cost break-even prices have had meaningful correlations to coal-to-gas switching
                                                              dynamics. Using the coal generation regression market share versus prices approach, at $3
                                                              for the balance of 2012 we see switching tail off into next year. Then, based on our price
                                                              assumptions for H1 2013, as much as 3.6 Bcf/d could be lost during single months next year
                                                              as gas would become too expensive relative to coal to warrant the generation switch.

                                                              Exhibit 76: Monthly gas switching under various price scenarios
                                                              Scenario                                                                          Bcf/d
                                                              $/mmbtu    12-Aug       12-Sep                    12-Oct     12-Nov       12-Dec     13-Jan   13-Feb 13-Mar 13-Apr 13-May 13-Jun
                                                               $    1.5         7.2         7.0                      5.4        5.0          4.9        4.1      3.0    0.6   0.9     2.6   4.2
                                                               $    2.0         5.8         5.8                      4.4        3.9          3.8        2.9      1.8   -0.5  -0.1     1.4   2.9
                                                               $    2.5         4.5         4.7                      3.4        2.8          2.6        1.7      0.6   -1.5  -1.1     0.3   1.7
                                                               $    3.0         3.2         3.5                      2.3        1.8          1.5        0.5     -0.6   -2.6  -2.2    -0.9   0.4
                                                               $    3.5         1.9         2.4                      1.3        0.7          0.4       -0.7     -1.8   -3.6  -3.2    -2.0  -0.9
                                                               $    4.0         0.6         1.2                      0.3       -0.4         -0.8       -1.9     -3.0   -4.7  -4.2    -3.2  -2.2
                                                               $    4.5        -0.8         0.1                     -0.8       -1.5         -1.9       -3.2     -4.2   -5.7  -5.3    -4.3  -3.5
                                                               $    5.0        -2.1        -1.1                     -1.8       -2.5         -3.1       -4.4     -5.4   -6.7  -6.3    -5.5  -4.7
                                                              Base Case Cold Winter Warm Winter
                                                              Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                        44
                                                                                                                        12 October 2012



                                        While our modeling suggests that we should see less power demand in 2013, the overall
                                        impact of this depends highly on weather. Regressing against 30-year normal
                                        temperatures, we estimate that ~4 Bcf/d of gas residential/commercial gas demand could
                                        return during the winter months. Netting against what may be lost due to higher prices and
                                        the result is nearly a zero sum game disregarding regional weather sensitivities. To better
                                        exemplify how weather risks may play out, we ran the following analysis.
                                           We estimate that in our most extreme warm weather scenario, 381 Bcf or 2.5 Bcf/d of
                                           less residential/commercial demand would allow for power demand to hold year-over-
                                           year gains but would push prices lower. Exhibit 76 shows the price in red this is required
                                           to replace the lost heating demand with power demand. Under this scenario winter
                                           prices would be materially lower, needing to average in the low $2/MMbtu range.
                                           Under our coldest winter scenario, an additional 348 Bcf or ~2.3 Bcf/d of additional
                                           residential commercial demand would reduce the needed power demand closer to the
                                           path outlined by blue in Exhibit 76. Prices would move higher under this winter weather
                                           scenario and require prices to average in the $4/MMbtu range, edging close to
                                           $4.5/MMbtu in Q1 2013.

 Exhibit 77: Nov-Dec-Jan 2012-2013 outlook                              Exhibit 78: Jan-Feb-March 2013




 Source: NOAA, Credit Suisse                                            Source: NOAA, Credit Suisse




                                        2012 winter storage is higher than normal; summer is back to balance
                                        Combining our baseline outlooks for supply and demand and running our weather-
                                        adjusted seasonal storage inventory paths, we expect winter 2013-2013 to finish 1.7 Tcf or
                                        777 Bcf below winter 2011 exit levels and 198 Bcf above previous ten-year average levels.
                                        Given the large variability in weather and its more pronounced impacts on winter
                                        withdrawals, we see it as the major risk factor to our estimates (Exhibit 80).
                                        The beginnings of material production declines during 2013 help our summer 2013 base-
                                        case storage to finish at 3.6 Tcf, 330 Bcf below 2012 ending forecasts and 167 above
                                        previous ten-year averages. While unconventional gas supply is expected to hold growth
                                        trends through 2013, declining production in conventional gas plays is forecast to help bring
                                        storage back to near-balanced levels by summer 2013 and is reflected in our pricing profile.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                          45
                                                                                                                                                                                                          12 October 2012




 Exhibit 79: Winter 2012-2013 and ten-year weather-                                                       Exhibit 80: Summer 2013 and ten-year weather-
 adjusted injection range                                                                                 adjusted injection range
 Bcf                                                                                                      Bcf

                                                                                                           4,100
                                                                                                                             (In Bcf/d)    CS Base Case
  3,750                                                                                                                      Production            -1.50
                                                                                                           3,800
                                                                                                                             Imports
                                                                                                                                LNG                 0.00
                                                                                                           3,500                Canada             -0.30
  3,250
                                                                                                                             Demand
                                                                                                           3,200                Power Gen          -1.70
                                                                                                                                Industrial          0.10
  2,750         (In Bcf/d)   CS Base Case                                                                                    "Residual"            -0.20
                Production            -1.00                                                                2,900
                Imports/ (Exports)
                   LNG                -0.10                                                                2,600
  2,250            Canada             -0.30
                   Mexico             -0.60
                Demand                                                                                     2,300
                  Power Gen               0.10
  1,750
                  Industrial              0.10                                                             2,000
                "Residual"               -2.20

                                                                                                           1,700
  1,250
          Nov                  Dec              Jan               Jan               Mar                            Apr            May             Jun             Jul             Aug             Sep             Oct
                                          weather range                 2012-2013 Fcst
                                                                                                                                                   Summer range             summer 2013 Fcst


 Source: EIA, NOAA, Credit Suisse                                                                         Source: EIA, NOAA, Credit Suisse




 Exhibit 81: Natural gas prices and CS forecast                                                           Exhibit 82: Winter storage sensitivity to HDDs
 $/MMbtu

                 NG Actual               NG Quarterly         Current Futures           Forecast
 $4.5
                                                                                                          10%               HDD % dev from norm (lhs)           Drawdown          Extreme winter          Warm winter     8,000


                                                                                                                                                                                                                          7,000
 $4.0                                                                                                      0%

                                                                                                                                                                                                                          6,000

                                                                                                          -10%
                                                                                                                                                                                                                          5,000
 $3.5
                                                                                                                                             Starting Stock (Oct)
                                                                                                          -20%                                                                                                            4,000

 $3.0                                                                                                                                                                                                                     3,000
                                                                                                          -30%

                                                                                                                                                                                                                          2,000

 $2.5                                                                                                     -40%
                                                                                                                                                                                                                          1,000
                                                                                                                                                 Ending Stock (March)
                                                                                                          -50%                                                                                                            0
 $2.0                                                                                                               01-02    02-03   03-04    04-05     05-06   06-07   07-08    08-09    09-10   10-11   11-12   12-13
                         12/1/2011                12/1/2012              12/1/2013            12/1/2014                                                                                                            Fcst

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




 Exhibit 83: Henry Hub forecast comparison                                                                Exhibit 84: Henry Hub historical price and forecast
 US$/MMbtu                                                                                                US$/MMbtu

                  Credit Suisse Forecast          Forward Curve         Bloomberg Forecast Mean            $18                               NYMEX Henry Hub                    Quarterly Avg Forecast
  $5.00
                                                                                                           $16

  $4.50
                                                                                                           $14

  $4.00                                                                                                    $12

  $3.50                                                                                                    $10

                                                                                                            $8
  $3.00
                                                                                                            $6
  $2.50
                                                                                                            $4
  $2.00
                                                                                                            $2

  $1.50                                                                                                     $0
                Q4 12            Q1 13           Q2 13        Q3 13             Q4 13        Q1 14            2005           2006       2007        2008        2009       2010          2011      2012       2013

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                    46
                                                                                                                                                                  12 October 2012




 Exhibit 85: US natural gas supply/demand model
 Bcf/d
 (Bcfd)                                            2010      2011     Q1/2012 Q2/2012 Q3/2012 Q4/2012      2012     Q1/2013 Q2/2013 Q3/2013 Q4/2013      2013      2014     2015
 Marketed Gas Production                           61.4      66.2      68.9     68.9     68.5     67.9     68.5      67.5     67.1     67.1     67.4     67.3      68.2     69.6
    Y-o-Y                                           2.1       4.8       5.1      2.9      2.2      -0.8     2.4       -1.4     -1.8     -1.4     -0.5     -1.3      0.9      1.4
    Y-o-Y%                                         3.5%      7.9%      8.0%     4.4%     3.3%     -1.2%    3.6%      -2.0%    -2.6%    -2.1%    -0.7%    -1.9%     1.4%     2.0%
   Dry Gas Production                              58.4      63.0      65.3     65.4     65.1     64.6     65.1      64.1     63.8     63.8     64.1     64.0      64.9     66.2
    Y-o-Y                                           1.9       4.6       4.5      2.7      2.0      -0.7     2.1       -1.2     -1.7     -1.3     -0.5     -1.2      0.9      1.3
    Y-o-Y%                                         3.4%      7.8%      7.5%     4.2%     3.1%     -1.1%    3.4%      -1.8%    -2.5%    -2.0%    -0.7%    -1.8%     1.4%     2.0%
   Conventional                                    33.5      32.6      32.5     32.3     31.3     30.7     31.7      30.2     29.5     29.2     29.1     29.5      28.5     27.3
    Y-o-Y                                           -2.1      -0.9      0.8      -0.2     -1.2     -3.0     -0.9      -2.4     -2.8     -2.1     -1.6     -2.2      -1.0     -1.2
    Y-o-Y%                                         -5.8%     -2.6%     2.5%     -0.7%    -3.7%    -8.9%    -2.8%     -7.3%    -8.6%    -6.8%    -5.1%    -7.0%     -3.4%    -4.3%
   Offshore (GOM)                                   6.3       5.1       3.8      3.7      3.6      3.5      3.7       3.4      3.3      3.2      3.1      3.3       2.9      2.6
    Y-o-Y                                           -0.6      -1.2      -1.9     -1.6     -1.1     -1.2     -1.4      -0.4     -0.4     -0.4     -0.4     -0.4      -0.4     -0.3
    Y-o-Y%                                         -8.1%     -19.0%    -32.8%   -29.5%   -23.4%   -25.4%   -28.1%    -11.4%   -11.4%   -11.4%   -11.4%   -11.4%    -11.4%   -11.4%
   Unconventional                                  21.1      28.1      30.9     32.2     32.6     32.5     32.0      32.6     32.9     33.4     33.9     33.2      35.5     38.5
    Y-o-Y                                           4.1       7.0       4.9      4.5      3.8      2.5      3.9       1.7      0.8      0.8      1.5      1.2       2.3      2.9
    Y-o-Y%                                         24.2%     33.1%     19.0%    16.3%    13.2%    8.5%     14.0%     5.7%     2.4%     2.3%     4.5%     3.7%      7.0%     8.3%
         Barnett                                    5.1       5.9       6.1      6.1      5.9      5.7      5.9       5.5      5.4      5.4      5.3      5.4       5.2      5.2
             Y-o-Y                                  0.2       0.9       0.4      0.2      -0.1     -0.5     0.0       -0.5     -0.6     -0.5     -0.4     -0.5      -0.2     -0.1
             Y-o-Y%                                3.5%      17.4%     7.6%     2.7%     -1.5%    -8.4%    -0.1%     -8.9%    -10.6%   -8.4%    -6.2%    -8.6%     -3.6%    -1.4%
         Cana-Woodford                              1.0       1.0       1.0      1.0      1.0      1.0      1.0       0.9      0.9      0.9      0.9      0.9       0.8      0.8
             Y-o-Y                                  0.1       0.0       0.0      0.0      0.0      0.0      0.0       -0.1     -0.1     -0.1     -0.1     -0.1      -0.1     0.0
             Y-o-Y%                                7.6%      2.7%      -1.4%    -0.8%    1.1%     -4.6%    -1.4%     -8.7%    -9.5%    -8.9%    -8.5%    -8.9%     -6.4%    -4.4%
         Eagle Ford                                 0.3       1.1       1.8      2.2      2.5      2.7      2.3       2.9      3.0      3.2      3.4      3.1       3.8      4.4
             Y-o-Y                                  0.2       0.8       1.1      1.2      1.3      1.1      1.2       1.0      0.9      0.7      0.7      0.8       0.7      0.6
             Y-o-Y%                                498.5%    296.4%   145.9%    136.2%   110.8%   75.7%    109.9%    57.5%    40.0%    29.6%    27.5%    37.0%     22.3%    15.0%
         Fayetteville                               2.1       2.6       2.7      2.8      2.6      2.6      2.7       2.6      2.6      2.5      2.5      2.6       2.5      2.6
             Y-o-Y                                  0.7       0.5       0.3      0.2      0.0      -0.1     0.1       -0.1     -0.2     -0.1     -0.1     -0.1      -0.1     0.1
             Y-o-Y%                                48.1%     24.5%     10.2%    5.8%     0.6%     -3.7%    3.1%      -4.0%    -5.8%    -3.2%    -2.0%    -3.8%     -2.0%    2.6%
         Haynesville                                3.8       6.7       6.8      6.8      6.5      5.9      6.5       5.6      5.4      5.4      5.4      5.5       5.6      6.1
             Y-o-Y                                  2.5       2.9       0.5      0.0      -0.5     -0.9     -0.2      -1.2     -1.4     -1.1     -0.5     -1.1      0.2      0.4
             Y-o-Y%                                196.2%    77.3%     8.1%     0.1%     -7.6%    -12.7%   -3.3%     -17.6%   -20.0%   -17.5%   -8.7%    -16.2%    3.2%     7.8%
         Marcellus                                  1.0       2.8       4.3      5.1      5.7      6.1      5.3       6.5      6.8      7.1      7.4      6.9       8.2      9.8
             Y-o-Y                                  0.7       1.8       2.4      2.6      2.7      2.3      2.5       2.1      1.7      1.4      1.3      1.6       1.3      1.6
             Y-o-Y%                                270.0%    172.6%   129.9%    106.5%   90.9%    61.9%    91.1%     49.4%    33.7%    23.9%    20.8%    30.5%     18.7%    19.4%
         Missippian                                 0.2       0.2       0.3      0.4      0.4      0.5      0.4       0.5      0.6      0.6      0.7      0.6       0.8      0.9
             Y-o-Y                                  0.0       0.0       0.1      0.2      0.2      0.3      0.2       0.3      0.2      0.2      0.2      0.2       0.2      0.1
             Y-o-Y%                                6.0%      13.6%     54.6%    94.1%    111.6%   124.0%   98.0%     97.0%    64.9%    48.0%    38.3%    57.5%     25.9%    15.5%
         Niobrara - Vertical                        0.8       0.8       0.9      1.0      0.9      0.9      0.9       0.9      0.9      0.9      0.9      0.9       0.9      0.9
             Y-o-Y                                  0.0       0.1       0.1      0.1      0.1      0.1      0.1       0.0      0.0      0.0      0.0      0.0       0.0      0.0
             Y-o-Y%                                0.6%      10.3%     17.9%    14.9%    10.9%    6.1%     12.3%     0.2%     -1.7%    -1.6%    -1.4%    -1.1%     -0.6%    0.1%
         Niobrara- Horizontal                       0.0       0.0       0.0      0.0      0.0      0.0      0.0       0.0      0.0      0.0      0.0      0.0       0.1      0.1
             Y-o-Y                                  0.0       0.0       0.0      0.0      0.0      0.0      0.0       0.0      0.0      0.0      0.0      0.0       0.0      0.0
             Y-o-Y%                                #DIV/0!   550.0%   508.6%    323.5%   241.4%   110.4%   223.2%    73.8%    81.7%    73.9%    67.0%    73.6%     50.3%    38.0%
         Permian                                    4.5       4.3       4.2      4.3      4.4      4.5      4.4       4.5      4.6      4.7      4.7      4.6       4.8      5.0
             Y-o-Y                                  -0.4      -0.2      -0.1     0.0      0.1      0.2      0.1       0.3      0.2      0.3      0.2      0.3       0.2      0.2
             Y-o-Y%                                -8.3%     -4.8%     -1.4%    1.1%     2.3%     5.6%     1.9%      6.2%     5.7%     5.8%     5.5%     5.8%      4.6%     3.5%
         Granite Wash                               2.5       2.6       2.6      2.6      2.6      2.6      2.6       2.6      2.6      2.6      2.6      2.6       2.7      2.7
             Y-o-Y                                  0.1       0.2       0.0      0.0      -0.1     0.0      0.0       0.0      0.0      0.0      0.0      0.0       0.1      0.1
             Y-o-Y%                                4.6%      6.8%      1.6%     -1.2%    -2.5%    -0.1%    -0.6%     -1.4%    -1.5%    -0.3%    1.0%     -0.5%     2.9%     2.5%

 Canadian Imports (Net)                             7.0       5.9       5.5      5.6      5.7      5.3      5.5       5.1      5.1      5.6      5.0      5.2       4.9      4.6
    Y-o-Y                                           -0.1      -1.0      -1.4     0.2      -0.3     -0.3     -0.5      -0.3     -0.5     0.0      -0.2     -0.3      -0.3     -0.3
    Y-o-Y%                                         -1.2%     -14.7%    -20.0%   2.8%     -4.4%    -5.9%    -7.6%     -5.9%    -8.3%    -0.9%    -4.6%    -4.9%     -6.0%    -6.0%

 Mexican Exports (Net)                              -0.8      -1.4      -1.4     -1.7     -1.7     -2.4     -1.7      -2.2     -1.8     -1.8     -2.3     -2.0      -2.2     -2.4
    Y-o-Y                                           0.0       -0.5      -0.2     -0.3     -0.4     -1.0     -0.4      -0.8     -0.1     -0.1     0.1      -0.2      -0.2     -0.2
    Y-o-Y%                                         -2.3%     63.6%     12.0%    17.6%    25.9%    77.5%    27.6%     59.9%    6.8%     5.7%     -4.5%    13.7%     9.3%     9.3%

 LNG Imports (Net)                                  1.0       0.8       0.5      0.3      0.4      0.4      0.4       0.4      0.3      0.4      0.4      0.4       0.3      0.2
    Y-o-Y                                           -0.1      -0.2      -0.5     -0.6     -0.2     -0.2     -0.3      -0.1     0.0      0.0      0.0      0.0       -0.1     -0.1
    Y-o-Y%                                         -12.3%    -24.4%    -48.2%   -65.4%   -26.3%   -30.5%   -44.9%    -10.2%   3.7%     -8.2%    -7.8%    -6.6%     -30.5%   -30.5%

 Total Supply                                      68.5      71.5      73.4     73.0     72.9     71.3     72.7      70.8     70.6     71.3     70.6     70.9      71.2     72.1
    Y-o-Y                                           1.8       3.0       3.1      2.3      1.4      -2.4     1.2       -2.6     -2.4     -1.6     -0.7     -1.8      0.3      0.8
    Y-o-Y%                                         2.8%      4.4%      4.4%     3.2%     2.0%     -3.2%    1.7%      -3.5%    -3.3%    -2.2%    -0.9%    -2.5%     0.5%     1.2%

 Industrial                                        17.9      18.4      19.7     17.8     17.4     19.1     18.5      19.8     17.6     17.9     19.5     18.7      19.1     19.4
    Y-o-Y                                            1.0      0.6       -0.3     0.2      0.3      0.2      0.1       0.1      -0.2     0.4      0.4      0.2       0.4      0.3
    Y-o-Y%                                          5.7%     3.1%      -1.5%    1.3%     1.6%     1.2%     0.6%      0.3%     -1.2%    2.4%     2.1%     0.9%      2.0%     1.8%
 Electric Power                                    20.2      20.8      21.8     26.7     31.5     20.7     25.2      19.7     24.6     30.0     19.8     23.5      24.6     25.3
    Y-o-Y                                           1.4       0.6       5.0      6.8      3.8      1.9      4.4       -2.1     -2.0     -1.5     -0.9     -1.6      1.1      0.7
    Y-o-Y%                                          7.5%     2.9%      29.9%    34.1%    13.8%    9.9%     21.0%     -9.5%    -7.6%    -4.6%    -4.4%    -6.4%     4.5%     2.8%

 Res/Comm                                          21.7      21.7      32.8     11.7      8.1     28.7     20.3      37.1     13.9      7.9     29.0     22.0      21.9     21.8
    Y-o-Y                                           0.0       0.0       -8.1     -1.7     -0.1     4.3      -1.4      4.3      2.2      -0.2     0.4      1.7       -0.1     -0.1
    Y-o-Y%                                         0.0%      0.0%      -19.8%   -13.0%   -1.2%    17.8%    -6.5%     13.0%    18.8%    -2.3%    1.3%     8.2%      -0.5%    -0.5%

 Other (Lease Fuel, Pipeline Distribution)          5.4       5.8       6.3      5.8      5.7      6.1      6.0       6.5      6.0      5.9      6.3      6.2       6.3      6.5
    Y-o-Y                                           0.0       0.3       0.2      0.3      0.2      0.2      0.2       0.2      0.2      0.2      0.2      0.2       0.2      0.2
    Y-o-Y%                                         0.4%      6.0%      3.3%     6.0%     3.9%     3.0%     4.0%      3.0%     3.0%     3.0%     3.0%     3.0%      3.0%     3.0%

 Total Demand                                      65.2      66.7      80.6     62.0     62.7     74.6     70.0      83.1     62.1     61.7     74.7     70.4      71.9     73.0
    Y-o-Y                                           2.4       1.5       -3.2     5.6      4.2      6.6      3.3       2.5      0.1      -1.1     0.0      0.4       1.5      1.1
    Y-o-Y%                                         3.8%      2.3%      -3.8%    9.9%     7.2%     9.7%     4.9%      3.0%     0.2%     -1.7%    0.0%     0.6%      2.2%     1.6%

 Source: Bentek Energy, EIA, HPDI, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                          47
                                                                                                                                                                                                          12 October 2012




                                               UK NBP – Anemic demand, balancing supply
                                               Prices at the UK’s National Balancing Point have fallen over the last year, but in our view
                                               they remain high, propped up by tight post-Fukushima LNG markets. A combination of
                                               poor economic growth, power-generation economics favoring coal over gas, and efficiency
                                               gains is consistently moving natural gas demand lower in Northwest Europe. But with
                                               lower supply from LNG, the market is more easily balanced by variable pipeline imports
                                               from Norway. In fact, recent contract negotiations between Russia’s Gazprom and
                                               European consumers resulted in price reductions for pipeline imports into continental
                                               Europe, leaving increased volumes of Norwegian gas to be sent to Great Britain.
                                               From our viewpoint, without resolution from the nuclear situation in Japan, which as
                                               previously noted is not expected until summer 2013 at the earliest, prices at NBP should
                                               stay supported. We leave our forecasts unchanged.

                                               Exhibit 86: NBP forward curve
                                               P/therm

                                                       80


                                                       75


                                                       70


                                                       65


                                                       60


                                                       55
                                                        Nov-12              May-13                        Nov-13              May-14                     Nov-14                    May-15                 Nov-15
                                                                                                     Current                       Last month                           6 mo ago

                                               Source: Credit Suisse



                                               Marking to market our Q3 2012 forecast, prices finished 4 p/therm or 8% higher than our
                                               forecast. We expect 2012 prices to average 58.88 p/therm, 1.4% higher than current
                                               forwards would suggest, led by our 65 p/therm forecast for Q4 2012. Into 2013 we expect
                                               prices to average slightly higher, at 62.25 p/therm or 1.7% below where the current futures
                                               market is pricing.

 Exhibit 87: UK natural gas price forecasts
 (P/therm)
                                                                   2012                                               2013                                                2014                              2015       Long term
         UK NBP (GBp/Therm )   2010*   2011*
                                                Q1*       Q2*       Q3*    Q4 (f)   Yr Avg (f)   Q1 (f)     Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)      Q3 (f)     Q4 (f)   Yr Avg (f)   Yr Avg (f)     (real)
 Actuals and Forecasts                 56.40   57.50     56.00     57.00   65.00      58.88      65.00      58.00    58.00    68.00      62.25      73.00    63.00       63.00      73.00      68.00        66.00        50.60
     Previous                                                      53.00   65.00      57.88      65.00      58.00    58.00    68.00      62.25      73.00    63.00       63.00      73.00      68.00        66.00        50.60
              Net Difference                                       4.00     0.00       1.0 0      0.00       0.00     0.00     0.00      0 .0 0     0 .0 0   0 .0 0       0 .0 0    0 .0 0     0 .0 0       0 .0 0       0 .0 0
               % Difference                                        7.5%     0.0%      1.7 %       0.0%       0.0%     0.0%     0.0%      0 .0 %     0 .0 %   0 .0 %       0 .0 %    0 .0 %     0 .0 %       0 .0 %       0 .0 %
     Consensus*                                                            64.00      59.20      65.20      56.90    56.30    69.20      64.60                                                 64.90        75.50
              Net Difference                                                1.00      - 0 .3 0    -0.20      .1
                                                                                                             10       1.70     -1.20     - 2 .3 0                                               3 .10       - 9 .5 0
               % Difference                                                 1.6%      - 0 .5 %   -0.3%       1.9%     3.0%    -1.7%      - 3 .6 %                                              4 .8 %      - 12 .6 %
     Fw d Curve*                                                           61.90      58.10      66.10      61.60    59.80    65.20      63.20      71.50    63.70       61.90      65.50      65.60        65.30
              Net Difference                                                3.10      0 .8 0        .1
                                                                                                  -1 0      -3.60     -1.80    2.80      - 1.0 0    1.5 0    - 0 .7 0     1.10      7 .5 0     2 .4 0       0 .7 0
               % Difference                                                 5.0%      1.4 %       -1.7%     -5.8%    -3.0%     4.3%      - 1.6 %    2 .1%    - 1.1%       1.8 %     11.5 %     3 .7 %        1.1%
                                                                   2012                                               2013                                                2014                              2015       Long term
           UK NBP ($/m Btu)    2010*   2011*
                                               Q1*          Q2*    Q3*     Q4 (f)   Yr Avg (f)   Q1 (f)     Q2 (f)   Q3 (f)   Q4 (f)   Yr Avg (f)   Q1 (f)   Q2 (f)      Q3 (f)     Q4 (f)   Yr Avg (f)   Yr Avg (f)     (real)
 Actuals and Forecasts          0      8.97    8.81         8.69   8.45    10.08       9.00      10.08      8.94     8.83     10.35       9.55      10.96    9.46        9.46       10.96      10.21         9.85         8.00
     USD/GBP                   1.55    1.61    1.55         1.57   1.50     1.57       1.55       1.57       1.56    1.54      1.54       1.55       1.52     1.52       1.52        1.52       1.52         1.51         1.50

 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                        48
                                                                                                                                                              12 October 2012



                                                Demand still lags, but coal plant closures could help
                                                In our previous quarterly update we reduced our outlook for 2012 and 2013 NBP prices
                                                due to lagging seasonal demand. UK gas consumption has averaged 227.2 Mcm/d
                                                through the end of September, an 11% or 28 Mcm/d drop from five-year lows in 2011. UK
                                                demand declines flow from both secular trends (e.g., energy efficiency gains) and cyclical
                                                headwinds (e.g., the economic recession and low coal prices), and have put in doubt the
                                                widely adopted forecasts of ever-rising gas demand.
                                                Generation economics favor coal at the largest margin YTD. Shown in Exhibit 89,
                                                higher dark spreads (the margin for generating power from coal) and collapsed spark
                                                spreads (power margin for natural gas) have sharply curtailed power-sector demand for
                                                gas this year. And already announced are 1.2 GW of gas generation plant closures, while
                                                another 4.1 GW is slated to be mothballed.
                                                However, these recent generation trends could change over the coming months thanks to
                                                coal plant closures and a progressively higher CO2 floor price. According to Credit Suisse
                                                Analyst Mark Freshney (CS European Utilities Daily - Plugged In! 28 Sep 2012), the
                                                recently released “quarterly energy trends” publication from the DECC (the UK Energy
                                                Ministry) noted ~5 GW of coal-fired plants are due to close in the next six months.

 Exhibit 88: UK gas demand continues to lag                                           Exhibit 89: UK clean dark vs. clean spark spreads
 Mcm                                                                                  GBp/MWh

                                                                                      21                            UK Clean Dark        UK Clean Spark

  450
                                                                                      18                                                                     Coal favored
  400
                                                                                      15
  350
                                                                                      12
  300
                                                                                       9
  250
                                                                                       6
  200
                                                                                       3
  150
                                                                                       0
  100
        Jan   Feb    Mar    Apr    May    Jun   Jul    Aug   Sep    Oct   Nov   Dec                                                                           Gas unfavored
                                                                                      -3
                                                                                       Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
                     5 yr range          Avg          2011         2012

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




                                                Supply – Lower LNG supply but higher Norwegian imports to balance
                                                UK gas supply continues to respond to price signals: North Sea production remains in full
                                                decline, while LNG imports into the UK were cut in half to 36 Mcm/d. Meanwhile, pipeline
                                                imports from Norway have partly offset LNG declines, increasing 3.7 Mcm/d yoy through
                                                September (Exhibits 90 and 91).
                                                Looking ahead, recent adjustments to Russian oil-indexed gas prices should eventually
                                                lead to increased Norwegian imports to the UK to help further balance in the absence of
                                                LNG. However, strategic purchases by Russian-gas-consuming, Continental European
                                                countries, may delay these effects Q4 2012/Q1 2013 or until summer oil price weakness
                                                catches up with oil-indexed prices out of Russia.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                    49
                                                                                                                                                              12 October 2012




 Exhibit 90: Norwegian pipeline flows to UK                                            Exhibit 91: UK LNG imports
 Mcm/d                                                                                 Mcm/d

  70                                                                                      100

                                                                                           90
  60
                                                                                           80

  50                                                                                       70

                                                                                           60
  40
                                                                                           50

  30                                                                                       40

                                                                                           30
  20
                                                                                           20

  10                                                                                       10
       Jan   Feb   Mar   Apr    May    Jun    Jul      Aug   Sep    Oct   Nov    Dec
                                                                                             0
                          5 yr range          Avg            2011         2012               Oct-10   Jan-11     Apr-11       Jul-11   Oct-11   Jan-12   Apr-12   Jul-12

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



                                              Gazprom 2012 export volumes will likely disappoint according to Credit Suisse Analyst
                                              Andrey Ovchinnikov (see GAZP.MM: Gazprom - Rerating is unlikely due to lack of
                                              catalysts). It is expected that export volumes to Western Europe will hardly reach 140 Bcm
                                              given the volumes YTD (Exhibit 92). The overall export including FSU countries should be
                                              near 200 Bcm, on our estimates, versus 220 Bcm guided by Gazprom. We expect Ukraine
                                              to buy significantly lower minimum take-or-pay volume of 40 Bcm.
                                              The reasons for lower export volumes are weak demand for gas in Europe, as previously
                                              described, and some Gazprom-specific causes. First, Gazprom's price is still the
                                              highest among other European suppliers that significantly increased the share of spot
                                              element in the price (Statoil, according to our estimates, may have up to 60% of the
                                              volumes of gas sold to Germany linked to spot prices). Second, Gazprom's price
                                              generally tracks oil price with nine months’ delay, which gives European customers
                                              price visibility for the next three quarters and allows them to schedule deliveries in the
                                              most cost efficient way.

                                                                                       Exhibit 93: Gazprom’s monthly export volumes to
 Exhibit 92: Gazprom’s export to Western Europe                                        Europe
 Bcm                                                                                   Bcm




 Source: Company Data, Credit Suisse Equity Research                                   Source: Company Data, Credit Suisse Equity Research




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                 50
                                                                                                                                            12 October 2012



                                            That said, given the relative weakness in summer oil prices, we expect Gazprom's price to
                                            go down at the end of the year or beginning next year (depending on each contract’s
                                            terms). It therefore makes sense for the European customers to reduce off-takes till Q4
                                            2012/Q1 2013.
                                            Recent European gas storage figures may be confirming these trends. While NBP
                                            storage has, until recently, held roughly flat to 2011 levels, falling levels of Baumgartner
                                            and Germany storage levels (both of which are Gazprom’s main European customers)
                                            indicate the decision to pull from storage now in anticipation for a fall in winter oil-indexed
                                            pricing (Exhibit 95). This should, over the coming months, cause imports from Norway to
                                            the UK to increase, as there will be a smaller market for Norwegian gas on Continental
                                            Europe

 Exhibit 94: NBP recently fell below 2011 level                              Exhibit 95: European gas storage levels
 Mcm                                                                         Mcm

 5,000                                                                       Storage Region               Mcm     % full   % full last yr   Yoy % Change
                                                                             Baumgartem (Austria) 13,196          88.9         87.9              1.0
 4,500

 4,000                                                                       Germany                  18,229      99.6         98.2              1.4
 3,500
                                                                             Iberian Gas                  7,121   89.6         97.8             -8.1
 3,000
                                                                             NBP (UK)                     4,233   89.0         98.9             -9.9
 2,500

 2,000                                                                       PEG (France)                 5,851   85.8         98.7             -13.0
 1,500
                                                                             PSV (Italy)              14,479      97.0         94.5              2.5
 1,000
                                                                             TTF (Netherland)             1,803   87.7         92.1             -4.5
   500

     -                                                                       Zeebrugge (Belgium)          640     97.7         99.6             -1.9
         Jan        Mar        May         Jul      Sep      Nov
                              5-yr Range     2012    2011                    Aggregate total          65,552      93.3         95.2             -1.9

 Source: GIE, Credit Suisse                                                  Source: GIE, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                              51
                                                                                                                                                 12 October 2012




                     Equity Research
                                           Steel
                      Michael Shillaker
   michael.shillaker@credit-suisse.com     Caught between a rock and a hard place
                     +44 20 7888 1344
                                           Excess capacity caps pricing power
               Commodities Research
                       Andrew Shaw         A simple fact: the global steel industry remains saddled with severe overcapacity.
        andrew.shaw@credit-suisse.com      Capacity was built during the boom years, fuelled by China’s insatiable appetite to
                      +65 6212 4244
                                           accelerate accumulating its “capital stock” of buildings, infrastructure, and capital goods.
                     Marcus Garvey         The pace of this “flow” of annual steel use reached its pinnacle in 2002-2008, following an
     marcus.garvey@credit-suisse.com       era of limited steel demand growth and a slow rate of adding new production capacity.
                   +44 20 7883 4787
                                           The China flow is now ebbing (although in absolute terms steel demand has not “peaked”
                             Martin Yu
          martin. yu@credit-suisse.com     – China’s capital stock remains far from complete). In the period since Lehman’s collapse,
                     +44 20 7883 2150      steel demand has fallen back sharply in developed economies too and is yet to recover.
                                           New capacity has continued to be built in China and in other key regions such as South
                                           Korea and Latin America.
                                           Globally, there is currently almost 1.9 Bt/y of capacity, compared to the 1.5 Bt we expect to
                                           be produced in 2012. With capacity utilization therefore at about 80%, the near to mid-
                                           term outlook for the industry is one of sustained overcapacity, and pricing power therefore
                                           on a structural basis will remain absent, unless demand can recover or supply be cut.
                                           The latter is, in our view, happening in markets that are not forecast to recover (such as
                                           southern Europe), but on a global scale these reductions remain insufficient to support
                                           stronger prices. Believers in a return to structural pricing power for steelmakers would
                                           have to hold considerable faith in a major surge in demand growth.
                                           However, demand growth looks likely to remain muted in the next few years, given the
                                           problems in the developed economies and a likely slowdown in demand growth rates.
                                           This is not to say there is no growth – our forecasts assume an increase to a little over 4%
                                           p.a. in world steel demand (and output) for the next few years, as the global economy
                                           rebounds and inventories are rebuilt, but this is too low to eliminate excess capacity very
                                           quickly. In the very near term, though, demand remains soft.

 Exhibit 96: World crude steel production – cutbacks                       Exhibit 97: Europe remains the weakest region –
 start to weigh, but are they enough?                                      China crawling sideways
 Mt, monthly, saar                                                         Mt, monthly, saar

  140                                                                       60         China      JKT (rhs)          USA (rhs)    Europe (rhs)               20


  130                                                                       50                                                                               17


  120                                                                       40                                                                               14



  110                                                                       30                                                                               11



  100                                                                       20                                                                               8



   90                                                                       10                                                                               5



   80                                                                        0                                                                               2
     2005      2006      2007   2008      2009   2010   2011   2012           2005     2006      2007         2008      2009     2010     2011     2012


 Source: Credit Suisse, WSA                                                Source: Credit Suisse, WSA




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                   52
                                                                                                                              12 October 2012




                                        A “prisoner’s dilemma” for steel
                                        What we think is clear is that, cyclically, steel output growth rates are running below trend
                                        (which gives us some hope of a cyclical upturn at some stage) but that trend growth rates
                                        have slowed significantly since the pre-2008 growth rate of 7% p.a. This provides little
                                        chance of a return to a structurally tight market, meaning permanent closures are
                                        necessary (Exhibit 98).
                                        In 2002 the OECD began a global steel capacity closure programme aimed at removing
                                        some 200-300 Mt/y of excess capacity that the OECD had identified at the time. After
                                        more than a year of talks and reports, the plan was shelved as the 2003-2004 steel market
                                        recovery (and subsequent boom) put paid to any thoughts that excess capacity was a
                                        hindrance to future returns.
                                        Producers may be prompted to revisit these former plans, especially in Europe and China.
                                        The removal of about 180 Mt/y should bring utilization rates up to the 90% level required to
                                        prop up prices at levels sufficient to provide adequate returns for replacing old plants with
                                        more efficient facilities. This price lies near US$150/t above today’s HRC spot price of
                                        US$600/t for example (CIS export price).
                                        However, as became clear in 2002, the problem remains one of a “prisoner’s dilemma” in
                                        that all participants would gain from the outcome of capacity closure, but deciding which
                                        should close capacity and then agreeing on sharing the burden of the costs of closure
                                        would likely not be possible.

                                        Shelve new capacity plans or face even weaker prices?
                                        At a minimum we believe the industry should shelve any new capacity plans. Steel
                                        companies still often appear to see steel as feeding regional markets, and it is that pursuit
                                        of regional market share that perpetuates investment in markets where demand may be
                                        regional, but supply, and hence returns, are driven by global, not regional, factors.
                                        Much of the capacity still coming on-stream in regions such as South Korea, Latin America,
                                        and Russia is being driven by legacy decisions taken before the financial crisis. In the
                                        long term, the fact that new steel-making capacity (notably outside of China) will not meet
                                        expected investment returns and that some capacity (notably in Europe) should be
                                        removed, suggests that at some stage the dynamic of the mid-2000s could return, i.e.,
                                        demand growth ultimately catches up with capacity, in sharp contrast to the iron ore
                                        market today, which is facing the opposite pattern.

                                        Exhibit 98: Global crude steel production and forecast
                                        Natural log

                                         7.7
                                                                     Global Steel Output          Forecast             2012-16
                                         7.5                                                                           CAGR: 4.1%
                                         7.3

                                         7.1
                                                                                                  1999-07:             2007-12:
                                         6.9                     1970-99:                         CAGR: 6.9%           CAGR: 2.2%
                                                                 CAGR: 1%
                                         6.7

                                         6.5

                                         6.3
                                               1970       1975           1980      1985    1990   1995       2000   2005   2010     2015
                                        Source: Credit Suisse, WSA




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                 53
                                                                                                                                          12 October 2012



                                          While the maths may be simple, the reality is not. China is unlikely in our view to freeze
                                          new capacities and debottlenecking constantly adds 1%-2% p.a. to capacity at a much
                                          lower capital expenditure per tonne than new plant. Such challenges explain why, after
                                          the peak of the 1950-1973 boom, the steel industry took some 30 years to enter a phase
                                          of supply constraint again, which lasted briefly from mid-2004 to September 2008.
                                          Unless action is taken either to close capacity or at least curb new capacity, then we
                                          believe industry returns could be structurally deficient for many years to come. However,
                                          even under a moderated pace of expansion in China, the main growth engine, this
                                          prospect seems some years off.
                                          Ultimately, the dynamic of inadequate returns on new build and ongoing demand growth
                                          globally should see the steel industry return to a period of tighter supply/demand
                                          fundamentals, but across two plausible scenarios – an optimistic and a pessimistic case –
                                          which could take a decade to rebalance.

 Exhibit 99: China’s steel output moderating, but exit                     Exhibit 100: Monthly steel production in China –
 barriers are high                                                         holding steady
 Log, sa                                                                   Mt, annualized monthly production

                   Chinese Steel Production SA (Natural                    750
 12.0
                   Log)
                                                                           700                  Raw Annualised       SAAR
 11.5              Trend '87-'00
                                                                           650
 11.0              Trend '01-'06                                           600
 10.5              Trend '07-'11                                           550

 10.0                                                                      500
                   Forecast
                                                                           450
   9.5
                                                                           400
   9.0
                                CAGR         CAGR         CAGR    CAGR     350
   8.5                          6.6%         22.2%        10.2%   5.3%
                                                                           300
   8.0                                                                     250
      1987 1990 1993 1996 1999 2002 2005 2008 2011 2014                       2005      2006      2007      2008    2009    2010   2011      2012

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



                                          Steel prices and costs – on the wane
                                          At a global level steel prices have, with the odd blip, been on a downward trend since the
                                          post-crisis peak in early 2011 and have converged near US$600/t for HRC. This is now
                                          penetrating well into the global steel cash cost curve and has recently been a decisive
                                          factor in steel output cuts and hence falling raw materials prices.
                                          Steel prices of late have rallied in the US, stabilized in Europe, and continued to fall in Asia
                                          (notably China). This is a normal pattern; looking at the last ten years or so, the US tends
                                          to recover first, then Europe, then Asia.
                                          The global steel cost curve for HRC is relatively flat, with the steeper lower end dominated
                                          by backward-integrated producers with raw materials. The change in raw materials pricing
                                          had a significant influence on flattening the curve, as all buyers in effect moved to the
                                          same methodology for purchasing raw materials.
                                          In Q4 2011 the 75th percentile (roughly global utilization in that period) saw an operating
                                          cost of HRC of about US$750/t. Since then steel costs have fallen by some US$160/t as
                                          ore and coal prices have dropped, leading to a 75th percentile operating cost of about
                                          US$600/t, which is broadly where the global steel price is currently trading.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                            54
                                                                                                                                         12 October 2012



                                          Costs appear to have peaked and look set to decline. We expect iron ore prices to drift
                                          down over coming years, with risks skewed to the downside in the event of an
                                          undershooting to clear excessive supply capacity in the years to come.

 Exhibit 101: Regional steel prices in 2005-12 –                          Exhibit 102: Steel prices, costs, and implied
 volatile and under pressure today                                        margins
 US$/t                                                                    US$/t

 1250                                                                      1400       EBITDA/t -rhs        Steel price U$/t   Steel implied cost (U$/t)820
                     US HRC
 1150
                                                                           1200                                                                       720
                     N.Europe HRC
 1050
                                                                           1000                                                                       620
  950                China HRC
                                                                                                                                                      520
                                                                            800
  850
                                                                                                                                                      420
  750                                                                       600
                                                                                                                                                      320
  650
                                                                            400
                                                                                                                                                      220
  550
                                                                            200                                                                       120
  450

  350                                                                          0                                                                      20
     2005     2006     2007      2008   2009    2010     2011   2012            2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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



                                          Price fluctuations driven by apparent demand
                                          We believe the steel industry will not experience structural pricing power until excess
                                          capacity is removed through closure or demand outstrips supply for a sustained period.
                                          Structural pricing power in effect (like copper and iron ore) would see the steel price move
                                          to a “premium” above the cash cost curve covering the costs of building new mills (at
                                          about US$750/t for HRC, outside China).
                                          Steel prices therefore seem set to rise and fall with the apparent demand cycle (which is
                                          largely driven by macro events), similar to the cycles of the 1990s. It is likely to be this
                                          dynamic only that drives the broad sector for the foreseeable future.

                                          Raw materials pricing has changed the game
                                          Steel margins are, however, likely to be far more constrained than they were in the pre-
                                          2010 period given the structural change in the nature of raw material pricing, which on the
                                          upside no longer allows steelmakers windfall profits (higher prices, with stable raw material
                                          costs) but on the downside should also help to protect steel margins to some extent
                                          against squeezes that back-dated fixed raw materials prices inevitably trigger.
                                          Since the emergence of spot market and index-based pricing for ore and coal since 2010,
                                          the inputs into steelmaking have converged. This has in effect brought the raw material
                                          cost for electric-arc furnaces (predominantly iron and steel scrap) into line with blast
                                          furnace producers (predominantly iron ore and coke/coal inputs). BFs used to have a
                                          relative advantage.
                                          From a variable cost perspective margin differentiation between producers will be
                                          dependent on access to cheaper-than-market sources of raw materials and fixed cost
                                          advantages such as labor (and this can include currency).

                                          Excess capacity shows up in global export market liquidity
                                          Although steel prices differentiate from region to region for short periods of time, it is
                                          ultimately the global export price that sets domestic steel prices in the long run (plus or
                                          minus any differentials from tariffs or transportation costs). Exhibit 103 shows the CIS



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                             55
                                                                                                                                                 12 October 2012



                                                 export price versus the variable cost equivalent (ore coal and scrap) for a BF/BOF
                                                 producer. This suggests that, other than in periods where the industry is temporarily short
                                                 of supply (such as the second half of 2009 and early 2010), in a steady state market the
                                                 global HRC price is in effect priced at a US$100-200/t margin above raw materials prices,
                                                 with the average spread around US$160/t broadly covering fixed costs and transportation.
                                                 This dynamic will likely be the driver of the long term steel price until ultimately we see
                                                 excess capacity eliminated.

 Exhibit 104: Exhibit 105: China’s steel trade – to                                Exhibit 106: Steel exports by market destination –
 persist at above net 30 Mt/y of exports                                           Asia dominates
 Mt, monthly, sa                                                                   Mt, monthly, sa

                                                                                   100
   8            China's net steel exports - SA        Exports SA      Imports SA             Asia     Africa    Europe   S America   N America    Oceania
                                                                                    90
   7
                                                                                    80
   6
                                                                                    70
   5
                                                                                    60
   4
                                                                                    50
   3                                                                                40

   2                                                                                30

   1                                                                                20

   0                                                                                10
    2005      2006      2007       2008      2009     2010     2011   2012
                                                                                      0
  -1
                                                                                      Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
 Source: Credit Suisse, Customs data                                               Source: Credit Suisse, Customs data



                                                 The nature of the cycle
                                                 Against a backdrop of muted, but volatile, demand growth and relativity constant supply,
                                                 cycles are likely to be short and sharp. With mills operating below full utilization the
                                                 supply-side response is likely to be swift on a global scale but regionally, at least, there will
                                                 likely be periods of oversupply and undersupply. While the structural outlook for pricing is
                                                 weak, it will be these mini-cycles that allow prices in certain locations to move out of line
                                                 with global prices.
                                                 We acknowledge there will be brief periods where regional pricing falls out of kilter – this is
                                                 a normal part of the steel cycle, given steel pricing is locally priced but globally arbitrage-
                                                 able. Mini-cycles in local markets can force prices up above the long-term global export
                                                 price for a period of time.
                                                 Furthermore if we do see a sustained global IP recovery such as in 2010, then it is likely
                                                 steel markets will appear “short of steel” for a spell, driving prices off the global cost curve
                                                 for a while. Cycles such as the boom of 2000, or the recovery of 2009-2010 forced steel
                                                 prices far above the cost curve for some time.
                                                 Apparent demand for steel is a function of the global IP cycle, with the inventory changes
                                                 in steel being significant enough to leave apparent steel demand oscillating at around 2x
                                                 the IP growth trend. The current cycle is looking similar to that of 2001-2003, and not the
                                                 crises of 1998 and 2008, but a slow crawl of little or no growth. The problem is there
                                                 remains the specter of an Asian/Russian-type crisis overhead if Europe suffers major
                                                 setbacks.
                                                 In 2001-2003 we saw trend growth of about 3% p.a. and in the recession-hit years growth
                                                 averaged zero, 300 basis points below trend for the best part of two years before
                                                 rebounding sharply in 2004.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                   56
                                                                                                                                                            12 October 2012



                                        Since the 2009 recovery, growth rates have been running at about 4% p.a. globally, with
                                        the apparent demand growth average of the last 12 months near 1% or about 300 basis
                                        points below that trend. In principle therefore, and barring a crisis scenario, we should at
                                        some stage see a repeat of the 2003-2004 recovery period, which is postulated by Credit
                                        Suisse’s IP forecasts. Extrapolating current output, we would see a rebound in growth
                                        rates similar to 2004 commencing in the final stages of 2012. However a large influence
                                        on this cycle will be a lift in demand, and an inventory adjustment phase in China and this
                                        appears slow in coming in Q4.

                                        10-15 years on – does history repeat itself?
                                        The years 1997 and 1998 saw two major crises hit the steel market hard. We saw a
                                        rebound commence in 1999 and peak in 2000 and then a recession in 2001-2003 before
                                        the recovery in 2004 took hold. A decade later, we saw the US/UK move into crisis in
                                        2007, a global crisis in late 2008 and a rebound in 2010 and a recession thereafter.
                                        Based on history, this suggests the recovery should only commence from mid-2013 and
                                        should show its true strength in 2014 and early 2015.
                                        As outlined in the macro-economic section, we believe that both GDP and IP will
                                        accelerate in 2013, leading to a similar acceleration in apparent steel consumption through
                                        2013 and into 2014. This in turn should see steel prices higher and the underlying
                                        margins of the steel industry expand closer to 2010-2011 levels.
                                        This macro dynamic is reflected in our supply/demand forecasts as shown at the end of
                                        this section.

                                        China – the waiting game continues
                                        At the time of our last quarterly update in July, we emphasized the hope that measures
                                        taken to loosen brakes on China’s economy would take a hold within Q3, lifting steel
                                        demand and month-on-month mill production run rates. However, the stronger advance in
                                        demand has proved elusive. Moreover, with growth within the realms of Beijing’s targets,
                                        we do not believe measures to stimulate will be deepened materially.
                                        That said, despite re-emergence of greater market pessimism, China’s steel output has
                                        held up relatively well in an environment where destocking generally continues to take
                                        place, at least at the consumer level of the chain. Although mill stocks may not have taken
                                        the same course – there is evidence to show these have built through to the summer
                                        months – it is a potential end to this destocking phase and a sharper lift in apparent
                                        demand that underpins our growth forecast in a 5%-6% p.a. range for steel
                                        demand/production in 2013-2015, before a gradual trend-line fade:
                                             We have retained our forecast of 700 Mt for CY 2012 for China as a whole, representing
                                             an increase of less than 2.5% year on year. This contrasts with advances of about 9%
                                             in each of 2010 and 20116.
                                             Revisions have been made to our projections for subsequent years downwards, albeit
                                             allowing for what we feel will be an inevitable kick from the commencement of a
                                             restocking phase. We now forecast crude output at 740 Mt for 2013, a rise to 780 Mt in
                                             2014, to 820 Mt in 2015 and 860 Mt in 2016, consistent with a 5%-6% p.a. trend7.


                                        6   It is worth commenting here that CISA recently appears to acknowledge a degree of under-reporting of crude steel production in
                                             China, possibly by about 15-20 Mt/y (some believe this could be higher). CISA stated that the China Steel Industry Statistics
                                             Annual Report put 2011 crude steel output nationally at 702 Mt (versus 684 Mt in NBS time series).Although it is not clear why
                                             the 2011 is higher than the NBS data that feeds through to WSA tallies, experts point to mismatches in calculating implied crude
                                             steel output from production of finished steel products. Some mills may also have gone unreported.
                                        7   In September CISA also reiterated its view that China's crude steel production capacity now stands at 900 Mt/y, but that efforts to
                                            remove 38 Mt/y of "backdated" capacity would speed up under the current 5Y Plan. This compares with forecasts of 780 Mt/y of
                                            steel production in 2015 and 880 Mt/y by 2020 (revealed by CMMA). The 5Y Plan envisages a major thrust on efficiency
                                            improvement, quality control and better logistics chain management.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                  57
                                                                                                                                 12 October 2012



                                                    This increment of about 40 Mt/y dominates expansion in global steel output, but falls
                                                    short of the 60-70 Mt/y climb in the few years prior to 2008. The impact on iron ore and
                                                    metallurgical coal demand of this shift is plain to see.
                                                    Our forecast remains consistent with our view that trend growth rates of China’s steel
                                                    production (effectively demand) are structurally moderating, but that steel demand in
                                                    China is still some years yet away from its final peak.

                                                  Steel price outlook – modest gains ahead
                                                  Looking at global pricing we take the following into account in drawing up our forecast:
                                                    Sustained overcapacity and hence cost-curve-driven pricing.
                                                    Some cyclical pricing power could return as steel output recovers in line with GDP/IP
                                                    forecast acceleration, driving improved apparent steel demand.
                                                    Changes to the cost curve, primarily based on our longer-term forecasts for iron ore and
                                                    metallurgical coal (i.e., structurally lower input prices than in recent years).
                                                    Structural differentials in regional markets; for example the US is a natural net importer
                                                    of steel and as such has a cushion of transportation costs for domestic producers.
                                                    At the local market level, quality differentials and buyers’ willingness to pay a premium
                                                    for local higher-grade steels than basic export market equivalents. In general, for
                                                    example, European domestic HRC trades some €50/t higher-than-imported material for
                                                    (perceived) quality and service reasons.
                                                  On this basis we derive the global mid-range HRC export price as US$593/t in 2012 and a
                                                  modest recovery to US$617/t in 2013. We expect margins to improve steadily over the
                                                  next few years, in line with improving demand, but margins are still likely to be well below
                                                  2010 levels.
                                                  We then forecast local market HRC prices based on historical differentials versus the
                                                  derived HRC export price. Although our steel price forecasts are lower in 2014 than in
                                                  2013, the actual return to the steel industry (non-integrated producers) should be higher
                                                  given lower raw material prices.

 Exhibit 107: World steel production in 2004-2016
 Mt

                           2004        2005        2006    2007    2008     2009     2010     2011    2012E    2013E   2014E    2015E    2016E
 EU 27                      202         196         207     210     198      139      173      177      170      175     181      185      188
 NAFTA                      131         125         130     131     123       81      110      119      123      127     129      130      130
 China                      280         354         424     493     499      574      624      679      700      740     780      820      860
 India                       33          38          46      53      58       63       68       74       76       80      88       93       98
 Japan                      113         112         116     120     119       88      110      108      109      115     116      116      117
 S Korea                     48          48          49      51      54       49       58       69       68       69      71       72       74
 Taiwan                      19          19          20      21      20       16       20       23       21       22      22       23       24
 Russia                      66          66          71      72      69       60       67       69       70       72      74       76       77
 Ukraine                     39          39          41      43      37       30       33       35       30       32      33       34       36
 Turkey                      20          21          23      26      27       25       29       34       34       35      37       39       41
 Brazil                      33          32          31      34      34       27       33       35       33       35      37       38       39
 ROW                         88          96          90      92      93       61       66       66       66       69      71       73       75
 Global total             1,072       1,144       1,247   1,346   1,329    1,211    1,392    1,487    1,500    1,570   1,639    1,699    1,758
 Growth y/y %               10%          7%          9%      8%     -1%      -9%      15%       7%       1%       5%      4%       4%       4%

 ex-China                   791         791        824     853      830      638     767      808      800      830      859      879        898

 Growth ex-China             6%          0%         4%      4%      -3%     -23%     20%       5%       -1%      4%       3%      2%         2%
 Growth China               27%         26%        20%     16%       1%      15%      9%       9%        3%      6%       5%      5%         5%
 Source: Credit Suisse, World Steel Association




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                    58
                                                                                                              12 October 2012




 Exhibit 108: World HRC price forecasts
 US$/t

                              2005       2006       2007     2008   2009   2010   2011 2012E 2013E 2014E 2015E
         CIS export            444        504        566      858    451    608    675   560   525   514   520

         US                    600        641        585     946    531    665    814    660    625    614      620
         diff                  155        138         19      89     80     58    139    100    100    100      100

         Germany               562        585        666     926    569    691    773    650    600    589      595
         diff                  118         81        100      68    118     83     97     90     75     75       75

         China                 530        490        565    727      528    633    736    640    540    529     535
         diff                 85.6      -13.2       -1.9 -130.7     76.6   25.6   60.4   80.0   15.0   15.0    15.0
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                59
                                                                                                                                            12 October 2012




                                        Bulks
            Commodities Research        Iron Ore – End of an era
                     Andrew Shaw
      andrew.shaw@credit-suisse.com     Three months is a long time under punishing market conditions. However, while
                    +65 6212 4244       considerable uncertainty remains, in our view the events of Q3 have signaled a clear
                    Marcus Garvey
                                        turning point for iron ore and, with it, major revisions to our price forecasts. Further, we
    marcus.garvey@credit-suisse.com     now see ingredients for a more severe shake-up of prices as excessive new supply enters
                  +44 20 7883 4787      the market, especially beyond 2013-2014.
                            Martin Yu      Such a turn sits outside of our base case, which entails dramatic (but finite) cuts in
         martin. yu@credit-suisse.com
                    +44 20 7883 2150
                                           Chinese supply to accommodate rising imports. However, it should be recognized that
                                           the potential for a deep price plunge, albeit temporarily, within the next 3-4 years is now
                   Equity Research         a major risk. A number of the major producers are clearly preparing for it.
                     Paul McTaggart
    paul.mctaggart@credit-suisse.com    Paradoxically, in the near term, we expect prices to remain around $120 on average in Q1,
                    +61 429 328 247
                                        as the restock currently underway is underpinned by a modest improvement in Chinese
                     Matthew Hope       demand and a return to relative stability in Europe. Perversely, however, this rebound
     matthew.hope@credit-suisse.com     could keep in place sufficient expansion momentum to precipitate a fiercer price war later.
                   +61 2 8205 4669
                                        Under these conditions, the clearance of substantial surpluses would necessitate rapid
                                        liquidation of production beyond China’s shores to restore market balances.
                                           At its extreme this could see prices invade deeply into a flattening global supply
                                           cash cost curve, with the risk of prices trading in a range far below current levels
                                           for a short period of time.
                                           In the shorter term, while the potential for a recovery still exists ahead, we now
                                           believe this will be a much more muted affair than at the time of our last forecast.
                                           This softer run-up should hold back sufficient volumes to avoid a calamitous fall in 2013,
                                           but our peak quarterly price projection now lies at a relatively modest US$120/t
                                           CFR China in Q1 2013, supported by the restock. While the market is expected to
                                           tighten, it will not do so to the extent of needing a stronger price signal to maintain
                                           adequate supply.

                                        Exhibit 109: Prices have rebounded over the past week as the restock has
                                        gained traction…
                                        Average days inventory of imported iron ore at sample mills (lhs), US$/t (rhs)


                                        48                                   Avg Stock Days                 TSI Price (rhs)                       200

                                        43                                                                                                        180
                                                                                                       56% restock
                                        38                                                                                                        160
                                                                                                                                   ??% restock,
                                        33                                                                                         35% price      140
                                                                                                                                   increase
                                        28                                                      22% price increase                                120

                                        23                                                                                                        100

                                        18                                                                                                        80
                                         Mar-11           Jun-11         Aug-11         Nov-11          Feb-12           May-12   Aug-12
                                        Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service, MySteel




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                              60
                                                                                                                         12 October 2012



                                        The dramatic change in our outlook is a function of both demand and supply, as well as a
                                        dramatic change in all-important market sentiment. It should be recognized that, unlike
                                        equities (where it is possible to estimate a theoretical value based on likely future dividend
                                        streams), for commodities, multiple equilibriums are possible, with markets often moving
                                        rapidly from a state where the concern is a lack of supply for any given demand level, to
                                        one where overarching discussion is about how all of the supply can be accommodated.

                Weak Atlantic           For iron ore, the catalyst for the change has been weakness on the demand side. While
               economies sap            much of the focus (and the incremental tonnage) remains on China, the straw that broke the
                                        proverbial camel’s back over recent months was actually weakness elsewhere, with the
            global demand for
                                        threat of more tonnes initially destined for Europe being pushed into a weakening Chinese
                    iron ore …          spot market (even if this switch is proportionately small compared to Chinese off-take). With
                                        concerns about the pace of longer-term growth in China building (we now think that growth
                                        over coming years will be at a still healthy, but substantially slower rate), the market was
                                        simply not able to accommodate the “surplus” from a clearly weakening Europe.
                                        In addition to soft demand, supply has continued to surprise to the upside (with the notable
                                        exception of Brazil). In the near term the major producers have been able to squeeze
                                        unexpected efficiencies out of existing production schedules, thereby running consistently
                                        above previous estimates of capacity. In addition, it has become very clear that softer
                                        expected global demand will now easily be met from current expansion plans, with the risk
                                        of large surpluses beginning to emerge within the next 12 months.

                                        China’s growth momentum eludes
               China’s long-            While Europe was the catalyst, one of the key structural reasons for the change in outlook
            awaited recovery            has been a moderation in Chinese steel production, with demand for steel from most of
         has not materialized           the key sectors (construction, infrastructure development, and capital goods) being revised
                                        down over recent months as the rebound has failed to materialize. In each of these major
                                        applications, which account for almost 80% of steel’s use in China, demand growth
                                        persists, but far below the pace of the middle part of the 2000s. As we approach year-end,
                                        the portents do not bode well for an imminent surge in steel demand and hence a sharp
                                        acceleration in month-on-month steel production run rates.
                                           The caveat here is the potential for a restocking phase – initially at the consumer end of
                                           the chain in steel, and at the mill level for iron ore where destocking has run its course.
                                           A sharp destocking phase helped precipitate iron ore’s slide to US$87/t in the first
                                           week of September. Working off of these iron ore stocks has reduced the risks of
                                           deeper price slippage in the next few months, with import volumes stable at about
                                           60 Mt/month and domestic supply under pressure (a mild, opportunistic restock
                                           commenced in late September according to physical traders, and a stronger, seasonal
                                           restock drawn from imports is likely in late Q4 and into Q1).
                                           As we expected in our August report (see Curtain Falls on Era of Windfall Prices),
                                           prices have settled in a trading bracket between US$100/t and $110 and we believe
                                           this is where they will generally stay through Q4.

                                        Iron ore prices are still not low
                                        While a spot price near US$100 feels very low relative to recent history, there has been a
                                        substantial change in the pricing dynamics in the iron ore market, with the spot price only a
                                        very small part of the total market as recently as 2009. Current prices being paid remain
                                        well above the levels seen during the “boom” in early 2008, when Australian miners were
                                        on average receiving about US$80 FOB.
                                           Although the shift to shorter-term index-based pricing is overwhelming fixed pricing in
                                           transactions today, lags in lower prices flowing through to receipts will continue to prop
                                           up expansion plans for longer.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                           61
                                                                                                                                                       12 October 2012




 Exhibit 110: Iron ore prices have averaged close to
 US$80/t in real terms in the past century – the                                     Exhibit 111: Received prices have still been above
 pronounced price boom is probably fading                                            2008’s “peak” levels
 Real 2010 US$ log                                                                   US$/t, Price received by Australian iron ore exporters, last data point – July
                                                                                     2012

 6.1                     price        hptrend         average                         180

                                                                      Overshoot?      160
 5.6                                                                                  140

                                                                                      120
 5.1
                                                                                      100

                                                                            Return     80
 4.6
                                                                            ing to
                                                                             long      60
                                      Stable prices
                                    around long run                           run
 4.1                                                                                   40
                                                              Historical outlier
                                                                                       20
 3.6                                                                                    0
    1885 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005                     2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service                          Source: Credit Suisse, customs data



                                          Supply growth is overwhelming moderated demand
                                          In trend terms, global steel production has grown at 2.2% p.a. in 2007-2012, while
                                          seaborne exports of iron ore continue to grow at a pace of more than 8% p.a. With global
                                          growth momentum weak, and China’s steel demand having moderated, we now believe
                                          that the opportunity for a return to a market in shortfall has diminished.
                                            Importantly, however, we also consider it most unlikely that prices settle anywhere near
                                            the historically low levels seen in the early 2000s, which we feel will prove to be the
                                            historical outlier.
                                          While a moderate bounce has taken place as expected, continued shorter-term stability
                                          will need a substantial reduction in Chinese iron ore production, as well as some recovery
                                          in steel production as the effects of stimuli feed through.
                                          The benefit of the latter has been slow in arriving, but domestic mine supply does appear
                                          to have been reined back, although the price sensitivity of remaining production may
                                          be much lower and we are not convinced Chinese supply will give way readily to
                                          additional import volumes, despite theoretical cost levels.
                                          Fortunately for exporters, other factors and likely seasonal curtailments have also kept
                                          Chinese concentrate supply at bay below peak levels in recent months and may hold
                                          production back through the winter months (see below).
                                          Increases in demand for iron ore outside China, almost the sole growth engine, are likely
                                          to remain modest and well below the pace of expansion earmarked by a broad range of
                                          iron ore miners and developers. It is hard to envisage strong trend growth in the
                                          developed world, or a replacement in the emerging market world for the 2000s’ steel-
                                          consuming juggernaut.
                                          With this in mind, we are now of the view that not all of this planned new supply will
                                          be needed and that many unfinanced projects are under threat. Even those projects
                                          already under way may face financing challenges in the event of a further retreat in prices
                                          – more than a passing possibility.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                            62
                                                                                                                                                     12 October 2012




 Exhibit 112: Global steel production growth has                                Exhibit 113: China’s steel demand, and hence
 “normalized” at lower rates since 2007                                         production, has also moderated
 Mt, monthly, sa, natural log                                                   Mt, monthly, sa, natural log

  12.0                                                                           11.5
                                              Global                                                          China              World Ex-China

                                                                  CAGR = 2.2%
  11.8                                                                           11.0
                                                                                                                      CAGR = 2.5%
                                                                                 10.5
  11.6                                                                                                                                               CAGR = 7.4%
                                         CAGR = 6.9%                             10.0
  11.4                                                                                                                                       CAGR = 21.8%
                                                                                   9.5
  11.2               CAGR = 2.4%
                                                                                   9.0

  11.0
                                                                                   8.5
                                                                                                   CAGR = 8.5%
  10.8                                                                             8.0
         1990    1993     1996         1999    2002      2005   2008   2011              1990   1993      1996        1999      2002       2005   2008    2011
 Source: Credit Suisse, WSA, the BLOOMBERG PROFESSIONAL™ service                Source: Credit Suisse, WSA, the BLOOMBERG PROFESSIONAL™ service




 Exhibit 114: Iron ore supply has outpaced                                      Exhibit 115: Australia has contributed consistently
 moderated steel output                                                         to this persistent growth
 Seaborne iron ore supply proxy, natural log, SA                                Seaborne iron ore supply proxy, natural log, SA

  18.5                                                                           18.0
                                                                                                  Australia           World Ex-Australia
                                                                                                                                           CAGR = 5.7%
                                                                                 17.8
  18.3
                                                                                 17.6
                                                                                                 CAGR = 15.6%
  18.1
                CAGR 01/02-06/08 =                                               17.4

  17.9          15.2%
                                                                                 17.2

  17.7                                                 CAGR 06/08-05/12 =        17.0
                                                       8.0%
                                                                                 16.8
  17.5                                                                                                                 CAGR = 12.2%
                                                                                 16.6
  17.3
                                                                                 16.4

  17.1                                                                           16.2
      2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012                         2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 Source: Credit Suisse, Customs Data                                            Source: Credit Suisse, Customs Data



                                                 “Big Three” will likely dominate supply growth as the years roll by
                                                A major share of required growth in iron ore supply will likely stem from those programs
                                                already in train at BHP Billiton, Rio Tinto, and Vale – potentially these major mining
                                                companies can increase their market share later this decade if other producers are forced
                                                to curtail expansions, although longer-dated capital programs may also be pared back.
                                                The juggling act here is the fact that the expansion profile of these programs already
                                                funded and approved steps up more prominently in the latter part of our forecast time
                                                horizon, as opposed to 2013. Despite considerable growth potential, this gradual phasing
                                                in leaves room for rival volumes to gain traction in the market, at least for a short while.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                       63
                                                                                                                                                                   12 October 2012



              IO supply likely to                 Even allowing for deferral or suspension of some advanced programs, growth in
                run far ahead of                  Australian iron ore exports looks set to rise by about 11% p.a. in 2012-2016, if
                                                  plans continue, representing net growth of about 260 Mt/y by 2016.
           incremental demand
                       for use in                 Brazil’s net production increases by then may also amount to more than 160 Mt/y, and
           steelmaking by 2016                    steadily grow from there.
                                                  The largest three producers are expected to install sufficient capacity to
                                                  overwhelm world incremental iron ore demand (Exhibit 116). Making room for larger
                                                  volume growth depends on displacement of rival supply, including China’s.
                                                  At the global level, iron ore supply available for export is expected to grow by
                                                  about 10% p.a. in the next few years, in comparison to global steel production
                                                  growth of just over 4% p.a. in 2013-2016. Such a mismatch between supply and
                                                  underlying needs is ultimately unsustainable and we believe growth ambitions will be
                                                  drawn back. For this to happen, prices will have to fall, to pull back surpluses; the key
                                                  question is, how far?8.
                                                             As highlighted in Exhibit 117, on our base-line scenario of 4% p.a. global steel
                                                             production growth, we think the major three iron ore mining companies will put in
                                                             place the capacity to supply almost all of the needed incremental iron ore
                                                             demanded by 2014.
                                                             If the modest rebound we anticipate does not eventuate, and steel growth
                                                             continues at the recent 2.2% p.a. global trend, the “Big Three” will provide most
                                                             of the incremental ore needed in 2013 and more than needed in 2014.
                                                             Progressive expansions are set to swamp incremental demand further ahead,
                                                             under our 4% p.a. global steel output case, requiring much greater reductions in
                                                             supply elsewhere if these volumes are to be absorbed by the market.

 Exhibit 117: The “Big Three” can readily supply the                                         Exhibit 118: Continuation of the current global steel
 world’s iron ore needs by 2016                                                              production trend would lead to huge surpluses
 Global steel production at 4.1% p.a.; net of scrap etc. (Mt)                                Global steel production at 2.2% p.a.; net of scrap etc. (Mt)

                                  Base Case                                                                                      2.2% Case
  80       Incremental Iron Ore Demand           Increase in "Big 3" Iron Ore Supply           80       Incremental Iron Ore Demand          Increase in "Big 3" Iron Ore Supply

  70                                                                                           70

  60                                                                                           60

  50                                                                                           50

  40                                                                                           40

  30                                                                                           30

  20                                                                                           20

  10                                                                                           10

   0                                                                                            0
              2013f             2014f                2015f                2016f                            2013f              2014f               2015f               2016f

 Source: Credit Suisse                                                                       Source: Credit Suisse




                                             8   In a supply sector where fixed costs for single-mine entities are relatively high (i.e., low short-run avoidable costs), significant
                                                  "swing supply" may lie in the hands of larger producers with multiple mines, especially as these operators will remain unhedged.
                                                  This market-clearing characteristic was typical of the nickel industry where the largest producer suspended hauling from higher
                                                  cost shafts when demand weakened to reduce costs and preserve profitability. Every mine has its marginal tonne and, under
                                                  conditions of severe oversupply, prices could fall close to the average cost of the major producers for a period of time, prompting
                                                  cuts at higher-cost units within these production bases. Today this is almost US$50-55/t delivered to China. The extent of any
                                                  subsequent rebound would then be determined by the steepness of the higher-cost part of the supply curve, resetting prices
                                                  higher. In this regard, the "stickiness" of Chinese supply is critical.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                         64
                                                                                                                                             12 October 2012



                                             Room for this, and other sources of, additional supply, in either of these scenarios, is only
                                             therefore created by displacement of existing production. Recreating Exhibit 117 but
                                             including total “firmly committed” supply growth, adjusted for what we think are likely
                                             delays or slippage, the potential for the market to move into heavy surplus becomes very
                                             clear (Exhibit 119).

             Our forecasts have              Annual additions to the existing supply base exceed 100 Mt/y each year, throughout our
            factored in a strong             forecasting time frame, with 2016 marking the start of a greater potential phase of mine
                                             supply growth. The gap between this new committed supply and incremental demand
              trim to promoter’s
                                             grows progressively from next year – inevitably prices must fall to displace contestable
                         targets             tonnage elsewhere.       This projection excludes many programs promoters deem
                                             “advanced,” but that we think will not reach fruition.


 Exhibit 119: Plenty of planned supply growth                                  Exhibit 120: Change in IO supply on 2011 level
 Global steel production at 4.1% p.a.; net of scrap etc. (Mt)                  Forecast increase from 2011 level; Mt/y of exports (China – domestic supply)

       Seaborne Supply Growth      Chinese + Seaborne ex-China Demand Growth     400
                                                                                              Australia
 120
                                                                                 300          Brazil
                                                                                              China (Domestic Supply)
 100
                                                                                 200
  80
                                                                                 100

  60                                                                               0

  40                                                                            -100

  20                                                                            -200

   0                                                                            -300
              2013f             2014f              2015f           2016f                    2012          2013          2014         2015          2016

 Source: Credit Suisse                                                         Source: Credit Suisse



                                             India’s exports slip back further
                   India’s supply            Our projections also take into account reduced flows out of India. There appears to be
                 unlikely to come            little real chance of reversing very soon the restriction on mining in India’s western
                     back quickly            provinces (the traditional source of most exports) or quickly removing barriers to new mine
                                             development in the prospective eastern states.
                                             Despite press speculation of reduced export taxes (unlikely in our opinion), paving the way
                                             for bolstered shipments of (low grade) stockpiled fines, we are forecasting exports of no
                                             more than 45 Mt/y in 2013-2015. Should conditions improve, local steelmakers are
                                             expected to mop up greater volumes before exporters. Shortages of lump ore, vital for
                                             many of India’s steelmakers, are prompting moderate imports.

                                             The implications of broader expansion seem clear
               In the longer term            Supply abundance is likely to cap price rises even when China’s recovery gathers greater
               growth in demand              speed beyond 2012. As we approach the 2020s we will see further moderation of China’s
              for iron ore should            steel demand growth, as well as a steady rise in the rate of recycling of scrapped steel,
                              stall          pinching out the demand for virgin iron units. In other words, the best years for iron ore
                                             pricing appear to be behind us.
                                             Of course, cycles will persist, but the mean about which shorter run prices move is now
                                             harder to see, and depends on time horizons. We have not changed our long-run real
                                             price forecast of US$90/t (CFR China), but the ability of the major players to grow
                                             production volumes incrementally in the next few years (leveraging sunk infrastructure
                                             costs) raises questions about the need for very costly – and now more risky – new supply
                                             dependent on large capital expenditure on port and rail facilities.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                    65
                                                                                                                                                  12 October 2012



                                        Marginal Chinese supply is falling away; the rest could be “stickier”
                                        There is another feature that has moderated our outlook for iron ore prices – the resiliance
                                        of China’s domestic supply. Prices are now sufficiently low to prompt deeper supply cuts
                                        among China’s mines and concentrators, although others remain profitable or, as we have
                                        indicated previously, are supported by other factors.

                 Some Chinese           For example, 66% Fe concentrate was trading (spot) in Tangshan at close to RMB1,000/t
                       supply is        (US$156/t) at the end of September, a noticeable premium to imported ore, even
                                        equilibrating for transport costs, iron content, and other value-in-use factors. This may not
                 “strategically”
                                        be representative of broader pricing, but reflects that, for a variety of reasons, local mills
                 important and          are willing to pay a premium for domestic feed. The progressive displacement of Chinese
                    attracting a        higher-cost supply is a core element in our modeling, but this assumption too is not without
                       premium          its risks. Chinese mines are not all simple swing suppliers.
                                        According to China’s Metallurgical Mines Association (CMMA), plans are in motion to
                                        replace higher-cost production with larger (by China’s standards) mines. In other words,
                                        as mines are depleted or closed due to cost pressures, others may in part take their place,
                                        although the extent to which this occurs is difficult to predict. However, with about 25% of
                                        supply essentially captive to mills (a proportion that is growing), the price elasticity of
                                        supply in the portion of the cost curve below current price levels is clearly much reduced.

                                        Exhibit 121: Short-run marginal costs of supply are setting prices, but not all
                                        China’s mines are sensitive to price movements
                                        China iron ore production costs – US$/t at 62% Fe equivalent (left scale); percentage cumulative supply (lower scale)

                                                US$/t delivered to mill


                                                                                                 Peak production @ approx. 415 Mt/y



                                                                               Forecast 2012 domestic demand (340 Mt)


              42% of China’s
              mines are loss-
             making at prices
             below US$100/t,
          according to CMMA
                                                                                           Cumulative Supply (%)
                                        Source: Credit Suisse estimates, CMMA, Steelease



                                        Here we highlight that there is no single level at which cost support emerges. Not all
                                        mines have the same cost structure and prices are set by the changing dynamics of both
                                        supply and demand; immediate responses from suppliers are rarely achievable given the
                                        levels of fixed costs and other considerations in the very short term. Equally, as markets
                                        weaken, costs also eventually fall back.
                                        As we show in Exhibit 121, we estimate the median cost of iron ore concentrate production
                                        in China is now above RMB600/t, equating to just under US$100/t at today’s exchange
                                        rates. According to cost surveys undertaken by local consultant, Steelease, average costs
                                        of production at mines in Hebei, China’s main producing region, have risen from RMB523/t
                                        in 2010 to RMB630/t in the first half of 2012 and similar patterns apply to neighboring iron-
                                        ore-producing regions, although “average” costs mask a wide spread.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                      66
                                                                                                                                                                    12 October 2012



                                            However, there are still considerable volumes with cost structures below today’s prices.
                                            Also, not all those mines with costs above current price levels will cut back immediately in
                                            response to theoretical losses. Decisions to lay off workers are not always straightforward.
                                            From a strategic point of view, China has an incentive in preserving some domestic supply,
                                            as well as offshore ventures, and this is laid out in the 12th 5-Year Plan9.
                                            At the global level, prices would need to fall back further to prompt major reductions in
                                            supply outside China. Cash operating costs of supply from the main Australian and
                                            Brazilian operations are less than US$55/t (CFR China) 10 .Nevertheless, cuts have
                                            deepened over the summer months in China, mainly at small and medium-sized private,
                                            “township village enterprises” (TVEs). Exhibit 122 indicates that operating rates in the four
                                            major producing provinces of northern China have fallen below 60%. However, there are
                                            other factors behind these closures.
                                                 Heavy rainfall associated with tropical storms has badly affected northeast China,
                                                 hampering mining operations and trucking activity.
                                                 Restrictions on the use of explosives have intensified as we approach the November
                                                 Party Congress (in a similar move to the Beijing Olympic Games in 2008).
                                                 Although operating rates are beginning to recover at mines and plants hit by bad
                                                 weather, the slide in prices and the lack of explosives are likely to see operating rates
                                                 held back well into Q4 and possibly through Q1 of next year when seasonal stoppages
                                                 reach their peak.
                                            A monthly production run rate of just below 59 Mt of crude steel points to monthly demand
                                            for iron ore of about 87 Mt, at an equivalent grade of 62% Fe and allowing for use of scrap
                                            (mainly through EAF production). Monthly imports look to have stabilized at about 60 Mt
                                            in 2012, implying a reliance of close to 30 Mt/month from domestic sources and what can
                                            be drawn from stockpiles, in the remainder of 2012 and into 2013.


 Exhibit 123: Operating rates at concentrators in                                            Exhibit 124: Steel mills’ stocks of iron ore have
 northeast China have fallen below 60%                                                       declined – domestic volumes are depleted
 Operating rates at surveyed plants (%)                                                      Chinese mills’ inventories by source (kt)

  90
                                                                                              700
                                                                                                        Imported Stocks        Domestic Stocks
                                                                                              650
  80
                                                                                              600

  70                                                                                          550
                                                                                              500
  60                                                                                          450
                                                                                              400
  50
                                                                                              350
                                                                                              300
  40
                                                                                              250

  30                                                                                          200
       Jul-11             Oct-11          Jan-12              Apr-12              Jul-12        Mar-11            Jul-11         Oct-11         Feb-12          Jun-12
 Source: Steelease, Credit Suisse                                                            Source: Credit Suisse, Mysteel




                                            9   Almost US$20 billion was spent in 2011 alone on iron ore mine development in China. For example, CMMA cites 66 "large and
                                                 medium" mines (by China standards) under construction or planning, entailing expenditure of US$40 billion. CISA also
                                                 commented last month that 16 key mines were approved in the last 5Y Plan, with new ones also getting approval in the current
                                                 Plan. CISA's statement points to 30 Mt/y of new capacity in 2013 and 80 Mt/y by 2016, defined in concentrate terms.
                                            10   There are a number of service providers constructing cost curves for iron ore, but there are pitfalls in the value of these analytical
                                                 tools for a number of reasons: Firstly, prices of iron ore products vary, and supply curves often ignore the effect of price
                                                 differentials (e.g., for pellets and lump). Secondly, costs vary over time, as do prices - input costs, for example for consumables
                                                 and labor, change with demand, as do exchange rates and other factors, albeit with lags.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                          67
                                                                                                                                                12 October 2012




 Exhibit 125: China’s IO imports at around 60 Mt/m                                Exhibit 126: … Displacing domestic concentrate
 Mt, monthly sa                                                                   Share of domestic iron ore in sinter feed (%)

  70                                                                              50
                                                                                                2011          2012
                                                                                  45
  60
                                                                                  40
  50                                                                              35

  40                                                                              30
                                                                                  25
  30
                                                                                  20
  20                                                                              15
                                                                                  10
  10
                                                                                   5
   0                                                                               0
    2005       2006      2007      2008         2009      2010     2011    2012        Jan           Mar           May              Jul   Sep    Nov

 Source: Credit Suisse, Customs data                                              Source: Mysteel – 55 mill survey, Credit Suisse




 Exhibit 127: Iron ore stocks at port – slowly falling                            Exhibit 128: Domestic concentrate at a premium
 Weeks of import cover                                                            RMB/t, Hebei province

  8.5


  8.0


  7.5


  7.0


  6.5


  6.0


  5.5


  5.0
     2006       2007        2008       2009            2010      2011     2012

 Source: Credit Suisse, Mysteel, Customs Data                                     Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service



                Operating rates                  This signals room for rising imports, up to a point, without collapsing prices back
             have fallen sharply                 again, and an advance in prices as restocking takes stronger hold. However, these
             in northeast China                  imports will have to displace further domestic supplies and higher-cost exporters.
                                                 Destocking cycle a strong influence
                                                 This continued proportional reliance on imports, once the destocking phase has ended,
                                                 depends on maintaining a production run rate close to 700 Mt/y in September-December.
                                                 While spot market prices would suggest that supply is more than sufficient to meet current
                                                 levels of demand, destocking of iron ore at mills (and a gradual accumulation of finished
                                                 steel stocks held at plants) clearly played a strong hand in allowing mills to defer fresh
              Restocking phase                   purchases, contributing to the aggressive driving down of spot prices in August and
              for iron ore could                 September.
               support prices in                 The converse should be true when destocking has run its course, which we believe is the
                the shorter term                 case for Q4. Stocks of domestic concentrate are largely depleted. Steelease surveys at
                                                 48 beneficiation plants in northeast China point to ore stocks declining to almost one-third
                                                 of their May levels, sufficient for just three days’ production. Concentrate supplies to mills
                                                 are now very tight, partly explaining the price premium over imports.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                  68
                                                                                                                                                                          12 October 2012



                                                  Local concentrate supply has therefore contracted and, with blast furnace operators
                                                  reluctant to switch blends quickly, competition for local material has intensified. To a
                                                  degree, mills are also prepared to subsidize local operations to keep options open for the
                                                  future – it is this strategic consideration which will continue to influence the broader market
                                                  – but the elements could fall into place for a modest run up in prices as we enter the New
                                                  Year. Unless, of course, the macro news continues to be disappointing.
                                                  A steady ebbing of spot prices from a quarterly peak average of US$120/t in Q1 2013
                                                  seems likely, providing an opportunity to take out fresh insurance against the risk of major
                                                  storm damage further ahead.

 Exhibit 129: Iron ore forward and CS forecasts                                            Exhibit 130: Iron ore historical price and forecast
 US$/t                                                                                     US$/t

  $125                   Credit Suisse Forecast    CS Forward Curve                         $210              Iron Ore (62% Fe CFR Tianjin spot)           Quarterly avg forecasts


                                                                                            $190
  $120

                                                                                            $170
  $115
                                                                                            $150
  $110
                                                                                            $130
  $105
                                                                                            $110
  $100
                                                                                                $90

   $95                                                                                          $70

   $90                                                                                          $50
            Q4 12        Q1 13         Q2 13         Q3 13        Q4 13         Q1 14              2009          2010              2011             2012              2013

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




 Exhibit 131: Forecast iron ore prices
 Units as indicated below, long-term prices based on 2011 real prices

                                                      2011    1Q-12    2Q-12     3Q-12 4Q-12f         2012 1Q-13f 2Q-13f 3Q-13f 4Q-13f               2013f       2014f       2015     LT
 Iron ore fines – 62% (China CFR) US$/t, dry           168       142      140      112    110         126     120       115        110        100      111           95         90    90
       Iron ore fines - (China CFR) US$/dmtu           271       229      225      181    177         203     194       185        177        161      179          153        145   145
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                            69
                                                                                                                     12 October 2012




 Exhibit 132: Global iron ore supply/demand estimates and forecasts
 In millions of tonnes unless otherwise specified

                                              2008            2009     2010     2011    2012e    2013f    2014f    2015f

          Global Crude Steel Output           1329            1232     1417     1487     1500    1570     1639     1699

          Total Chinese Demand               750.8            860.0    932.9   1037.2   1062.6   1123.3   1184.0   1244.8
          % Change                           1.2%            14.6%     8.5%    11.2%     2.4%    5.7%      5.4%     5.1%
          Domestic Production (62%)          414.4            348.5    305.9   410.0     342.9   326.5     284.2    249.5
          % Change                            4.1%           -15.9%   -12.2%   34.0%    -16.4%   -4.8%    -12.9%   -12.2%
          Iron Ore Inventories at Port        60.0             65.9     71.6    98.1      93.3    98.7     104.0    109.3
          % Change                           20.6%            9.9%     8.6%    37.0%    -4.8%    5.7%      5.4%     5.1%

          Imports                             2008            2009     2010     2011     2012    2013     2014     2015

          China                              444.1           628.3     619.1   687.0    714.9    802.2    905.1    1000.6
          % change                           15.8%           41.5%    -1.5%    11.0%    4.1%     12.2%    12.8%    10.5%

          Japan                               140.4           105.5   134.3     128.5    133.5   140.8    142.0    142.0
          % change                            1.1%           -24.9%   27.3%    -4.3%     3.9%    5.5%     0.9%     0.0%
          South Korea                          49.5            42.1    56.3      64.9     64.2    65.1     67.0     68.0
          % change                            7.3%           -15.1%   33.8%    15.2%    -1.0%    1.5%     2.9%     1.4%
          Taiwan                               15.6            11.9    18.9      20.5     19.0    19.9     20.8     20.8
          % change                           -2.9%           -23.5%   58.9%    8.3%     -7.3%    4.8%     4.5%     0.0%

          EU 27                               151.9            80.1   120.7     116.0   118.1    121.6    125.8    128.5
          % change                            0.0%           -47.3%   50.7%    -3.9%    1.8%     2.9%     3.4%     2.2%

          World ex-China                     405.8            306.2   416.3    413.9    412.3    427.8    438.2    443.3
          % change                           11.0%           -24.5%   35.9%    -0.6%    -0.4%    3.8%     2.4%     1.1%

          World                              850.0           934.6    1035.3   1100.9   1127.2   1230.0   1343.4   1443.9
          % change                           13.4%           10.0%    10.8%    6.3%     2.4%     9.1%     9.2%     7.5%

          Exports                             2008            2009     2010     2011     2012    2013     2014     2015

          Australia                          309.5           362.9    401.9    438.8    487.9    548.2    617.8    671.7
          % change                           16.0%           17.3%    10.7%    9.2%     11.2%    12.4%    12.7%    8.7%

          Brazil                              281.7          266.0    310.9    330.8    330.7    351.5    395.9    446.9
          % change                            4.5%           -5.6%    16.9%    6.4%     0.0%     6.3%     12.7%    12.9%

          India                              101.2           119.4     107.5     81.4     45.0    45.0     45.0     45.0
          % change                           14.5%           18.0%    -10.0%   -24.3%   -44.7%   0.0%     0.0%     0.0%

          Other LatAm                          18.6           18.8     24.5     26.2     25.0     30.0     32.0     32.0
          % change                              -            1.2%     30.1%    7.1%     -4.6%    20.0%    6.7%     0.0%

          South Africa                        31.6             44.6     48.0     53.3    57.1     60.2     61.2     61.2
          % change                           4.1%             41.0%    7.7%     11.2%   7.0%     5.5%     1.7%     0.0%
          Other Africa                        2.8              6.3      4.4      13.6    21.7     37.1     43.9     51.4
          % change                           49.1%           124.5%   -29.3%   206.4%   59.6%    71.0%    18.3%    17.1%

          North America                       24.5            28.8     30.0     34.0     36.0     36.8     33.2     30.3
          % change                           -1.4%           17.7%    4.2%     13.0%    6.0%     2.2%     -9.7%    -8.8%

          EU27                                 6.5            7.0      8.7      8.8      8.9      11.0     11.4     11.8
          % change                            5.2%           7.4%     24.3%    1.1%     1.7%     22.7%    3.7%     3.6%

          RUK                                  60.0           62.5    67.0      73.0    73.6     77.9     80.2     82.0
          % change                            -2.2%           4.2%    7.1%      9.0%    0.8%     5.8%     2.9%     2.3%

          Other                                13.6           18.1     32.4     40.9     44.3     46.8     49.8     49.8
          % change                            0.0%           33.2%    78.7%    26.1%    8.2%     5.6%     6.4%     0.0%

          World                              850.0           934.6    1035.3   1100.9   1130.2   1244.4   1370.3   1482.0
          % change                           13.4%           10.0%    10.8%    6.3%     2.7%     10.1%    10.1%    8.2%
          Notional Surplus                                                               2.93    14.35    26.95    38.12
          With 10% Slippage                                                             1127.2   1230.0   1343.4   1443.9
 Source: Credit Suisse, Customs Data, Company Reports, WSA




Commodity Forecasts: The Best of Times, The Worst of Times                                                                       70
                                                                                                                                    12 October 2012




                                          Metallurgical Coal – Fault lines widen
                                          Pricing settlements see sharp reduction
                      Equity Research
                        Paul McTaggart    In September, metallurgical coal prices for Q4 2012 delivery were settled by BHP Billiton
       Paul.mctaggart@credit-suisse.com   and Nippon Steel. While BHPB/BMA had been happy to let others take the lead in price
                      +61 2 8205 4698
                                          negotiations in the last two years, this settlement saw the biggest producer and the biggest
                        James Redfern     consumer set the coking coal benchmarks.
        james.redfern@credit-suisse.com
                       +61 2 8205 4779    According to McCloskey, hard coking coal (HCC) was settled at US$170/t for premium
                                          Peak Downs brand (US$165/t for Goonyella) – down 24% on the US$225/t settled last
               Commodities Research
                                          quarter by Anglo American and POSCO. Reportedly, Anglo American had started
                       Andrew Shaw
        andrew.shaw@credit-suisse.com     discussions at $190/t but had been unable to settle prior to BHPB/Nippon. The
                      +65 6212 4244       settlements compare with a current spot FOB price of US$142/t for Peak Downs, so no
                                          doubt BHPB was keen to lock in pricing at what looks to be a reasonable level with respect
                       Marcus Garvey
       marcus.garvey@credit-suisse.com    to spot pricing. Gregory brand BMA coal was settled at US$145-146/t down from $190/t.
                     +44 20 7883 4787
                                          Semi-hard coking coal (SHCC) pricing has not been finalized, but it is worth noting that
                                          last quarter Dawson brand semi-hard was settled at US$175/t, or 77.8% of the HCC price.
                                          On this same pricing ratio, semi-hard would be at US$132/t. Early reports suggest Anglo
                                          has settled Dawson at just under $140/t for Q4. Certainly BHPB’s Gregory settlement will
                                          provide a ceiling for SHCC, and we look for a settlement near US$138/t for Q4 2012.
                                          Anglo has reportedly settled ultra-low volatility PCI (Foxleigh) at US$125/t (73.5% of
                                          HCC and down 22.8%) compared with US$162 for Q3 2012 (72% of HCC). McCloskey
                                          states that producers pushed for prices above US$130/t. PCI coal remains under
                                          pressure with spot prices at US$105/t and with substantial tonnage being sold in this
                                          market. McCloskey reports that recent deals into China have seen prices ranging from
                                          US$90-105/t on an FOB netback basis.
                                          Semi-soft coking coal (SCCC) contract settlements have begun, with both Xstrata and
                                          Rio Tinto settling with Asian steel mills at US$117/t for six-month deliveries beginning in
                                          October 2012. This represents a $30/t reduction (20%) on the previous six-month price to
                                          end-September and a ratio of 69% of the HCC price compared with 70% previously. Many
                                          would regard this as a pretty reasonable outcome given that Anglo’s lower quality PCI
                                          brand Capricorn looks to have been settled at about US$110/t (representing 65% of the
                                          HCC price).

 Exhibit 133: Australian metallurgical coal exports                      Exhibit 134: US metallurgical coal exports
 Mt, monthly, sa                                                         Mt, monthly, sa

 16                                                                       7
 14                                                                       6
 12
                                                                          5
 10
                                                                          4
   8
                                                                          3
   6
                                                                          2
   4
   2                                                                      1

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

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                      71
                                                                                                                       12 October 2012



                                        Australian supply constraints persist, US exports up ... but global
                                        volumes being cut
                                        As we noted in the last quarterly, industrial action at BMA has been impacting exports of
                                        Australian met coal and things have not greatly improved. Australian exports of met coal
                                        have been running at a rate of roughly 140 Mt/y compared to a H1 2010 rate of 170 Mt/y.
                                        Exports returned to normal levels in February 2012, but subsequent industrial action has
                                        limited output.
                                        Conversely, US met coal exports have expanded and have been running at near to 80
                                        Mt/y in the last two months – a doubling of the pre-financial crisis levels. July seaborne
                                        exports of US coking coal were 5.7 Mt, up 32% on July last year. In the seven months to
                                        end-July, seaborne exports were 40 Mt – an annualized 68 Mt and up 11% year to date.

                                        Production cuts announced, oversupply continues for now
                                        Lower prices are certainly having an impact, as BMA (BHPB) has announced the closure
                                        of the Gregory open cut and Norwich Park mines which together add to about 4 Mt/y of
                                        production. Rio Tinto, Xstrata, and Anglo American have also announced they are
                                        reducing staff (mostly contractors) across their Australian coal operations but no tonnage
                                        cuts as yet.
                                        In the US, Alpha Natural Resources has announced aggregate production cuts of
                                        20 million short tons (20%). The latest 16 Mst/y in cuts follows on from an earlier
                                        announced 4 Mst/y. The majority of this is thermal coal, with 1.6 Mst/y being met coal cuts
                                        from lower-quality mines (high volatiles met coal). Peabody has reaffirmed that its Codrilla
                                        (Queensland, 2-3 Mt/y, PCI) mine will be deferred.
                                        Although Q4 2012 prices may have been agreed with Asian steel mills, in reality there is
                                        significant price discounting being seen in the market, and the European steel mills are yet
                                        to agree pricing. McCloskey reports that BHPB is discussing FOB price levels as low as
                                        US$155/t FOB for monthly price deliveries of Peak Downs product; $15/t or 9% below the
                                        quarterly contract level. China is also reported to have been buying spot volumes at a
                                        discount of up to $30/t on the benchmark, with BHPB said to have placed significant
                                        tonnage into this market.

                                        Chinese imports of met coal have weakened further but are likely to lift,
                                        given current prices
                                        With Chinese steel production rates moderating, imports have fallen further. For the eight
                                        months to the end of August, China’s imports of coking coal were 35.2 Mt, up 33% year on
                                        year for an annualized 53 Mt. However, imports in August were just 2.6 Mt, an annualized
                                        rate of 31 Mt.
                                        China’s imports of Mongolian met coal have also fallen sharply. In January China
                                        imported 3.1Mt of Mongolian met coal but, by July, this had fallen to 1.4 Mt.
                                        The price of premium Shanxi met coal has fallen to US$181/t from US$252/t in June 2012
                                        and the key suppliers such as BHPB look to have been willing to match domestic prices in
                                        order to shift tonnes.
                                        While China imports have weakened, met coal imports into traditional markets like Europe
                                        and Japan have stabilized. Year to date, the EU27 has imported 20.6 Mt of coking coal,
                                        down 6% on last year. Year to date, Japan has imported 27.2 Mt of coking coal, also down
                                        6% on last year.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                         72
                                                                                                                                      12 October 2012




 Exhibit 135: Chinese metallurgical coal imports                         Exhibit 136: Chinese imports of Mongolian met coal
 Mt, monthly, sa                                                         Mt, monthly, sa

 8                                                                        3.5
 7                                                                        3.0
 6
                                                                          2.5
 5
                                                                          2.0
 4
                                                                          1.5
 3
                                                                          1.0
 2
 1                                                                        0.5

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

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




 Exhibit 137: EU27 metallurgical coal imports                            Exhibit 138: Japanese metallurgical coal imports
 Mt, monthly, sa                                                         Mt, monthly, sa

  6                                                                       7

  5                                                                       6

                                                                          5
  4
                                                                          4
  3
                                                                          3
  2
                                                                          2
  1                                                                       1

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

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




                                          China price arbitrage remains broadly constant
                                          Export prices continue to be priced at a modest discount to China’s domestic coking coal
                                          prices based on spot prices. Last quarter we wrote that in H2 2012 the risk would be that
                                          moderating Chinese steel production would encourage China’s steelmakers to substitute a
                                          portion of higher-quality Australian coking coal.
                                          This scenario certainly seems to have played out, with key Australian met coal producers
                                          needing to offer substantial discounts to the contract prices to increase import penetration
                                          into China. We expect that in the current quarter, China’s coking imports will be materially
                                          higher than in the previous quarter.

                                          Cutting back our supply estimates on lower prices
                                          With our global steel production forecasts trimmed, our import demand has moderated
                                          over the forecast period. While import demand for 2012 is unchanged at 3% (to 279 Mt,
                                          we had been expecting 2013 to be a year of robust demand growth at about 8% with
                                          China an important factor. We now assume an “ordinary” 3.5% of demand growth in 2013
                                          with China imports flat. 2014 and 2015 are expected to be improved as China looks to lift
                                          imports again with demand growth lifting to 6%-7%.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                        73
                                                                                                                                                                                                        12 October 2012




                                              Exhibit 139: China arbitrage for metallurgical coal
                                              US$/t

                                                        500
                                                        450
                                                        400
                                                        350
                                                        300



                                                US$/t
                                                        250
                                                        200
                                                        150
                                                        100
                                                         50
                                                           0

                                                                        Jul-05




                                                                                           Jul-06




                                                                                                                   Jul-07




                                                                                                                                      Jul-08




                                                                                                                                                          Jul-09




                                                                                                                                                                            Jul-10




                                                                                                                                                                                               Jul-11




                                                                                                                                                                                                                     Jul-12
                                                               Jan-05




                                                                                  Jan-06




                                                                                                      Jan-07




                                                                                                                             Jan-08




                                                                                                                                               Jan-09




                                                                                                                                                                   Jan-10




                                                                                                                                                                                      Jan-11




                                                                                                                                                                                                          Jan-12
                                                                                                    Australia (FOB)                                     China Domestic (ex. VAT)


                                              Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




 Exhibit 140: Major contributors to seaborne demand                                                   Exhibit 141: Major contributors to seaborne supply
 Mt, Monthly, SA                                                                                      Mt, Monthly, SA

  14                            India        RoW        China                                              30                                             Australia                  RoW

  12
                                                                                                           20
  10
    8                                                                                                      10
    6
                                                                                                               0
    4
    2                                                                                                    -10
    0
                                                                                                         -20
   -2
   -4                                                                                                    -30
            2011            2012           2013           2014                   2015                                       2011               2012                 2013                 2014                      2015

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



                                              Of course, lower demand growth would mean significant oversupply without a
                                              corresponding reduction in supply, and lower price forecasts make this inevitable. The
                                              combination of current spot Australian dollar and US dollar coal prices will render many
                                              Australian projects either uneconomic or unable to attract funding. We also know that
                                              many high cost US met coal producers are already under pressure.
                                              We have pulled back both Australian and US export growth estimates.
                                                 We expect North American coking coal exports to decline from an anticipated 94 Mt in
                                                 2012 to about 88 Mt as production cuts take effect. With prices expected to remain
                                                 below US$200/t over our forecast period, we expect US exports to remain below the 90
                                                 Mt/y level.
                                                 In 2010, Australian coking coal exports totaled 159 Mt and we had expected to reach
                                                 this plus an additional 10 Mt in 2013, building to 207 Mt/y in 2015. Announced
                                                 production cuts suggest Australia production can do no better than 158 Mt in 2013 with
                                                 risks to the downside. Looking to 2015, we are still assuming production growth to
                                                 189 Mt – and even that might prove to be too optimistic if the Australian dollar remains at
                                                 elevated levels.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                    74
                                                                                                                                                                         12 October 2012



                                                Our revised forecasts envisage a continuation of modest met coal surpluses – 14 Mt this
                                                year and building to 27 Mt in 2015.

                                                Reducing price forecasts
                                                In the lead up to the last commodity quarterly, it was not apparent that global growth would
                                                fall short of the expectations that we and others had built. With reduced growth forecasts,
                                                HCC prices are not (without supply-side interventions) expected to match our previous
                                                US$200/t expectations.
                                                   We expect HCC prices to remain near the US$170/t level until H2 CY 2013, at which
                                                   point improved demand should see prices back towards the US$180-190/t level. If the
                                                   Australian dollar moves back towards the mid US90c range (as expected) this will be
                                                   sufficient to improve the economics for met coal expansion projects. If it does not, then
                                                   the economics of many Australian projects will continue to be challenged.
                                                   Our long-run HCC price forecast is unchanged at US$170/t. We have adjusted our
                                                   assumed long-run SSCC and PCI prices to US$125/t and US$130/t, respectively, from
                                                   US$132/t and US$134/t.


 Exhibit 142: Metallurgical coal forecast comparison                                          Exhibit 143: Met coal historical price and forecast
 US$/t                                                                                        US$/t

  $190                                                                                         $450                  Hard coking coal spot               Quarterly avg forecasts
                     Hard coking coal           Semi soft coal           PCI coal
  $180
                                                                                               $400
  $170
                                                                                               $350
  $160
                                                                                               $300
  $150
                                                                                               $250
  $140
                                                                                               $200
  $130
                                                                                               $150
  $120

  $110                                                                                         $100


  $100                                                                                             $50
             Q4 12         Q1 13        Q2 13        Q3 13          Q4 13         Q1 14               2005   2006    2007      2008      2009     2010    2011     2012     2013

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




 Exhibit 144: Forecast metallurgical coal contract prices, FOB Australia
 Units as indicated below, long-term prices based on 2011 real prices

                                                      2011       1Q-12   2Q-12      3Q-12 4Q-12f      2012 1Q-13f 2Q-13f 3Q-13f 4Q-13f                2013f      2014f    2015f      LT
                     Hard coking coal      US$/t       289         235      210      225     170       210     170       170       175          175      173      183       190     170
                       Semi soft coal      US$/t       212         157      141      141     117       139     119       119       123          123      121      128       133     125
                            PCI coal       US$/t       223         172      153      164     125       154     125       125       128          128      127      133       139     130
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           75
                                                                                                                                   12 October 2012




 Exhibit 145: Global metallurgical coal supply and demand estimates
 Mt, Surpluses or deficits show market capacity but actual imports/exports should balance at the time

 Importing Country                     2008              2009         2010            2011              2012e    2013f    2014f      2015f
 China                                  6.9             34.5          47.3            44.7              49.1     49.2      57.1      70.0
 % change                             10.2%            403.0%        37.0%           -5.5%              9.9%     0.2%     16.1%     22.6%
 India                                 26.7              28.8         35.1            33.1              35.7     37.6      41.4      43.7
 % change                             16.8%              7.7%        21.9%           -5.8%              8.1%     5.3%     10.0%      5.7%
 JKT                                   79.4              63.9         81.2            80.6              83.2     86.9     88.0       88.7
 % change                             -0.2%            -19.5%        27.2%           -0.7%              3.2%     4.4%     1.3%       0.9%
 EU 27                                 48.9              30.7         40.5            39.1               38.7    39.8     41.2       42.1
 % change                             -1.3%            -37.1%        31.9%           -3.5%              -1.1%    2.9%     3.4%       2.2%
 Turkey                                 5.7              3.4           4.4             4.1                4.6     4.7      5.0        5.2
 % change                             39.9%            -41.6%        30.9%           -7.6%              12.7%    2.9%     5.7%       5.4%
 North America                          6.8              4.2           5.9            6.5                 6.0     6.0      6.1        6.1
 % change                              0.4%            -39.0%        42.7%           9.2%               -7.6%    0.8%     0.4%       0.2%
 Brazil                                12.1              11.3        12.4             12.1              12.5     13.3     14.0       14.4
 % change                             12.5%             -6.4%        9.3%            -2.5%              3.6%     6.1%     5.7%       2.7%
 Chile                                 0.9               0.7           0.5            1.1                1.2       1.5      1.7       1.9
 % change                            -10.9%            -28.1%        -22.8%         116.3%              8.7%     25.0%    13.3%     11.8%
 RoW                                   38.3              34.7         48.9           50.0                48.4    50.2     53.8       58.4
 % Change                              2.3%             -9.4%        41.0%           2.3%               -3.2%    3.7%     7.1%       8.6%
 World                                 225.7            212.1         276.2           271.2             279.4    289.2    308.1      330.6
 % change                                               -6.0%        30.3%           -1.8%              3.0%     3.5%     6.6%       7.3%
 Exporting Country                     2008              2009         2010            2011              2012e    2013f    2014f      2015f
 Indonesia                             1.4               1.0           3.2            4.5                 6.3     6.7      7.2        7.8
 % change                            -15.4%            -27.2%        217.3%         41.6%               39.1%    6.4%     8.0%       7.5%
 Australia                            134.8              135.0        159.0          133.0              146.0    157.9     174.1     188.7
 % change                             -2.5%              0.2%        17.7%          -16.3%              9.8%     8.1%     10.3%      8.4%
 Russia                                13.6              13.2         18.2            14.2              15.4     16.6     17.7       19.0
 % change                              2.4%             -2.9%        37.4%          -22.0%              9.0%     7.1%     7.1%      12.8%
 South Africa                           2.3              1.9           2.2            2.5                2.5      2.5      2.5        2.5
 % change                             -5.6%            -15.4%        16.0%          13.3%               0.0%     0.0%     0.0%       0.0%
 Mozambique                               -                 -           -              1.6                3.1      4.8     10.3      18.3
 % change                                 -                 -           -               -               90.8%    55.6%    114.3%    76.5%
 Colombia                               1.0               1.0         1.0             1.0                1.0       1.5      2.0       2.0
 % change                              0.0%              0.0%        0.0%            0.0%               0.0%     50.0%    33.3%      0.0%
 North America                         65.6              55.3         76.5           90.7               94.0      88.0     86.0      88.0
 % change                             17.0%            -15.7%        38.4%          18.6%               3.6%     -6.4%    -2.3%      2.3%
 China                                  3.5              0.6           1.1            3.6                 2.0      1.0     1.0        1.0
 % change                             35.9%            -81.6%        79.1%          215.5%              -44.4%   -50.0%   0.0%       0.0%
 Mongolia                               3.6               4.0         15.0           20.0                23.0    25.0     27.0       30.0
 % change                             16.5%              9.5%        278.1%         33.2%               14.8%    8.7%     8.0%      11.1%
 World                                 225.7             212.1        276.2           271.2             293.4    303.9    327.9      357.2
 % change                              3.4%             -6.0%        30.3%           -1.8%              8.2%     3.6%     7.9%       8.9%
 Surplus / Deficit                        -                 -           -               -               14.0     14.8     19.8       26.6
 As a % of exports                        -                 -           -               -               4.8%     4.9%     6.0%       7.4%
 Source: Credit Suisse, World Steel, Customs Data, Company Reports




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                     76
                                                                                                                                       12 October 2012




                                        Thermal Coal – A dim and distant light
             Commodities Research       Production cuts insufficient to yet balance the market
                     Marcus Garvey
     marcus.garvey@credit-suisse.com    Thermal coal markets should continue their lackluster performance for the remainder of
                   +44 20 7883 4787     2012 and into 2013. The combination of fairly robust demand and improved supply
                                        discipline has created some light at the end of the tunnel but, for now, it is merely a dim
                     Andrew Shaw
      andrew.shaw@credit-suisse.com     and distant glow.
                    +65 6212 4244
                                        In line with our previous forecast update (see – The Danger Zone), the physical thermal
                                        market has spent the last three months trapped in a depressed state, with paper
                   Equity Research
                     Paul McTaggart     consequently treading a range-bound path (Exhibits 146 and 147).
    Paul.mctaggart@credit-suisse.com
                   +61 2 8205 4698      We expect further supply cuts and project deferrals/cancellations to emerge over the
                                        coming months. The speed at which these play out will be a key determinant in the length
                      James Redfern
                                        of time it takes for the thermal market to reach a more balanced state.
      james.redfern@credit-suisse.com
                     +61 2 8205 4779
                                        To date, the market has witnessed a war of attrition, with miners holding on as best as
                                        possible, while looking for any means of cost reduction. This trend should continue, as
                                        prices are neither low enough to force tonnage out of the market in short fashion nor high
                                        enough to offer attractive margins for any but the lowest cost producers.
                                        Thermal markets would be closer to recovery if prices had fallen further and faster,
                                        causing acute financial pain to and forcing the closure of the most marginal mines.


 Exhibit 146: A depressed physical market                               Exhibit 147: … creating range-bound paper trading
 US$/t, spot                                                            US$/t, front calendar swap


  150                                                                   140
                         Newc           RBCT                 ARA                      API#2 Y1 Swap          API#4 Y1 Swap            Newc Y1 Swap
                                                                        135
  140
                                                                        130
  130                                                                   125
                                                                        120
  120
                                                                        115
  110
                                                                        110
  100                                                                   105
                                                                        100
    90
                                                                         95
    80
                                                                         90
     Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12                     Jan-11 Apr-11      Jul-11   Oct-11    Jan-12 Apr-12        Jul-12   Oct-12

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



                                        Our nominal price forecasts are revised modestly lower from last quarter, looking for the
                                        Newcastle benchmark to average US$90/t in Q4 and $98/t through calendar 2013. We
                                        also cut our real (2011 prices) long-term forecast from $120/t to $110/t due to a further
                                        reduction in required capacity additions.
                                        In the near term, prices should have little room to rally as demand is being met by ample
                                        levels of supply. Moreover, any uptick in demand would need to burn through a significant
                                        inventory buffer before it resulted in consumers being forced to bid seaborne markets
                                        materially higher. Nevertheless, gradual price improvements should emerge, as existing
                                        production cuts begin to feed through and demand growth picks up with better macro
                                        fundamentals, in 2013. Xstrata’s recent agreement for slightly higher annual Japanese
                                        utility contracts ($96.90/t versus $95/t in July) is also in line with this expected dynamic.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                         77
                                                                                                                                       12 October 2012



                                              Competition for market share has created a prisoner’s dilemma
                                              Despite an announced 82 Mt of production cuts by US thermal coal mines, the
                                              combination of coal-to-gas switching, high utility inventories, and sluggish economic
                                              activity has left the country with a significant surplus of coal. Moreover, as our US Metals
                                              and Mining team has highlighted (September Coal), actual production run-rates suggest
                                              not all cutback announcements have been followed through on, with some companies
                                              trying to take advantage of the market by maintaining output. Import and export volumes
                                              have consequently continued to diverge, with year-to-date exports now annualizing at
                The US is now a               56 Mt/y (seasonally adjusted).
            structural seaborne
                                              We continue to see this as a structural shift rather than a cyclical phenomenon. The US
                        supplier
                                              shale gas glut has moved the US into a position of fuel surplus, consequently making it a
                                              significant energy exporter. Given the constraints on LNG exports, increased coal exports
                                              have been, and will continue to be, a natural outlet for surplus domestic energy production.
                                              Moreover, Credit Suisse’s US Utilities team notes that 9.5GW of coal-fired generation
                                              capacity has been retired over the course of 2011 and 2012 year to date, with a further
                                              22 GW of capacity earmarked for closure by 2015. In fact, the final figure will likely be
                                              even larger, with an estimated aggregate of 60GW at risk, but firm commitments have yet
                                              to be made with regards to other existing facilities.
                                              That said, while US thermal shipments should thus continue to grow, relatively high all-in
                                              FOB costs, limited infrastructure capacity, and competition with metallurgical coal for that
                                              infrastructure capacity, will all act as constraints, keeping further export growth incremental
                                              rather than dramatic.


 Exhibit 148: US thermal imports                                              Exhibit 149: US thermal exports
 Mt, monthly sa                                                               Mt, monthly sa

  3.5                                                                          7

  3.0                                                                          6

  2.5                                                                          5

  2.0                                                                          4

  1.5                                                                          3

  1.0                                                                          2

  0.5                                                                          1

  0.0                                                                          0
     2005      2006       2007         2008   2009   2010   2011   2012         2005      2006      2007       2008   2009   2010   2011   2012
 Source: Credit Suisse, Customs Data                                          Source: Credit Suisse, Customs Data



                                              This, in combination with strong supply from more traditional sources, has been a key
                                              factor in pushing the market into a state of oversupply. For example, after totaling 148 Mt
                                              last year, Australian exports have annualized at 163 Mt/y (sa) through 2012 to date, while
                                              Indonesian producers have managed to ship at an annualized rate of 342 Mt/y (sa)
                                              through the first half of this year.
                      Traditional             Indeed, the most notable aspect of the thermal market’s supply side over the last 12
                  exporters also              months has been the dearth of disruptions. Colombian strikes aside, the seemingly
                delivering strong             uninterrupted march of supply-side expansions has pushed prices below marginal costs of
                                              production, Russian material struggling to price into Europe below $95/t for example, and
                         volumes
                                              trapped the market in its currently depressed state.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                         78
                                                                                                                                   12 October 2012



                                          As we argued last quarter – No pain, no gain: Cutbacks are needed to balance the market
                                          – producer discipline rather than increased demand has been the change most capable of
                                          rebalancing the market and, in addition to the aforementioned US cuts, this has now
                                          begun to emerge.

 Exhibit 150: Indonesian thermal exports                                  Exhibit 151: Australian thermal exports
 Mt, monthly sa                                                           Mt, monthly sa


 35                                                                       15

 30
                                                                          13
 25

 20                                                                       11

 15                                                                         9
 10
                                                                            7
   5

   0                                                                        5
    2005      2006      2007      2008   2009   2010   2011   2012           2005      2006      2007      2008   2009   2010   2011   2012

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



                                          More specifically, weak mining capital goods sales and a 30 Mt/y reduction in production
                                          targets by the country’s coal mining association have been clear indicators that Indonesian
                                          volumes should be lower for the second half of the year and that, further out, capacity
                                          expansions will slow – current prices offering little or no incentive for additional capital
                   Though still           expenditures.
                   insufficient,          With the lion’s share of these cuts coming from small operators, putting an exact number
              cutbacks are now            on how much material has been taken off-line is extremely difficult. Based on our
             beginning to come            estimates, however, we reduce expected Indonesian volumes from 343 Mt to 334 Mt for
                                          CY 2012 – as is beginning to come through in the data (Exhibit 150).
                       through
                                          In Australia also, following the early closure of Blair Athol, announcements of job cuts
                                          across the major miners and continued concerns about the viability of some projected
                                          capacity additions, we reduce 2012 exports from 162 Mt to 159 Mt and 2013 from 187 Mt
                                          to 178 Mt. We flag that these numbers, particularly for farther-dated years, come with
                                          downside risks, especially if the Australian dollar continues to hold firm in a world with few
                                          low-risk assets (for a discussion of the divergence between the Australian dollar and bulk
                                          commodities’ prices see – Commodities Advantage: In the ECB we trust…).
                                          Additional to this temperance of seaborne supply, Chinese production has fallen by more
                                          than 4% (SA) for three consecutive months, as domestic miners have been outcompeted
                                          into southern China by imported material taking advantage of the open “arb.” Moreover,
                                          though high in absolute terms – major IPPs have been burning an average of 3.5 Mt/day
                                          between them – coal consumption has been relatively low. Within the power mix, coal has
                                          been squeezed from both sides as strong rainfall pushed hydro-electric power to a record
                                          market share of 22% while, at the same time, overall generation has remained subdued in
                                          the face of weak industrial production growth, rising a mere 0.7% mom (sa) in August.
                                          Other regions, led by Colombia, South Africa, Russia, and, as discussed, the US have
                                          continued to increase their export volumes this year but, over the course of our current
                                          forecast horizon, Indonesia and Australia look set to further cement their market-leading
                                          positions (Exhibit 154). That said, global market growth is set to slow to a more modest
                                          pace around 5% p.a., down from recent highs closer to 10% p.a.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                     79
                                                                                                                                                             12 October 2012




 Exhibit 152: China’s raw coal production                                                   Exhibit 153: China’s electricity generation
 Mt, monthly sa                                                                             TWh, sa

  400                                                                                        350                                                                       70
                                                                                                                          thermal            hydro (rhs)
                                                                                             330                                                                       65
  350
                                                                                             310                                                                       60
                                                                                             290
  300                                                                                                                                                                  55
                                                                                             270
                                                                                                                                                                       50
  250                                                                                        250
                                                                                                                                                                       45
                                                                                             230
  200                                                                                                                                                                  40
                                                                                             210

                                                                                             190                                                                       35
  150
                                                                                             170                                                                       30

  100                                                                                        150                                                                       25
     2006         2007           2008   2009         2010        2011        2012               2005      2006     2007        2008   2009   2010     2011     2012
 Source: Credit Suisse, SxCoal                                                              Source: Credit Suisse, China NBS




                                               Exhibit 154: Major thermal coal exporters
                                               Mt


                                                       35                           Australia                    RoW                  Indonesia

                                                       30

                                                       25
                   Australia and                       20
               Indonesia should
                                                       15
            further cement their
                 market-leading                        10
                      positions                          5

                                                         0
                                                                     2011                  2012                  2013                 2014                 2015

                                               Source: Credit Suisse, Customs Data, Company Data




                                           Demand growth dependent on the usual suspects
                                           India and China have continued to step up to the plate on the import side of the seaborne
                                           market this year, running respectively at 105 Mt/y and 180 Mt/y for 2012 to date (Exhibits
                                           155 and 156).
                                           Though other regions have also put in strong performances for 2012, much of this has
                                           been supply creating its own demand. Taking Europe for example, coal’s relative
                                           cheapness – a direct result of such abundant supply – has seen dark spreads, particularly
                                           of the clean variety, dramatically outperform spark spreads and trigger an initially
                                           unexpected 6% jump in (estimated) 2012 imports over 2011 levels.
                                               The fact that this demand, even in India and China to a certain extent, has been more
                                               driven by coal’s relative cheapness than any structural increase in coal demand does,
                                               however, remain a relatively bearish factor. Furthermore, in the immediate future, we think
                                               risks for any shift in coal demand lie to the downside, after seasonal adjustment, as, taking
                                               advantage of cheap prices, consumers have purchased more coal than they have
                                               consumed, creating comfortable inventory buffers almost across the board.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                               80
                                                                                                                                       12 October 2012




 Exhibit 155: Indian thermal imports                                          Exhibit 156: Chinese thermal imports
 Mt, monthly sa                                                               Mt, monthly sa

  10                                                                          21

                                                                              18
    8
                                                                              15
    6                                                                         12

                                                                                9
    4
                                                                                6
    2
                                                                                3

    0                                                                           0
     2005      2006      2007      2008       2009   2010   2011   2012          2005      2006      2007       2008   2009   2010   2011   2012
 Source: Credit Suisse, Customs Data                                          Source: Credit Suisse, Customs Data




 Exhibit 157: Japanese thermal imports                                        Exhibit 158: EU27 thermal imports
 Mt, monthly sa                                                               Mt, monthly sa

 14                                                                            18


                                                                               16
 12
                                                                               14

 10                                                                            12


                                                                               10
   8
                                                                                8

   6                                                                            6
    2005       2006      2007          2008   2009   2010   2011    2012         2005      2006       2007      2008   2009   2010   2011   2012
 Source: Credit Suisse, Customs Data                                          Source: Credit Suisse, Customs Data



                                              Further ahead however, we continue to expect strong structural Pacific market growth
                                              from the two largest emerging nations.
                                              In the case of India, ongoing difficulties in gaining environmental permits – particularly for
                                              forest clearance – and, further out, the knock-on effects from the current coal block
                                              allocation scandal, all point to continued weak domestic supply growth. In contrast,
                                              though power demand growth is almost certain to miss current targets, we see the scope
                                              for a theoretical thermal coal deficit above 250 Mt/y by 2015. As is always the case,
                                              judging how much of this deficit will be filled by imports and how much of it will be
                                              managed through demand destruction is far more art than science, but we estimate
                                              imports to reach 162 Mt/y in 2015.
                                              As for China, in many respects the country retains the potential to be self sufficient in coal
                                              supply. This is something that should be even more true, as rail capacity expansions
                                              come on-line over the next three years and there is a continuation of the drive for new
                                              thermal-generating capacity to be sited at the mine-head, in order to facilitate “coal-by-
                                              wire.” However, the narrative of 2012 has further confirmed our view that China will
                                              continue to be a significant importer of seaborne tonnage.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                         81
                                                                                                                            12 October 2012



           Seaborne volumes             Specifically, China’s coal market in 2012 has been characterized by ample domestic
              have remained             supply – Qinhuangdao has maintained robust inventory levels through much of the year
                                        and power plants have had little difficulty in doing the same. Despite this, imports have
             competitive into
                                        surged by 49% over last year’s equivalent total for the first eight months of the year. This
             Southern China             is due to the lower cost of imported material for buyers in many southern destinations and
                                        the fact that seaborne tonnes have, in many cases, therefore been able to outcompete
                                        equivalent domestic material.
                                        We believe China’s import levels will continue to be driven by commercial considerations,
                                        as, while still above 90% self-sufficiency, there is little in the way of energy security risk for
                                        China to import such volumes.
                                        Outside of these two, we expect European demand to begin its slow decline in 2013 as the
                                        growth of renewables generation, implementation of the large combustion plant directive
                                        and continued substitution of biomass for coal, not to mention the UK’s introduction of a
                                        carbon price floor, all take their toll on thermal consumption.

         Japan’s energy path            Demand growth in much of the rest of the world continues to be dependent on the state of
               uncertain, but           industrial production more than anything else but, while this is also true of Japan, the lack
                                        of clarity around its post-Fukushima energy mix makes it something of an unknown. The
          should benefit coal
                                        government now appears to have retreated from its recently announced target of retiring
                    and gas             all nuclear capacity before 2040, and the role that nuclear will play over the coming years
                                        remains extremely unclear. Whatever the outcome, it should have a material impact on
                                        coal demand, as coal is the natural alternative to nuclear for base-load generation
                                        requirements.

                                        Exhibit 159: Major thermal coal importers
                                        Mt


                                                30                                          India   RoW    China

                                                25

                                                20

                                                15

                                                10

                                                  5

                                                  0
                                                              2011                  2012            2013     2014         2015

                                        Source: Credit Suisse, Customs Data, Company Data



                                        Due to the environmental downside of coal burn, no new coal capacity is expected to be
                                        built, but barring a near full and immediate restart of nuclear capacity, we see existing coal
                                        plants running at utilization rates near 80% and thus ensuring strong ongoing demand for
                                        seaborne volumes. Gas (with inherently high thermal efficiency and environmental
                                        pedigree) and fuel oil, with further room for increased utilization, should continue to be the
                                        greater gainers from reduced nuclear usage, albeit at high cost.
                                        Global demand should therefore grow at a CAGR of 5.8%, requiring significant additional
                                        supply to be brought on-line but at a slower pace than coal producers had collectively
                                        planned for. Prices will need to rise over the forecast period for this growth tonnage to see
                                        the light of day but, for now, it should remain a relatively drawn out process.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                              82
                                                                                                                                         12 October 2012



                                          Volatility has been notable by its absence
                                          As Exhibits 146 and 147 demonstrate, front calendar API #2 swaps, the coal market’s
                                          most liquid paper contract, have essentially traded three distinct ranges over the course of
                                          the last 18 months. Outside of the price falls between these different ranges, there have
                                          consequently been few attractive opportunities for people to trade paper coal.

              Marginal costs a            Since moving to current levels, not only have prices been depressed but the scope for
           prop, ample supply             price movement has also become extremely narrow. In particular, prices have been
                                          supported from below by marginal costs of production and robust demand, while capped
                         a cap
                                          from above by the ample supply that would come to market were prices to rise materially.
                                          With market participants well aware of these dynamics, thermal coal, outside of the Cal13
                                          contracts being somewhat buffeted by macro sentiment and price moves across the
                                          broader energy complex, has traded heavily on fundamentals. A good indicator of this
                                          came from the fact that, unlike almost all other industrial commodities, coal prices failed to
                                          receive any kind of fillip from the announcement of QE3 (Exhibit 160).
                                          Consequently, one of this year’s most beneficial coal trades has been to sell volatility –
                                          selling either call or put options on the expectation that actual volatility will realize below
                                          implied volatility at the time of trading (Exhibit 161). While there is limited scope for any
                                          significant price shifts in the physical market, sentiment is likely to reinforce relatively
                                          range-bound trading in the paper swaps.


 Exhibit 160: Coal unmoved by QE3                                                Exhibit 161: Realized volatility vs. implied volatility
 Index, 13/09/12 = 100                                                           Price volatility

 120                                                                               25%                          Realised       Implied
               Copper 3-Month         API2 Front Cal          Iron Ore Front Q

 115                                                                               20%


 110                                                                               15%


 105                                                                               10%


 100                                                                                5%


  95                                                                                0%
  13/09/2012        20/09/2012        27/09/2012        04/10/2012                   Jan-12            Mar-12         May-12   Jul-12        Sep-12

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



                                          It is therefore worth considering what would need to change to create more room for prices
                                          to move. The candidate that could open the market to a truly precipitous fall is a broader
                                          global macro deterioration, triggered, for example, by a hard landing in China or a
                                          disorderly euro breakup. Such events would rapidly remove the robust demand element
                                          of market support but neither of these is a scenario we expect to play out, as we outline in
                                          our macro summary.
                                          In contrast, we think that rather than price volatility being created by the rug being pulled
                                          out from under the market, it will be a case of waiting for the fundamentals to have
                                          reached a more balanced position. Absent significantly faster supply-side discipline, that
                                          is not something we expect to see within the remainder of 2012 or even in the first half of
                                          2013. Rather, we now believe the market will have entered a more balanced state by late
                                          2013 or early 2014.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                            83
                                                                                                                                                            12 October 2012



                                              No price recovery until then
                                              At present, we continue to doubt the likelihood of any demand-side kicker. In particular, it
                                              is worth noting the diminished potential for a substantial Chinese power plant restock, as
                                              the utilities effectively never destocked this year (Exhibit 162) and, despite a minor recent
                                              recovery, the impact of a weak rupee on seaborne coal prices for Indian buyers.


 Exhibit 162: China’s major IPPs’ coal inventories                                    Exhibit 163: Seaborne coal still expensive for some
 Days burn cover, sa                                                                  Richards Bay FOB thermal coal in US$/t (lhs), INR/t (rhs)


  30                                                                                   130                                                                              6000
                                                                                                     USD         INR (rhs)


  25                                                                                   120                                                                              5500


  20
                                                                                       110                                                                              5000


  15
                                                                                       100                                                                              4500

  10
                                                                                        90                                                                              4000

   5

                                                                                        80                                                                              3500
   0                                                                                     Jan-10       Jul-10       Jan-11     Jul-11        Jan-12      Jul-12
       2008           2009            2010            2011          2012
 Source: Credit Suisse, SxCoal                                                        Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




 Exhibit 164: China coal arb                                                          Exhibit 165: Chinese IP has been soft in 2012
 US$/t (lhs), percent (rhs)                                                           Percent

          Seaborne South China CFR        QHD South China CFR      Discount (rhs)                          MoM Annualized       YoY (lhs)        Jan 02 - Dec 07 Avg
 150                                                                            16%   25%


 140                                                                            14%
                                                                                      20%
                                                                                12%
 130
                                                                                10%   15%
 120
                                                                                8%
 110                                                                                  10%
                                                                                6%
 100
                                                                                4%     5%
  90                                                                            2%
                                                                                       0%
  80                                                                            0%       2006         2007        2008       2009       2010         2011        2012
   Jun-11         Sep-11         Dec-11      Mar-12       Jun-12       Sep-12

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



                                              Additionally, as detailed in The Danger Zone, we now see the Chinese arb for seaborne coal
                                              as an effective cap on prices. In short, when China accounted for ~5% of global imports, if
                                              prices moved lower and opened up the China arb, then increased Chinese buying would
                                              tighten the market – the China arb was more like a floor. Now, however, with China
                                              accounting for ~20% of imports, were the arb to close, the market would likely move into
                                              substantial surplus as Chinese buyers chose to procure domestic material instead.
                                              On imperfect estimates, this currently leaves 6% of upside for seaborne prices, were the
                                              ex-China market to tighten up (Exhibit 164).



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                84
                                                                                                                                                                        12 October 2012



                                                  Further upside would require a domestic price recovery which, in turn, is essentially
                                                  dependent on stronger industrial production (IP) growth, as the industrial sector accounts
                                                  for 75% of electricity demand.
                                                  Our current base case is for a gradual improvement in IP through 2013. This should
                                                  support the domestic Chinese market, creating more headroom for increased seaborne
                                                  prices and coincide with a move to more balanced supply-demand fundamentals. Against
                                                  this backdrop, prices will have more room to run.
                                                  If demand exceeded expectations or supply was disrupted, with weather the most likely
                                                  candidate here, then in a more balanced market we would expect to see prices diverge
                                                  significantly from our current forecasts. Price volatility would return.
                                                  If, however, either of these came about in the immediate future, absent a dramatic turn of
                                                  events, they would be unlikely to have any substantial impact on coal prices, as made
                                                  evident by the Fenoco strikes. Inventories remain ample, consumers, in the main, are
                                                  extremely price sensitive and the surfeit of supply is yet to be sufficiently trimmed.
                                                  The level of existing and projected supply still prohibits us from detailing a structurally
                                                  bullish story for thermal coal, but in a more balanced market, as should develop from late
                                                  2013, prices should settle at a level back around $100/t and maintain greater scope for
                                                  short-term moves.


 Exhibit 166: Thermal coal price and CS forecasts                                           Exhibit 167: Thermal coal history and forecasts
 US$/t, forecasts based on CIF ARA (API2)                                                   US$/t

  $110                                                                                                          Newcastle coal front month         Quarterly avg forecasts
                         Credit Suisse Forecast              Forward Curve
                                                                                             $190

  $105
                                                                                             $170

                                                                                             $150
  $100

                                                                                             $130
   $95
                                                                                             $110

   $90                                                                                        $90

                                                                                              $70
   $85
                                                                                              $50

   $80                                                                                        $30
             Q4 12        Q1 13          Q2 13       Q3 13         Q4 13      Q1 14              2005    2006     2007      2008      2009     2010    2011      2012        2013

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




 Exhibit 168: Forecast thermal coal prices
 US$/t, long-term prices based on 2011 real prices

                                                   2011   1Q-12     2Q-12    3Q-12 4Q-12f     2012f 1Q-13f 2Q-13f 3Q-13f 4Q-13f                    2013f      2014f      2015f      LT
         Newcastle FOB        New        US$/t      123      113       95      86      90           96    95          95        100          100      98        108          118    110
              ARA CIF         New        US$/t      122      100       90      91      90           93    95          95        100          100      98        108          118    110
            RBCT FOB          New        US$/t      117      105       94      87      89           94    94          94         99           99      97        107          117    110
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           85
                                                                                                                                12 October 2012




 Exhibit 169: Global thermal coal supply and demand estimates
 Mt, Surpluses or deficits show expected market balance but actual imports/exports should net out at the time

 Importing Country                   2008             2009           2010             2011            2012e     2013f   2014f       2015f
 China                                34.0             92.1         119.0            138.6            157.5     178.5   204.1      229.8
 % change                           -24.1%           171.2%         29.1%            16.5%            13.7%     13.3%   14.4%      12.6%
 India                                36.6            60.3           75.5             92.4            107.0     117.9   144.1      162.2
 % change                            3.6%            64.9%          25.2%            22.4%            15.8%     10.2%   22.2%      12.6%
 JKT                                 277.0            260.5         290.4            292.0            294.0     303.6   311.1       316.3
 % Chagne                            5.8%            -6.0%          11.5%            0.6%             0.7%      3.3%    2.5%        1.7%
 EU 27                               163.8            148.6         123.1            141.2            149.6     141.3   134.4      131.6
 % change                            0.9%            -9.3%         -17.2%            14.7%            5.9%      -5.5%   -4.9%      -2.1%
 Turkey                               15.2            17.0            17.2            19.7             21.2      22.8    24.5        26.4
 % change                           -19.1%           11.7%           1.0%            14.4%            8.0%      7.5%    7.5%        7.5%
 North America                       49.3              35.1          31.8             22.2             16.3      15.0    15.5        16.0
 % change                           -1.2%            -28.7%         -9.5%           -30.1%           -26.6%     -8.0%   3.3%        3.2%
 Brazil                               6.4              2.7           5.3              8.0              8.0       10.3    10.3        10.3
 % change                            6.3%            -56.7%         93.1%            49.8%            0.6%      28.2%   0.0%        0.0%
 Chile                               5.8               5.3           6.6              7.9              10.5      12.0    13.5       15.0
 % change                           17.0%            -7.9%          24.8%            19.1%            32.7%     14.3%   12.5%      11.1%
 RoW                                  53.1            50.6           68.4             62.0             64.3      67.5    72.2        76.4
 % change                            9.5%            -4.6%          35.1%            -9.4%            3.7%      4.9%    7.0%        5.8%
 World                               641.1           672.4           737.3           784.0            828.4     868.9   929.8       984.0
 % change                            1.4%            4.9%            9.7%            6.3%             5.7%      4.9%    7.0%        5.8%
 Exporting Country                   2008             2009           2010             2011            2012e     2013f   2014f       2015f
 Indonesia                           199.7           233.2          288.0            319.1            333.7     345.4   363.7       379.8
 % change                            2.7%            16.8%          23.5%            10.8%            4.6%      3.5%    5.3%        4.4%
 Australia                          126.4            139.5           142.1           148.2            159.1     177.5   184.8       199.6
 % change                           12.3%            10.4%           1.8%            4.3%             7.4%      11.6%   4.1%        8.0%
 Russia                              83.8             91.7            98.6            95.4             99.9     100.0   107.7       111.8
 % change                           -1.1%            9.4%            7.5%            -3.2%            4.8%      0.1%    7.7%        6.8%
 South Africa                         66.8            65.1            68.8            68.6             74.5      75.5    79.5        83.5
 % change                            2.3%            -2.6%           5.7%            -0.4%            8.7%      1.3%    5.3%        5.0%
 Mozambique                             -              -               -               1.6             2.9       3.9     6.9        14.2
 % change                               -              -               -                -             79.0%     36.9%   75.6%     105.9%
 Colombia                            60.1             66.9            69.5            76.7             82.0      89.6    96.6       103.7
 % change                           -9.9%            11.3%           4.0%            10.3%            6.8%      9.3%    7.8%        7.4%
 North America                       40.3              27.6          30.8             40.0             61.0      61.0    66.0        66.0
 % change                           43.8%            -31.5%         11.4%            30.0%            52.5%     0.0%    8.2%        0.0%

 Other                                63.9             48.3          39.6             34.5             31.5      29.5    27.5       25.5
 % change                           -20.7%           -24.4%        -18.1%           -12.9%            -8.6%     -6.3%   -6.8%      -7.3%
 World                               641.1           672.4           737.3           784.0            844.6     882.5   932.6       984.2
 % change                            1.4%            4.9%            9.7%            6.3%             7.7%      4.5%    5.7%        5.5%
 Surplus / Deficit                      -              -               -                -              16.1      13.5    2.8         0.2
 As a % of exports                      -              -               -                -             1.9%      1.5%    0.3%        0.0%
 Source: Credit Suisse, Customs Data, Company Data




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                  86
                                                                                                                                                          12 October 2012




               Commodities Research
                                              Base Metals
                       Andrew Shaw
        andrew.shaw@credit-suisse.com
                                              Copper – Vulnerable without real demand improvement
                      +65 6212 4244
                                              Copper prices have rallied on the back of emphatic moves by the Fed and ECB, as well as
                       Ivan Szpakowski        generally improving macro sentiment. However, with mine supply volumes rising, a
      ivan.szpakowski@credit-suisse.com       notable improvement in still weak real demand is needed to see prices hold on to recent
                         +65 6212 3534
                                              gains, let alone move higher.
                      Equity Research
                        Paul McTaggart
                                              The risk is that prices move lower as economic activity does not pick up as strongly or
       paul.mctaggart@credit-suisse.com       quickly as the rally is now pricing in, particularly given that the copper market is shifting
                       +61 429 328 247        from several years of market deficits into increasing surplus (for an example of the risks
                       Matthew Hope
                                              involved, see nickel’s price reaction to a shift from deficit in the first half of 2011 to
       matthew.hope@credit-suisse.com         increasing surplus through Q2 2012).
                     +61 2 8205 4669
                                              With respect to the physical market, the Western world is likely to remain tighter than
                    Neelkanth Mishra          China as, while inventories are ample in the latter, available metal is scarce in the West.
  neelkanth.mishra@credit-suisse.com
                   +91 22 6777 3716
                                              This is leading to higher premiums and leaves the LME vulnerable to squeezes.
                                              While our forecast is for increasing market surpluses and a decline in prices, we do
                                              believe that copper is in a price a bubble that will deflate, as some in the market believe.
                                              However, new supply remains difficult to bring on-line, and the cost to do so continues to
                                              escalate at an alarming rate. As a result, we estimate that required medium-term real
                                              incentive prices for investment decisions are now about US$6,500/t.

                                              Mined supply – is growth finally upon us?
                                              While mined supply has once again been weak year to date, the question is whether the
               Mined supply has               story is now changing.
                once again been
                                              The prime example is Chile, where Q1 production was anemic, and output was hit by
                        weak …                major maintenance and technical problems in July. As a result, production through July
                                              was 4% lower than the average over 2006-2010. However, August saw a significant
                                              improvement in output, and as the early part of 2011 was even worse than this year,
                                              production through August was up a full 3% year on year.


 Exhibit 170: Chilean production is up only 2.5% yoy,                                   Exhibit 171: Chinese mined production seeing
 but likely to improve in Q4                                                            strong growth according to government data
 kt                                                                                     kt

                   2012       2011        2004-2010 Avg      2012 Days Adjusted                             2008         2009         2010      2011      2012
 530                                                                                    170

 510
                                                                                        150
 490

 470                                                                                    130

 450
                                                                                        110
 430

 410                                                                                     90

 390
                                                                                         70
 370

 350                                                                                     50
       Jan   Feb      Mar   Apr   May   Jun   Jul    Aug   Sep   Oct    Nov       Dec         Jan   Feb   Mar      Apr   May    Jun     Jul   Aug   Sep   Oct    Nov   Dec

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                              87
                                                                                                                                                                   12 October 2012



              ..But that may be         Moreover, maintenance at Escondida, Chuquicamata, and Los Colorados has ended, the
                                        strike at the Antofagasta port has been resolved, and the completion of adjustments at
                      changing
                                        Esperanza (pre-crusher and adjustment to tailings processing) should see volumes
                                        improve from that mine.
                                        Outside of Chile, while Zambian production has disappointed, mined production from
                                        China and Peru (the world’s second and third largest producers) has grown strongly.
                                        Reported output from Chinese mines has been the biggest surprise in this regard, with
                                        government data showing truly remarkable growth (22% yoy). While it is likely that actual
                                        growth in China is somewhat less than these numbers, improving reported copper
                                        production around the world suggests that concentrate volumes are once again rising.
                                        Looking forward, there is no arguing that a huge amount of new mined copper supply is
                                        coming, as these expansions and new mines are already under construction, with many
                                        near completion. However, the question is how long it will take for the volumes promised
                                        by these projects to actually hit the market?

            Large volumes set           Delays have been rampant in recent years, especially in the final stages during which
                                        production is bedded in (optimizing the supply chain, calibrating equipment, etc.). While
             to hit the market;
                                        such problems do not change the ultimate volumes delivered by projects, they do push
                  timing is key         back the timing and therefore their impact on the market, as demand continues to grow.
                       question
                                        Our forecast calls for only modest growth in 2012 due to the widespread disruptions and
                                        delays experienced earlier in the year, but we expect the succeeding three years to see
                                        much more substantial growth, with a notable increase in volumes in Q4.
                                        Though our supply forecasts are more cautious than the consensus, we believe the risks
                                        are nevertheless skewed to the downside, as we are still calling for historical growth
                                        volumes.

                                        Exhibit 172: Expectations are for a huge increase in mine supply, but how long
                                        will this supply take?
                                        Year-on-year mined supply growth, kt


                                        1,600                                                                                                                                 1,600

                                        1,400                                                                                                                                 1,400
                                                                                                                             Brook Hunt
                                        1,200                                                                                forecasts                                        1,200

                                        1,000                                                                                                                                 1,000

                                          800                                                                                 Credit Suisse                                   800
                                                                                                                              forecasts
                                          600                                                                                                                                 600

                                          400                                                                                                                                 400

                                          200                                                                                                                                 200

                                             0                                                                                                                                0

                                         -200                                                                                                                                 -200

                                         -400                                                                                                                                 -400
                                                    2000

                                                           2001

                                                                   2002

                                                                            2003

                                                                                   2004

                                                                                          2005

                                                                                                 2006

                                                                                                        2007

                                                                                                               2008

                                                                                                                      2009

                                                                                                                             2010

                                                                                                                                    2011

                                                                                                                                           2012f

                                                                                                                                                   2013f

                                                                                                                                                           2014f

                                                                                                                                                                      2015f




                                        Source: Brook Hunt, Credit Suisse



                                        Drilling down into near-term growth, additional volumes in Q4 2012 and in 2013 are
                                        expected to be driven in large part by several key mines. We look at the progress of each
                                        of these.
                                           Escondida has completed its ore access project and is mining higher-grade ore.
                                           Production is expected to return above the 1 Mt/y mark in 2012 and continue to increase
                                           from there.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                        88
                                                                                                                                            12 October 2012



                                              Los Bronces has fallen short of expectations so far, with Anglo American attributing the
                                              underperformance to lower-than-expected grades, as well as adverse weather, and a
                                              safety incident. However, we believe that production rates will improve and expect run-
                                              rates over the coming six months to be around 150 kt/y higher than that seen in 2011.
                                              Antapaccay is on-track, with Xstrata expecting first production in October. We expect to
                                              see notable increasing production through 2013.
                                              KOV has experienced problems with power availability and insufficient pumping capacity
                                              to remove water from the open pit. Ramp-up has thus been slower than expected, but still
                                              saw 20% yoy growth in Q2 and production is expected to accelerate over the coming year.
                                              Antamina experienced a sizeable slurry pipeline spill, which reportedly exposed dozens
                                              of residents to harmful chemicals. However, production has not been impacted and
                                              production at higher run-rates continues from the recently completed expansion. We are
                                              expecting 2012 production over 100 kt higher than in 2011.
                                              Oyu Tolgoi is nearly completely built (Rio Tinto put the figure at 94% in August). The
                                              final major hurdle is negotiation of power tariffs between the Mongolian and Chinese
                                              governments. However, we expect a workable agreement to be reached in time for
                                              production to begin a long, massive ramp-up in 2013.
                                              Esperanza continues to experience challenges, with Antofagasta reporting that it will
                                              install a pre-crusher and conduct additional adjustments to its thickened tailings process
                                              (a new technology to reduce water requirements). Production rates have nevertheless
                                              improved, and we expect 2012 production of 160 kt, up over 60 kt yoy.
                                              Salobo is essentially fully built (Vale reported 99% built at mid-year) and began
                                              production from two copper lines in June. We expect continued volume growth over the
                                              coming year.

                                                                            Exhibit 174: Capex escalation has been intense –
 Exhibit 173: Key expansions and ramp-ups                                   the lowest annual rate has been 13%!
 kt                                                                         Percent

                                                   2012   2013                35%
 Mine               Country   Operator           Growth Growth Cumulative
 Escondida          Chile     BHP Billiton          216       90     306      30%

 Los Bronces        Chile     Anglo American        136      17      153
                                                                              25%
 Antapaccay         Peru      Xstrata                40      110     150
 KOV                DRC       Gecamines              42      80      122      20%

 Antamina           Peru      BHP/Xstrata           106       0      106      15%
 Oyu Tolgoi         Mongolia Ivanhoe                  0      100     100
                                                                              10%
 Esperanza          Chile     Antofagasta            66      24       90
 Salobo             Brazil    Vale                   50       40      90       5%


                                                                               0%
                                                                                       2004     2005     2006   2007   2008   2009   2010     2011   2012

 Source: Credit Suisse                                                      Source: Brook Hunt, Credit Suisse



                                             Project development increasingly expensive
                                             While copper mines remain almost universally profitable on a cash operating basis, capex
                                             costs to develop new mines have soared, and the theoretical incentive price required to
               Capex costs have              bring on board new marginal supply has thus risen substantially. Thus, while operating
                      ballooned              costs do not provide cost support in the manner we have seen with aluminium and nickel,
                                             project economics are likely to influence medium-term copper prices.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                              89
                                                                                                                                              12 October 2012



                                        Capital intensities for brownfield and greenfield copper projects since 2005 have averaged
                                        about US$6,700 per annual tonne of capacity and US$6,300/t, respectively, only slightly
                                        higher than for projects over 2000-2005. However, capital intensities for projects currently
                                        under development for the 2012-2019 period are expected to increase to about
                                        US$11,000/t for brownfield projects and US$15,000/t for greenfield mines – increases of
                                        around 70% and 140%, respectively.

                                        Exhibit 175: Capex intensity is rising alarmingly
                                        US$ per tonne of annual capacity

                                                                 Brownfield (historic)     Brownfield          Greenfield (historic)       Greenfield
                                          50,000

                                          45,000                                                Brownfield (2005-2011   $6,713/t
                                                                                                Brownfield (future)    $11,264/t
                                          40,000                                                Greenfield (2005-2011) $6,348/t
                                                                                                Greenfield (future)    $15,476/t
                                          35,000

                                          30,000

                                          25,000

                                          20,000

                                          15,000

                                          10,000

                                           5,000

                                                  0
                                                   2004         2006          2008       2010           2012      2014         2016        2018         2020

                                        Source: Brook Hunt, Credit Suisse



                                        As a result, we estimate that the required copper price, in real 2012 US$, to incentivize
           Mid-term incentive           new copper mines in the medium term is now around US$6,500/t. This calculation is
           price at US$6,500/t          based on an assumed 12% IRR hurdle rate, as well as our estimates for global demand
                                        growth, production profiles for mines under construction, and Brook Hunt’s project cost
                                        estimates. For perspective, decreasing the hurdle rate to 10% would lower the incentive
                                        price to US$6,000/t, while hiking it to 15% would yield US$7,200.
                                        These estimates are consistent with the emerging industry consensus that incentive prices
                                        have risen to the US$6,000-7,500/t range.

                                        Exhibit 176: Chinese copper demand has stagnated
                                        Chinese copper semis (cathode + direct melt scrap) consumption, kt

                                                                              Apparent Consumption                     Underlying Demand
                                        12,500

                                        11,500

                                        10,500

                                          9,500

                                          8,500

                                          7,500

                                          6,500

                                          5,500

                                          4,500
                                               2006               2007            2008           2009           2010            2011          2012

                                        Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                 90
                                                                                                                                                    12 October 2012




                                           Chinese demand, trade, and inventories
                Chinese refined            Chinese copper demand remains undeniably weak. In fact, our estimates show underlying
              demand growth at             demand having moved effectively sideways for the past six months. We now estimate
                                           copper semis demand growth for the year at only 3% and refined copper demand growth
                      about 4%
                                           at about 4%. With the recent rally in prices having been driven by developments in the
                                           West (see Anatomy of a Metals Rally: Great Expectations), neither Chinese demand nor
                                           prices have kept pace, with Chinese demand remaining muted and domestic prices
                                           increasing, but not to the extent seen on the LME.
                                           As a result, the import arb has moved significantly downward, with the cash arb moving
                                           from neutral in mid-August to about -US$200/t currently. Chinese cash prices have also
                                           fallen materially below SHFE futures prices for the first time in four months.

 Exhibit 177: The Chinese import arbitrage has                                   Exhibit 178: … And Shanghai cash prices have not
 turned downwards in response to the LME rally                                   kept pace with futures
 US$/t                                                                           RMB/t
  400                                                                             600


  200                                                                LME Cheap
                                                                                  400

      0
                                                                                  200

 -200

                                                                                    0
 -400


                                                                                 -200
 -600
                                                                 LME Expensive


 -800                                                                            -400
    Jan 11 Mar 11May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12May 12 Jul 12 Sep 12      Jan 11Mar 11May 11 Jul 11 Sep 11Nov 11 Jan 12 Mar 12May 12 Jul 12 Sep 12
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                      Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




 Exhibit 179: Chinese copper exports have fallen                                 Exhibit 180: And net cathode imports are well below
 back dramatically …                                                             Q1 2012 and Q4 2011 levels
 kt                                                                              Kt, seasonally adjusted (includes small quantities of alloy imports & exports)
 120
                                                                                 450

                                                                                 400
 100
                                                                                 350

  80                                                                             300

                                                                                 250
  60
                                                                                 200

  40                                                                             150

                                                                                 100
  20
                                                                                  50

      0                                                                            0
       2004 2004 2005 2006 2006 2007 2008 2008 2009 2010 2010 2011 2012             2006        2007       2008       2009       2010        2011        2012

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                        91
                                                                                                                                          12 October 2012



                                        With respect to Chinese copper trade, refined exports have retreated from the record
                                        100 kt seen in May, with August exports all the way back to 2 kt. The 100 kt was partly
                                        driven by one-time factors, but the moderation was also due to a diminished incentive to
                                        export as the Chinese import arbitrage moved towards parity and the backwardation on
                                        the LME receded. These two trends have since reversed, but neither has shifted back to
                                        the degree that we would expect material export volumes, although some domestic
                                        smelters opportunistically take advantage of this swing.

              Chinese imports           Net cathode imports have leveled off in recent months at a steady 300-310 kt/month on a
               have remained            seasonally adjusted basis, significantly below the 370 kt/month average seen in Q4 2011
                                        and Q1 2012, but still relatively robust on a historical basis. In fact, net cathode imports
                    steady …
                                        are on track to reach 3.8 Mt, surpassing the 3.4 Mt high seen in 2009 (2011 saw 3.1 Mt).
                                        Looking at overall Chinese copper trade (including also scrap, concentrate, blister, and
                                        products), net imports have remained high, thanks to cathode, concentrate, blister, and
                                        scrap imports, while product imports have been lower and cathode exports higher.

                                        Exhibit 181: Total Chinese copper trade
                                        Copper content, kt/month
                                         800                                                                                             Scrap Exports

                                         700                                                                                             Conc Exports
                                                                                                                                         Blister
                                         600                                                                                             Exports
                                                                                                                                         Product
                                         500                                                                                             Exports
                                                                                                                                         Alloy Exports
                                         400
                                                                                                                                         Cathode
                                                                                                                                         Exports
                                         300                                                                                             Scrap Imports

                                         200                                                                                             Conc Imports
                                                                                                                                         Blister
                                         100
                                                                                                                                         Imports
                                                                                                                                         Product
                                             0                                                                                           Imports
                                                                                                                                         Alloy Imports
                                        -100
                                                                                                                                         Cathode
                                                                                                                                         Imports
                                        -200                                                                                             Total Net
                                                 2008            2009                2010               2011            2012
                                        Source: CEIC, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




                                        Exhibit 182: Chinese restocking early in the year has faded, with inventories
                                        relatively flat in recent months
                                        kt

                                                        China Off-Exchange           SHFE          LME & COMEX          Reported Commercial Stocks
                                         400


                                         300


                                         200


                                         100


                                             0


                                        -100


                                        -200
                                                 2006         2007            2008             2009              2010       2011          2012

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                               92
                                                                                                                                                                12 October 2012



                        … keeping                  The result of the surge in imports in Q4 2011 and Q1 2012 was a significant build-up of
              inventories elevated                 Chinese inventories, both domestically, and especially in bonded warehouses in Shanghai,
                                                   where stocks are now estimated at about 700 kt. With the continued weakness of the
                                                   Chinese economy and imports having only declined moderately, inventories have
                                                   remained abundant. Q2 saw a mild destock (on the SHFE, bonded warehouses, etc.),
                                                   while Q3 saw a moderate restocking. This is a typical seasonal pattern and was aided by
                                                   movements in the import arb, with the net impact being no significant change in inventory
                                                   levels. This contrasts starkly with 2011, when large inventories at the beginning of the year
                                                   were subsequently run down through Q2 and Q3, with imports plummeting.

                                                                                                Exhibit 184: Premiums have risen in Europe and the
 Exhibit 183: Visible inventories are heavily                                                   US, but remain low for Shanghai metal, reflecting
 concentrated in China                                                                          the distribution of inventories
 kt                                                                                             US$/t

              LME On Warrant     LME Cancelled      COMEX      SHFE        Shanghai Bonded
                                                                                                                        Shanghai         Europe        US
  1,200                                                                                         200


  1,000

                                                                                                150
      800


      600                                                                                       100


      400

                                                                                                 50
      200


        0
                                                                                                   0
                                                                                                    2009              2010              2011                 2012

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




 Exhibit 185: LME on warrant inventories have                                                   Exhibit 186: Both the LME and COMEX have shown
 plunged, and even less is accessible/desirable                                                 tightness in the front of the curve
 kt                                                                                             Cash – 3M for LME; 1M – 3M for COMEX

   Other US      Other Europe    Other Asia      New Orleans   St. Louis   Vlissingen   Johor                   LME (US$/t, lhs)      COMEX (USc/lb,rhs)
                                                                                                150                                                           Backwardation    2
 600

                                                                                                                                                                               1
 500
                                                                                                100
                                                                                                                                                                               0
 400
                                                                                                                                                                               -1
                                                                                                 50
 300
                                                                                                                                                                               -2

 200                                                                                                                                                                           -3
                                                                                                  0

 100                                                                                                                                                                           -4
                                                                                                                                                                    Contango
                                                                                                -50                                                                            -5
      0
                                                                                                   2009              2010              2011                  2012
       2009               2010                    2011                2012

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                     93
                                                                                                                                                                    12 October 2012



                                                    Western physical market tight
                                                    While China remains flush with metal, particularly with the 700 kt or so stored in bonded
                                                    warehouses in Shanghai, as well as 160 kt on the SHFE and much more in domestic off-
                                                    exchange warehouses, copper in the West remains much scarcer.

                      Inventories                   There was 265 kt in LME and COMEX warehouses as of the end of September, down
                 concentrated in                    from 560 kt a year ago. Moreover, significantly less of this metal is accessible or desirable.
                                                    Aside from the 35 kt of cancelled LME warrants, 48 kt is stuck behind long queues in
                 China, with little
                                                    Vlissingen, New Orleans, and Johor, and 42 kt is in St. Louis and believed to be less
            available in the West                   desirable quality material for consumers. This leaves only 89 kt of other on warrant LME
                                                    stocks and 46 kt of COMEX inventories.
                                                    With consumer and producer inventories also at historically low levels as a result of
                                                    tightened credit conditions and caution towards weak demand prospects, metal availability
                                                    in the West is quite limited. It is therefore not surprising to see that physical premiums
                                                    have risen in Europe and the US, moving to about $100 in Europe and $130-$140 in the
                                                    US – up from $70 and $110-$120, respectively, in May. In contrast, premiums for metal in
                                                    Shanghai-bonded warehouses have remained low, about $40-60/t, compared to the highs
                                                    of about $150-$160 reached in Q4 of last year.
                                                    Moreover, the shortage of available metal in the West has seen the front of the curve for
                                                    both the LME and COMEX trading much stronger than typical for recent years. It has also
                                                    made the markets vulnerable to being squeezed, as was the case in Q2.

 Exhibit 187: Copper forecast comparison                                                      Exhibit 188: Copper historical price and forecast
 US$/t                                                                                        US$/t

   $9,000         Credit Suisse Forecast      Forward Curve      Bloomberg Forecast Mean       $11,000
                                                                                                                      Copper 3M                   Quarterly Avg Forecast

                                                                                               $10,000

   $8,500                                                                                       $9,000

                                                                                                $8,000
   $8,000
                                                                                                $7,000

                                                                                                $6,000
   $7,500
                                                                                                $5,000

                                                                                                $4,000
   $7,000
                                                                                                $3,000

   $6,500                                                                                       $2,000
               Q4 12         Q1 13          Q2 13       Q3 13        Q4 13         Q1 14              2005     2006   2007     2008     2009   2010    2011    2012        2013


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




 Exhibit 189: Forecast copper prices
 US$/t; long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                     1Q-12      2Q-12     3Q-12     4Q-12f   2012f    1Q-13f   2Q-13f    3Q-13f       4Q-13f   2013f      2014f       2015f         LT
         LME copper 3M           New        US$/t     8,329     7,860      7,720     7,800   7,927     8,000     8,300       8,000     7,700   8,000      7,500       7,000       5,500
                                 New       US¢/lb      3.80      3.55       3.50      3.55    3.60      3.65      3.75        3.65      3.50    3.65       3.40        3.20        2.50
                                  Old       US$/t     8,329     7,860      7,300     7,500   7,747     7,800     8,300       8,000     7,700   7,950      7,500       7,000       5,500
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                          94
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 190: Global copper supply and demand estimates
                                                             Thousands of metric tonnes (kt)

                                                                                                   2008       2009       2010      2011      2012f      2013f      2014f       2015f                                2008     2009       2010      2011     2012f     2013f   2014f   2015f
                                                             MINE PRODUCTION                                                                                                            STOCKS
                                                              North America                       1,952      1,695      1,646     1,732     1,831       2,043      2,159       2,194    LME + COMEX Stocks            371      592        437       459
                                                              Western Europe                        198        205        253       285       334         364        367         383    SHFE Stocks                     18       96       132         93
                                                              CIS & other E Europe                1,788      1,798      1,759     1,775     1,744       1,786      1,816       1,836    Total Ex change Stocks        389      688        569       552
                                                              China                               1,157      1,056      1,258     1,375     1,600       1,657      1,702       1,756    Weeks Cons (Exch Stks)        1.1      2.1        1.5       1.4
                                                              Chile                               5,402      5,453      5,480     5,291     5,527       5,869      6,132       6,215    Commercial Stocks             417      388        407       417
                                                              Australia                             875        845        861       943       948       1,000        999         983    Total Reported Stocks         806    1,076        976       969
                                                              Indonesia                             650        995        871       543       427         654        635         785    Price (US$/t)               6,932    5,149      7,547     8,813    7,927     8,000   7,500   7,000
                                                              ROW                                 3,683      3,891      4,057     4,298     4,577       5,343      6,003       6,402    TC (US$/t)                     45       75         47        56       64        68      73      85
                                                             World Mine Production               15,706     15,940     16,184    16,241    16,989     18,715     19,813      20,554     RC (¢/lb)                     4.5      7.5        4.7       5.6      6.4       6.8     7.3     8.5
                                                             Highly Probable Grow th                 -          -          -         -         -            31       104         245
                                                             Probable & Possible Grow th             -          -          -         -         -           -          40         137    COPPER CONSUMPTION BY COUNTRY (Mt)
                                                             Disruption Allowance                    -          -          -         -       (255)    (1,125)    (1,198)     (1,256)     North America                 2.19   1.78      1.90       1.90     2.00      2.04    2.10    2.16
                                                              SX/EW                               3,071      3,274      3,335     3,469     3,635       3,667      4,093       4,215     Western Europe                3.37   2.77      3.03       2.90     2.73      2.69    2.67    2.67
                                                              Concentrate                        12,638     12,670     12,853    12,776    13,103     13,959     14,670      15,469      Eastern Europe                1.11   0.77      0.85       1.11     1.10      1.12    1.15    1.19
                                                             World Mined Copper                  15,706     15,940     16,184    16,241    16,734     17,622     18,759      19,680      China                         5.10   6.38      7.20       7.93     8.22      8.72    9.24    9.72
                                                              % Change                             3.5%       1.5%       1.5%      0.3%      3.0%        5.3%       6.5%        4.9%     India                         0.53   0.55      0.58       0.59     0.62      0.67    0.71    0.73
                                                             Conc. avail after direct use        12,622     12,649     12,831    12,754    13,081     13,937     14,648      15,447      Japan                         1.20   0.88      1.06       1.01     1.05      1.06    1.07    1.09
                                                             Smelter Capacity                    16,597     17,074     17,554    17,986    18,861     19,730     20,710      21,181      Middle East                   0.74   0.76      0.92       0.95     0.96      1.01    1.06    1.12
                                                             Smelter Production                  14,292     14,178     14,786    15,421    16,335     17,965     19,175      19,771      Other Asia                    2.35   2.23      2.43       2.23     2.21      2.28    2.37    2.47
                                                             Required Adjustment                     -          -          -         -       (700)    (1,300)    (2,000)     (2,000)     Oceania                       0.15   0.13      0.13       0.12     0.12      0.12    0.13    0.13
                                                             Scrap/Remelted Blister              (2,067)    (1,933)    (2,623)   (2,857)   (2,971)     (3,083)    (3,111)     (3,245)    Africa                        0.30   0.31      0.30       0.28     0.28      0.30    0.31    0.33
                                                             Smelter loss                           482        443        475       462       453         483        484         505     Latin America (inc Mex ico)   0.89   0.77      0.92       0.88     0.90      0.93    0.97    1.02
                                                             Primary Feed Required               12,707     12,688     12,638    13,027    13,117     14,066     14,657      15,287     World Consumption             17.93  17.32     19.33      19.89    20.20     20.94   21.79   22.61
                                                             SURPLUS/(DEFICIT) CONC                  (85)       (39)      193      (273)       (36)      (129)         (9)       159     % Change                    -0.3%  -3.4%     11.6%       2.9%     1.6%      3.7%    4.0%    3.8%
                                                                                                                                                                                         China                        9.2%  25.0%     13.0%      10.0%     3.8%      6.0%    6.0%    5.2%
                                                             REFINED COPPER PRODUCTION                                                                                                   World ex China              -3.6% -14.7%     10.7%      -1.3%     0.1%      2.1%    2.6%    2.8%
                                                              North America                 1,710             1,496      1,405     1,291     1,302      1,405      1,469       1,473    COPPER CONSUMPTION BY SECTOR (Mt)
                                                              Western Europe                1,932             1,812      1,904     1,964     2,050      2,167      2,185       2,184     Building & Construction       6.03   5.47        5.57      5.66      5.77    5.93    6.15    6.35
                                                              Eastern Europe                1,558             1,567      1,692     1,734     1,743      1,785      1,827       1,833     % Change                    -1.6%  -9.4%       1.9%      1.6%      1.9%     2.8%    3.7%    3.2%
                                                              China                         3,795             4,109      4,534     5,197     6,186      7,483      8,650       9,336     Transport                     2.01   2.34        1.94      1.93      2.02    2.15    2.32    2.50
                                                              Other Asia & Oceania          4,593             4,383      4,424     4,375     4,577      4,836      4,956       4,977     % Change                    -0.1%  16.5%     -17.0%     -0.8%      4.9%     6.4%    7.7%    7.8%
                                                              Africa                          608               727        883       965     1,106      1,471      1,721       1,793     Electrical                    5.84   5.80        6.71      6.94      7.09    7.32    7.61    7.87
                                                              Latin America (inc Mex ico)   4,064             4,197      4,135     4,158     4,083      4,205      4,412       4,393     % Change                     0.9%  -0.7%      15.7%      3.4%      2.1%     3.3%    3.9%    3.5%
                                                             Probable Grow th                 -                 -          -         -         -          -      108.75      256.25      Consumer Goods                1.80   1.69        2.44      2.55      2.49    2.61    2.71    2.81
                                                             Adjustments to refined prod      -                 -          -         -       (948)    (2,120)    (3,000)     (2,993)     % Change                     0.6%  -6.1%      44.8%      4.5%     -2.5%     5.0%    3.6%    3.7%
                                                             Scrap/Blister                    897               840        856       794       829        900        951       1,010     Machinery & Equipment         2.25   2.02        2.65      2.80      2.83    2.92    3.00    3.08
                                                             Electro Refined               15,189            15,018     15,642    16,215    16,463     17,565     18,235      19,037     % Change                    -0.7%  -9.9%      31.0%      5.7%      1.0%     3.2%    2.8%    2.8%
                                                             Net SX/EW                      3,071             3,274      3,335     3,469     3,635      3,667      4,093       4,215    Total                         17.93  17.32      19.33     19.89     20.20    20.94   21.79   22.61
                                                             World Production             18,260            18,291     18,977    19,684    20,098     21,232     22,328      23,252     Annual Substitution           (468)  (394)      (450)     (550)     (500)    (500)   (400)   (400)
                                                              % Change                      5.6%              0.2%       3.8%      3.7%      2.1%       5.6%       5.2%        4.1%     SURPLUS/(DEFICIT)              332    968        (349)     (204)     (102)    293     541     638
                                                             Source: Brook Hunt, Credit Suisse




                                                                                                                                                                                                                                                                                             12 October 2012
95
                                                                                                                                                 12 October 2012




                                           Aluminum – High premiums, vulnerable prices
                                           After languishing over the course of the northern summer and testing cost support levels,
                                           aluminum prices have rallied strongly in the past month. At current prices and premiums,
                                           we do not expect further production cutbacks. Moreover, the impact of several important
                                           smelter disruptions is fading, and net exports from China are likely to increase further as
                                           the arb has shifted and domestic surpluses rise.
                                           Nevertheless, financing deals continue to absorb large volumes and availability of LME
                                           material is extremely limited. Premiums therefore appear likely to remain elevated.
                                           However, this is not positive for LME prices, which appear vulnerable should the recent
                                           central bank action and improvement in macro sentiment not translate into stronger
                                           underlying demand in the near term.

                                           Supply outlook improving
                                           It is aluminium’s supply growth profile and “affordability,” which have bolstered the metal’s
             Smelters generally            underlying demand trend, and this characteristic looks set to persist. While smelter costs
               no longer under             and potential for cost support for aluminium prices have been a hot topic in the market this
                                           year, the recent rally, combined with record high premiums, have lifted smelters almost
                      pressure
                                           universally back into the black on a cash basis. As a result, we are unlikely to see further
                                           production curtailments at current prices. Conversely, it means that prices and/or
                                           premiums could fall from here without prompting any meaningful supply-side response.

 Exhibit 191: Smelters are not under pressure at                              Exhibit 192: … Making additions to announced
 these prices and premiums                                                    production curtailments unlikely
 US$/t, ex-China smelter cash cost curve
 3,000
                                                                                                                               Production Share     Production
                                                                              Smelter       Operator          Location            (kt/y) Disrupted Affected (kt/y)
                                                                              Lynemouth     Rio Tinto         United Kingdom          170      65%            111
                                                               90%:
                                                                              Vlissingen    Zeeland Aluminium Netherlands             230     100%            230
                                                               $2,183
 2,500
                                                                              Portovesme Alcoa                Italy                   150     100%            150
          $250/t Premium Added                                          94%
                                                                              La Coruna     Alcoa             Spain                    87      50%             44

                                                         80%                  Aviles        Alcoa             Spain                    93      50%             47

 2,000    Current LME                                                         Kurri Kurri   Norsk Hydro       Australia               180      33%             60
          Cash: $2079.50
                                                                              Alro-Slatina Vimetco            Romania                 200      50%            100
                                                                              Mostar        Aluminij Mostar   Bosnia                  135      13%             17
                                                                              Tiwai Point   Rio Tinto         New Zealand             355      15%             53
 1,500
                                                                              Hannibal      Ormet             United States           270      33%             90
                                                                              Unspecified Rusal               Russia                  N/A       N/A           150
                                                                              Total                                                                          1,051

 1,000                                                                        Share of World Production                                                      2.2%
 Source: Brook Hunt, Credit Suisse                                            Source: Company Reports, Credit Suisse



                                           In addition to the price-induced cutbacks seen this year, there have also been an
                                           unusually large number of production disruptions due to accidents, technical problems,
                                           and other factors. These problems have affected a number of large smelters, but most
                                           have now resolved their issues, with production returning to normal levels.

                      Technical              A fire on 21 August at Egyptalum’s 320 kt/y smelter caused the closure of one of the
                                             anode block lines, which is expected to take one-and-a-half months to repair.
             disruptions mostly
                       resolved              Rio Tinto declared force majeure on 19 July on aluminium shipments to its Asia Pacific
                                             customers following problems at its 360 kt/y Sohar smelter in Oman. It lifted force
                                             majeure at the beginning of September.
                                             A Q1 shutdown at BHP Billiton’s Hillside smelter (~700 kt/y) resulted in prolonged
                                             reduced production rates (Q2 production was 117 kt, compared to normal production of
                                             175 kt), but should now be back to normal run-rates.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                     96
                                                                                                                                            12 October 2012



                                               Production was restarted at one of the potlines at Rio Tinto’s Alma smelter (434 kt/y) in
                                               Canada on 10 August, with full production at the entire smelter expected to resume by
                                               mid-November.
                                               Production at Alcoa’s Massena West smelter (135 kt/y) in New York has now returned
                                               to full production after a fire on 29 March damaged the cast-house.
                                               Rio Tinto’s Shawinigan smelter (100 kt/y) is operating at full capacity after two potlines
                                               that were damaged last December were brought back on-line in Q2.

                                             Financing deals, premiums, and LME tightness
                                             Aluminium financing yields remain attractive given the ongoing extraordinarily low rate
                                             environment. However, yields have fallen back significantly from the June peak. For
                                             example, annualized yields from rolling 12-month/3-month contracts have declined from
                                             6.7% to 4.3%. Nevertheless, the backwardation seen with the September LME contract
                                             has not carried over to October, allowing financiers to continue to earn a healthy spread.

              Financing deals                Financing deals continue to absorb aluminium’s large market surpluses, and we estimate
                                             such deals now account for over half of the 12 Mt of global aluminium inventories
             continue to tie up
                                             (including LME, SHFE, producer, consumer, trade, and speculative off-exchange stocks).
                         metal               Within the LME system, the proportion is even larger, and while it is impossible to pinpoint
                                             an exact figure (which in any case is variable), we believe that financing deals represent
                                             about 70%-80% of the 5 Mt of LME inventories.

 Exhibit 193: Aluminium financing rates remain
 relatively attractive, but have declined notably since                      Exhibit 194: The backwardation seen with the
 June                                                                        September contract has not carried over
 Annualized yield                                                            Cash – three-month

                           3 month/1 month     12 month/3 month               30
 15%
                                                                              20
                                                                                                                                                 Backwardation
                                                                              10
 10%
                                                                               0

                                                                             -10
  5%

                                                                             -20


  0%                                                                         -30

                                                                             -40

  -5%                                                                        -50                                                                     Contango
     2008           2009            2010         2011             2012          2009              2010               2011                 2012

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



                                             While both global and LME inventories are quite ample (at roughly 12 Mt and 5 Mt,
                                             respectively, as stated before), most of this metal is not readily accessible. In addition to
                                             the large quantity of metal tied up in financing, several LME warehouses have become
                                             virtually inaccessible due to massive volumes of canceled warrants.

               Long warehouse                There is currently over 750 kt of cancelled metal at Vlissingen, over 600 kt at Detroit, and
                                             nearly 500 kt at New Orleans. At current minimum load-out rates, these represent queues
                queues prevent
                                             of 200 days or more (Johor also has a 45-day queue). Warehouse operators continue to
                 access as well              purchase material directly in order to maintain inventories, and affiliated traders have
                                             jammed load-out queues.
                                             As a result, of the 5 Mt of LME aluminium stocks, only 2 Mt is on warrant metal outside of
                                             Detroit or Vlissingen (or New Orleans), and thus of any realistic possible accessibility.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                  97
                                                                                                                                                                         12 October 2012




                                                                                                Exhibit 196: LME inventories are ample at over 5 Mt,
 Exhibit 195: Global aluminium inventories are large,                                           but less than 2 Mt of this is on warrant outside
 but much is tied up in financing deals                                                         Detroit or Vlissingen
 kt                                                                                             kt
                   LME         SHFE      Japanese Port Stocks       IAI     Unreported                                    Other Cancelled        Other On-Warrant
      14,000                                                                                    6,000                     Vlissingen Cancelled   Vlissingen On-Warrant
                                                                                                                          Detroit Cancelled      Detroit On-Warrant

      12,000                                                                                    5,000


      10,000
                                                                                                4,000

       8,000
                                                                                                3,000

       6,000
                                                                                                2,000
       4,000
                                                                                                1,000
       2,000

                                                                                                          0
            0                                                                                              2008          2009            2010           2011             2012
                   2008           2009             2010            2011            Aug 2012
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                                     Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
 Note:: “Unreported” includes producer, consumer, trader, and speculative stocks


                                                   However, even this number exaggerates availability, as it does not account for metal
                                                   locked up in financing deals at other locations (such as Rotterdam, where nearly 600 kt of
                                                   the 2 Mt is located).

                       Record high                 The result of the difficulty in accessing inventories has been record high premiums, which
                                                   have rocketed from around $160/t in Europe and the US to start the year to over $250 at
                premiums changing
                                                   present (Japanese premiums have seen an even steeper climb from about $110-$250).
                   market dynamics                 Consumers are being forced to compete with warehouse operators buying metal directly,
                                                   as well as the previously mentioned shortage of metal outside of financing deals or
                                                   jammed LME warehouses.

 Exhibit 197: Queues have been jammed at certain
 LME warehouses (Johor is at 45 days as well)                                                   Exhibit 198: And premiums remain at all-time highs
                                                                                                US$/t
                    Cancelled warrants (lhs, kt)          Days to clear queue (rhs)             300                        US               Europe             Japan
      800                                                                                 300

      700                                                                                       250
                                                                                          250
      600
                                                                                                200
                                                                                          200
      500
                                                                                                150
      400                                                                                 150

      300                                                                                       100
                                                                                          100
      200
                                                                                                     50
                                                                                          50
      100
                                                                                                     0
        0                                                                                 0           2004        2005   2006    2007     2008   2009     2010     2011     2012
                  Vlissingen                 Detroit               New Orleans
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                                     Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                                   Moreover, the roughly $100 rise in premiums has mitigated the impact of lower LME prices,
                                                   allowing more smelters to remain in operation, thereby reducing cost support for LME
                                                   prices, which fell further as a result (we examined the phenomenon in more depth in:
                                                   Commodities Advantage: Grinding Lower). Similarly, this means that prices currently being
                                                   received by smelters are more favorable than would be the case at similar LME price
                                                   levels in the past.

Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           98
                                                                                                                                                         12 October 2012



                                                   Looking forward, given the current combination of LME prices + premiums is now
                                                   significantly above cost support levels, its sustainability is dependent on sufficiently
                                                   positive macro sentiment and real demand. Moreover, the resolution of production
                                                   dislocations at several smelters, particularly in North America (see supply section above),
                                                   should provide a noticeable easing to physical market tightness.
                                                   However, a potential unknown in the short term is the next move from the party that
                                                   orchestrated the recent LME squeeze and subsequently took delivery of sufficient metal
                                                   upon September expiration to build its stake to 40%-49% of global warrants. Given the
                                                   already scarce availability of LME metal, this party may successfully keep premiums
                                                   elevated despite the easing of supply issues or even push premiums slightly higher in the
                                                   near term.
                                                   Nevertheless, the failure of underlying demand to improve in line with the recent sentiment
                                                   and central-bank-driven rally would see prices move downward from here.

                                                   China: Large domestic surplus
                                                   As we examined in our recent report on Chinese aluminium production (Chinese
                                                   Aluminium Production: Resilient & Adapting), Chinese smelters have not followed rest-of-
                                                   world smelters in curtailing production as prices fell. This resilience has been driven by
                                                   several factors:

                  Chinese production                  Power subsidies once again being granted by local governments.
                   unaffected by low                  Vertical integration, both at the downstream fabrication level and upstream with captive
                              prices                  power generation.
                                                      Falling coal prices, which have improved margins for producers with captive thermal
                                                      power plants.
                                                      Surging hydro-electric power generation, which has aided smelters in China’s
                                                      southwest.
                                                      Local political pressure to maintain production in order to support employment, GDP
                                                      growth, etc.

 Exhibit 199: Chinese aluminum production                                                  Exhibit 200: … Primarily on the back of new
 continues to increase                                                                     capacity in northwestern provinces
 kt                                                                                        kt

                         2008         2009         2010      2011       2012               30       Xinjiang   Other Northwest   Southwest   Henan   Shandong   Other
 1,800

 1,700                                                                                     25
 1,600

 1,500                                                                                     20

 1,400

 1,300                                                                                     15

 1,200
                                                                                           10
 1,100

 1,000
                                                                                            5
      900

      800
            Jan    Feb   Mar    Apr   May    Jun     Jul   Aug   Sep   Oct     Nov   Dec    0
                                                                                             2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

 Source: NBS, CEIC, Credit Suisse                                                          Source: Brook Hunt, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                              99
                                                                                                                                                                      12 October 2012



                                                In fact, Chinese aluminium production has actually continued to increase on the back of
                                                large new smelters being opened in Xinjiang and other northwestern provinces, with NBS
                                                data showing year-to-date production up 10% yoy. This trend is set to continue, and we
                                                expect Chinese aluminium production to grow by roughly 2 Mt in 2013 and in the 1-2 Mt/y
                                                range in 2014 and 2015.

 Exhibit 201: Demand remains soft, with premiums                                       Exhibit 202: SHFE inventories continue to build in
 for spot material falling                                                             response to domestic market surpluses
 RMB/t, Changjiang spot – SHFE one month                                               kt

  300
                                                                                       500
  250
                                                                                       450

  200                                                                                  400

  150                                                                                  350

  100                                                                                  300

                                                                                       250
   50
                                                                                       200
    0
                                                                                       150
  -50
                                                                                       100
 -100                                                                                   50

 -150                                                                                       0
    Jan 11     Apr 11     Jul 11    Oct 11      Jan 12    Apr 12     Jul 12                  2003     2004     2005     2006   2007      2008    2009     2010     2011       2012
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                            Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                                The combination of this strong supply growth and weak underlying demand has resulted in
                                                a large internal market surplus.

                Smelter capacity                This has led to strong exports of aluminium and products, despite an arbitrage very
               growth leading to                favorable to imports, with export volumes at the highest ever levels aside from mid-2011
                                                when exporters took advantage of a huge premium of LME relative to domestic prices. As
               larger net exports
                                                for imports, they have risen somewhat in response to the favorable arb, but to nowhere
                                                near the surge seen in 2009. Moreover, import volumes are likely to fade in the coming
                                                months as the positive import arbitrage has collapsed in response to the LME-led rally.

 Exhibit 203: Aluminium and product exports have                                       Exhibit 204: While imports have reacted relatively
 remained strong despite an unfavorable arb                                            modestly to a positive arb and are now likely to fade
      2004           2006      2007
             2005 Arbitrage (lhs, US$/t) 2008   2009 product exports (rhs,2012
                                                  Al & 2010     2011       kt)                                          Arbitrage (lhs, US$/t)          Imports (rhs, kt)
 -1000                                                                           400        600                                                                                      400
          LME Expensive
  -800                                                                           350        400     LME Cheap                                                                        350

  -600                                                                           300        200                                                                                      300

  -400                                                                           250          0                                                                                      250

  -200                                                                           200        -200                                                                                     200

     0                                                                           150        -400                                                                                     150
                                                                                                    LME Expensive
   200                                                                           100        -600                                                                                     100

   400                                                                           50         -800                                                                                     50
             LME Cheap
   600                                                                           0     -1000                                                                                         0
                                                                                            2004        2005     2006     2007     2008      2009   2010       2011         2012

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           100
                                                                                                                                                                         12 October 2012




                                                 The net impact has been an increase in metal flowing out of China, but not to a sufficient
                                                 degree to absorb the growing domestic surplus. As a result, there has also been a large
                                                 increase in domestic inventories. SHFE stocks have rebounded from around 100 kt a year
                                                 ago to over 400 kt, with estimates for inventories at off-exchange port warehouses
                                                 showing a similarly large increase.

 Exhibit 205: Aluminium forecast comparison                                                 Exhibit 206: Aluminium historical price and forecast
 US$/t                                                                                      US$/t

  $2,400       Credit Suisse Forecast    Forward Curve       Bloomberg Forecast Mean         $3,700                      Aluminium 3M           Quarterly Avg Forecast

  $2,300

                                                                                             $3,200
  $2,200

  $2,100
                                                                                             $2,700
  $2,000

  $1,900
                                                                                             $2,200
  $1,800

  $1,700
                                                                                             $1,700
  $1,600

  $1,500                                                                                     $1,200
              Q4 12         Q1 13       Q2 13        Q3 13        Q4 13         Q1 14              2005       2006   2007     2008      2009     2010      2011     2012     2013

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




 Exhibit 207: Forecast aluminium prices
 US$/t; long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                  1Q-12      2Q-12     3Q-12     4Q-12f    2012f    1Q-13f     2Q-13f     3Q-13f     4Q-13f        2013f      2014f        2015f      LT
     LME aluminium 3M            New     US$/t     2,188     1,987      1,929      2,020   2,031      2,100      2,150      2,200       2,250      2,175      2,350        2,400    2,250
                                 New    US¢/lb      1.00      0.90       0.85       0.90    0.90       0.95       1.00       1.00        1.00       1.00       1.05         1.10     1.00
                                  Old    US$/t     2,188     1,987      1,920      2,000   2,024      2,050      2,150      2,200       2,250      2,163      2,350        2,400    2,250
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           101
                                                                                                                                                                      12 October 2012




                                         Alumina – Indonesian ban creates change
                                         China’s imports for June, July, and August show the effect of Indonesia’s raw material
                                         restrictions on bauxite imports. It is clear that the ban has crimped bauxite exports by
                                         China, and we now believe this will ultimately raise the alumina price. The spot alumina
                                         price has crept up from US$308/t in July to $324/t, and we expect it will continue to move
                                         higher as the restrictions continue. We have increased our alumina price assumptions.

Exhibit 208: Spot alumina price forecast
                                 2011     1Q-12                            2Q-12   3Q-12   4Q-12      2012E    1Q-13    2Q-13     3Q-13    4Q-13     2013E   2014E   2015E   LT
Alumina (spot) New    US$/t      378      317                              317     316     330        320      350      350       375      375       363     400     415     400
               Old    US$/t      378      317                              317     310     315        315      325      340       340      340       330     400     415     400
               Change % increase 0%       0%                               0%      2%      5%         3%       8%       10%       10%      10%       10%     0%      0%      0%
Source: Credit Suisse



                                         Bauxite exported from Indonesia goes to China to feed alumina refineries, mainly located
                                         in Shandong Province. The effect of the restrictions that were imposed in May are shown
                                         below (Exhibit 209).

                                         Exhibit 209: China’s monthly imports of bauxite
                                         Mt/month

                                                                                                   Australian bauxite           Indonesian bauxite           other
                                                                           7.0

                                                                           6.0
                                            China bauxite imports (Mtpm)




                                                                           5.0

                                                                           4.0

                                                                           3.0

                                                                           2.0

                                                                           1.0

                                                                           0.0
                                                                                   Sep-11
                                                                                   Sep-08




                                                                                   Sep-09




                                                                                   Sep-10
                                                                                   Mar-10
                                                                                    Jul-08




                                                                                    Jul-09




                                                                                    Jul-10




                                                                                    Jul-11




                                                                                    Jul-12
                                                                                   Mar-08




                                                                                   Mar-09




                                                                                   Mar-11




                                                                                   Mar-12
                                                                                   Jan-08




                                                                                   Nov-08
                                                                                   Jan-09




                                                                                   Nov-09
                                                                                   Jan-10




                                                                                   Nov-10
                                                                                   Jan-11




                                                                                   Nov-11
                                                                                   Jan-12
                                                                                   May-08




                                                                                   May-09




                                                                                   May-10




                                                                                   May-11




                                                                                   May-12
                                         Source: China customs, Credit Suisse



                                         There was a surge of exports ahead of the ban as Chinese companies scrambled for
                                         bauxite, then imports collapsed to about 200 kt in June and July, recovering to about 950
                                         kt in August as the government agencies caught up in approving processing proposals.
                                         Given the intent of the restrictions was to stimulate development of refineries and smelters
                                         within Indonesia, and the government’s findings – that bauxite reserves would be depleted
                                         within five to six years at the previous rate of exploitation – we do not expect that exports
                                         will increase a great deal further. While the government has said they are targeting exports
                                         across commodities at 2010-2011 levels, we expect early-2010 rates will be more likely for
                                         bauxite to retain sufficient reserves for refineries to be established.

                                         Bauxite cost push
                                         At the same time as implementing the restrictions on raw material exports, Indonesia has
                                         enacted a 20% export tax. The immediate effect has been to push up the price of
                                         Indonesian bauxite for importers (Exhibit 210). The price gap between Australian and


 Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                        102
                                                                                                                                                                                                           12 October 2012



                                        Indonesian bauxite imported by China is closing from the typical US$10-13/t of recent
                                        years, which largely reflected higher freight costs for the more distant Australian supply.
                                        We expect the 20% export tax in Indonesia, combined with a margin increase for scarcity,
                                        will ultimately cause the landed cost of bauxite in Shandong to rise by at least US$10/t.
                                        With around 2.5 tonnes of bauxite needed to produce 1 tonne of alumina (Weipa available
                                        alumina is 42%), alumina costs will rise by $25/t.

                                        Exhibit 210: Landed prices of imported bauxite in China
                                        US$/t

                                                 80
                                                 70
                                                 60
                                                 50
                                         US$/t




                                                 40
                                                 30
                                                 20
                                                 10
                                                  0
                                                               Apr-08




                                                                                                   Apr-09




                                                                                                                                       Apr-10




                                                                                                                                                                           Apr-11




                                                                                                                                                                                                               Apr-12
                                                      Jan-08




                                                                                 Oct-08
                                                                                          Jan-09




                                                                                                                     Oct-09
                                                                                                                              Jan-10




                                                                                                                                                         Oct-10
                                                                                                                                                                  Jan-11




                                                                                                                                                                                             Oct-11
                                                                                                                                                                                                      Jan-12
                                                                        Jul-08




                                                                                                            Jul-09




                                                                                                                                                Jul-10




                                                                                                                                                                                    Jul-11




                                                                                                                                                                                                                        Jul-12
                                                                  Import value Australian bauxite                                                   Import value Indonesian bauxite
                                        Source: China customs, Credit Suisse



                                        Indonesian bauxite tap turned off tightens alumina supply in China
                                        Mysteel reported that the big Shandong producers, Chalco, Bosai, Weiqiao, Shandong
                                        Nanshan, and Xinfa reduced alumina production in June after the Indonesian move
                                        reduced imports. Indeed Chalco very publicly announced a 1.7 Mt/y curtailment and called
                                        on others to do likewise, attributing it to the ban. Nanshan, Xinfa, and Weiqiao announced
                                        a reduction of 1.4 Mt/y or 10%.
                                        Thus, at the same time that China’s aluminium production has been rising inexorably, the
                                        cut in bauxite supply has driven its domestic alumina production into a steep decline since
                                        the May peak (Exhibit 211). This has caused an alumina deficit to open up to 15 kt/d, the
                                        largest since 2007.

                                        China’s imports must rise
                                        The Chinese alumina deficit will cause imports to rise. China’s alumina imports have
                                        averaged 405 kt/m in CY2012, including the 715 kt spike in May that appears to have
                                        represented a precautionary measure against supply difficulties arising from the
                                        Indonesian ban (Exhibit 212). The 15 kt/d deficit that we calculate for domestic supply
                                        represents 465 kt/m so the remaining months of 2012 should see imports rise from the
                                        315 kt in August, a solid lift from the depressed imports of 2011, and closer to the bullish
                                        days of 2006-2007.
                                        Our analysis suggests that spot alumina prices should rise imminently. We have noted that
                                        the alumina price has climbed from the July lows of $308/t and was $324/t at time or
                                        writing. We expect the price to creep up in the final months of this year and push higher
                                        again in 2013.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                       103
                                                                                                                                                                                                                                                                                                                       12 October 2012




                                        Exhibit 211: China SGA output and deficit/(surplus)
                                        kt


                                                                                                                                       China                                                           Alumina output shortfall/(surplus)
                                                                          120                                                                                                                                                                                                                                            35
                                                                          110                                                                                                                                                                                                                                            30




                                                                                                                                                                                                                                                                                                                                      China domestic SGA shortfall (kt)
                                                                          100                                                                                                                                                                                                                                            25
                                                                           90                                                                                                                                                                                                                                            20


                                                   Daily Prod Rate (kt)
                                                                           80
                                                                                                                                                                                                                                                                                                                         15
                                                                           70
                                                                                                                                                                                                                                                                                                                         10
                                                                           60
                                                                                                                                                                                                                                                                                                                         5
                                                                           50
                                                                                                                                                                                                                                                                                                                         -
                                                                           40
                                                                           30                                                                                                                                                                                                                                           -5
                                                                           20                                                                                                                                                                                                                                           -10
                                                                           10                                                                                                                                                                                                                                           -15
                                                                            0                                                                                                                                                                                                                                           -20
                                                                                                    Jul-07




                                                                                                                                             Jul-08


                                                                                                                                                                 Jan-09


                                                                                                                                                                                     Jul-09




                                                                                                                                                                                                                             Jul-10




                                                                                                                                                                                                                                                                     Jul-11




                                                                                                                                                                                                                                                                                                              Jul-12
                                                                                 Jan-07




                                                                                                                        Jan-08
                                                                                                             Oct-07




                                                                                                                                                      Oct-08




                                                                                                                                                                                                         Jan-10




                                                                                                                                                                                                                                                 Jan-11




                                                                                                                                                                                                                                                                                         Jan-12
                                                                                                                                                                                              Oct-09




                                                                                                                                                                                                                                      Oct-10




                                                                                                                                                                                                                                                                              Oct-11
                                                                                          Apr-07




                                                                                                                                  Apr-08




                                                                                                                                                                          Apr-09




                                                                                                                                                                                                                  Apr-10




                                                                                                                                                                                                                                                          Apr-11




                                                                                                                                                                                                                                                                                                  Apr-12
                                        Source: Company data, Credit Suisse




                                        Exhibit 212: China’s monthly alumina imports
                                        kt

                                                                                                                                 Alumina imports from Australia                                                                                              Other net imports

                                                                          800

                                                                          700
                                             China alumina imports (kt)




                                                                          600

                                                                          500

                                                                          400

                                                                          300

                                                                          200

                                                                          100

                                                                            0
                                                                                                   Jul-06




                                                                                                                                           Jul-07




                                                                                                                                                                                   Jul-08




                                                                                                                                                                                                                           Jul-09




                                                                                                                                                                                                                                                                   Jul-10




                                                                                                                                                                                                                                                                                                           Jul-11




                                                                                                                                                                                                                                                                                                                                                                    Jul-12
                                                                                                                                                                                                                                                                                                                             Jan-12
                                                                                Jan-06




                                                                                                                      Jan-07




                                                                                                                                                               Jan-08




                                                                                                                                                                                                       Jan-09




                                                                                                                                                                                                                                               Jan-10




                                                                                                                                                                                                                                                                                       Jan-11




                                        Source: China customs, Credit Suisse



                                        Our supply-demand model is shown in Exhibit 213. This shows that if Indonesia’s future
                                        bauxite exports to Shandong reduce to say 1 Mt/m, then we see China’s required smelter-
                                        grade alumina (SGA) imports rising to levels on a par with historical highs of over 8 Mt in
                                        2013.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                                                                                                                                                104
                                                                                                                                     12 October 2012




 Exhibit 213: China alumina supply-demand calculations
 kt

                                         2005      2006        2007      2008      2009      2010      2011     2012f     2013f     2014f     2015f
 Bauxite Imports
  - Indonesia                                                          17,221    14,358    23,213    36,108    27,000    12,000    12,000    12,000
  - Australia (Weipa)                                                   4,988     5,111     6,587     8,400     8,750     9,000    10,000    13,000
  - Australia increase                                                      0         0         0         0         0         0     2,000     4,000
  - Fiji                                                                    0         0         0       150       800     1,000     1,500     2,000
  - Other                                                               3,581       221       278       187       500       500     1,000     1,000
 Bauxite for Shandong                                                  25,790    19,690    30,078    44,845    37,050    22,500    26,500    32,000
 Potential Shandong SGA output                                         10,316     7,876    12,031    17,938    14,820     9,000    10,600    12,800
 China Aluminium Supply                 7,806     9,349      12,588    13,600    13,500    17,300    19,100    21,353    23,399    24,695    26,194
 China Alumina Production
 - Shandong                             1,746     3,744       7,095     7,652     6,543     9,500    13,134    14,820     9,000    10,600    12,800
 - Other China (base case)              6,790     9,996      13,805    17,718    17,307    21,500    24,866    27,641    29,793    31,589    35,162
 - Other China (capacity increase)                                                                                        2,000     4,000     5,000
 Alumina Production                     8,536    13,740      20,900    25,370    23,850    31,000    38,000    42,461    40,793    46,189    52,962
  Alumina Capacity                      8,802    13,751      23,855    32,752    34,430    38,850    43,525    48,448    51,971    53,095    54,393
  Capacity Utilization                 97.0%     99.9%       87.6%     77.5%     69.3%     79.8%     87.3%     87.6%     78.5%     87.0%     97.4%
 Est. NMA Production (IAI)                937     1,099       1,114     1,309     1,265     1,367     1,467     1,575     1,693     1,694     1,695
 Alumina Supply for Smelting            7,599    12,641      19,786    24,061    22,585    29,633    36,533    40,886    39,100    44,496    51,268
 SGA Requirement (Brook Hunt)          15,300    18,324      25,805    27,880    27,675    35,465    39,155    43,773    47,969    50,625    53,698
 Required SGA Net                      (7,701)   (5,683)     (6,019)   (3,819)   (5,090)   (5,832)   (2,622)   (2,887)   (8,869)   (6,129)   (2,430)
 (Imports)/Exports
 Actual SGA Net (Imports)/Exports      (7,000)   (6,912)     (5,099)   (4,586)   (5,141)   (4,312)   (1,881)
 Source: Company data, Credit Suisse



                                           Aluminium premiums undermining linkage
                                           The spot prices we are forecasting represent a break with the price implied by linkage.
                                           We believe the recent change in pricing in the aluminium industry is likely to hasten the
                                           demise of the linkage system. A large proportion of the price received by aluminium smelters
                                           is now in the regional premium, rather than the LME price. The alumina linkage only uses the
                                           LME price, so the linkage is unfairly disadvantaging alumina producers. Third-party alumina
                                           producers are aware of this and we believe will now undoubtedly follow Alcoa’s lead in
                                           pricing on spot indices.
                                           Implied linkage of the spot price has broken down in 2012
                                           From mid-2010 when the spot pricing indexes were created through to the end of 2011, the
                                           spot price merely tracked a 15.5% linkage to the aluminium price. However, in 2012 the
                                           relationship has broken down, with spot pricing remaining relatively steady while the linkage
                                           has swung to highs and lows above and below spot. The recovery of Chinese imports in
                                           2012 may have assisted this change. The apparent breakdown of the implied linkage
                                           increases our confidence that the spot alumina price can now forge its own future relatively
                                           independent of aluminium.
                                           Few other bauxite options for China in the short term
                                           We cannot see how China can readily replace the loss of bauxite from Indonesia. Chinese
                                           bauxite is not suitable and will require development of more sophisticated process flow-
                                           sheets to harvest large potential resources. The Shandong refineries that import the
                                           Indonesian bauxite are designed to use the Bayer process and are not set up for high
                                           temperature operation. Typical Chinese bauxite is composed of diaspore with high reactive
                                           silica. Diaspore requires high temperature treatment to dissolve. To eliminate the high
                                           reactive silica, some Chinese refineries pre-roast bauxite in furnaces. If Indonesian bauxite is
                                           no longer available, Shandong refineries could not use this typical Chinese bauxite without
                                           wholesale re-engineering and installment of new equipment such as furnaces.

Commodity Forecasts: The Best of Times, The Worst of Times                                                                                      105
                                                                                                                                                                                                                                                                        12 October 2012




                                        Exhibit 214: Prices for spot prices for Australian, Chinese, and Chalco alumina
                                        US$/t

                                                                                   FOB Australia spot price                                                                                                      Other China spot SGA less VAT
                                                                                   Chalco spot SGA less VAT                                                                                                      15.5% of spot aluminium
                                                  420

                                                  400

                                                  380

                                          US$/t   360

                                                  340

                                                  320

                                                  300

                                                  280
                                                        Jul-10




                                                                                                                                                           Jul-11




                                                                                                                                                                                                                                                                        Jul-12
                                                                                                              Jan-11




                                                                                                                                                  Jun-11




                                                                                                                                                                                                                  Jan-12




                                                                                                                                                                                                                                                               Jun-12
                                                                                   Oct-10
                                                                                            Nov-10
                                                                                                     Dec-10




                                                                                                                                                                    Aug-11


                                                                                                                                                                                      Oct-11
                                                                                                                                                                                               Nov-11
                                                                                                                                                                                                        Dec-11




                                                                                                                                                                                                                                                                                                   Oct-12
                                                                 Aug-10
                                                                          Sep-10




                                                                                                                                                                             Sep-11




                                                                                                                                                                                                                                                                                 Aug-12
                                                                                                                                                                                                                                                                                          Sep-12
                                                                                                                       Feb-11
                                                                                                                       Mar-11




                                                                                                                                                                                                                           Feb-12
                                                                                                                                Apr-11




                                                                                                                                                                                                                                    Mar-12
                                                                                                                                         May-11




                                                                                                                                                                                                                                             Apr-12
                                                                                                                                                                                                                                                      May-12
                                        Source: Company data, Credit Suisse



                                        We understand there is lateritic bauxite similar to imported material located in southern
                                        China, closer to Vietnam. However, this is thousands of kilometers from Shandong so
                                        transport would be problematical. We doubt the refineries would be able to access this
                                        material. Shandong refineries need imported lateritic bauxite from somewhere.
                                        Rio Tinto has increased its exports to China from Weipa in recent years, but having put its
                                        US$1.5B major South of Embly bauxite expansion on ice while capex is focused on iron ore
                                        projects, we believe it will not have the capability to expand exports greatly in the short term.
                                        China’s Xinfa began importing bauxite from Bua in Fiji in 2011, but we believe the mine is
                                        relatively small in scale and does not have sufficient reserves to increase its mining rate greatly.
                                        Other projects: Chalco in Laos, Bosai Minerals in Guyana, and extraction of alumina from
                                        fly ash generated by coal-fired power stations in China are all early-stage projects with any
                                        significant production several years away at best.
                                        Huge untapped bauxite reserves are available in Guinea, but the new mines to feed China
                                        demand have not been created, and freight from the Atlantic would raise the landed cost.
                                        Vietnam has large resources in its highlands, but has created a pair of small alumina
                                        refineries and has shown no intention of wanting to export the material to China.
                                        India was a previous exporter to China, but land-use conflicts have recently seen domestic
                                        aluminium producers struggling to obtain sufficient feed for their own operations let alone
                                        China’s.

                                        Longer-term risks
                                        However, beyond 2015, the situation is less clear. Many of the opportunities we noted
                                        above could reach fruition. In addition there are a number of bauxite explorers in Australia
                                        that plan to enter production and ship material China. Perhaps the most advanced is Cape
                                        Alumina working along the margins of Rio Tinto Weipa leases in Cape York Peninsula,
                                        which plans to enter production by 2015.
                                        There is the possibility that Shandong production may resume in force after 2015.
                                        Nevertheless, our position is that alumina will ultimately rise to deliver a commercial return
                                        for refiners. The necessary return is provided by a price over US$400/t.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                                                                         106
                                                                                                                               12 October 2012



                                        Western China and ex-China refinery plans not such a threat to the
                                        alumina price
                                        China’s aluminium industry is gradually migrating to Western provinces where stranded
                                        coal deposits offer cheap power. Many of these plants intend to use alumina from more
                                        proximal refineries using domestic bauxite. In general, we are not concerned with these
                                        plans because alumina produced using these resources is expensive as Chalco has
                                        shown. It tends to price its production at a $25/t premium to Shandong producers because
                                        it must. Additional high cost plants coming on-line to feed expanding aluminium production
                                        should be supportive of the alumina price.
                                        Indonesia appears to have succeeded in attracting Chinese investment in alumina
                                        refineries through its restrictions. On 14 August Mysteel reported Bosai Minerals is
                                        planning to invest about $1B in an Indonesian project that would include a bauxite mine, a
                                        2 Mt/y alumina refinery, a power plant and a port and will seek to retain a majority stake. It
                                        is talking with potential Indonesian partners. Chalco and Weiqiao have said they are also
                                        considering separate investments in Indonesian alumina projects.
                                        Even in an emerging market country, we estimate that the likely capital intensity of a major
                                        project that Bosai is planning would be $1,500/t (double that if built in Australia). A 2 Mt/y
                                        refinery would therefore cost $3B, and would take at least two years even with energetic
                                        Chinese companies involved. To invest in Indonesia, these Chinese companies would
                                        have to be taking a long-term view that Shandong production will never regain its heights.

 Exhibit 215: Estimated IRRs for alumina refineries at various alumina prices – updated for 2011
 Units as indicated below

                                                       Theoretical   Wagerup   Worseley   Yarwun Chalco Xing   Nanchuan   Nanshan     Weiqiao
                                                          median
 Capex intensity            US$/t capacity                  1,150      1,000      2,000      900       1,000      1,034       360         500
 Operating cost                      US$/t                    221        187        170      180         194        181       306         265
                                                 270         -2%         3%        -1%       5%          2%         4%                  -13%
                                                 290          1%         5%         1%       6%          4%         5%                   -3%
                                                 310          3%         7%         2%       8%          6%         7%       -13%         2%
                                                 330          4%         8%         3%      10%          8%         8%        -1%         6%
 Alumina price                      US$/t        350          6%         9%         4%      11%          9%        10%         5%         9%
                                                 370          7%        11%         5%      12%         10%        11%        10%        12%
                                                 390          8%        12%         6%      14%         12%        12%        13%        15%
                                                 410         10%        13%         6%      15%         13%        14%        17%        17%
                                                 430         11%        14%         7%      16%         14%        15%        20%        19%
                                                 450         12%        16%         8%      18%         15%        16%        23%        21%
 Source: Credit Suisse



                                        The capital intensities of the most recent alumina developments seem to have sky-
                                        rocketed towards $3,000/t, but even at a bargain basement $1,000/t in China, our
                                        calculations suggest that an alumina price of +$400/t is needed to make the investment
                                        commercial (Exhibit 215).
                                        While China – in many instances – may have ignored the cost of capital domestically in
                                        favor of employment and other aims, it will not do the same for Indonesia. However, if
                                        Chinese companies do invest in Indonesia, it could well be quite favorable for the global
                                        industry, as they would need to push for a higher price to make the developments
                                        commercial.
                                        Domestic bauxite producers in Indonesia tend to have been small-scale affairs, with
                                        traders buying up the output and exporting to China. These firms, even in conjunction, do
                                        not have the capital or technical ability to build and operate alumina refineries. The only
                                        firm we are aware of that is involved in alumina in Indonesia is PT Antam. Antam has


Commodity Forecasts: The Best of Times, The Worst of Times                                                                               107
                                                                                                                       12 October 2012



                                        268 Mt of bauxite resources in Kalimantan and is building a small 300 kt/y alumina
                                        chemicals plant known as Tayan at a capital cost of $450M. It has also commissioned an
                                        engineering firm to do a feasibility study on a 1.2 Mt/y smelter-grade alumina refinery.
                                        Even at an early stage, the capex looks to be about US$1bn and we have no doubt it
                                        would rise to exceed US$1,000/t capacity as studies progress. We expect the feasibility to
                                        deliver a negative outcome unless Antam ties up with Bosai, but in any event, such a
                                        facility would not begin operation until 2016 at the earliest.

                                        The Indonesian ban
                                        We have referred to it previously, but it is worth reviewing what has actually occurred with
                                        the Indonesian ban.
                                        Since 2009, Indonesia has had in place a law that unprocessed material exports will be
                                        banned by 2014. The objective is to stimulate value-adding inside Indonesia, in order to
                                        increase industrial production and employment within the country, rather than just stripping
                                        raw materials and shipping them off for the benefit of industries elsewhere. Traders and
                                        companies widely ignored the impending law and raw material exports rapidly increased,
                                        particularly bauxite and nickel laterite to satisfy China’s insatiable appetite.
                                        This year, the law was stepped forward. Mysteel reported that the Indonesian government
                                        estimated that its bauxite reserves could be exhausted within four to five years at the
                                        current rate of exports. Accordingly, the government decided to ban raw material exports
                                        from 6 May on miners with post 2009 permits (exempting Contracts of Work) unless the
                                        exporters have provided the government with plans as to how those raw materials will be
                                        processed in Indonesia from 2014. A second initiative was to place a 20% export tax on
                                        materials that are exported. The tax has been in effect since May.

                                        Conditions to gain export approval to export bauxite
                                        To obtain Indonesian export approval between now and 2014, mining permits must be
                                        clean and clear (by following 2009 Minerals and Coal Law); companies must have paid all
                                        tax and non-tax financial obligations; and companies must have submitted a
                                        comprehensive proposal on whether they want to build their own smelters, establish a
                                        consortium to build a smelter or sell their raw material to another smelter in the country.
                                        With respect to bauxite, the law actually says that the raw material must be processed as
                                        far as alumina, so refineries are required rather than aluminium smelters.

                                        Indonesian officials seem pleased with the effect of the ban
                                        On 4 August 2012, the Jakarta Post reported that the Trade Minister said that more than
                                        100 proposals had been received from mining companies to build smelting plants since
                                        the regulation came into force in May: “Before the regulation was introduced, there were
                                        no more than 12 companies that had proposed building smelting plants.”
                                        We imagine that there could not be 100 realistic proposals for processing facilities. We
                                        believe a majority of the proposals may be used as a way to gain an extra two years of
                                        exports before they really are shut down. So, the effect of the ban would depend on how
                                        thoroughly the authorities are vetting the proposals.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                       108
                                                                                                                          12 October 2012



                                        Proposals seem to be vetted – “only a few have been granted permits to
                                        export”
                                        According to Reuters and the Jakarta Post, on 3 August, the Trade Ministry’s Director
                                        General of Foreign Trade told reporters that Indonesia had awarded export permits to 55
                                        companies since the start of the ban, of which only ten were for bauxite. According to
                                        Reuters, the number of export permits had increased from 22 in early July with
                                        bureaucratic delays causing a licensing backlog for firms to have refining plans approved
                                        by the Ministry of Energy and Minerals. However, the Jakarta Post noted an important
                                        comment that the Director General added: “these data show us that out of the hundreds of
                                        mining companies in the country, only a few of them have been granted permits to export
                                        their products.” This suggests to us that the government is satisfied with the export cuts,
                                        may be taking the law seriously, and is not accepting just any proposal.

                                        Minister takes a hard line with a long-term view
                                        Reuters estimated that the cut in exports is costing Indonesia $164mn per month in lost
                                        sales and has led to mass lay-offs across the country. “So be it,” said Indonesia’s Trade
                                        Minister in an interview with Reuters on 26 July that articulates what the government is
                                        thinking. “I don’t want my kids to be just coal exporters. I want them to be able to make
                                        something,” the Minister told Reuters. “My trade policies are geared towards being able to
                                        climb up the value chain…Everyone around you in ASEAN, everyone around you in Asia-
                                        Pacific knows how to make Blackberries, hand-phones, plasma TVs. We can’t even make
                                        stuff like that,” said the Minister, adding that tech graduates could do it with capital and the
                                        right policies. "It's not like we're happy taking a hit on exports of metals and minerals...if
                                        this were to further encourage more investment in the downstream, it would be good for
                                        the future of Indonesia."
                                        Miners are complaining that even when the backlog of refinery proposals is cleared, it will
                                        be impossible to build enough smelters within two years to process all the ore. The
                                        government is now indicating that 2014 will not be a hard line, and companies building
                                        processing facilities will be allowed time to build the facilities. However, the government
                                        indicates it would prefer to halt mining rather than run down its ore reserves in four to five
                                        years at the previous rate of exports. "We sent out a message very clearly at the end of
                                        2009 with the mining law...and now you call me a protectionist? There's a lot of hypocrisy
                                        out there,” said the Minister, referring to criticism that his policies have been nationalistic.
                                        In relation to many small miners that have given up because they do not want to build
                                        multi-million dollar smelters and believe the new 20% tax on raw ore exports will kill their
                                        margins, the Minister said: "Perhaps they are not the kind of miners we want in
                                        Indonesia…We want people who are willing to take the long-term view.”




Commodity Forecasts: The Best of Times, The Worst of Times                                                                          109
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 216: Global aluminium and alumina supply and demand estimates
                                                             Millions of metric tonnes (Mt)

                                                                                               2008     2009      2010      2011     2012f    2013f    2014f     2015f                                      2008    2009    2010     2011    2012f    2013f    2014f    2015f
                                                             ALUMINA PRODUCTION                                                                                           STOCKS
                                                              North America                    6.16      4.28      5.34     5.71     6.11     6.41      6.61      6.64    LME + COMEX Stocks                 2.37   4.63     4.28     4.97
                                                              Western Europe                   6.95      4.66      5.64     5.85     5.62     5.59      5.65      6.00    SHFE Stocks                        0.20   0.30     0.44     0.21
                                                              Eastern Europe                   5.63      4.75      5.39     5.56     5.26     5.58      5.70      5.89    IAI Stocks                         2.96   2.23     2.52     2.39
                                                              China                           25.37    23.85     31.00     38.00    42.32    44.23     46.49     49.26    Japanese Port Stocks               0.32   0.18     0.22     0.25
                                                              Kazakhstan & Azerbaijan          2.05      1.74      1.64     1.67     1.89     2.10      2.13      2.13    Estimated Unreported Stocks        1.75   2.75     4.47     5.40
                                                              India                            3.62      3.69      3.62     3.83     3.94     5.46      7.26      7.96    Total stocks                       7.60  10.09    11.93    13.22    14.44    15.47    17.02    19.47
                                                              Other Asia                       1.00      1.00      1.21     1.22     1.33     1.84      2.40      3.64    Weeks Consumption                  10.5   15.0     15.3     15.5     16.3     16.5     17.1     18.5
                                                              Australia                       19.73    20.26     20.12     19.64    21.20    23.33     23.84     23.88    Al Price (US$/t)                  2,567  1,665    2,173    2,398    2,031    2,175    2,350    2,400
                                                              Africa                           0.59      0.53      0.60     0.56     0.16       -         -       0.44    Alumina Linkage                  13.5% 14.5%     15.3%    15.8%    15.8%    16.7%    17.0%    17.3%
                                                              Jamaica                          4.16      1.77      1.78     1.96     1.73     1.70      1.91      2.57    Alumina Price (US$/t)               341    230      332      378      320      363      400      415
                                                              Brazil                           7.86      8.65      9.52    10.55    10.53    10.73     10.83     10.94    ALUMINIUM CONSUMPTION           BY COUNTRY
                                                              Other Latin America              3.75      2.85      2.51     2.59     2.22     2.35      2.45      2.50      North America                    6.09   4.71     5.23     5.53    5.87     6.15     6.42     6.71
                                                             Highly Probable Grow th             -        -         -         -        -        -       1.17      2.83      Western Europe                   6.59   5.24     5.88     5.97    5.79     5.81     5.86     5.92
                                                             Disruption Allowance                -        -         -         -      (0.8)    (3.3)     (3.4)     (3.5)     Eastern Europe                   2.13   1.55     1.77     2.00    2.02     2.10     2.19     2.29
                                                             Required Cuts                       -        -         -         -        -        -         -         -       China                           12.56  13.88    16.47    19.17   20.18    21.92    23.69    25.38
                                                             World Alumina Production          86.9      78.0      88.4     97.1    101.5    106.1     113.0     121.2      India                            1.28   1.48     1.71     1.84    1.94     2.08     2.22     2.39
                                                              % Change                         7.6%   -10.2%     13.2%      9.9%     4.5%     4.4%      6.6%      7.2%      Japan                            2.25   1.71     1.79     1.70    1.99     2.07     2.14     2.18
                                                             Capacity Utilisation (%)         89.5%    77.3%     82.4%     83.3%    83.2%    81.3%     83.4%     87.5%      Other Asia                       3.99   3.97     4.74     4.97    5.11     5.40     5.77     6.19
                                                             NMA Consumption                   5.62      4.74      5.98     6.48     6.67     7.07      7.50      7.95      Oceania                          0.46   0.44     0.47     0.46    0.48     0.49     0.51     0.52
                                                              % Change                         1.4%   -15.6%     26.0%      8.4%     3.0%     6.0%      6.0%      6.0%      Africa                           0.47   0.42     0.53     0.54    0.56     0.59     0.63     0.66
                                                             SGA Av ailable                   81.26    73.30     82.39     90.66    94.87    98.98    105.54    113.24      Latin America (inc Mex ico)      1.69   1.59     1.83     2.00    2.08     2.20     2.32     2.45
                                                             SGA Requirement                  77.45    73.88     83.31     89.64    93.10    98.22    105.05    112.60    World Consumption                  37.5   35.0     40.5     44.2    46.0     48.8     51.8     54.7
                                                             SURPLUS/(DEFICIT) SGA             3.80     (0.59)    (0.92)    1.01     1.77     0.77      0.49      0.64      % Change                       -1.6%  -6.7%    15.5%     9.3%    4.1%     6.1%     6.0%     5.7%
                                                                                                                                                                            China                           1.7% 10.5%     18.7%    16.4%    5.3%     8.6%     8.1%     7.1%
                                                             ALUMINIUM PRODUCTION                                                                                           World ex China                 -3.2% -15.4%    13.5%     4.4%    3.2%     4.1%     4.4%     4.4%
                                                              North America                  5.79  4.759   4.69              4.98     4.79     5.04     5.08      5.17    ALUMINIUM CONSUMPTION           BY SECTOR
                                                              Western Europe                 4.63  3.722   3.80              4.03     3.60     3.59     3.64      3.79      Building & Construction          9.80   9.74    11.50    13.13    13.77   14.58    15.43    16.14
                                                              Eastern Europe                 5.12  4.422   4.58              4.65     4.60     4.66     5.07      5.37      % Change                       -0.7%  -0.6%    18.0%    14.2%     4.9%    5.9%     5.8%     4.6%
                                                              China                         13.60 13.500  17.30             19.10    21.68    23.87    25.11     26.93      Transport                        9.62   8.28    10.55    11.00    11.74   12.65    13.73    14.92
                                                              Other Asia & Oceania           6.53   6.91   7.87              8.77     8.99     9.79    11.00     11.80      % Change                       -6.7% -13.9%    27.4%     4.3%     6.8%    7.7%     8.6%     8.6%
                                                              Africa                         1.71  1.682   1.75              1.80     1.82     1.93     2.02      2.10      Electrical                       4.79   5.00     5.36     5.94     6.17    6.50     6.87     7.23
                                                              Latin America (inc Mex ico)    2.66  2.507   2.31              2.18     2.08     2.26     2.42      2.50      % Change                       18.8%   4.4%     7.2%    10.7%     3.8%    5.4%     5.6%     5.3%
                                                             Highly Probable Grow th          -      -      -                 -        -        -      0.36      1.00       Packaging                        5.82   5.27     5.45     5.71     5.85    6.08     6.32     6.56
                                                             Disruption Allowance             -      -      -                 -     (0.30)   (1.29)   (1.38)    (1.50)      % Change                        2.5%  -9.5%     3.4%     4.9%     2.5%    3.8%     3.9%     3.8%
                                                             Required Cuts                    -      -      -                 -        -        -        -         -        Consumer Goods                   2.68   2.52     3.06     3.45     3.40    3.66     3.85     4.07
                                                             World Production               40.0   37.5   42.3              45.5     47.3     49.9     53.3      57.2       % Change                       -0.1%  -5.9%    21.1%    12.8%    -1.5%    7.7%     5.4%     5.5%
                                                              % Change                      5.0%  -6.3% 12.8%               7.6%     3.9%     5.5%     7.0%      7.2%       Machinery & Equipment            3.05   2.64     2.87     3.22     3.29    3.45     3.59     3.73
                                                             Capacity Utilisation (%)     100.0% 100.0% 100.0%             99.8%    99.5%    99.3%    99.2%     98.1%       % Change                      -18.6% -13.3%     8.7%    12.0%     2.0%    5.0%     4.1%     4.0%
                                                             World Consumption               37.5   35.0   40.5              44.2     46.0     48.8     51.8      54.7      Other                            1.80   1.56     1.66     1.77     1.83    1.91     1.99     2.07
                                                             Restocking                       -      -      -                 -        -        -        -         -        % Change                       -3.3% -13.2%     6.7%     6.2%     3.3%    4.4%     4.2%     3.9%
                                                             SURPLUS/(DEFICIT) ALUMINIUM    2.50   2.49   1.84              1.29     1.22     1.03     1.55      2.45     Total                              37.6   35.0     40.5     44.2     46.0    48.8     51.8     54.7
                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                 12 October 2012
110
                                                                                                                                                       12 October 2012




                                                  Nickel – Short window for higher prices
                                                  Nickel has been worst performing LME metal year to date, and despite rallying over 20%
                                                  since early August, remains the only LME metal still in the red on the year. The
                                                  fundamental drivers behind nickel’s decline have been clear with weak demand and a
                                                  large increase in supply from major project ramp-ups and new NPI refineries.
                                                  Q3 saw a sharp reversal of this supply story, as NPI producers cut production in response
                                                  to plunging prices, and as several major ramp-ups encountered difficulties. This has
                                                  returned nickel to a more balanced market and we do not expect a return to sub-
                                                  US$17,000/t prices anytime soon.
                                                  However, at current prices, NPI production is likely to return in force, and project difficulties
                                                  should be resolved by the end of the year. The prospect for substantially higher prices
                                                  thus depends on a material improvement in underlying demand, something we are
                                                  cautious about in the near term.
                                                  2013 and 2014 is likely to see the market remain in significant surplus, with prices tracking
                                                  the marginal cost of high-cost NPI producers, and risks to the downturn should global
                                                  growth not improve materially.

                                                  Demand weakest of any base metal
                                                  While demand across industrial commodities has been soft this year, nowhere has the
                    Stainless steel               weakness been more apparent than with nickel. Stainless steel production – which
                    production has                accounts for roughly two-thirds of nickel demand – has been extremely weak, with the
                        contracted                ISSF estimating that global stainless steel production contracted by -0.5% during the first
                                                  six months of the year.
                                                  In China, which accounts for 40% of global demand, stainless steel production growth has
                                                  slowed significantly to the low single digits (ISSF estimates H1 growth at 1.1%, Antaike
                                                  2.5%, and China Stainless Steel Council 5.25%). Moreover, nickel consumption has been
                                                  even weaker than stainless steel production growth, as there has been a notable
                                                  substitution away from 300 series stainless towards cheaper, lower nickel content or nickel
                                                  free 200 and 400 series material, reversing a trend seen over the past few years.

 Exhibit 217: Stainless steel production was
 extremely weak in the first half of the year                                             Exhibit 218: And nickel premiums have remained low
 H1 yoy change                                                                            US$/t

     4%                                                                                   1,400                  EU Uncut Cathodes                               3,500
                                                                                                                 Premium (lhs)
                                                                                                                 EU 4x4 Cathodes
     2%                                                                                   1,200                  Premium (lhs)                                   3,000
                                                                                                                 US Melting Premium
     0%                                                                                                          (rhs)
                                                                                          1,000                  US Plating Premium                              2,500
     -2%                                                                                                         (rhs)

                                                                                           800                                                                   2,000
     -4%
                                                                                           600                                                                   1,500
     -6%

     -8%                                                                                   400                                                                   1,000

   -10%                                                                                    200                                                                   500

   -12%
             Western       Eastern      Americas        China   Asia, ex-   World Total       0                                                                  0
             Europe        Europe                                China                         2007       2008          2009          2010   2011      2012

 Source: International Stainless Steel Forum, Credit Suisse                               Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                       111
                                                                                                                                                                    12 October 2012




                                          Ramp-up difficulties
                                          After exceeding expectations early in the year, major nickel project ramp-ups have
                                          encountered a host of difficulties in recent months.

                                          Exhibit 219: Major nickel projects have encountered difficulties
                                                                                                     Capacity
                                          Project         Country         Operator       Type          (kt)   Start-up Comments
                                          Barro Alto      Brazil          Anglo          FeNi          40       Mar-2011 Full capacity targeted by end of 2012. Maintenance on line
                                                                                                                         2 scheduled for H2; 5.4 kt produced in Q2 after mainenance
                                                                                                                         on line 1 in June; 6.6 kt produced in Q1
                                          Onca Puma       Brazil          Vale           FeNi          53       Mar-2011 Production halted following breakdowns in 2 furnaces; 2nd
                                                                                                                         line began production in January; 2 kt produced in Q2 after
                                                                                                                         4 kt in Q1; legal troubles
                                          Taguang         Myanmar         Taguang        FeNi          22       Apr-2011 Refinery difficulties
                                                                          Taung Nickel
                                          Ravensthorpe Australia          First Quantum HPAL           39       Oct-2011 First Quantum forecasting 33-36 kt in 2012; 8.1 kt produced
                                                                                                                         in Q2, 8.6 kt in Q1
                                          Ramu            Papua New       MCC            HPAL          31       Mar-2012 First production achieved in early March; full capacity
                                                          Guinea                                                         targeted in mid-2013
                                          VNC (Goro)      New Caledonia Vale             HPAL          60       Q1 2012 Force majeure with acid plant repairs expected to take
                                                                                                                        months; 1.1 kt nickel oxide and 2.3 kt nickel hydroxide cake
                                                                                                                        in Q1
                                          Ambatovy        Madagascar      Sherritt       HPAL          60       Sep-2012 Obtained 6 month operating permit in September;
                                                                                                                         commercial production targeted for H1 2013
                                          Koniambo        New Caledonia Xstrata          FeNi          60       H2 2012 Full capacity targeted by 2014

                                          Source: Credit Suisse, Company Reports



                                            Onca Puma (ramping up to 40 kt/y) suffered breakdowns in two furnaces, on 28 May
                                            and 22 June, and was forced to halt operations. The plant is expected to be remain
                                            closed for several months.
                                            VNC, which had been ramping up following first refined production (60 kt/y target
                                            capacity), declared force majeure on nickel shipments on 11 May after a water leak at its
                                            sulfuric acid plant. Repairs are expected to last several months, with production not
                                            returning until Q4. As a result of problems at Onca Puma and VNC, Vale announced that
                                            it will not reach its 2012 nickel production target of 400 kt.

 Exhibit 220: Forecast nickel production from eight                                      Exhibit 221: Nickel is moving into greater market
 major projects                                                                          surpluses
 kt                                                                                      kt

      350                                                                                      80

                                                                                               60
      300
                                                                                               40
      250
                                                                                               20

      200                                                                                       0

      150                                                                                      -20

                                                                                               -40
      100
                                                                                               -60
      50
                                                                                               -80

       0                                                                                      -100
            2010     2011      2012      2013          2014        2015    2016                          2009           2010         2011          2012         2013          2014
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                              Source: Brook Hunt, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                         112
                                                                                                                                       12 October 2012




                                            Sherritt’s Ambatovy project (60 kt/y target capacity) was delayed in obtaining an
                                            operating permit from the Madagascar government. It finally managed to obtain a six-
                                            month permit in September in exchange for conducting further studies before the
                                            granting of a longer-term permit. First production had been anticipated in Q2, with the
                                            company’s guidance for 2012 production lowered to 8 kt from 8-13 kt (even the former
                                            now appears optimistic), and for commercial production moved back to H1 2013 from
                                            previous guidance of late 2012/early 2013.

            Ramp-up difficulties          As a result, the market now appears closer to balance and the disruptions have arrested
                                          the market’s cyclical move into greater surpluses. An improvement in demand could thus
              have brought the
                                          see nickel move higher. However, this window is likely to be fairly short-lived, and a failure
               market closer to           to see notable macro improvement would likely see a resumption of growing surpluses as
                       balance            we move into 2013.

                                          Indonesia and Chinese NPI
                                          Chinese nickel ore imports from Indonesia have fallen considerably as a result of export
                                          restrictions. In response, Chinese consumers have turned to ore from the Philippines,
                                          where Chinese imports have reached a new record high. As a result, total imports in raw
                                          volume terms have barely moved, remaining at elevated levels.
                                          However, the grades of Philippine ore are generally lower (often substantially) than
                                          Indonesian ore, and the contained nickel content of Chinese imports has thus declined to
                                          a greater degree than implied by raw volume figures. The lower-grade ore being imported
                                          from the Philippines is also less suitable for the production of higher-grade NPI, which has
                                          been a focus of China’s nickel industry (the so-called rotary kiln-EAF configured plants
                                          require higher-grade saprolite ore with lower Fe:Ni ratios if they are to yield higher nickel
                                          content NPI).
                                          Nevertheless, the impact of the Indonesian export regime change on the Chinese NPI
                                          industry has been far less than many in the market anticipated.

 Exhibit 222: Chinese nickel ore imports from                             Exhibit 223: But volumes from the Philippines have
 Indonesia have fallen                                                    increased in response
 kt (raw ore)                                                             kt (raw ore)

 4,500                                                                     5,000

 4,000                                                                     4,500

                                                                           4,000
 3,500
                                                                           3,500
 3,000
                                                                           3,000
 2,500
                                                                           2,500
 2,000
                                                                           2,000
 1,500
                                                                           1,500
 1,000                                                                     1,000

   500                                                                      500

      0                                                                        0
          2008       2009          2010          2011         2012                 2008       2009          2010          2011         2012

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



                                          Instead Chinese nickel production has declined significantly in response to lower prices,
                                          with NBS production data for the May through August period down -18% yoy.
                                          Most notably, NPI producers have been unable to maintain production volumes in the face
                                          of low prices. In fact, NPI traded at a consistent premium to domestic refined metal over
                                          the first eight months of the year, underlining producers’ lack of competitiveness.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                       113
                                                                                                                                                              12 October 2012



                         NPI production            However, the recent price increase is likely to not only prevent further curtailments, but
                      likely to rebound            also to prompt some producers to increase volumes and resume production, and we have
                                                   in fact heard the first reports of refineries resuming production in recent weeks.

 Exhibit 224: Chinese nickel production has fallen in                                        Exhibit 225: NPI prices have plummeted, but NPI has
 response to low prices                                                                      become competitive vs. refined nickel once again
 kt                                                                                          RMB/t

                        2008         2009         2010          2011      2012                              NPI Premium (rhs)       Refined Nickel       NPI (10-15%)
 35
                                                                                             180,000                                                                    15,000

 30                                                                                          170,000                                                                    10,000


 25                                                                                          160,000                                                                    5,000


 20
                                                                                             150,000                                                                    0


                                                                                             140,000                                                                    -5,000
 15

                                                                                             130,000                                                                    -10,000
 10
                                                                                             120,000                                                                    -15,000
      5
          Jan   Feb    Mar     Apr   May    Jun     Jul   Aug     Sep   Oct      Nov   Dec   110,000                                                                    -20,000
                                                                                                   Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12

 Source: CEIC, Credit Suisse                                                                 Source: the BLOOMBERG PROFESSIONAL™ service, Zhijin Steel, Credit Suisse



                                                   Moving forward, we do not expect nickel ore availability from Indonesia to decline further,
                                                   as the government has expressed a goal to keep export volumes in line with those of 2010
                                                   and 2011. Moreover, the government revealed publicly for the first time in September that
                                                   it would not fully implement a hard ban on natural resource exports in 2014 (in line with our
                                                   guidance over the past two years), with the country’s Deputy Minister for Energy and
                                                   Mineral Resources stating: “It won’t be fully enforced in 2014 as it won’t be fair to the
                                                   companies.”
                                                   Nonetheless, we believe that the increased difficulty and cost of sourcing ore from
                                                   Indonesia will continue to see companies focus on supply from the Philippines and
                                                   alternate sources (such as Ramu in Papua New Guinea). This, along with the nickel
                                                   market’s expected increasing market surplus, should limit the continued growth of China’s
                                                   NPI industry.

                        NPI expansion              Increased export restrictions have successfully prompted metals companies to look more
                           expected in             seriously at developing processing facilities in Indonesia, and while there have not been
                                                   the series of public announcements in nickel as we have seen for alumina (or even
                        Indonesia and
                                                   copper), our conversations have shown that Chinese companies are taking a closer look
                           Philippines             at previously dormant plans to develop NPI and other nickel-processing facilities in
                                                   Indonesia. However, capital costs are steep and process configurations for accessing
                                                   different ore types are likely to be complex.
                                                   The Philippines is further ahead than Indonesia in terms of NPI, but with less medium-term
                                                   promise. This year saw the first NPI production from the Illigan refinery in the Philippines,
                                                   and capacity exists to increase volumes. However, companies are prioritizing Indonesia
                                                   for investment of new NPI refineries due to higher ore grades, and it is unlikely that
                                                   significant NPI capacity will be built within the next four years.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                  114
                                                                                                                                                                           12 October 2012




 Exhibit 226: Nickel forecast comparison                                                         Exhibit 227: Nickel historical price and forecast
 US$/t                                                                                           US$/t

  $20,000                                                                                         $55,000
                   Credit Suisse Forecast      Forward Curve       Bloomberg Forecast Mean                                  Nickel 3M                     Quarterly Avg Forecast
                                                                                                  $50,000
  $19,500
                                                                                                  $45,000
  $19,000
                                                                                                  $40,000
  $18,500                                                                                         $35,000

  $18,000                                                                                         $30,000

                                                                                                  $25,000
  $17,500
                                                                                                  $20,000
  $17,000
                                                                                                  $15,000
  $16,500                                                                                         $10,000

  $16,000                                                                                          $5,000
                Q4 12        Q1 13           Q2 13       Q3 13         Q4 13        Q1 14                2005     2006   2007      2008     2009   2010      2011     2012     2013


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




 Exhibit 228: Forecast nickel prices
 US$/t; long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                     1Q-12       2Q-12     3Q-12      4Q-12f   2012f     1Q-13f   2Q-13f     3Q-13f       4Q-13f   2013f         2014f       2015f       LT
            LME nickel 3M        New         US$/t   19,654      17,157    16,354     18,000   17,791    18,500    19,000     19,000      19,000   18,875      20,000      21,000     20,000
                                 New        US¢/lb     8.90        7.80      7.40       8.15     8.05      8.40      8.60       8.60        8.60     8.55        9.00       10.00       9.05
                                  Old        US$/t   19,654      17,157    17,000     18,000   17,953    18,500    19,000     19,000      19,000   18,875      20,000      21,000     20,000
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                              115
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 229: Global nickel supply and demand estimates
                                                             Thousands of metric tonnes (kt)

                                                                                               2008   2009   2010   2011 2012F 2013F 2014F 2015F        kt                              2008            2009         2010            2011        2012F   2013F           2014F      2015F
                                                                  Mine Production             1,597 1,437 1,643 1,935 1,939 2,056 2,232 2,321           Stainless production by Country
                                                                  Disruption allow ance                                     (15)   (62)   (67)   (70)   Europe            8,079 6,113                               7,756            7,870 7,817 7,868 7,969 8,070
                                                                  Mine Output                 1,597 1,437 1,643 1,935 1,925 1,994 2,165 2,251           % change            -4%   -24%                               27%                1%    -1%     1%     1%     1%
                                                                  REFINED Ni AND FeNi PRODUCTION                                                        China             7,200 9,158                              12,415           14,000 14,420 15,718 16,975 18,163
                                                                     Canada                     164    117    107    148    150    132    137    122    % change            -8%    27%                               36%               13%     3%     9%     8%     7%
                                                                     Western Europe             234    187    222    246    252    257    261    261    Japan             3,566 2,607                               3,427            3,256 3,256 3,354 3,387 3,421
                                                                      CIS                       279    269    281    280    286    288    289    287    % change            -8%   -27%                               31%               -5%     0%     3%     1%     1%
                                                                     Japan                      157    144    166    157    170    183    197    207    South Korea       1,743 1,644                               2,022            2,116 2,137 2,201 2,267 2,324
                                                                     China                      205    250    334    453    449    495    519    540    % change           -21%    -6%                               23%                5%     1%     3%     3%     3%
                                                                     Australia                  109    131    101    110    122    122    125    125    Taiw an           1,313 1,357                               1,526            1,191 1,132 1,200 1,248 1,279
                                                                     Other                      232    235    240    258    267    354    420    479    % change           -12%     3%                               12%              -22%    -5%     6%     4%     3%
                                                                     Highly Probable Grow th                                  0      1       7     10   India             1,550 1,690                               2,170            2,365 2,507 2,682 2,897 3,129
                                                                     Disruption Allowance                                   (13)   (55)   (59)   (61)   % change           -13%     9%                               28%                9%     6%     7%     8%     8%
                                                                     Required Adjustment                                    -      -      -      -      USA               1,925 1,618                               2,201            2,074 2,033 2,236 2,325 2,418
                                                                  Total Production            1,380 1,333 1,451 1,652 1,684 1,777 1,896 1,969           % change           -11%   -16%                               36%               -6%    -2%   10%      4%     4%
                                                                  % change                    -2.4% -3.4%    8.8% 13.9%    1.9%   5.5%   6.7%   3.8%    Brazil              450    339                                464              499    509    529    551    573
                                                                  Capacity Utilisation %        73%    66%    68%    65%    63%    65%    68%    70%    % change            -8%   -25%                               37%                8%     2%     4%     4%     4%
                                                                  NPI                             77     96    167    265    250    270    280    280   Other               809    625                                467              410    469    515    535    551
                                                                  CONSUMPTION                                                                           Total World      26,635 25,151                             32,448           33,781 34,279 36,303 38,155 39,928
                                                                    Nth America                 132    109    132    134    139    149    154    158    % change            -8%    -6%                               29%                4%     1%     6%     5%     5%
                                                                    Europe                      422    361    408    414    413    422    429    436    Austenitic ratio 70.7% 73.7%                                72.0%            71.5% 72.7% 73.0% 73.1% 73.3%
                                                                    China                       298    443    541    666    665    706    754    799    Scrap ratio       47.0% 40.9%                               41.3%            38.4% 38.7% 39.5% 39.6% 39.8%
                                                                    Japan                       176    154    170    167    170    178    180    182
                                                                                                                                                                                       Nickel Production (bars) versus Consumption (kt Ni)
                                                                    India                        34     42     50     56     58     63      69    75
                                                                                                                                                             2,000
                                                                    Other Asia                  142    142    155    137    139    145    148    152
                                                                   Other World                   71     69     67     61     78     83     86     90
                                                                  Total consumption           1,275 1,317 1,521 1,636 1,664 1,746 1,820 1,892                1,500
                                                                   % change                   -7.1%   3.3% 15.5%    7.5%   1.7%   4.9%   4.3%   3.9%
                                                                  For Stainless                 764    826 1,002 1,089 1,107 1,160 1,212 1,261
                                                                   % change                  -12.2%   8.1% 21.2%    8.7%   1.7%   4.8%   4.5%   4.0%         1,000

                                                                  For Non-Stainless             511    491    519    540    557    586    608    631
                                                                   % change                    1.7% -4.0%    5.8%   4.1%   3.1%   5.2%   3.8%   3.8%          500
                                                                  Restocking                          0         0      0      0      0       0      0
                                                                  SURPLUS/(DEFICIT)             104     16    (70)    17     20     31     76     77
                                                                  LME stocks                     79    158    136     90                                        0
                                                                                                                                                                               2008               2009               2010               2011             2012F              2013F
                                                                  Producer Stocks               103     89     91     98
                                                                  Estimated Total Stocks        389    402    331    329    349    381    457    533                  Nth America      Europe             Chin a            Japan            In dia        Other Asi a      Othe r World

                                                                  Weeks Consumption            15.9   15.9   11.3   10.5   10.9   11.3   13.0   14.7                 Can ada          We stern Europe    CIS            Japan               Chi na       Austra lia        Other
                                                                  Price (US$/t)              21,204 14,651 21,806 22,843 17,791 18,875 20,000 21,000
                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                            12 October 2012
116
                                                                                                                                        12 October 2012




                                           Zinc – Squeezed today, but more surpluses tomorrow
                                           Zinc has been the best performing LME metal year to date and one of the best over the
                                           course of the recent rally. We attribute this outperformance to two primary factors. The first
                                           is weaker production from China, notably from smaller smelters in response to low prices.
                                           The second has been the increasing physical tightness of Western markets, including
                                           large financing deals and poor availability of LME warrants despite large inventories. This
                                           has been exacerbated over the past month by huge warrant cancelations.
                                           However, fundamentally the zinc market remains oversupplied, and prospects for mine
                                           closures moving the market into deficit have been delayed. We thus look for an
                                           improvement in real demand to provide real support prices, which otherwise look
                                           vulnerable. The outlook for premiums appears much stronger, but this could lead to
                                           weaker flat prices, with smelters relying more on premium revenue, as has been the case
                                           with aluminium.

                                           Financing deals, inventories, and LME tightness II
                                           The reader can be forgiven for feeling a sense of déjà vu, for the zinc market has
                                           increasingly grown to resemble that of aluminium.

            Zinc financing has             Financing rates for zinc have improved in recent months, at the same time that contango
                 become more               has moderated for aluminium. The result is that the gap in yields received for financing
                                           aluminium compared to zinc, which had ballooned earlier in the year, has now been
                     attractive
                                           effectively closed. While aluminium still holds certain advantages, including being a
                                           significantly larger market, zinc financing deals are likely to see an increase in response to
                                           the better yields.

                                                                           Exhibit 231: LME on warrant inventories have seen
 Exhibit 230: The attractiveness of zinc relative to                       a large fall, primarily in response to cancelations in
 aluminium financing has improved                                          New Orleans
 Annualized yield rolling 12-month to 3-month contracts                    kt

                                 Zinc           Aluminium                  1000
 12%
                                                                            900
 10%
                                                                            800
  8%                                                                        700

  6%                                                                        600

                                                                            500
  4%
                                                                            400
  2%
                                                                            300
  0%
                                                                            200
 -2%                                                                        100

 -4%                                                                            0
    2008           2009           2010           2011         2012               2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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



                                           At the same time, there has been a huge fall in on warrant LME inventories, primarily as a
                                           result of roughly 250 kt of warrant cancelations in New Orleans in mid-September. Last
                                           month also saw 36 kt of cancelations in Johor, where there have also been large lead, tin,
                                           and aluminium cancelations over the past two months.
                                           The result is that already relatively poor availability of LME metal – 223 kt of on warrant
                                           metal outside of New Orleans and Detroit to start the year – has become dramatically
                                           worse, with only 54 kt of metal on warrant outside of the large queues at New Orleans,
                                           Detroit, Vlissingen, and Johor.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                          117
                                                                                                                          12 October 2012




                                        Exhibit 232: And LME metal availability is very poor
                                        kt

                                         1,200

                                                                                                                Johor Canceled
                                         1,000
                                                                                                                Johor On Warrant

                                                                                                                Vlissingen Canceled
                                             800
                                                                                                                Vlissingen On Warrant

                                             600                                                                Detroit Canceled

                                                                                                                Detroit On Warrant

                                             400                                                                New Orleans Canceled

                                                                                                                New Orleans On Warrant
                                             200
                                                                                                                ROW Canceled

                                                                                                                ROW On Warrant
                                              0
                                               2009                2010                 2011         2012
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                LME metal very          The tightness of the physical market is unlikely to diminish in the near term, particularly
             difficult to access        with 2013 premium negotiations under way. However, the zinc market remains
                                        oversupplied, and an improvement in underlying demand is likely necessary to sustain
                                        current prices.

                                        China – demand weak, but so too is production
                                        While demand in China has been weaker than expected, so too has smelter production.
                                        Government data for refined zinc production show a consistent year-on-year decline
                                        through August. With prices languishing below RMB15,000/t many of China’s smaller
                                        smelters, which represent the majority of Chinese zinc smelting capacity, face negative
                                        cash margins, resulting in production curtailments.
                                        There has also been specific difficulties at two larger smelters. Huludao Zinc, China’s
                                        second largest smelter, has fallen into an acute debt crisis. The company’s latest
                                        statement put its overdue bank loans at RMB712M, six times the company’s net assets in
                                        2011 and the company has reportedly cut refined zinc production to only one-tenth of its
                                        390 kt/y capacity.
                                        The Shaoguang smelter (75 kt/y) was also shut earlier in the year as a result of a lead
                                        poisoning incident in the area, but has since resumed production.

             Chinese refined            Largely as a result of this weaker production, SHFE inventories, which had built
          imports are likely to         significantly over the course of 2009-2011, have drawn steadily, declining by about 120 kt
                                        since the peak last August (when prices first fell off). China has also imported significantly
                     fall back
                                        more refined zinc this year than in 2010 or 2011. This was aided by a lowering of import
                                        tariffs on 1 July of last year, from 3% to 1% (in addition to normal 17% VAT). Import
                                        volumes since have tracked movements in the import arbitrage, at a roughly two-month
                                        lag (this is typical for copper and other metals as well), with a very possible arb in Q4 2011
                                        leading to strong imports, a weaker arb seeing lower imports in Q2, followed by a
                                        resurgence in both. However, the recent LME rally has seen the import arb decline
                                        significantly, and we expect Chinese imports to fall back as a result.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                            118
                                                                                                                                                                         12 October 2012




 Exhibit 233: Chinese refined zinc production has
 been weak year to date                                                                          Exhibit 234: … And SHFE inventories have drawn
 kt                                                                                              kt

                     2008         2009         2010            2011           2012               450
 550
                                                                                                 400
 500
                                                                                                 350

 450                                                                                             300

 400                                                                                             250

                                                                                                 200
 350
                                                                                                 150
 300
                                                                                                 100
 250
                                                                                                  50

 200                                                                                                  0
       Jan   Feb   Mar      Apr   May    Jun       Jul    Aug     Sep     Oct        Nov   Dec         2007          2008          2009          2010          2011          2012

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



                                                   In another price-induced move, Yunnan province announced that it would purchase 50 kt
                                                   of zinc for its stockpiles (as well as 200 kt of aluminium and 20 kt of copper). Luoping Zinc
                                                   subsequently declared that it had sold 25 kt to the government as part of the program. The
                                                   stockpiling represents just under 1% of China’s annual production and should provide
                                                   modest short-term support for the domestic market. The province had undertaken a similar
                                                   program in 2008-2009 in the wake of the financial crisis.
                                                   Looking forward, Chinese refined zinc output should rebound as current prices are
             But demand should                     sufficient to incentivize small smelters to resume production. The focus thus shifts to
                                                   demand. Here, prospects look better for 2013, though Q4 is unlikely to see a large
                improve in 2013
                                                   improvement. The real estate market has already seen signs of improvement though, and
                                                   should be significantly more positive for demand moving forward than the weakness seen
                                                   early in the year.

 Exhibit 235: The Chinese import arbitrage has fallen                                            Exhibit 236: Expectations of mine closures have
 back, suggesting a fall in refined imports is likely                                            been pushed back significantly
                                                                                                 kt

                         Import Arb (US$/t, lhs)          Imports (kt, rhs)                                                   Start of Year             Current
  400                                                                                       60
                                                                                                       0
                                                                           LME Cheap
                                                                                                 -100
  300                                                                                       50
                                                                                                 -200
  200                                                                                       40
                                                                                                 -300

                                                                                                 -400
  100                                                                                       30
                                                                                                 -500

      0                                                                                     20   -600

                                               Jul 1, 2011:                                      -700
 -100                                          Import tariff          LME Expensive         10
                                               lowered
                                                                                                 -800

 -200                                                                                       0    -900
    Jan-10 May-10 Sep-10          Jan-11 May-11 Sep-11          Jan-12 May-12 Sep-12                          2012          2013          2014          2015          2016          2017

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                             119
                                                                                                                                                                     12 October 2012



                                                   Moreover, the infrastructure approvals made over the past six months are likely more
                                                   important for zinc than any other LME metal. There is typically a several month lag
                                                   between approval and the project’s impact on real demand, but the latter should be felt
                                                   increasingly in 2013.

                                                   Mine closures delayed
                                                   Looking at the next few years, the prospect for tighter zinc market balances stemming
                                                   from large mine closures has significantly diminished over recent months. Several mines
                                                   that had been scheduled to shut within the next three years have now pushed back their
                                                   timelines. These include the following:
                                                              Century (510 kt/y) has been pushed back from 2014 to 2016.
                                                              Perseverance (135 kt/y) has been pushed to 2013 from 2012.

                Zinc to remain in                  The result of these mine life extensions has been to push back the expectation for zinc
               surplus for longer                  supply pressure from mine closures. Comparing current estimates with those at the
                                                   beginning of the year, expectations for mine closures during the 2013-2015 period have
                                                   diminished by 1 Mt.
                                                   The zinc market is now unlikely to face significant supply-side pressure from mine closures
                                                   within our forecast horizon, and we thus expect the market to remain in surplus through
                                                   2015 (though near-balanced by 2015).

 Exhibit 237: Zinc forecast comparison                                                     Exhibit 238: Zinc historical price and forecast
 US$/t                                                                                     US$/t

  $2,400                                                                                    $4,800                      Zinc 3M                     Quarterly Avg Forecast
                 Credit Suisse Forecast     Forward Curve     Bloomberg Forecast Mean

  $2,300                                                                                    $4,300


  $2,200                                                                                    $3,800


  $2,100                                                                                    $3,300


  $2,000                                                                                    $2,800


  $1,900                                                                                    $2,300


  $1,800                                                                                    $1,800


  $1,700                                                                                    $1,300


  $1,600                                                                                     $800
              Q4 12         Q1 13         Q2 13       Q3 13       Q4 13         Q1 14            2005        2006   2007     2008    2009    2010      2011      2012        2013

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




 Exhibit 239: Forecast zinc prices
 US$/t, long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                    1Q-12     2Q-12    3Q-12     4Q-12f   2012f    1Q-13f     2Q-13f     3Q-13f     4Q-13f    2013f        2014f        2015f         LT
            LME zinc 3M          New       US$/t     2,031    1,930     1,892     2,000   1,963      2,100      2,150      2,200     2,250    2,175        2,425        2,800       1,900
                                 New      US¢/lb      0.90     0.90      0.85      0.90    0.90       0.95       1.00       1.00      1.00     1.00         1.10         1.25        0.85
                                  Old      US$/t     2,031    1,930     1,800     1,850   1,903      1,900      2,000      2,050     2,100    2,013        2,400        2,800       1,900
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                           120
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 240: Global zinc supply and demand estimates
                                                             In thousands of metric tonnes (kt)

                                                                                                    2008   2009   2010   2011f   2012f   2013f   2014f   2015f                               2008      2009     2010    2011f   2012f   2013f   2014f   2015f
                                                             MINED ZINC SUPPLY                                                                                   STOCKS
                                                               North America (inc Mex ico)         1,927 1,868 1,876 2,024 2,131 2,057 2,072 2,068               LME                          253       457       701     822
                                                               C & S America                         615    689    688    689    704    698    719    688        SHFE Stocks                    63      172       311     364
                                                               Europe                                838    787    783    803    870    963    930    873        Weeks Cons. (Exch. Stks)     1.5       3.2       4.5     4.9
                                                               CIS                                   657    612    657    630    711    866    928    875        Producer Stocks              365       317       313     366
                                                               China                               3,160 3,198 3,701 4,307 4,942 5,076 5,221 5,296               Consumer Stocks              128       105        97     204
                                                               India                                 626    688    719    745    781    878    886    904        Merchant & US strategic        25       21        19      42
                                                               Other Asia                            398    434    495    516    566    630    702    727        Reported stocks              834     1,072     1,441   1,798
                                                               Australia                           1,508 1,316 1,481 1,483 1,452 1,613 1,649 1,555               Weeks Consumption            3.9       5.5       6.4     7.4
                                                               Africa                                289    295    309    324    330    418    423    420        Price (US$/t)              1,874     1,543     2,094   2,193   2,075   2,363   2,800   3,000
                                                               Peru                                1,550 1,430 1,403 1,185 1,235 1,420 1,520 1,570               ZINC CONSUMPTION BY COUNTRY
                                                             Highly Probable Projects                 -     -       -      -      -      -      -      -          USA                        981        902      948    1,012 1,057 1,099 1,132 1,163
                                                             Probable Projects                        -     -       -      -      -       15   258    624         % Change                -10.6%      -8.0%     5.1%     6.7%   4.5%   4.0%   3.0%   2.7%
                                                             Disruption Allowance                     -     -       -      -    (103)  (439)  (451)  (449)        Other North America        356        279      298      311    321    335    347    358
                                                             World Mined Zinc Production          11,567 11,317 12,112 12,706 13,618 14,194 14,854 15,149         % Change                -10.7%     -21.7%     7.0%     4.4%   3.2%   4.2%   3.6%   3.3%
                                                               % Change                             5.8% -2.2%    7.0%   4.9%   7.2%   4.2%   4.6%   2.0%         C & S America              466        381      433      456    471    494    515    515
                                                             REFINED ZINC SUPPLY                                                                                  % Change                  2.8%     -18.2%    13.6%     5.5%   3.2%   4.8%   4.3%   0.0%
                                                               North America (inc Mex ico)        1,334 1,224 1,266 1,236 1,269 1,284 1,389 1,398                 Western Europe           1,931      1,466    1,838    2,040 1,999 2,009 2,020 2,030
                                                               C & S America                        470    417    536    630    654    698    698    708          % Change                -17.8%     -24.1%    25.4%    11.0% -2.0%    0.5%   0.5%   0.5%
                                                               Europe                             2,197 1,809 2,090 2,164 2,124 2,213 2,243 2,273                 Eastern Europe             467        326      385      446    455    476    496    496
                                                               CIS                                  655    543    600    620    664    675    675    695          % Change                -11.0%     -30.1%    17.8%    15.9%   2.0%   4.6%   4.4%   0.0%
                                                               China                              3,905 4,246 5,100 5,209 5,569 6,358 6,608 6,833                 China                    3,795      4,100    4,705    5,257 5,531 6,000 6,444 6,891
                                                               India                                595    646    727    821    788    933    933    933          % Change                  7.5%       8.0%    14.8%    11.7%   5.2%   8.5%   7.4%   6.9%
                                                               Japan                                622    541    593    546    587    625    625    635          India                      479        495      561      597    627    671    721    775
                                                               South Korea                          738    722    779    859    920    960 1,010 1,010            % Change                  2.1%       3.3%    13.5%     6.3%   5.0%   7.0%   7.5%   7.5%
                                                               Other Asia                           204    223    247    252    283    283    283    283          Japan                      562        421      538      497    512    525    530    535
                                                               Oceania                              498    525    499    517    507    539    539    539          % Change                 -6.2%     -25.0%    27.8%    -7.6%   3.0%   2.5%   1.0%   1.0%
                                                               Africa                               268    279    275    256    183    185    185    185          South Korea                528        426      522      547    563    583    598    613
                                                             Highly Probable Grow th                 -      -      -      -      -      -      -      -           % Change                 -1.3%     -19.3%    22.3%     4.9%   3.0%   3.5%   2.5%   2.5%
                                                             Disruption Allowance                    -      -      -      -    (102)  (443)  (456)  (465)         Other Asia               1,085        820      956    1,045 1,072 1,128 1,184 1,195
                                                             Adjustments to refined zinc             -      -      -      -      -      -      -      -           % Change                  7.8%     -24.4%    16.6%     9.2%   2.6%   5.2%   4.9%   0.9%
                                                             World Refined Production             11,487 11,174 12,712 13,108 13,446 14,309 14,731 15,026         Oceania                    284        217      223      226    232    241    249    249
                                                               % Change                            2.9% -2.7% 13.8%     3.1%   2.6%   6.4%   2.9%   2.0%          Africa                     181        150      165      173    178    187    196    196
                                                             Incl. Scrap/secondary                   888    773    886    938    948    998 1,048 1,098          China SRB & Prov inces       -         494      (50)     100     -      -      -      -
                                                             Process losses/pipeline stocks          647    637    705    711    726    773    795    811        Restocking                   -          -       200       50     -      -      -      -
                                                             Required mined zinc                  11,246 11,038 12,532 12,880 13,223 14,084 14,478 14,739        World Consumption         11,114     10,136   11,681   12,608 13,018 13,748 14,432 15,016
                                                             Concentrate Balance                    321    278   (420)  (174)   395    110    375    409          % Change                 -2.9%      -8.8%    15.2%     7.9%   3.3%   5.6%   5.0%   4.0%
                                                             World Consumption                    11,114 10,136 11,681 12,608 13,018 13,748 14,432 15,016        World Refining Capacity   14,270     15,264   15,362   15,546 15,762 15,877 16,062 15,830
                                                             REFINED SURPLUS/(DEFICIT)              372 1,038 1,031      500    428    561    299       10       Capacity Utilisation (%)  80.5%      73.2%    82.7%    84.3% 85.3% 90.1% 91.7% 94.9%
                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                12 October 2012
121
                                                                                                                                               12 October 2012




                                         Lead – Moving into the spotlight
                                         Lead has been among the best performing LME metals over the course of the recent rally,
                                         as well as year to date, up 25% from mid-August lows, and over 30% from late June.
                                         Lead’s outperformance has been driven by a tight physical market resulting from the
                                         strongest demand growth of any metal, combined with tight scrap availability and lack of
                                         refined production growth outside of China. This has been accentuated by the difficulty in
                                         obtaining metal from LME warehouses due both to long queues and tightly held warrants.
                                         We do not expect these influences to change, either in the near or medium term. Rather,
                                         the supply situation is likely to become more acute with the shutdown of the Herculaneum
                                         smelter and closures of key mines. Chinese environmental policies will represent a key
                                         swing factor on the supply side, and global economic growth on the demand side, but the
                                         lead market looks poised to enter an era of tighter markets and higher prices.

                                         Squeeze emanating from the US
                                         The lead market has been increasingly squeezed over the past few months by a chain of
                                         events emanating from the US.
                                                1)   A mild winter and a fall in battery scrap prices (down 30% from July to November
                                                     last year) led to weaker scrap availability in the US.
                                                2)   400 kt/y of new US secondary smelting capacity significantly increased demand
                                                     for lead scrap. The combination of supply weakness and significantly increased
                                                     demand pushed scrap prices higher.

                  Tight US scrap                3)   Improving end-use demand growth, particularly from strong auto sector demand,
                 market prompted                     and a fire at the 130 kt/y Herculaneum smelter, tightened the refined market in the
                                                     US.
                  global squeeze
                                                4)   US refined lead premiums rose to compensate smelters for higher scrap prices,
                                                     pushing premiums far above the levels seen in the rest of the world.
                                                5)   Consumers and traders began looking to source lead from the rest of the world to
                                                     supply the tight US market and take advantage of high premiums.
                                                6)   Major traders took advantage of this pick-up in physical demand to lock up more
                                                     LME material and limit access to LME metal.
                                         The result of this chain of events has been an increasingly tight physical market, driving up
                                         premiums around the world, and creating upwards pressure on lead prices.

 Exhibit 241: US secondary prices plummeted in Q4                           Exhibit 242: Resulting in strong premiums in the US,
 2011, but have rocketed back on scrap shortages                            which have attracted metal from around the world
 US used battery prices; USc/lb                                             US$/t
   50
                                                                            350                        US          Europe          Singapore
   45
                                                                            300
   40

   35                                                                       250

   30
                                                                            200
   25
                                                                            150
   20

   15                                                                       100

   10
                                                                              50
     5
                                                                               0
     0                                                                          2004    2005    2006        2007   2008     2009   2010    2011   2012
      2009                  2010         2011                2012

 Source: Metal Bulletin, Credit Suisse                                      Source: Metal Bulletin, Reuters, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                122
                                                                                                                                            12 October 2012




                                                                            Exhibit 244: … With less than half of this in
 Exhibit 243: LME on warrant stocks have                                    warehouses without long queues, let alone actually
 plummeted                                                                  available to the market
 kt                                                                         kt

 400                                                                               Other Asia       Other Europe   Other US    Johor   Vlissingen   Detroit
                                                                            400
 350
                                                                            350
 300
                                                                            300
 250
                                                                            250
 200
                                                                            200

 150
                                                                            150

 100
                                                                            100

  50
                                                                             50

      0                                                                          0
       2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012           2009                 2010             2011             2012

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



                                          Moreover, the current trend could extend even further. While a return to higher scrap
                                          prices and more normal weather should improve scrap availability marginally, there is
                                          insufficient domestic scrap in the US to supply the large additional secondary capacity.
                                          The US will thus be forced to meet incremental end-use demand via imports or stock
                                          drawdowns, with any improvement in end-use demand thus likely to have a direct flow-
                                          through to inventory draws (whether in the US or abroad).

                      LME metal           In fact, as a result of the squeeze outlined above, LME stocks have plummeted, with on
                 availability very        warrant inventories down nearly 50% from the April peak. Moreover, half of the remaining
                                          on warrant material is held in Vlissingen, Detroit, and Johor where long queues have
                             poor
                                          rendered the metal virtually inaccessible.
                                          Of the remaining 88 kt (down more than 220 kt, or 70%, from the April peak), a significant
                                          portion is tightly held by major traders. It has thus become extremely difficult to source
                                          metal from the LME, with customers and traders scouring alternate sources of supply. This
                                          has led to a rise in premiums outside the US, as well as attempts by traders to source
                                          metal around the world to ship to the US.

             US likely to import          Looking further ahead, the impending closure of Doe Run’s 130 kt/y Herculaneum smelter
            increasing volumes            at the end of 2013 will further tighten the US domestic market. The US is likely to export
                                          more concentrate, and import additional refined metal. The natural destination for the
                 of refined lead
                                          concentrate from Doe Run would be La Oroya in Peru, but that complex has been beset
                                          by problems and it is uncertain when or whether it will return to operation, and capacity at
                                          La Oroya is below that of Herculaneum. The US is thus likely to provide an increasing call
                                          on existing ROW refined lead supply going forward.

                                          Supply and Demand
                                          Lead supply in the near term is being driven by three main factors: Chinese environmental
                                          closures, scrap availability, and mine closures.
                                               1)    Chinese environmental closures have waned since the beginning of the year as
                                                     the government has prioritized support for economic growth above environmental
                                                     objectives. Thus, after the flurry of smelter closures in late 2011 and early 2012 in
                                                     response to lead poisoning incidents and other environmental accidents, there
                                                     has been little in the way of additional closures over the past six months.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                              123
                                                                                                                               12 October 2012



                                                       However, this has not changed the government’s underlying attitude towards the
                                                       lead industry. In fact, China’s Ministry of Industry and Informational Technology
                                                       published two lists (in July and September) of specific smelters that were ordered
                                                       closed as part of an effort to shut outdated production. While these lists covered a
                        Chinese                        wide array of industries, lead was targeted far more than any other base metal,
                  environmental                        with over 1.1 Mt/y of capacity listed – roughly 17% of the entire country’s capacity.
                  closures a key
                                                       Some of the smelters listed were already being idled and others had plans
                  swing variable                       already on the table to shut down, and China does enjoy a surplus of refining
                                                       capacity. Nevertheless, delivering on these closures could noticeably tighten the
                                                       Chinese market. However, local officials are likely to delay implementation in
                                                       order to protect local jobs, GDP, etc. The extent of such delays will be very
                                                       significant, as the longer implementation is delayed, the more leeway exists for
                                                       new modern capacity to be brought on-line.
                                               2)      Scrap availability in North America has been poor this year following the mild
                                                       winter and low prices in Q4 2011. While rebounding scrap prices and a return to
                                                       more normal weather should improve availability somewhat, there is little
                                                       additional scrap available in the US market nor in Europe. In contrast, scrap
                                                       generation should increase significantly in China as the huge increase in China’s
             Mine closures and                         auto fleet over the past few years translates to higher scrapping volumes. As a
                limited scrap in                       result, we expect Chinese secondary lead production to grow by roughly 250 kt/y
            West to push market                        over the next three years.
                     into deficit              3)      Mine closures in the next few years are expected to remove ~200 kt/y of supply.
                                                       This includes closure of major mines such as Century, Brunswick, Lisheen, and
                                                       Pomorzany-Olkusz. As for zinc, these closures are expected to create significant
                                                       pressure on supply, helping to push the market into deficit starting in 2014.

 Exhibit 245: Chinese closures of backwards                                     Exhibit 246: Large mine closures should help move
 production could be an important swing factor                                  market into deficit in medium term
 kt                                                                             kt/y

  1400                 July      September           % of Capacity        20%          0

                                                                          18%
  1200                                                                            -10
                                                                          16%
                                                                                  -20
  1000                                                                    14%
                                                                                  -30
                                                                          12%
      800
                                                                          10%     -40
      600
                                                                          8%      -50

      400                                                                 6%
                                                                                  -60
                                                                          4%
      200                                                                         -70
                                                                          2%
                                                                                  -80
       0                                                                  0%                   2013     2014        2015           2016
              Copper          Lead            Zinc            Aluminium
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                     Source: Credit Suisse



                                          With respect to demand, while sluggish global economic growth has clearly hurt lead,
                                          demand has been more resilient than for any other metal. The number one reason for this
                                          has been the rebound in battery production in China. 2011 was heavily affected by the
                                          environmental-induced closures of hundreds of plants; these have now been resolved,
                                          with production not only returning to previous levels, but also catching up with end-use
                                          growth over the time period, as well as rebuilding inventories that had been run down.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                124
                                                                                                                                                                             12 October 2012



                                                     In addition, Chinese lead demand has benefited from its lack of exposure to real estate
                                                     activity, which slowed notably in H1 2012. On the other hand, the rebound we are now
                                                     observing in private sector housing (see Chinese Real Estate and Basic Materials
                 Demand has been
                                                     Demand: The Tide Is Turning...) will similarly not help lead as much as other metals.
                  strongest of any
                       base metal                    Lead demand also benefited from a strong global auto industry during the early part of the
                                                     year, though this has turned in recent months, with both sales and production data from
                                                     across the globe declining. Finally, lead demand has been supported by the structural
                                                     increase in demand for backup power systems, including from the power and utilities
                                                     sectors.

 Exhibit 247: Chinese lead battery production has                                              Exhibit 248: And global demand growth has been
 been very strong as impact of 2011 closures fade                                              the best of any base metal
 KVAH, sa                                                                                      kt
 18,000                                                                                               5%

 16,000                                                                                               4%

 14,000
                                                                                                      3%
 12,000
                                                                                                      2%
 10,000
                                                                                                      1%
   8,000
                                                                                                      0%
   6,000

   4,000                                                                                              -1%

   2,000                                                                                              -2%

         0                                                                                            -3%
          2006       2007         2008       2009       2010       2011      2012                              Copper      Aluminium        Nickel        Zinc            Lead            Tin

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




 Exhibit 249: Lead forecast comparison                                                         Exhibit 250: Lead historical price and forecast
 US$/t                                                                                         US$/t

  $2,600                                                                                        $4,000                            Lead 3M        Quarterly Avg Forecast
                   Credit Suisse Forecast      Forward Curve     Bloomberg Forecast Mean

  $2,500
                                                                                                $3,500
  $2,400

  $2,300                                                                                        $3,000

  $2,200
                                                                                                $2,500
  $2,100
                                                                                                $2,000
  $2,000

  $1,900                                                                                        $1,500

  $1,800
                                                                                                $1,000
  $1,700

  $1,600                                                                                            $500
                 Q4 12        Q1 13         Q2 13        Q3 13       Q4 13         Q1 14                2005        2006   2007     2008     2009    2010     2011        2012     2013

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




 Exhibit 251: Forecast lead prices
 US$/t; long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                      1Q-12      2Q-12    3Q-12     4Q-12f    2012f     1Q-13f       2Q-13f    3Q-13f       4Q-13f    2013f       2014f          2015f          LT
            LME lead 3M            New       US$/t     2,097     1,979     1,983      2,130   2,047         2,200      2,300      2,350      2,450    2,325       2,625          3,000      2,000
                                   New      US¢/lb      0.95      0.90      0.90       0.95    0.95          1.00       1.05       1.05       1.10     1.05        1.20           1.35       0.90
                                    Old      US$/t     2,097     1,979     1,850      1,900   1,957         2,000      2,100      2,200      2,200    2,125       2,500          3,000      2,000
 Source: Credit Suisse


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                      125
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 252: Global lead supply and demand estimates
                                                             In thousands of metric tonnes (kt)

                                                                                                   2008      2009     2010       2011     2012f    2013f     2014f     2015f                             2008  2009      2010     2011      2012f      2013f   2014f    2015f
                                                             MINED LEAD SUPPLY                                                                                                  STOCKS
                                                              North America (inc Mex ico)           589       562   549          563       576      586       593       588     LME                        45   147        209      353
                                                              C & S America                         131       128   119          136       126      121       117       110     SHFE                                                 31
                                                              Peru                                  320       270   235          208       238      272       270       279     Days Cons. (Exch. Stks)   6.5   7.7        7.4      8.3
                                                              Europe                                245       238   215          228       240      242       252       253     Producer Stocks           146   135        129      142
                                                              CIS                                      90     110   139          200       211      257       255       264     Consumer Stocks           114   106        111       95
                                                              China                               1,231     1,423 1,857        2,358     2,730    2,796     2,900     3,005     Merchant & US strategic      1     1          1        1
                                                              Other Asia                            133       152   168          187       212      237       303       303     Reported Stocks           306   389        450      622
                                                              Australia                             605       544   648          574       601      618       614       596     Days Consumption         12.7  16.0       17.1     22.6
                                                              Africa                                101       103   114             95       90      89        91        90     Price (US$/t)           2,067 1,719      2,151    2,397     2,047      2,313   2,625    3,000
                                                             Probable Projects                       -         -     -            -         -        26       116       190     LEAD CONSUMPTION BY COUNTRY
                                                             Disruption Allowance                    -         -     -            -        (38)    (157)     (165)     (170)     USA                    1,560 1,390      1,405 1,550 1,573 1,592 1,600 1,608
                                                             World Mined Lead Production          3,443     3,529 4,043        4,549     4,987    5,087     5,345     5,507      Other North America       31    38         22     15     15     15     15     16
                                                              % Change                             2.7%      2.5% 14.6%        12.5%      9.6%     2.0%      5.1%      3.0%      C & S America            619   563        656    634    647    666    686    707
                                                             REFINED LEAD SUPPLY                                                                                                 Western Europe         1,514 1,254      1,323 1,363 1,336 1,342 1,346 1,350
                                                              North America (inc Mex ico)         1,798     1,724    1,844     1,939     1,929    1,983     1,863     1,863      Eastern Europe           315   259        317    274    277    285    294    302
                                                              C & S America                         391       330      323        335      332       415       435       435     China                  3,049 3,662      4,032 4,281 4,710 5,086 5,468 5,851
                                                              Europe                              1,699     1,545    1,581     1,625     1,648    1,663     1,693     1,723      India                    375   433        445    456    474    503    533    570
                                                              CIS                                   196       183      232        228      203       336       336       346     Japan                    211   153        190    190    198    200    200    201
                                                              China                               3,187     3,720    4,056     4,395     4,673    5,378     6,032     6,377      South Korea              318   328        385    405    405    417    425    434
                                                              Japan                                 225       191      219        212      207       212       212       212     Other Asia               696   697        714    762    770    804    832    862
                                                              South Korea                           276       327      320        423      430       440       440       440     Oceania                   26    22         30     25     25     26     26     26
                                                              Other Asia                            680       718      739        803      855       880       880       880     Africa                   108    95         77     98     98    101    105    109
                                                              Australia                             280       265      217        225      215       270       270       270    World Consumption       8,822 8,894      9,596 10,053 10,527 11,038 11,531 12,036
                                                              Africa                                110       108      106        118      112       123       123       123     % Change               5.0% 0.8%        7.9% 4.8% 4.7% 4.9% 4.5%           4.4%
                                                             Prim. ref. Pb adjustment required       -         -        -         -         -      (450)     (600)     (600)          14,000
                                                             Sec. ref. Pb adjustment required        -         -        -         -         -        -         -         -
                                                             Highly Probable Grow th                 -         -        -         -         -        -         -         -            12,000
                                                             Disruption Allowance                    -         -        -         -        (38)    (161)     (172)     (176)
                                                                                                                                                                                      10,000
                                                             World Refined Production              8,842     9,110    9,637    10,304    10,566   11,088    11,512    11,893
                                                              % Change                             5.8%      3.0%     5.8%      6.9%      2.5%     4.9%      3.8%      3.3%            8,000
                                                             World Secondary Ref. Production      4,321     4,522    4,979     5,114     5,026    5,220     5,549     5,685
                                                                                                                                                                                 kt
                                                                                                                                                                                       6,000
                                                             World Production Primary Ref.        4,521     4,588    4,658     5,191     5,540    5,869     5,963     6,208                                                        77
                                                              Residues scrap available            1,305     1,325    1,001      1,046      886     1,056     1,133     1,179           4,000
                                                              Metallurgical losses                  261       261      266        294      316       332       337       351
                                                                                                                                                                                       2,000
                                                              Required mined lead                  3,477     3,524    3,923     4,439     4,969    5,144     5,167     5,379
                                                             Concentrate Balance                     (34)        6     120        111        17      (57)      178       128               0
                                                             World Consumption                     8,822     8,894    9,596    10,053    10,527   11,038    11,531    12,036                    200 8    200 9   201 0   201 1     201 2f     201 3f      201 4f   201 5f
                                                             DLA Stock Sales                         -         -        -         -         -        -         -         -
                                                                                                                                                                                       North America    Europe   other   Asia     China      Primary lead      recycled lead
                                                             SURPLUS/(DEFICIT) LEAD                    20     216         41      251        39       50       (20)     (143)




                                                                                                                                                                                                                                                                                12 October 2012
                                                             Source: Credit Suisse
126
                                                                                                                                             12 October 2012




                                         Tin – Squeezed, but supply returning
                                         Tin prices have been among the most the most volatile on the LME, rallying 20% within
                                         the month of August and now sitting over 25% above the lows seen in late July and early
                                         August. The rally has been driven by a number of micro factors beyond the improvement
                                         in macro sentiment.
                                         Most importantly, tin producers have demonstrated a greater degree of sensitivity to low
                                         prices reached this year than those of any other LME metal. On the back of this, the small
                                         LME tin market has been effectively squeezed by a dominant player, and LME warrants
                                         are now virtually unavailable.
                                         Looking forward, the tin market is likely to remain in deficit in 2012 and 2013, and the
                                         squeeze on the LME is likely to continue for some time. However, rebounding production
                                         in response to higher prices should alleviate pressure by the end of the year.

                                         Supply discipline
                                         With prices dropping below US$2,000/t for most of the summer and reaching as low as
               Supply has fallen in      US$17,125 in late July, producers reacted with increasing curtailments. NBS data show
                  response to low        Chinese year-to-date production down -8.4% yoy through August. The WBMS estimates
                            prices       global refined production down -4.2% yoy through July, with notable declines in Peru and
                                         Thailand as well.
                                         However, the biggest swing producer has been Indonesia, the world’s largest exporter
                                         (second largest producer, after China). In early August, with prices falling below
                                         US$18,000/t, the Indonesian Tin Mining Association announced that 14 of 28 smelters in
                                         Bangka – Indonesia’s primary tin-producing region – had halted production. Two weeks
                                         later, the association reported that number had risen to 24. In addition, PT Timah,
                                         Indonesia’s largest producer, announced that it would reduce spot sales, preferring to
                                         stockpile metal rather than sell it at depressed prices.
                                         These indications of a strong supply-side response to low prices helped ignite a rally in tin
                                         prices – bolstered by the improvement in macro sentiment and a squeeze on the LME
                                         (see below) – that has seen tin prices move above US$21,000/t.

 Exhibit 253: Refined tin production has declined in                     Exhibit 254: Chinese refined tin production is down
 response to low prices                                                  -8.4% yoy
 kt                                                                      kt

      36                                                                                    2008         2009         2010      2011         2012
                                                                         20
      34
                                                                         18

      32
                                                                         16

      30                                                                 14

      28                                                                 12

      26                                                                 10


      24                                                                  8

                                                                          6
      22
                                                                          4
      20                                                                      Jan   Feb   Mar      Apr   May    Jun     Jul   Aug      Sep   Oct    Nov   Dec
        2009            2010               2011               2012
 Source: WBMS, the BLOOMBERG PROFESSIONAL™ service, Credit Suisse        Source: NBS, CEIC, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                127
                                                                                                                                             12 October 2012




                                              However, with prices back at such levels, we expect production volumes to increase
                                              materially, and there has already been evidence that discretionary reductions are being
                                              rolled back. In mid-September, the Indonesian Tin Mining Association revealed that 70%
                                              of smelters in Bangka were producing again, and PT Timah has announced a resumption
                                              of spot sales.

                                              LME Squeeze
                                              The announcements out of Indonesian production cutbacks set in motion a serious
               LME market has                 squeeze on the LME. Following a large rise in canceled warrants, there is currently only
             been successfully                5,890 tonnes of on warrant material on the LME, the lowest level since 2008. Moreover,
                     squeezed                 4,880 tonnes of this is located in Johor, where 90 kt of canceled warrants (all metals) have
                                              created a 45-day queue, leaving only 1,010 tonnes of free available metal on the LME
                                              system, a shockingly small quantity.
                                              One party now holds 50%-79% of LME warrants, up from below 30% at expiration of the
                                              September contract. One party is also listed in the maximum 40+% of three-month LME
                                              longs. Given the shortage of LME warrants and the longs’ dominant position, the current
                                              LME squeeze looks likely to continue for some time. However, increased production from
                                              smelters as a result of rising prices, as well as the incentive to sell metal onto the LME as
                                              a result of strong backwardation, should relieve the current extreme tightness by the end
                                              of the year.

 Exhibit 255: LME warrant availability is virtually                           Exhibit 256: … With the front of the LME curve
 nonexistent                                                                  being squeezed as a result
 kt                                                                           US$/t, LME Cash – three-month

 40                         Other locations         Johor                     200

 35
                                                                              150                                                              Backwardation

 30
                                                                              100
 25

 20                                                                             50


 15
                                                                                 0

 10
                                                                               -50
  5
                                                                                                                                                     Contango
                                                                              -100
  0                                                                              Jan 10 May 10   Sep 10   Jan 11 May 11   Sep 11   Jan 12   May 12    Sep 12
   2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse                   Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                              Other short-term factors
                                              The disturbances at the Colquiri mine (3 kt/y) in Bolivia have also had an impact on
                                              supply, as the mine represents around 1% of global concentrate supply. However, the
                                              dispute appears to be nearing resolution.
                                              Chinese imports of refined tin have remained at elevated levels since Q4 of last year in
                                              response to a positive import arbitrage opportunity, as well as curtailments of domestic
                                              production. However, the arbitrage has turned negative over the past month, and with
                                              prices having risen and domestic production volumes likely to increase as a result, import
                                              volumes are likely to fall back.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                128
                                                                                                                                                                            12 October 2012




 Exhibit 257: The Chinese import arbitrage has
 turned negative after four months of positive
 readings                                                                                    Exhibit 258: Chinese price arb and tin imports
 US$/t

   4,000                                                                                                        Import Arbitrage (lhs, US$/t)          Imports (rhs, tonnes)
                                                                            LME Cheap          6,000                                                                                   6,000

   2,000                                                                                       4,000
                                                                                                                                                                                       5,000
         0                                                                                     2,000
                                                                                                                                                                                       4,000
                                                                                                     0
   -2,000

                                                                                               -2,000                                                                                  3,000
   -4,000
                                                                                               -4,000
                                                                           LME Expensive                                                                                               2,000
   -6,000
                                                                                               -6,000

   -8,000                                                                                                                                                                              1,000
                                                                                               -8,000

 -10,000                                                                                      -10,000                                                                                  0
       Jan 11     Apr 11      Jul 11     Oct 11   Jan 12      Apr 12    Jul 12                       2004     2005   2006     2007     2008     2009     2010        2011     2012

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




 Exhibit 259: Tin forecast comparison                                                        Exhibit 260: Tin historical price and forecast
 US$/t                                                                                       US$/t

  $24,000       Credit Suisse Forecast     Forward Curve       Bloomberg Forecast Mean                                       Tin 3M         Quarterly Avg Forecast
                                                                                              $35,000

  $23,000
                                                                                              $30,000
  $22,000
                                                                                              $25,000
  $21,000
                                                                                              $20,000
  $20,000

                                                                                              $15,000
  $19,000

                                                                                              $10,000
  $18,000


  $17,000                                                                                      $5,000
                Q4 12        Q1 13        Q2 13       Q3 13        Q4 13         Q1 14               2005     2006    2007     2008     2009     2010      2011       2012     2013


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




 Exhibit 261: Forecast tin prices
 US$/t; long-term prices based on 2011 real prices, conversion to US¢/lb rounded to nearest 0.05

                                                  1Q-12       2Q-12     3Q-12     4Q-12f   2012f     1Q-13f    2Q-13f     3Q-13f      4Q-13f      2013f       2014f          2015f         LT
             LME lead 3M        New       US$/t   22,953      20,550   19,287     20,000   20,698    21,000    21,000     21,500      22,500     21,500      23,000         24,000    20,000
                                New      US¢/lb    10.40        9.30     8.75       9.05     9.40      9.55      9.55       9.75       10.20       9.75       10.45          10.90      9.00
                                 Old      US$/t   22,953      20,550   18,500     19,500   20,376    20,500    21,000     21,500      22,500     21,375      23,000         24,000    20,000
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                 129
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 262: Global tin supply and demand estimates
                                                             In thousands of metric tonnes (kt)

                                                             kt                          2008      2009     2010     2011      2012f      2013f     2014f     2015f                                  2008     2009      2010      2011      2012f     2013f     2014f      2015f
                                                             MINE PRODUCTION                                                                                            STOCKS
                                                                China                      121      128      130       127       115        126       134       140        LME                             8      27        16       11
                                                                Indonesia                     96      84       84        78        78        78         78        78       Producer Stock                12         8        7
                                                                Asia ex China, Indonesia     10        9       10        11        11        11         12        12       Consumer/Others               13       12        11
                                                                Boliv ia                      17      20       20        20        20        21         21        22    Total Reported Stock             32        46       34        18         2       (11)   (12)    (8)
                                                                Brazil                       14       10       10         8          8         8         8         8    Weeks Consumption             4.76     7.35       4.84      2.45      0.21     (1.50) (1.55) (0.94)
                                                                Peru                         39       37       34        29        28        30         31        33    LME Price (US/t)            18,457 13,599       20,441    25,958    20,698    21,500 23,000 24,000
                                                                ROW                           18      29       31        25        23        27         33        35    KLTM Price (US$/t)          18,511 13,502       20,351    25,955
                                                             World Mine Production         316      316      318       299       283        302       318       328     TIN CONSUMPTION BY COUNTRY
                                                             Disruption Allow ance          -        -        -         -           (2)       (9)      (10)      (10)      China                       145      149       153       181        187      198       210        222
                                                             Required Adjustment            -        -        -         -         -          10         25        35       Japan                         32       23       36        27         28       28        29         29
                                                             World Mined Tin               316      316      318       299       281        303       333       353        Asia ex China, Japan          66       59       67        59         58       60        62         64
                                                                % Change                 -8.1%     0.0%     0.7%     -6.0%     -6.1%       8.0%      9.9%      6.1%        U.S.A                         26        27      32        32         30       31        31         31
                                                             Conc avail after direct use   316      316      318       299       281        303       333       353        Germany                       21       14       17        20         18       18        18         19
                                                             Primary Smelter Production    296      289      297       302       291        304       324       337        Other Europe                  46       38       42        46         40       40        40         40
                                                             Smelter Loss                      7       7        7         8          7         8         8         8       ROW                           19       16       22        19         17       18        18         18
                                                             Primary feed required         304      297      305       309       298        312       332       345     World Tin Consumption          355      326       369       384        377      393       408        423
                                                             SURPLUS/(DEFICIT) CONC           12      19       13       (10)      (17)        (9)        2         8       % Change                  -1.0%    -8.0%     13.1%      4.1%      -1.8%     4.3%      3.8%       3.6%
                                                                                                                                                                        TIN CONSUMPTION BY USAGE
                                                             REFINED TIN PRODUCTION                                                                                        Solder                      182      172       194       200       200       212       225        237
                                                               China                    140          140      149      156       149        157       166       173           % of total             51.4% 52.7%        52.7%     52.0%     53.0%     54.0%     55.0%      56.0%
                                                               Indonesia                   70          65       64       73         72        71        71        70       Tinplate                      57       54        59        64        63        66        68         71
                                                               Malay sia                  32           36       39       40        45         46        47        48          % of total             16.1% 16.5%        15.9%     16.7%     16.7%     16.7%     16.7%      16.7%
                                                               Thailand                   22           19       24       24        23         24        25        25       Chemicals                     48       43        51        54        53        55        57         59
                                                               Other Asia                   8           7        7        9          9        10         10        10         % of total             13.5% 13.0%        13.8%     14.0%     14.0%     14.0%     14.0%      14.0%
                                                               Boliv ia                    12          15       15       15         14        14        16        17       Brass & Bronze                20       18        20        19        19        20        20         21
                                                               Peru                       38           34       36       30         28        28        28        28          % of total              5.7%     5.6%      5.3%      5.0%      5.0%      5.0%      5.0%       5.0%
                                                               Europe                     11           10       13       12         12        13        13        13       Float Glass                     7        8        7         8         8          8         8         8
                                                               ROW                         12           9        9        8          7         8          8         8         % of total              1.8%     2.3%      1.9%      2.0%      2.0%      2.0%      2.0%       2.0%
                                                             World Refined Production   344          336      357      368       361        371       383       393        Others                        41       32        38        40        35         33       30         27
                                                               Primary Production       296          289      297      302       291        304       324       337           % of total             11.5%     9.9%     10.4%     10.3%      9.3%      8.3%      7.3%       6.3%
                                                               Secondary Production       47           46       59       66         70        76        84        91    Total                          355      326       369       384       377       393       408        423
                                                             Required Adjustment         -            -        -        -         -           10        25        35    Required Demand Destruction     -        -         -         -         -         -         -          -
                                                             World Refined Tin          344          336      357      368       361        381       408       428     Final Tin Consumption          355      326       369       384       377       393       408        423
                                                               % Change               -2.0%        -2.3%     6.3%     3.1%     -2.0%       5.6%      7.1%      4.9%        % Change                  -1.0%    -8.0%     13.1%      4.1%     -1.8%      4.3%      3.8%       3.6%
                                                             DLA Sales                      4         -        -        -         -          -         -         -      SURPLUS/(DEFICIT)                 (7)       9      (12)      (16)      (17)      (13)        (1)        5
                                                             Source: Credit Suisse




                                                                                                                                                                                                                                                                                    12 October 2012
130
                                                                                                                                    12 October 2012




                                            Gold and Silver
             Commodities Research
                        Tom Kendall
                                            Gold has performed well since our last quarterly update (11 July), rallying ~13% in USD
       tom.kendall@credit-suisse.com        and posting an average price of $1,653 during Q3, just 1% below our forecast ($1,670).
                   +44 20 7883 2432         Following that performance we are cautious about the potential for further rapid gains
                    Equity Research
                                            during the remainder of the year. A period of consolidation would seem likely but we retain
                            Anita Soni      our Q4 average forecast of $1,760 and, as that implies, believe gold is likely to trade up
         anita.soni@credit-suisse.com       into the mid-$1,800s before year-end.
                     +1 416 352 4587

                        Michael Slifirski   Key points: Further QE more likely than not
    michael.slifirski@credit-suisse.com
                      +61 3 9280 1845       The relationship between the USD gold price and the yield on inflation-protected
                                            Treasuries (particularly five-year tenor rather than ten years) has remained highly
                            Ralph Profiti
        ralph.profiti@credit-suisse.com
                                            inversely correlated, see Exhibit 263. Our US interest rate strategists currently believe a
                       +1 416 352 4563      short-term bounce in US yields is probable given the post-QE3 surge in Treasuries (Credit
                                            Suisse Global Weekly Snapshot, 28 September) – a period of consolidation, if not profit
                        Liam Fitzpatrick
     liam.fitzpatrick@credit-suisse.com
                                            taking, in that market also appears likely. Consequently, that contributes to our belief that
                      +44 20 7883 8350      gold may need to consolidate in the $1,720-$1,760 area in the short term.

                           Nihal Shah
         nihal.shah@credit-suisse.com       Exhibit 263: Gold versus yield on five-year inflation-protected Treasuries
                    +44 20 7888 3270
                                            2,000                                                                                           -2.0
                                                                   Gold, $/oz (LHS)
                                            1,750                                                                                           -1.0
                                                                   US 5 year TIPS, % (scale inverted)
                                            1,500
                                                                                                                                            0.0
                                            1,250
                                                                                                                                            1.0
                                            1,000
                                                                                                                                            2.0
                                               750

                                               500                                                                                          3.0

                                               250                                                                                          4.0
                                                 Jan-07            Jan-08           Jan-09               Jan-10   Jan-11   Jan-12
                                            Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                            Over the medium term, however, our rate strategists retain their longer-term bullish view
                                            on Treasuries for a number of reasons.
                                              “The Fed is not finished”: QE 3.5 is likely, possibly as soon as December in the form of
                                              ongoing purchases of Treasuries after Operation Twist expires.
                                              Conceptually $45bn/month of Treasury purchases is their baseline expectation.
                                              That would balance MBS purchases in the middle of the curve, and there is still
                                              adequate liquidity for Fed to buy more at the back end.
                                              There is likely to be further adjustments to the forward rate guidance: there is
                                              increasingly a sense that the Fed will move to a more explicit linking of rates to the
                                              unemployment rate and inflation.
                                              Supporting that view was the recent shift in view of a former hawk, Minnesota Fed
                                              President Kocherlakota, who proposed maintaining ultra-low rates guidance until
                                              unemployment reaches 5.5%, as long as the two-year forward inflation forecast remains
                                              below 2.25%. Chicago Fed President Evans made similar comments earlier this month,
                                              albeit he highlighted 7% as a potential unemployment rate hurdle.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                    131
                                                                                                                                                    12 October 2012



                                             The Federal Reserve appears prepared to accept the political risks of further balance
                                             sheet expansion.
                                          On that basis, it seems probable that real yields can fall further into negative territory,
                                          which should be positive for gold. We note that a move back into the $1,830 area would
                                          simply place it back on the long-term trend.

                                          Exhibit 264: Gold has bounced back towards the long-term trend at $1,830
                                            $2,250
                                                                    Gold Price
                                            $2,000                  Expected Value
                                            $1,750                  Upper 3 Std Dev.

                                            $1,500                  Lower 3 Std Dev.

                                            $1,250

                                            $1,000

                                             $750

                                             $500

                                             $250
                                                 2006               2007         2008                    2009         2010          2011          2012
                                          Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service



                                          In addition, in Q1 2013 the gold market will be highly tuned to any suggestion that one or
                                          more of the major ratings agencies might cut the US credit rating if Congress fails to
                                          adequately address the various fiscal cliff issues. Although our public policy and
                                          economics analysts believe deals will be done to avert the worst effects of the expiry of tax
                                          rebates and automatic sequestration of spending, those deals may well be temporary and
                                          deep structural issues will remain unresolved.
                                          So the investment environment likely to remain gold friendly for a little longer than we
                                          forecast at the start of this year. Indeed exchange-traded products backed by physical
                                          gold have attracted net inflows of 6.1 Moz year to date, with the pace of accumulation
                                          picking up significantly from late August onwards.

 Exhibit 265: Gold, Comex net non-commercial
 position                                                                          Exhibit 266: Gold held by ETFs versus price
 Moz, futures+options

                                                                                                  85                                                        $2,000
                                                                                    Millions oz




   40


   30                                                                                             80
                                                                                                                                                            $1,750
   20
                                                                                                  75

   10
                                                                                                                                                            $1,500
                                                                                                  70
    0                                                                                                                        Physical ETF/ETC gold held
                                                                                                                             Gold price (RHS)
  -10                                                                                             65                                                     $1,250
        00        02        04         06        08         10          12                         Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
 Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse                  Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                    132
                                                                                                                                       12 October 2012



                                          In addition, it appears that central banks will remain a sizeable presence on the buy-side
                                          of the gold market: Russia, South Korea, Kazakhstan, Sri Lanka, and Paraguay were all
                                          active buyers at times during the first seven months of the year, according to IMF data.
                                          And finally on the positive side of the gold balance sheet, we note that the geopolitical
                                          situation in the Middle East has the potential to provide the kind of shock that could see
                                          gold spike higher. We think the risks of that happening are small, but it appears to us that
                                          the pressure on Iran, both externally and internally (from the collapse in the value of the
                                          Rial) has increased over the last month or so.
                                          That said, physical demand remains uninspiring in the key Indian market. On the positive
                                          side the rupee has rallied over the last couple of weeks but the benefit of that to importers
                                          has largely been offset by higher USD gold prices. Domestic demand is being satisfied in
                                          part by a sharply higher rate of recycling compared with 2011 – the World Gold Council
                                          estimates scrap accounted for 57 tonnes of demand last year, we would not be surprised if
                                          that figure jumps to more like 250 tonnes this year.
                                          Elements of government and the Reserve Bank of India have also continued to “talk down”
                                          the appeal of gold as an investment (footnote: RBI advises against gold investment). We
                                          think another increase in gold import duties in the current fiscal year is unlikely but don’t
                                          rule it out for FY 2013. More immediately, the concern is that Indian buying from the
                                          international markets has not yet picked up consistently, despite the fact that we are
                                          around half-way through the festival season, which traditionally sees strong demand from
                                          the Indian sub-continent. The benefit of a sharp reversal (strengthening) of the rupee
                                          versus the dollar since the US Federal Reserve’s announcement of QE3 has been almost
                                          entirely offset by the rise in the USD gold price (Exhibit 267).
                                          The festival season concludes with Diwali, which this year begins relatively late on 13
                                          November. There is, therefore, only about three weeks left during which time Indian
                                          dealers could be expected to buy in size on price corrections. The question is, what price
                                          might entice those buyers back? We think local prices would have to fall close to Rs30,000
                                          per 10 grams for that to happen – at the current exchange rate(INR 52) that equates to
                                          approximately $1,720 oz, accounting for 4% import duty.
                                          Beyond Diwali, a degree of restocking might be apparent, but activity in general from the
                                          Indian market tends to subside from then on into year-end.
                                          The Chinese market demand we would characterize as solid rather than spectacular, as it
                                          was in 2011. The import arbitrage for Chinese banks has remained positive, but far less so,
                                          and the cumulative volume traded across the Shanghai Gold Exchange has slipped behind
                                          both 2011 and 2010’s figures. As with India, however, a correction near 5% in the USD gold
                                          price would likely attract an upturn in demand of sufficient size to then provide support.

 Exhibit 267: Indian buyers still await lower rupee price                 Exhibit 268: Smaller arbitrage reduces Chinese buying
                                                                          Weekly volume traded in Shanghai Gold Exchange T+1 contract
 Rs35                                                               60
             Thousands




                                                                                                         2008      2009
                                                                           Millions oz




                                                                                         4
                                                                                                         2010      2011
 Rs30                                                               55
                                                                                                         2012
                                                                                         3

 Rs25                                                               50
                                                                                         2

 Rs20                                                Gold, Rs/10g   45
                                                                                         1
                                                     INR Curncy
 Rs15                                                               40                   0
    Jan-11               Jul-11          Jan-12           Jul-12                             1   5   9   13 17 21 25 29 33 37 41 45 49
 Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse               Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                       133
                                                                                                                                     12 October 2012




                                        Silver
                                        Silver outperformed gold substantially between mid-August and mid-September as
                                        anticipation of fresh monetary stimulus in the US and Europe drove the price of most asset
                                        classes higher. Since then, however, the two metals have traded more or less in tandem
                                        and a reversal of at least part of that previous period of outperformance relative to gold is
                                        likely in the short term if risk appetite fades. In particular, our equity strategists have
                                        warned that net long positions of hedge funds are now close to a one-year high; that US
                                        corporate and insider selling has accelerated; and that this has been the fourth longest
                                        S&P 500 rally without a 5% correction since 2002. They also note that credit spreads in
                                        Europe appear “optimistic,” at least in the short term (see Global Equity Strategy: A
                                        consolidation phase).
                                        Extrapolating a potential reduction in investor flows into equity and credit markets to a
                                        directional move in the price of silver may be a bit of a stretch but there has been a fairly good
                                        inverse correlation between risk indicators and the gold: silver ratio over the last five years.
                                        The counter argument is that there is still a very sizeable sub-set of the investor community
                                        that failed to participate fully (and some not at all) in the Q3 rally and who face considerable
                                        pressure to generate positive returns before year-end. The same argument was prevalent at
                                        this time two years ago, and markets reacted very positively throughout Q4 2010, thanks in
                                        no small part to the Fed’s QE2. Today, however, the macro environment has shifted and
                                        more importantly valuations are substantially higher than they were two years ago (SPX up
                                        almost 27%, for example). Consequently, we think it will require a meaningful improvement
                                        in economic data (the focus being on China and the US) and/or a further advancement of EU
                                        policy and politics (namely a formal request by Spain for ESM assistance) for risk assets
                                        generally to run much further than they already have.

                                        Exhibit 269: Silver’s performance relative to gold correlated with risk

                                           90                   Gold: silver ratio (lhs)                Financial Conditions Index          3.0
                                           80                                                                                               2.0

                                           70                                                                                               1.0
                                                                                                                                            0.0
                                           60
                                                                                                                                            -1.0
                                           50
                                                                                                                                            -2.0
                                           40                                                                                               -3.0
                                           30                                                                                               -4.0
                                           20                                                                                               -5.0
                                             J-07              J-08             J-09             J-10          J-11        J-12
                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        Turning to the detail of the silver market, it is clear that certain investors’ appetite for silver
                                        has fallen markedly compared to 2011. In particular, demand from both Western private
                                        bank accounts and Asian speculators for silver, whether physical bullion or structured
                                        products, appears to have slumped.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                     134
                                                                                                                              12 October 2012




                                        Exhibit 270: Silver – Comex and ETF positioning back near the peak
                                                                 Comex net long                 iShares SLV        ZKB ZSIL
                                                                 Others                         Swiss Global       Price




                                          Million oz
                                                       900                                                                             $50
                                                       800
                                                       700                                                                             $40
                                                       600
                                                       500
                                                                                                                                       $30
                                                       400
                                                       300
                                                       200                                                                             $20

                                                       100
                                                        0                                                                              $10
                                                        Jan-10     Jul-10           Jan-11            Jul-11   Jan-12      Jul-12
                                        Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse



                                        However, institutional funds have retained a greater interest in the metal, with open
                                        interest on Comex recovering throughout the year and climbing strongly in September in
                                        anticipation of, and then in reaction to, QE3. And it is also notable that exchange-traded
                                        funds have seen steady inflows of metal during the year to date, particularly throughout
                                        the third quarter.
                                        From a technical perspective, the metal now has very strong support down in the $26.50
                                        area and it seems improbable that that level will be breached in the short to medium term.
                                        Conversely, scrap flows and producer hedging appear to be creating overhead resistance
                                        between $35.00 and $35.50. If gold breaks up through $1,800 then that resistance
                                        capping silver will go also, but we don’t expect to see silver trading into the $40s this year.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                              135
                                                                                                                                                                         12 October 2012




 Forecasts
 Exhibit 271: Gold forecast comparison                                                   Exhibit 272: Gold historical price and forecast
 US$/oz                                                                                  US$/oz

  $1,900       Credit Suisse Forecast      Forward Curve       Bloomberg Forecast Mean    $2,100                      Gold (Spot)             Quarterly Avg Forecast

                                                                                          $1,900
  $1,850
                                                                                          $1,700

  $1,800                                                                                  $1,500

                                                                                          $1,300
  $1,750
                                                                                          $1,100

  $1,700                                                                                   $900

                                                                                           $700
  $1,650
                                                                                           $500

  $1,600                                                                                   $300
             Q4 12         Q1 13         Q2 13       Q3 13         Q4 13        Q1 14          2005     2006    2007       2008        2009     2010      2011     2012     2013

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




 Exhibit 273: Silver forecast comparison                                                 Exhibit 274: Silver historical price and forecast
 US$/oz                                                                                  US$/oz

  $38        Credit Suisse Forecast      Forward Curve       Bloomberg Forecast Mean      $55                         Silver (Spot)           Quarterly Avg Forecast


  $36
                                                                                          $45
  $34

  $32                                                                                     $35

  $30

                                                                                          $25
  $28

  $26
                                                                                          $15
  $24

  $22                                                                                      $5
           Q4 12         Q1 13          Q2 13       Q3 13         Q4 13        Q1 14         2005     2006     2007     2008          2009     2010     2011      2012     2013

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                         136
                                                                                                                                          12 October 2012




                                           PGMs: South African Situation Dominates
             Commodities Research
                        Tom Kendall
                                           The woeful state of labor relations in the South African mining industry continues to be the
       tom.kendall@credit-suisse.com       primary influence on the platinum price at present, and by association, palladium.
                   +44 20 7883 2432        Unauthorized strikes at Lonmin and Impala have subsided but only at the cost of a further
                      Equity Research
                                           rise in wages over and above what had previously been agreed for 2012-2013.
                        Liam Fitzpatrick   Meanwhile, a majority of workers at Anglo American Platinum’s (Amplats) Rustenburg
     liam.fitzpatrick@credit-suisse.com    operations have failed to report for shifts over the last three weeks, and workers at
                      +44 20 7883 8350
                                           Amplats’ Union mine and Atlatsa Resources’ Bokoni mine also started industrial action in
                           Nihal Shah      early October. The worker unrest spread to gold, chromite and iron ore mines, the trucking
         nihal.shah@credit-suisse.com      industry, and last week to manufacturing as Toyota South Africa workers were reported to
                    +44 20 7888 3270
                                           have walked out.
                                           A key issue for investors and end users of platinum is how much future loss of production
                                           and/or increase in costs is the market already pricing in? The answer, in our view, is a
                                           substantial amount. The platinum price has climbed 22% from mid-August ($1,400) to
                                           $1,700 at the time of writing. At the same time, the net speculative position in Nymex
                                           futures and options has surged by more than 1mn oz to a record 2.2mn oz, while ETFs
                                           have pulled in a net 165k oz of platinum (Exhibit 275).
                                           That rate of appreciation is unlikely to be sustained for much longer in our view,
                                           particularly given that the large auto industry buyers are in general well-hedged for the
                                           next three months at least and have shown no inclination to chase prices higher.

                                           Exhibit 275: Platinum ETF holdings and Nymex speculative long positioning
                                           NYMEX futures+options, net non-commercial+non-reportable positions

                                                          4.0        Plat. Ldn               Bskt Ldn                 Plat. ZKB
                                            Millions oz




                                                                     Plat. AUS               Pt other                 Plat. US
                                                          3.5        Plat. Swiss             Nymex net long - Pt      Plat, spot
                                                                                                                                                 $2,000

                                                          3.0


                                                          2.5
                                                                                                                                                 $1,500
                                                          2.0


                                                          1.5

                                                                                                                                                 $1,000
                                                          1.0


                                                          0.5


                                                          0.0                                                                                    $500
                                                            Jan-09    Jul-09       Jan-10   Jul-10     Jan-11      Jul-11     Jan-12   Jul-12


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



                                           We continue to forecast higher PGM prices over the long term – the South African industry
                                           cannot survive at anything like its current size without that in our view – but in our view a
                                           correction is warranted in the near term given the weakness of auto industry demand and
                                           the degree of speculative length already in the market (we closed our previous long
                                           platinum trade recommendation on 5 October). We have also scaled back the rate of
                                           increase of platinum and, particularly, palladium prices in 2013 in light of sluggish growth
                                           forecasts for light vehicle sales next year.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                          137
                                                                                                                         12 October 2012




                                        South African supply struggles
                                        The second and third largest PGM producers in South Africa, Impala Platinum and
                                        Lonmin, have had to raise wages over and above the annual increases previously agreed
                                        in order to get their workers back into the mines following walk-outs and violent protests in
                                        August and September.
                                        At the time of writing, however, there appears to be little sign that the disruption to
                                        production occurring at Anglo American Platinum (Amplats) will be resolved quickly.
                                        Indeed, headlines on 4 October suggested the problems had spread to the company’s
                                        Tumela and Dishaba mines (collectively formerly known as Amandelbult). The company
                                        had earlier reported attendance at its Rustenburg shafts was at best running at just 20%,
                                        with the majority of workers continuing their unauthorized strike action and the remainder
                                        sent home on 3 October for their own safety.
                                        While the company’s repeated references in its statements to the economic fragility of
                                        some of its Rustenburg operations might be seen by some as a negotiating tactic, we think
                                        the probability that one of the shafts is put on care and maintenance is rising. Taking the
                                        smallest and least economic of its Rustenburg shafts, Thembelani, out of production would
                                        remove a further 100k oz of platinum from the market in 2013. That, of course, would not
                                        come without costs to the company – social and political, as well as financial – and
                                        Amplats would also have to consider the downstream impact on its smelter in terms of
                                        feed composition and unit costs. Nevertheless, the company’s decision to lay off 12,000
                                        workers last week illustrates its willingness to face the political consequences of making
                                        redundancies rather than commit to unsustainable wage increases.
                                        Although the South African police and security services seem to have a tighter control of
                                        public order than they did in August, sporadic acts of violence have continued11. Worker
                                        demands are not always entirely clear, and we think the different unions have agendas
                                        that are colored by politics. Meanwhile, in our opinion government has been reactive
                                        rather than proactive so far in its efforts to contain the disruption and resolve the disputes.
                                        We do not expect to see much change in that situation until the ANC leadership elections
                                        in December (16-20) have been concluded.
                                        The disruption to production in South Africa this year due to strike action, coupled with
                                        decisions by several producers to put operations on care and maintenance (Aquarius
                                        Platinum) and conserve cash by trimming capex, has removed a very substantial 460k oz
                                        of platinum production from the market this calendar year in our estimation (Exhibit 276).
                                        That could grow further if Anglo Platinum operations remain closed for a prolonged period.
                                        Production losses to date have had the effect of shifting the market from a forecast surplus
                                        of >300k oz to one much closer to balance (note that our demand estimates have also
                                        shifted since our previous quarterly update – Exhibit 284).
                                        There has also of course been a concomitant effect on palladium production. We estimate
                                        losses amounting to ~230k oz have been incurred for CY 2012 so far. That has shifted
                                        our palladium s/d balance to a bigger deficit of -222k oz, which rises to -516k oz once we
                                        add on investment demand for physical metal. That assumes only modest sales from
                                        Russian inventory of 200k oz over the year as a whole – to the end of August Swiss
                                        imports of palladium from Russia totaled just 67.5k oz.




                                        11   See for example, Mining bosses take tougher line, 1 October



Commodity Forecasts: The Best of Times, The Worst of Times                                                                         138
                                                                                                                        12 October 2012




                                        Exhibit 276: Estimated CY 2013 platinum production losses to date due to strike
                                        action and mines being placed on care and maintenance
                                        Thousands of ounces Pt


                                        Impala Platinum                                                                            150
                                        Amplats/AQP PSAs                                                                           121
                                        Lonmin                                                                                      85
                                        Amplats – own operations                                                                    60
                                        Eastern Platinum – Crocodile River                                                          22
                                        Platinum Australia – Smokey Hills                                                           10
                                        Sylvania Resources - tailings                                                                5
                                        Other tailings operations                                                                    5
                                        Atlatsa - Bokoni                                                                             3
                                        Total to date                                                                              461
                                        Source: Credit Suisse estimates, company reports



                                        For both platinum and palladium, talking about deficits for the current calendar year as
                                        static data points is somewhat meaningless – the balance is a moving, not static number.
                                        And for both metals, above-ground inventories of metal have so far been more than
                                        sufficient to prevent the markets’ tightening to the extent that end users become
                                        concerned.
                                        The key now is how much capacity is removed on a semi-permanent basis going forward.
                                        Without further shafts being placed on care and maintenance, our supply/demand model
                                        suggests the industry will remain in surplus over the next three years; again, on the basis
                                        of supply versus demand ex-physical investment. That does not imply that demand will
                                        shrink, rather there are a number of expansion projects that are well advanced (the capex
                                        is largely already spent) and that will ensure South African supply continues to grow
                                        unless there is further rationalization of the sector.
                                        We think it is highly likely that more shafts will close. At current prices converted to rand
                                        around one million ounces of South African production is cash negative on an operating
                                        cost plus maintenance capex basis (Exhibit 277). A further million ounces or so of
                                        production is operating on razor-thin gross margins on the same basis. On an all-in costs
                                        basis, more like two million ounces, or approximately half the industry is cash flow
                                        negative in our estimation. It is important to note just how flat most of the cost curve is:
                                        small changes in price affects a large segment of the industry.
                                        Over recent days, a sharp depreciation in the rand has improved the revenue picture and
                                        gross margins for all of those South African mines that have continued operating.
                                        Nevertheless, multi-year investment decisions cannot be taken on short-term FX
                                        movements. There are, of course, other considerations apart from the bottom line that
                                        have to be taken into account before a decision to put any mine on care and maintenance
                                        is made. But we think the structural issues facing the industry mean that it is not
                                        sustainable over the long term in its current form – in our view more production needs to
                                        be removed from the market from 2013 onwards to rebalance supply with demand and to
                                        drive prices up to a level at which return on investment becomes attractive again.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                        139
                                                                                                                                           12 October 2012




                                        Exhibit 277: South African and Zimbabwean PGM production cost curve
                                        ZAR per 6E oz (Pt+Pd+Rh+Au+Ir+Ru). Mining, refining & maintenance capex. Red line = current basket price

                                                         30,000

                                                         25,000

                                                         20,000


                                         ZAR per 6E oz
                                                         15,000

                                                         10,000

                                                          5,000

                                                             0
                                                                  0          1,000         2,000         3,000                 4,000               5,000
                                                                                           000 oz Pt production
                                        Source: Company reports, Credit Suisse estimates




                                        Demand: The missing link
                                        If the global economy were now to be in the kind of rude health it was prior to the global
                                        financial crisis, the supply disruption in South Africa would arguably have had a much
                                        greater impact on price. Indeed if the auto industries of North America and Europe were
                                        currently enjoying the level of light vehicle production seen in 2007 (15.1 million and 19.8
                                        million, respectively) then it is not unreasonable to think that PGM prices would be heading
                                        back up towards the kind of levels reached in Q1 2008.
                                        The fact that they are not is indicative of three important factors: much weaker auto
                                        production in Europe and improving but still reduced output in North America; a trend
                                        towards production and sales of more fuel efficient vehicles with smaller engines (which
                                        tend to need smaller catalysts containing less PGM); and higher recovery of PGM from
                                        recycling (particularly for palladium). Other industrial applications for both platinum and
                                        palladium are also yet to recover 2007 levels.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                            140
                                                                                                                                            12 October 2012



                                        The outlook for the global automotive sector
                                        remains mixed. The US market has                             Exhibit 278: US light vehicle
                                        performed above most analysts’ expectations                  production, % with engines >3 liters
                                        year to date, with the September sales rate of               displacement
                                        14.9mn saar continuing a strong trend. For                   Percentage

                                        the first nine months of the year total US light                 70%
                                        vehicle sales had reached 10.86mn, up
                                        14.5% yoy and supported by a substantial
                                        improvement in the rate of new auto loan                         60%
                                        issuance and fall in finance interest rates.
                                        Inventory levels of unsold new vehicles were
                                        only slightly above normal at the end of                         50%
                                        September (see 14.9M US SAAR is Welcome
                                        Good News… ).
                                        However, we expect a much slower rate of 40%
                                        growth in North American sales and
                                        production in 2013 as the recovery of that
                                        market naturally loses momentum. In 30%
                                        addition the average engine size is               2004          2006          2008    2010 2012
                                                                                    Source: Autofacts, Credit Suisse estimate
                                        continuing to decline as sales of smaller
                                        cars gain in popularity and larger SUVs
                                        and pickup trucks are engineered to produce similar power output from smaller
                                        displacement engines (Exhibit 278). Those trends, driven by fuel economy considerations,
                                        tend to reduce catalyst size and PGM use per vehicle, all else being equal.

                                        Exhibit 279: Global light vehicle production, sa
                                        Thousand units, seasonally adjusted


                                                      2,000
                                          thousands




                                                      1,800
                                                                                         Crisis            Stimulus
                                                      1,600

                                                      1,400

                                                      1,200

                                                      1,000                                                                      Tsunami

                                                       800

                                                       600

                                                       400

                                                       200
                                                                        Germany                    China                 Japan             USA
                                                         0
                                                          2006   2007           2008              2009            2010           2011       2012

                                        Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse



                                        In Europe, the outlook for light vehicle production remains poor. Sales throughout much of
                                        the EU have continued to decline, and even the previously robust German market showed
                                        signs of weakness in September, slipping almost 11% yoy. Year-to-date sales across the
                                        EU15 countries are down almost 8%. That is important for platinum as Europe remains by
                                        far the largest market for diesel cars, the particulate filters on which are the biggest
                                        catalyst application for the metal.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                            141
                                                                                                                        12 October 2012



                                        We currently assume just 1% growth in EU light vehicle production in 2013.
                                        Japanese vehicle manufacturers had been benefiting from a strong rebound in production
                                        through to September, as output recovered from a disaster-hit 2011. However, the tension
                                        between China and Japan over islands in the South China Sea has had a direct effect on
                                        Japanese brand vehicles produced for the Chinese market. Some of the market share
                                        being lost at present by Japanese manufacturers will be picked up by their competitors we
                                        think, but not all. In addition, in the domestic market sales are likely to slow in Q4 as
                                        government subsidies for the most fuel efficient vehicles expired at the end of September.
                                        We currently forecast an almost 3% contraction in Japanese light vehicle output in 2013.
                                        The bright(er) spot remains China. Despite the slowing rate of economic growth, car sales
                                        have continued to rise, albeit at a sharply reduced rate compared to the preceding two years.
                                        There have also been frequent media reports that Chinese dealers are carrying excessive
                                        inventories of unsold cars, which has led to increased discounting and concerns about the
                                        rate of production for coming months. Empirical data are scarce, but at present we do not
                                        think inventory overhang will be a major drag on the Chinese vehicle market in 2013.

                                        Truck markets vulnerable
                                        The heavy duty diesel (HDD) market and the emissions regulations that are applied in
                                        different regions are important influences on platinum demand (palladium too but to a
                                        lesser extent). The outlook for the key regions of Europe, North America, and Japan in
                                        2013 is positive but growth in the latter is expected to slow sharply after a strong rebound
                                        this year.
                                        The Western European market may return to growth, after a very disappointing 2012
                                        (commercial vehicle sales are expected to drop ~8% this year). However, given the
                                        depressed economic conditions across much of the region and continued difficulty in
                                        accessing credit for businesses, we think many fleet managers will continue to defer new
                                        purchases for as long as possible. Consequently, we think that new Euro 6 HDD
                                        regulations, that will begin to be phased in from January 2013 onwards, will have only a
                                        moderate impact on PGM demand next year, with a greater pull expected in 2014.
                                        The North American truck market posted a weak September, with orders for the largest
                                        Class 8 vehicles below expectations at 15,600 units, down 5% mom and 34% yoy. Our
                                        truck market analysts note that the weakness has been attributed to general uncertainty
                                        ahead of the election and concerns over the potential “fiscal cliff” (see: US Truck Orders –
                                        September). Orders are expected to remain soft until after the presidential election, with
                                        the potential of better sales into year-end.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                        142
                                                                                                                                                          12 October 2012




 Exhibit 280: Palladium forecast comparison                                       Exhibit 281: Palladium historical price and forecast
 US$/oz                                                                           US$/oz

  $900                                                                              $900
              Credit Suisse Forecast    Forward Curve   Bloomberg Forecast Mean                         Palladium (Spot)                  Quarterly Avg Forecast

  $850

  $800                                                                              $700

  $750

  $700                                                                              $500

  $650

  $600                                                                              $300

  $550

  $500                                                                              $100
            Q4 12            Q1 13         Q2 13        Q3 13           Q4 13           2005   2006    2007     2008       2009   2010      2011     2012     2013

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




 Exhibit 282: Platinum forecast comparison                                        Exhibit 283: Platinum historical price and forecast
 US$/oz                                                                           US$/oz

  $1,850                                                                           $2,500             Platinum (Spot)                    Quarterly Avg Forecast
               Credit Suisse Forecast   Forward Curve   Bloomberg Forecast Mean
  $1,800                                                                           $2,250

  $1,750
                                                                                   $2,000

  $1,700
                                                                                   $1,750
  $1,650
                                                                                   $1,500
  $1,600
                                                                                   $1,250
  $1,550
                                                                                   $1,000
  $1,500

  $1,450                                                                            $750

  $1,400                                                                            $500
              Q4 12           Q1 13         Q2 13       Q3 13           Q4 13           2005   2006    2007    2008        2009   2010     2011      2012     2013

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




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                           143
                                                                                                       12 October 2012




 Exhibit 284: PGM supply and demand summary table
 ’000 oz

           PLATINUM                                 2009      2010    2011    2012f    2013f   2014f   2015f
           Supply
           Mine supply                              6,053     6,050   6,396    5,799   6,075   6,400   6,638
           Autocat recycling                          882     1,090   1,179    1,214   1,254   1,245   1,253
           Total supply                             6,935     7,140   7,575    7,013   7,329   7,645   7,891
           YoY, %                                  -2.2%      3.0%    6.1%    -7.4%    4.5%    4.3%    3.2%

           Demand
           Autocat                                 2,255      2,964   3,163    3,135   3,246   3,407   3,531
           Autocat off-road                            0         22      56       87     140     181     190
           Industrial                                895      1,268   1,367    1,370   1,431   1,461   1,483
           Jewellery                               2,000      1,700   1,725    1,676   1,659   1,743   1,816
           Other                                     369        438     488      520     534     550     553
           Demand, ex-investment                   5,519      6,392   6,799    6,788   7,010   7,342   7,572
           YoY, %                                -19.9%      15.8%    6.4%    -0.2%    3.3%    4.7%    3.1%
           Running balance                         1,416        748     776      225     319     303     319

           Investment                                 832      772     201      250     261     286     191

           Total Demand                            6,351      7,164   7,000   7,038    7,271   7,628   7,763

           Final balance                              584       -24    575      -25      58      17     128

           PALLADIUM
           Supply
           Mine supply                              6,232     6,345   6,613    6,515   6,719   6,962   7,100
           State stock sales                          850       650     400      200     100       0       0
           Autocat recycling                        1,000     1,310   1,605    1,616   1,812   2,068   2,125
           Total supply                             8,082     8,305   8,618    8,331   8,631   9,030   9,225
           YoY, %                                  -4.6%      2.8%    3.8%    -3.3%    3.6%    4.6%    2.2%

           Demand
           Autocat                                 3,999      5,528   5,907   6,220    6,374   6,710   6,998
           Autocat off-road                            0          6      14      22       35      45      47
           Industrial                              1,140      1,166   1,222   1,317    1,385   1,410   1,438
           Jewellery                                 715        528     348     372      389     402     403
           Dental                                    597        570     546     528      492     458     398
           Other                                      83         92      90      95      102     106     108
           Demand, ex-investment                   6,534      7,890   8,127   8,553    8,777   9,131   9,392
           YoY, %                                -13.3%      20.8%    3.0%    5.2%     2.6%    4.0%    2.9%
           Running balance                         1,548        415     491    -222     -145    -101    -167

           Investment                                 700     1,145    -505     305     315     260      -25

           Total Demand                            7,234      9,035   7,622   8,858    9,092   9,391   9,367

           Final balance                              848      -730    996     -527     -460    -361    -142
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                       144
                                                                                                                                          12 October 2012




                                                Mineral Sands
                   Equity Research
                      Matthew Hope              Surpluses beginning to weigh
      matthew.hope@credit-suisse.com
                    +61 2 8205 4669             So far in 2012, demand rather than pricing has taken the brunt of the downturn, but looking
                                                forward we see continued surpluses, so we now doubt that producers can continue to hold
                      Paul McTaggart
     paul.mctaggart@credit-suisse.com
                                                the line on prices indefinitely. We forecast that prices will ease in 2013 and then begin to roll
                     +61 429 328 247            over seriously in 2014 as new production starts, moving down towards our LT rates.

               Commodities Research             While this is broadly the case for both zircon and TiO2 feedstocks, the situation with
                          Tom Kendall           feedstocks is more complex. We expect only a modest easing in the price of chloride slags
         tom.kendall@credit-suisse.com
                     +44 20 7883 2432
                                                in 2013, which have enjoyed firm sales through 2012 through discounted legacy pricing,
                                                but we forecast the price spread between chloride slag and the premium products – rutile
                                                and synthetic rutile – will close, allowing the latter to regain some market share and sales.

                                                Zircon pricing
                                                Zircon prices have held at broadly the $2500/t level through the producers withholding
                                                supply from the market. TZMI statistics to July shows bagged shipments have been
                                                trading above $2500/t and bulk shipments have been just above the $2400/t level. In 4Q
                                                2012, we expect the price will ease a little further as we move into the quieter seasonal
                                                months, so we back off our 4Q price to $2400/t.
                                                All three of the major zircon producers have built up finished inventory, in an attempt to
                                                hold price steady. Iluka, which acts as the major swing producer, has taken extreme
                                                measures to cut production, including continuing to produce heavy mineral concentrate
                                                (HMC) at its Jacinth Ambrosia mine, but ceasing to ship the HMC from the mine.

 Exhibit 285: Mineral sands price deck
 US$/t

                                        2011      1Q-12   2Q-12   3Q-12   4Q-12   2012E   1Q-13   2Q-13   3Q-13   4Q-13   2013E   2014E   2015E       LT
 Zircon bulk             New    US$/t   1,875     2,500   2,500   2,500   2,400   2,475   2,300   2,200   2,200   2,100   2,200   1,900    1,700   1,500
                          Old   US$/t   1,875     2,500   2,500   2,500   2,500   2,500   2,500   2,500   2,500   2,500   2,500   2,500    1,875   1,500
                         Chg      %       0%        0%      0%      0%      -4%     -1%     -8%   -12%    -12%    -16%    -12%    -24%       -9%     0%
 Rutile bulk             New    US$/t   1,055     2,400   2,400   2,400   2,400   2,400   2,000   2,000   2,000   2,000   2,000   1,575    1,125   1,000
                          Old   US$/t   1,055     2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400   2,400    1,650   1,000
                         Chg      %       0%        0%      0%      0%       0%      0%   -17%    -17%    -17%    -17%    -17%    -34%     -32%      0%
 Synthetic Rutile        New    US$/t     858     2,050   2,050   2,050   2,050   2,050   1,850   1,850   1,850   1,850   1,850   1,463    1,025     890
                          Old   US$/t     858     2,050   2,050   2,050   2,050   2,050   2,050   2,050   2,050   2,050   2,050   2,050    1,450     890
                         Chg      %       0%        0%      0%      0%       0%      0%   -10%    -10%    -10%    -10%    -10%    -29%     -29%      0%
 Ilmenite                New    US$/t     209       325     325     300     300     313     300     300     300     300     300     250      225     200
 (sulfate 54%)            Old   US$/t     209       325     325     350     350     338     350     350     350     350     350     300      250     200
                         Chg      %       0%        0%      0%    -14%    -14%      -7%   -14%    -14%    -14%    -14%    -14%    -17%     -10%      0%
 Titanium slag           New    US$/t     490     1,750   1,750   1,750   1,750   1,750   1,700   1,700   1,700   1,700   1,700   1,350      925     760
 (SA Chlor 86%)           Old   US$/t     490     1,750   1,750   1,750   1,750   1,750   1,750   1,750   1,750   1,750   1,750   1,750    1,225     760
                         Chg      %       0%        0%      0%      0%       0%      0%     -3%     -3%     -3%     -3%     -3%   -23%     -24%      0%
 Titanium slag           New    US$/t     415     1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,225      825     650
 (Sulfate 80%)            Old   US$/t     415     1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500   1,500    1,075     650
                         Chg      %       0%        0%      0%      0%       0%      0%      0%      0%      0%      0%      0%   -18%     -23%      0%
 Titanium slag           New    US$/t     996     2,350   2,350   2,350   2,350   2,350   1,950   1,950   1,950   1,950   1,950   1,525    1,075     960
 (UGS 95%)                Old   US$/t     996     2,350   2,350   2,350   2,350   2,350   2,350   2,350   2,350   2,350   2,350   2,350    1,600     960
                         Chg      %       0%        0%      0%      0%       0%      0%   -17%    -17%    -17%    -17%    -17%    -35%     -33%      0%
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                          145
                                                                                                                                                   12 October 2012



                                             Zircon trade data to mid-year are now available and if used as a proxy for demand, show
                                             where the demand weakness lies. China demand has remained relatively firm, with
                                             imports in line with 2011, but there has been no growth. The real weakness appears to
                                             have been in Europe. We have backed off our 2012 estimates for consumption further,
                                             particularly in Europe. The result is that despite Iluka’s efforts to match supply to demand,
                                             and our expectation for a cyclical upturn in demand in 2013, we continue to see zircon
                                             surpluses generated (Exhibit 287).
                                             While none of the three major zircon producers seem keen to cut pricing, and they
                                             probably share the view that demand is inelastic and will not return at lower prices, we
                                             cannot see an end to surpluses in our forecasts (Exhibit 287). We expect inventory build of
                                             200kt through the year, with over half of that registered by Iluka in H1 2012. With ongoing
                                             surpluses, and our belief that producers can do little more to trim output further to match
                                             demand, we expect the price will slip to an average of $2200/t in 2013. From 2014,
                                             additional supply starts from new African mines, so we have brought forward the price
                                             slide we expect towards long-term pricing.

                                             Exhibit 286: Zircon production for the three major producers and the ROW
                                             Kt


                                                                      1,800

                                                                      1,600

                                                                      1,400
                                                  Thousands tonnes




                                                                      1,200

                                                                      1,000

                                                                         800

                                                                         600

                                                                         400

                                                                         200

                                                                              -
                                                                                  2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f 2015f

                                                                                                         Iluka   Rio Tinto   Exxaro    ROW

                                             Source: Company data, TZMI, Credit Suisse




 Exhibit 287: Zircon supply and demand summary
 Unit as indicated below

                                                                     2008           2009     2010     2011        2012f       2013f      2014f   2015f      2016f
 Production                             kt                           1,242          1,056    1,278    1,541        1,352      1,326      1,488   1,565      1,577
 chg yoy                               %                               -6%          -15%      21%      21%         -12%         -2%       12%      5%         1%
 Consumption                            kt                           1,161            987    1,396    1,385        1,150      1,275      1,345   1,385      1,415
 chg yoy                               %                             -7.5%        -15.0%    38.9%     1.0%       -17.0%      10.9%       5.5%    3.0%       2.2%
 Balance                               kt                                81            69    - 118      156          202          51       143     180        162
 Bulk zircon (FOB)                   US$/t                             765            858      875    1,875        2,475      2,200      1,900   1,700      1,647
 Source: Company data, TZMI, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                   146
                                                                                                                                                                                                                                                                                                                                         12 October 2012




 Exhibit 288: Global zircon imports to June 2012                                                                                                                                                      Exhibit 289: Global zircon exports to June 2012
 Kt                                                                                                                                                                                                   Kt

      140                                                                                                                                                                                                                    140

      120                                                                                                                                                                                                                    120

      100                                                                                                                                                                                                                    100

       80                                                                                                                                                                                                                     80

       60                                                                                                                                                                                                                     60

       40                                                                                                                                                                                                                     40

       20                                                                                                                                                                                                                     20

       -                                                                                                                                                                                                                      -
               Jan-08




                                                         Jan-09
                                             Sep-08




                                                                                                  Jan-10




                                                                                                                                                                                   Jan-12
                                                                                                                                            Jan-11
                                                                                    Sep-09




                                                                                                                                                        May-11

                                                                                                                                                                     Sep-11
                                                                                                                          Sep-10
                                 May-08




                                                                        May-09




                                                                                                               May-10




                                                                                                                                                                                             May-12




                                                                                                                                                                                                                                                                                           Jan-10
                                                                                                                                                                                                                                   Jan-08




                                                                                                                                                                                                                                                                Jan-09




                                                                                                                                                                                                                                                                                                                       Jan-11
                                                                                                                                                                                                                                                      Sep-08




                                                                                                                                                                                                                                                                                                              Sep-10




                                                                                                                                                                                                                                                                                                                                                  Jan-12
                                                                                                                                                                                                                                                                                  Sep-09




                                                                                                                                                                                                                                                                                                                                         Sep-11
                                                                                                                                                                                                                                            May-08




                                                                                                                                                                                                                                                                                                    May-10
                                                                                                                                                                                                                                                                         May-09




                                                                                                                                                                                                                                                                                                                                May-11




                                                                                                                                                                                                                                                                                                                                                            May-12
            China                         Other Asia                               W Europe                             N America                                Other Europe                                                 Australia              South Africa                 Indonesia                  Ukraine             Vietnam                   Other

 Source: TZMI, Credit Suisse                                                                                                                                                                          Source: TZMI, Credit Suisse



                                                                                                           On the demand side, Western Europe has fallen away to a shade of its former imports
                                                                                                           (Exhibit 290, Exhibit 288). We now expect slim demand of 180kt from Europe in 2012,
                                                                                                           down close to 40% yoy (Exhibit 292). China’s imports for 2012 remain exactly in line with
                                                                                                           2010 and 2011 (Exhibit 291) and it seems a relative source of demand strength.
                                                                                                           Nevertheless, we have maintained an unchanged forecast for a 12% decline in demand
                                                                                                           from 2011 (Exhibit 293).

                                                                                                                                                                                                      Exhibit 291: Chinese zircon imports – 2012 in line
 Exhibit 290: Europe zircon imports to 30 June                                                                                                                                                        with 2011
 Kt                                                                                                                                                                                                   Kt

      60                                                                                                                                                                                                                     700


      50                                                                                                                                                                                                                     600

                                                                                                                                                                                                                             500
      40
                                                                                                                                                                                                           Thousand tonnes




                                                                                                                                                                                                                             400
      30

                                                                                                                                                                                                                             300
      20
                                                                                                                                                                                                                             200
      10
                                                                                                                                                                                                                             100
       -
                                                                                                               Jul-10
             Jan-08


                                    Jul-08




                                                                          Jul-09




                                                                                                                                                        Jul-11
                                                      Jan-09
                                             Oct-08




                                                                                             Jan-10




                                                                                                                                   Jan-11




                                                                                                                                                                          Jan-12
                                                               Apr-09


                                                                                   Oct-09




                                                                                                                        Oct-10




                                                                                                                                                                 Oct-11
                        Apr-08




                                                                                                      Apr-10




                                                                                                                                               Apr-11




                                                                                                                                                                                    Apr-12




                                                                                                                                                                                                                              -
                                                                                                                                                                                                                                        Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
                                                                                                                                                                                                                                                               2008                                    2009                                       2010
                 Italy                       Spain                       Ger, Neth, Belg                                   France                           Other Europe                                                                                       2011                                    2012

 Source: TZMI, Credit Suisse                                                                                                                                                                          Source: TZMI, Credit Suisse



                                                                                                           Australian supply has plummeted due to Iluka cutting production and holding inventory.
                                                                                                           South African producers are also holding inventory, but the export drop from the country is
                                                                                                           subdued, so Australian producers (chiefly Iluka) seem to be doing the bulk of the efforts to
                                                                                                           balance the market (Exhibit 289, Exhibit 294). South Africa shows a gradual slide in zircon
                                                                                                           exports from 2009-2011, which appears to be a systemic issue of declining grades in the
                                                                                                           major mines of Tronox and Richards Bay Minerals.


Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                                                                                                                                       147
                                                                                                                                                                                                                              12 October 2012



                                        Indonesia lifted supply to 58kt in H1 2012 from 31 in H1 2011, but notably imports for June
                                        fell 56% mom in June. We interpret the high February to May imports – 46kt in four
                                        months as reflecting the Indonesian raw material ban. As we have seen in other
                                        commodities, companies rushed to beat the 6 May raw material export ban and imposition
                                        of a 20% export tax, so exports surge, then collapse after May. Nevertheless, the first half
                                        of the year has been so strong that we are looking for 95kt for the year, the highest from
                                        Indonesia since 2007.

                                        Exhibit 292: European zircon demand
                                        Kt



                                                                                            Unspecified zircon demand                                                                 tile production (RHS)

                                                                    450                                                                                                                                                               2.0

                                                                    400                                                                                                                                                               1.8




                                                                                                                                                                                                                                            Tile production (billions of sq m)
                                                                    350                                                                                                                                                               1.6
                                          Zircon consumption (kt)




                                                                                                                                                                                                                                      1.4
                                                                    300
                                                                                                                                                                                                                                      1.2
                                                                    250
                                                                                                                                                                                                                                      1.0
                                                                    200
                                                                                                                                                                                                                                      0.8
                                                                    150
                                                                                                                                                                                                                                      0.6
                                                                    100                                                                                                                                                               0.4
                                                                     50                                                                                                                                                               0.2
                                                                      0                                                                                                                                                               0.0
                                                                                                                                            2008
                                                                          2002

                                                                                  2003

                                                                                             2004

                                                                                                      2005

                                                                                                                2006

                                                                                                                              2007




                                                                                                                                                          2009

                                                                                                                                                                        2010

                                                                                                                                                                                      2011

                                                                                                                                                                                                2012f

                                                                                                                                                                                                           2013f

                                                                                                                                                                                                                     2014f

                                                                                                                                                                                                                              2015f
                                        Source: TZMI, CWR, Credit Suisse




                                        Exhibit 293: Chinese zircon consumption – our forecast
                                        Kt

                                                                                        Ceramics                                                                                 Refractories
                                                                                        Foundry                                                                                  Zirconia & chemicals
                                                                                        Fused zirconia                                                                           Unspecified zircon demand
                                                                                        tile production (RHS)
                                                                    700                                                                                                                                                               4.5

                                                                                                                                                                                                                                      4.0



                                                                                                                                                                                                                                            Tile production (billions of sq m)
                                                                    600
                                                                                                                                                                                                                                      3.5
                                          Zircon consumption (kt)




                                                                    500
                                                                                                                                                                                                                                      3.0
                                                                    400                                                                                                                                                               2.5

                                                                    300                                                                                                                                                               2.0

                                                                                                                                                                                                                                      1.5
                                                                    200
                                                                                                                                                                                                                                      1.0
                                                                    100
                                                                                                                                                                                                                                      0.5

                                                                      0                                                                                                                                                               0.0
                                                                          2001

                                                                                 2002

                                                                                           2003

                                                                                                    2004

                                                                                                             2005

                                                                                                                       2006

                                                                                                                                     2007

                                                                                                                                                   2008

                                                                                                                                                                 2009

                                                                                                                                                                               2010

                                                                                                                                                                                         2011

                                                                                                                                                                                                   2012f

                                                                                                                                                                                                             2013f

                                                                                                                                                                                                                      2014f

                                                                                                                                                                                                                              2015f




                                        Source: TZMI, CWR, Ruidow, Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                      148
                                                                                                                           12 October 2012




                                        Exhibit 294: Australian and South African zircon exports
                                        Kt


                                                                      Australia                      South Africa
                                                                      3 per. Mov. Avg. (Australia)   3 per. Mov. Avg. (South Africa)
                                                               100
                                                                90
                                                                80

                                         Zircon exports (kt)
                                                                70
                                                                60
                                                                50
                                                                40
                                                                30
                                                                20
                                                                10
                                                                 -   Sep 08




                                                                     Sep 09




                                                                     Sep 10




                                                                     Sep 11
                                                                       Jul 08




                                                                     May 09
                                                                       Jul 09




                                                                       Jul 10




                                                                       Jul 11




                                                                     May 12
                                                                     May 08




                                                                     May 10




                                                                     May 11
                                                                     Mar 08




                                                                     Mar 09




                                                                     Mar 10




                                                                     Nov 10

                                                                     Mar 11




                                                                     Mar 12
                                                                      Jan 08




                                                                      Jan 09




                                                                      Jan 10




                                                                      Jan 11




                                                                      Jan 12
                                                                     Nov 08




                                                                     Nov 09




                                                                     Nov 11
                                        Source: TZMI, Credit Suisse



                                        Titanium feedstocks
                                        Pigment demand has been flat to negative
                                        For TiO2, the 2012 summer painting season in the Northern Hemisphere was subdued.
                                        China demand has also fallen, so it has been exporting pigment to the Western world,
                                        further increasing pigment surpluses. We are now heading into the colder winter months,
                                        and pigment makers remain overstocked, so 2012 looks to be a write-off for TiO2 demand.
                                        We forecast that pigment consumption has fallen 2.5% in 2012 and will grow by a weak
                                        1% in 2013, before recovering in 2014. Recovery remains speculative of course. It will
                                        require a strong recovery in US housing sales (house repainting), a recovery in
                                        consumption in Europe, and a pickup in exports and construction in China. In short, we
                                        need the world to exit the current economic malaise.
                                        Uncertain that pigment demand will return to long term CAGR of 3.1%
                                        From 1994-2006, pigment demand grew at a CAGR of 3.1%, in line with global GDP. The
                                        subsequent years have been erratic, but from the trough of 2009-2016, our CAGR is 2.7%,
                                        below the LT rate. This period includes our forecast recovery years of 5% and 4% p.a.
                                        growth 2014-2016). Given our forecast CAGR remains below the LT CAGR, it is possible
                                        that recovery will be stronger in these outyears than our forecast, but we remain cautious
                                        as we are concerned that efforts by paint-makers to reduce pigment usage may have had
                                        a structural effect and lower future consumption rates.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                             149
                                                                                                                                                                                                                                   12 October 2012




                                        Exhibit 295: Global pigment demand
                                        Kt



                                                                          7000

                                                                          6000




                                             Global pigment demand (kt)
                                                                          5000

                                                                          4000

                                                                          3000

                                                                          2000

                                                                          1000

                                                                             0
                                                                                                 1996
                                                                                   1994
                                                                                          1995


                                                                                                        1997
                                                                                                               1998
                                                                                                                      1999
                                                                                                                             2000
                                                                                                                                    2001
                                                                                                                                           2002
                                                                                                                                                  2003
                                                                                                                                                         2004
                                                                                                                                                                 2005
                                                                                                                                                                        2006
                                                                                                                                                                               2007
                                                                                                                                                                                       2008
                                                                                                                                                                                              2009
                                                                                                                                                                                                     2010
                                                                                                                                                                                                            2011
                                                                                                                                                                                                                   2012f
                                                                                                                                                                                                                           2013f
                                                                                                                                                                                                                                    2014f
                                                                                                                                                                                                                                            2015f
                                                                                                                                                                                                                                                    2016f
                                        Source: TZMI, Credit Suisse




 Exhibit 296: Summary of pigment and titanium dioxide supply and demand
 Units as indicated below

                                         2007                                    2008               2009                2010               2011                 2012f                 2013f             2014f                2015f                  2016f
 Pigment production            kt       5,130                                    4,950             4,370               5,330               5,450                5,100                 5,210             5,630                6,030                  6,220
 chg yoy                       %        2.8%                                     -3.5%           -11.7%               22.0%                2.3%                 -6.4%                 2.2%              8.1%                 7.1%                   3.2%
 Pigment consumption           kt       5,255                                    4,990             4,740               5,045               5,117                4,990                 5,040             5,290                5,500                  5,720
 chg yoy                       %        9.8%                                     -5.0%            -5.0%                6.4%                1.4%                 -2.5%                 1.0%              5.0%                 4.0%                   4.0%
 Pigment balance               kt        -125                                       -40             -370                 285                 333                  110                   170               340                  530                    500
 FEEDSTOCKS
 TiO2 units supply                      6,482                                    6,050             5,400               6,300               6,363                6,532                 6,630             7,520                7,897                  7,870
 chg yoy                       %       10.7%                                     -6.7%           -10.7%               16.7%                1.0%                  2.7%                 1.5%             13.4%                 5.0%                   -0.3%
 TiO2 units demand                      6,100                                    5,906             5,200               6,355               6,625                6,290                 6,465             6,975                7,465                  7,730
 chg yoy                       %        4.6%                                     -3.2%           -12.0%               22.2%                4.2%                 -5.1%                 2.8%              7.9%                 7.0%                    3.5%
 TiO2 units balance                       382                                      144               200                 -55                -262                  242                   165               545                  432                    140
 High grade TiO2 balance       kt         237                                      125                40                 -24                 -91                  233                   294               433                  396                    293
 Sulfate ilmenite balance      kt        -193                                       -25              155                  43                -121                    7                  -101               151                   76                   -149
 Sulfate slag (Ex China)       kt        -212                                       -26             -116                -154                 -98                    1                   -30               -40                  -40                      -6
 Source: TZMI, Credit Suisse



                                        Feedstock pricing – premium products bore the brunt of the demand
                                        downturn
                                        Slag makers under long-term legacy contracts have reportedly had no trouble selling their
                                        product in 2012. The demand weakness has been borne by the premium products at
                                        premium prices – rutile and synthetic rutile sold by Iluka. Iluka was pricing rutile at around
                                        $2400/t whereas chloride slag, a competitor, was priced at around $600/t. As pigment
                                        makers found their inventory building on slow demand downstream, they looked to cut
                                        production, which they achieved by cutting out the highest grade feedstocks – rutile and
                                        syn-rutile carrying premium prices. Of the three large western feedstock producers, Iluka
                                        took the brunt of the demand downturn.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                                                                                             150
                                                                                                                             12 October 2012



                                        Two-speed pricing to end in 2013
                                        2013 looks to be a complex year for pricing. The two-speed pricing should largely cease,
                                        with Rio Tinto having 75% of its production freed from legacy contracts, up from 25% in
                                        2012. Its slag feedstock prices will likely be increasing as it will be keen to capture some of
                                        the lost pricing territory. In addition, it has indicated that pricing will be very short term from
                                        quarterly to shipment by shipment. It may be hard to pin down where prices are at in 2013,
                                        and we expect increased price and demand volatility in the market.
                                        High grade feedstock for the chloride industry: We see high grade feedstocks for
                                        chloride pigment production being in significant surplus in 2013, and then growing in 2014
                                        as Rio Tinto continues to ramp up production of its QMM slag and a new rutile mine –
                                        Kwale – enters production. We have only a mild decline in high grade products for 2013,
                                        but begin a steeper decline towards LT prices in 2014.
                                        Isolated shipments of chloride slag that are free from legacy contracts have been priced at
                                        over $2000/t in the first half of 2012, but taking into account our forecast surplus, we have
                                        assumed a price of $1700/t for chloride slag in 2013, a $50/t decline on our theoretical
                                        price for 2012. However, for rutile and synthetic rutile we have forecast steeper declines.
                                        These premium products have to some extent been cut out of the feedstock mix in 2012,
                                        so we believe the price spread between these products and competing chloride slag will
                                        need to reduce in 2013. Consequently, the major move in our forecasts for 2013 is borne
                                        by rutile and syn-rutile as we close the gap with chloride slag.
                                        Sulfate slag: Sulfate slag balances continue to appear tight in our forecasts, so we have
                                        also closed the price spread between chloride and sulfate slag.
                                        Ilmenite: Ilmenite supply and demand remains cryptic, depending upon how much is
                                        imported by China. For the first half of 2012, China’s imports had risen a mammoth 50%
                                        on 2011, but according to TZMI, China appears to have built up inventory of 400-450kt of
                                        ilmenite, which is placing pressure on pricing. We assume the high imports and inventory
                                        build was a precautionary measure for Chinese pigment producers given that Vietnam
                                        intended to bring in a ban on ilmenite exports from the middle of 2012. The ban is
                                        supposed to have taken effect from 1 July, but we as yet have no clarity on the impact. We
                                        have included a ban in our forecasts. Ilmenite supply consequently looks reasonably tight
                                        in our forecasts, and we retain reasonably robust prices.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                             151
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 297: Global zircon supply and demand estimates
                                                             Thousands of tons

                                                             kt                          2008                2009      2010      2011       2012F      2013F      2014F    2015F        kt                    2008                            2009F     2010          2011F     2012F           2013F     2014F              2015F
                                                             MINED ZIRCON PRODUCTION                                                                                                    CONSUMPTION SECTOR USE
                                                                Australia                  500                415        530       722         580         595      618      662        Ceramics               628                             543      780             795       700            -              -                -
                                                                South Africa               398                352        381       392         420         390      410      440        Refractories           144                             113      160             165       170            -              -                -
                                                                Other Africa                  8                 27         44        52          50          75     152      194        Foundry                133                             109      140             145       140            -              -                -
                                                                China                        50                 40         30        25          25          25       25       25       TV glass                35                              27       21              15        10            -              -                -
                                                                India                        29                 28         35        40          43          53       53       53       Zirconia & chemicals   200                             176      245             260       290            -              -                -
                                                                Ukraine                      24                 27         24        24          25          25       25       25       Other                   21                              19       25              20        20            -              -                -
                                                                United States              124                  57         88        85          83          78       78       45       Total                1,161                             987    1,371           1,400     1,330            -              -                -
                                                                Other                      161                161        145       198         200         195      192      182        Mkt share
                                                                Highly Probable Growth     -                  -          -         -           -           -        -        -          Ceramics               54%                             55%      57%            57%       53%             -              -                -
                                                                Disruption Allowance         -                  -          -         -        -43         -57      -62      -65         Refractories           12%                             11%      12%            12%       13%             -              -                -
                                                             Total Production            1,294              1,107      1,278     1,538       1,383      1,379     1,491    1,561        Foundry                11%                             11%      10%            10%       11%             -              -                -
                                                             % change                  -10.0%             -14.5%      15.5%     20.4%      -10.1%       -0.3%     8.1%     4.7%         TV glass                3%                              3%       2%             1%        1%             -              -                -
                                                                                                                                                                                        Zirconia & chemicals   17%                             18%      18%            19%       22%             -              -                -
                                                             ZIRCON CONSUMPTION                                                                                                         Other                   2%                              2%       2%             1%        2%             -              -                -
                                                               Nth America                        121           86       113       120         125        130       135      140        Total                100%                             100%     100%           100%      100%             -              -                -
                                                              % change                        -17.7%      -28.9%      31.4%      6.2%        4.2%       4.0%      3.8%     3.7%
                                                                                                                                                                                                    Zircon Production (bars) v Consumption (kt) & price (line) US$/t RHS
                                                               Europe                             300         229        328       300         270        310       310      320
                                                                                                                                                                                    1,800                                                                                                                                2,600
                                                              % change                        -21.3%      -23.7%      43.2%     -8.5%      -10.0%      14.8%      0.0%     3.2%                                                                                                                                          2,500
                                                               China                              421         398        578       625         550        550       550      560    1,600                                                                                                                                2,400
                                                                                                                                                                                                                                                                                                                         2,300
                                                              % change                          7.7%       -5.5%      45.2%      8.1%      -12.0%       0.0%      0.0%     1.8%                                                                                                                                          2,200
                                                                                                                                                                                    1,400
                                                               Japan                                45          37        45         45          45         50        50       50                                                                                                                                        2,100
                                                                                                                                                                                                                                                                                                                         2,000
                                                              % change                        -21.1%      -17.8%      21.6%      0.0%        0.0%      11.1%      0.0%     0.0%     1,200                                                                                                                                1,900
                                                                                                                                                                                                                                                                                                                         1,800
                                                               Other Asia                         163         140        196       195         205        215       230      245
                                                                                                                                                                                    1,000                                                                                                                                1,700
                                                              % change                        -13.8%      -14.1%      40.0%     -0.5%        5.1%       4.9%      7.0%     6.5%                                                                                                                                          1,600
                                                                                                                                                                                                                                                                                                                         1,500
                                                              Other World                         111           97       111       115         115        120       120      125     800                                                                                                                                 1,400
                                                              % change                         23.3%      -12.6%      14.4%      3.6%        0.0%       4.3%      0.0%     4.2%                                                                                                                                          1,300
                                                                                                                                                                                     600                                                                                                                                 1,200
                                                             Total consumption                  1,161         987      1,371     1,400       1,310      1,375     1,395    1,440                                                                                                                                         1,100
                                                              % change                            -7%       -15%        39%         2%         -6%         5%        1%       3%     400                                                                                                                                 1,000
                                                                                                                                                                                                                                                                                                                         900
                                                             Restocking                           -           -          25        -           -          -         -        -                                                                                                                                           800
                                                                                                                                                                                     200                                                                                                                                 700
                                                             SURPLUS/(DEFICIT)                    133         120        -93       138           73           4       96     121
                                                                                                                                                                                                                                                                                                                         600
                                                             Estimated Total Stocks                 81        150         32       170         243        247       343      464       0                                                                                                                                 500
                                                                                                                                                                                                2008                2009               2010           2011              2012F           2013F           2014F
                                                             weeks Consumption                      3.6         7.9       1.2        6.3         9.6        9.3    12.8     16.7
                                                                                                                                                                                             Nth America                    Europe                      China                    Japan                          Other Asia
                                                                                                                                                                                             Other World                   Australia                  South Africa              Other Africa                China
                                                             Price (US$/t)
                                                                                                                                                                                            India                          Ukraine                    United States             Other                       Bulk from Australia
                                                             Bulk from Australia                 765         858        875     1,875       2,500      2,500      2,500    1,825
                                                             Source: TZMI, Company data, Credit Suisse estimates




                                                                                                                                                                                                                                                                                                                                     12 October 2012
152
Commodity Forecasts: The Best of Times, The Worst of Times



                                                             Exhibit 298: Global titanium oxide supply and demand estimates
                                                             Thousands of tons

                                                             kt                               2008    2009          2010     2011F     2012F     2013F     2014F     2015F     kt                                   2008    2009    2010 2011F 2012F                2013F        2014F        2015f
                                                             TiO2 UNITS SUPPLY                                                                                                 TiO2 CONSUMPTION BY SECTOR
                                                                Australia                    1,583    1,168         1,223    1,205   1,317 1,343 1,340 1,447                      Pigments                        5,374    4,732  5,785    5,915      5,910         6,030        6,205        6,540
                                                                South Africa                 1,090      854         1,126    1,141   1,144 1,172 1,183 1,196                      Titanium sponge                   360      260    290      400        430           460          490          520
                                                                Other Africa                   248      340           463      437     518   701 1,207 1,380                      Other (Welding rods)              177      208    280      310        330           355          380          405
                                                                Canada                         896      696           905      956     978 1,023 1,109 1,109                      TOTAL TiO2 demand               5,912    5,200  6,355    6,625      6,670         6,845        7,075        7,465
                                                                China                          619      568           755    1,012   1,109 1,205 1,333 1,453                      TiO2 for Pigments                 91%     91%    91%      89%        89%           88%          88%          88%
                                                                Other Europe                   758      737           747      610     696   762   816   821                      TiO2 for Titanium sponge           6%       5%     5%       6%         6%            7%           7%           7%
                                                                US                             187      151           194      217     162   156   156    73                      Other                              3%       4%     4%       5%         5%            5%           5%           5%
                                                                ROW                            669      885           887      758     719   727   819   835                   PIGMENT BALANCE
                                                                Total TiO2 units             6,050    5,400         6,300    6,396   6,702 7,149 8,023 8,381                      PIGMENT PRODUCTION              4,950    4,370  5,330    5,450      5,450         5,560        5,720        6,030
                                                                Disruption Allowance           -        -             -        -   - 335 - 357 - 401 - 419                        % Chg y-o-y                     -3.5% -11.7% 22.0%        2.3%       0.0%          2.0%         2.9%         5.4%
                                                             Total Production                6,050    5,400         6,300    6,396   6,367 6,791 7,622 7,962                      PIGMENT CONSUMPTION             4,990    4,740  5,045    5,117      5,200         5,330        5,540        5,760
                                                                % change                    -6.7% -10.7%           16.7%     1.5% -0.5%    6.7% 12.2%  4.5%                       % Chg y-o-y                     -5.0% -5.0%      6.4%     1.4%       1.6%          2.5%         4.0%         4.0%
                                                             CONSUMPTION                                                                                                          PIGMENT BALANCE               -      40 - 370     285      333        250           230          180          270
                                                             Total TiO2 consumption         5,906    5,200         6,355     6,625     6,670     6,845     7,075     7,465     TiO2 FEEDSTOCK BALANCES (TiO2 units kt)
                                                                % Chg y-o-y                 -3.2% -12.0%           22.2%      4.2%      0.7%      2.6%      3.4%      5.5%       Chloride ilmenite supply           636      458    421      420        574           562          660          811
                                                             SURPLUS/(DEFICIT)                 144      200           -55      -229      -303        -54      547       497      Disruption allowance                -       -       -        -     -     29    -       28   -      33    -      41
                                                                Estimated Total Stocks         194      394           339       110      -193      -246       300       797      Chloride ilmenite demand           761      697    911      924        914           921          949          997
                                                                weeks Consumption                1.7      3.9          2.8       0.9      -1.5      -1.9       2.2       5.6   CHLOR. ILMEN. TiO2 BALANCE            -       -       -        -          -             -           -            -
                                                             FEEDSTOCK SUPPLY                                                                                                    High grade supply                2,701    2,293  2,950    3,022      3,082         3,313        3,527        3,606
                                                                Ilmenite (Sulphate)          4,060    4,185         4,667    4,493     4,650     5,012     5,904     6,219       Disruption allowance                -       -       -        -     - 154       -     166    -     176    -     180
                                                                Ilmenite (Chloride)          1,053      757           685      681       949       927     1,091     1,182       High grade demand                2,577    2,253  2,974    3,113      2,919         2,960        2,920        2,993
                                                                Rutile                         621      552           761      810       794       830       926       981     HIGH GRADE TiO2 BALANCE               125       40      -24      -91         9          187          431          433
                                                                Leucoxene                      181      168           188      159       205       205       253       285       Sulfate slag supply (ex China)     649      428    474      532        592           603          643          659
                                                                Synthetic rutile               767      671           635      614       643       752       757       757       Disruption allowance                -       -       -        -     - 154       -     166    -     176    -     180
                                                                Slag (Chloride)              1,430    1,149         1,692    1,769     1,799     1,900     1,995     2,005       Sulfate slag demand (ex China)     675      544    628      630        623           648          658          666
                                                                Slag (sulphate)              1,023      830           881      959     1,078     1,152     1,302     1,412     SULFATE SLAG BALANCE             -      26 - 116 - 154 -        98 -       61    -       75   -      48    -      40
                                                             TiO2 SUPPLY BY FEEDSTOCK PRODUCT                                                                                    Global sulfate ilmenite TiO2     1,891    1,980  2,221    2,183      2,179         2,348        2,790        2,829
                                                                Ilmenite (sulphate) TiO2    1,891    1,980         2,221     2,183     2,179     2,348     2,790     2,829       Disruption allowance                -       -       -        -     - 123       -     134    -     160    -     165
                                                                Ilmenite (Chloride) TiO2      636      458           421       420       574       562       660       811       Global sulfate ilmenite demand   1,917    1,824  2,178    2,271      2,308         2,380        2,466        2,560
                                                                High grade TiO2             1,442    1,278         1,455     1,460     1,493     1,635     1,763     1,834     SULFATE ILMENITE BALANCE                -25    155       43      -88     -251          -166          164          104
                                                                Chloride slag TiO2          1,260    1,016         1,494     1,562     1,589     1,678     1,764     1,772
                                                                Sulphate slag TiO2            822      669           709       771       867       926     1,046     1,134     PRICES(US$/t)
                                                             Sulfate supply TiO2 units        45%     49%           46%       46%       45%       46%       48%       47%       Rutile - Bulk Aust FOB               509      537      550    1,055    2,400        2,400        2,400        1,575
                                                             Chloride supply TiO2 units       55%      51%           54%       54%       55%       54%       52%       53%      Synthetic rutile - Aust FOB          429      424      443      858    2,050        2,050        2,050        1,450
                                                             TiO2 PIGMENT SUPPLY BY PROCESS                                                                                     Ilmenite (sulfate)                   119       74       84      209      338          350          300          249
                                                                Chloride Pigment Supply     2,602    2,243         2,795     2,854     2,817     2,843     2,919     3,141      Slag (Chloride SA 86%)               449      426      431      490    1,750        1,750        1,750        1,256
                                                                Sulfate Pigment (ex-China)  1,438    1,097         1,332     1,306     1,283     1,317     1,331     1,329      Slag (Sulphate 80%)                  356      294      322      415    1,500        1,500        1,500        1,063
                                                                China Pigment Supply          900    1,047         1,200     1,300     1,350     1,400     1,470     1,560      Slag (UGS 95%)                       -        -        524      996    2,350        2,350        2,350        1,619
                                                             Source: TZMI, Company data, Credit Suisse estimates




                                                                                                                                                                                                                                                                                                       12 October 2012
153
                                                                                                                                                           12 October 2012




                      Equity Research
                                            Uranium: Utilities in a “Wait-and-See” Mood
                            Ralph Profiti
        ralph.profiti@credit-suisse.com
                                            Market well-balanced; uranium prices range-bound in short term
                       +1 416 352 4563
                                            We are lowering our uranium price forecast slightly to $50/lb in 2012, $56/lb in 2013.
              Commodities Research          Our long-term and 2014 price forecast of $65/lb remains unchanged. Our forecast
                           Ric Deverell     reductions reflect underperformance in prices in 2012, a balanced market medium term,
        ric.deverell@credit-suisse.com
                                            and include a peak price of $70/lb in 2015.
                     +44 20 7883 2523
                                            In our view, the social and political tolerance for new nuclear build initiatives remains
                                            dynamic and because of the unique technological and environmental challenges facing
                                            uranium/nuclear, industry sentiment continues to be subject to public opinion risks. We
                                            remain constructive on the outlook for new reactor build in China, Russia, and India, where
                                            we forecast 38GWe of new nuclear capacity over the next five years (2012-2016) and total
                                            global new capacity of 49GWe.
                                            In our view, positive uranium price momentum will be driven by stronger evidence of the
                                            following key factors over the next 12 months: (i) clarity surrounding the nuclear outlook
                                            for Japan; (ii) resumption of approvals for new nuclear reactors in China; (iii) clarity over
                                            Russian supplies post expiry of the HEU supply agreement in 2013; and (iv) slower
                                            uranium production growth rates from Kazakhstan.

                                            Current uranium prices a disincentive for new production
                                            The spot uranium price has been range-bound in the $45-55/lb range over the past 16
                                            months, with price leakage in the past three months taking prices below $50/lb, a level we
                                            believe is a disincentive for greenfield development and brownfield expansion.

                                            Exhibit 299: Credit Suisse uranium spot forecast and NYMEX futures prices
                                            US$/lb

                                                            UxC Month-end U3O8 spot price (US$/lb)                      Credit Suisse spot forecast (US$/lb)

                                                            NYMEX-UxC Futures (US$/lb)                                  UxC Month-end U3O8 LT price (US$/lb)

                                               80                                        Historical   Forecast

                                                                                                                                                           Long-term price
                                               75

                                               70

                                               65

                                               60

                                               55

                                               50

                                               45

                                               40

                                               35

                                               30
                                                     2010            2011             2012            2013       2014               2015               2016              2017
                                            Source: Company data, Credit Suisse



                                            Medium and long term, we believe the uranium price will stage a recovery to a level that
                                            reflects the incentive price for production expansion and exploration, averaging between
                                            $65/lb and $70/lb over the next five years. Supporting our view, we estimate the market
                                            will be in a modest structural deficit in 2014-2015, although it is unlikely in our view that
                                            prices will return to the $100+/lb level seen in 2007.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                               154
                                                                                                                       12 October 2012



                                        Uranium demand: China at 60GWe by 2020 a realistic goal
                                        Nuclear power currently provides about 13.5% of the world's electricity, comprised of
                                        roughly 24% share of electricity in OECD countries and a much lower share in developing
                                        economies. According to WNA estimates, 218 nuclear reactors were started up during the
                                        1980s (an average of one every 17 days), including 47 in the US, 42 in France, and 18 in
                                        Japan, so there is a strong precedent for rapid building and commissioning phases for
                                        nuclear power. Our current ten-year forecast (2012-2021) incorporates a more modest
                                        112 nuclear reactors, or one every 33 days.
                                        According to China’s Nuclear Power Mid/Long Term Development Plan issued in 2007,
                                        China planned to have 40GWe of installed nuclear capacity by 2020. The number was
                                        subsequently talked up to 80GWe by 2020; however, the Fukushima nuclear event has
                                        created waves for the development strategy of nuclear power, in our view, particularly
                                        plans for inland nuclear plants where closer scrutiny based on seismic sensitivity has put
                                        approximately 20GWe of growth at risk of delay. Our estimate calls for 60Gwe of installed
                                        capacity by 2020. Domestically, China currently produces about 2-3mn lbs of uranium
                                        annually (versus 15-20mn lbs currently required). The remaining requirements have been
                                        imported or purchased in the open market, and strategically stockpiled for future use.
                                        In Japan, a more aggressive stance towards a “zero-nuclear” energy policy amid public
                                        opposition and upcoming general elections fueled Enecan’s “Innovative Energy and
                                        Environment Strategy” (released in September 2012) to recommend a phase-out of
                                        nuclear power by 2040. The plan was met with strong opposition from industry, with a
                                        consensus that 20%-25% nuclear was necessary to avoid any severe economic impact.
                                        Moreover, the Japanese cabinet backed away from the plan, and leading officials
                                        (including Prime Minister Noda) explained that flexibility was important in considering
                                        future energy policy. We forecast a supportive scenario for restarts in Japan, and
                                        compared to the 50 reactors currently operable, we forecast a total of 4 restarts by end-
                                        2012, a total of 10 by end-2013, and a total of 18 by end-2014, which equates to ~30% of
                                        current operable capacity. We believe the largest hurdles to these forecasts remain public
                                        opposition and general elections in Japan later this year.

                                        Uranium supply: Supply growth fueled by Kazakhstan and Cigar Lake
                                        Current low uranium price in relative terms and availability of secondary sources of fuel
                                        supply translate into a riskier environment for future mine supply, in our view. As such, we
                                        believe future mine supply trends will focus on uranium deposits of the highest quality in
                                        terms of tonnage, grade, cost, and ability to finance. Prior to the events of Fukushima,
                                        questions facing the uranium market centered on security of supply, and although we
                                        believe this to still be the case, addressing future supply concerns will now have to be
                                        made in a period of lower prices and sentiment.
                                        Kazakhstan has been in growth mode over the past few years, taking the #2 spot from
                                        Australia in 2008 and the #1 spot from Canada in 2009. Kazakhstan production increased
                                        to over 50mn lbs U3O8 in 2011, with plans to increase production to ~65mn lbs by 2015;
                                        however, resources could be depleted at a faster rate than anticipated, with some high-
                                        grading occurring at the expense of future production, leaving future production more
                                        dependent on higher market prices. We estimate production peaking in 2016 at an annual
                                        rate of 60mn lbs/year, with expansion to 60+mn lbs/yr requiring a price above $90/lb.
                                        Cameco has made steady progress towards its mid-2013 startup at Cigar Lake. In
                                        addition to the successful sinking of the #2 shaft, Cameco has restored underground mine
                                        systems, infrastructure and development areas, secured regulatory approval and started
                                        construction of systems to increase discharge capacity for treated water, initiated orebody
                                        freezing from surface, and developed and secured regulatory approval for a revised mine
                                        plan. Cigar Lake is expected to produce at an annual rate of 18mn lbs/year U3O8.



Commodity Forecasts: The Best of Times, The Worst of Times                                                                       155
                                                                                                                                                               12 October 2012



                                        Although secondary sources of nuclear fuel supply are finite and the HEU agreement
                                        governing the sale of decommissioned Russian warheads (being the largest) is due to
                                        expire in 2013, we believe other fuel sources (such as enrichment, reprocessing, tails) are
                                        likely to increase appear in the commercial market.

                                        Exhibit 300: Credit Suisse uranium supply/demand summary
                                        Million lbs of U3O8 (left axis), and US$/lb (right axis)

                                                                                 40                          Net implied surplus (deficit) based on available supply      120
                                                                                                             Uranium price forecast (US$/lb of U3O8)

                                                                                 30
                                                                                                                                                                          100
                                        Net surplus (deficit) in Mln lbs U3O8


                                                                                 20

                                                                                                                                                                          80
                                                                                 10


                                                                                 -                                                                                        60


                                                                                (10)
                                                                                                                                                                          40

                                                                                (20)

                                                                                                                                                                          20
                                                                                (30)


                                                                                (40)                                                                                      -
                                                                                       2000   2005   2010   2015             2020               2025               2030
                                        Source: Company data, Credit Suisse



                                        Since our last update, no changes to our supply-demand forecasts
                                        Between 2012-2021 (ten-year view), we estimate total uranium demand of 2.23bn lbs
                                        U3O8. Our demand forecasts take into account revised assumptions for Japanese
                                        restarts and full decommissioning in Germany. In summary, we forecast a net addition of
                                        112 reactors to the current global fleet of 434 in operation by 2021.
                                        Over the same period, we estimate total uranium supply of 2.38bn lbs U3O8, which
                                        already factors lower supply from higher-cost producers resulting from weaker uranium
                                        prices, regulatory delays, and slower construction schedules for new mines, offset by
                                        increased Russian secondary supply. We believe future supply trends will focus on
                                        uranium deposits of the highest quality in terms of tonnage, grade, cost, and ability to
                                        finance.
                                        In total, between 2012 and 2020, we estimate the global uranium market will be largely in
                                        balance (deficits occurring in 2014), with more significant deficits occurring after 2025.




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                    156
                                                                                                                                                                   12 October 2012




 Exhibit 301: Uranium forecast comparison                                                      Exhibit 302: Uranium historical price and forecast
 US$/lb                                                                                        US$/lb

  $65
                         Credit Suisse Forecast                Forward Curve                       $80                  Uranium spot              Quarterly avg forecasts


  $60                                                                                              $75

                                                                                                   $70
  $55
                                                                                                   $65

  $50                                                                                              $60

                                                                                                   $55
  $45
                                                                                                   $50

  $40                                                                                              $45

                                                                                                   $40
  $35
                                                                                                   $35

  $30                                                                                              $30
             Q4 12             Q1 13              Q2 13         Q3 13               Q4 13             2009       2010            2011         2012             2013


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




 Exhibit 303: Forecast uranium prices
 US$ per lb, long-term prices based on 2011 real prices

                                                      2011     1Q-12    2Q-12       3Q-12 4Q-12f     2012f 1Q-13f 2Q-13f 3Q-13f 4Q-13f         2013f      2014f       2015f      LT
                 Uranium         New      US$/lb          57      52           52       48    48         50   52        55         58    60          56       65            70   65
                                  Old     US$/lb          57      52           52       52    54         53   55        55         60    65          59       65            70   65
 Source: Credit Suisse




Commodity Forecasts: The Best of Times, The Worst of Times                                                                                                                       157
                                                                                                                                                      12 October 2012




 Exhibit 304: Global uranium (U3O8) supply and demand estimates
 In millions of pounds of uranium, unless otherwise noted
 all figures in Mln lbs U3O8, unless noted      2009      2010     2011     2012     2013      2014      2015     2016      2017     2018     2019      2020     2021

 Uranium mine production
 North America                                  29.8      28.1     26.9     24.8     25.2      27.4      30.5     39.3      44.9     48.3     51.1      54.5     55.6
 South America                                    0.9       0.4     -        -        -         -         -        -         -        -        -         -        -
 Western Europe                                  -         -        -        -        -         -         -        -         -        -        -         -        -
 Eastern Europe                                   0.5       0.0      0.0      0.0      0.0       0.0       0.0      0.0       0.0      0.0      0.0       0.0      0.0
 Kazakhstan                                     36.5      46.3     50.6     55.9     55.9      58.5      58.5     61.1      59.5     55.9     56.4      56.4     56.4
 Russia & Other FSU                             19.6      22.2     22.5     22.8     23.1      23.8      24.6     25.5      26.5     26.6     26.7      26.8     26.8
 Africa                                         19.6      23.0     26.6     33.5     37.5      40.8      45.2     57.1      57.5     57.9     60.1      62.8     62.8
 Asia & Oceana                                  27.4      25.6     20.7     24.3     22.6      21.4      21.3     20.6      19.8     19.1     22.3      22.3     22.3
 Other (adjustments)                             -         -        -        -        -         -         -        -         -        -        -         -        -
 Mine production                               134.3     145.6    147.2    161.3    164.4     171.9     180.1    203.6     208.3    207.7    216.7     222.7    223.9
 growth rate                                   16.4%      8.4%     1.1%     9.6%     1.9%      4.6%      4.8%    13.0%      2.3%    -0.3%     4.3%      2.8%     0.5%
 Secondary supply                               65.9      64.3     57.9     59.2     59.7      29.2      34.2     35.5      38.0     40.5     40.5      41.1     41.8
 Total supply                                  200.1     209.9    205.1    220.5    224.1     201.1     214.3    239.0     246.3    248.1    257.1     263.9    265.6
 growth rate                                   18.0%      4.9%    -2.3%     7.5%     1.6%    -10.3%      6.6%    11.6%      3.0%     0.8%     3.6%      2.6%     0.7%

 Nuclear power plant (NPP) forecasts (units)
 China                                          11.0      11.0     15.0     18.0     22.0      27.0      32.0     37.0      43.0     49.0     55.0      60.0     65.0
 India                                          17.0      17.0     20.0     22.0     23.0      24.0      25.0     27.0      29.0     33.0     37.0      41.0     45.0
 Japan                                          53.0      53.0      -         4.0    10.0      18.0      18.0     18.0      18.0     18.0     18.0      18.0     18.0
 Russia                                         31.0      31.0     32.0     34.0     35.0      37.0      39.0     41.0      43.0     45.0     47.0      49.0     51.0
 U.S.A.                                        104.0     104.0    104.0    104.0    104.0     104.0     104.0    104.0     104.0    105.0    105.0     106.0    106.0
 Other                                         225.0     225.0    262.0    259.0    259.0     253.0     254.0    255.0     256.0    257.0    258.0     260.0    260.0
 Total                                         441.0     441.0    433.0    441.0    453.0     463.0     472.0    482.0     493.0    507.0    520.0     534.0    545.0
 growth rate                                    0.0%      0.0%    -1.8%     1.8%     2.7%      2.2%      1.9%     2.1%      2.3%     2.8%     2.6%      2.7%     2.1%

 Uranium demand analysis
 Existing NPP capacity                         175.4     178.2    175.1    157.0    158.7     161.5     165.4    166.0     166.7    167.4    168.0     168.7    169.3
 New NPP capacity                                -        12.0     18.0     19.0     23.9      31.1      37.6     47.8      52.4     61.8     64.6      75.5     74.2
 Strategic inventory build                       -         -        -