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Brent Weakness Continues, but End Is within Sight

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									                                                                MORGAN              STANLEY               RESEARCH
                                                                GLOBAL


                                                                Morgan Stanley & Co. LLC              Adam Longson, CFA, CPA
                                                                                                      Adam.Longson@morganstanley.com
                                                                                                      +1 212 761 4061

                                                                                                      Chris Corda
                                                                                                      Bennett Meier
                                                                                                      Tai Liu
April 15, 2013                                                                                        Alan H Lee


The Commodity Manual
                                                                Morgan Stanley Australia Limited      Peter G Richardson
                                                                                                      Peter.Richardson@morganstanley.com

                                                                                                      Joel B Crane
Brent Weakness Continues,
                                                                Forties Differentials Continue to Weaken
but End Is within Sight                                         (North Sea crude grades versus Dated Brent, $/bbl)
                                                                  4.0

                                                                  3.0
Weak physical demand and technicals continue to
weigh on Brent. With global refinery maintenance                  2.0
expected to remain elevated for at least a couple more
weeks, we expect physical markets to remain anemic. As            1.0

evidence, Forties differentials were weaker last week (p.22),
                                                                  0.0
and West African grades have started to decline on
returning production (p.22). The upcoming Brent contract         -1.0
expiry may be exacerbating recent price weakness as
paper traders may struggle to find buyers to unwind              -2.0
positions. Lastly, the weakness in Brent has narrowed              Sep 11     Dec 11   Mar 12        Jun 12      Sep 12     Dec 12   Mar 13
                                                                                Dated Brent         Forties        Ekosfisk      Oseberg
WTI-Brent, giving the impression that WTI fundamentals
have improved significantly. If Brent begins to firm,           Source: Bloomberg, Morgan Stanley Commodity Research

WTI-Brent should widen, and some of these bearish Brent
positions (p.19) could quickly unwind.
                                                                Brent Speculative Length Still Low
But an end is within sight. Although we wouldn’t try to call    (ICE Brent net speculative length, ‘000 lots)
a bottom, we feel that as Brent prices approach $100/bbl,        200
the risk-reward becomes increasingly attractive. As noted
in our Global Oil Fundamentals report published last week,       160
2Q13 is unlikely to experience the magnitude or duration of
sell-off that we witnessed in 2Q12. Global refinery              120
maintenance is now past its peak with demand expected to
recover more quickly this year. By mid-May, refinery              80
capacity offline should be below February levels with
additional declines expected into June. More specific to          40
Brent, Western Europe maintenance has already started to
decline, with another large decline expected in mid-May,           0
and refinery margins are slowly recovering. As a result, we         Jan     Feb Mar    Apr May      Jun   Jul    Aug   Sep Oct    Nov Dec
see global runs starting to recover in May (instead of June),                                  2013           2012      2011
with a notable ramp in crude runs into summer.                  Source: Bloomberg, Morgan Stanley Commodity Research

Natural gas had a strong performance, with the prompt
month contract gaining 2.4% for the week. The
remaining active Cal-13 contracts are now in                    Datapoints of the Week
backwardation with their Cal-14 counterparts. Furthermore,
                                                                Global risk demand climbed                Refining margins flattish,
the 12-month strip is now firmly trading above the              higher last week. P.10                    complex margins up slightly.
$4/mmBtu mark, which historically encourages production,        WCS differentials weaken on
                                                                                                          P.31-32
albeit with a time lag. The natural gas market is very long     refinery maintenance. P.22                OECD EU product demand
                                                                                                          down 867 kb/d YoY in
with NSL at a 52-week high (see p.19), which could              OECD Asia Pacific crude
                                                                                                          February. P.34
                                                                stocks decline significantly.
exaggerate a downward price move if the market sells off.       P.29                                      US ethanol production reached
While we expect demand to slow in the weeks ahead, we           RBOB cracks continue to
                                                                                                          a 10-month high of 854 kb/d.
                                                                                                          P.71
continue to see tight fundamentals for gas in the summer.       decline. P.30
Hence, we expect any price retracements to be temporary.



                                                                For important disclosures, refer to the
                                                                Disclosures Section, located at the end of
                                                                this report.
                                                      MORGAN       STANLEY   RESEARCH

                                                      April 15, 2013
                                                      The Commodity Manual




Table of Contents

Macro                                                                                    3
  Week in Review                                                                         3
  MS Forecasts, Forward Curves, and Recommendations                                      4
  MS Trade Recommendations                                                               6
  Index Performance                                                                      7
  Catalyst Calendar                                                                      9
  Macro Indicators                                                                      10
  Forward Curves                                                                        14
  Net Speculative Length                                                                19
Energy                                                                                  20
  Crude Oil                                                                             21
  Crude Products                                                                        30
  Natural Gas                                                                           53
Agriculture                                                                             65
  Weather Map                                                                           66
  Corn                                                                                  67
  Soybeans                                                                              73
  Wheat                                                                                 82
  Cotton                                                                                89
  Sugar                                                                                 93
  Coffee                                                                                98
  Livestock                                                                             99
Metals                                                                                  101
  Gold                                                                                  102
  Silver                                                                                105
  Aluminum                                                                              108
  Copper                                                                                111
  Nickel                                                                                114
  Lead and Zinc                                                                         117




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                                                                           MORGAN              STANLEY             RESEARCH

                                                                           April 15, 2013
                                                                           The Commodity Manual




Week in Review
Energy                                                  Performance Tables
Oil prices continued to decline last week on           Updated as of April 12, 2013
below-expectations US retail sales. In the US, the     Energy                              Latest          4/5 - 4/12          MTD             QTD            YTD
DOEs were slightly bullish crude and bearish
products, as crude stocks built below market           NYMEX WTI Crude                        91             -1.5%             -6.1%          -6.1%          -0.6%
expectations, but still managed to reach 22-year       ICE Brent Crude                       103             -1.0%             -6.3%          -6.3%          -7.2%
highs. Product stats were squarely bearish as
                                                       NYMEX RBOB Gasoline                   280             -2.2%             -9.8%          -9.8%          -0.4%
stocks built counterseasonally on higher imports
and runs. Natural gas prices continued to rally on     NYMEX Heating Oil                     287             -1.3%             -1.5%          -1.5%          -5.7%
bullish weather forecasts.                             NYMEX HH Natural Gas                  4.22             2.4%             4.9%           4.9%           26.0%

                                                       Metals                              Latest          4/5 - 4/12          MTD             QTD            YTD
Base Metals
                                                       Aluminium (LME cash)                 1,841            -0.2%             -2.2%          -2.2%          -9.8%
Base metal prices relinquished recent gains last       Copper (LME cash)                    7,510             1.8%             -1.0%          -1.0%          -5.1%
week as negative sentiment on the demand
outlook pushed prices below recent near-term           Nickel (LME cash)                    15,950            0.1%             -3.6%          -3.6%          -6.6%
support levels. This trend trumped potentially         Zinc (LME cash)                      1,844            -0.2%             -1.4%          -1.4%          -9.4%
supportive supply-side news for copper of a very
                                                       Lead (LME cash)                      2,047             0.2%             -2.2%          -2.2%         -12.5%
substantial pit wall failure at Bingham Canyon in
Utah, one of the world’s largest mines. The mine       Tin (LME cash)                       22,780            0.2%             -1.6%          -1.6%          -3.1%
was scheduled to produce 201Kt of copper in            Gold (spot)                          1,483            -6.2%             -7.2%          -7.2%         -11.5%
2013, but this target may be halved on the greater-
than-initially-anticipated damage.                     Silver (spot)                        26.00            -4.9%             -8.2%          -8.2%         -14.3%

                                                       Platinum (spot)                      1,487            -3.3%             -5.4%          -5.4%          -3.4%

Precious Metals                                        Agriculture                         Latest          4/5 - 4/12          MTD             QTD            YTD

A 5% drop in the gold price at the end of last week    Corn                                  659              4.7%             -5.3%          -5.3%          -5.7%
prompted calls of a gold bear market after the price   Soybeans                             1,413             3.8%             0.6%           0.6%           -0.4%
drop shattered key technical support levels. In our
view, while the key fundamentals of the gold bull      Wheat                                 715              2.3%             3.9%           3.9%           -8.1%
market remain broadly intact (central bank net         Sugar                                  18              2.2%             2.1%           2.1%           -7.6%
buying, continued global monetary easing, strong
                                                       Cotton                                 86             -1.4%             -3.3%          -3.3%          13.9%
physical demand, weak production growth), it is
clear that sentiment has materially shifted,           Coffee                                135             -3.5%             -1.4%          -1.4%          -5.9%
prompting sustained net falls in the physically        Cocoa                                2,261             6.1%             4.2%           4.2%           1.1%
backed ETF funds. Consequently, the possibility
that the gold price may fail to deliver an annual      Livestock                           Latest          4/5 - 4/12          MTD             QTD            YTD
positive return for the first time since 2001 has      Live Cattle                           126             -0.1%             -2.4%          -2.4%          -3.1%
materially increased on last week’s price action.
                                                       Feeder Cattle                         138             -3.3%             1.8%           1.8%           -8.9%

                                                       Lean Hogs                              82              2.7%             2.0%           2.0%           -4.1%
Agriculture and Softs
                                                       Selected Indices                    Latest          4/5 - 4/12          MTD             QTD            YTD
Agriculture prices rebounded last week after the
April WASDE report came in less bearish than           DXY (USD Index)                        82             -0.2%             -0.8%          -0.8%          3.2%
expected. Corn prices led the space higher after       DJ-AIG                                134             -0.2%             -2.6%          -2.6%          -3.8%
the USDA only projected full-year 12/13 feed/
                                                       DJIA                                 14,865            2.1%             2.0%           2.0%           13.4%
residual demand down only 150 mln bu from the
March WASDE (vs. consensus expectations of a           S&P 500                              1,589             2.3%             1.3%           1.3%           11.4%
much larger revision). Soybean prices rose WoW         MSCI World                           1,457             2.6%             1.5%           1.5%           8.8%
as US export sales continued to exceed the pace
                                                       Eurostoxx 50                         2,633             1.9%             0.4%           0.4%           -0.1%
needed to reach the USDA’s full-year forecast.
                                                       Source: Bloomberg; Energy - New York Mercantile Exchange; Base Metals - London Metals Exchange; Precious
Wheat prices rose as another cold-front swept          Metals - Bloomberg; Agriculture - Chicago Board of Trade, New York Board of Trade/InterContinental Exchange;
across the Midwest, raising concerns over              Livestock - Chicago Mercantile Exchange
winter-kill prospects.




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                                                                          MORGAN        STANLEY        RESEARCH

                                                                          April 15, 2013
                                                                          The Commodity Manual




Morgan Stanley Price Forecasts and Forward Curve
Average Period Price                                                                                                         As of 13-April-13
Energy                      Units                1Q13          2Q13          3Q13           4Q13            2013                  2014
Crude Oil (Brent)           US$/bbl               113           107           112            110             110                     -
  Bull case                                       113           112           120            120             116
  Bear case                                       113            97           100            100             102
  Forward Curve                                                                                              105                    99
WTI-Brent Differential      US$/bbl             -18.07        -15.00        -13.50         -11.50          -14.50                 -8.50
  Bull case                                     -18.07        -21.50        -18.50        -14.50           -19.00                -11.50
  Bear case                                     -18.07        -10.00         -7.00          -4.50          -10.00                 -5.50
  Forward Curve                                                                                            -12.46                 -9.84
Natural Gas                 US$/                 3.48          4.05           4.00           4.20           3.93                     -
  Bull case                 mmBtu                3.48          4.20          4.40           4.35            4.11
  Bear case                                      3.48          3.70          3.60           3.60            3.60
  Forward Curve                                                                                             4.15                   4.2
Base Metals                                      1Q13          2Q13          3Q13           4Q13            2013                  2014
Aluminum                    US$/MT               2100          2200          2200           2300            2,200                 2,300
  Forward Curve                                                                                             1,904                 1,946
Copper                      US$/MT               8200          8500          8700           8800            8,600                 8,200
  Forward Curve                                                                                             7,546                 7,508
Nickel                      US$/MT              17600         17900         18200          18500           18,100                19,600
  Forward Curve                                                                                            16,248                16,096
Zinc                        US$/MT               2100          2100          2200           2200            2,200                 2,300
  Forward Curve                                                                                             1,922                 1,959
Precious Metals                                  1Q13          2Q13          3Q13           4Q13            2013                  2014
Gold                        US$/oz               1715          1745          1800           1830            1,773                 1,845
  Forward Curve                                                                                             1,537                 1,511
Silver                      US$/oz               32.36         32.92         33.96          34.53           33.44                 34.81
  Forward Curve                                                                                             27.35                 26.66
Platinum                    US$/oz               1700          1710          1720           1730            1,715                 1,785
  Forward Curve                                                                                             1,532                 1,501
Softs *                                                                                                   2012/13               2013/14
Cotton                      US¢/lb                                                                           80                    N.A.
  Forward Curve                                                                                               80                    86
Sugar                       US¢/lb                                                                           19                    20
  Bull case
  Bear case
  Forward Curve                                                                                              19                    19
Grains *                                                                                                  2012/13               2013/14
Corn                        US$/bu                                                                          7.85                  5.90
  Forward Curve                                                                                             6.86                  5.60
Soybean                     US$/bu                                                                         15.70                 14.50
  Forward Curve                                                                                            14.40                 12.45
Wheat                       US$/bu                                                                          8.30                  7.30
  Forward Curve                                                                                             7.87                  7.42
Livestock                                                                                                   2013
Live Cattle                 US¢/lb                                                                           126
  Forward Curve                                                                                              125
Feeder Cattle               US¢/lb                                                                           144
  Forward Curve                                                                                              143
Lean Hogs                   US¢/lb                                                                           100
  Forward Curve                                                                                               84
* Agriculture commodities are in US marketing years: wheat (Jun-May), cotton (Aug-Jul), corn & soybeans (Sep-Aug), sugar (Oct-Sep)
Source: Bloomberg, Morgan Stanley Commodity Research estimates




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                                                               MORGAN            STANLEY            RESEARCH

                                                               April 15, 2013
                                                               The Commodity Manual




Commodity Thermometer
   Commodity        Bearish   Neutral   Bullish                                            Thesis
                                                  Strong global demand growth for soy products in 2013 and increasing risks to South
                                                  America's 12/13 soybean export pace, increase the urgency of adding US acreage in
    Soybeans
                                                  13/14. Soybean prices need to rise in order to gain this acreage in the face of rising South
                                                  American costs and high corn prices.
                                                  Outperformance versus gold will be sustained, forecasting the gold:silver ratio to average
      Silver                                      53:1 during 2013 and 2014. This compares with a long-run average around 52:1 and an
                                                  average of 60:1 since 2000.

                                                  Investment demand will remain strong against continued pressure on the US currency,
       Gold
                                                  low real interest rates, central bank buying and enhanced geopolitical uncertainty.

                                                  South African supply issues have helped eliminate the market surplus and industrial
     Platinum
                                                  demand will continue to firm.
                                                  Near-term risks remain, but we would be buyers as Brent approaches $100/bbl. Although
                                                  near-term downside risk remains, the 2Q13 sell-off in Brent is unlikely to match that of
  Brent Crude Oil
                                                  2Q12. In fact, the global oil balance looks much tighter this summer with prices likely to
                                                  trade back up to $110-115/bbl in 2H13.
                                                  Chinese import demand to remain strong on modest steel production growth and
     Iron Ore
                                                  constrained domestic iron supply.

                                                  Despite a spate of supply growth, global copper inventory remains well below average and
     Copper
                                                  coupled with decent demand, the supply/demand balance will remain tight.

                                                  The recent weakness in corn prices has left ethanol margins attractive, leaving upside to
       Corn                                       ethanol production. At the same time, new crop production is increasingly at risk, as snow
                                                  and cold weather across the northern cornbelt increasese the risk of prevented plantings.

                                                  With European supplies dwindling, US wheat is favorably positioned in the export market,
                                                  and US exports now starting to outpace the levels needed to reach the USDA's full-year
      Wheat                                       estimates. While falling corn prices in the near term could set a ceiling for feed
                                                  substitution, export upside and continued risks to new-crop US production should support
                                                  prices in the coming months.

                                                  While high feed costs and contracting feeder cattle herds all bode well for US live cattle
    Live Cattle
                                                  prices, weak packer margins and slowing slaughter rates hint at weaker US beef demand.
                                                  Weak US pork demand, coupled with rising slaughter volumes continue to pressure prices
    Lean Hogs                                     in the coming months, though the medium term outlook is much more positive as poor
                                                  production margins reduce supply.
                                                  Potential to surprise to the upside on strong battery demand and slippage in supply
       Lead
                                                  growth.
                                                  Expecting higher prices, but magnitude dependent on producer response to the
   Coking Coal
                                                  oversupplied market.
                                                  We now expect gas prices to average above $4.00/mmBtu for the balance of 2013. We
                                                  previously forecast a summer rally, but even we have been surprised at the speed of that
   Natural Gas
                                                  rally. A surprisingly cold March combined with flat-to-declining production and resilient
                                                  demand pared inventories back to 5Y avg.
                                                  While global production prospects remain favorable, the result of better than expected
                                                  weather in the US and China as well as larger planted area in India, we believe that price
      Cotton
                                                  direction in the coming months will largely be dictated by Chinese government policy in
                                                  the form of cotton reserve purchases.
                                                  After 6 consecutive years of global surplus, we are forecasting a small, but directionally
       Zinc                                       important shift in the global zinc market to deficit conditions in 2013 for the slab zinc
                                                  market.
                                                  Drought-induced liquidation of pastured cattle onto feedlots should continue to pressure
  Feeder Cattle
                                                  feeder cattle prices in the months ahead.
                                                  Currently oversupplied, but expected a rally behind Japanese nuclear capacity restarts
     Uranium
                                                  and/or supply cuts.

                                                  Acute oversupply as new projects deliver into market and Chinese NPI continues to rise.
      Nickel
                                                  An expected rebound in demand will not adequately absorb high global inventory.

                                                  A strong pace of C/S Brazilian crush should weaken prices as weak northern hemisphere
      Sugar
                                                  demand for Brazilian raws prompts a global trade surplus in 1Q13.
                                                  Although prices remain poor, output continues to grow and the primary market is not
    Aluminum
                                                  rebalancing.




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                                                                                                        MORGAN              STANLEY              RESEARCH

                                                                                                        April 15, 2013
                                                                                                        The Commodity Manual




Morgan Stanley Trade Recommendations
                                                                                                                                                                Closing /
                                                                                                            Initiation       Price at           Closing         Current              Profit /
                                                                             Units           Status           Date          Initiation           Date             Price               Loss
                               Long Sep '12 $114/107 Brent Put Spread         $/bbl         CLOSED           5/4/2012          2.53              5/25/2012          4.46               1.93

                               Sell Jan '12 NG (Henry Hub) Put @ 3.85       $/mmBtu         CLOSED          10/31/2011         0.13             12/27/2011          0.74              -0.61

                               Short Mar-Sep '12 Brent                        $/bbl         CLOSED          9/28/2011          1.13             10/16/2011          2.50              -1.37

                               Short Mar '11 NG                             $/mmBtu         CLOSED          10/11/2010         -4.27             1/4/2011          -4.63              -0.36
       Energy




                               Long Dec '11 WTI                               $/bbl         CLOSED          12/15/2009         83.05             9/28/2011         81.46              -1.59

                               Short Jul-Sep '09 Heating Oil                  ¢/gal         CLOSED          5/11/2009          -6.73             9/2/2009          -10.29              3.56

                               Short Sep-Dec '09 Heating Oil                  ¢/gal         CLOSED          3/30/2009          -8.46             12/2/2009          0.00               8.46

                               Brent-WTI box                                  $/bbl         CLOSED          2/18/2009          2.60              4/9/2011           4.05               1.45

                               Buy Jun-Dec '10 Gas Oil                        $/MT          CLOSED           2/1/2009          -34.75            6/10/2010         -28.50              6.25

                               Short Jun '09 Heating Cracks                   $/bbl         CLOSED          10/31/2008         -18.85            6/2/2009          -10.67              8.18

                               Long Nov '13 Soybean / Dec 12 Corn Ratio                       OPEN          12/6/2012          2.06                                 2.32               0.26

                               Long May '13 - Short Dec '13 Corn              $/bu          CLOSED          12/6/2012          1.13             12/19/2012          0.95              -0.18

                               Long Oct '12 - Short Dec '12 Ethanol           $/gal         CLOSED          7/19/2012          0.06             10/19/2012         -0.02              -0.08

                               Long Dec '12 - Short Dec '13 Corn              $/bu          CLOSED          6/19/2012          -0.01             6/28/2012          0.72               0.73

                               Short Jul '12 Cotton                           $/lb          CLOSED           3/8/2012          -0.91             5/11/2012         -0.82               0.09

                               Long Nov '12 Beans                             $/bu          CLOSED          10/25/2010         11.31             3/29/2012         13.18               1.87

                               Long July '12 - Dec '12 Corn                   $/bu          CLOSED          12/21/2011         0.61              2/21/2012          0.74               0.12

                               Short Mar '12 -July '12 Sugar                cents/lb        CLOSED          11/3/2011          -1.35             2/16/2012         -1.60              -0.25

                               Long Dec '11 Corn                              $/bu          CLOSED          10/25/2010         5.33             11/30/2011          5.80               0.47

                               Long Nov '11 - Nov '12 Soybeans                $/bu          CLOSED          7/27/2011          13.81            11/11/2011         11.66              -2.15

                               Long Nov '11 Soybeans                          $/bu          CLOSED          3/30/2011          13.64            10/31/2011         12.08              -1.56
       Agriculture and Softs




                               Short Mar-May '12 Cotton Spread                ¢/lb          CLOSED          3/25/2011          5.85              6/1/2011           7.45              -1.60

                               Long Mar '12 Sugar - Short Jul '11 Sugar       ¢/lb          CLOSED           3/2/2011          -2.33             7/7/2011           0.00               2.33

                               Long Dec '11 Corn / Short Nov '11 Beans*       ¢/lb          CLOSED          7/23/2010          0.00              4/1/2011           1.13               1.13

                               Short Dec '10 Arabica Coffee                   ¢/lb          CLOSED          6/28/2010          1.68             11/19/2011          2.10               0.42

                               Short Dec '10 - Long Mar '11 Cotton            ¢/lb          CLOSED          4/21/2010          0.97              12/8/2010         -6.05              -7.02

                               Long Dec '11 Cotton                            ¢/lb          CLOSED           3/1/2010          0.78              5/25/2011          1.31               0.54

                               Long Nov '11 Beans                             ¢/lb          CLOSED          8/12/2009          9.67              5/18/2010          9.29              -0.38

                               Long Dec '10 Corn / Short Nov '10 Beans*       ¢/lb          CLOSED          8/12/2009          0.00              11/2/2009          1.05               1.05

                               Sell May '10 - Long Oct '10 Sugar              ¢/lb          CLOSED           7/6/2009          0.38              4/30/2010         -0.10              -0.48

                               Long Jul '10 - Short Dec '10 corn              ¢/lb          CLOSED          5/11/2009          7.50              2/26/2010         -35.00             -42.50

                               Long Sugar Mar '11                             ¢/lb          CLOSED          3/25/2009          14.83             9/3/2010          20.13               5.30

                               Long '09/10 Arabica                         Index Value      CLOSED          1/21/2009         128.65            11/19/2010        130.00               1.35

                               Long Arabica - Short Robusta                Index Value      CLOSED          1/21/2009          51.65             3/2/2010          73.41              21.76

                               Long '10/11 Cotton                          Index Value      CLOSED          12/1/2008          54.72             3/1/2010          10.76              -43.96

                               Long Dec '09 Corn - Short Nov '09 Beans        $/bu          CLOSED          10/17/2008         -4.79            11/30/2009         -5.81              -1.02

                               Long Nov '09 Beans                             ¢/bu          CLOSED          5/21/2008          13.52             1/7/2008          11.10              -2.42

                               Long Gold                                  Index Value         OPEN          1/20/2009         481.66                              870.01              388.35
       Metals




                               Long Silver                                Index Value         OPEN          1/20/2009         421.29                             1,029.22             607.93

                               Long Copper                                Index Value         OPEN          12/15/2009       4,207.08                            4,522.18             315.10
       Livestock




                               Long Feeder Cattle                         Index Value         OPEN          12/17/2008        119.21                              125.29               6.08


                               Long Jun '10 Live Cattle                       ¢/lb          CLOSED          11/12/2009         84.70             6/7/2010          89.80               5.10
Our trades represent hypothetical, not actual, investments. Reported returns do not take into account transaction fees and other costs. Past performance is no guarantee of future results.
Source: Bloomberg, Morgan Stanley Commodity Research




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                                                                                                          MORGAN             STANLEY                RESEARCH

                                                                                                          April 15, 2013
                                                                                                          The Commodity Manual




Monthly Index Performance Table
 As of 29-Mar-13                                            % in GSCI    Total Return             Month                 QTD                   YTD            Dec00(1) to Dec12     Roll Yield L12M

                            S&P GSCI TR                      100%            4,916                0.8%                  0.5%                 0.5%                  1.3%                 -0.2%

                            Back Bsk S&P GSCI TR (2)          N/A             134                 -3.7%                 0.6%                 0.6%                  8.0%                 1.2%
   Commodities




                            GSCI Pre Roll Alpha (4)           N/A            5,190                0.1%                  0.1%                 0.1%                  1.6%                  N/A

                            DJUBS TR                          N/A             277                 0.7%                  -1.1%                -1.1%                 3.2%                 -4.2%

                            Back Bsk DJUBS TR (3)             N/A             210                 -3.1%                 0.0%                 0.0%                 11.6%                 1.5%

                            DJUBS Pre Roll Alpha (4)          N/A             296                 0.1%                  0.1%                 0.1%                  1.2%                  N/A

                            GSCI Light Energy TR              N/A            3,400                -0.6%                 -2.2%                -2.2%                 2.0%                 -0.7%

                            US S&P 500 TR                     N/A            2,770                3.8%                 10.6%                 10.6%                 2.4%                  N/A

                            UK FTSE 100 TR                    N/A            4,555                1.3%                  9.8%                 9.8%                  2.8%                  N/A
   Equities/Bonds




                            MSCI World TR                     N/A             633                 1.9%                  6.6%                 6.6%                  3.5%                  N/A

                            MSCI Europe TR                    N/A            7,053                -0.1%                 2.8%                 2.8%                  3.4%                  N/A

                            MSCI EM TR                        N/A             415                 -1.7%                 -1.6%                -1.6%                11.7%                  N/A

                            MSCI EM Asia Pac ex. Japan TR     N/A             285                 -1.6%                 2.7%                 2.7%                  8.2%                  N/A

                            Iboxx 7-10 Yr Treas TR            N/A             237                 0.4%                  0.1%                 0.1%                  6.2%                  N/A

                            Energy                           70.8%           1,105                2.0%                  3.2%                 3.2%                  0.5%                 0.3%
   Commodity Sectors




                            Non Energy                       29.2%           2,494                -2.1%                 -5.2%                -5.2%                 2.7%                 -1.2%

                            Grains                           11.4%            476                 -2.5%                 -4.6%                -4.6%                 0.0%                 3.0%

                            Agriculture                      14.7%            711                 -2.2%                 -3.9%                -3.9%                 -0.3%                2.4%

                            Livestock                         4.8%           2,002                -0.4%                 -6.7%                -6.7%                 -3.4%                -9.6%

                            Base Metals                       6.5%           1,457                -4.4%                 -7.1%                -7.1%                 7.7%                 -2.6%

                            Prec. Metals                      3.3%           2,055                0.8%                  -5.2%                -5.2%                14.2%                 -0.9%

                            WTI Crude                        25.0%           1,350                5.1%                  4.3%                 4.3%                  2.3%                 -5.3%

                            Brent Crude                      22.1%           1,193                0.0%                  1.9%                 1.9%                 11.3%                 6.6%

                            Natural Gas                       2.8%           67.83                14.1%                16.0%                 16.0%                -34.4%               -27.4%

                            GasOil                            8.3%           1,002                -2.1%                 0.5%                 0.5%                 10.5%                 4.0%

                            Heating Oil                       6.2%           1,455                -0.2%                 -1.6%                -1.6%                 5.7%                 -2.5%

                            Unleaded Gasoline                 6.4%           5,111                0.4%                  5.4%                 5.4%                 12.5%                 22.3%

                            Aluminum                          1.9%             68                 -5.0%                 -9.6%                -9.6%                 -0.3%                -6.4%

                            Copper                            3.1%           4,522                -3.6%                 -5.3%                -5.3%                15.5%                 -0.3%

                            Nickel                            0.5%            450                 0.2%                  -2.7%                -2.7%                10.6%                 -1.4%
   Individual Commodities




                            Zinc                              0.5%            101                 -8.8%                 -9.9%                -9.9%                 2.6%                 -3.5%

                            Lead                              0.4%            372                 -7.8%                -10.0%               -10.0%                14.4%                 -1.6%

                            Gold                              2.9%            870                 1.0%                  -5.0%                -5.0%                14.3%                 -0.8%

                            Silver                            0.5%           1,029                -0.4%                 -6.5%                -6.5%                14.6%                 -1.2%

                            Corn                              4.9%            186                 -1.2%                 -0.3%                -0.3%                 -2.6%                11.0%

                            Wheat                             3.2%            178                 -3.7%                -12.4%               -12.4%                 -5.3%                -7.7%

                            Soybeans                          2.7%           4,413                -3.3%                 0.6%                 0.6%                 11.1%                 7.8%

                            Sugar                             1.4%            206                 -4.0%                 -9.5%                -9.5%                 3.7%                 0.2%

                            Cotton                            1.1%            341                 3.7%                 16.3%                 16.3%                 -7.7%                6.8%

                            Kansas Wheat                      0.7%             65                 -3.4%                -13.8%               -13.8%                 0.2%                 -9.3%

                            Coffee                            0.6%             87                 -4.2%                 -6.6%                -6.6%                 -6.1%                -8.8%

                            Cocoa                             0.2%             29                 1.6%                  -3.0%                -3.0%                 7.5%                 0.7%

                            Live Cattle                       2.7%           3,496                -0.7%                 -5.3%                -5.3%                 -0.7%               -10.1%

                            Feeder Cattle                     0.5%            125                 -1.4%                 -9.6%                -9.6%                  N/A                -12.3%

                            Lean Hogs                         1.6%            189                 0.4%                  -8.3%                -8.3%                -10.0%                -7.5%
 (1) Annualised, (2) Calculated on basis of annual January reset to S&P GSCI weights, (3) Calculated on basis of annual Jan reset to DJUBS weights, (4) Pre Roll applied Feb-Dec
 Source: Bloomberg, Morgan Stanley Commodity Research                                                                                                  QTD: since Dec 31, 2012 YTD: since Dec 31, 2012




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Index Performance
S&P GSCI TR, DJUBS TR, Backwd Basket TR                                                                                                        Rebased at 100 on Jan 3rd 2005


  275              S&P GSCI TR                   DJUBSCI TR                   Backw Bskt TR (1)                Backw Bskt TR (2)
  250
  225
  200
  175
  150
  125
  100
    75
    50
      Jan-05     Jul-05     Jan-06    Jul-06     Jan-07    Jul-07    Jan-08    Jul-08    Jan-09    Jul-09    Jan-10    Jul-10    Jan-11    Jul-11    Jan-12    Jul-12    Jan-13
S&P GSCI Sub-Indices (TR)                                                                                                                      Rebased at 100 on Jan 3rd 2005

  450

  400

  350               Energy                          Agriculture
                    Livestock                     Base Metals
  300               Precious Metals
  250

  200

  150

  100

   50
    Jan-05     Jul-05     Jan-06     Jul-06    Jan-07     Jul-07    Jan-08    Jul-08    Jan-09    Jul-09    Jan-10    Jul-10    Jan-11    Jul-11    Jan-12    Jul-12    Jan-13

S&P GSCI Individual Commodity Indices (TR)                                                                                                     Rebased at 100 on Jan 3rd 2005

  500
                   WTI                   Brent                Heating
  450              Gasoil                Gasoline             Copper

  400              Sugar                 Soybeans             Live Cattle

  350

  300

  250

  200

  150

  100

    50

    0
    Jan-05     Jul-05     Jan-06     Jul-06    Jan-07     Jul-07    Jan-08    Jul-08    Jan-09    Jul-09    Jan-10    Jul-10    Jan-11    Jul-11    Jan-12    Jul-12    Jan-13

Source: Bloomberg, S&P GSCI, Dow Jones UBS
(1) Calculated on basis of annual January reset to GSCI weights (Petroleum, Copper, Sugar, Livestock, Soybeans).
(2) Calculated on basis of annual January reset to DJUBS weights (Petroleum, Copper, Sugar, Livestock, Soybeans).




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Catalyst Calendar and Upcoming Reports
Date                                              Name
                                                                                       Oil
Wednesday, April 17                               JODI Database Update
Wednesday, April 17                               EIA Weekly Petroleum Status Report
Thursday, April 18                                ARA and Singapore Oil Stocks
Thursday, April 18                                Japanese Weekly Oil Stocks
Wednesday, April 24                               EIA Weekly Petroleum Status Report
Thursday, April 25                                ARA and Singapore Oil Stocks
Thursday, April 25                                Japanese Weekly Oil Stocks
Wednesday, May 1                                  EIA Weekly Petroleum Status Report
Thursday, May 2                                   ARA and Singapore Oil Stocks
Thursday, May 2                                   Japanese Weekly Oil Stocks
Wednesday, May 8                                  EIA Weekly Petroleum Status Report
Thursday, May 9                                   ARA and Singapore Oil Stocks
Thursday, May 9                                   Japanese Weekly Oil Stocks


                                                                                 Natural Gas
Wednesday, April 17                               EEI Weekly Electric Output
Thursday, April 18                                Weekly Natural Gas Storage Report
Friday, April 19                                  Baker Hughes US Rig Count
Wednesday, April 24                               EEI Weekly Electric Output
Thursday, April 25                                Weekly Natural Gas Storage Report
Friday, April 26                                  Baker Hughes US Rig Count
Monday, April 29                                  EIA Natural Gas Monthly
Wednesday, May 1                                  EEI Weekly Electric Output
Thursday, May 2                                   Weekly Natural Gas Storage Report
Friday, May 3                                     Baker Hughes US Rig Count


                                                                                 Agriculture
Monday, April 15                                  Crop Progress
Wednesday, April 17                               Weekly Ethanol report
Thursday, April 18                                USDA Weekly Exports
Friday, April 19                                  Cattle on Feed
Monday, April 22                                  Crop Progress
Monday, April 22                                  Cold Storage
Monday, April 22                                  Livestock Slaughter - annual
Wednesday, April 24                               Weekly Ethanol report
Thursday, April 25                                USDA Weekly Exports
Thursday, April 25                                Livestock Slaughter - monthly
Monday, April 29                                  Crop Progress
Wednesday, May 1                                  Weekly Ethanol report
Thursday, May 2                                   USDA Weekly Exports
Monday, May 6                                     Crop Progress
Wednesday, May 8                                  Weekly Ethanol report
Source: EIA, IEA, OPEC, PAJ, IE Singapore, PJK International, JODI, EEI, Baker Hughes, USDA, UNICA, ABARES, US Census Bureau Morgan Stanley Commodity Research




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Macro Indicators
                                                                                   Most Recent                               Previous
Indicator                                         Frequency                Data Point          Date                 Data Point            Date     Trend*
World Trade:
  Global (Volume)                                   Monthly                   3.3%                  Jan-13              1.3%            Dec-12       ▲

Industrial Production (YoY % Change):
  Global                                            Monthly                    2.5%                 Jan-13               3.2%           Dec-12       ▼
  U.S.                                              Monthly                    2.5%                 Feb-13               2.2%           Jan-13       ▲
  Euro Area                                         Monthly                   -2.6%                 Feb-13              -2.6%           Jan-13       ▬
  Japan                                             Monthly                   -5.7%                 Feb-13              -7.1%           Jan-13       ▲
  Brazil                                            Monthly                   -0.8%                 Feb-13               3.2%           Jan-13       ▼
  Russia                                            Monthly                   -2.3%                 Feb-13              -0.9%           Jan-13       ▼
  India                                             Monthly                    0.6%                 Feb-13               2.4%           Jan-13       ▼
  China                                             Monthly                   10.3%                 Dec-12              10.1%           Nov-12       ▲

Real GDP (YoY % Change):
  U.S.                                                Qtrly                    1.7%                 Dec-12              2.6%            Sep-12       ▼
  Euro Area                                           Qtrly                   -0.9%                 Dec-12              0.0%            Sep-12       ▼
  Japan                                               Qtrly                    0.5%                 Dec-12              0.4%            Sep-12       ▲
  Brazil                                              Qtrly                    1.4%                 Dec-12              0.9%            Sep-12       ▲
  Russia                                              Qtrly                    2.1%                 Dec-12              3.0%            Sep-12       ▼
  India                                               Qtrly                    4.5%                 Dec-12              5.3%            Sep-12       ▼
  China                                               Qtrly                   7.9%                  Dec-12              7.4%            Sep-12       ▲

PMI (index):
 Global                                             Monthly                    51.2                 Mar-13              50.9            Feb-13       ▲
 U.S.                                               Monthly                    51.3                 Mar-13              54.2            Feb-13       ▼
 Euro zone                                          Monthly                    46.8                 Mar-13              47.9            Feb-13       ▼
 Japan                                              Monthly                    50.4                 Mar-13              48.5            Feb-13       ▲
 Brazil                                             Monthly                    51.8                 Mar-13              52.5            Feb-13       ▼
 China                                              Monthly                    50.9                 Mar-13              50.1            Feb-13       ▲

CPI (YoY % Change):
 U.S.                                               Monthly                    2.0%                 Feb-13               1.6%           Jan-13       ▲
 Euro Zone                                          Monthly                    1.8%                 Feb-13               2.0%           Jan-13       ▼
 Japan                                              Monthly                   -0.7%                 Feb-13              -0.3%           Jan-13       ▼
 Brazil                                             Monthly                    6.6%                 Mar-13               6.3%           Feb-13       ▲
 Russia                                             Monthly                    7.0%                 Mar-13               7.3%           Feb-13       ▼
 India                                              Monthly                   12.1%                 Feb-13              11.6%           Jan-13       ▲
 China                                              Monthly                    3.2%                 Feb-13               2.0%           Jan-13       ▲

Economic Surprise Index
  G10                                               Weekly                    -13.0                12-Apr-13            -11.3           5-Apr-13     ▼
  U.S.                                              Weekly                     7.8                 12-Apr-13             8.0            5-Apr-13     ▼
  Eurozone                                          Weekly                    -21.0                12-Apr-13            -13.6           5-Apr-13     ▼
  Japan                                             Weekly                    -61.0                12-Apr-13            -64.0           5-Apr-13     ▲
  Australia                                         Weekly                    41.7                 12-Apr-13            65.9            5-Apr-13     ▼
  Canada                                            Weekly                    -50.0                12-Apr-13            -60.3           5-Apr-13     ▲
  Emerging Markets                                  Weekly                    -37.7                12-Apr-13            -29.3           5-Apr-13     ▼
  Asia Pacific                                      Weekly                    -17.1                12-Apr-13            -14.9           5-Apr-13     ▼
  Latin America                                     Weekly                    -94.9                12-Apr-13            -61.1           5-Apr-13     ▼
  CEEMEA                                            Weekly                    -42.1                12-Apr-13            -40.6           5-Apr-13     ▼
  China                                             Weekly                    11.6                 12-Apr-13            25.9            5-Apr-13     ▼

Global Risk Demand                                    Daily                   124.2                11-Apr-13            121.8           4-Apr-13     ▲
GRDI - Standardized                                   Daily                   2.01                 11-Apr-13            0.36            4-Apr-13     ▲

*Trend as it relates to commodity prices. Source: Bloomberg, CPB Netherlands, Morgan Stanley Commodity Research




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Macro Indicators (cont.)
Industrial Production – Global and Developed Markets                          Industrial Production – Emerging Markets
(IP YoY % ∆)                                                                  (IP YoY % ∆)
  35%                                                                           25%

                                                                                20%
  25%
                                                                                15%
  15%
                                                                                10%
   5%                                                                            5%

  -5%                                                                            0%

                                                                                -5%
 -15%
                                                                               -10%
 -25%
                                                                               -15%

 -35%                                                                          -20%
     2008              2009            2010          2011        2012              2008               2009          2010             2011               2012
         Global YoY           U.S. YoY          Euro Area YoY     Japan YoY            Brazil YoY            Russia YoY            India YoY             China YoY
Source:, Bloomberg, Morgan Stanley Commodity Research                         Source: Bloomberg, Morgan Stanley Commodity Research

Real GDP - Global and Developed Markets                                       Real GDP – Emerging Markets
(Real GDP YoY % ∆)                                                            (Real GDP YoY % ∆)
  6%                                                                            15%


                                                                                10%
  3%

                                                                                 5%
  0%
                                                                                 0%
 -3%
                                                                                -5%

 -6%
                                                                               -10%


 -9%                                                                           -15%
    2006       2007           2008     2009     2010      2011       2012          2006        2007          2008     2009         2010          2011          2012
       Global YoY             U.S. YoY      Euro Area YoY         Japan YoY            Brazil YoY            Russia YoY            India YoY             China YoY

Source: Bloomberg, Morgan Stanley Commodity Research                          Source: Bloomberg, Morgan Stanley Commodity Research

Purchasing Manager Index – Global and Developed Markets                       Purchasing Manager Index – Emerging Markets
(Monthly PMI readings)                                                        (Monthly PMI readings)
  65                                                                            60

  60
                                                                                55
  55
                                                                                50
  50

  45                                                                            45

  40
                                                                                40
  35
                                                                                35
  30

  25                                                                            30
       2009            2010              2011           2012        2013             2009             2010           2011                 2012             2013
              Global            U.S.              Euro zone         Japan
                                                                                             Global                       Brazil                        China
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                              Source: Bloomberg, Morgan Stanley Commodity Research




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Macro Indicators (cont.)
CPI – Developed Markets                                                                  CPI – Emerging Markets
(CPI YoY % ∆)                                                                            (CPI YoY % ∆)
 6%                                                                                       16%
                                                                                          14%
 4%                                                                                       12%
                                                                                          10%
 2%                                                                                        8%
                                                                                           6%
 0%                                                                                        4%
                                                                                           2%
 -2%                                                                                       0%
                                                                                          -2%
 -4%                                                                                      -4%
    2009                 2010             2011            2012            2013               2009               2010              2011                2012               2013
             U.S. YoY                  Euro Zone YoY                Japan YoY                    Brazil YoY            Russia YoY               India YoY             China YoY

Source: Bloomberg, Morgan Stanley Commodity Research                                     Source: Bloomberg, Morgan Stanley Commodity Research


World Trade Volume (seasonally adjusted)                                                 MS Standardized GRDI Index
(Left axis: YoY % ∆ in World Trade; right axis: CPB World Trade Index)                   (Standardized GRDI, a near-term measure of risk appetite)
  25%                                                                              180    4.0

  20%
                                                                                   170    2.0
  15%
  10%
                                                                                   160
   5%                                                                                     0.0

   0%                                                                              150
  -5%                                                                                     -2.0
                                                                                   140
 -10%
                                                                                          -4.0
 -15%
                                                                                   130
 -20%
                                                                                          -6.0
 -25%                                                                              120
                                                                                            Jan-11        Jul-11         Jan-12              Jul-12          Jan-13
     2007         2008          2009     2010      2011          2012       2013
                    Global YoY                                     Global
                                                                                         Global Risk Demand Index – US Pat. No. 7,617,143
Source: CPB Netherlands, Morgan Stanley Commodity Research                               Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research

DM Economic Surprise Index                                                               EM Economic Surprise Index
(Economic news surprise index)                                                           (Economic news surprise index)
  150                                                                                      150


  100                                                                                      100


   50                                                                                       50


    0                                                                                        0


  -50                                                                                      -50


 -100                                                                                     -100


 -150                                                                                     -150
    Jan-10      Jul-10      Jan-11   Jul-11      Jan-12   Jul-12        Jan-13               Jan-10    Jul-10       Jan-11      Jul-11       Jan-12      Jul-12       Jan-13
             G10                U.S.               Eurozone                 Japan                Emerging Markets            Latin America            Asia Pacific        CEEMEA

Source: Bloomberg, Morgan Stanley Commodity Research                                     Source: Bloomberg, Morgan Stanley Commodity Research




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Foreign Exchange
                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H     52w L       1 Month      3 Month     6 Month         YTD
                 DXY       DOLLAR INDEX          Index    82.31    -0.2%      3.0%           83.22     79.13         0.1%         2.8%        2.8%          3.2%
                 EUR       EURO                  USD      1.31      0.9%      0.3%            1.36      1.28         0.3%        -1.6%        1.4%         -0.7%
                 JPY       JAPANESE YEN          JPY      98.37    -0.8%     -17.7%          99.78     86.70        -3.1%        -8.4%       -19.0%       -11.9%
                 GBP       BRITISH POUND         USD      1.53      0.0%      -3.2%           1.63      1.49         1.5%        -3.3%        -4.7%        -5.6%
                 CAD       CANADIAN DOLLAR       CAD      1.01      0.4%      -1.4%           1.03      0.98         0.6%        -2.2%        -1.6%        -2.0%
 G10




                 AUD       AUSTRALIAN DOLLAR     USD      1.05      1.2%      1.3%            1.06      1.02         1.0%         0.0%         1.3%         1.1%
                 CHF       SWISS FRANC           CHF      0.93      0.8%      -0.8%           0.95      0.91         1.2%         0.7%         0.8%        -1.3%
                 NOK       NORWEGIAN KRONE       NOK      5.71      0.4%      1.3%            5.85      5.46         0.9%        -1.9%         1.1%        -2.6%
                 SEK       SWEDISH KRONA         SEK      6.36      1.5%      6.8%            6.56      6.28         0.6%         2.5%         5.4%         2.3%
                 NZD       NEW ZEALAND DOLLAR    USD      0.86      1.9%      4.4%            0.86      0.82         3.8%         2.6%         4.4%         3.8%
                   Average Change in USD Terms                      0.6%      -0.6%                                  0.7%        -0.9%        -0.8%        -1.4%

                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H     52w L       1 Month      3 Month     6 Month        YTD
                 INR       INDIAN RUPEE          INR      54.53     0.5%     -5.9%           55.23     53.14        -0.9%        -1.5%       -1.7%         0.3%
                 CNY       CHINA RENMINBI        CNY      6.19      0.2%     1.8%             6.24      6.19         0.4%         0.4%        0.9%         0.7%
                 CNH       OFFSHORE CNY          CNH      6.19      0.2%     1.8%             6.24      6.18         0.3%         0.0%        0.9%         0.6%
 Asia ex-Japan




                 HKD       HONG KONG DOLLAR      HKD      7.76      0.0%      0.0%            7.77      7.75         0.0%        -0.1%       -0.2%        -0.1%
                 IDR       INDONESIAN RUPIAH     IDR      9,714     0.4%     -5.5%           9,868     9,618        -0.1%         1.2%       -1.0%         0.8%
                 KRW       SOUTH KOREAN WON      KRW      1,129     0.2%     0.5%            1,140     1,055        -1.6%        -6.4%       -2.9%        -5.8%
                 MYR       MALAYSIAN RINGGIT     MYR      3.04      0.6%      0.6%            3.13      3.01         2.8%        -0.9%        0.5%         0.6%
                 PHP       PHILIPPINES PESO      PHP      41.32    -0.3%      3.3%           41.32     40.56        -1.7%        -1.8%        0.0%        -0.8%
                 SGD       SINGAPORE DOLLAR      SGD      1.24      0.3%      0.9%            1.25      1.22         0.9%        -0.7%       -1.3%        -1.3%
                 THB       THAI BAHT             THB      29.05     0.7%      5.9%           30.59     28.94         1.7%         2.4%        5.7%         5.3%
                   Average Change in USD Terms                      0.3%      0.3%                                   0.2%        -0.7%        0.1%         0.0%

                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H     52w L       1 Month      3 Month     6 Month        YTD
 Latin America




                 ARS       ARGENTINE PESO        ARS      5.15     -0.2%     -14.6%           5.15      4.92        -1.1%        -3.8%       -7.7%        -4.5%
                 CLP       CHILEAN PESO          CLP       470     -0.3%       3.1%           479       467          0.3%         0.3%        2.2%         1.8%
                 COP       COLOMBIAN PESO        COP      1,826    -0.3%      -2.8%          1,831     1,759        -1.1%        -3.1%        0.1%        -3.2%
                 MXN       MEXICAN PESO          MXN      12.08     0.8%       9.1%          12.89     12.04         3.0%         4.9%        7.6%         6.7%
                 BRL       BRAZILIAN REAL        BRL      1.97      0.8%      -6.6%           2.05      1.94         0.7%         3.7%        2.9%         4.2%
                   Average Change in USD Terms                      0.1%      -2.4%                                  0.3%         0.4%        1.0%         1.0%

                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H     52w L       1 Month      3 Month     6 Month        YTD
                 RUB       RUSSIAN RUBLE         RUB      31.09    1.5%       -4.8%          31.63     29.85        -1.4%        -2.6%        0.9%        -1.7%
 EMEA




                 SAR       SAUDI RIYAL           SAR      3.75     0.0%        0.0%           3.75      3.75         0.0%         0.0%        0.0%         0.0%
                 ZAR       S. AFRICAN RAND       ZAR      8.94     1.7%      -11.1%           9.33      8.46         2.7%        -0.7%       -3.4%        -5.4%
                 TRY       TURKISH LIRA          TRY      1.79     0.3%        0.5%           1.83      1.75         1.0%        -1.6%        0.7%        -0.2%
                   Average Change in USD Terms                     0.9%       -3.8%                                  0.6%        -1.2%       -0.4%        -1.8%
Source: Bloomberg, Morgan Stanley Commodity Research


DXY Dollar Index                                                                  BRLUSD Exchange Rate
(Left axis: YoY % ∆; right axis: index value)                                     (Left axis: YoY % ∆; right axis: BRL exchange rate)
      20%                                                           85                 42%                                                              2.20

      15%                                                                                                                                               2.10
                                                                                       28%
      10%
                                                                                                                                                        2.00
                                                                    80
            5%                                                                         14%
                                                                                                                                                        1.90
            0%
                                                                                                                                                        1.80
        -5%                                                                             0%
                                                                    75
                                                                                                                                                        1.70
  -10%
                                                                                      -14%
  -15%                                                                                                                                                  1.60

  -20%                                                             70                 -28%                                                              1.50
     Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13                      Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
                                       YoY %        DXY                                                          YoY %               BRL

Source: Bloomberg, Morgan Stanley Commodity Research                              Source: Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Energy
WTI Crude Oil Forward Curve                                                        Brent Crude Forward Curve
($/bbl)                                                                            ($/bbl)
  101                                                                                113



   96                                                                                107




   91                                                                                100



                                                                                      94
   86



                                                                                      87
   81
                                                                                             0               20            40                  60               80               100
          0         20            40         60         80              100
              Apr-12                   Apr-05                    Mar-28                              Apr-12                           Apr-05                              Mar-28
Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research                        Source: ICE, Bloomberg, Morgan Stanley Commodity Research

Dubai Crude Oil Forward Curve                                                      NYMEX Heating Oil Forward Curve
($/bbl)                                                                            (US¢/gal)
  109                                                                                305



  105                                                                                296



  102                                                                                287




   99                                                                                278




   96                                                                                269
          0     2        4        6      8        10        12     14         16             0       5        10      15        20        25         30        35    40          45
              Apr-12                   Apr-05                    Mar-28                          Apr-12                               Apr-05                         Mar-28
Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research                        Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research

ICE Gasoil Forward Curve                                                           NYMEX Gasoline Forward Curve
($/MT)                                                                             (US¢/gal)
  950                                                                                320



  920                                                                                295




  890                                                                                270



                                                                                     245
  860



                                                                                     220
  830                                                                                        0   3       6        9   12   15        18   21        24    27    30   33     36        39
          0                  12                   24                    36
              Apr-12                   Apr-05                    Mar-28                          Apr-12                               Apr-05                         Mar-28
Source: ICE, Bloomberg, Morgan Stanley Commodity Research                          Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Energy
WTI-Brent Forward Curve                                                          RBOB-HO Forward Curve
($/bbl)                                                                          ($/bbl)
  -5                                                                                7



  -7                                                                               -8



 -10                                                                              -24



 -12
                                                                                  -39



 -14
       0    10    20        30   40    50        60   70   80        90    100    -54
                                                                                        0   3    6   9   12   15   18   21    24   27   30   33   36   39   42   45   48
            Apr-12                    Apr-05                     Mar-28                         Apr-12                       Apr-05                     Mar-28
Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research                      Source: ICE, Bloomberg, Morgan Stanley Commodity Research

Henry Hub Natural Gas Forward Curve
($/mmBtu)
 5.1



 4.7



 4.3



 3.8



 3.4
       0     10        20        30         40        50        60        70
            Apr-12                    Apr-05                    Mar-28
Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Metals
Gold Forward Curve                                                                         Silver Forward Curve
($/troy oz)                                                                                ($/troy oz)
  1,800                                                                                      30.0



  1,700                                                                                      28.8




  1,600                                                                                      27.5




  1,500                                                                                      26.3



                                                                                             25.0
  1,400
                                                                                                     0          10    20     30             40   50      60       70
           0          10     20        30        40         50         60        70
                   Apr-12                    Apr-05                         Mar-28                           Apr-12                Apr-05                Mar-28
Source: COMEX, Bloomberg, Morgan Stanley Commodity Research                                Source: COMEX, Bloomberg, Morgan Stanley Commodity Research

Aluminum Forward Curve                                                                     Copper Forward Curve
($/MT)                                                                                     ($/MT)
  2,320                                                                                      8,100



  2,185                                                                                      7,875



  2,050                                                                                      7,650



  1,915                                                                                      7,425




  1,780                                                                                      7,200
           0           10    20         30            40         50         60        70                 0       10   20      30            40   50      60       70

                   Apr-12                    Apr-05                         Mar-28                           Apr-12                Apr-05                Mar-28
Source: LME, Bloomberg, Morgan Stanley Commodity Research                                  Source: LME, Bloomberg, Morgan Stanley Commodity Research

Nickel Forward Curve                                                                       Zinc Forward Curve
($/MT)                                                                                     ($/MT)
  17,900                                                                                     2,200




  17,275                                                                                     2,100



                                                                                             2,000
  16,650



                                                                                             1,900
  16,025


                                                                                             1,800
  15,400                                                                                                 0       10   20      30            40   50      60       70
               0        10        20        30         40         50        60        70
                   Apr-12                    Apr-05                         Mar-28                           Apr-12                Apr-05                Mar-28
Source: LME, Bloomberg, Morgan Stanley Commodity Research                                  Source: LME, Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Grains/Softs
Corn Forward Curve                                                                      Soybeans Forward Curve
(¢/bu)                                                                                  (¢/bu)
  720                                                                                     1,450



  663                                                                                     1,370




  605                                                                                     1,290



                                                                                          1,210
  548



                                                                                          1,130
  490                                                                                                0           5           10        15         20          25        30         35        40        45
         0               10            20          30             40          50
             Apr-12                          Apr-05                     Mar-28                           Apr-12                                        Apr-05                                Mar-28
Source: CBOT, Bloomberg, Morgan Stanley Commodity Research                              Source: CBOT, Bloomberg, Morgan Stanley Commodity Research

Wheat Forward Curve                                                                     Kansas Wheat Forward Curve
(¢/bu)                                                                                  (¢/bu)
  810                                                                                     830



  775                                                                                     798



  740                                                                                     765



  705
                                                                                          733



  670
         0   3      6         9   12   15    18   21    24   27   30    33   36    39
                                                                                          700
                                                                                                 0           3           6        9          12          15        18         21        24        27         30
             Apr-12                           Apr-05                    Mar-28                           Apr-12                                        Apr-05                                Mar-28
Source: CBOT, Bloomberg, Morgan Stanley Commodity Research                              Source: ICE, Bloomberg, Morgan Stanley Commodity Research

Sugar Forward Curve                                                                     Cotton Forward Curve
(¢/lb)                                                                                  (¢/lb)
  21.0                                                                                    100



  20.0                                                                                     95



  19.0                                                                                     90




  18.0                                                                                     85



                                                                                           80
  17.0
                                                                                                 0       3           6       9    12        15     18     21       24        27    30    33       36        39
         0   3       6        9   12    15   18   21    24   27    30   33   36    39

                 Apr-12                       Apr-05                     Mar-28                          Apr-12                                        Apr-05                                Mar-28
Source: ICE, Bloomberg, Morgan Stanley Commodity Research                               Source: ICE, Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Livestock
Live Cattle Forward Curve                                                    Feeder Cattle Forward Curve
(¢/lb)                                                                       (¢/lb)
  136                                                                          162


                                                                               156
  131

                                                                               151

  127
                                                                               145


  122
                                                                               140



  117                                                                          134
             0         3       6         9           12        15       18            0        3          6          9          12       15       18

                 Apr-12                Apr-05                  Mar-28                     Apr-12                  Apr-05                 Mar-28
Source: CME, Bloomberg, Morgan Stanley Commodity Research                    Source: CME, Bloomberg, Morgan Stanley Commodity Research

Lean Hogs Forward Curve
(¢/lb)
  94




  90




  85




  81




  76
         0         3       6       9            12        15    18      21
                 Apr-12                Apr-05                  Mar-28
Source: CME, Bloomberg, Morgan Stanley Commodity Research




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CTFC Commitment of Traders Report Summary
                                     Net Spec                                                                                 Open Interest
                   Commodity                    WoW Δ      WoW % Δ   52w H       52w L      Price ($)   WoW Δ ($)   WoW % Δ                   WoW Δ      NSL as a % of OI
                                      Length                                                                                      (OI)

                      ICE Brent      103,996    11,946      13.0%    229,562    38,238      107.11        (2.58)     -2.4%     1,791,165      43,179          5.8%


                     NYMEX WTI       265,420    (26,769)    -9.2%    324,005    178,866      94.45        (2.13)     -2.2%     2,512,815      30,206          10.6%


                       ICE WTI        69,908    4,835       7.4%     69,908     (12,803)     94.45        (2.13)     -2.2%      705,806       8,313           9.9%
     Energy




                        RBOB          69,504    (14,553)    -17.3%   94,043     61,203      291.40       (20.15)     -6.5%      332,991       5,058           20.9%


                      Heating Oil     (3,152)   (6,436)    -196.0%   40,594      (3,152)    300.20        8.66       3.0%       337,538       20,923          0.9%


                       NYMEX
                                     (51,039)   2,424       4.5%     (51,039)   (163,794)     3.90        (0.17)     -4.1%     1,560,474      61,062          3.3%
                     Natural Gas

                        Other
                                     499,923    4,805       1.0%     547,219    72,766        N/A          N/A        N/A         N/A           N/A            N/A
                     Natural Gas*

                         Gold        112,551    2,092       1.9%     244,295    95,012      1,552.80     (53.40)     -3.3%      653,859       6,857           17.2%


                        Silver        7,065      477        7.2%     45,662      6,588       26.80        (1.82)     -6.3%      200,810       6,778           3.5%
     Metals




                       Platinum       33,531    (3,885)     -10.4%   52,576     14,069      1,539.80     (40.00)     -2.5%       67,945       1,163           49.4%


                      Palladium       23,699    (4,798)     -16.8%   28,497      3,607      755.45       (12.85)     -1.7%       43,107       (2,840)         55.0%


                       Copper        (27,344)    (266)      -1.0%    16,187     (27,344)    333.30       (11.05)     -3.2%      184,439       3,419           14.8%


                         Corn        107,815    (50,837)    -32.0%   375,801    90,016      641.50       (93.75)     -12.8%    1,907,259      11,864          5.7%


                        Wheat        (11,718)   3,175       21.3%    64,792     (55,550)    696.50       (40.25)     -5.5%      588,563       4,682           2.0%
     Agriculture




                       Soybean        72,541    (28,542)    -28.2%   259,763    72,541      1,380.25     (73.50)     -5.1%      801,665       20,936          9.0%


                    Soybean Meal      15,937    (13,556)    -46.0%   107,225    15,937      398.00       (25.10)     -5.9%      303,800        805            5.2%


                     Soybean Oil     (52,358)   (13,457)    -34.6%   54,483     (56,372)     49.15        (1.67)     -3.3%      407,260       23,711          12.9%


                        Sugar        (37,034)   (9,660)     -35.3%   155,870    (37,034)     17.50        (0.35)     -2.0%      992,597       17,287          3.7%


                        Coffee       (21,074)   2,299       9.8%      1,460     (26,614)    139.45        2.85       2.1%       227,676       (1,048)         9.3%
     Softs




                        Cocoa         18,775    1,250       7.1%     44,756     (17,280)    2,150.00      0.00       0.0%       212,637       (7,444)         8.8%


                        Cotton        75,887    (13,040)    -14.7%   94,032       998        89.22        0.69       0.8%       303,522       (7,745)         25.0%


                      Live Cattle     27,942    7,528       36.9%    76,325     16,681      127.98        0.63       0.5%       387,124       (31,352)        7.2%
     Livestock




                     Feeder Cattle     (380)     805        67.9%     9,677      (4,968)    144.55        9.28       6.9%        44,155       (1,035)         0.9%


                      Lean Hogs       6,592     6,375      2937.8%   60,447     (10,834)     81.33        1.25       1.6%       278,962       (1,678)         2.4%

Source: NYMEX, ICE, CME, Bloomberg, Morgan Stanley Commodity Research
Note: Net Spec Length is defined as non-commercial long positions minus non-commercial short positions.




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Energy Table of Contents

Crude Oil                                                         21
  Cash Prices and Spreads                                         22
  Refining Throughput                                             24
  Imports                                                         25
  Production                                                      26
  Stocks                                                          29
Crude Oil Products                                                30
  Prices and Refining Margins                                     30
  Demand                                                          33
  OECD Stocks                                                     38
  Country Profiles                                                42
Natural Gas                                                       53
  Storage                                                         54
  North American Profile                                          56
  Production                                                      61
  Asian Demand                                                    62




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Commodity Snapshot: Crude Oil
            Demand Growth Remains Tepid                                                     Supply Outages Have Eased since 2011                                                       Investment Thesis
(YoY change in demand, mmb/d)                                                          (Shut-in production, kb/d)                                                                      Even with relatively generous assumptions on
     4.0
                                                                             Est
                                                                                        2.5
                                                                                                                                                                                       supply and muted demand growth, OPEC
     3.0
                                                                                        2.0                                                                                            production must average near 2012 levels to
     2.0
                                                                                                                                                                                       keep the market in balance. Though balances
                                                                                        1.5
     1.0
                                                                                                                                                                                       could see downward pressure into 1H13, we
     0.0
                                                                                        1.0                                                                                            believe that risks are skewed to the upside,
  -1.0
                                                                                                                                                                                       with little room for error.
  -2.0                                                                                  0.5

  -3.0
                                                                                        -                                                                                              Supply
  -4.0                                                                                           Jun-11        Sep-11   Dec-11     Mar-12         Jun-12      Sep-12      Dec-12
                                                                                                                                                                                       • Assuming no new supply outages, and with
      1Q05     1Q06    1Q07    1Q08   1Q09    1Q10      1Q11   1Q12     1Q13                    Libya             North Sea      Argentina          Yemen              Syria
                                                                                                Canada            US             Angola             Nigeria            China             more predictable US supply growth on track for
           OECD YoY Δ                 Non-OECD YoY Δ                   Total Δ                  UAE               Sudan          Brazil                                                  now, we are cautiously optimistic on supply
Source: IEA, Morgan Stanley Commodity Research estimates                               Source: IEA, Morgan Stanley Commodity Research estimates                                          growth in 2013.
                                                                                                                                                                                       • Non-OPEC: We forecast non-OPEC supply of
OPEC Production Likely to Remain Elevated                                                           2012 OECD Inventories Have Built                                                     54.3 mmb/d. Growth is concentrated in the US
       as Long as Prices Are High                                                                   Above-Normal through September                                                       (860 kb/d), though 227 kb/d of total US growth
(Left axis: OPEC crude production, mmb/d; right axis: OPEC                             (2012 Δ in inventory, mmb)                                                                        is NGLs (not crude). Outside of the US and
Secretariat Basket Price, $/bbl)                                                        80                72                        73                                                   Canada, production is riskier; we assume 220
33                                                                    $130              70                                                                                               kb/d of shut-in South Sudanese production
32
                                                                                        60                                                                                               restarts in 2013 and Brazil's PSVM field ramps
                                                                      $110
                                                                                        50                                                                                               as planned.
31                                                                                      40
                                                                      $90
30
                                                                                        30                                                                                             • OPEC: We model OPEC crude capacity
                                                                      $70
                                                                                        20                                                                                               growing by 713 kb/d in 2013, led by Iraq (+265
29                                                                                      10
                                                                                                                                                                                         kb/d). Libya’s NOC also plans to grow supply to
                                                                                            0
28
                                                                      $50
                                                                                                                                                                   -1                    1.8 mmb/d, marginally higher than its March
                                                                                        -10
                                                                                        -20
                                                                                                                                             -7                                -8        ‘08 peak. West African Projects such as the
27                                                                    $30                                      -15
  2008         2009       2010        2011       2012          2013                                        Total                       Crude                  Products & Others          Kizomba Satellite project (Angola) and the
           OPEC Production (LHS)             OPEC Basket Price (RHS)                                             2012                                      5Y Average
                                                                                                                                                                                         Usan field (Nigeria) should help lift capacity
Source: Bloomberg, Morgan Stanley Commodity Research                                   Source: IEA, Morgan Stanley Commodity Research                                                    (+187 kb/d), while the start-up of Manifa in
                                                                                                                                                                                         Saudi Arabia in mid-2013 should help offset
                                                                                                                                                                                         declines.
Supply-Demand Balance
                                                                                                                                 YoY Change (mmb/d)
                                                                                                                                                                                       Demand
DEMAND                                                      2011                    2012              2013e                   2011      2012     2013e                                 • Using our economists’ base case forecast of
OECD Americas                                              24,003                  23,728             23,694                  -134      -274       -34                                   3.2% global GDP growth, we expect global
OECD Europe                                                14,354                  13,702             13,396                  -347      -652      -306                                   demand growth of 926 kb/d (0.9%) in 2013.
OECD Asia Oceania                                          8,145                   8,496              8,492                    21        351        -4                                   Morgan Stanley economists now expect much
OECD Demand                                                46,502                  45,926             45,583                  -460      -576      -344                                   stronger global growth in 2H13 with global
                                                                                                                                                                                         GDP reaching levels last seen in 2010 and
China                                                      9,232                   9,600              9,979                    387                  368                  379
India                                                      3,517                   3,651              3,772                    145                  134                  120
                                                                                                                                                                                         early 2011. Supporting factors include: Healing
Other Asia                                                 7,526                   7,724              7,927                     48                  197                  204
                                                                                                                                                                                         and re-leveraging in the US private sector, an
Africa                                                     3,264                   3,404              3,453                    -34                  140                   49
                                                                                                                                                                                         end of the euro area recession and more global
Non OECD Europe                                             693                     714                706                      9                    21                   -7             monetary easing, led by Japan.
FSU                                                        4,453                   4,607              4,756                    302                  154                  149
                                                                                                                                                                                       • OECD: Inline with our economists’ upward
Latin America                                              6,304                   6,524              6,669                    268                  221                  145
                                                                                                                                                                                         revisions in the US and Japan, we now expect
Middle East                                                7,404                   7,649              7,880                     83                  245                  231
                                                                                                                                                                                         a 344 kb/d decline in OECD demand. Europe is
Non OECD                                                   42,393                  43,873             45,142                  1,208                1,480                1,269
                                                                                                                                                                                         the weakest link, where weakness leads us to
Total Demand                                               88,895                  89,799             90,725                   747                  904                  926
                                                                                                                                                                                         forecast a 218 kb/d decline in OECD Europe.
SUPPLY                                                      2011                    2012              2013e                   2011                 2012                 2013e
                                                                                                                                                                                       • Non-OECD: The more oil-intensive non-OECD
Non OPEC Supply                                            52,784                  53,381             54,302                  111                  597                   921
                                                                                                                                                                                         (+1.3 mmb/d in 2013) should again drive global
OPEC NGLs + Unconv.                                        5,776                   6,153              6,306                    395                  377                  153             demand growth. A reacceleration already
OPEC Crude Production                                      29,879                  31,374             30,653                   644                 1,495                -720             appears to be underway in China (+379 kb/d).
OPEC Spare Capacity                                        4,581                   3,666              4,968                   -1,561               -915                 1,302
YoY % Δ                                                    88,438                  90,907             91,261                  1,150                2,469                 354


Source: IEA, Morgan Stanley Commodity Research estimates




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Crude Oil Cash Prices
Crude Oil Front-Month Price (WTI)                                             North American Differentials
($/bbl)                                                                       (Various crude grades versus WTI, $/bbl)

 170                                                                            35

 150                                                                            25
                                                                                15
 130
                                                                                 5
 110
                                                                                -5
  90                                                                           -15
  70                                                                           -25

  50                                                                           -35
                                                                               -45
  30
                                                                                 Jan 12          Apr 12     Jul 12        Oct 12         Jan 13       Apr 13
  10                                                                                  LLS                      WTS                         Mars
   2000       2002      2004        2006      2008          2010     2012             Syncrude                 WCS                         Bakken - Clearbrook
                                    WTI          Brent                                Midland

Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research                   Source: Bloomberg, Morgan Stanley Commodity Research


North Sea Differentials                                                       Urals Differentials
(North Sea crude grades versus Dated Brent, $/bbl)                            (Various crude differentials, $/bbl)
  4.0                                                                           2.0

                                                                                1.0
  3.0
                                                                                0.0
  2.0
                                                                               -1.0
  1.0
                                                                               -2.0

  0.0                                                                          -3.0

 -1.0                                                                          -4.0

                                                                               -5.0
 -2.0
                                                                                 Jan 11      Jun 11        Nov 11       Apr 12        Sep 12     Feb 13
   Sep 11    Dec 11   Mar 12        Jun 12   Sep 12    Dec 12  Mar 13                 Urals vs. Floating Dated Brent             Urals NW Europe vs. Med Strip
               Dated Brent         Forties    Ekosfisk      Oseberg                   Urals Augusta vs. Med Strip
Source: Bloomberg, Morgan Stanley Commodity Research                          Source: Bloomberg, Morgan Stanley Commodity Research


African Differentials                                                         Other Middle East Differentials
(Various crude grades versus Dated Brent, $/bbl)                              (Various crude grades versus Dubai, $/bbl)
 6.0                                                                            1.0


 5.0
                                                                                0.5

 4.0
                                                                                0.0
 3.0

                                                                               -0.5
 2.0


 1.0                                                                           -1.0


 0.0                                                                           -1.5
  Jan 11      Jun 11      Nov 11        Apr 12           Sep 12    Feb 13        Jan 11      Jun 11     Nov 11          Apr 12        Sep 12       Feb 13
            Qua Ibo                  Bonny Light                   Forcados                    Qatar Marine                                    Murban
Source: Bloomberg, Morgan Stanley Commodity Research                          Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Spreads
Light-Heavy Spreads                                                          Brent Differentials
(Left axis: LLS-Maya; right axis: Arab light-heavy and Brent-Urals, $/bbl)   ($/bbl)
  30                                                                           10
  25
  20
  15                                                                           -5
  10
   5
   0                                                                          -20
  -5

 -10
   Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13
            Arab Light-Heavy                    Minas-Duri                    -35
            Brent-Urals (NWE)                   Saharan Blend-Urals (Med)       Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13
            LLS-Maya                                                                                      Dubai-Brent     WTI-Brent

Source: Bloomberg, Morgan Stanley Commodity Research
                                                                             Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research


Prompt Month Spreads                                                         1m vs. 12m
($/bbl)                                                                      ($/bbl)

  3.0                                                                          10.0



  2.0                                                                           5.0



  1.0                                                                           0.0



  0.0                                                                          -5.0



 -1.0                                                                         -10.0
   Oct 11      Jan 12     Apr 12    Jul 12    Oct 12     Jan 13     Apr 13       Sep 11    Dec 11    Mar 12     Jun 12   Sep 12   Dec 12     Mar 13
               WTI                    Brent                    Dubai
                                                                                                          WTI                        Brent

Source: Bloomberg, Morgan Stanley Commodity Research                         Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research




                                                                                                                                                        23
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Crude Oil: Refining Throughput
US Total Crude Inputs into Refineries                                                    US Total Operable Capacity Refinery Utilization
(mmb/d)                                                                                  (%)
 16.0                                                                                     95


 15.5
                                                                                          90
 15.0


 14.5                                                                                     85

 14.0
                                                                                          80
 13.5


 13.0                                                                                     75
     Jan   Feb Mar       Apr     May    Jun    Jul    Aug    Sep    Oct    Nov Dec          Jan    Feb Mar      Apr   May Jun     Jul    Aug Sep        Oct     Nov Dec
            2013                  2012                 2011                 5-Year Avg               2013               2012               2011                   5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                           Source: EIA, Morgan Stanley Commodity Research


Japan Total Crude Inputs into Refineries                                                 Korea Total Crude Inputs into Refineries
(mmb/d)                                                                                  (mmb/d)
 4.5                                                                                      2.8

                                                                                          2.7

 4.0                                                                                      2.6

                                                                                          2.5

 3.5                                                                                      2.4

                                                                                          2.3

 3.0                                                                                      2.2

                                                                                          2.1

 2.5                                                                                      2.0
    Jan    Feb   Mar     Apr     May     Jun    Jul    Aug    Sep    Oct    Nov   Dec        Jan   Feb    Mar     Apr   May     Jun     Jul     Aug    Sep      Oct      Nov   Dec

                    2012               2011           2010            5-Y Avg.                               2013             2012              2011             5-Y Avg.
Source: Bloomberg, Morgan Stanley Commodity Research                                     Source: Bloomberg, Morgan Stanley Commodity Research


China Total Crude Inputs into Refineries                                                 Brazil Total Crude Inputs into Refineries
(mmb/d)                                                                                  (mmb/d)
 11.0                                                                                     2.1


 10.0                                                                                     2.0


  9.0                                                                                     1.9


  8.0                                                                                     1.8


  7.0                                                                                     1.7


  6.0                                                                                     1.6
     Jan   Feb     Mar     Apr   May     Jun    Jul    Aug    Sep    Oct    Nov   Dec        Jan   Feb    Mar     Apr   May    Jun      Jul     Aug    Sep     Oct    Nov      Dec

                    2013               2012           2011            5-Y Avg.                            2013           2012                 2011            5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                     Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil: Imports
US Total Crude Imports                                                                         US Waterborne Imports
(mmb/d, 4wma)                                                                                  (PADDs 1, 3, & 5 - mmb/d, 4wma)
 10.5                                                                                           8.5


 10.0                                                                                           8.0

                                                                                                7.5
  9.5
                                                                                                7.0
  9.0
                                                                                                6.5
  8.5
                                                                                                6.0

  8.0                                                                                           5.5

  7.5                                                                                           5.0
     Jan   Feb Mar       Apr May        Jun   Jul         Aug   Sep   Oct    Nov Dec               Jan   Feb Mar       Apr    May   Jun     Jul     Aug     Sep     Oct    Nov Dec
            2013                 2012                      2011                   5-Year Avg              2013                  2012                    2011                    5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                                 Source: EIA, Morgan Stanley Commodity Research


US Pipeline Imports                                                                            Korea Total Crude Imports
(PADDs 2 & 4 - mmb/d, 4wma)                                                                    (mmb/d)
 2.5                                                                                            3.1


 2.3

                                                                                                2.7
 2.0


 1.8
                                                                                                2.3

 1.5


 1.3                                                                                            1.9
    Jan    Feb Mar       Apr    May   Jun     Jul     Aug       Sep   Oct    Nov Dec               Jan   Feb     Mar      Apr    May       Jun      Jul     Aug     Sep     Oct      Nov     Dec
            2013                 2012                      2011                   5-Year Avg               2013                     2012                     2011                    5-Y Avg.

Source: EIA, Morgan Stanley Commodity Research                                                 Source: Bloomberg, Morgan Stanley Commodity Research


China Total Crude Imports                                                                      India Total Crude Imports
(mmb/d)                                                                                        (mmb/d)
 7.0                                                                                            4.5

                                                                                                4.0
 6.0

                                                                                                3.5
 5.0
                                                                                                3.0
 4.0
                                                                                                2.5

 3.0
                                                                                                2.0

 2.0                                                                                            1.5
    Jan    Feb     Mar    Apr    May Jun            Jul     Aug Sep         Oct    Nov Dec         Jan   Feb     Mar    Apr     May Jun           Jul     Aug Sep         Oct    Nov Dec

                     2013             2012                 2011             5-Y Avg.                               2013              2012                 2011            5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                           Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil: OPEC Crude Production
Total OPEC                                                                           OPEC Production YoY Δ
(mmb/d)                                                                              (mmb/d)
 33                                                                                   4.0


 32                                                                                   2.0


 31
                                                                                      0.0

 30
                                                                                      -2.0

 29
                                                                                      -4.0
 28
   Jan     Feb    Mar    Apr     May     Jun   Jul   Aug     Sep   Oct   Nov   Dec    -6.0
                                                                                          2008         2009          2010          2011          2012          2013
            2013                  2012                2011               5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research


Saudi Arabia                                                                         Iran
(mmb/d)                                                                              (mmb/d)
 11.0                                                                                 3.9


                                                                                      3.6
 10.0

                                                                                      3.3
  9.0
                                                                                      3.0

  8.0
                                                                                      2.7


  7.0                                                                                 2.4
     Jan    Feb    Mar     Apr   May     Jun   Jul    Aug    Sep   Oct   Nov   Dec       Jan     Feb   Mar    Apr   May     Jun   Jul     Aug   Sep     Oct   Nov   Dec

                    2013               2012          2011           5-Y Avg.                             2013             2012          2011            5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research


Iraq                                                                                 Kuwait
(mmb/d)                                                                              (mmb/d)
 3.5                                                                                  3.3

 3.3
                                                                                      3.0

 3.0
                                                                                      2.8
 2.8
                                                                                      2.5
 2.5

                                                                                      2.3
 2.3

 2.0                                                                                  2.0
    Jan    Feb    Mar    Apr     May     Jun   Jul   Aug     Sep   Oct   Nov   Dec       Jan     Feb   Mar    Apr   May     Jun   Jul     Aug   Sep   Oct     Nov   Dec

                    2013               2012          2011          5-Y Avg.                              2013             2012          2011            5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil: OPEC Crude Production
United Arab Emirates                                                                        Venezuela
(mmb/d)                                                                                     (mmb/d)
 3.0                                                                                         3.0
                                                                                             2.9
 2.8                                                                                         2.8
                                                                                             2.7
 2.6                                                                                         2.6
                                                                                             2.5
 2.4                                                                                         2.4
                                                                                             2.3
 2.2                                                                                         2.2
                                                                                             2.1
 2.0                                                                                         2.0
    Jan   Feb   Mar      Apr   May      Jun     Jul     Aug    Sep     Oct      Nov   Dec       Jan    Feb    Mar      Apr   May      Jun         Jul     Aug      Sep     Oct        Nov   Dec

                  2013                2012             2011            5-Y Avg.                                 2013                2012                  2011             5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                        Source: Bloomberg, Morgan Stanley Commodity Research


Nigeria                                                                                     Angola
(mmb/d)                                                                                     (mmb/d)
 2.3                                                                                         2.0


                                                                                             1.9
 2.2

                                                                                             1.8
 2.1
                                                                                             1.7

 2.0
                                                                                             1.6


 1.9                                                                                         1.5
    Jan   Feb   Mar   Apr      May     Jun    Jul     Aug     Sep    Oct     Nov   Dec          Jan    Feb    Mar     Apr    May     Jun        Jul     Aug      Sep     Oct     Nov      Dec

                  2013               2012             2011           5-Y Avg.                                   2012               2011                 5-Y Avg.               2013

Source: Bloomberg, Morgan Stanley Commodity Research                                        Source: Bloomberg, Morgan Stanley Commodity Research


Libya                                                                                       Algeria
(mmb/d)                                                                                     (mmb/d)
 2.0                                                                                         1.35


                                                                                             1.30
 1.5

                                                                                             1.25
 1.0
                                                                                             1.20

 0.5
                                                                                             1.15


 0.0                                                                                         1.10
    Jan   Feb   Mar      Apr   May      Jun     Jul     Aug    Sep     Oct      Nov   Dec        Jan    Feb    Mar     Apr    May         Jun     Jul      Aug     Sep     Oct        Nov   Dec

                  2013                2012             2011            5-Y Avg.                                     2013            2012                  2011                 5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                        Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil: Non-OPEC Crude Production
United States                                                                                         Russia
(mmb/d)                                                                                               (mmb/d)
 7.5                                                                                                   10.5
 7.3
 7.0
 6.8
 6.5
                                                                                                       10.3
 6.3
 6.0
 5.8
 5.5
 5.3                                                                                                   10.0
 5.0                                                                                                       Jan    Feb    Mar     Apr    May         Jun         Jul     Aug        Sep     Oct   Nov     Dec
    Jan    Feb Mar       Apr    May    Jun     Jul     Aug        Sep    Oct        Nov   Dec
            2013                 2012                       2011                     5-Year Avg                                2013             2012                        2011             5-Y Avg.
Source: EIA, Morgan Stanley Commodity Research                                                        Source: Bloomberg, Morgan Stanley Commodity Research


Brazil                                                                                                China
(mmb/d)                                                                                               (mmb/d)
 2.3                                                                                                   4.5



 2.1
                                                                                                       4.3

 2.0


                                                                                                       4.0
 1.9



 1.8                                                                                                   3.8
    Jan    Feb     Mar    Apr    May     Jun         Jul     Aug        Sep     Oct       Nov   Dec       Jan    Feb    Mar    Apr     May     Jun        Jul         Aug    Sep     Oct     Nov   Dec

                   2013               2012                 2011               5-Y Avg.
                                                                                                                          2013               2012                 2011               5-Y Avg.

Source: ANP, Morgan Stanley Commodity Research                                                        Source: Bloomberg, Morgan Stanley Commodity Research

India
(mmb/d)
 0.80




 0.75




 0.70




 0.65
     Jan   Feb     Mar    Apr    May     Jun     Jul        Aug    Sep        Oct     Nov   Dec

                     2013             2012                 2011               5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil: Stocks
Crude Oil Stocks ex SPR                                                       OECD Total
(mmb)                                                                         (mmb)
 400                                                                           1,040


 380
                                                                               1,000

 360
                                                                                 960

 340

                                                                                 920
 320


 300                                                                             880
    Jan   Feb Mar    Apr   May   Jun   Jul   Aug    Sep   Oct   Nov Dec             Jan    Feb     Mar    Apr   May     Jun   Jul   Aug    Sep   Oct   Nov   Dec

           2013              2012                2011            5-Year Avg                2013                 2012                2011               5-Y Avg
Source: EIA, Morgan Stanley Commodity Research                                Source: IEA, Morgan Stanley Commodity Research


Cushing Stocks                                                                OECD Pacific
(mmb)                                                                         (mmb)
 55                                                                            180

 50                                                                            175

                                                                               170
 45
                                                                               165
 40
                                                                               160
 35                                                                            155

 30                                                                            150

 25                                                                            145

                                                                               140
 20
                                                                                  Jan     Feb     Mar    Apr    May    Jun    Jul   Aug    Sep   Oct   Nov   Dec
   Jan    Feb Mar   Apr    May   Jun   Jul   Aug    Sep   Oct   Nov Dec
           2013              2012                2011            5-Year Avg                         2013              2012          2011         5-Y Avg

Source: EIA, Morgan Stanley Commodity Research                                Source: IEA, Morgan Stanley Commodity Research


EoR Stocks                                                                    OECD Europe
(mmb)                                                                         (mmb)
 340                                                                           360


 325


 310                                                                           330


 295

                                                                               300
 280


 265

                                                                               270
 250                                                                              Jan     Feb     Mar    Apr    May    Jun    Jul   Aug    Sep   Oct   Nov   Dec
    Jan   Feb Mar    Apr   May   Jun   Jul   Aug    Sep   Oct   Nov Dec
           2013              2012                2011            5-Year Avg                         2013              2012          2011          5-Y Avg

Source: EIA, Morgan Stanley Commodity Research                                Source: IEA, Morgan Stanley Commodity Research




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Crude Oil Products: Product Prices
Gasoline Front-Month Price                                                           NYMEX RBOB Crack
($/bbl)                                                                              ($/bbl)
 425                                                                                  50


                                                                                      40
 325


                                                                                      30
 225

                                                                                      20

 125
                                                                                      10


  25                                                                                   0
   2006      2007      2008     2009       2010      2011            2012     2013      Jan         Mar        May           Jul            Sep             Nov
                                Gasoline          Ethanol                                           2013             2012          2011             5-year average

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research
Heating Oil Front-Month Price                                                        NYMEX Heating Oil Crack
($/bbl)                                                                              ($/bbl)
 375                                                                                  60



 325                                                                                  45



                                                                                      30
 275


                                                                                      15
 225

                                                                                       0
                                                                                        Jan         Mar        May           Jul            Sep             Nov
 175
   Jan-10    Jul-10    Jan-11     Jul-11    Jan-12          Jul-12      Jan-13                      2013             2012          2011             5-year average

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research
Global Gasoline Prices (FOB)                                                         321 Cracking Margins
(¢/gal)                                                                              ($/bbl)
 400                                                                                  45


 360                                                                                  35


 320                                                                                  25


 280                                                                                  15


 240                                                                                   5


 200                                                                                  -5
   Nov 11     Feb 12     May 12        Aug 12       Nov 12           Feb 13           Sep 11     Dec 11     Mar 12      Jun 12     Sep 12         Dec 12      Mar 13

             US                    NWE                               Singapore                 EU - Brent              US - WTI Cushing                    Asia - Tapis

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Products: Refining Margins
Brent USGC Simple Refining Margin                                                     Brent USGC Cracking Refining Margin
($/bbl)                                                                               ($/bbl)
   8

   6
                                                                                        15
   4

   2

   0                                                                                     5

  -2

  -4
                                                                                        -5
  -6

  -8

 -10                                                                                   -15
    Jan    Feb Mar    Apr    May    Jun    Jul     Aug    Sep   Oct   Nov Dec             Jan   Feb Mar     Apr    May    Jun    Jul     Aug    Sep   Oct   Nov Dec
              2013                         2012                           2011                       2013                        2012                           5Y Avg

Source: Thomson Reuters, Morgan Stanley Commodity Research                            Source: Thomson Reuters, Morgan Stanley Commodity Research


Brent NWE Simple Refining Margin                                                      Brent Rotterdam Cracking Refining Margin
($/bbl)                                                                               ($/bbl)
    8                                                                                  15

    6

    4
                                                                                       10
    2

    0

   -2
                                                                                        5
   -4

   -6

   -8                                                                                   0
     Jan   Feb Mar    Apr    May    Jun    Jul     Aug    Sep   Oct   Nov Dec            Jan    Feb Mar     Apr    May    Jun    Jul     Aug    Sep   Oct   Nov    Dec
               2013                        2012                           5Y Avg                     2013                        2012                           5Y Avg
Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: Thomson Reuters, Morgan Stanley Commodity Research


Urals Mediterranean Simple Refining Margin                                            Urals Mediterranean Cracking Refining Margin
($/bbl)                                                                               ($/bbl)
  10                                                                                   16


                                                                                       12
   5

                                                                                        8
   0
                                                                                        4

  -5
                                                                                        0


 -10                                                                                    -4
    Jan    Feb Mar     Apr    May    Jun     Jul        Aug   Sep   Oct    Nov Dec        Jan   Feb Mar      Apr    May    Jun     Jul        Aug   Sep   Oct    Nov     Dec
               2013                              2012                        5Y Avg                  2013                              2012                        5Y Avg

Source: Thomson Reuters, Morgan Stanley Commodity Research                            Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil Products: Refining Margins
Arab Light Singapore Simple Refining Margin                                    Dubai Singapore Cracking Refining Margin
($/bbl)                                                                        ($/bbl)
  4                                                                             20
                                                                                18
                                                                                16
                                                                                14
  0
                                                                                12
                                                                                10
                                                                                 8
 -4
                                                                                 6
                                                                                 4
                                                                                 2
 -8                                                                              0
   Jan    Feb Mar    Apr   May   Jun    Jul     Aug   Sep    Oct   Nov   Dec      Jan    Feb Mar     Apr   May   Jun   Jul     Aug   Sep    Oct   Nov   Dec
              2013                       2012                        2011                     2013                      2012                       5Y Avg
Source: Thomson Reuters, Morgan Stanley Commodity Research                     Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil Products: Demand Indicators - Freight Volumes
US Rail Freight Volumes                                                    Long Beach Port Throughput
(‘000s carloads)                                                           (YoY % Δ)
 280                                                                         50%

 260
                                                                             30%
 240

 220                                                                         10%

 200
                                                                            -10%
 180

 160                                                                        -30%

 140
                                                                            -50%
 120                                                                            2008         2009          2010             2011        2012        2013
   Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13                       Inbound Containers                      Outbound Containers

Source: Bloomberg, Morgan Stanley Commodity Research                       Source: Bloomberg, Morgan Stanley Commodity Research


Los Angeles Port Throughput                                                New Jersey Port Throughput
(YoY % Δ)                                                                  (YoY % Δ)

  45%                                                                        40%



                                                                             20%
  25%

                                                                              0%

   5%
                                                                            -20%



 -15%                                                                       -40%
    Jan-10     Jul-10      Jan-11     Jul-11   Jan-12   Jul-12    Jan-13        2008         2009            2010           2011             2012         2013

                   Inbound Containers          Outbound Containers                                  Container Imports             Container Exports

Source: Bloomberg, Morgan Stanley Commodity Research                       Source: Bloomberg, Morgan Stanley Commodity Research


Shanghai and Singapore Throughput                                          Asian Freight Volumes
(YoY % Δ)                                                                  (YoY % Δ)
  30%                                                                        70%


  20%                                                                        50%


  10%                                                                        30%


   0%                                                                        10%


 -10%                                                                       -10%


 -20%                                                                       -30%
                                                                               Jul 09   Jan 10     Jul 10    Jan 11      Jul 11     Jan 12    Jul 12    Jan 13

 -30%
                                                                                                 China Freight Traffic
     2008           2009            2010       2011        2012
                                                                                                 IATA Traffic Statistics Freight Traffic Asia Pacific
                Shanghai                           Singapore Total Cargo
Source: Bloomberg, Morgan Stanley Commodity Research                       Source: Bloomberg, Morgan Stanley Commodity Research




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OECD Total Product Demand
OECD Total                                                                          OECD North America
(mmb/d)                                                                             (mmb/d)
 50                                                                                  25.5




 48
                                                                                     24.5


 46


                                                                                     23.5
 44




 42                                                                                  22.5
   Jan     Feb    Mar    Apr     May    Jun    Jul   Aug    Sep   Oct   Nov   Dec        Jan   Feb   Mar   Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec

                    2013               2012          2011         5-Y Avg                               2013           2012          2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                      Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                        OECD Europe
(mmb/d)                                                                             (mmb/d)
 10.0                                                                                16.0

  9.5                                                                                15.5

  9.0                                                                                15.0

  8.5                                                                                14.5

  8.0                                                                                14.0

  7.5                                                                                13.5

  7.0                                                                                13.0

  6.5                                                                                12.5
     Jan    Feb    Mar     Apr   May     Jun   Jul   Aug    Sep   Oct   Nov   Dec        Jan   Feb   Mar   Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec

                        2013           2012          2011          5-Y Avg                              2013           2012          2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                      Source: IEA, Morgan Stanley Commodity Research




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OECD Middle Distillate Demand
OECD Total                                                                           OECD North America
(mmb/d)                                                                              (mmb/d)
 18                                                                                   7.2



 17
                                                                                      6.9


 16

                                                                                      6.6

 15


                                                                                      6.3
 14
                                                                                         Jan   Feb    Mar   Apr    May    Jun    Jul   Aug    Sep    Oct   Nov   Dec
   Jan    Feb   Mar    Apr    May    Jun    Jul    Aug    Sep    Oct   Nov     Dec

                             2013           2012          2011             5-Y Avg                       2013            2012          2011          5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                         OECD Europe
(mmb/d)                                                                              (mmb/d)
 3.5                                                                                  8.0



 3.0

                                                                                      7.5

 2.5



 2.0                                                                                  7.0



 1.5
    Jan   Feb    Mar   Apr    May     Jun    Jul    Aug   Sep    Oct   Nov     Dec    6.5
                                                                                         Jan   Feb   Mar    Apr    May    Jun    Jul   Aug    Sep    Oct   Nov   Dec
                   2013             2012           2011          5-Y Avg                                          2013          2012          2011          5-Y Avg
Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research




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OECD Total Gasoline Demand
OECD Total                                                                         OECD North America
(mmb/d)                                                                            (mmb/d)
 15.0                                                                               11.0


                                                                                    10.8
 14.5

                                                                                    10.5
 14.0

                                                                                    10.3

 13.5
                                                                                    10.0


 13.0                                                                                9.8


 12.5                                                                                9.5
     Jan   Feb   Mar   Apr     May   Jun    Jul   Aug   Sep     Oct   Nov   Dec         Jan   Feb   Mar      Apr    May    Jun    Jul   Aug    Sep    Oct   Nov   Dec

                             2013          2012          2011          5-Y Avg                                    2013           2012          2011          5-Y Avg
Source: IEA, Morgan Stanley Commodity Research                                     Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                       OECD Europe
(mmb/d)                                                                            (mmb/d)
 1.8                                                                                2.4



 1.7
                                                                                    2.2


 1.6
                                                                                    2.0

 1.5

                                                                                    1.8
 1.4


                                                                                    1.6
 1.3
                                                                                       Jan    Feb   Mar     Apr    May     Jun    Jul   Aug    Sep    Oct   Nov   Dec
    Jan    Feb   Mar   Apr     May   Jun    Jul   Aug    Sep    Oct   Nov    Dec

                        2013           2012             2011          5-Y Avg                             2013            2012          2011           5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                     Source: IEA, Morgan Stanley Commodity Research




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OECD Total Residual Fuel Oil Demand
OECD Total                                                                      OECD North America
(mmb/d)                                                                         (mmb/d)
 4.0                                                                             1.2




 3.5                                                                             1.0




 3.0                                                                             0.8




 2.5                                                                             0.6
    Jan   Feb   Mar    Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec       Jan   Feb   Mar    Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec

                    2013           2012          2011         5-Y Avg                               2013           2012          2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                  Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                    OECD Europe
(mmb/d)                                                                         (mmb/d)
 1.1                                                                             1.6


 1.0


 0.9                                                                             1.4


 0.8


 0.7                                                                             1.2


 0.6


 0.5                                                                             1.0
    Jan   Feb   Mar    Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec       Jan   Feb   Mar    Apr   May    Jun   Jul    Aug    Sep   Oct   Nov   Dec

                   2013            2012          2011         5-Y Avg                              2013            2012          2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                  Source: IEA, Morgan Stanley Commodity Research




                                                                                                                                                                37
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Crude Oil Products: OECD Product Stocks (Industry)
OECD Total                                                                       OECD North America
(mmb)                                                                            (mmb)
 1.50                                                                             720



 1.45
                                                                                  690


 1.40

                                                                                  660
 1.35



 1.30                                                                             630
     Jan   Feb   Mar     Apr   May    Jun   Jul   Aug    Sep   Oct   Nov   Dec       Jan   Feb   Mar     Apr   May    Jun   Jul   Aug    Sep   Oct   Nov   Dec

                       2013          2012         2011          5-Y Avg                                2013          2012         2011          5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                   Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                     OECD Europe
(mmb)                                                                            (mmb)
 195                                                                              600



                                                                                  580
 180

                                                                                  560

 165
                                                                                  540



 150                                                                              520
    Jan    Feb   Mar     Apr   May    Jun   Jul   Aug    Sep   Oct   Nov   Dec       Jan   Feb   Mar     Apr   May    Jun   Jul   Aug    Sep   Oct   Nov   Dec

                    2013             2012         2011          5-Y Avg                              2013            2012         2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                   Source: IEA, Morgan Stanley Commodity Research




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Crude Oil Products: OECD Middle Distillate Stocks (Industry)
OECD Total                                                                           OECD North America
(mmb)                                                                                (mmb)
 650                                                                                  260




 600                                                                                  240




 550                                                                                  220




 500                                                                                  200




                                                                                      180
 450
                                                                                         Jan   Feb   Mar      Apr   May     Jun   Jul   Aug    Sep   Oct   Nov   Dec
    Jan   Feb      Mar   Apr    May     Jun    Jul   Aug    Sep    Oct   Nov   Dec
            2013                 2012                2011                5-Y Avg                          2013            2012          2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                         OECD Europe
(mmb)                                                                                (mmb)
 80                                                                                   325




 73                                                                                   300




 65                                                                                   275




 58                                                                                   250




 50
                                                                                      225
   Jan    Feb   Mar      Apr    May   Jun     Jul    Aug    Sep    Oct   Nov   Dec
                                                                                         Jan   Feb      Mar   Apr   May     Jun   Jul   Aug    Sep   Oct   Nov   Dec
                               2013           2012          2011          5-Y Avg                2013                2012               2011               5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research




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Crude Oil Products: OECD Gasoline Stocks (Industry)
OECD Total                                                                           OECD North America
(mmb)                                                                                (mmb)
 430                                                                                  280




 405
                                                                                      260


 380


                                                                                      240

 355



                                                                                      220
 330
                                                                                         Jan   Feb   Mar   Apr    May    Jun     Jul   Aug     Sep   Oct   Nov   Dec
    Jan   Feb   Mar   Apr      May   Jun   Jul   Aug     Sep   Oct    Nov      Dec

                        2013           2012            2011          5-Y Avg                            2013            2012           2011          5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                         OECD Europe
(mmb)                                                                                (mmb)
 30                                                                                   115




 28
                                                                                      105


 26


                                                                                       95
 24




 22                                                                                    85
   Jan    Feb   Mar   Apr   May      Jun   Jul   Aug     Sep   Oct    Nov      Dec       Jan   Feb   Mar   Apr    May    Jun     Jul   Aug     Sep   Oct   Nov   Dec

                       2013            2012            2011          5-Y Avg                                   2013            2012           2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                       Source: IEA, Morgan Stanley Commodity Research




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Crude Oil Products: OECD Residual Fuel Oil Stocks (Industry)
OECD Total                                                                       OECD North America
(mmb)                                                                            (mmb)
 160                                                                              52




 150                                                                              48




 140                                                                              44




 130                                                                              40
    Jan   Feb    Mar    Apr   May     Jun   Jul    Aug   Sep   Oct   Nov   Dec      Jan   Feb    Mar   Apr   May    Jun   Jul     Aug    Sep   Oct   Nov   Dec

                      2013          2012          2011         5-Y Avg                              2013           2012           2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                   Source: IEA, Morgan Stanley Commodity Research


OECD Pacific                                                                     OECD Europe
(mmb)                                                                            (mmb)
 23                                                                               95




                                                                                  90
 21


                                                                                  85


 19
                                                                                  80




 17                                                                               75
   Jan    Feb   Mar     Apr   May    Jun    Jul   Aug    Sep   Oct   Nov   Dec      Jan   Feb    Mar   Apr   May    Jun   Jul     Aug    Sep   Oct   Nov   Dec

                   2013             2012          2011         5-Y Avg                              2013           2012           2011         5-Y Avg

Source: IEA, Morgan Stanley Commodity Research                                   Source: IEA, Morgan Stanley Commodity Research




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Crude Oil Products: US Product Inventories
US Total Product Stocks                                                              US Gasoline Stocks
(mmb)                                                                                (mmb)
                                                                                      255
 750


                                                                                      235
 725


                                                                                      215
 700

                                                                                      195
 675

                                                                                      175
                                                                                         Jan    Feb Mar        Apr   May    Jun       Jul   Aug     Sep    Oct    Nov   Dec
 650
    Jan    Feb Mar    Apr   May      Jun    Jul   Aug     Sep   Oct   Nov   Dec
            2013              2012                  2011                5-Year Avg               2013                    2012                 2011                  5-Year Avg
                                                                                     Source: EIA, Morgan Stanley Commodity Research
Source: EIA, Morgan Stanley Commodity Research

US Heating Oil Stocks                                                                US Diesel Stocks
(mmb)                                                                                (mmb)
 50                                                                                   140



 40
                                                                                      120

 30

                                                                                      100
 20



 10                                                                                    80
   Jan    Feb Mar    Apr    May   Jun      Jul    Aug   Sep     Oct   Nov   Dec          Jan           Mar           May              Jul          Sep           Nov

            2013              2012                 2011                5-Year Avg                2013                    2012                 2011                  5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                       Source: EIA, Morgan Stanley Commodity Research


US Jet Fuel Stocks                                                                   US Resid Stocks
(mmb)                                                                                (mmb)
 48                                                                                   45



 44
                                                                                      40

 40

                                                                                      35
 36



 32                                                                                   30
   Jan    Feb Mar    Apr    May   Jun      Jul    Aug   Sep     Oct   Nov   Dec         Jan    Feb Mar       Apr   May    Jun   Jul     Aug   Sep    Oct    Nov Dec


            2013              2012                  2011                5-Year Avg              2013                 2012                   2011                 5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                       Source: EIA, Morgan Stanley Commodity Research




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Crude Oil Products: US Product Imports
US Total Product Imports                                                                US Gasoline Imports
(mmb/d)                                                                                 (mmb/d)
 3.5                                                                                     1.5


 3.0

                                                                                         1.1
 2.5


 2.0
                                                                                         0.7

 1.5


 1.0                                                                                     0.3
    Jan    Feb Mar    Apr     May    Jun     Jul    Aug     Sep   Oct   Nov   Dec           Jan   Feb Mar    Apr    May    Jun     Jul     Aug     Sep   Oct     Nov Dec

            2013               2012                      2011              5-Year Avg              2013               2012                   2011                    5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                          Source: EIA, Morgan Stanley Commodity Research


US Gasoline Imports (PADD I)                                                            US Distillate Imports
(mmb/d)                                                                                 (mmb/d)
 1.5                                                                                     0.5


 1.3

                                                                                         0.4
 1.0


 0.8
                                                                                         0.2

 0.5


 0.3                                                                                     0.1
    Jan    Feb Mar    Apr    May    Jun    Jul     Aug    Sep   Oct   Nov Dec               Jan   Feb Mar     Apr    May     Jun     Jul     Aug    Sep        Oct   Nov   Dec

            2013              2011                  2012                5-Year Avg                                 2013             2012               2011             5-Year Avg

Source: EIA, Morgan Stanley Commodity Research                                          Source: EIA, Morgan Stanley Commodity Research


US Jet Imports                                                                          US Resid Imports
(mmb/d)                                                                                 (mmb/d)
 0.20                                                                                    0.7

                                                                                         0.6
 0.15
                                                                                         0.5

                                                                                         0.4
 0.10
                                                                                         0.3


 0.05                                                                                    0.2

                                                                                         0.1

 0.00                                                                                    0.0
     Jan    Feb Mar    Apr    May    Jun     Jul    Aug     Sep   Oct   Nov Dec             Jan   Feb Mar    Apr    May    Jun     Jul     Aug   Sep     Oct     Nov Dec


            2013               2012                      2011             5-Year Avg               2013               2012                   2011                    5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                          Source: EIA, Morgan Stanley Commodity Research




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Crude Oil Products: US Product Demand
US Total Product Demand                                                               US Gasoline Demand
(mmb/d)                                                                               (mmb/d)
 21                                                                                    9.8



 20                                                                                    9.3



 19                                                                                    8.8



 18                                                                                    8.3



 17                                                                                    7.8
   Jan    Feb Mar    Apr    May   Jun      Jul    Aug    Sep    Oct    Nov    Dec         Jan    Feb Mar    Apr   May   Jun   Jul    Aug   Sep      Oct   Nov    Dec

            2013              2012                 2011                 5-Year Avg                2013              2012               2011                5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                        Source: EIA, Morgan Stanley Commodity Research


US Jet Fuel Demand                                                                    US Distillate Demand
(mmb/d)                                                                               (mmb/d)
 1.7                                                                                   4.4



 1.6                                                                                   4.0



 1.4                                                                                   3.6



 1.3                                                                                   3.2



 1.1                                                                                   2.8
    Jan   Feb Mar     Apr   May   Jun      Jul    Aug    Sep    Oct    Nov    Dec         Jan    Feb Mar    Apr   May   Jun   Jul    Aug   Sep      Oct   Nov    Dec

            2013              2012                 2011                 5-Year Avg                2013              2011               2012                5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                        Source: EIA, Morgan Stanley Commodity Research


US Resid Demand                                                                       US Other Oils Demand
(mmb/d)                                                                                (mmb/d)
 1.0                                                                                   4.5


                                                                                       4.0
 0.8

                                                                                       3.5
 0.6
                                                                                       3.0

 0.4                                                                                   2.5


                                                                                       2.0
 0.2
                                                                                          Jan         Mar         May          Jul            Sep          Nov
    Jan   Feb Mar     Apr   May      Jun    Jul    Aug    Sep    Oct    Nov    Dec

            2013              2012                  2011                 5-Year Avg               2013              2012               2011                 5-Year Avg

Source: EIA, Morgan Stanley Commodity Research                                        Source: EIA, Morgan Stanley Commodity Research




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Crude Oil Products: US Product Supply
US Gasoline Production                                                                               US Gasoline Production (PADD I)
(mmb/d)                                                                                              (mmb/d)
 255                                                                                                  3.3



 235
                                                                                                      2.8

 215


                                                                                                      2.3
 195



 175
                                                                                                      1.8
    Jan   Feb Mar    Apr       May    Jun      Jul        Aug    Sep    Oct     Nov Dec
                                                                                                         Jan   Feb Mar    Apr   May    Jun    Jul    Aug    Sep   Oct   Nov Dec


           2013                  2012                      2011                     5-Year Avg                        2013            2011           2012           5-Year Avg

Source: EIA, Morgan Stanley Commodity Research                                                       Source: EIA, Morgan Stanley Commodity Research


US Distillate Production                                                                             US Jet Production
(mmb/d)                                                                                              (mmb/d)
 5.3                                                                                                  1.8



 4.8                                                                                                  1.7



 4.3
                                                                                                      1.5


 3.8
                                                                                                      1.4


 3.3
    Jan   Feb Mar        Apr    May     Jun         Jul    Aug     Sep        Oct    Nov   Dec        1.2
                                                                                                         Jan   Feb Mar Apr       May    Jun    Jul    Aug Sep       Oct Nov Dec
                           2013                2012                    2011             5-Year Avg                   2013              2012            2011           5-Year Avg
Source: EIA, Morgan Stanley Commodity Research                                                       Source: EIA, Morgan Stanley Commodity Research


US Resid Production
(mmb/d)
 0.8


 0.7


 0.6


 0.5


 0.4


 0.3
    Jan   Feb Mar    Apr       May    Jun     Jul     Aug        Sep    Oct    Nov Dec
                  2013               2012                 2011            5-Year Avg

Source: EIA, Morgan Stanley Commodity Research




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Crude Oil Products: Korea
Crude Imports                                                                                Crude Refinery Inputs
(mmb/d)                                                                                      (mmb/d)
 3.1                                                                                          2.8

                                                                                              2.7

                                                                                              2.6
 2.7                                                                                          2.5

                                                                                              2.4

                                                                                              2.3
 2.3
                                                                                              2.2

                                                                                              2.1

                                                                                              2.0
 1.9                                                                                             Jan   Feb    Mar     Apr    May     Jun     Jul     Aug    Sep     Oct      Nov     Dec
    Jan    Feb   Mar      Apr   May     Jun    Jul     Aug     Sep     Oct      Nov    Dec
            2013                 2012                   2011                    5-Y Avg.                           2013            2012              2011               5-Y Avg.
Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research


Total Product Demand                                                                         Total Product Production
(mmb/d)                                                                                      (mmb/d)
                                                                                              3.0


 2.5

                                                                                              2.8

 2.3


                                                                                              2.5
 2.0



 1.8                                                                                          2.3
    Jan    Feb   Mar      Apr   May    Jun    Jul     Aug    Sep     Oct     Nov      Dec        Jan   Feb   Mar     Apr    May     Jun    Jul     Aug     Sep    Oct     Nov      Dec


                    2013              2012            2011            5-Y Avg.                                 2013               2012             2011           5-Y Avg.
Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research


Total Product Net Imports                                                                    Total Product Stocks
(mmb/d)                                                                                      (mmb/d)
  0.8                                                                                         60                    2013            2012             2011               5-Y Avg.


  0.6
                                                                                              55
  0.4


  0.2                                                                                         50


  0.0
                                                                                              45
 -0.2
     Jan   Feb   Mar      Apr   May    Jun    Jul     Aug    Sep     Oct     Nov      Dec
                                                                                              40
                   2013           2012               2011            5-Y Avg.                   Jan    Feb Mar      Apr     May Jun        Jul     Aug Sep       Oct     Nov Dec
Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Products: Korea
Gasoline – Net Exports                                                            Gasoline Demand
(mmb/d)                                                                           (mmb/d)
 0.25                                                                              0.22


 0.20

                                                                                   0.20
 0.15


 0.10
                                                                                   0.18

 0.05


 0.00                                                                              0.16
     Jan   Feb    Mar      Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec        Jan   Feb   Mar     Apr   May     Jun    Jul     Aug    Sep    Oct    Nov    Dec


                   2013            2012            2011         5-Y Avg.                            2013               2012            2011            5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                              Source: Bloomberg, Morgan Stanley Commodity Research


Gasoline Stocks                                                                   Middle Distillate - Net Exports
(mmb)                                                                             (mmb/d)
 5.5                                                                               1.00


 5.0                                                                               0.90


 4.5                                                                               0.80

                                                                                   0.70
 4.0

                                                                                   0.60
 3.5

                                                                                   0.50
 3.0

                                                                                   0.40
 2.5                                                                                   Jan   Feb   Mar     Apr   May    Jun    Jul    Aug     Sep    Oct    Nov    Dec
    Jan    Feb    Mar   Apr      May Jun     Jul  Aug     Sep Oct Nov       Dec
                 2013            2012         2011           5-Y Avg.
                                                                                                    2013           2012               2011           5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                              Source: Bloomberg, Morgan Stanley Commodity Research


Middle Distillate Demand                                                          Middle Distillate - Stocks
(mmb/d)                                                                           (mmb)
 0.65                                                                              19.5

                                                                                   18.5
 0.60
                                                                                   17.5

 0.55                                                                              16.5

                                                                                   15.5
 0.50
                                                                                   14.5

 0.45                                                                              13.5

                                                                                   12.5
 0.40
     Jan   Feb    Mar      Apr   May   Jun   Jul   Aug    Sep   Oct   Nov   Dec    11.5
                                                                                       Jan   Feb   Mar Apr       May Jun        Jul     Aug    Sep    Oct Nov       Dec
                                                                                                   2013           2012                2011           5-Y Avg.
                    2013           2012            2011         5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                              Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Products: China
Crude Production                                                                             Crude Imports
(mmb/d)                                                                                      (mmb/d)
 4.5                                                                                          7.0


                                                                                              6.0

 4.3
                                                                                              5.0


                                                                                              4.0
 4.0

                                                                                              3.0


 3.8                                                                                          2.0
    Jan    Feb   Mar     Apr     May     Jun    Jul    Aug     Sep    Oct     Nov   Dec          Jan    Feb Mar      Apr     May Jun       Jul     Aug Sep      Oct    Nov Dec

                    2013               2012            2011           5-Y Avg.                                 2013            2012              2011             5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research


Crude Processing                                                                             Total Product Demand
(mmb/d)                                                                                      (mmb/d)
 11.0                                                                                         11.0

                                                                                              10.5
 10.0
                                                                                              10.0

  9.0                                                                                          9.5

                                                                                               9.0
  8.0                                                                                          8.5

                                                                                               8.0
  7.0
                                                                                               7.5

  6.0                                                                                          7.0
     Jan   Feb     Mar     Apr   May     Jun    Jul     Aug    Sep    Oct     Nov   Dec           Jan   Feb   Mar    Apr     May    Jun    Jul     Aug    Sep   Oct    Nov     Dec

                    2013               2012            2011           5-Y Avg.                                  2013            2012               2011           5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research


Gasoline - Demand                                                                            Gasoline - Imports
(mmb/d)                                                                                      (mmb/d)
 2.3                                                                                          0.04


 2.1
                                                                                              0.03

 1.9
                                                                                              0.02
 1.7

                                                                                              0.01
 1.5


 1.3                                                                                          0.00
    Jan    Feb   Mar       Apr   May      Jun    Jul     Aug    Sep     Oct      Nov   Dec        Jan   Feb    Mar     Apr    May    Jun     Jul     Aug    Sep     Oct      Nov   Dec

            2013                  2012                   2011                  5-Y Avg.                           2013              2012             2011             5-Y Avg.

Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Products: China
Middle Distillate - Demand                                                                     Middle Distillate - Imports
(mmb/d)                                                                                        (mmb/d)
 4.2                                                                                            0.36

                                                                                                0.32

                                                                                                0.28
 3.8
                                                                                                0.24

                                                                                                0.20
 3.4
                                                                                                0.16

                                                                                                0.12
 3.0                                                                                            0.08
    Jan   Feb    Mar    Apr     May     Jun    Jul     Aug    Sep    Oct    Nov   Dec               Jan   Feb    Mar   Apr     May   Jun      Jul   Aug    Sep   Oct   Nov   Dec

                  2013                2012            2011           5-Y Avg.                                           2013               2012           2011         5-Y Avg.
Source: Bloomberg, Morgan Stanley Commodity Research                                           Source: Bloomberg, Morgan Stanley Commodity Research


Fuel Oil - Demand                                                                              Fuel Oil - Imports
(mmb/d)                                                                                        (mmb/d)
 1.0                                                                                            0.7


                                                                                                0.6
 0.8


                                                                                                0.5
 0.6

                                                                                                0.4
 0.4
                                                                                                0.3

 0.2
    Jan   Feb    Mar    Apr     May     Jun    Jul     Aug    Sep    Oct    Nov   Dec           0.2
                                                                                                   Jan    Feb   Mar    Apr   May     Jun     Jul    Aug    Sep   Oct   Nov   Dec
                   2013               2012            2011           5-Y Avg.                                            2013               2012          2011          5-Y Avg.
Source: Bloomberg, Morgan Stanley Commodity Research                                           Source: Bloomberg, Morgan Stanley Commodity Research


Jet Fuel - Demand                                                                              Jet Fuel - Imports
(kb/d)                                                                                         (kb/d)
 550                                                                                            240
                                                                                                220
 500
                                                                                                200
 450
                                                                                                180

 400                                                                                            160
                                                                                                140
 350
                                                                                                120
 300                                                                                            100

 250                                                                                             80
                                                                                                 60
 200
                                                                                                   Jan    Feb    Mar   Apr     May   Jun      Jul   Aug    Sep   Oct   Nov   Dec
    Jan    Feb    Mar     Apr     May        Jun     Jul     Aug    Sep    Oct    Nov   Dec
                       2013             2012               2011            5-Y Avg.                                     2013               2012           2011         5-Y Avg.
                                                                                               Source: Bloomberg, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research




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Crude Oil Products: India
Total Product Demand                                                                           Total Product Imports
(mmb/d)                                                                                        (mmb/d)
 3.50                                                                                           0.5
                                                                                                0.5
                                                                                                0.4
 3.25
                                                                                                0.4
                                                                                                0.3
 3.00                                                                                           0.3
                                                                                                0.2
                                                                                                0.2
 2.75
                                                                                                0.1
                                                                                                0.1
 2.50                                                                                           0.0
     Jan   Feb   Mar       Apr   May     Jun    Jul     Aug    Sep    Oct    Nov     Dec           Jan      Feb    Mar    Apr     May    Jun      Jul    Aug     Sep   Oct    Nov   Dec

             2013                 2012                  2011                 5-Y Avg.                                     2013             2012                2011          5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research                                     Source: Thomson Reuters, Morgan Stanley Commodity Research


Gasoline - Demand                                                                              Gasoline – Imports
(mmb/d)                                                                                        (mmb/d)
 425                                                                                            0.09
 400
 375
 350                                                                                            0.06
 325
 300
 275                                                                                            0.03
 250
 225
 200                                                                                            0.00
    Jan    Feb   Mar       Apr    May     Jun    Jul     Aug    Sep    Oct     Nov      Dec           Jan    Feb    Mar     Apr    May Jun         Jul    Aug Sep       Oct    Nov Dec

                    2013                2012            2011            5-Y Avg.
                                                                                                                            2013                2012            2011           5-Y Avg.
Source: Thomson Reuters, Morgan Stanley Commodity Research                                     Source: Thomson Reuters, Morgan Stanley Commodity Research


Middle Distillate - Demand                                                                     Middle Distillate - Imports
(mmb/d)                                                                                        (mmb/d)
 1.9                                                                                            0.16
 1.8                                                                                            0.14
 1.7                                                                                            0.12
 1.6
                                                                                                0.10
 1.5
                                                                                                0.08
 1.4
                                                                                                0.06
 1.3
                                                                                                0.04
 1.2
                                                                                                0.02
 1.1
 1.0                                                                                            0.00
    Jan    Feb   Mar   Apr       May     Jun    Jul    Aug     Sep    Oct    Nov     Dec            Jan     Feb    Mar    Apr     May     Jun     Jul    Aug     Sep   Oct    Nov   Dec


                    2013               2012            2011           5-Y Avg.                                       2013               2012             2011          5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research                                     Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil Products: India
Kerosene - Demand                                                                  Kerosene - Imports
(mmb/d)                                                                            (mmb/d)
 220                                                                                0.04

 210                                                                                0.04

                                                                                    0.03
 200
                                                                                    0.03
 190
                                                                                    0.02
 180
                                                                                    0.02
 170                                                                                0.01

 160                                                                                0.01

 150                                                                                0.00
    Jan    Feb   Mar   Apr     May     Jun   Jul   Aug    Sep   Oct   Nov   Dec         Jan    Feb    Mar    Apr     May    Jun     Jul    Aug    Sep    Oct   Nov   Dec

                  2013           2012              2011         5-Y Avg.                               2013               2012             2011           5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research                         Source: Thomson Reuters, Morgan Stanley Commodity Research


LPG - Demand                                                                       LPG - Imports
(mmb/d)                                                                            (mmb/d)
 0.55                                                                               0.25


                                                                                    0.20

 0.50
                                                                                    0.15


                                                                                    0.10
 0.45

                                                                                    0.05


 0.40                                                                               0.00
     Jan   Feb   Mar Apr       May Jun       Jul    Aug   Sep   Oct Nov     Dec         Jan    Feb    Mar    Apr    May     Jun     Jul    Aug    Sep    Oct   Nov   Dec
                  2013            2012             2011         5-Y Avg.                                          2013            2012            2011          5-Y Avg.
Source: Thomson Reuters, Morgan Stanley Commodity Research                         Source: Thomson Reuters, Morgan Stanley Commodity Research


Naphtha - Demand                                                                   Naphtha - Imports
(kb/d)                                                                             (kb/d)
  400                                                                               90
                                                                                    80
                                                                                    70

  300                                                                               60
                                                                                    50
                                                                                    40

  200                                                                               30
                                                                                    20
                                                                                    10

  100                                                                                0
     Jan   Feb   Mar     Apr   May     Jun   Jul    Aug   Sep   Oct   Nov   Dec       Jan     Feb    Mar    Apr     May    Jun     Jul     Aug    Sep    Oct   Nov   Dec

                  2013               2012          2011         5-Y Avg.                              2013               2012             2011           5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research                         Source: Thomson Reuters, Morgan Stanley Commodity Research




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Crude Oil Products: Brazil
Crude Refinery Inputs                                                                             Total Product Demand
(mmb/d)                                                                                           (mmb/d)
 2.1                                                                                               2.5

                                                                                                   2.3
 2.0

                                                                                                   2.1
 1.9
                                                                                                   1.9

 1.8
                                                                                                   1.7

 1.7                                                                                               1.5

                                                                                                   1.3
 1.6
                                                                                                      Jan   Feb   Mar      Apr   May    Jun   Jul     Aug    Sep    Oct   Nov   Dec
    Jan   Feb    Mar     Apr    May    Jun     Jul        Aug     Sep        Oct   Nov     Dec
                 2013            2012                2011                5-Y Avg.                            2013                2012                 2011                5-Y Avg.

Source: ANP, Morgan Stanley Commodity Research                                                    Source: ANP, Morgan Stanley Commodity Research


Middle Distillate Demand                                                                          Gasoline Demand
(mmb/d)                                                                                           (mmb/d)
 1.4                                                                                               0.8


 1.2                                                                                               0.7


 1.1                                                                                               0.6


 0.9                                                                                               0.5


 0.8                                                                                               0.4


 0.6                                                                                               0.3
    Jan   Feb   Mar     Apr    May    Jun    Jul     Aug        Sep     Oct    Nov   Dec              Jan   Feb   Mar      Apr   May    Jun   Jul     Aug    Sep    Oct   Nov   Dec

                2013            2012               2011               5-Y Avg.                                      2013          2012              2011           5-Y Avg.

Source: ANP, Morgan Stanley Commodity Research                                                    Source: ANP, Morgan Stanley Commodity Research


Diesel Demand                                                                                     Fuel Oil Demand
(mmb/d)                                                                                           (mmb/d)
 1.1                                                                                               110

 1.0                                                                                               100

 0.9                                                                                                90

 0.8                                                                                                80

 0.7                                                                                                70

 0.6                                                                                                60

 0.5                                                                                                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

                2013            2012               2011               5-Y Avg.                                        2013             2012          2011            5-Y Avg.

Source: ANP, Morgan Stanley Commodity Research                                                    Source: ANP, Morgan Stanley Commodity Research




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Commodity Snapshot: Natural Gas
              Demand and End Use by Source                                                                  Supply by Source                               Investment Thesis
(YoY change in demand, bcf/d)                                                      (US natural gas supply, bcf/d)                                          In the near term, we are bearish natural gas
 70                                                                                 70
                                                                                                                                                           owing to a sizable inventory surplus. A mild
                                                                                    60
 60
                                                                                                                                                           start to the 12-13 heating season reduced
                                                                                    50
 50
                                                                                    40
                                                                                                                                                           heating demand and backed gas into
 40
                                                                                    30
                                                                                                                                                           inventory. Early-2013 prices should remain
 30
                                                                                    20                                                                     depressed as inventories remain elevated,
 20                                                                                 10                                                                     encouraging coal-to-gas switching. As we
 10                                                                                   0                                                                    move towards and into the injection season,
  0
                                                                                    -10                                                                    prices should improve as the excess
                                                                                            2007 2008 2009            2010       2011 2012 2013
           2007      2008        2009      2010     2011     2012      2013
                                                                                            LNG Send-Outs                        Domestic Production
                                                                                                                                                           inventory is reduced.
           Residential & Commerical           Industrial       Power
                                                                                            Canadian Imports                     Mexican Exports
                                                                                                                                                           Supply
Source: EIA, Morgan Stanley Commodity Research estimates                           Source: EIA, Morgan Stanley Commodity Research estimates
                                                                                                                                                           • Supply growth remains resilient. We
                                                                                                                                                             expect US net supply to decline by a
              US Shale Gas Production Leads                                                                 Inventories Above                                modest 0.3 bcf/d YoY in 2013. We expect
                to Large Supply Expansion                                                                    the 5-Year Range                                Marcellus production to continue to
(US shale gas production, bcf/d)                                                   (Total US inventories, bcf)                                               increase, but declines in other gas plays
      25
                                                                                    4,500
                                                                                                                                                             (Haynesville, Barnett, on-shore
      20
                                                                                    4,000
                                                                                                                                                             conventional, etc) should act as an offset.
                                                                                    3,500
      15
                                                                                                                                                           • US shale: US production will remain
                                                                                    3,000
                                                                                                                                                             elevated on the back of growing shale
      10                                                                            2,500
                                                                                                                                                             production. We expect 2013 US
       5
                                                                                    2,000                                                                    production to average 65.3 bcf/d. For
                                                                                    1,500                                                                    2013, Marcellus production will continue
  -
        2007         2008        2009       2010     2011       2012        2013    1,000                                                                    to increase as the region's infrastructure
      Barnett               Fayetteville      Woodford          Haynesville (LA)         Jan          Mar      May        Jul        Sep      Nov
                                                                                                                                                             de-bottlenecks. However, we expect
      Haynesville (TX)      Marcellus         Eagle Ford                                       5-Yr range       5-yr average          2012          2013
                                                                                                                                                             production from dry gas plays (Barnett,
Source: EIA, Morgan Stanley Commodity Research estimates                           Source: EIA, Morgan Stanley Commodity Research estimates                  Haynesville, etc) to decline YoY.
                                                                                                                                                           • Import/Export: Lower Canadian and LNG
Supply-Demand Balance                                                                                                                                        imports, combined with elevated exports
                                                                                                                                                             to Mexico as new pipeline projects come
                                                                                                      bcf/d                                                  online should support overall demand.
SUPPLY                                                     2011          2012e              2013e             2011              2012e        2013e
Domestic Production                                        62.7           65.7               65.5              4.3               2.9          -0.2         Demand
Canadian Imports                                            6.0            5.4                5.5             -0.9               -0.7          0.1         • Near term, we expect lower gas prices to
Mexican Exports                                            -1.4           -1.7               -2.0             -0.5               -0.3         -0.3           keep coal-to-gas switching elevated,
LNG Send-Outs                                               0.9            0.6                0.6             -0.3               -0.3          0.0           supporting power gas demand. But
Supply                                                     68.3           70.0               69.6              2.6               1.7          -0.4           coal-to-gas should decline as prices
                                                                                                                                                             improve post end-Mar. Industrial gas
DEMAND                                                     2011          2012e              2013e             2011              2012e        2013e           demand will likely stay elevated as US
Residential and Commercial                                 21.6           19.3               22.3              1.0               -2.2          3.0
                                                                                                                                                             natural gas remains competitive vs. rest
Power                                                      20.8           25.0               22.2              0.5                4.2         -2.8
Industrial Demand                                          18.9           19.4               19.8              0.2                0.5          0.4
                                                                                                                                                             of the world, unless the economy slows.
Miscellaneous                                               5.7            5.9                5.9              0.3                0.3          0.0         • Winter weather is now taking center stage.
Balancing Item                                              0.4            0.5                0.5             -0.4                0.0          0.0           Residential and commercial heating
Demand                                                     67.3           70.1               70.8              1.6                2.8          0.7           demand will become an increasingly
Storage Change                                              1.0           -0.1               -1.2              1.0               -1.1         -1.1           larger share of total demand – from ~15%
                                                                                                                                                             in Sep to 40-50% between Dec and Feb.
WEATHER                                                    2011          2012e              2013e             2011              2012e        2013e
Cooling Degree Days                                         4.0            4.1               3.8               0.1               0.0          -0.3
                                                                                                                                                             Winter weather will dictate inventory
Gas Wgt-Heating Deg Days                                   13.0           11.3               13.4             -0.2               -1.7         2.1            levels and ultimately, prices.
                                                                                                                                                           • Longer term, the demand outlook is more
INVENTORY (bcf)                                            2011          2012e              2013e             2011              2012e        2013e           constructive, owing to 1) US LNG exports,
End-March Inventory                                        1,577         2,477              1,690              -75               900          -787           2) more stringent EPA rules, which should
End-October Inventory                                      3,804         3,930              3,720              -47               126          -210           benefit gas demand in the power sector,
                                                                                                                                                             3) stronger industrial gas demand, and 4)
Source: EIA, Morgan Stanley Commodity Research estimates
                                                                                                                                                             higher Mexico exports.



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Natural Gas: Storage
US Working Gas Storage, Lower-48                                                              US Working Gas Storage, Lower-48
(bcf)                                                                                         (YoY ∆, bcf)

  4,500
                                                                                                1,000
  4,000
                                                                                                     800
  3,500                                                                                              600
                                                                                                     400                                                        YoY storage
  3,000                                                                                                                                                           surplus
                                                                                                     200
  2,500
                                                                                                     -
  2,000                                                                                          (200)
                                                                                                 (400)
  1,500
                                                                                                 (600)                                           YoY storage
  1,000                                                                                                                                            deficit
                                                                                                 (800)
       Jan            Mar         May           Jul           Sep           Nov
                                                                                                (1,000)
              5-yr range            5-yr average               2012                2013              Jan-12       Apr-12            Jul-12        Oct-12       Jan-13

Source: EIA, Morgan Stanley Commodity Research                                                Source: EIA, Morgan Stanley Commodity Research


Canadian Gas Storage, Eastern & Western                                                       Canadian Working Gas Storage, Eastern & Western
(bcf)                                                                                         (YoY ∆, bcf)
  900
                                                                                                400
  800
                                                                                                                  YoY storage
                                                                                                300
                                                                                                                    surplus
  700
                                                                                                200
  600

  500                                                                                           100

  400                                                                                            -

  300                                                                                                          YoY storage
                                                                                                (100)            deficit
  200
        Jan     Feb   Mar   Apr    May    Jun     Jul   Aug    Sep     Oct       Nov   Dec      (200)
                                                                                                   Jan-10     Jul-10       Jan-11       Jul-11     Jan-12      Jul-12   Jan-13
                  5-yr range             5-yr average               2012               2013

Source: EIA, Morgan Stanley Commodity Research estimates                                      Source: EIA, Morgan Stanley Commodity Research estimates


European Working Gas Storage                                                                  European Working Gas Storage
(bcf)                                                                                         (YoY ∆, bcf)

  3,000                                                                                              600

  2,500                                                                                              400
                                                                                                                                                   YoY storage
                                                                                                     200                                             surplus
  2,000

                                                                                                     -
  1,500

                                                                                                 (200)
  1,000
                                                                                                 (400)
    500                                                                                                                                YoY storage
                                                                                                 (600)                                   deficit
    -
          Jan         Mar         May           Jul       Sep              Nov                   (800)
                                  Last year                                2013                     Jan-12        Apr-12        Jul-12           Oct-12     Jan-13       Apr-13

Source: Gas Storage Europe, Morgan Stanley Commodity Research                                 Source: Gas Storage Europe, Morgan Stanley Commodity Research




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Natural Gas: US Regional Storage and Basis
US Consuming East Storage                                                          Dominion/Appalachia Basis
(bcf)                                                                              ($/mmBtu)
                                                                                     0.6
    2,300
    2,100                                                                            0.5

    1,900                                                                            0.4
    1,700                                                                            0.3
    1,500
                                                                                     0.2
    1,300
                                                                                     0.1
    1,100
                                                                                     -
     900
                                                                                     (0.1)
     700
     500                                                                             (0.2)
        Jan          Mar     May          Jul      Sep           Nov                 (0.3)
              5-yr range      5-yr average          2012                2013              Jan       Mar          May       Jul        Sep      Nov

                                                                                                          2011              2012             2013
Source: EIA, Morgan Stanley Commodity Research
                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research


US Consuming West Storage                                                          AECO Basis
(bcf)                                                                              ($/mmBtu)

      600                                                                            0.5

      550
      500                                                                            -
      450
      400                                                                            (0.5)
      350
      300
                                                                                     (1.0)
      250
      200
      150                                                                            (1.5)

      100
         Jan          Mar     May           Jul     Sep           Nov                (2.0)
                5-yr range          5-yr average          2012             2013           Jan       Mar          May       Jul        Sep      Nov
e                                                                                                         2011              2012             2013
Source: EIA, Morgan Stanley Commodity Research
                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research


US Producing Region Storage                                                        Houston Ship Channel Basis
(bcf)                                                                              ($/mmBtu)
                                                                                     0.20
    1,500
                                                                                     0.15
    1,300
                                                                                     0.10

    1,100                                                                            0.05

                                                                                         -
     900
                                                                                    (0.05)
     700                                                                            (0.10)

     500                                                                            (0.15)

                                                                                    (0.20)
     300
                                                                                    (0.25)
        Jan           Mar    May           Jul      Sep           Nov
                                                                                          Jan       Mar          May      Jul        Sep      Nov
              5-yr range       5-yr average          2012                2013
                                                                                                          2011             2012             2013
Source: EIA, Morgan Stanley Commodity Research                                     Source: Bloomberg, Morgan Stanley Commodity Research




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Natural Gas: North American Supply
US Gas Production                                                                              US LNG Imports
(Left axis: US gas production, bcf/d; right axis: YoY ∆, bcf/d)                                (bcf/d)
  68                                                                                    8
                                                                                                2.0
  66
                                                                                        6       1.8
  64
                                                                                                1.6
  62                                                                                    4
                                                                                                1.4
  60                                                                                    2       1.2
  58
                                                                                                1.0
  56                                                                                    -
                                                                                                0.8
  54                                                                                    (2)     0.6
  52                                                                                            0.4
                                                                                        (4)
  50                                                                                            0.2
  48                                                                                (6)         0.0
    Jan-07      Jan-08         Jan-09     Jan-10     Jan-11      Jan-12       Jan-13               Jan           Feb     Mar    Apr    May     Jun    Jul     Aug   Sep     Oct   Nov   Dec
                         YoY                             US production                                           5-year range                5-year average               2012          2013

Source: EIA, Morgan Stanley Commodity Research                                                 Source: EIA, Morgan Stanley Commodity Research
Canadian Gas Production                                                                        Net US Imports from Canada
(Left axis: Canadian gas production, bcf/d; right axis: YoY ∆, bcf/d)                          (bcf/d)

   17.0                                                                           1.5            10.0

   16.0                                                                           1.0                9.0
   15.0                                                                           0.5
                                                                                                     8.0
   14.0                                                                           -
                                                                                                     7.0
   13.0                                                                           (0.5)
                                                                                                     6.0
   12.0                                                                           (1.0)

   11.0                                                                           (1.5)              5.0

   10.0                                                                           (2.0)              4.0
       Jan-07    Jan-08         Jan-09   Jan-10    Jan-11     Jan-12     Jan-13                            Jan     Feb    Mar    Apr    May     Jun    Jul    Aug   Sep     Oct   Nov   Dec
                          YoY                      Canadian production                                           5-year range                5-year average               2012          2013

Source: Companies data, Morgan Stanley Commodity Research estimates                            Source: Companies data, Morgan Stanley Commodity Research estimates
Mexico Gas Production                                                                          Net US Exports to Mexico
(Left axis: Mexican gas production, bcf/d; right axis: YoY ∆, bcf/d)                           (bcf/d)

   5.2                                                                            0.6            2.5

   5.0                                                                            0.4
                                                                                                 2.0

   4.8                                                                            0.2
                                                                                                 1.5
   4.6                                                                            -
                                                                                                 1.0
   4.4                                                                            (0.2)

   4.2                                                                            (0.4)          0.5


   4.0                                                                            (0.6)          -
      Jan-07     Jan-08        Jan-09    Jan-10    Jan-11     Jan-12     Jan-13                        Jan        Feb     Mar   Apr    May      Jun   Jul     Aug   Sep     Oct   Nov   Dec
                          YoY                      Mexico production                                             5-year range                5-year average               2012          2013

Source: Mexico Energy Secretary, Morgan Stanley Commodity Research                             Source: Companies data, Morgan Stanley Commodity Research estimates




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Natural Gas: US Power
US Electricity Output                                                        US Nuclear Generation
(‘000 Gwh)                                                                   (GW)
  100                                                                          105

   95                                                                          100

                                                                                95
   90
                                                                                90
   85
                                                                                85
   80
                                                                                80
   75                                                                           75

   70                                                                           70

   65                                                                           65
           Jan     Mar         May            Jul        Sep          Nov       60
                                                                                     Jan     Feb   Mar    Apr   May Jun         Jul    Aug Sep   Oct    Nov Dec
                 5-Y range                    2013                2012
                                                                                                    5-Y range                   2012             2013
Source: EEI, Morgan Stanley Commodity Research
                                                                             Source: NRC, Morgan Stanley Commodity Research
SERC Power Gas Demand                                                        RFC Power Gas Demand
(bcf/d)                                                                      (bcf/d)

    10.0                                                                         6.0
       9.0
                                                                                 5.0
       8.0
       7.0                                                                       4.0
       6.0
       5.0                                                                       3.0
       4.0
                                                                                 2.0
       3.0
       2.0                                                                       1.0
       1.0
       -                                                                         -
             Jan Feb Mar Apr May Jun          Jul    Aug Sep Oct Nov Dec               Jan    Feb Mar     Apr May Jun       Jul       Aug Sep Oct      Nov Dec

                     2011                      2012                   2013                          2011                        2012                    2013

Source: Ventyx, Morgan Stanley Commodity Research estimates                  Source: EIA, Morgan Stanley Commodity Research estimates

WECC Power Gas Demand                                                        SPP Power Gas Demand
(bcf/d)                                                                      (bcf/d)

    7.0                                                                          1.8

    6.0                                                                          1.6
                                                                                 1.4
    5.0
                                                                                 1.2
    4.0
                                                                                 1.0
    3.0                                                                          0.8
    2.0                                                                          0.6
                                                                                 0.4
    1.0
                                                                                 0.2
   -
                                                                                 -
           Jan Feb Mar    Apr May Jun   Jul    Aug Sep Oct Nov Dec
                                                                                       Jan Feb Mar Apr May Jun            Jul     Aug Sep Oct Nov Dec
                   2011                 2012                   2013
                                                                                                   2011                    2012                     2013
Source: Gas Storage Europe, Morgan Stanley Commodity Research
                                                                             Source: Gas Storage Europe, Morgan Stanley Commodity Research




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Natural Gas: US Demand
US Industrial Gas Demand                                                                                 US Power Gas Demand
(bcf/d)                                                                                                  (bcf/d)

  23.0                                                                                                     40.0
  22.0
                                                                                                           35.0
  21.0
  20.0                                                                                                     30.0
  19.0
                                                                                                           25.0
  18.0
  17.0                                                                                                     20.0
  16.0
  15.0                                                                                                     15.0

  14.0
                                                                                                           10.0
          Jan     Feb    Mar    Apr    May      Jun     Jul    Aug    Sep     Oct     Nov    Dec
                                                                                                                   Jan     Feb    Mar    Apr    May      Jun     Jul    Aug    Sep     Oct    Nov    Dec
                5-year range                5-year average                  2012                 2013
                                                                                                                         5-year range                5-year average                 2012                 2013
Source: EIA, Morgan Stanley Commodity Research
                                                                                                         Source: EIA, Morgan Stanley Commodity Research
Total US Generation                                                                                      Total US Gas-Based Generation
(GWh)                                                                                                    (GWh)

  430                                                                                                      150
  410
                                                                                                           130
  390
                                                                                                           110
  370

  350                                                                                                       90

  330
                                                                                                            70
  310
                                                                                                            50
  290

  270                                                                                                       30
        Jan     Feb     Mar    Apr    May     Jun     Jul     Aug    Sep    Oct     Nov    Dec                   Jan     Feb     Mar    Apr    May    Jun      Jul     Aug   Sep     Oct    Nov    Dec

                  5-yr range            5-yr average                 2012                 2013                             5-yr range            5-yr average                 2012                2013

Source: EIA, Morgan Stanley Commodity Research                                                           Source: EIA, Morgan Stanley Commodity Research
Total US Coal-Based Generation                                                                           Total US Hydro-Based Generation
(GWh)                                                                                                    (GWh)

  220                                                                                                      35

  200
                                                                                                           30
  180

  160                                                                                                      25

  140                                                                                                      20
  120
                                                                                                           15
  100

   80                                                                                                      10
        Jan      Feb    Mar    Apr    May      Jun     Jul     Aug    Sep     Oct    Nov     Dec                Jan      Feb     Mar    Apr    May     Jun     Jul     Aug    Sep     Oct    Nov     Dec

                  5-yr range                5-yr average               2012                2013                            5-yr range                5-yr average              2012                2013

Source: EIA, Morgan Stanley Commodity Research                                                           Source: EIA, Morgan Stanley Commodity Research




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Natural Gas: North American Rig Activity
US Horizontal Rig Count                                                           US Vertical Rig Count

  700                                                                               1,200

  600                                                                               1,000

  500
                                                                                        800
  400
                                                                                        600
  300
                                                                                        400
  200

  100                                                                                   200


  -                                                                                     -
          2007         2008       2009       2010         2011     2012   2013               2007        2008    2009       2010        2011     2012   2013

Source: Smith Bits Stats, Morgan Stanley Commodity Research                       Source: Smith Bits Stats, Morgan Stanley Commodity Research
Marcellus Rig Count                                                               Eagle Ford Rig Count

      140                                                                           100
                                                                                     90
      120
                                                                                     80
      100                                                                            70

      80                                                                             60
                                                                                     50
      60                                                                             40
      40                                                                             30
                                                                                     20
      20
                                                                                     10
      -                                                                             -
           2007          2008      2009       2010        2011     2012   2013              2007        2008    2009       2010         2011     2012   2013

             Horizontals                  Verticals/Directionals                                 Horizontals            Verticals/Directionals

Source: Smith Bits Stats, Morgan Stanley Commodity Research                       Source: Smith Bits Stats, Morgan Stanley Commodity Research
Haynesville Rig Count                                                             Barnett Rig Count

      180                                                                               200
      160                                                                               180

      140                                                                               160
                                                                                        140
      120
                                                                                        120
      100
                                                                                        100
      80
                                                                                            80
      60
                                                                                            60
      40                                                                                    40
      20                                                                                    20
      -                                                                                 -
           2007          2008      2009       2010        2011     2012   2013                2007       2008    2009       2010        2011     2012   2013

                 LA Horizontals                TX Horizontals                                    Horizontals            Verticals/Directionals

Source: Smith Bits Stats, Morgan Stanley Commodity Research                       Source: Smith Bits Stats, Morgan Stanley Commodity Research




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Natural Gas: Others
Estimated Generation Costs
                                                                           NAPP* Coal        CAPP Coal                PRB Coal                                  CCGT           Gas Turbines
                                                                            Gen Units         Gen Units               Gen Units                                  Gas              10K units
Fuel cost ($/ton for coal, $/mmBtu for gas)                                       $54.82        $57.32                    $10.10                                 $4.25                     $4.25
Estimated Shipping cost                                                           $16.25        $20.00                    $22.00                                 $0.03                     $0.03
Sulfur Dioxide (SO2), $/ton                                                        $2.00         $0.73                     $0.73                                 $0.00                     $0.00
Nitrogen Oxide (Nox), $/ton                                                       $80.00        $40.00                    $40.00                                 $0.00                     $0.00
Delivered cost of fuel, $/mmBtu + Emissions                                          $2.74       $3.10                     $1.83                                 $4.28                     $4.28
Plant Heat Rate (btu/kwh)                                                         10,000        10,000                    10,000                                7,200                     10,000
Fuel generation costs, $/Mwh                                                      $27.42        $30.96                    $18.27                               $30.78                     $42.75
Variable O&M costs, $/Mwh                                                          $3.50         $3.50                     $4.00                                $1.50                      $1.50
Total variable generation costs, $/Mwh                                            $30.92        $34.46                    $22.27                               $32.28                     $44.25

*Assumes NAPP coal trades at a $2.50/ton discount to CAPP coal.
Source: Morgan Stanley Commodity Research estimates
Henry Hub, NBP, and CAPP Coal Prices                                                            Heating Degree Days
($/mmBtu)                                                                                       (US total HDD)
                                                                                                   250
      12

      10                                                                                           200        191         189
                                                                                                                    181
                                                                                                                                169               164           168                        165
                                                                                                                                            156
        8                                                                                                                             150                                                        149
                                                                                                                                                        143
                                                                                                   150                                                                129     126
                                                                                                                                                                                    117
        6
                                                                                                   100
        4

                                                                                                       50
        2

        0                                                                                              0
      4/13/2010             4/13/2011              4/13/2012             4/13/2013                            Feb-28      Mar-07      Mar-14      Mar-21        Mar-28        Apr-04        6-Wk
                                                                                                                                                                                            Avg.
                    Henry Hub Gas                CAPP Coal              NBP Gas                                                 HDD Actual              HDD 30-Yr Normal

Source: CME, ICE, Morgan Stanley Commodity Research                                             Source: NOAA, Morgan Stanley Commodity Research
Henry Hub Natural Gas Net Speculative Interest                                                  Henry Hub Natural Gas Net Commercial Interest
(Left axis: NSL, NYMEX equivalent lots;                                                         (Left axis: NCL, NYMEX equivalent lots;
right axis: Henry Hub average weekly price, $/mmBtu)                                            right axis: Henry Hub average weekly price, $/mmBtu)

  500                                                                        $4.5                  -                                                                                          $1.5
  450
                                                                                                                                                                                              $2.0
  400                                                                        $4.0                 (100)
  350                                                                                                                                                                                         $2.5
                                                                             $3.5                 (200)
  300                                                                                                                                                                                         $3.0
  250
                                                                             $3.0                 (300)                                                                                       $3.5
  200
  150                                                                                                                                                                                         $4.0
                                                                             $2.5                 (400)
  100
                                                                                                                                                                                              $4.5
   50                                                                        $2.0                 (500)
  -                                                                                                                                                                                           $5.0
  (50)                                                                       $1.5                 (600)                                                                                       $5.5
    Apr-12        Jun-12    Aug-12      Oct-12     Dec-12      Feb-13                                Apr-12          Jun-12       Aug-12      Oct-12      Dec-12            Feb-13

            NSL, total NYMEX equivlent lots         NYMEX weekly avg. HH prices                             NCL, total NYMEX equivlent lots                   NYMEX weekly avg. HH prices

Source: CFTC, Morgan Stanley Commodity Research                                                 Source: CFTC, Morgan Stanley Commodity Research




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Natural Gas: Production
US Gas Production                                                                               Canadian Gas Production
(bcf/d)                                                                                         (bcf/d)

  70                                                                                              16.0

                                                                                                  15.5
  65
                                                                                                  15.0

                                                                                                  14.5
  60
                                                                                                  14.0

  55                                                                                              13.5

                                                                                                  13.0
  50
                                                                                                  12.5

                                                                                                  12.0
  45
                                                                                                          Jan     Feb    Mar    Apr   May     Jun   Jul    Aug     Sep    Oct    Nov    Dec
       Jan      Feb     Mar    Apr    May    Jun    Jul     Aug    Sep    Oct    Nov    Dec
                                                                                                                5-year range            5-year average               2012               2013
                5-year range            5-year average               2012               2013
                                                                                                Source: EIA, Morgan Stanley Commodity Research estimates
Source: EIA, Morgan Stanley Commodity Research
Russia Gas Production                                                                           Norwegian Gas Production
(bcf/d)                                                                                         (bcf/d)

    80                                                                                            14
    75                                                                                            13
    70                                                                                            12
    65                                                                                            11
    60                                                                                            10
    55                                                                                             9
    50                                                                                             8
    45                                                                                             7
    40                                                                                             6
          Jan     Feb    Mar    Apr    May    Jun     Jul    Aug    Sep    Oct    Nov    Dec
                                                                                                       Jan       Feb    Mar    Apr    May     Jun    Jul     Aug    Sep    Oct    Nov    Dec
                5-yr range             5-yr average                2012                2013                     5-year range                5-year average               2012             2013

Source: EIA, Morgan Stanley Commodity Research                                                  Source: EIA, Morgan Stanley Commodity Research
China Gas Production                                                                            India Gas Production
(bcf/d)                                                                                         (bcf/d)

  14                                                                                              6
  13
  12
  11
                                                                                                  5
  10
   9
   8
   7                                                                                              4
   6
   5
   4
                                                                                                  3
       Jan      Feb     Mar    Apr    May    Jun    Jul     Aug    Sep    Oct    Nov    Dec
                                                                                                      Jan       Feb     Mar    Apr    May     Jun   Jul      Aug   Sep     Oct    Nov    Dec
                5-year range            5-year average               2012               2013
                                                                                                                5-year range                5-year average               2012             2013
Source: EIA, Morgan Stanley Commodity Research
                                                                                                Source: EIA, Morgan Stanley Commodity Research




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Natural Gas: Asian LNG Demand
Japan LNG Imports                                                                                     Korea LNG Imports
(bcf/d)                                                                                               (bcf/d)

  14                                                                                                        9
  13                                                                                                        8
  12                                                                                                        7
  11                                                                                                        6
  10                                                                                                        5
      9                                                                                                     4
      8                                                                                                     3
      7                                                                                                     2
      6                                                                                                     1
      5                                                                                                 -
          Jan     Feb    Mar    Apr   May     Jun      Jul     Aug   Sep       Oct    Nov    Dec                Jan     Feb    Mar     Apr    May     Jun    Jul        Aug    Sep        Oct     Nov    Dec
                 5-year range               5-year average               2012                 2013                     5-year range                5-year average                    2012                   2013

Source: Japan customs, Morgan Stanley Commodity Research                                              Source: KEEI, Morgan Stanley Commodity Research
Taiwan LNG Imports                                                                                    China LNG Imports
(bcf/d)                                                                                               (bcf/d)

  2.5                                                                                                   3.0

                                                                                                        2.5
  2.0
                                                                                                        2.0
  1.5
                                                                                                        1.5

  1.0
                                                                                                        1.0

  0.5                                                                                                   0.5

                                                                                                        -
  -
                                                                                                                 Jan     Feb    Mar    Apr    May      Jun        Jul    Aug        Sep     Oct       Nov    Dec
          Jan      Feb   Mar    Apr    May     Jun     Jul     Aug   Sep       Oct    Nov     Dec
                                                                                                                       5-year range                 5-year average                    2012                     2013
                 5-year range               5-year average               2012                 2013
                                                                                                      Source: China customs, Morgan Stanley Commodity Research
Source: Taiwan customs, Morgan Stanley Commodity Research
India LNG Imports                                                                                     Asian LNG Imports
(bcf/d)                                                                                               (bcf/d)

  2.00                                                                                                  25
  1.80                                                                                                  23
  1.60
                                                                                                        21
  1.40
  1.20                                                                                                  19

  1.00                                                                                                  17
  0.80                                                                                                  15
  0.60
                                                                                                        13
  0.40
  0.20                                                                                                  11

      -                                                                                                     9
           Jan     Feb   Mar    Apr   May    Jun     Jul     Aug   Sep   Oct    Nov    Dec                      Jan    Feb     Mar    Apr    May    Jun     Jul     Aug       Sep    Oct        Nov    Dec
                 4-year range          4-year average                2012              2013                            5-year range            5-year average                   2012                    2013

Source: PPAC, Morgan Stanley Commodity Research                                                       Source: Various customs data, Morgan Stanley Commodity Research




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Natural Gas: Japan Power Sector
Japan FEPC Generated and Purchased Power                                                    Japan Nuclear Power Generation
(‘000 GWh)                                                                                  (‘000 GWh)

  100                                                                                             30

   95
                                                                                                  25
   90
                                                                                                  20
   85
                                                                                                  15
   80

   75                                                                                             10

   70                                                                                             5

   65
                                                                                              -
        Jan    Feb   Mar     Apr   May   Jun   Jul    Aug    Sep    Oct    Nov    Dec
                                                                                                       Jan    Feb   Mar     Apr   May      Jun    Jul    Aug    Sep     Oct    Nov    Dec
              5-year range           5-year average            2012               2013
                                                                                                             5-year range               5-year average               2012              2013
Source: FEPC, Morgan Stanley Commodity Research
                                                                                            Source: FEPC, Morgan Stanley Commodity Research
Japan Thermal Power Generation                                                              Japan FEPC Consumed LNG
(‘000 GWh)                                                                                  (bcf/d)

  70                                                                                          9.5
  65
                                                                                              8.5
  60
                                                                                              7.5
  55
  50                                                                                          6.5

  45                                                                                          5.5
  40
                                                                                              4.5
  35
                                                                                              3.5
  30
  25                                                                                          2.5
       Jan     Feb   Mar     Apr   May   Jun   Jul     Aug    Sep    Oct    Nov    Dec                 Jan    Feb   Mar     Apr   May      Jun    Jul    Aug    Sep    Oct     Nov    Dec
              5-year range            5-year average               2012             2013                     5-year range               5-year average               2012              2013

Source: FEPC, Morgan Stanley Commodity Research                                             Source: FEPC, Morgan Stanley Commodity Research
Japan FEPC Consumed Coal                                                                    Japan FEPC Consumed Crude + Heavy Fuel Oil
(mln MT)                                                                                    (bln liters)

  5.5                                                                                         3.5

                                                                                              3.0
  5.0
                                                                                              2.5
  4.5
                                                                                              2.0
  4.0
                                                                                              1.5
  3.5                                                                                         1.0

  3.0                                                                                         0.5

                                                                                              -
  2.5
                                                                                                       Jan    Feb   Mar     Apr   May     Jun    Jul    Aug    Sep    Oct     Nov   Dec
        Jan    Feb   Mar     Apr   May   Jun    Jul    Aug    Sep    Oct    Nov    Dec
                                                                                                             5-year range           5-year average               2012                2013
              5-year range            5-year average               2012             2013
                                                                                            Source: FEPC, Morgan Stanley Commodity Research
Source: FEPC, Morgan Stanley Commodity Research




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Natural Gas: China Power Sector
Chinese Power Production                                                                 China Thermal Power Production
(bln KWh)                                                                                (bln KWh)

  500                                                                                      400

  450
                                                                                           350
  400
                                                                                           300
  350

  300                                                                                      250

  250
                                                                                           200
  200
                                                                                           150
  150

  100                                                                                      100
           Jan    Feb   Mar     Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec                Jan    Feb    Mar    Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec
                 5-year range           5-year average           2011            2012                     5-year range           5-year average           2011            2012

Source: CEI, Morgan Stanley Commodity Research                                           Source: CEI, Morgan Stanley Commodity Research
China Nuclear Power Production                                                           China Hydro Power Production
(bln KWh)                                                                                (bln KWh)

  10                                                                                       100

      9                                                                                        90
                                                                                               80
      8
                                                                                               70
      7                                                                                        60
      6                                                                                        50

      5                                                                                        40
                                                                                               30
      4
                                                                                               20
      3                                                                                        10
      2                                                                                    -
          Jan    Feb    Mar     Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec                Jan    Feb    Mar    Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec
                 5-year range           5-year average           2011            2012                     5-year range           5-year average           2011            2012

Source: CEI, Morgan Stanley Commodity Research                                           Source: CEI, Morgan Stanley Commodity Research
China LNG Imports                                                                        China Coal Imports
(bcf/d)                                                                                  (mln MT)

  3.0                                                                                       40

                                                                                            35
  2.5
                                                                                            30
  2.0
                                                                                            25

  1.5                                                                                       20

                                                                                            15
  1.0
                                                                                            10
  0.5
                                                                                               5

  -                                                                                        -
          Jan     Feb   Mar     Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec                Jan    Feb   Mar     Apr   May   Jun   Jul    Aug   Sep   Oct   Nov   Dec
                 5-year range           5-year average           2012            2013                     5-year range           5-year average           2012            2013

Source: CEI, Morgan Stanley Commodity Research                                           Source: CEI, Morgan Stanley Commodity Research




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Agriculture Table of Contents

Weather Maps                                                       66
Corn                                                               67
  Prices, Spreads, and Basis                                       68
  Demand                                                           69
  Ethanol                                                          71
  Supply                                                           72
Soybeans                                                           73
  Prices, Spreads, and Basis                                       74
  Soybean Demand                                                   75
  Soybean Products Demand                                          78
  Soybean Supply                                                   80
  Biodiesel Fundamentals                                           81
Wheat                                                              82
  Prices, Spreads, and Margins                                     83
  Demand                                                           84
  Wheat by Class Exports                                           86
  Supply                                                           88
Cotton                                                             89
  Demand                                                           90
  Supply                                                           92
Sugar                                                              93
  Prices and Spreads                                               94
  Demand                                                           95
  Supply                                                           96
Coffee                                                             98
Livestock                                                          99




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Agriculture: US and South America Weather Map
US Major Crop Producing States
Last 4 Weeks’ Deviation from 5-Year Average Growing Degree Days and Precipitation
                      ?
                          4-Wk vs. 5-Yr Ave, % ∆

                      Precipitation                                Minnesota            Iowa
                                                                      -32%              -66%                   Wisconsin
                      Growing Degree Days                            -100%              -91%                     -27%                   Michigan
                                                                                                                -100%                     -2%
                                                                                                                                         -100%
                                     North Dakota
                                         -47%
                                        -100%

                                     South Dakota
                                        -64%
                                        -87%                                                                                                       Ohio
                                                                                                                                                   -29%
                                                                                                                                                   -79%
                                       Nebraska
                                          -1%
                                         -56%

                                                                                                                                        Indiana
                                                                                                                                         -58%
                                                                                                                                         -85%
                                                                                                                          Illinois
                                         Kansas                                                                             -54%
                                          -61%                                                           Missouri           -84%
                                          -49%                                                            -32%
                                                                                                          -68%

Source: Bloomberg, Morgan Stanley Commodity Research


South American Major Crop Producing Areas
Last 4 Weeks’ Deviation from 5-Year Average Growing Degree Days and Precipitation


                                 4-Wk vs. 5-Yr Ave, % ∆                             Mato Grosso Do Sul              Maranhão             Alagoas
                             Precipitation                                                 24%                         5%                 -62%
                                                                                           -5%                         1%                  0%
                             Growing Degree Days

                                    Mato Grosso
                                        8%                                                                                                Bahia
                                        1%                                                                                                -30%
                                                                                                                                           -1%

                                       Chaco
                                        73%
                                       -19%                                                                                               Goais
                                                                                                                                          -43%
                                                                                                                                           -5%

                                      Cordoba
                                        48%
                                       -20%                                                                                              São Paulo
                                                                                                                                           -10%
                                                                                                                                           -29%


                                     La Pampa                                         Buenos Aires           Rio Grande Do Sul            Parana
                                       -54%                                               77%                      106%                     81%
                                       -29%                                              -28%                      -15%                    -12%



Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Corn
      US Production vs. Demand by End Use                                                  US Corn Stocks to Use                                Investment Thesis
(US supply and demand, mln bu)                                            (US corn stocks to use, %)                                            We remain constructive on near-dated corn
 16,000                                                                    70%
                                                                                                                                                prices from these levels, as physical US and
 12,000
                                                                           60%                                                                  global corn inventories remain precariously
                                                                           50%                                                                  low and US demand has not yet been
  8,000                                                                    40%                                                                  adequately rationed, in our view. However,
                                                                           30%                                                                  we expect longer-dated prices to come
  4,000
                                                                           20%
                                                                                                                                                under more pressure, as assumptions of
       0                                                                                                                                        normal weather prompt estimates of record
                                                                           10%
            06/07             08/09           11/12e             13/14e                                                                         13/14 production.
       Feed & Residual         Other Consumption       Ethanol Use          0%
       Exports                 Production                                     82/83      87/88   92/93    97/98   02/03   07/08   12/13e
                                                                                                                                                Supply
Source: USDA, Morgan Stanley Commodity Research                           Source: USDA, Morgan Stanley Commodity Research
estimates                                                                 estimates                                                             • A surprisingly large Brazilian 11/12
                                                                                                                                                  safrinha crop has pressured US export
                 Ethanol Mandates Make up                                     Yield Growth No Longer Main Source of                               sales, though this supply should wane as
                 Majority of Ethanol Demand                                            Incremental Bushels                                        we move through 1Q13.
(Biofuels Mandate, mln gal)                                               (Annual incremental change in bushels, mln bu)
 40                                                                        4,000                                                                • Drought in the US has pressured US
 30
                                                                                                                                                  production to its lowest in 7 years even as
                                                                           2,000
                                                                                                                                                  acreage climbed to the highest in the
 20
                                                                                 0
                                                                                                                                                  post-war era.
 10
                                                                           -2,000                                                               • Long term, we believe that global supply
  0                                                                                                                                               growth will need to come from better
      2007 2008 2009 2010 2011 2012 2013 2014 2015 2022
                                                                           -4,000                                                                 global corn yields, which have grown at a
                                                                                 88/89       93/94       98/99    03/04      08/09     13/14e
                 Ethanol-All Feedstocks     Cellulosic Ethanol
                                                                                                                                                  1.7% CAGR over the past 10 years. In the
                 Biodiesel                  Other Advanced Biofuels
                                                                                           Impact in Bushels of YoY Δ in Yield                    meantime, corn prices need to remain
                                                                                           Impact in Bushels of YoY Δ in Area Harvested
                                                                                                                                                  elevated to continue incentivizing
Source: USDA, Morgan Stanley Commodity Research                           Source: USDA, Morgan Stanley Commodity Research                         acreage expansion in Brazil.
estimates                                                                 estimates


Supply-Demand Balance                                                                                                                           Demand
World                                                                       USDA                           Morgan Stanley                       • We still see the need for higher corn
SUPPLY                                                               11/12e     12/13e                   11/12e     12/13e                        prices to shock the US livestock industry
Beginning Stocks (mln bu)                                             5,042     5,163                    5,042       5,163                        into rationing the amount of demand
Area Harvested (mln acres)                                             419        432                      419        435
                                                                                                                                                  needed to balance out a substantial
                                                                                                                                                  decline in US 12/13 production.
Production (mln bu)                                                  34,750     33,623                   34,750     33,821
  United States                                                      12,360     10,780                   12,360     10,780                      • We expect ethanol demand for corn to
  Brazil                                                              2,874      2,854                    2,874      2,885                        decline YoY in 2012/13, as blenders draw
  Argentina                                                            827       1,043                     827        905                         down inventories and Brazilian supply
Supply (mln bu)                                                      43,695     42,553                   43,686     42,774                        crowds out US exports. However, we
                                                                                                                                                  believe US domestic ethanol demand
DEMAND                                                               11/12e          12/13e              11/12e              12/13e               remains very inelastic with few
Consumption (mln bu)                                                 33,920          34,459              33,911              34,263               alternatives available economically in the
  Feed & Residual (mln bu)                                           19,877          20,584              19,877              20,250               near term.
   United States                                                      4,548           4,550               4,548               4,470
   Brazil                                                             1,693           1,772               1,693               1,743
  FSI Consumption (mln bu)                                           14,043          13,875              14,033              14,013
Ending Stock                                                         5,163            4,625               5,163               5,057
Stocks to Use %                                                      15.2%           13.4%               15.2%               14.8%
  United States                                                       7.9%            5.6%                7.9%                5.5%
Source: USDA, Morgan Stanley Commodity Research estimates




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Corn: Prices, Spreads, and Basis
Global Corn Prices                                                                                Full Carry Calculation
($/bu)
                                                                                                             Spreads Current                 Full Carry % Full Carry
   12
                                                                                                   C U3       C Z3              -27.00          18.14           -148.9%
                                                                                                              C H4              -16.75          36.47            -45.9%
    9                                                                                                         C N4               -3.00          60.65             -4.9%
                                                                                                              C U4              -27.50          73.35            -37.5%
                                                                                                   C Z3       C H4               10.25          18.18            56.4%
    6                                                                                                         C N4               24.00          42.16            56.9%
                                                                                                              C U4               -0.50          54.74             -0.9%
                                                                                                   C H4       C N4               13.75          24.05            57.2%
    3
                                                                                                              C U4              -10.75          36.68            -29.3%
                                                                                                              C z4               -7.75          54.72            -14.2%
    0                                                                                              C N4       C U4              -24.50          12.68           -193.2%
    2008            2009            2010               2011           2012              2013                  C z4              -21.50          30.80            -69.8%

        Dalian         Argentina              Brazil            EU           US (CBOT)            Source: Bloomberg, Morgan Stanley Commodity Research


Source: Bloomberg, Morgan Stanley Commodity Research
Export Basis                                                                                      Interior Basis
(¢/bu)                                                                                            (¢/bu)
 160                                                                                                60

 120                                                                                                40

  80                                                                                                20

  40                                                                                                 0

   0                                                                                               -20

 -40                                                                                               -40

 -80                                                                                               -60
    Jan-    Apr-     Jul-    Oct-      Jan-      Apr-         Jul-    Oct-     Jan-      Apr-         Jan-     Apr-      Jul-     Oct-       Jan-    Apr-     Jul-   Oct-     Jan-   Apr-
     11      11      11       11        12        12           12      12       13        13           11       11        11       11         12      12       12     12       13     13

        PNW             Central IL               Toledo               Gulf              Chicago            S. Peoria            Cincinnati           Memphis         So. Iowa        Omaha

Source: Bloomberg, Morgan Stanley Commodity Research                                              Source: Bloomberg, Morgan Stanley Commodity Research
Time Spreads                                                                                      Corn Feed Substitution vs. HRW
(¢/bu)                                                                                            ($/MT)

  200                                                                                                350

  150
                                                                                                     300
  100
                                                                                                     250
   50

    0                                                                                                200

  -50
                                                                                                     150
 -100
     Jan    Apr      Jul     Oct      Jan       Apr       Jul        Oct     Jan        Apr
                                                                                                     100
      11    11       11      11        12       12        12         12      13         13
                                                                                                       Jan-10         Jul-10      Jan-11       Jul-11       Jan-12   Jul-12     Jan-13
                 Sep - Dec         Dec - Jul           Dec - Dec           July - Dec
                                                                                                                                              Corn          HRW
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                  Source: Bloomberg, Morgan Stanley Commodity Research




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Corn: Demand
Current MY Net Export Sales                                                      Current MY Total Commitment
(mln bu)                                                                         (mln bu)
 100                                                                              3,000


  80                                                                              2,500


  60                                                                              2,000


  40                                                                              1,500


  20                                                                              1,000


   0                                                                                500


 -20                                                                                   0
    Sep    Oct   Nov Dec      Jan   Feb Mar    Apr   May   Jun   Jul   Aug              Sep    Oct    Nov Dec   Jan   Feb Mar      Apr May     Jun    Jul   Aug

           5-Yr Range           5-Yr Average          2012/13          2011/12                5-Yr Range        5-Yr Average             2012/13            2011/12

Source: USDA, Morgan Stanley Commodity Research                                  Source: USDA, Morgan Stanley Commodity Research
Current MY Export Shipments                                                      Current MY Cumulative Shipments
(mln bu)                                                                         (mln bu)
 70                                                                               2,500

 60
                                                                                  2,000
 50

 40                                                                               1,500

 30
                                                                                  1,000
 20
                                                                                    500
 10

  0                                                                                    0
   Sep     Oct   Nov    Dec   Jan   Feb Mar    Apr   May   Jun   Jul   Aug              Sep    Oct    Nov Dec   Jan   Feb Mar      Apr   May   Jun    Jul   Aug

                                                                                              5-Yr Range        5-Yr Average             2012/13            2011/12
           5-Yr Range           5-Yr Average          2011/12          2012/13
                                                                                 Source: USDA, Morgan Stanley Commodity Research
Source: USDA, Morgan Stanley Commodity Research
New MY Outstanding Sales                                                         Outstanding Sales as % of Total Commitment
(mln bu)                                                                         (%)
 450
                                                                                    35%
 400

 350                                                                                30%

 300                                                                                25%
 250
                                                                                    20%
 200
                                                                                    15%
 150

 100                                                                                10%

  50
                                                                                       5%
   0
    Sep    Oct   Nov Dec      Jan   Feb Mar    Apr   May   Jun   Jul   Aug             0%
                                                                                                     Apr 11             Apr 12                     Apr 13
           5-Yr Range           5-Yr Average          2012/13          2011/12

Source: USDA, Morgan Stanley Commodity Research                                  Source: USDA, Morgan Stanley Commodity Research




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Corn: Demand
US Quarterly Corn Use                                                           Chinese Corn Imports
(mln bu)                                                                        (‘000 MT)
                                                                                 0.8
 450
 400                                                                             0.7
 350                                                                             0.6
 300
                                                                                 0.5
 250
 200                                                                             0.4
 150
                                                                                 0.3
 100
                                                                                 0.2
  50
   0                                                                             0.1
   Q1 05/06 Q1 06/07 Q1 07/08 Q1 08/09 Q1 09/10 Q1 10/11 Q1 11/12 Q1 12/13
                                                                                 0.0
       Non-Fuel Alcohol       Cereals                    Glucose and Dextrose       Jan      Feb   Mar    Apr   May   Jun     Jul   Aug   Sep   Oct     Nov     Dec
       HFCS                   Seed                       Starch
                                                                                                   5-Yr Range          2013           2012            Average
Source: USDA, Morgan Stanley Commodity Research
                                                                                Source: CEIC, Morgan Stanley Commodity Research
China Import Arb                                                                Quarterly Feed Demand
($/bu)                                                                          (mln bu)


                                        Incentive to Import from US              3,000
    3

    2                                                                            2,500

    1                                                                            2,000
    0
                                                                                 1,500
   -1
                                                                                 1,000
   -2

   -3                                                                              500
                  No Incentive to Import from US
   -4                                                                                  0
   May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12                                 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13

                     Corn Import Arb       Corn Import Arb (Ex-VAT)                          Q1 Sep-Nov     Q2 Dec-Feb      Q3 Mar-May       Q4 Jun-Aug
Source: Bloomberg, Morgan Stanley Commodity Research                            Source: USDA, Morgan Stanley Commodity Research
US Exports and Shipments
(mln bu)
                             Export            Export              USDA
        4/4/2013             Sales           Shipments            Estimate
Current Week                     7                 11
CMYTD                          618                 461                800
10-week Avg                      9                 14
Needed/ Week                     8                 15
Source: USDA, Morgan Stanley Commodity Research




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Corn: Ethanol
US Corn Ethanol Producer Economics                                               Ethanol Blender Economics
                                                                                 ($/gal)
Revenues                                                                           2.0
Ethanol price ($/gal)                                  $2.42                                Economic to blend ethanol
DDGS price ($/gal)                                     $0.79                       1.5
Costs
Corn cost ($/gal)                                      $2.39                       1.0
Natural gas cost ($/gal)                               $0.13
Total other operating costs ($/gal)                    $0.51                       0.5

Total Revenue ($/gal)                                  $3.21                       0.0
Total Costs ($/gal)                                    $3.03
Cash Margin ($/gal)                                    $0.18                      -0.5
Source: CME, Bloomberg, Morgan Stanley Commodity Research
                                                                                  -1.0               Uneconomic to blend ethanol

                                                                                  -1.5
                                                                                     2008          2009            2010        2011            2012          2013
                                                                                 Source: Bloomberg, Morgan Stanley Commodity Research

US Weekly Ethanol Production                                                     US Ethanol Inventories
(kb/d)                                                                           (mln barrels)

   1000                                                                             24
                                                                                    23
     950                                                                            22
                                                                                    21
     900                                                                            20
                                                                                    19
     850                                                                            18
                                                                                    17
     800                                                                            16
                                                                                    15
     750                                                                            14
       Jul 10     Jan 11      Jul 11      Jan 12       Jul 12    Jan 13              Jul 10      Jan 11        Jul 11       Jan 12       Jul 12         Jan 13

Source: EIA, Morgan Stanley Commodity Research                                   Source: EIA, Morgan Stanley Commodity Research
Monthly Ethanol Exports                                                          Forward Ethanol Production Margins
(mln gal)                                                                        ($/gal)
 200
                                                                                    0.6                                                                           1
 180
                                                                                                                                                                  0.9
 160
                                                                                    0.4                                                                           0.8

 140
                                                                                                                                                                  0.7

 120
                                                                                    0.2                                                                           0.6

 100                                                                                                                                                              0.5

   80
                                                                                    0.0                                                                           0.4

   60                                                                                                                                                             0.3

   40                                                                               -0.2                                                                          0.2


   20                                                                                                                                                             0.1


    0                                                                               -0.4                                                                          0

   January      March         May        July      September    November              Jan 10   Jul 10     Jan 11   Jul 11   Jan 12    Jul 12   Jan 13    Jul 13
                 5-Yr Range            2013             2012          5-Yr Avg
                                                                                 Source: Bloomberg, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research




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Corn: Supply
Rotating Crop Progress                                                                          Soy/Corn Price ratio
(Vertical axis: % of crop rated good or excellent, %; horizontal axis: weeks)                   (Soy/corn price ratio)

                                                                                                 2.80

    80                                                                                           2.70
                                                                                                 2.60
    70
                                                                                                 2.50
    60                                                                                           2.40
                                                                                                 2.30
    50
                                                                                                 2.20
    40                                                                                           2.10

    30                                                                                           2.00
                                                                                                 1.90
    20
                                                                                                 1.80
             18    20   22   24     26    28   30    32   34     36   38    40   42    44
                                                                                                     Nov Dec Jan           Feb Mar         Apr May Jun         Jul    Aug Sep Oct

              2013           2012           2011          2010         2009           2008                                                   2012           2013

Source: USDA, Morgan Stanley Commodity Research                                                 Source: USDA, Morgan Stanley Commodity Research
Corn Quarterly Inventories                                                                      Brazil Corn Exports
(bln bu)                                                                                        (‘000 MT)

   12                                                                                            4.5
                                                                                                 4.0
   10
                                                                                                 3.5
     8                                                                                           3.0
                                                                                                 2.5
     6
                                                                                                 2.0
     4                                                                                           1.5
                                                                                                 1.0
     2
                                                                                                 0.5
     0                                                                                           0.0
         2000/01        2002/03     2004/05     2006/07     2008/09        2010/11    2012/13               Jan   Feb    Mar    Apr    May    Jun     Jul     Aug    Sep    Oct   Nov    Dec
                                                                                                                                2009    2010        2011     2012    2013
                  Q1 Sep-Nov      Q2 Dec-Feb         Q3 Mar-May       Q4 Jun-Aug

Source: USDA, Morgan Stanley Commodity Research                                                 Source: Conab, Morgan Stanley Commodity Research

EU Corn Export Commitments                                                                      Canadian Corn Exports
(Vertical axis: export commitments, mln MT; horizontal axis: weeks)                             (‘000 MT)


   4                                                                                                300

   3                                                                                                250

   3
                                                                                                    200
   2
                                                                                                    150
   2
                                                                                                    100
   1

   1                                                                                                   50

   0                                                                                                    0
         1    4     7   10 13 16 19 22 25 28 31 34 37 40 43 46 49 52                                         Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun                           Jul

                    2012/2013            2011/2012        2010/2011          2009/2010                                         2010/2011      2011/2012       2012/2013

Source: European Commission, Morgan Stanley Commodity Research                                  Source: Canadian Grains Commission, Morgan Stanley Commodity Research




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Commodity Snapshot: Soybeans
          US Supply vs. Demand by End Use                                     US Soybean Stocks to Use                              Investment Thesis
(World supply and demand, mln bu)                              (US soybeans stocks to use, %)
 4,000                                                          30%                                                                 We remain constructive soybeans as poor
                                                                                                                                    11/12 production in South America and
                                                                25%
 3,000                                                                                                                              strong crush margins, should support
                                                                20%                                                                 near-term demand for US soybeans and soy
 2,000
                                                                                                                                    meal. Longer term, we see prices needing to
                                                                15%
 1,000
                                                                                                                                    remain high to encourage acreage growth
                                                                10%                                                                 across the western hemisphere in 13/14.
      0                                                          5%
           07/08 08/09   09/10 10/11e 11/12e 12/13e 13/14e
           Crush                 Feed, Seed, Residual            0%
                                                                                                                                    Supply
           Exports               Production                        82/83      87/88    92/93    97/98     02/03    07/08   12/13e
                                                                                                                                    • Soybean prices are likely to remain
Source: USDA, Morgan Stanley Commodity Research                Source: USDA, Morgan Stanley Commodity Research                        volatile as the market focus now turns
estimates                                                      estimates
                                                                                                                                      towards the prospects for South
          Chinese Imports To Remain Strong                            US Production Likely Down on Lower                              American production and weather. While
                                                                              Acreage and Yield                                       planting progress appears normal in
(Chinese soybean imports, mln bu)                              (LHS: US acreage, mln acres; RHS: US soybean yield, bu/acre)           Brazil, developing dryness in Argentina
 80                                                              80                                                          45
                                                                                                                                      remains a risk.
          China Soybean Imports (mln MT)
 70
                                                                 75
                                                                                                                             41     • Without additional South American
 60
                                                                 70                                                                   soybean acreage, trend global demand
 50                                                                                                                          37
                                                                 65                                                                   growth of 4% would pull western
 40
                                                                 60
                                                                                                                             33       hemisphere soybean stocks to their
 30
                                                                                                                             29
                                                                                                                                      lowest in four years. We believe this
                                                                 55
 20                                                                                                                                   necessitates greater soybean production,
 10                                                              50                                                          25       and prices will need to remain strong in
                                                                      02/03   04/05    06/07    08/09     10/11   12/13e
  0                                                                                                                                   the back of the curve.
      02/03    04/05     06/07   08/09     10/11   12/13e                      Planted Area                       Yield

Source: USDA, Morgan Stanley Commodity Research                Source: USDA, Morgan Stanley Commodity Research                      Demand
estimates                                                      estimates
                                                                                                                                    • US soybean demand has remained
Supply-Demand Balance                                                                                                                 strong in recent months, largely on the
Global                                                      USDA                  Morgan Stanl Morgan Stanley                         back of increased export business.
SUPPLY                                         10/11        11/12e       12/13e       11/12e   12/13e   13/14e                        Additionally, we believe that soyoil
Beginning Stocks (mln bu)                      2,227         2,569        2,030        2,569    2,031    2,078                        demand from biodiesel mandates and an
Area Harvested (mln acres)                      255           254          269          254      268      278                         increase in soy meal export demand will
Production (mln bu)                            9,685        8,772        9,847        8,772    9,771    10,498                        continue to support US crush in 1Q13.
Yield (bu/acre)                                 38.1         34.5         36.6         34.5     36.5     37.8
Imports (mln bu)                               3,263         3,425        3,560        3,425    3,558    3,878                      • Recent supply shortages in South
Total Supply (mln bu)                         15,175        14,766       15,437       14,766   15,360   16,453                        America have shifted export demand in
                                                                                                                                      China and other traditional trade partners
DEMAND                                         10/11        11/12e       12/13e        11/12e           12/13e      13/14e            back to the US, though we expect better
Crush Consumption (mln bu)                     8,133         8,333        8,472         8,333            8,529      9,021             Brazilian supplies should reverse this
Food Domestic Consumption                       552           565          573           565              574        592
                                                                                                                                      trend in the coming months.
Seed and Residual (mln bu)                      573           515          539           515              520        532
Total Dom. Consumption (mln bu)                9,258         9,413        9,585         9,412            9,623      10,145          • Weak soybean production in Argentina
 Brazil                                        1,445         1,471        1,473         1,471            1,473      1,543             has kept the country's crush volumes and
 China                                         2,423         2,648        2,823         2,648            2,823      2,993             soy meal exports depressed, increasing
 US                                            1,779         1,793        1,735         1,793            1,730      1,894
                                                                                                                                      the call on US meal exports and
Exports (mln bu)                               3,348        3,322         3,640         3,322            3,659      3,961
                                                                                                                                      supporting meal (and soybean) prices.
Total Demand (mln bu)                         12,606        12,736       13,225        12,735           13,282      14,107
Ending Stock                                  2,569         2,030        2,212         2,031            2,078       2,346
World Stocks to Use %                         27.8%         21.6%        23.1%         21.6%            21.6%       23.1%
US Stocks to Use %                             6.6%          5.4%         4.1%          5.4%             4.0%        4.3%
Source: USDA, Morgan Stanley Commodity Research estimates




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Soybean: Prices, Spreads, and Basis
Global Soybean Prices                                                                              Global Soybean Oil Prices
($/bu)                                                                                             ($/lb)

   24                                                                                                 0.8


   20                                                                                                 0.7


   16                                                                                                 0.6


   12                                                                                                 0.5


    8                                                                                                 0.4


    4                                                                                                 0.3
    Jul 11     Oct 11     Jan 12        Apr 12    Jul 12    Oct 12    Jan 13        Apr 13              Jul 11    Oct 11    Jan 12   Apr 12   Jul 12    Oct 12   Jan 13   Apr 13

         Buenos Aires               Mato Grosso              Dalian, China               US                                China      Argentina        Brazil      US

Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Bloomberg, Morgan Stanley Commodity Research
Global Soybean Meal Prices                                                                         Time Spreads
($/MT)                                                                                             (¢/bu)

                                                                                                    250
   700

                                                                                                    200
   600
                                                                                                    150
   500
                                                                                                    100
   400
                                                                                                      50

   300
                                                                                                       0

   200                                                                                               -50
     Jul 11     Oct 11         Jan 12    Apr 12    Jul 12    Oct 12     Jan 13       Apr 13             May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb
                                                                                                         10  10 10   11 11   11 11 12 12     12 12   13
                          China            Argentina        Brazil           US
                                                                                                                 Nov - Mar Spread       Jul - Nov Spread         Nov - Nov Spread
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research
Soybean Basis                                                                                      Malaysian Palm Oil Price
(¢/bu)                                                                                             ($/MT)
 120
                                                                                                       1400
  90
                                                                                                       1200
  60
                                                                                                       1000
  30

   0                                                                                                    800

 -30                                                                                                    600

 -60
                                                                                                        400
    Jan-      Apr-      Jul-      Oct-     Jan-     Apr-     Jul-     Oct-        Jan-   Apr-
     11        11        11        11       12       12       12       12          13     13
                                                                                                        200
         Toledo-Not on River              Central IL        Toledo           Gulf        Chicago          Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13

Source: USDA, Morgan Stanley Commodity Research
                                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research




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Soybean: Demand
Current MY Export Sales                                                         Current MY Total Commitment
(mln bu)                                                                        (mln bu)
  80                                                                             1,800
  70                                                                             1,600
  60                                                                             1,400
  50
                                                                                 1,200
  40
                                                                                 1,000
  30
                                                                                   800
  20
                                                                                   600
  10
   0                                                                               400

 -10                                                                               200

 -20                                                                                  0
    Sep    Oct   Nov Dec    Jan   Feb Mar     Apr   May   Jun   Jul   Aug              Sep    Oct   Nov Dec   Jan   Feb Mar       Apr May   Jun   Jul    Aug

           5-Yr Range         5-Yr Average          2012/13           2011/12                5-Yr Range       5-Yr Average            2012/13            2011/12

Source: USDA, Morgan Stanley Commodity Research                                 Source: USDA, Morgan Stanley Commodity Research
Current MY Weekly Shipments                                                     Current MY Cumulative Shipments
(mln bu)                                                                        (mln bu)
 100                                                                             1,600
  90                                                                             1,400
  80
                                                                                 1,200
  70
  60                                                                             1,000

  50                                                                               800
  40                                                                               600
  30
                                                                                   400
  20
  10                                                                               200

   0                                                                                  0
    Sep    Oct   Nov Dec    Jan   Feb Mar     Apr   May   Jun   Jul   Aug              Sep    Oct   Nov Dec   Jan   Feb Mar       Apr May   Jun   Jul    Aug

           5-Yr Range         5-Yr Average          2012/13           2011/12                5-Yr Range       5-Yr Average            2012/13            2011/12

Source: USDA, Morgan Stanley Commodity Research                                 Source: USDA, Morgan Stanley Commodity Research
New MY Outstanding Sales                                                        Outstanding Sales as % of Total Commitment
(mln bu)                                                                        (%)
 700
                                                                                   14%
 600
                                                                                   12%
 500
                                                                                   10%
 400
                                                                                      8%
 300
                                                                                      6%

 200                                                                                  4%

 100                                                                                  2%

   0                                                                                  0%
    Sep    Oct   Nov Dec    Jan   Feb Mar     Apr   May   Jun   Jul   Aug                           Apr 11             Apr 12                   Apr 13
           5-Yr Range         5-Yr Average          2012/13           2011/12
                                                                                Source: USDA, Morgan Stanley Commodity Research
Source: USDA, Morgan Stanley Commodity Research




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Soybean: Demand
Shipments to China                                                                            Oil/Meal Share of Crush Revenues
(mln bu)                                                                                      (%)
 80                                                                                             100%
 70

 60                                                                                              75%

 50

 40                                                                                              50%

 30
                                                                                                 25%
 20

 10
                                                                                                   0%
  0                                                                                                  2005     2006      2007   2008     2009         2010    2011   2012    2013
   Sep     Oct     Nov     Dec    Jan    Feb Mar       Apr    May    Jun    Jul     Aug

           5-Yr Range               5-Yr Average               2012/13              2011/12                                    Oil Share     Meal Share

                                                                                              Source: USDA, Morgan Stanley Commodity Research
Source: USDA, Morgan Stanley Commodity Research
NOPA Soybean Crush                                                                            NOPA Soy Oil Yield
(mln bu)                                                                                      (lb/bu)
 170                                                                                           12.0

 160

 150
                                                                                               11.6
 140

 130

 120                                                                                           11.2

 110

 100
                                                                                               10.8
    Jan    Feb      Mar     Apr   May    Jun     Jul   Aug     Sep    Oct   Nov      Dec
                                                                                                   Jan    Feb     Mar    Apr   May     Jun     Jul     Aug    Sep   Oct    Nov   Dec

            5-Yr Range                   2012                2013                 Average
                                                                                                            5-Yr Range                2012                   2013            Average
Source: NOPA, Morgan Stanley Commodity Research
                                                                                              Source: NOPA, Morgan Stanley Commodity Research
NOPA Meal Yield                                                                               NOPA Soy Oil Stocks
(lb/bu)                                                                                       (mln lb)
 48.5                                                                                          3,300


 48.0
                                                                                               2,900

 47.5

                                                                                               2,500
 47.0


 46.5                                                                                          2,100


 46.0
     Jan    Feb      Mar    Apr    May    Jun    Jul    Aug    Sep    Oct    Nov     Dec       1,700
                                                                                                    Jan     Feb   Mar    Apr   May     Jun     Jul     Aug    Sep   Oct    Nov   Dec


                 5-Yr Range               2012                2013                Average                   5-Yr Range                2012                  2013           Average

Source: NOPA, Morgan Stanley Commodity Research                                               Source: NOPA, Morgan Stanley Commodity Research




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Soybean: Demand
China Soybean Crush Margins                                               Brazil Soybean Exports
(China soybean crush margin, RMB/MT)                                      (‘000 MT)

     80                                                                      8,000
     60
                                                                             7,000
     40
                                                                             6,000
     20
                                                                             5,000
        0

    -20                                                                      4,000

    -40                                                                      3,000

    -60                                                                      2,000
    -80
                                                                             1,000
   -100
       Jan-   Apr-     Jul-   Oct-   Jan-    Apr-   Jul-    Oct-   Jan-          0
        11     11      11      11     12      12    12       12     13            May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13


Source: JCI, Bloomberg, Morgan Stanley Commodity Research                 Source: Bloomberg, Morgan Stanley Commodity Research

China Import Arb                                                          US Exports and Shipments
($/bu)                                                                    (mln bu)

                                                                                                      Export            Export       USDA
    6
                                                                                4/4/2013              Sales           Shipments     Estimate
                                            Incentive to Import from US
    4                                                                      Current Week                  12                  24
                                                                           CMYTD                       1,335                1,221    1,350
    2
                                                                           10-week Avg                   20                  41
    0
                                                                           Needed/ Week                   1                  6
   -2                                                                     Source: USDA, Morgan Stanley Commodity Research

   -4
        No Incentive to Import from US
   -6
   May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12

                     Soybean Arb       Soybean Import Arb (Ex-VAT)

Source: Bloomberg, Morgan Stanley Commodity Research




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Soybean Oil: Demand
US Soybean Crush Margins                                                     Soy Oil Export Shipments
($/bu)                                                                       (mln lb)
                                                                              250
   2.7

                                                                              200
   2.3

                                                                              150
   1.9


   1.5                                                                        100


   1.1                                                                         50


   0.7                                                                          0
                                                                                 Oct       Nov Dec      Jan    Feb Mar   Apr   May   Jun    Jul    Aug   Sep
   0.3
    Jan-11   May-11       Sep-11    Jan-12   May-12    Sep-12   Jan-13
                                                                                           5-Yr Range           5-Yr Average          2011/12            2012/13

Source: Bloomberg, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research
Outstanding Sales as % of Total Commitment                                   Soy Oil Cumulative Shipments
(%)                                                                          (mln lb)
                                                                              3,500
   70%
                                                                              3,000
   60%
                                                                              2,500
   50%
                                                                              2,000
   40%
                                                                              1,500
   30%
                                                                              1,000
   20%
                                                                                500
   10%
                                                                                    0
      0%                                                                             Oct    Nov Dec      Jan   Feb Mar    Apr May     Jun    Jul   Aug   Sep
                 Apr-11                  Apr-12                 Apr-13
                                                                                           5-Yr Range           5-Yr Average          2011/12            2012/13
Source: USDA, Morgan Stanley Commodity Research
                                                                             Source: USDA, Morgan Stanley Commodity Research
US Exports and Shipments                                                     Soy Oil Export Sales
(mln lb)                                                                     (mln lb)
                              Export            Export             USDA        400
         4/4/2013             Sales           Shipments           Estimate
                                                                               300
Current Week                       17                 16
CMYTD                          1,809              1,577             2,299      200

10-week Avg                        52                 58                       100
Needed Per Week                    19                 28
                                                                                 0
Source: USDA, Morgan Stanley Commodity Research
                                                                              -100

                                                                              -200
                                                                                  Oct      Nov Dec      Jan    Feb Mar   Apr May     Jun    Jul    Aug Sep


                                                                                           5-Yr Range           5-Yr Average          2011/12            2012/13

                                                                             Source: USDA, Morgan Stanley Commodity Research




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Soybean Meal: Demand
Soy Meal Export Sales                                                            Soy Meal Export Shipments
(mln lb)                                                                         (mln lb)
 1,200                                                                             1,000

 1,000
                                                                                       800
   800
                                                                                       600
   600

   400                                                                                 400
   200
                                                                                       200
     0

  -200                                                                                  0
      Oct    Nov Dec     Jan   Feb Mar   Apr May Jun      Jul    Aug Sep                 Oct    Nov Dec      Jan   Feb Mar     Apr May   Jun   Jul   Aug    Sep


            5-Yr Range          5-Yr Average        2011/12            2012/13                 5-Yr Range          5-Yr Average          2011/12            2012/13

Source: USDA, Morgan Stanley Commodity Research                                  Source: USDA, Morgan Stanley Commodity Research
Soy Meal New MY Outstanding Sales                                                Soybean Meal Cumulative Shipment
(mln lb)                                                                         (mln lb)
 6,000                                                                             25,000

 5,000
                                                                                   20,000

 4,000
                                                                                   15,000
 3,000
                                                                                   10,000
 2,000

                                                                                    5,000
 1,000

     0                                                                                   0
      Oct    Nov Dec     Jan   Feb Mar    Apr May   Jun    Jul   Aug   Sep                Oct    Nov Dec     Jan   Feb Mar     Apr May Jun     Jul   Aug Sep


            5-Yr Range          5-Yr Average        2011/12            2012/13                 5-Yr Range          5-Yr Average          2011/12            2012/13

Source: USDA, Morgan Stanley Commodity Research                                  Source: USDA, Morgan Stanley Commodity Research

Exports and Shipments                                                            Outstanding Sales as % of Total Commitment
(mln lb)                                                                         (%)
                               Export            Export            USDA
                                                                                    30%
         4/4/2013              Sales           Shipments          Estimate
Current Week                    501               273                               25%
CMYTD                          17,908           15,045             17,599
                                                                                    20%
10-week Avg                     425               584
Needed Per Week                 -12                98                               15%

                                                                                    10%

Source: USDA, Morgan Stanley Commodity Research                                        5%

                                                                                       0%
                                                                                                    Apr 11                   Apr 12                Apr 13

                                                                                 Source: USDA, Morgan Stanley Commodity Research




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Soybean: Supply
Rotating Crop Progress                                                                              Crop Condition Rating
(Vertical axis: harvest progress, %; horizontal axis: weeks)                                        (Vertical axis: crop rated good or excellent, %; horizontal axis: weeks)


    100                                                                                                 85
     90
                                                                                                        75
     80
     70
                                                                                                        65
     60
     50                                                                                                 55
     40
     30                                                                                                 45

     20
                                                                                                        35
     10
      0                                                                                                 25
             35   36    37    38    39   40    41   42     43      44   45     46   47     48                21       23    25    27    29     31     33     35     37     39   41    43

              2013           2012        2011         2010              2009         2008                         2013           2012        2011          2010          2009        2008
Source: Bloomberg, Morgan Stanley Commodity Research                                                Source: Bloomberg, Morgan Stanley Commodity Research

Soybean Quarterly Inventories                                                                       Brazilian Expansion Economics
(mln bu)
                                                                                                     MT Cost of Production                                                             R$/ha
   3,000                                                                                             Fertilizer                                                                              600
   2,500                                                                                             Chemicals                                                                               400
                                                                                                     Seeds                                                                                   117
   2,000                                                                                             Process                                                                                 165
   1,500                                                                                             Financing                                                                                88
                                                                                                     Total direct costs                                                                     1370
   1,000
                                                                                                     Indirect costs                                                                          204
     500                                                                                             Post harvest                                                                            172
                                                                                                     Total cost                                                                             1746
       0
            2001/02       2003/04        2006/07         2008/09         2010/11          2012/13    Famer price expectation (R$/bag)                                                         35
                                                                                                     Yield (ton/ha)                                                                            3
                      Q1 Sep-Nov     Q2 Dec-Feb     Q3 Mar-May          Q4 Jun-Aug                   Cost/Yield (R$/ton)                                                                     582
Source: USDA, Morgan Stanley Commodity Research                                                      Logistic (R$/ton)                                                                       233
                                                                                                     Port costs (R$/ton)                                                                      21
Canadian Soybeans Exports                                                                            Discount of trader (R$/ton)                                                              11
(‘000 MT)
                                                                                                     FX (BRL/USD)                                                                           2.10

    900                                                                                              Cost/Yield (US$/ton)                                                                    403
                                                                                                     Cost/Yield (US$/bu)                                                                   10.98
    800
                                                                                                     Expansion cost (R$/ha)                                                            656.70
    700
                                                                                                     Expansion cost (US$/bu)                                                                2.84
    600
                                                                                                     Total cost with expansion (US$/bu)                                                    13.81
    500
                                                                                                     Needed price for ~5% return (US$/bu)                                                  14.54
    400
                                                                                                     Needed price for ~10% return (US$/bu)                                                 15.35
    300
                                                                                                    Source: USDA, Morgan Stanley Commodity Research
    200
    100
       0
            Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun                                  Jul

                              2010/2011       2011/2012      2012/2013

Source: Canadian Grains Commission, Morgan Stanley Commodity Research




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Soybean: Biodiesel
U.S. Biodiesel Economics                                                    Malaysian Palm Oil Inventory
                                                                            (mln MT)
Revenue                                    Soybean Oil
SME price ($/gal)                            $4.85                                  3000

Glycerin Revenue ($/gal BD)                  $0.36
Total Revenues ($/gal)                       $5.21                                  2500


                                                                                    2000
Costs
Feedstock                                      $3.81
                                                                                    1500
Chemicals                                      $0.27
Energy                                         $0.11
                                                                                    1000
Other operating Costs                          $0.26
Total Costs ($/gal)                            $4.45                                500

Cash Margin                                    $0.76                                    0
                                                                                        2000            2002       2004    2006    2008     2010      2012
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                            Source: Bloomberg, Morgan Stanley Commodity Research
Biodiesel Producer Margins                                                  Biodiesel Blending Margins (Ex retroactive tax credit)
(Cash margin, $/gal)                                                        ($/gal)
   2.0
                                                                              1.0

   1.5                                                                        0.5

   1.0                                                                        0.0

                                                                             -0.5
   0.5
                                                                             -1.0
   0.0
                                                                             -1.5

   (0.5)                                                                     -2.0


   (1.0)                                                                     -2.5
      Aug 09 Feb 10 Aug 10 Feb 11 Aug 11           Feb 12 Aug 12   Feb 13      Jan 10          Jul 10          Jan 11     Jul 11   Jan 12    Jul 12      Jan 13


Source: Bloomberg, Morgan Stanley Commodity Research                        Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Wheat
      World Supply vs. Demand by End Use                                    World Wheat Stocks to Use                         Investment Thesis
(World supply and demand, bln bu)                           (World wheat stocks to use, %)
 35                                                          60%                                                              While wheat prices will remain sensitive to
 30                                                          50%
                                                                                                                              possible supply challenges in the US, we
 25
                                                                                                                              expect wheat's premium to corn to pressure
                                                             40%
 20
                                                                                                                              feed demand, leaving global stocks
 15
                                                             30%                                                              comparatively full.
                                                             20%
 10
  5                                                          10%                                                              Supply
  0                                                           0%
                                                                   97/98           02/03           07/08          12/13e
                                                                                                                              • We model global 12/13 S/U roughly in-line
         07/08    09/10  10/11e   11/12e 12/13e 13/14e
           Feed Consumption          FSI Consumption                             US S/U            World S/U                    with the 5-year average. However, with
           Exports                   Supply
                                                                                                                                stocks tight in major exporting countries,
Source: USDA, Morgan Stanley Commodity Research             Source: USDA, Morgan Stanley Commodity Research                     there is potential for further price spikes.
estimates                                                   estimates
                                                                                                                              • US: Weather is again becoming a
  Wheat Feed Demand Growing More YoY                                        Russian Exports to Recover                          concern, as the 13/14 winter wheat crop
  than Corn Feed Demand, Taking Share                                      After Export Ban Lifted in July
                                                                                                                                entered dormancy in historically poor
(US YoY feed demand Sep-Aug corn MY, bln bu)                (Russian exports, mln bu)
                                                             900
                                                                                                                                condition. Drought in Australia is also
 30%
                                                             800                                                                raising concerns about production
 25%
 20%                                                         700                                                                prospects there.
 15%                                                         600
 10%                                                         500
                                                                                                                              • Argentina's wheat production has
  5%
                                                             400
                                                                                                                                declined YoY as flooding pressured both
  0%
                                                             300                                                                quality and harvested area.
  -5%
                                                             200
 -10%
 -15%                                                        100
                                                                                                                              Demand
        92/93     98/99      03/04     08/09    13/14e        0
                 Wheat                 Corn
                                                                                                                              • Wheat's return to its historical premium to
                                                                   02/03                   07/08                 12/13e


                                                                                                                                corn places in jeopardy its
Source: USDA, Morgan Stanley Commodity Research             Source: USDA, Morgan Stanley Commodity Research
estimates                                                   estimates                                                           higher-than-normal penetration in the
                                                                                                                                global feed ration.
Supply-Demand Balance
                                                                                                                              • US exports should rise YoY in 12/13 as
World                                                USDA                                    Morgan Stanley                     Ukrainian and Russian wheat export
SUPPLY                                 10/11         11/12e                 12/13e          12/13e    13/14e                    volumes fall YoY through 2H 12/13.
Production (mln bu)                   23,963         25,611                 24,085          24,138    25,039
  EU                                  4,998           5,042                 4,859           4,928      5,095
  China                                4,232          4,314                  4,431           4,431     4,391
  US                                   2,207          1,999                  2,269           2,269     2,193
Yield (bu/acre)                         44.6           46.7                   45.1            47.0      48.6
Supply (mln bu)                       36,186         38,336                 36,478          36,528    37,050

DEMAND                                10/11          11/12e                 12/13e          12/13e             13/14e
Consumption (mln bu)                  24,036         25,338                 25,039          24,874             24,768
 Feed Consumption                     4,266           5,403                  4,935           4,779              4,419
   EU                                  1,929          2,131                  1,911           1,812              1,704
   Russia                               588            570                    441             484                455
   China                                478            882                    845             750                705
 FSI Consumption                      19,770         19,934                 20,104          20,095             20,350
Demand (mln bu)                       28,914         31,117                 29,930          29,826             30,282
Ending Stock                          7,272          7,219                  6,549           6,702              6,768
Stocks to Use %                       30.3%          28.5%                  26.2%           26.9%              27.3%
Source: USDA, Morgan Stanley Commodity Research estimates




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Wheat: Prices, Spreads, and Margins
Global Wheat Prices                                                                          Wheat Spreads
($/bu)                                                                                       ($/bu)

 12.0
                                                                                                   4.0

 10.0
                                                                                                   3.0

  8.0
                                                                                                   2.0

  6.0
                                                                                                   1.0

  4.0
                                                                                                   0.0

  2.0
   Jan 10      Jul 10    Jan 11          Jul 11     Jan 12        Jul 12    Jan 13              -1.0
                                                                                                  Jan 10           Jul 10     Jan 11   Jul 11    Jan 12   Jul 12     Jan 13

          Ukraine       Canada             US (Chicago)           EU Feed           Brazil                KCBOT-CBOT Spread              MW-CH Spread        Matif-Liffe Spread

Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: KCBOT, CME, MGEX, Morgan Stanley Commodity Research
Time Spreads                                                                                 HRW Wheat Basis
(¢/bu)                                                                                       (HRW basis, ¢/bu)
 120                                                                                          12


                                                                                              10
  80

                                                                                               8

  40
                                                                                               6


   0                                                                                           4


                                                                                               2
  -40
                                                                                               Jan 10         Jul 10         Jan 11    Jul 11    Jan 12   Jul 12      Jan 13
    Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 Aug 12 Oct 12 Dec 12 Feb 13

            Mar - Jul Spread           Jul - Dec Spread       Dec - Dec Spread                           Ukraine            Canada       US (Chicago)      EU Feed            Brazil

Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: USDA, Morgan Stanley Commodity Research
Wheat Flour Prices
($/cwt)

   35

   30

   25

   20

   15

   10

    5

    0
    85/86    88/89   91/92     94/95    97/98     00/01   03/04    06/07    09/10    12/13

                                 Minneapolis          Kansas City

Source: USDA, Morgan Stanley Commodity Research




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Wheat: Demand
Current MY Export Sales                                                           Current MY Total Commitment
(mln bu)                                                                          (mln bu)
  90                                                                               1,400
  80
                                                                                   1,200
  70
  60                                                                               1,000
  50
                                                                                     800
  40
  30                                                                                 600
  20
                                                                                     400
  10
   0                                                                                 200
 -10
                                                                                         0
 -20
                                                                                          Jun           Aug        Oct       Dec          Feb          Apr
    Jun    Jul   Aug    Sep   Oct   Nov Dec    Jan    Feb Mar    Apr    May
                                                                                                5-Yr Range         5-Yr Average           2012/13             2011/12
           5-Yr Range           5-Yr Average          2012/13           2011/12
                                                                                  Source: USDA, Morgan Stanley Commodity Research
Source: USDA, Morgan Stanley Commodity Research
Current MY Weekly Shipments                                                       Current MY Cumulative Shipments
(mln bu)                                                                          (mln bu)
 45                                                                                1,400

 40
                                                                                   1,200
 35
                                                                                   1,000
 30

 25                                                                                  800

 20                                                                                  600
 15
                                                                                     400
 10
                                                                                     200
  5

  0                                                                                      0
   Jun           Aug          Oct       Dec          Feb         Apr                      Jun     Jul    Aug Sep   Oct   Nov Dec    Jan    Feb Mar      Apr May

           5-Yr Range           5-Yr Average          2012/13           2011/12                 5-Yr Range          5-Yr Average           2012/13             2011/12

Source: USDA, Morgan Stanley Commodity Research                                   Source: USDA, Morgan Stanley Commodity Research
New MY Outstanding Sales                                                          Outstanding Sales as % of Total Commitment
(mln bu)                                                                           (%)
 250
                                                                                     24%

 200
                                                                                     18%

 150
                                                                                     12%
 100

                                                                                         6%
  50


                                                                                         0%
   0
                                                                                                        Apr 11             Apr 12                    Apr 13
    Jun          Aug          Oct       Dec          Feb        Apr

           5-Yr Range          5-Yr Average          2012/13           2011/12    Source: USDA, Morgan Stanley Commodity Research

Source: USDA, Morgan Stanley Commodity Research




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Wheat: Demand
Quarterly US Wheat Consumption                                                        Quarterly US Wheat Food Use
(mln bu)                                                                              (mln bu)

   800                                                                                   260

   700                                                                                   250
   600
                                                                                         240
   500
                                                                                         230
   400
                                                                                         220
   300
                                                                                         210
   200

   100                                                                                   200

        0                                                                                190
            2000/01     2002/03   2004/05   2006/07   2008/09   2010/11     2012/13            2000/01    2002/03     2004/05   2006/07   2008/09   2010/11     2012/13

                    Q1 Jun-Aug    Q2 Sep-Nov    Q3 Dec-Feb      Q4 Mar-May                               Q1 Jun-Aug    Q2 Sep-Nov    Q3 Dec-Feb     Q4 Mar-May

Source: USDA, Morgan Stanley Commodity Research                                       Source: USDA, Morgan Stanley Commodity Research
Exports and Shipments                                                                 China Net Imports
(mln bu)                                                                              (‘000 MT)
                                  Export           Export            USDA              1400
        4/4/2013                  Sales          Shipments          Estimate
                                                                                       1200
Current Week                         10               28
                                                                                       1000
CMYTD                               944               795             1,025
                                                                                        800
10-week Avg                          18               23
                                                                                        600
Needed/ Week                         9                26
                                                                                        400
Source: USDA, Morgan Stanley Commodity Research
                                                                                        200

                                                                                           0

                                                                                        -200

                                                                                        -400
                                                                                           2000           2002         2004       2006       2008        2010

                                                                                      Source: CEIC, Morgan Stanley Commodity Research
EU Cumulative Wheat Exports
(mln MT)

   25


   20


   15


   10


    5


    0
            1   4   7   10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

                    2012/2013      2011/2012     2010/2011      2009/2010

Source: European Commission, Morgan Stanley Commodity Research




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Wheat by Class: Current MY Export Total Commitment
Hard Red Winter Wheat                                                   Soft Red Winter Wheat
(mln bu)                                                                (mln bu)
 700                                                                     250

 600
                                                                         200
 500

                                                                         150
 400

 300
                                                                         100

 200
                                                                          50
 100

   0                                                                       0
    Jun         Aug        Oct         Dec        Feb          Apr          Jun             Aug        Oct      Dec          Feb          Apr
                 5-Yr Range                             5-Yr Average                         5-Yr Range                            5-Yr Average
                 2012/2013                              2011/12                              2012/2013                             2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research
Hard Red Spring Wheat                                                   Durum Wheat
(mln bu)                                                                (mln bu)
 400                                                                     45

 350                                                                     40

                                                                         35
 300
                                                                         30
 250
                                                                         25
 200
                                                                         20
 150
                                                                         15
 100
                                                                         10
  50                                                                      5

   0                                                                      0
    Jun         Aug        Oct          Dec        Feb          Apr        Jun              Aug        Oct       Dec          Feb          Apr
                 5-Yr Range                              5-Yr Average                         5-Yr Range                            5-Yr Average
                 2012/2013                               2011/12                              2012/2013                             2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research
White Wheat                                                             All Wheat
(mln bu)                                                                (mln bu)
 250                                                                     1,400

                                                                         1,200
 200
                                                                         1,000

 150
                                                                           800

                                                                           600
 100

                                                                           400
  50
                                                                           200

   0                                                                           0
    Jun         Aug        Oct         Dec        Feb          Apr              Jun   Jul    Aug Sep Oct     Nov Dec   Jan   Feb Mar Apr May
                 5-Yr Range                             5-Yr Average                         5-Yr Range                         5-Yr Average
                 2012/2013                              2011/12                              2012/2013                          2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research




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Wheat by Class: Cumulative Export Shipments
Hard Red Winter Wheat                                                   Soft Red Winter Wheat
(mln bu)                                                                (mln bu)
 700                                                                      250

 600
                                                                          200
 500

                                                                          150
 400

 300
                                                                          100

 200
                                                                           50
 100

   0                                                                        0
    Jun         Aug        Oct         Dec        Feb          Apr           Jun        Aug        Oct         Dec        Feb          Apr
                 5-Yr Range                             5-Yr Average                     5-Yr Range                             5-Yr Average
                 2012/2013                              2011/12                          2012/2013                              2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research
Hard Red Spring Wheat                                                   Durum Wheat
(mln bu)                                                                (mln bu)
 350                                                                      45

                                                                          40
 300
                                                                          35
 250
                                                                          30
 200                                                                      25

 150                                                                      20

                                                                          15
 100
                                                                          10
  50
                                                                           5

   0                                                                       0
    Jun         Aug        Oct          Dec        Feb          Apr         Jun        Aug        Oct          Dec        Feb           Apr
                 5-Yr Range                              5-Yr Average                    5-Yr Range                              5-Yr Average
                 2012/2013                               2011/12                         2012/2013                               2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research
White Wheat                                                             All Wheat
(mln bu)                                                                (mln bu)
 240                                                                      1,400


 200                                                                      1,200

                                                                          1,000
 160
                                                                           800
 120
                                                                           600
  80
                                                                           400

  40                                                                       200

   0                                                                            0
    Jun         Aug       Oct          Dec        Feb          Apr               Jun     Aug        Oct         Dec       Feb          Apr
                 5-Yr Range                             5-Yr Average                     5-Yr Range                             5-Yr Average
                 2011/12                                2012/2013                        2012/2013                              2011/12
Source: USDA, Morgan Stanley Commodity Research                         Source: USDA, Morgan Stanley Commodity Research




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Wheat: Supply
Spring Wheat Rotating Crop Progress                                                            Winter Wheat Condition
(Vertical axis: harvest progress, %; horizontal axis: weeks)                                   (Vertical axis: % rated Good/Excellent; horizontal axis: weeks)

                                                                                                90
   100
    90                                                                                          80
    80
                                                                                                70
    70
    60                                                                                          60
    50
    40                                                                                          50
    30
                                                                                                40
    20
    10                                                                                          30
     0
                                                                                                20                                            Dormancy
             28   29   30   31     32    33   34    35   36   37   38    39    40   41   42
                                                                                                10
              2013          2012           2011          2010           2009        2008
                                                                                                     42 43 44 45 46 47 48 49 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Source: Bloomberg, Morgan Stanley Commodity Research                                                          20-yr Range          2013           2012          20-Yr Average

                                                                                               Source: Bloomberg, Morgan Stanley Commodity Research
Wheat Quarterly Inventories                                                                    Australia Wheat Stocks
(mln bu)                                                                                       (mln MT)

   3,000                                                                                          30

   2,500
                                                                                                  25
   2,000
                                                                                                  20
   1,500
                                                                                                  15
   1,000
                                                                                                  10
     500
                                                                                                     5
         0
             2000/01   2002/03      2004/05        2006/07    2008/09    2010/11     2012/13         0
                                                                                                     Nov-09     May-10      Nov-10       May-11        Nov-11      May-12
                  Q1 Jun-Aug            Q2 Sep-Nov       Q3 Dec-Feb        Q4 Mar-May
Source: USDA, Morgan Stanley Commodity Research                                                                                   Feed       Milling

                                                                                               Source: Australian Bureau of Statistics, Morgan Stanley Commodity Research
Australia Wheat Exports                                                                        Canadian Wheat Exports
(‘000 MT)                                                                                      (‘000 MT)


   2,500                                                                                          2500


   2,000                                                                                          2000


   1,500                                                                                          1500


   1,000                                                                                          1000


     500                                                                                             500


         0                                                                                               0
               Oct Nov Dec Jan Feb Mar Apr May Jun                       Jul Aug Sep                         Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun                    Jul

                                   2009/10        2010/11     2011/12                                                     2010/2011      2011/2012     2012/2013

Source: Australian Bureau of Statistics, Morgan Stanley Commodity Research                     Source: Canadian Grain Commission, Morgan Stanley Commodity Research




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Commodity Snapshot: Cotton
          World Supply vs. Demand by End Use                                                    Cotton Stocks to Use                                       Investment Thesis
(World supply and demand, mln 480-lb bales)                                  (World S/U, %)
 175                                                                          90%                                                                          We see limited upside risks to cotton prices
 150                                                                          80%                                                                          owing to China's continued reserve
 125
                                                                              70%                                                                          purchases. With at least half of global stocks
                                                                              60%
 100                                                                          50%
                                                                                                                                                           locked up in China by the end of the MY, the
  75                                                                          40%                                                                          fundamental outlook is more bullish than
                                                                              30%                                                                          record-high global stocks would suggest.
  50
                                                                              20%
  25                                                                          10%

      0                                                                        0%                                                                          Supply
                                                                                    91/92        96/97         01/02             06/07            11/12e
            06/07    07/08     08/09    09/10     10/11    11/12e 12/13e
                         Use            Exports                 Supply                      US S/U                       World S/U                         • While down YoY, global supply in 12/13
                                                                                                                                                             appears to be higher than needed, given
Source: USDA, Morgan Stanley Commodity Research                              Source: USDA, Morgan Stanley Commodity Research
estimates                                                                    estimates                                                                       weak demand.

      World Export Demand Growth Slowing                                            Global Acreage and Yield Increasing                                    • US supplies should prove adequate, with
(US and world exports, mln 480-lb bales)                                     (Left axis: yield, kg/ha; right axis: area harvested, 1000 ha)                  US 12/13 yields surging back above 800
 50                                                                           40                                                                  800        lbs/acre.
 40                                                                                                                                                        • We see world cotton acreage falling 4%
 30
                                                                              35                                                                  750
                                                                                                                                                             YoY in 12/13 as current economics favor
                                                                                                                                                             grain crops. Brazilian cotton area is likely
 20
                                                                              30                                                                  700        to lose up to 30% YoY to more-profitable
 10                                                                                                                                                          corn crops (with safrinha corn acreage
                                                                              25                                                                  650
                                                                                                                                                             seen up by as much as 14% in some
  0
          02/03      04/05      06/07     08/09         10/11     12/13e            04/05      06/07        08/09        10/11           12/13e              states YoY).
                    US                          World                                         Yield (LHS)              Area Harvested (RHS)


Source: USDA, Morgan Stanley Commodity Research                              Source: USDA, Morgan Stanley Commodity Research
                                                                                                                                                           Demand
estimates                                                                    estimates
                                                                                                                                                           • China remains a supportive force for
Supply-Demand Balance                                                                                                                                        cotton prices, as the country's reserve
                                                                                                                                                             purchase/minimum support price
                                                                            USDA                                 Morgan Stanley
                                                                                                                                                             program pushes commercial demand to
PRODUCTION                                                10/11             11/12e           12/13e            11/12e     12/13e
                                                                                                                                                             foreign origins.
World                                                   116,331            124,097           119,695           124,097   117,811
India                                                    26,400             27,500           25,500            27,500     25,300                           • We see the potential for incremental
United States                                           18,104              15,573           17,290            15,573     17,290                             demand as cotton prices remain lower
China                                                   30,500              33,100           35,000            33,100     33,500                             YoY. However, a global GDP slowdown
                                                                                                                                                             could present further downside to
DEMAND                                                   10/11             11/12e            12/13e            11/12e                    12/13e              demand. The persistence of synthetic
World                                                   113,665            102,230           107,404           102,230                   106,019             blending after widespread mill
India                                                    20,050             19,250           22,000            19,250                     20,587             reconfigurations in 2011 is likely to keep
United States                                            4,084              3,128             3,445             3,128                      3,400             cotton demand depressed through
China                                                   46,000              38,000           36,000            38,000                    38,167              2012/13.
World Ending Stock                                      49,444             70,155            82,451            70,155                    82,027

Stock to Use %                                            10/11            11/12e            12/13e             11/12e                   12/13e
World                                                     43.4%            68.1%              76.7%             68.1%                     77.3%
India                                                     44.6%            29.5%              24.6%             29.5%                     38.9%
United States                                             14.1%            22.6%             25.5%              22.6%                     28.2%
China                                                     23.0%            79.3%             126.4%             79.3%                    108.4%
Source: USDA, Morgan Stanley Commodity Research estimates




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Cotton: Demand
Weekly Shipments                                                                      Cumulative Shipments
(‘000 480-lb Bales)                                                                   (mln 480-lb Bales)
 600
                                                                                         16
 500
                                                                                         14

 400                                                                                     12

 300                                                                                     10

                                                                                          8
 200
                                                                                          6
 100
                                                                                          4

   0                                                                                      2
    Aug           Oct          Dec             Feb       Apr        Jun
                                                                                          0
                                                                                           Aug         Oct         Dec          Feb        Apr        Jun
           5-Yr Range                Average            2012/13           2011/12

                                                                                                   5-Yr Range            Average          2012/13            2011/12
Source: USDA, Morgan Stanley Commodity Research
                                                                                      Source: USDA, Morgan Stanley Commodity Research

Upland Cotton Current MY Export Sales                                                 China Retail Clothing Sales Growth
(mln 480-lb bales)                                                                    (YoY Δ, %)
  1.2
                                                                                         70%

                                                                                         60%
  0.8
                                                                                         50%

                                                                                         40%
  0.4
                                                                                         30%

  0.0                                                                                    20%

                                                                                         10%

 -0.4                                                                                     0%
     Aug          Oct          Dec             Feb       Apr        Jun                     2005      2006      2007     2008      2009   2010   2011       2012   2013
           5-Yr Range                Average            2012/13            2011/12
                                                                                                                  YoY % Change            Yearly Average
Source: USDA, Morgan Stanley Commodity Research                                       Source: USDA, Morgan Stanley Commodity Research


US – China Export Economics
(Price, $/kg)

  8

  7

  6

  5

  4

  3

 2
 Jan-10         Jul-10   Jan-11        Jul-11        Jan-12    Jul-12     Jan-13
                 China (328)           US Cotton, delivered (out of quota)

Source: ICE, Bloomberg, Morgan Stanley Commodity Research estimates




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Cotton: Demand
Monthly Chinese Yarn Production                                                                      Monthly Chinese Textile and Apparel Exports
(mln MT)                                                                                             (bln $)

   3.5                                                                                                  30

   3.0
                                                                                                        25
   2.5
                                                                                                        20
   2.0
                                                                                                        15
   1.5
                                                                                                        10
   1.0

   0.5                                                                                                     5

   0.0                                                                                                     0
      Aug      Sep   Oct   Nov        Dec     Jan    Feb    Mar     Apr      May     Jun      Jul           Jan    Feb   Mar   Apr    May     Jun     Jul     Aug   Sep   Oct    Nov   Dec

                 5-Yr Range             5-Yr Avg                2011/12             2012/13                           5-Yr Range              2013             2012             5-Yr Avg
Source: CNCotton, Morgan Stanley Commodity Research                                                  Source: CNCotton, Morgan Stanley Commodity Research


Global Prices                                                                                        Time Spreads
($/lb)                                                                                               (¢/lb)

   2.8                                                                                                 8



   2.2
                                                                                                       4

   1.6


                                                                                                       0
   1.0



   0.4
                                                                                                      -4
    Jan 10       Jul 10    Jan 11           Jul 11   Jan 12        Jul 12     Jan 13
                                                                                                       Jan 12         Apr 12         Jul 12          Oct 12         Jan 13        Apr 13
                              India          China         US       Brazil                                        Dec - Mar Spread       Jul - Dec Spread           Dec - Dec Spread
Source: Bloomberg, Morgan Stanley Commodity Research                                                 Source: Bloomberg, Morgan Stanley Commodity Research


Pakistan Raw Cotton Imports
(‘000 480-lb bales)

   450
   400
   350
   300
   250
   200
   150
   100
    50
         0
             Aug Sep Oct Nov Dec Jan Feb Mar                     Apr May Jun         Jul
               2009/10           2010/11             2011/12              2012/13

Source: Globecot, Morgan Stanley Commodity Research




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Cotton: Supply
Cotton Progress                                                                      Crop Condition Rating
(Vertical axis: harvest pace, %; horizontal axis: weeks)                             (Vertical axis: crops rated good or excellent, %; horizontal axis: weeks)

   100
                                                                                        80
    90
                                                                                        70
    80
                                                                                        60
    70
    60                                                                                  50

    50                                                                                  40

    40                                                                                  30
    30                                                                                  20
    20                                                                                  10
    10                                                                                   0
      0                                                                                       20   22    24     26   28    30    32   34      36   38   40   42     44   46
           34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51
                                                                                                          2013            2012         2011         2010          2009
            2013            2012      2011        2010            2009       2008    Source: USDA, Morgan Stanley Commodity Research
Source: USDA, Morgan Stanley Commodity Research

ICE Daily Certified Stockpiles Total                                                 CFTC Cotton on Call
(ICE certified stockpiles, ‘000 bales)                                               (CFTC unfixed call position sales, ‘000 contracts)

   1,200                                                                                140

                                                                                        120
   1,000

                                                                                        100
     800
                                                                                         80
     600
                                                                                         60

     400
                                                                                         40

     200                                                                                 20


       0                                                                                  0
       Jan 10      Jul 10    Jan 11   Jul 11   Jan 12    Jul 12     Jan 13                2008           2009         2010            2011         2012           2013


Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Sugar
                      Demand by Region                                               World Stocks to Use Below 30-Year Avg.                            Investment Thesis
(Total use, mln MTRV)                                                              (Global sugar S/U, %)
 100                                                                                35%
                                                                                                                                                       We remain bearish on sugar given our
                                                                                                                                                       estimates for a global surplus in 2012/13.
  80                                                                                30%                                                                We believe that the bulk of bullish news is
  60
                                                                                    25%                                                                behind us and larger-than-expected
  40                                                                                                                                                   production out of Brazil could push supplies
                                                                                    20%
                                                                                                                                                       even higher.
  20
                                                                                    15%
   0
        06/07      07/08         08/09    09/10      10/11e 11/12e 12/13e           10%
                                                                                                                                                       Supply
                                                                                       71/72          81/82        91/92       01/02          11/12e
             Brazil
             US
                                 EU (27)
                                 Thailand
                                                India
                                                Russia
                                                                 China
                                                                 Australia
                                                                                                                                                       • With the C/S Brazilian crush lasting longer
                                                                                                 World S/U                  30-Year Average
                                                                                                                                                         than first expected and production
Source: USDA, Morgan Stanley Commodity Research                                    Source: USDA, Morgan Stanley Commodity Research
estimates                                                                          estimates                                                             exceeding 34 mln MT, we expect the
                                                                                                                                                         1Q13 production surplus continue to
   Chinese Imports Up Significantly MYTD                                                  Projecting Global Production Surplus                           pressure prices.
(Chinese sugar imports, ‘000 MT)                                                   (Global production – consumption surplus, mln MT)
 700                                                                                30                                                                 • We see the downside risks to Indian
 600                                                                                25                                                                   sugar production limited, despite the
 500
                                                                                    20
                                                                                                                                                         weaker-than-average monsoon, as
                                                                                    15
 400
                                                                                    10
                                                                                                                                                         adequate irrigation reserves and
 300                                                                                 5
                                                                                                                                                         increased acreage YoY provide a buffer.
 200                                                                                 0
                                                                                     -5
                                                                                                                                                       • With only modest production
 100
                                                                                    -10                                                                  improvements likely, absent broad cane
  0
       Oct   Nov   Dec     Jan    Feb    Mar   Apr   May   Jun   Jul   Aug   Sep
                                                                                    -15                                                                  renewal efforts, and increased Brazilian
                                                                                    -20                                                                  production still critical for the long-term
                                                                                          2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012e
                   11/12                                    12/13                                   Jan-Mar Apr-Jun Jul-Sep Oct-Dec                      global sugar balance, we see longer-term
Source: USDA, Morgan Stanley Commodity Research                                    Source: USDA, Morgan Stanley Commodity Research
                                                                                   estimates
                                                                                                                                                         sugar prices needing to remain at a level
                                                                                                                                                         that incentivizes farmers to replant
Supply-Demand Balance                                                                                                                                    current sugar cane stands and expand
(‘000 MTRV)                                                                                                                                              acreage — roughly inline with the forward
                                                                               USDA                              Morgan Stanley                          curve currently.
SUPPLY                                                             09/10                  10/11e              11/12e       12/13e
World                                                            153,517                  161,762             172,148      176,987                     Demand
Brazil                                                            36,400                  39,916              37,628       40,174
EU (27)                                                           16,687                  15,699              18,251       18,631                      • High stocks and a bumper domestic crop
India                                                             20,637                  26,574              27,820       26,322                        should pressure Chinese import demand
China                                                             11,429                  11,199              12,341       13,747                        in 1H13.
US                                                                 7,224                   7,104               7,700        8,310
                                                                                                                                                       • Possible higher gasoline prices in 1Q13
Thailand                                                           6,930                   9,663              10,504       10,480
Russia                                                             3,444                   2,996               5,500        5,184
                                                                                                                                                         as well as higher ethanol blend rates by
                                                                                                                                                         June 2013, should increase Brazil's
DEMAND                                                             09/10                  10/11e              11/12e              12/13e                 demand for ethanol in the coming season.
World                                                            154,871                  155,513             160,134             164,496
Brazil                                                            11,800                  12,000              11,500              11,728
EU (27)                                                           17,400                  17,800              18,000              17,966
India                                                             22,500                  23,000              23,540              25,145
China                                                             14,300                  14,000              14,500              15,150
US                                                                10,075                   10,379             10,200               10,514
Thailand                                                           2,220                   2,400               2,500               2,693
Russia                                                             5,715                   5,538               5,900               5,816
Surplus/Deficit                                                     -1,354                 6,249              12,014               12,491
Surplus/Deficit as % of Use                                          -1%                    4%                 7%                   7%
Source: USDA, Morgan Stanley Commodity Research estimates




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Sugar: Prices and Spreads
Global Raw Sugar Prices                                                               White Sugar Prices
($/lb)                                                                                ($/lb)
 0.5                                                                                     0.65

                                                                                         0.55
 0.4
                                                                                         0.45

 0.3                                                                                     0.35

                                                                                         0.25
 0.2

                                                                                         0.15
                                                                                             Jan     Apr       Jul    Oct     Jan    Apr       Jul     Oct     Jan     Apr
 0.1
                                                                                              11     11        11     11      12     12        12      12       13     13
  Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13
                                                                                                   LIFFE White Sugar                           S30 Sugar, Mumbai
                 NYSE No. 11 Sugar                        M30 Sugar, Mumbai                        White Sugar, Sao Paulo                      White FOB, Eurozone
                 Raws, Sao Paulo                          Raws FOB, Eurozone                       White Sugar, China
Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: Bloomberg, Morgan Stanley Commodity Research


White-Raw Spread                                                                      Time Spreads
($/lb)                                                                                (¢/lb)
   0.12                                                                                 1.5

                                                                                        1.0

   0.09                                                                                 0.5

                                                                                        0.0
   0.06
                                                                                       -0.5

                                                                                       -1.0
   0.03
                                                                                       -1.5

                                                                                       -2.0
   0.00                                                                                  Jan 12        Apr 12          Jul 12       Oct 12            Jan 13         Apr 13
       Jan        Apr    Jul    Oct     Jan     Apr      Jul   Oct       Jan   Apr
        11        11     11     11       12     12       12    12         13   13                  Oct - Mar Spread         Mar - Jul Spread          Oct - Oct Spread

Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: Bloomberg, Morgan Stanley Commodity Research


Brazilian Sugar/Ethanol Parity                                                        Ethanol Export Arbs
(%)                                                                                   ($/gal)

       1.4                                                                               8
                                                        Better to produce sugar

       1.0
                                                                                         6

       0.6
                                                                                         4

       0.2
                                                                                         2
      (0.2)

                 Better to produce ethanol                                               0
      (0.6)                                                                              2008           2009           2010         2011              2012           2013
          2008          2009          2010            2011        2012         2013
                                                                                                            Brazilian Ethanol, Delivered             US Ethanol
                                      Hydrous         Anhydrous
Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: Bloomberg, Morgan Stanley Commodity Research




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Sugar: Demand
Brazilian Sugar Exports                                                                      Thai Exports
(‘000 MT)                                                                                    (‘000 MT)
                                                                                              1,400
   4.5
                                                                                              1,200
   4.0
   3.5                                                                                        1,000
   3.0
                                                                                                800
   2.5
   2.0                                                                                          600
   1.5
                                                                                                400
   1.0
   0.5                                                                                          200
   0.0
      May      Jun   Jul    Aug   Sep    Oct     Nov   Dec     Jan   Feb    Mar     Apr           0
                                                                                                   Jan          Mar        May          Jul           Sep       Nov

             5-year Range           5-Year Avg               2011/12              2012/13                5-year Range          5-Year Avg             2011            2012

                                                                                             Source: Bloomberg, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research

US Ethanol Export Economics                                                                  Monthly US Consumption
                                                                                             (‘000 MT)
US Ethanol Export Economics
                                                                                              1,200
                                                                             ($/gal)
Fuel Ethanol FOB NY Harbor                                                     2.63           1,100
Freight                                                                        0.17           1,000
VAT                                                                            0.70
Handling Costs                                                                 0.15             900
DVE Brazil                                                                     3.65             800

Current Brazilian Anhydrous Ethanol Price                                         2.58          700

Source: Bloomberg, Morgan Stanley Commodity Research                                            600
                                                                                                      Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec.


                                                                                                          10-yr Range          2012            2013          10-yr Avg

                                                                                             Source: USDA, Morgan Stanley Commodity Research

Quarterly US HFCS Deliveries
(‘000 short tons, dry value)

   3,000

   2,500

   2,000

   1,500

   1,000

     500

         0
             2000     2002        2004         2006     2008         2010

                                    Q1     Q2     Q3    Q4

Source: Bloomberg, Morgan Stanley Commodity Research




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Sugar: Supply
C/S Brazil Sugar Cane Crush                                                        C/S Brazil Cumulative Cane Crush
(mln MT)                                                                           (mln MT)

   50                                                                                 600.0
   45
                                                                                      500.0
   40
   35
                                                                                      400.0
   30
   25                                                                                 300.0
   20
                                                                                      200.0
   15
   10
                                                                                      100.0
    5
    0                                                                                      0.0
     2HMar    1HMay      2HJun    1HAug   2HSep      1HNov     2HDec    1HFeb                    2HMar 1HMay 2HJun 1HAug 2HSep 1HNov 2HDec 1HFeb

                 08/09           09/10      10/11        11/12           12/13                          08/09           09/10     10/11          11/12     12/13

Source: UNICA, Morgan Stanley Commodity Research                                   Source: UNICA, Morgan Stanley Commodity Research


C/S Brazil Sugar Production                                                        C/S Brazil Cumulative Sugar Production
(mln MT)                                                                           (mln MT)

                                                                                      35
     4.0

     3.5                                                                              30

     3.0                                                                              25

     2.5                                                                              20
     2.0                                                                              15
     1.5
                                                                                      10
     1.0
                                                                                       5
     0.5
                                                                                       0
     0.0
                                                                                        2HMar       1HMay      2HJun    1HAug   2HSep    1HNov    2HDec   1HFeb
        2HMar 1HMay       2HJun     1HAug 2HSep       1HNov 2HDec         1HFeb
               08/09        09/10         10/11        11/12           12/13                           08/09           09/10     10/11       11/12        12/13

Source: UNICA, Morgan Stanley Commodity Research                                   Source: UNICA, Morgan Stanley Commodity Research



C/S Brazil Hydrous Ethanol Production                                              C/S Brazil Cumulative Hydrous Ethanol Production
(‘000 cu m)                                                                        (‘000 cu m)

   1600                                                                               21

   1400                                                                               18
   1200
                                                                                      15
   1000
                                                                                      12
    800
                                                                                       9
    600
                                                                                       6
    400

    200                                                                                3

        0                                                                              0
         2HMar 1HMay 2HJun 1HAug 2HSep 1HNov 2HDec 1HFeb                                2HMar       1HMay      2HJun    1HAug   2HSep    1HNov    2HDec   1HFeb

                  08/09           09/10      10/11           11/12        12/13                        08/09           09/10     10/11       11/12        12/13

Source: UNICA, Morgan Stanley Commodity Research                                   Source: UNICA, Morgan Stanley Commodity Research




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Sugar: Supply
C/S Brazil ATR (Total Recoverable Sugars)                                    C/S Brazil Cumulative ATR (Total Recoverable Sugars)
(kg/MT cane)                                                                 (kg/MT cane)

   150                                                                          180
   140                                                                          160
   130                                                                          140
   120                                                                          120
   110                                                                          100
   100                                                                           80
    90                                                                           60
    80                                                                           40
    70                                                                           20
    60                                                                            0
      2HMar 1HMay          2HJun     1HAug 2HSep 1HNov 2HDec        1HFeb          2HMar                         2HAug                           2HJan

                   08/09           09/10       10/11     11/12       12/13                       08/09     09/10         10/11          11/12       12/13

Source: UNICA, Morgan Stanley Commodity Research                             Source: UNICA, Morgan Stanley Commodity Research


C/S Brazil Anhydrous Ethanol Production                                      US Sugar Production
(‘000 cu m)                                                                  (mln MT)

   1000                                                                         1.8
                                                                                1.6
    800
                                                                                1.4
                                                                                1.2
    600
                                                                                1.0
    400                                                                         0.8
                                                                                0.6
    200
                                                                                0.4

         0                                                                      0.2
                                                                                0.0
   -200                                                                               Jan         Mar      May           July          Sept       Nov
       2HMar 1HMay 2HJun 1HAug 2HSep 1HNov 2HDec 1HFeb
               08/09    09/10    10/11   11/12    12/13                                     10-yr Range       2012              2013            10-yr Avg

Source: UNICA, Morgan Stanley Commodity Research                             Source: U.S. Census, Morgan Stanley Commodity Research


Cumulative Thai Sugar Production
(mln MT)

   12

   10

    8

    6

    4

    2

    0
    28 Nov     26 Dec      23 Jan     20 Feb    19 Mar   16 Apr    14 May

         2006/07           2007/08         2008/09       2009/10
         2010/11           2011/12         2012/13

Source: Bloomberg, Morgan Stanley Commodity Research




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Coffee
Global Prices                                                                                      Time Spreads
($/lb)                                                                                             (¢/lb)

     4
                                                                                                      120
     3                                                                                                100
                                                                                                        80

     2                                                                                                  60
                                                                                                        40

     1
                                                                                                        20
                                                                                                         0
                                                                                                       -20
     0
      Jan       Apr     Jul     Oct     Jan      Apr       Jul         Oct      Jan       Apr          -40
       11       11      11      11      12       12        12          12        13       13           -60
          ICE Arabica                   Brazil (Arabica)                     Colombia (Arabica)          Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13

          LIFFE Robusta                 Vietnam (Robusta)                                                                Sep - Dec            Dec - July         Dec - Dec

Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research

Arabica vs. Robusta Spread                                                                         ICE Total Exchange Total Coffee Inventories
($/lb)                                                                                             (mln bags)

    2.2                                                                                               3.0
                                                                                                      2.8
                                                                                                      2.6
    1.8
                                                                                                      2.4
                                                                                                      2.2
    1.4                                                                                               2.0
                                                                                                      1.8
                                                                                                      1.6
    1.0
                                                                                                      1.4
                                                                                                      1.2
    0.6                                                                                               1.0
       Jan       Apr     Jul     Oct      Jan     Apr       Jul         Oct       Jan      Apr           Jan     Apr    Jul     Oct     Jan        Apr     Jul    Oct    Jan    Apr
        11       11      11      11        12     12        12          12         13      13             11     11     11      11      12         12      12     12     13     13

Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Bloomberg, Morgan Stanley Commodity Research


Liffe Total Coffee Stock                                                                           Colombian Production
(‘000 MT)                                                                                          (‘000 bags)

    500                                                                                               1.5


    400
                                                                                                      1.2

    300
                                                                                                      0.9

    200
                                                                                                      0.6
    100

                                                                                                      0.3
         0                                                                                               Jan     Feb   Mar    Apr     May   Jun      Jul   Aug    Sep   Oct    Nov    Dec
          Jan    Apr      Jul     Oct      Jan     Apr           Jul     Oct        Jan
           11    11       11      11        12     12            12      12         13                             5-Yr Range               2012             5-Yr Avg           2013

Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Federacion de Cafeteros, Morgan Stanley Commodity Research




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Livestock: Prices/Spreads
Prices                                                                           Hog Production Margins
(¢/lb)                                                                           ($/head)
                                                                                   60
   180

   160                                                                                                                                           Forward
                                                                                   40
                                                                                                                                                 Curve
   140

   120                                                                             20

   100
                                                                                     0
     80

     60                                                                            -20
     40
                                                                                   -40
     20
      Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13
                                                                                   -60
                      Live Cattle     Feeder Cattle     Lean Hog                     Jan-11      Jun-11     Nov-11    Apr-12   Sep-12   Feb-13    Jul-13    Dec-13
Source: Bloomberg, CME, Morgan Stanley Commodity Research                        Source: CME, Bloomberg, Morgan Stanley Commodity Research estimates


Select Boxed Beef Cutout Values                                                  Hog Cutout Values
($/cwt)                                                                          ($/cwt)
 200                                                                              120



 180                                                                              100



 160                                                                               80



 140                                                                               60



 120                                                                               40
       Jan         Mar         May         Jul        Sep          Nov                   Jan        Mar           May          Jul       Sep          Nov
               5-yr range         5-yr average         2013          2012                          5-Year Range             Average        2013             2012

Source: Bloomberg, USDA, Morgan Stanley Commodity Research                       Source: Bloomberg, USDA, Morgan Stanley Commodity Research



Choice Boxed Beef Cutout Values                                                  Boxed Pork Belly Prices
($/cwt)                                                                          ($/cwt)
   220                                                                              160


   200

                                                                                    120
   180


   160                                                                               80


   140

                                                                                     40
   120                                                                                     Jan        Mar            May       Jul        Sep         Nov
          Jan        Mar        May        Jul        Sep          Nov
             5- Year Range         5-Year Average           2013         2012                       Range             5-Year Average         2013            2012

Source: Bloomberg, USDA, Morgan Stanley Commodity Research                       Source: USDA, Bloomberg, Morgan Stanley Commodity Research




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Livestock: Supply
Cattle Slaughter                                                                              Cattle Live Weights
(‘000 head, 4wma)                                                                             (Average live weights, lb)
 775                                                                                           1,380


 700
                                                                                               1,330

 625

                                                                                               1,280
 550


 475                                                                                           1,230


 400
                                                                                               1,180
       Jan    Feb Mar       Apr   May     Jun    Jul    Aug    Sep    Oct    Nov Dec
                                                                                                         Jan   Feb Mar      Apr May Jun            Jul     Aug Sep Oct             Nov Dec
             5-year range                2013            2012               5-year average
                                                                                                           10-year range                2013               2011                10-year average
Source: USDA, Morgan Stanley Commodity Research                                               Source: USDA, Morgan Stanley Commodity Research

Hogs Slaughter                                                                                Heifer Slaughter
(mln head, 4wma)                                                                              (% of total Slaughter)
 2.5                                                                                           220

                                                                                               210

 2.3                                                                                           200

                                                                                               190

                                                                                               180
 2.1
                                                                                               170

                                                                                               160
 1.9
                                                                                               150

                                                                                               140
 1.7
                                                                                               130
       Jan   Feb Mar        Apr   May    Jun    Jul    Aug    Sep    Oct    Nov Dec
                                                                                                  Jan      Feb Mar      Apr     May      Jun     Jul     Aug     Sep     Oct      Nov   Dec
             5-year range           2013               2012            5-year average                          5-yr range              5-yr average               2013              2012
Source: USDA, Morgan Stanley Commodity Research
                                                                                              Source: USDA, Morgan Stanley Commodity Research
Hog Live Weights                                                                              Cattle Feedlot Economics
(lb, 4wma)                                                                                    ($/head)
 285
                                                                                                  60

                                                                                                  50

 275                                                                                              40

                                                                                                  30

                                                                                                  20
 265
                                                                                                  10

                                                                                                     0
 255
       Jan    Feb Mar       Apr   May    Jun    Jul    Aug    Sep    Oct    Nov Dec              -10
                                                                                                          May-13   Jun-13     Jul-13    Aug-13    Sep-13       Oct-13    Nov-13    Dec-13
             5-year range               2013           2012            5-year average

Source: USDA, Morgan Stanley Commodity Research                                               Source: CME, Bloomberg, Morgan Stanley Commodity Research




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Metals Table of Contents

Gold                                                         102
   Demand/ Supply                                            103
   Prices                                                    104
Silver                                                       105
   Demand/ Supply                                            106
   Prices                                                    107
Aluminum                                                     108
   Demand/ Supply                                            109
   Prices                                                    110
Copper                                                       111
   Demand/ Supply                                            112
   Prices                                                    113
Nickel                                                       114
   Demand/ Supply                                            115
   Prices                                                    116
Lead and Zinc                                                117
   Zinc                                                      118
   Zinc Prices                                               119
   Lead                                                      120
   Lead Prices                                               121




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Commodity Snapshot: Gold
          Gold Investment Demand vs .Price                                                       Official Gold World Holdings, 2011 vs. 2007                                                                                                                                                                                     Investment Thesis
(Left axis: MT, right axis: $/oz)                                                                (MT)                                                                                                                                                                                                                            We remain bullish on 2013 gold prices despite
 2,500                                                                                 $2,000        9,000                                                                                                                                                                                                                       recent selling pressure triggered by market
                                                                                       $1,800        8,000
 2,000
                                                                                       $1,600        7,000
                                                                                                                                                                                                                                                                                                                                 concerns of an early tightening in US monetary
 1,500                                                                                 $1,400        6,000                                                                                                                                                                                                                       policy. In part this is because we are skeptical that
 1,000                                                                                 $1,200        5,000                                                                                                                                                                                                                       dissenters within the FOMC will succeed in
   500
                                                                                       $1,000        4,000
                                                                                                     3,000
                                                                                                                                                                                                                                                                                                                                 overturning the current policy before the end of
                                                                                       $800
     0                                                                                 $600          2,000                                                                                                                                                                                                                       2014, given lingering tail risks to growth and still
                                                                                       $400          1,000                                                                                                                                                                                                                       elevated US unemployment.
  -500
                                                                                       $200               -
                                                                                                                                                                                                                                                                                                                                 Investor Demand



                                                                                                                                                                                       Switzerland




                                                                                                                                                                                                                                                   Taiwan


                                                                                                                                                                                                                                                                       Venezuela
                                                                                                                                                IMF



                                                                                                                                                                      France
                                                                                                                                                                               China
                                                                                                                                                              Italy




                                                                                                                                                                                                     Russia
                                                                                                                                                                                                               Japan


                                                                                                                                                                                                                                     India




                                                                                                                                                                                                                                                                                                     Lebanon
                                                                                                                                                                                                                                                                                                               Spain
                                                                                                                                                                                                                                                                                                                       Austria
                                                                                                                                                                                                                                             ECB


                                                                                                                                                                                                                                                            Portugal
                                                                                                                     United States
                                                                                                                                     Germany


                                                                                                                                                      ETFs




                                                                                                                                                                                                                       Netherlands




                                                                                                                                                                                                                                                                                    United Kingdom
 -1,000                                                                                $0
          2000     2002     2004       2006   2008    2010    2012 2014e 2016e
                 Implied investment                           Bar Hoarding                                                                                                                                                                                                                                                       • We expect low nominal interest rates, an
                 Official Coin Sales                          Medals/Imitation coins                                                                                                                                                                                                                                               ongoing commitment to QE3, and a
                                                                                                                                                                               2Q 2012                                       2Q 2007
                 Change in ETF Holdings                       Gold Price (RHS)
                                                                                                                                                                                                                                                                                                                                   below-par recovery with pressure on the
Source: WGC, GFMS, Morgan Stanley Commodity Research                                             Source: WGC, GFMS, Morgan Stanley Commodity Research                                                                                                                                                                              USD to encourage gold investment
estimates
                                                                                                                                                                                                                                                                                                                                   despite elevated prices. The bedrock of
 Known Gold Holdings by ETFs Worldwide                                                                                               Gold vs Oil (Brent), 1946-2011                                                                                                                                                                growth in investment and retail demand
(Left axis: gold ETF holdings, MT; right axis: gold price, US$/oz) (Gold, $/oz) over Brent ($/bbl)                                                                                                                                                                                                                                 remains physically-backed ETFs. Based
 2,500
                                                                                        2,000            40                                                                                                                                                                                                                        on preliminary data, global ETF holdings
                                                                                        1,800            35                                                                                                                                                                                                                        rose by 285t to a new record of 2,724t in
                                                                                        1,600
 2,000
                                                                                        1,400
                                                                                                         30                                                                                                                                                                                                                        2012. We estimate further growth of 100t
 1,500                                                                                  1,200
                                                                                                         25                                                                                                                                                                                                                        in net total ETF holdings in 2013.
                                                                                                         20
                                                                                        1,000
                                                                                                         15
                                                                                                                                                                                                                                                                                                                                 • Central banks further underpinned growth
 1,000                                                                                  800
                                                                                        600              10
                                                                                                                                                                                                                                                                                                                                   in gold investment demand by
  500                                                                                   400              5
                                                                                                                                                                                                                                                                                                                                   emphasizing their preference for gold as
                                                                                        200
                                                                                                     -
                                                                                                                                                                                                                                                                                                                                   a reserve asset. The official sector has
    0                                                                                   0
                                                                                                                                                                                                                                                                                                                                   now been a net buyer of gold each year
                                                                                                              1970

                                                                                                                          1973

                                                                                                                                               1976

                                                                                                                                                       1979

                                                                                                                                                                 1982

                                                                                                                                                                               1985

                                                                                                                                                                                            1988

                                                                                                                                                                                                              1991

                                                                                                                                                                                                                         1994

                                                                                                                                                                                                                                        1997

                                                                                                                                                                                                                                                   2000

                                                                                                                                                                                                                                                               2003

                                                                                                                                                                                                                                                                                   2006

                                                                                                                                                                                                                                                                                                      2009

                                                                                                                                                                                                                                                                                                                   2012




    Jan-06        Jan-07      Jan-08     Jan-09      Jan-10   Jan-11     Jan-12
                              Gold ETFs                Gold Price (RHS)                                                      Gold/Brent                                                 Long-run-average                                                                       Current Ratio                                       since 2009, as DM central banks have
                                                                                                 Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                                                                                                                                                                                                                                                   sold increasingly less gold, and EM
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                                                                                                                                                                                                                                                   central banks have been larger buyers.
Supply-Demand Balance                                                                                                                                                                                                                                                                                                              Net official sector purchases are at their
SUPPLY                                                         Unit           2010            2011             2012                                   2013e                     2014e                                  2015e                          2016e                                           2017e
                                                                                                                                                                                                                                                                                                                                   highest level since 1987.
Total Mine Production                                         tonnes          2,741          2,819             2,842                                  2,884                     2,930                                  2,940                          2,975                                           3,018
 year-over-year chg                                             %              5.0             2.8               0.8                                    1.5                       1.6                                    0.4                           1.2                                              1.5
                                                                                                                                                                                                                                                                                                                                 • Recently, global fiscal and monetary
Scrap supply                                                  tonnes          1,719          1,669             1,642                                  1,694                     1,550                                  1,400                          1,200                                           1,150                        developments have given gold a role as
 year-over-year chg
Official sector net sales/(purchases)
                                                                %
                                                              tonnes
                                                                               2.8
                                                                               25
                                                                                              -2.9
                                                                                              -457
                                                                                                                -1.6
                                                                                                               -536
                                                                                                                                                        3.2
                                                                                                                                                       -542
                                                                                                                                                                                 -8.5
                                                                                                                                                                                 -340
                                                                                                                                                                                                                        -9.7
                                                                                                                                                                                                                        -280
                                                                                                                                                                                                                                                      -14.3
                                                                                                                                                                                                                                                       -50
                                                                                                                                                                                                                                                                                                       -4.2
                                                                                                                                                                                                                                                                                                        -25
                                                                                                                                                                                                                                                                                                                                   both a central bank reserve asset and one
 year-over-year chg                                             %            -125.2         -1953.8            17.3                                     1.1                     -37.3                                  -17.6                          -82.1                                           -50.0                        with a value akin to cash as the global
Net producer hedging                                          tonnes          -121             12                -20                                    -12                       55                                     70                             90                                             110                         financial system moves to adopt the
Total Supply                                                    %             4,364          4,043             3,928                                  4,024                     4,195                                  4,130                          4,215                                           4,253
 year-over-year chg                                             %             11.0            -7.4              -2.8                                    2.5                       4.2                                   -1.5                           2.0                                              0.9                        Basel III standards in 2015.
DEMAND                                                          Unit         2010            2011              2012                                   2013e                     2014e                                  2015e                          2016e                                           2017e                      Supply
Jewelry
  year-over-year chg
                                                              tonnes
                                                                 %
                                                                             2,017
                                                                             11.2
                                                                                             1,973
                                                                                              -2.2
                                                                                                               1,845
                                                                                                                -6.5
                                                                                                                                                      1,883
                                                                                                                                                       2.1
                                                                                                                                                                                1,969
                                                                                                                                                                                 4.5
                                                                                                                                                                                                                       2,069
                                                                                                                                                                                                                        5.1
                                                                                                                                                                                                                                                      2,116
                                                                                                                                                                                                                                                        2.2
                                                                                                                                                                                                                                                                                                      2,201
                                                                                                                                                                                                                                                                                                        4.0
                                                                                                                                                                                                                                                                                                                                 • Gold miners are still struggling to deliver
Electronics                                                   tonnes          326             330               305                                    320                       325                                    335                            355                                             380                         growth in production that is sufficient to
  year-over-year chg                                             %           18.6              1.3              -7.7                                   4.9                       1.6                                    3.1                            6.0                                             7.0                         match the growth in investment and
Dental                                                        tonnes           50              53                53                                     53                        55                                     55                             55                                              55
  year-over-year chg                                             %            -4.9            4.8                0.0                                   0.0                       4.8                                    0.0                             0.0                                            0.0                         fabrication demand, In 2012 new mine
Official Coins, Medals & Imitation coins                      tonnes          302             333               414                                    406                       392                                    372                            354                                             338                         production of gold rose 0.2% to 2,842t,
  year-over-year chg                                             %             2.9           10.5              24.2                                    -1.8                      -3.5                                   -5.0                           -4.8                                            -4.7
Total Fabrication Demand                                      tonnes         2,694           2,689             2,616                                  2,662                     2,740                                  2,832                          2,880                                           2,974                        while production growth in 2013 is
  year-over-year chg                                             %           10.7             -0.2              -2.7                                    1.8                       2.9                                    3.3                            1.7                                             3.3                        forecast to increase by only 1.5%.
Change in ETF Holdings                                        tonnes          368             238               285                                    100                        75                                     25                             -50                                              -50
Bar Hoarding                                                  tonnes          882            1,209             1,364                                  1,397                      1,355                                 1,314                           1,248                                            1,186
Implied Investment/(Disinvestment)                            tonnes          420             -94              -337                                   -134                        25                                    -40                             136                                              144                     • Furthermore, scrap supply growth was
Total Investment Demand                                                      1,052            986              1,074                                  1,077                      1,355                                 1,224                           1,310                                            1,330                      negative in 2012, declining by 1.6% to
Investment as a % of Total Demand
Total Demand
                                                                %
                                                              tonnes
                                                                             38.3
                                                                             3,747
                                                                                             33.5
                                                                                             3,675
                                                                                                               33.4
                                                                                                               3,689
                                                                                                                                                      33.9
                                                                                                                                                      3,739
                                                                                                                                                                                 34.7
                                                                                                                                                                                 4,095
                                                                                                                                                                                                                       31.4
                                                                                                                                                                                                                       4,055
                                                                                                                                                                                                                                                       31.7
                                                                                                                                                                                                                                                       4,190
                                                                                                                                                                                                                                                                                                        30.1
                                                                                                                                                                                                                                                                                                        4,303
                                                                                                                                                                                                                                                                                                                                   1,642t despite an 8% increase in the price.
Gold Price                                                    US$/oz         1,226           1,546             1,669                                  1,773                      1,845                                 1,750                           1,550                                            1,400                      Given our projections of a 6.2% increase
e = Morgan Stanley Research estimates Source: WGC, GFMS, CRU, Morgan Stanley Research                                                                                                                                                                                                                                              in the price in 2013, we are forecasting a
                                                                                                                                                                                                                                                                                                                                   3.2% increase in scrap supply, a level that
                                                                                                                                                                                                                                                                                                                                   would still require disinvestment from
                                                                                                                                                                                                                                                                                                                                   above-ground stocks to balance the
                                                                                                                                                                                                                                                                                                                                   market.



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Gold: Demand / Supply
Gold Investment Demand                                                                                   Gold Fabrication Demand by End Market
(Left axis: MT; right axis: price of gold, $/oz)                                                         (Left axis: MT; right axis: price of gold, $/oz)
  700                                                                                           $2,000     900                                                                                                                  $2,000

  600                                                                                           $1,800     800                                                                                                                  $1,800
                                                                                                $1,600     700                                                                                                                  $1,600
  500
                                                                                                $1,400                                                                                                                          $1,400
                                                                                                           600
  400                                                                                           $1,200                                                                                                                          $1,200
                                                                                                           500
  300                                                                                           $1,000                                                                                                                          $1,000
                                                                                                           400
  200                                                                                           $800                                                                                                                            $800
                                                                                                           300
                                                                                                $600                                                                                                                            $600
  100                                                                                                      200
                                                                                                $400                                                                                                                            $400
   -                                                                                            $200       100                                                                                                                  $200
  (100)                                                                                         $-         -                                                                                                                    $-
       1Q05           1Q06 1Q07 1Q08               1Q09          1Q10    1Q11 1Q12                                  1Q05      1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12
                     Bar Hoarding                                        Official Coin Sales                                     Technology (Electronics, Dental and Other Industrial)
                     Medals/Imitation coins                              ETFs and similar                                        Jewelery
                     Gold Price US$/oz                                                                                           Gold Price US$/oz
Source: WGC, GFMS, Morgan Stanley Commodity Research                                                     Source: WGC, GFMS, Morgan Stanley Commodity Research

Gold ETF Holdings: 1 Month Level Change %                                                                Gold Jewelry Demand Breakdown by Region
(1 month level change %)                                                                                 (MT)
  25%                                                                                                      4,000

                                                                                                           3,500
  20%
                                                                                                           3,000
  15%                                                                                                      2,500

                                                                                                           2,000
  10%
                                                                                                           1,500
   5%                                                                                                      1,000

                                                                                                               500
   0%
                                                                                                               -
                                                                                                                       1998


                                                                                                                                 2000


                                                                                                                                          2002


                                                                                                                                                    2004


                                                                                                                                                                  2006


                                                                                                                                                                                2008


                                                                                                                                                                                               2010


                                                                                                                                                                                                             2012


                                                                                                                                                                                                                        2014e


                                                                                                                                                                                                                                     2016e
  -5%


 -10%                                                                                                          Europe          N America         Middle East              India               E Asia           Other Countries
     2007              2008       2009             2010           2011        2012         2013
                                                                                                         Source: WGC, GFMS, Morgan Stanley Commodity Research estimates
Source: CRU, Morgan Stanley Commodity Research


Global Mined Production by Geography                                                                     Global Supply – by Source
(MT)                                                                                                     (MT)
  3,000                                                                                                    5,000

  2,500                                                                                                    4,000

  2,000                                                                                                    3,000

  1,500                                                                                                    2,000

  1,000                                                                                                    1,000

   500                                                                                                          -

       -                                                                                                   (1,000)
                                                                               2013e


                                                                                       2015e
              2001


                         2003


                                  2005


                                            2007


                                                          2009


                                                                    2011




                                                                                                                      1998


                                                                                                                                2000


                                                                                                                                        2002


                                                                                                                                                 2004


                                                                                                                                                           2006


                                                                                                                                                                         2008


                                                                                                                                                                                       2010


                                                                                                                                                                                                      2012


                                                                                                                                                                                                                2014e


                                                                                                                                                                                                                          2016e




           Europe               N America             Latin America           South Africa                     Total Mine Supply                                   Scrap supply
           Australia            China                 Russia                  Other Countries                  Official sector net sales/(purchases)               Net producer hedging
Source: CRU, Morgan Stanley Commodity Research estimates                                                 Source: WGC, GFMS, CRU, Morgan Stanley Commodity Research estimates




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Gold: Prices
Gold Price in EUR                                                                    Gold Price in AUD
(Left axis: price, $/oz; right axis: EUR/oz)                                         (Left axis: price, $/oz; right axis: AUD/oz)
 $2,000                                                                    1600       $2,000                                                                            2000
 $1,800                                                                    1400       $1,800                                                                            1800
 $1,600                                                                               $1,600                                                                            1600
                                                                           1200
 $1,400                                                                               $1,400                                                                            1400
 $1,200                                                                    1000       $1,200                                                                            1200
 $1,000                                                                    800        $1,000                                                                            1000
   $800                                                                    600          $800                                                                            800
   $600                                                                                 $600                                                                            600
                                                                           400
   $400                                                                                 $400                                                                            400
   $200                                                                    200          $200                                                                            200
     $0                                                     0                               $0                                                     0
     Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13                                Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13
                         USD              EUR                                                                   USD             AUD

Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research

Gold Price in INR                                                                    Gold Net Producer Hedging vs. Price
(Left axis: price, $/oz; right axis: INR/oz)                                         (Left axis: MT; right axis: $/oz)
 $2,000                                                                   120000       600                                                                         $2,000
                                                                                                                          Supply
 $1,800                                                                                                                                                            $1,800
                                                                          100000       400
 $1,600                                                                                                                                                            $1,600

 $1,400                                                                                                                                                            $1,400
                                                                          80000        200
 $1,200                                                                                                                                                            $1,200

 $1,000                                                                   60000         -                                                                          $1,000
                                                                                                                                                                   $800
   $800
                                                                                       (200)
                                                                          40000                                                                                    $600
   $600
                                                                                                                                                                   $400
   $400                                                                                (400)
                                                                          20000                                                                                    $200
   $200                                                                                                                     Demand
                                                                                       (600)                                                                       $-
     $0                                                     0
                                                                                               1998 2000 2002 2004 2006 2008 2010e 2012e 2014e 2016e
     Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13
                         USD                INR                                                            Net Producer Hedging - Supply/(Demand) (LHS)
                                                                                                           Gold Price (RHS)
Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research estimates


Known Gold Holdings by ETFs Worldwide                                                YoY Change in Gold Prices vs. GRDI
(Left axis: gold ETF holdings, MT; right axis: gold price, US$/oz)                   (Left axis: YoY % change in gold price; right axis: Global Risk Demand Index)
                                                                            2,000      80%                                                                   180
 2,500
                                                                            1,800
                                                                                       60%                                                                   160
                                                                            1,600
 2,000
                                                                            1,400      40%                                                                   140

 1,500                                                                      1,200
                                                                            1,000      20%                                                                   120

 1,000                                                                      800
                                                                                        0%                                                                   100
                                                                            600
   500                                                                      400       -20%                                                                   80
                                                                            200
     0                                                                      0         -40%                                                                   60
     Jan-06    Jan-07    Jan-08     Jan-09     Jan-10   Jan-11   Jan-12                   2001      2003       2005     2007    2009     2011         2013
                                                                                                                   YoY % Change      GRDI
                          Gold ETFs              Gold Price (RHS)
                                                                                     Global Risk Demand Index – US Pat. No. 7,617,143
Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Silver
                            Gold:Silver Ratio                                                           Silver Demand by Sector                                                Investment Thesis
(Weekly)
 120                                                                                                         Photography,
                                                                                                                 10%
                                                                                                                              De-hedging, 2%                                   While volatility is likely to persist in silver
 100
                                                                                                                                                                               amid swings between risk on and off trades,
                                                                                                    Coins, 9%
                                                                                                                                                                               we think outperformance versus gold will be
  80
                                                                                                                                                          Industrial, 39%      sustained, and forecast the gold:silver ratio
  60                                                                                                                                                                           to average 53:1 during 2013 and 2014. This
  40
                                                                                                                                                                               compares with a long-run average around
                                                                                                                                                                               52:1 and an average of 60:1 since 2000.
  20
                                                                                                  Jewelry &
                                                                                              Silverware, 25%
  -
      1975      1980       1985   1990      1995     2000     2005      2010
                                                                                                                                                                               Demand
             Gold/Silver             Long-run-average               Current Ratio                                                       Investment, 15%
                                                                                                                                                                               • In these circumstances, investment flows
Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: CRU, Morgan Stanley Commodity Research                                             will help offset the next three years’ 2.5%
                                                                                                                                                                                 CAGR in mine supply versus an anemic
                       Reported Holdings in                                                              Precious Metal Relative
                       Silver ETFs vs. Price                                                               Price Performance
                                                                                                                                                                                 1.3% growth in mined output in the
(Left axis: ETF holdings, MT; right axis: closing price, $/troy oz.) (Index of prices with Jan 2010 = 100)                                                                       previous three years. Meanwhile, demand
 25,000                                                                         $50    350                                                                                       from electronics and jewelry is continuing
                                                                                       300
                                                                                                                                                                                 to make up for the collapse in
 20,000                                                                         $40                                                                                              photographic and coin/medal demand. In
                                                                                       250

 15,000                                                                         $30
                                                                                                                                                                                 our view, the risk for total fabrication
                                                                                       200
                                                                                                                                                                                 demand growth from a global point of
 10,000                                                                         $20
                                                                                       150                                                                                       view is tipped to the upside.
                                                                                       100
  5,000                                                                         $10
                                                                                        50
                                                                                                                                                                               • Therefore, the continued growth in all
       0
       2007        2008       2009       2010      2011      2012      2013
                                                                                $0     -
                                                                                           Jun-10      Dec-10        Jun-11       Dec-11         Jun-12    Dec-12
                                                                                                                                                                                 forms of investment demand will be
             Total Tonnes of Silver in the Trust               Closing Price                    Gold                 Silver              Palladium               Platinum        critical to silver’s price performance. We
Source: Bloomberg, Morgan Stanley Commodity Research                                  Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                                                                                                 expect physically backed ETF funds to
                                                                                                                                                                                 benefit further alongside the associated
Supply-Demand Balance                                                                                                                                                            gain from the strength in gold demand in
Supply                                               Unit      2010          2011       2012        2013e         2014e        2015e           2016e      2017e                  2013.
New Mine Production                                 tonnes    24,047        24,427     25,000       25,850        26,750       27,825          27,075     26,500
 year-over-year                                       %         3.9            1.6        2.3          3.4           3.5         4.0             -2.7       -2.1
Net Government Purchase/(Sales)                     tonnes    -1,300          -750       -500         -250          -100          -75             -75        -75
 year-over-year                                       %       205.9          -42.3      -33.3        -50.0         -60.0        -25.0             0.0       0.0
Old Silver Scrap                                    tonnes    7,050          7,925      7,000        6,500         6,500        6,250           6,250      6,375
 year-over-year                                       %        15.1           12.4      -11.7         -7.2           0.0         -3.8             0.0        2.0
Net Producer Hedging                                tonnes    1,500            750         0            0             0            0               0          0
Total Supply                                          %       31,299        32,352     31,500       32,099        33,150       34,000          33,250     32,800
 year-over-year                                       %        10.4            3.4       -2.6          1.9           3.3         2.6             -2.2       -1.4

                                                                 23            24         25           26            27           28              29         30
Demand                                               Unit      2010          2011       2012        2013e         2014e        2015e           2016e      2017e
Electronics                                        tonnes     7,720          7,470      7,240        7,621         8,112        8,646           9,053      9,445
  year-over-year                                      %         35.0          -3.2       -3.1          5.3           6.4          6.6             4.7        4.3
Brazing Alloys and Solders                         tonnes     2,230          2,310      2,394        2,504         2,627        2,747           2,868      2,984
  year-over-year                                      %          9.3           3.6        3.6         4.6            4.9          4.6             4.4        4.0
Photography                                        tonnes     2,200         2,040      1,949        1,883         1,823        1,766           1,712      1,660
  year-over-year                                      %        -17.3          -7.3       -4.5         -3.4          -3.2         -3.1            -3.1       -3.0
Jewelry/Silverware                                 tonnes     6,720          6,420      6,373        6,503         6,709        7,061           7,639      7,786
  year-over-year                                      %          0.7          -4.5       -0.7         2.0            3.2          5.2             8.2        1.9
Coins & Medals                                     tonnes     3,090          3,680      3,220        3,381         3,212       3,051           2,289      1,888
  year-over-year                                      %        27.2          19.1       -12.5         5.0           -5.0         -5.0           -25.0      -17.5
Other Applications                                 tonnes     4,980         4,700      4,799        4,933         5,092        5,253            5,439      5,637
  year-over-year                                      %         16.1          -5.6        2.1         2.8            3.2          3.2             3.6       3.6
Total Fabrication Demand                           tonnes     26,940        26,620     25,975       26,825        27,575       28,525          29,000     29,400
  year-over-year                                      %         13.1          -1.2       -2.4          3.3           2.8          3.4             1.7        1.4
Fundamental Balance                                tonnes      3,816           -829    1,653           750          250          -350           -500       -750
Reported ETF Holdings                               tonnes    18,408        17,580     19,232       19,982        20,232       19,882          19,382     18,632
  year-over-year                                      %        26.1           -4.5       9.4          3.9           1.3          -1.7            -2.5       -3.9
Implied Other Investment                            tonnes     543           6,560      3,873        4,524         5,325        5,825           4,750      4,150
Total Demand                                                  31,299        32,352     31,500       32,099        33,150       34,000          33,250     32,800
  year-over-year                                     %         10.4            3.4       -2.6         1.9           3.3           2.6            -2.2       -1.4
Price                                              US$/oz     20.11          32.91      31.15        33.44         34.81        33.65           29.81      26.92

e = Morgan Stanley Research estimates Source: CRU, GFMS, Silver Institute, Morgan Stanley Commodity Research




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Silver: Demand / Supply
Silver Investment Demand                                                                                   Fabrication Demand by End Market
(Left axis: MT; right axis: price of silver, $/oz)                                                         (MT)
   30,000                                                                                            $40     35,000

   25,000                                                                                            $35     30,000

   20,000                                                                                            $30     25,000
   15,000                                                                                            $25     20,000
   10,000                                                                                            $20
                                                                                                             15,000
    5,000                                                                                            $15
                                                                                                             10,000
      -                                                                                              $10
                                                                                                              5,000
   (5,000)                                                                                           $5
                                                                                                                  -




                                                                                                                         1998


                                                                                                                                 2000


                                                                                                                                           2002


                                                                                                                                                         2004


                                                                                                                                                                          2006


                                                                                                                                                                                          2008


                                                                                                                                                                                                          2010


                                                                                                                                                                                                                         2012e


                                                                                                                                                                                                                                          2014e


                                                                                                                                                                                                                                                          2016e
  (10,000)                                                                                           $0
              1998


                      2000


                             2002


                                      2004


                                              2006


                                                     2008


                                                               2010


                                                                      2012e


                                                                              2014e


                                                                                             2016e




                                                                                                                       Electronics                                                         Brazing Alloys and Solders
                                                                                                                       Photography                                                         Jewelry/Silverware
          Reported ETF Holdings              Implied Other Investment                     Silver Price                 Coins & Medals                                                      Other Applications
Source: CRU, Bloomberg, Morgan Stanley Commodity Research estimates                                        Source: CRU, Morgan Stanley Commodity Research estimates

Silver ETF Holdings: 1 Month Level Change %                                                                YoY Change in Fabrication Demand by Region
(Vertical axis: 1 month change in tonnage in trust, %)                                                     (MT)

  15%                                                                                                        4,000

                                                                                                             3,000

  10%                                                                                                        2,000

                                                                                                             1,000
   5%                                                                                                             -

                                                                                                             (1,000)
   0%
                                                                                                             (2,000)

                                                                                                             (3,000)
   -5%
                                                                                                             (4,000)
                                                                                                                         1999


                                                                                                                                  2001


                                                                                                                                                2003


                                                                                                                                                                2005


                                                                                                                                                                                 2007


                                                                                                                                                                                                   2009


                                                                                                                                                                                                                   2011e


                                                                                                                                                                                                                                         2013e


                                                                                                                                                                                                                                                          2015e
 -10%
     2007            2008           2009      2010           2011         2012              2013                  Europe        North America                      Japan                         India              China                         Other
Source: Bloomberg, Morgan Stanley Commodity Research                                                       Source: CRU, Morgan Stanley Commodity Research estimates


China Silver Net Exports                                                                                   Global Supply – by Source
(Left axis: net exports, kg; right axis: production, kg)                                                   (MT)
  800,000                                                                             450,000                40,000

                                                                                      400,000                35,000
  600,000
                                                                                      350,000                30,000
                                                                                                             25,000
  400,000                                                                             300,000
                                                                                                             20,000
                                                                                      250,000
  200,000                                                                                                    15,000
                                                                                      200,000
                                                                                                             10,000
          -                                                                           150,000
                                                                                                              5,000
                                                                                      100,000                     -
  (200,000)
                                                                                      50,000                 (5,000)
                                                                                                                        1998


                                                                                                                                2000


                                                                                                                                         2002


                                                                                                                                                       2004


                                                                                                                                                                       2006


                                                                                                                                                                                   2008


                                                                                                                                                                                                   2010


                                                                                                                                                                                                                 2012e


                                                                                                                                                                                                                                 2014e


                                                                                                                                                                                                                                                  2016e




  (400,000)                                                                           -
          2004 2005 2006 2007 2008 2009 2010 2011 2012
                                                                                                                  New Mine Production                                         Net Government Purchase/(Sales)
               China Imports (RHS)                          China Net Exports (LHS)                               Old Silver Scrap                                            Net Producer Hedging
Source: Bloomberg, Morgan Stanley Commodity Research                                                       Source: CRU, Morgan Stanley Commodity Research estimates




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Silver: Prices
Silver Price in EUR                                                                                                                                                                Silver Price in AUD
(Left axis: price, $/oz; right axis: EUR/oz)                                                                                                                                       (Left axis: price, $/oz; right axis: AUD/oz)
 $60                                                                                                                                                                          35    $60                                                                                                                                           50
                                                                                                                                                                                                                                                                                                                                  45
 $50                                                                                                                                                                          30    $50
                                                                                                                                                                                                                                                                                                                                  40
                                                                                                                                                                              25                                                                                                                                                  35
 $40                                                                                                                                                                                $40
                                                                                                                                                                              20                                                                                                                                                  30
 $30                                                                                                                                                                                $30                                                                                                                                           25
                                                                                                                                                                              15
                                                                                                                                                                                                                                                                                                                                  20
 $20                                                                                                                                                                                $20
                                                                                                                                                                              10                                                                                                                                                  15
                                                                                                                                                                                                                                                                                                                                  10
 $10                                                                                                                                                                          5     $10
                                                                                                                                                                                                                                                                                                                                  5
  $0                                                                                                                                                                          0      $0                                                                                                                                           0
       Aug-06

                Feb-07

                         Aug-07

                                   Feb-08

                                             Aug-08

                                                       Feb-09

                                                                  Aug-09

                                                                             Feb-10

                                                                                        Aug-10

                                                                                                    Feb-11

                                                                                                                Aug-11

                                                                                                                             Feb-12

                                                                                                                                          Aug-12

                                                                                                                                                       Feb-13

                                                                                                                                                                     Aug-13




                                                                                                                                                                                          Aug-06

                                                                                                                                                                                                   Feb-07

                                                                                                                                                                                                            Aug-07

                                                                                                                                                                                                                     Feb-08

                                                                                                                                                                                                                              Aug-08

                                                                                                                                                                                                                                        Feb-09

                                                                                                                                                                                                                                                 Aug-09

                                                                                                                                                                                                                                                          Feb-10

                                                                                                                                                                                                                                                                   Aug-10

                                                                                                                                                                                                                                                                            Feb-11

                                                                                                                                                                                                                                                                                     Aug-11

                                                                                                                                                                                                                                                                                              Feb-12

                                                                                                                                                                                                                                                                                                       Aug-12

                                                                                                                                                                                                                                                                                                                Feb-13

                                                                                                                                                                                                                                                                                                                         Aug-13
                                                         USD                                                 EUR                                                                                                                           USD                                       AUD
Source: Bloomberg, Morgan Stanley Commodity Research                                                                                                                               Source: Bloomberg, Morgan Stanley Commodity Research

Silver Price in INR                                                                                                                                                                YoY Change in Silver Prices vs. GRDI
(Left axis: price, $/oz; right axis: INR/oz)                                                                                                                                       (Left axis: YoY % change in silver price; right axis: Global Risk Demand Index)
 $60                                                                                                                                                                      2500                                                                                                                                            180
                                                                                                                                                                                     150%
                                                                                                                                                                                                                                                                                                                          170
 $50                                                                                                                                                                                                                                                                                                                      160
                                                                                                                                                                          2000
                                                                                                                                                                                     100%                                                                                                                                 150
 $40                                                                                                                                                                                                                                                                                                                      140
                                                                                                                                                                          1500
                                                                                                                                                                                                                                                                                                                          130
 $30                                                                                                                                                                                  50%
                                                                                                                                                                                                                                                                                                                          120
                                                                                                                                                                          1000                                                                                                                                            110
 $20
                                                                                                                                                                                       0%                                                                                                                                 100
                                                                                                                                                                          500                                                                                                                                             90
 $10
                                                                                                                                                                                                                                                                                                                          80
                                                                                                                                                                                     -50%
                                                                                                                                                                                                                                                                                                                          70
  $0                                                                                                                                                                      0
                                                                                                                                                                                                                                                                                                                          60
       Aug-06

                Feb-07

                         Aug-07

                                  Feb-08

                                            Aug-08

                                                      Feb-09

                                                                Aug-09

                                                                           Feb-10

                                                                                      Aug-10

                                                                                                 Feb-11

                                                                                                             Aug-11

                                                                                                                         Feb-12

                                                                                                                                      Aug-12

                                                                                                                                                   Feb-13

                                                                                                                                                                Aug-13




                                                                                                                                                                                    -100%                                                                                                                                 50
                                                                                                                                                                                         2001                    2003                  2005    2007    2009    2011                                             2013
                                                         USD                                                  INR                                                                                                                         YoY % Change      GRDI
Source: Bloomberg, Morgan Stanley Commodity Research                                                                                                                               Global Risk Demand Index – US Pat. No. 7,617,143
                                                                                                                                                                                   Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Aluminum
             Aluminum Demand by Region                                                    Aluminum Production by Region                                      Investment Thesis
(Global demand, MT/year)                                                      (Global supply, ‘000 MT/year)                                                  The global aluminum market remains
 60,000                                                                        60,000
                                                                                                                                                             unique in having a relatively positive price
 50,000                                                                        50,000                                                                        outlook despite record global inventories
 40,000                                                                                                                                                      that show no signs of abating. In our view,
                                                                               40,000
                                                                                                                                                             the disconnect is the net result of the 5-year
 30,000
                                                                               30,000                                                                        long phenomenon of inventory financing –
 20,000
                                                                               20,000
                                                                                                                                                             and, given the current interest rate
 10,000                                                                                                                                                      environment and outlook, this fundamental
    -
                                                                               10,000                                                                        flaw is likely to persist through the medium
            2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                   0
                                                                                                                                                             term.
   China     BRI (Brazil, Russia, India)   USA   W Europe   Japan    ROW                  2007    2008 2009     2010 2011 2012e 2013e 2014e 2015e 2016e
                                                                                 China
                                                                                 Brazil
                                                                                                    Russia
                                                                                                    Australia
                                                                                                                   Europe
                                                                                                                   India
                                                                                                                               USA
                                                                                                                               Middle East
                                                                                                                                             Canada
                                                                                                                                             ROW
                                                                                                                                                             Supply
Source: WBMS, Morgan Stanley Commodity Research
                                                                              Source: WBMS, Morgan Stanley Commodity Research estimates
                                                                                                                                                             • Inventory financing arrangements remain
estimates
                                                                                                                                                               viable. The average yields on medium- to
                     China Trade Balance                                          Chinese Aluminum Production vs Price                                         longer-term-dated financing
(China net exports of primary aluminum, ‘000 MT)                              (Left axis: China primary aluminum production: ‘000 MT; right                    arrangements in 2012 were the highest
                                                                              axis: price, $/MT)                                                               since 2009 (the peak year since
  800                                                                          2,000                                                                 3,500
                                                                                                                                                               inception) – implying large tonnages of
                                                                               1,800

  300                                                                          1,600
                                                                                                                                                     3,000     metal will likely remain locked away as
                                                                               1,400                                                                 2,500     expiring arrangements are rolled over or
  -200
                                                                               1,200
                                                                                                                                                     2,000
                                                                                                                                                               new deals are struck.
                                                                               1,000

                                                                                 800
                                                                                                                                                     1,500   • Primary producers have little incentive to
  -700
                                                                                 600                                                                 1,000
                                                                                                                                                               trim output. Regional premia remain
                                                                                 400                                                                           sufficiently elevated that EU and US
 -1200
                                                                                 200
                                                                                                                                                     500
                                                                                                                                                               producers, who normally operate with thin
 -1700
                                                                                   0
                                                                                    2000    2002      2004       2006     2008       2010     2012
                                                                                                                                                     -         margins, are not receiving the price signals
         2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012              Primary Prod, Kt (LHS)            Al price, USD/t (RHS)                 to close high-cost and inefficient capacity.
Source: Thomson Reuters, Morgan Stanley Commodity                             Source: Thomson Reuters, Morgan Stanley Commodity
                                                                                                                                                               Furthermore, capacity increases in China
Research                                                                      Research                                                                         and the Middle East will likely continue in
                                                                                                                                                               13/14. Elevated regional premia is partly a
Supply-Demand Balance: Alumina                                                                                                                                 reflection of the restrictions on delivery that
SUPPLY
Smelter Grade Production
                                                  Unit
                                                   Mt
                                                            2010
                                                            82.4
                                                                       2011
                                                                       90.7
                                                                                  2012
                                                                                  93.2
                                                                                                 2013e
                                                                                                  97.5
                                                                                                           2014e
                                                                                                           103.9
                                                                                                                        2015e
                                                                                                                        109.3
                                                                                                                                   2016e
                                                                                                                                   115.4
                                                                                                                                                2017e
                                                                                                                                                118.8
                                                                                                                                                               accompany the LME warehouse policy on
Chemical Grade Production                          Mt        6.0        6.5        6.5            6.9       7.3          7.6        7.9          8.1           load-out rates and the restraints on metal
 year-over-year                                    %        26.3        8.2        0.2            5.9       5.7          5.2        3.2          2.4
World Production                                   Mt       88.4       97.1       99.7           104.3     111.1        116.9      123.3        126.9          availability that result from these inventory
 year-over-year                                    %        13.2        9.9        2.7            4.6       6.5          5.2        5.4          2.9
                                                                                                                                                               financing deals.
DEMAND                                           Unit       2010       2011       2012           2013e     2014e        2015e      2016e        2017e
Metallurgical Consumption                         Mt        83.2       89.3       90.5            95.6     102.6        108.4      114.1        117.5        Demand
 year-over-year
Apparent Surplus/(Deficit)
                                                  %
                                                  Mt
                                                            14.0
                                                            -0.82
                                                                        7.3
                                                                       1.35
                                                                                   1.4
                                                                                  2.72
                                                                                                  5.6
                                                                                                  1.84
                                                                                                            7.3
                                                                                                            1.26
                                                                                                                         5.6
                                                                                                                         0.90
                                                                                                                                    5.2
                                                                                                                                    1.29
                                                                                                                                                 3.0
                                                                                                                                                 1.29
                                                                                                                                                             • We expect improvement in global
Average Spot Price                               US$/t       340        361        319            334       351          363        383          390           aluminum demand. For 2012-14, we
                                                                                                                                                               forecast demand growth to outpace
Supply-Demand Balance: Aluminum                                                                                                                                production growth, sending the global
SUPPLY
China Primary Production
                                                  Unit
                                                   Mt
                                                            2010
                                                            16.2
                                                                       2011
                                                                       18.1
                                                                                  2012
                                                                                  20.8
                                                                                                 2013e
                                                                                                  22.6
                                                                                                           2014e
                                                                                                            24.3
                                                                                                                        2015e
                                                                                                                         25.5
                                                                                                                                   2016e
                                                                                                                                    27.2
                                                                                                                                                2017e
                                                                                                                                                 28.3
                                                                                                                                                               market surplus below one mln MT for the
Non-China Primary Production                       Mt       25.3       26.5       24.4            25.1      26.9         28.6       29.8         30.3          first time since 2007. While positive, these
World Primary Production
 year-over-year
                                                   Mt
                                                   %
                                                            41.5
                                                            11.6
                                                                       44.6
                                                                        7.4
                                                                                  45.2
                                                                                   1.4
                                                                                                  47.7
                                                                                                  5.6
                                                                                                            51.2
                                                                                                            7.3
                                                                                                                         54.1
                                                                                                                         5.6
                                                                                                                                    56.9
                                                                                                                                    5.2
                                                                                                                                                 58.6
                                                                                                                                                 3.0
                                                                                                                                                               demand forecasts still fail to rebalance
                                                                                                                                                               the market.
DEMAND                                            Unit      2010       2011       2012           2013e     2014e        2015e      2016e        2017e
China                                              Mt       15.9       17.6       19.6            21.5      24.1         26.0       27.9         29.5        • In Europe, while economy suggests that
BRI (Brazil, Russia, India)
USA
                                                   Mt
                                                   Mt
                                                             3.1
                                                             4.2
                                                                        3.4
                                                                        4.1
                                                                                   3.7
                                                                                   4.7
                                                                                                  4.0
                                                                                                   4.8
                                                                                                            4.4
                                                                                                             5.1
                                                                                                                         4.7
                                                                                                                          5.0
                                                                                                                                     5.1
                                                                                                                                     5.0
                                                                                                                                                  5.4
                                                                                                                                                  5.0
                                                                                                                                                               aluminum product demand will not be
Europe                                             Mt        7.5        7.7        6.4            6.5       6.8          6.9         7.0          6.9          strong, demand indicators have levelled
Japan
Rest of World
                                                   Mt
                                                   Mt
                                                             2.0
                                                             7.4
                                                                        1.9
                                                                        7.7
                                                                                   1.7
                                                                                   7.3
                                                                                                   1.7
                                                                                                  7.5
                                                                                                             1.7
                                                                                                            8.2
                                                                                                                          1.7
                                                                                                                         8.6
                                                                                                                                     1.6
                                                                                                                                    9.0
                                                                                                                                                  1.5
                                                                                                                                                  9.2
                                                                                                                                                               off. In particular, in late 2012 and early
World Primary Usage                                Mt       40.2       42.4       43.5            46.0      50.3         52.9       55.6         57.5          2013, European producers have seen an
  year-over-year                                   %        15.6        5.6        2.6            5.7       9.3          5.2        5.0          3.6           uptick in domestic sales of aluminium
Primary Market Balance                             Mt       1.33       2.15       1.67            1.71      0.92         1.18       1.38         1.09
Reported Stocks                                    Mt       6.50       7.05       7.29            9.00      9.92        11.10      12.48        13.57          semis owing to reduced Chinese imports.
Stock-to-Consumption Ratio                        Wks       8.42       8.65       8.71           10.17     10.25        10.91      11.68        12.26          In Japan, reconstruction activity has also
Average LME Cash Price                           US$/lb     0.99       1.10       0.93            1.01      1.06         1.10       1.16         1.18
                                                                                                                                                               boosted demand from the construction
e = Morgan Stanley Research estimates Source: IAI, WBMS, CRU, Morgan Stanley Commodity Research
                                                                                                                                                               segment while housing starts have been
                                                                                                                                                               steady, likely to continue in 2013.



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Aluminum: Demand / Supply
China Aluminum Trade - Monthly                                                                                      Chinese Alumina Imports as % of Apparent Consumption
(Left axis: net exports, ‘000 MT; right axis: primary production, ‘000 MT)                                          (Left axis: % of consumption; right: spot price, $/MT)
     200,000                                                                               2,000,000                   60
                                                                                                                             %                                                                          US$/t
                                                                                                                                                                                                                      700

                                                                                           1,800,000
     100,000                                                                                                           50                                                                                             600
                                                                                           1,600,000

                                                                                           1,400,000                   40                                                                                             500
                -
                                                                                           1,200,000
                                                                                                                       30                                                                                             400
   (100,000)                                                                               1,000,000

                                                                                           800,000                     20                                                                                             300
   (200,000)
                                                                                           600,000
                                                                                                                       10                                                                                             200
                                                                                           400,000
   (300,000)
                                                                                           200,000                      0                                                                                             100
                                                                                                                        Jan-04   Jan-05   Jan-06   Jan-07    Jan-08      Jan-09   Jan-10   Jan-11    Jan-12
   (400,000)                                                                               -
           1995 1997 1999 2001 2003 2005 2007 2009 2011                                                                     Imports as % of apparent consumption (LHS)            Pacific spot alumina, US$/t (RHS)

                     China Production (RHS)                       China Net Exports (LHS)                           Source: Bloomberg, Morgan Stanley Commodity Research

Source: Bloomberg, Morgan Stanley Commodity Research
Aluminum Exchange Inventory                                                                                         Aluminum Stock-to-Consumption Ratio
(‘000 MT)                                                                                                           (Left axis: ‘000 MT; right axis: ex. days-of-consumption)
  7,000                                                                                                              2500                                                                                     1

                                                                                                                                                                                                              1
  6,000
                                                                                                                     2000                                                                                     1
  5,000
                                                                                                                                                                                                              1
                                                                                                                     1500
  4,000                                                                                                                                                                                                       1

                                                                                                                                                                                                              0
  3,000                                                                                                              1000
                                                                                                                                                                                                              0
  2,000                                                                                                                                                                                                       0
                                                                                                                      500
  1,000                                                                                                                                                                                                       0

                                                                                                                        0                                                                                0
          -                                                                                                             1996    1998   2000     2002    2004             2006    2008   2010     2012
                1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012                                               Total commercial stocks (LHS)                   Stock to consumption ratio (RHS)
                            LME           Comex            SHFE                                                           Avg ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                                                Source: Bloomberg, Morgan Stanley Commodity Research


LME Aluminum Price vs. Marginal Cost
(¢/lb)
          180                          50th Percentile                   60th Percentile             180

                                       70th Percentile                   80th Percentile
          160                                                                                        160
                                       LME Cash Aluminium Price          90th Percentile
          140                                                                                        140

          120                                                                                        120

          100                                                                                        100
 USc/lb




                                                                                                           USc/lb




          80                                                                                         80

          60                                                                                         60

          40                                                                                         40

          20                                                                                         20

              0                                                                                      0
              1983      1987    1991     1995        1999         2003    2007         2011

Source: Global Insight, Morgan Stanley Commodity Research




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Aluminum: Prices
Aluminum Term Structure vs. Inventories                                                 Aluminum Pinch Point
(Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)         (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)
  200                                                                                              Price (USc/lb)
                                                                                          150
  150
                                                                                          125
  100
                                                                 Backwardation
   50                                                                                     100
                                                                                                                                         4Q12
       0
                                                                                              75
   -50
                                                                                              50
 -100
    Contango
 -150                                                                                         25
      0           10         20         30              40          50            60               3.0           5.0         7.0        9.0     11.0       13.0             15.0
                         month-end data              4/13/2013                                                               Stock to consumption ratio (weeks)

Source: Bloomberg, Morgan Stanley Commodity Research                                    Source: Bloomberg, Morgan Stanley Commodity Research


SHFE/LME Arbitrage vs SHFE inventories                                                  Copper to Aluminum Ratio
(Left axis: arbitrage, ¢/lb; right axis: SFE stocks, ‘000 MT)                           (Copper price / aluminum price, $/MT)
  20                                                                              550     4.5

           Shanghai Premium                                                       500     4.0
  10
                                                                                  450
                                                                                          3.5
   0                                                                              400
                                                                                          3.0
                                                                                  350
 -10                                                                              300     2.5

 -20                                                                              250     2.0
                                                                                  200     1.5
 -30                                                                              150
                                                                                          1.0
                                                                                  100
 -40                                                                                      0.5
                                                                                  50
 -50                                                                              0       -
                                   London Premium
   Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12                                        1998                         2003                      2008

             Arbitrage, USD/lb (lhs)                    SFE Stocks, Kt (rhs)                             Copper / Aluminum                Long-run-average               Current Ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                    Source: Bloomberg, Morgan Stanley Commodity Research


Spot Regional Premiums for Primary Aluminum                                             Spot Australian vs. Domestic Chinese Alumina Price
(¢/lb)                                                                                  ($/MT)
 300
                                                                                                  800                                                                                     800

 250                                                                                              700                                                                                     700

                                                                                                  600                                                                                     600
 200
                                                                                                  500                                                                                     500
                                                                                          US$/t




                                                                                                                                                                                                US$/t




 150                                                                                              400                                                                                     400

                                                                                                  300                                                                                     300
 100
                                                                                                  200                                                                                     200

  50                                                                                              100                                                                                     100

                                                                                                    0                                                                                  0
   0                                                                                                2004        2005    2006     2007     2008    2009    2010    2011     2012    2013
    2002   2003   2004   2005   2006   2007   2008   2009   2010    2011   2012
                         Europe               USA                Japan                                   Australia FOB alumina price (Avg spot)          Chinese domestic alumina price

Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research                    Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Copper
                Copper Demand by Region                                                        Copper Production by Region                                        Investment Thesis
(Global refined demand, MT/year)                                                (Global concentrate production, ‘000 MT/year)
 30,000                                                                          25,000                                                                           The outlook for the copper market continues
 25,000
                                                                                                                                                                  to improve, primarily led by a
                                                                                 20,000
                                                                                                                                                                  larger-than-previously- forecast turnaround
 20,000
                                                                                 15,000
                                                                                                                                                                  in demand from China, and the basing
 15,000                                                                                                                                                           effects of a very large refined market deficit
 10,000
                                                                                 10,000                                                                           in CY12.
  5,000                                                                           5,000                                                                           Supply
     -                                                                                                                                                            • Although supply growth remains a
            2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e                     0
                                                                                            2007   2008    2009    2010 2011e 2012e 2013e 2014e 2015e 2016e         primary concern for investors, the
   China     BRI (Brazil, Russia, India)   USA   W Europe   Japan    ROW           Africa      China   Australia   USA    Canada   Mexico   Chile   Peru   ROW
                                                                                                                                                                    likelihood of continued refined market
Source: WMBH, Morgan Stanley Commodity Research                                 Source: WMBH, Morgan Stanley Commodity Research                                     deficits over the next 18-24 months will
estimates                                                                       estimates                                                                           prevent the price from mean reverting
                                                                                                                                                                    over this period.
                      China Trade Balance                                               Chinese Copper Production vs Price
(‘000 MT)                                                                       (Left axis: ‘000 MT; right axis: US$/lb)
                                                                                                                                                                  • While this new supply represents a
   800                                                                           600                                                                       5.00
                                                                                                                                                           4.50
                                                                                                                                                                    change in recent copper market dynamics,
   300
                                                                                 500
                                                                                                                                                           4.00     we expect the immediate and
  -200
                                                                                 400
                                                                                                                                                           3.50     medium-term impact of this development
  -700
                                                                                                                                                           3.00     to be muted because the risk of project
 -1,200
                                                                                 300                                                                       2.50
                                                                                                                                                                    delay/deferral as a result of uncertain
 -1,700                                                                                                                                                    2.00
                                                                                 200
                                                                                                                                                           1.50
                                                                                                                                                                    financial market conditions remains real.
 -2,200
                                                                                                                                                           1.00
 -2,700                                                                          100
                                                                                                                                                           0.50
                                                                                                                                                                  • Furthermore, mine supply growth is
 -3,200
                                                                                   0                                                                       -        starting from a low base, and a return to
 -3,700
          2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
                                                                                    2000     2002      2004     2006       2008        2010      2012               normal stock-to-use ratios will take up to
                                                                                       China Refined Copper Production (LHS)          LME Price, USD/lbs (RHS)
                                                                                                                                                                    three years to materialize. History
Source: Thomson Reuters, MS Commodity Research                                  Source: Thomson Reuters, MS Commodity Research                                      suggests that when this ratio remains
                                                                                                                                                                    below its long-term average, prices trade
Supply-Demand Balance: Concentrate
Supply                                             Unit     2010       2011            2012        2013e          2014e     2015e      2016e        2017e
                                                                                                                                                                    above marginal cost, absent major
Concentrates                                        Mt      12.70      12.55           12.56       13.37          14.49     15.84      16.47        17.64           negative demand shocks.
SX/EW                                               Mt       3.33       3.47            3.62        3.86           4.25      4.44       4.27         4.29
Mine Production                                     Mt      16.05      16.03           16.20       17.26          18.69     20.13      20.57        21.74
 year-over-year                                     %        0.5        -0.1            1.0         6.5            8.3       7.7        2.2          5.7          Demand
Demand                                             Unit      2010       2011           2012        2013e       2014e        2015e      2016e        2017e         • China’s IP cycle turned up in 4Q12, with
Primary
Secondary
                                                    Mt
                                                    Mt
                                                            12.93
                                                             2.71
                                                                        12.85
                                                                         3.12
                                                                                       12.51
                                                                                        3.44
                                                                                                   13.32
                                                                                                    3.47
                                                                                                               14.43
                                                                                                                3.41
                                                                                                                            15.78
                                                                                                                             3.47
                                                                                                                                       16.39
                                                                                                                                        3.45
                                                                                                                                                    17.56
                                                                                                                                                     3.37
                                                                                                                                                                    infrastructure-related demand and
Total Smelter Production                            Mt       15.64      15.96          15.96       16.79       17.84        19.24      19.84        20.93           non-ferrous metal output contributing to
  year-over-year                                    %         4.8        2.1            0.0         5.2         6.2          7.9        3.1          5.5
Imputed concentrate balance                         Kt      -224.9     -301.4          48.8         53.8        59.4         66.2       76.3         82.1           increased output and higher orders. We
                                                                                                                                                                    believe this improved position will
Supply-Demand Balance: Refined Market                                                                                                                               strengthen further in 2013, particularly as
Supply                                             Unit     2010       2011            2012        2013e          2014e     2015e      2016e        2017e           widespread destocking of finished
Electrowon                                          Mt       3.33      3.47            3.62         3.86           4.25      4.44       4.27         4.29           products appears to be ending. We think
Primary                                             Mt      12.42      12.69           12.49       13.00          14.05     15.46      16.19        17.14
Secondary                                           Mt       3.25       3.48           3.51         3.89           3.82      3.89       4.07         3.98           power generation and distribution and rail
Total Refinery Production                           %       19.01      19.65           19.63       20.75          22.13     23.79      24.54        25.41           infrastructure investment will underpin
  year-over-year                                    %        4.0        3.4             -0.1        5.7            6.6       7.5        3.2          3.6
                                                                                                                                                                    solid copper demand growth in 2013, with
Demand                                            Unit      2010       2011            2012        2013e       2014e        2015e      2016e        2017e           some added support from the auto,
China                                              Mt       7.43       7.78            8.17         8.85        9.30         9.94      10.66        11.29
BRI (Brazil, Russia, India)                        Mt       1.48        1.70            1.68        1.72        1.79         1.93       2.08         2.22           property and construction segments.
W Europe                                           Mt       2.98       3.06            2.83         2.89        3.00         3.13       3.21         3.24
USA                                                Mt       1.76       1.76            1.78         1.81        1.85         1.90       1.95         1.95         • Outside of China, our forecasts for US
Japan                                              Mt       1.06       1.01            1.01         1.02        1.04         1.08       1.09         1.09
ROW                                                Mt       4.66       4.56            4.62         4.61        4.78         5.04       5.26         5.46           construction and auto manufacturing are
World Copper Usage                                 Mt       19.37      19.86           20.07       20.92       21.76        23.01      24.26        25.25           also supportive of stronger off-take, and
  year-over-year                                   %         7.0        2.5             1.1         4.2         4.0          5.7        5.4          4.1
    China usage growth                             %         4.3        4.8             5.0         8.4         5.0          6.9        7.3          5.9            even in Europe our economic forecasts
Refined Market Balance                             Mt       -0.37      -0.22           -0.45       -0.17        0.36         0.78       0.28         0.16           suggest a moderate rebound in 2H13 is
Refined Stocks End of Period                       Kt       1,193      1,205           1,259       1,091       1,455        2,231      2,511        2,670
Stock to Usage Rate                              Weeks      3.21       3.16            3.27         2.72        3.49         5.06       5.40         5.51           possible.
LME Copper Price                                 US$/lb      3.42       4.01            3.61        3.88        3.70         3.40       3.30         3.27
e = Morgan Stanley Research estimates Source: ICSG, Wood Mackenzie Brook Hunt, Morgan Stanley Research




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Copper: Demand / Supply
Global Production vs. Consumption and Price                                                          Chinese Copper Usage by Sector
(Left axis: global production - consumption, ‘000 MT; right axis: LME price, $/lb)                   (% of total usage)
  250                                                                                         5.00
           Surplus Production                                                                                                         Others, 11%
  200                                                                                         4.50

  150                                                                                         4.00                      Construction,
                                                                                                                            9%
  100                                                                                         3.50

   50                                                                                         3.00
                                                                                                                                                                                         Power, 46%
    0                                                                                         2.50             Electronics, 8%
  -50                                                                                         2.00

 -100                                                                                         1.50

 -150                                                                                         1.00                   Transportation,
                                                                                                                          11%
 -200                          Production Deficit                                             0.50

 -250                                                                                   -
                                                                                                                                            Air-con and
     2005       2006    2007    2008  2009                2010     2011    2012                                                             fridge, 15%
               Production Less Consumption                            Price, $/lbs (RHS)
                                                                                                     Source: Bloomberg, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research

Copper Exchange Inventory                                                                            Copper Stock-to-Consumption Ratio
(‘000 MT)                                                                                            (Left axis: ‘000 MT; right axis: ex. days-of-consumption)
  1,400                                                                                               2500           Kt                                                                      Days     70

  1,200                                                                                                                                                                                               60
                                                                                                      2000
  1,000                                                                                                                                                                                               50

                                                                                                      1500
   800                                                                                                                                                                                                40


   600                                                                                                                                                                                                30
                                                                                                      1000

                                                                                                                                                                                                      20
   400
                                                                                                        500
                                                                                                                                                                                                      10
   200
                                                                                                               0                                                                                      0
    -                                                                                                          Jan-96     Jan-98   Jan-00   Jan-02   Jan-04     Jan-06   Jan-08    Jan-10    Jan-12
          1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011                                                   Total commercial stocks (LHS)                  Stock to consumption ratio (RHS)
                        LME          Comex           SHFE                                                          Avg ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                                 Source: Bloomberg, Morgan Stanley Commodity Research


Est. Yield on US-based Copper Inventory Financing Deals                                              LME Copper Price vs. Marginal Cost
(Yield, %)                                                                                           (¢/lb)
   10.0%                                                                                                       450                                                                                    450
                                                                                                                            LME Cash Copper Price             50th Percentile
    5.0%
                                                                                                               400          60th Percentile                   70th Percentile                         400
    0.0%
                                                                                                                            80th Percentile                   90th Percentile
                                                                                                               350                                                                                    350
   -5.0%

  -10.0%                                                                                                       300                                                                                    300

  -15.0%                                                                                                       250                                                                                    250
                                                                                                      USc/lb




                                                                                                                                                                                                            USc/lb




  -20.0%
                                                                                                               200                                                                                    200
  -25.0%

  -30.0%
                                                                                                               150                                                                                    150

  -35.0%                                                                                                       100                                                                                    100
  -40.0%
                                                                                                               50                                                                                     50
        Jan-    Jan-   Jan-   Jan-   Jan-   Jan-   Jan-    Jan-   Jan-   Jan-   Jan-   Jan-
         01      02     03     04     05     06     07      08     09     10     11     12
                                                                                                                   0                                                                                  0
                       Cash to 3-month             Cash to 15-month             Cash to 27-month                   1982        1987         1992      1997          2002          2007       2012
Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research                                     Source: Global Insight, Morgan Stanley Commodity Research




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Copper: Prices
Copper Term Structure vs. Inventories                                                      Copper Pinch Point
(Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)            (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)
  600                                                                                                  Price (USc/lb)
                                                                                             400
  500
                                                                                             350
  400
                                                                                             300
  300                                                               Backwardation
                                                                                             250
  200                                                                                        200

  100                                                                                        150

      0                                                                                      100

 -100                                                                                         50
          Contango
 -200                                                                                             0
          0          5        10       15         20         25          30           35              1.0       2.0     3.0       4.0      5.0    6.0      7.0       8.0       9.0
                              month-end data            4/13/2013                                                             Stock to consumption ratio (weeks)

Source: Bloomberg, Morgan Stanley Commodity Research                                       Source: Bloomberg, Morgan Stanley Commodity Research


SHFE/LME Arbitrage vs SHFE inventories                                                     China Imports vs. Price
(Left axis: arbitrage, ¢/lb; right axis: SFE stocks, ‘000 MT)                              (Left axis: imports, ‘000 MT; right axis: LME price, $/lb)
  600                                                                         350000         300                                                                           (4.50)
                                                                                             250
                                                                              300000                                                                                       (3.50)
  400
               Shanghai Premium                                                              200
                                                                              250000                                                                                       (2.50)
                                                                                             150
  200
                                                                                             100                                                                           (1.50)
                                                                              200000
      0                                                                                           50
                                                                                                                                                                           (0.50)
                                                                              150000
                                                                                              -
 -200                                                                                                                                                                      0.50
                                                                              100000          (50)
                                                                                             (100)                                                                         1.50
 -400                                                                         50000
                                                                                             (150)
                                           London Premium                                                                                                                  2.50
 -600                                                                         0              (200)
    Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12                                      2000            2002     2004      2006     2008       2010     2012
                    Arbitrage, USc/lb (lhs)           SFE Stocks, Kt (rhs)                                              YoY Chg in LME Price, USD/lbs (RHS)
                                                                                                                        YoY Chg in China Imports: Refined Copper
Source: Bloomberg, Morgan Stanley Commodity Research                                       Source: Bloomberg, Morgan Stanley Commodity Research

Copper to Spot Iron Ore Ratio                                                              Brent to Copper Ratio
(Left axis: LME copper spot / China import iron ore refined 62% FE spot)                   (Left axis: Brent price, $/bbl / copper price, $/lb)
  140                                                                                        45.0

                                                                                             40.0
  120
                                                                                             35.0
  100
                                                                                             30.0
   80                                                                                        25.0

   60                                                                                        20.0

                                                                                             15.0
   40
                                                                                             10.0
   20
                                                                                              5.0
  -                                                                                           -
      2006        2007      2008      2009     2010       2011       2012                              1998     2000     2002      2004     2006    2008     2010       2012
              Copper / Iron Ore          Long-run-average             Current Ratio                         Brent / Copper            Long-run-average             Current Ratio
Source: Wood Mackenzie, Bloomberg, Morgan Stanley Commodity Research                       Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Nickel
            Refined Nickel Regional Demand                                                        Refined Nickel Regional Production                                              Investment Thesis
(‘000 MT)                                                                               (‘000 MT)
 2,500                                                                                   1,600
                                                                                                                                                                                  In 2012, nickel landed at the bottom of the
                                                                                         1,400
                                                                                                                                                                                  relative performance list among the six LME
 2,000
                                                                                         1,200                                                                                    metals, for the second straight year – and with
 1,500
                                                                                         1,000                                                                                    good reason. Demand for nickel in stainless
                                                                                          800                                                                                     steel and non-stainless applications remains
 1,000                                                                                    600                                                                                     anaemic while supply continues to grow at a
                                                                                          400                                                                                     solid pace. We struggle to find much reprieve
   500
                                                                                          200                                                                                     from these poor fundamentals in 2013.
   -                                                                                          0
            2007   2008   2009    2010 2011e 2012e 2013e 2014e 2015e 2016e                         2007    2008
                                                                                                  China Pig Iron
                                                                                                                   2009   2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                                                             China Refined               Canada
                                                                                                                                                                                  Supply
   China      BRI (Brazil, Russia, India)   USA     W Europe      Japan     ROW                   Brazil                     Australia                   New Caledonia
                                                                                                  Japan                      Russia                      Europe                   • It has been our long-standing view since
Source: INSG, Morgan Stanley Commodity Research estimates Source: INSG, Morgan Stanley Commodity Research                                                                           nickel entered a bear market in 2Q11 that
                                                          estimates                                                                                                                 only a widespread disruption/delay of the
       China’s Monthly Imports of Nickel Ore                                                  Nickel Monthly Supply/Demand Balance                                                  six high-pressure acid leach (HPAL)
(Left axis: China imports, ‘000 MT; right axis: LME price, $/lb}                        (Left axis: ‘000 MT; right axis: $/lb)                                                      projects slated to come online from 2012
 8,000                                                                         25.00     200                                                                              25.00     could reverse the trend. With the exception
 7,000                                                                                                                                                                              of the most high-profile facility (Vale’s VNC
 6,000
                                                                               20.00     150                                                                              20.00     [formerly Goro] in New Caledonia), these
 5,000
                                                                                                                                                                                    projects are now producing.
                                                                               15.00     100                                                                              15.00
 4,000

 3,000                                                                         10.00      50                                                                              10.00   • The delayed but simultaneous success in
 2,000                                                                                                                                                                              several of the HPAL projects reaching
                                                                               5.00       -                                                                               5.00
 1,000                                                                                                                                                                              commercial production, coupled with the
       0                                                                       -          (50)                                                                            0.00
                                                                                                                                                                                    steep rise in China’s nickel pig iron (NPI)
        2006     2007     2008     2009
          China Imports: Nickel Indonesia
                                             2010      2011     2012
                                                    China Imports: Nickel Phillipines
                                                                                             Jan-05       Jan-06   Jan-07    Jan-08   Jan-09    Jan-10    Jan-11                    production has brought the global nickel
                                                                                                    Rolling 12-month global market balance (LHS)            LME price (RHS)
          LME Price, USD/lbs (RHS)
                                                                                                                                                                                    market into a long projected period of
Source: Thomson Reuters, MS Commodity Research                                          Source: INSG, Morgan Stanley Commodity Research                                             oversupply. As a result, we have cut our
                                                                                                                                                                                    price forecasts – modestly in 2013 and
Supply-Demand Balance                                                                                                                                                               2014 (by an average of 1.4%), but lowered
Supply                                                Unit       2010          2011           2012e         2013e         2014e       2015e        2016e           2017e            2015-17 prices more (by an average of 9%).
World mine production                                  Kt        1,578         1,902          1,876         1,857         1,968       2,130        2,265           2,216
 year-over-year                                        %         17.7          20.5            -1.3          -1.0          5.9         8.2          6.3             -2.1            However, our price profile is upward sloping
                                                                                                                                                                                    as prices slowly normalise from below
Refined Production
China Pig Iron                                         Kt         167           265            272           326           344         356          368             374             marginal cost levels.
China Refined Nickel                                   Kt         167           187            198           225           242         259          263             262
Russia                                                 Kt         258           248            251           250           249         253          255             242           Demand
Europe                                                 Kt         257           257            215           209           220         216          220             219
Japan                                                  Kt         168           183            196           206           206         206          206             206           • Meanwhile, the lack of end-user restocking
Canada                                                 Kt         107           148            150           132           137         122          138             144             was physically manifested by the
ROW                                                    Kt         161           102            163           170           246         266          289             307
World refined production                               Kt        1,285         1,389          1,445         1,519         1,643       1,677        1,737           1,754            relentless rise in commercial stocks
  year-over-year                                       %          3.9           8.1            4.1           5.1           8.2         2.1          3.6             0.9             throughout 2012. We do anticipate a
Demand                                                Unit       2010          2011           2012e         2013e         2014e       2015e        2016e           2017e            healthy increase in demand this year, but
Primary Nickel in Stainless                            Kt        1,009         1,079          1,115         1,204         1,285       1,321        1,356           1,381            not enough to clear excess from the global
Primary Nickel in Non-Stainless                        Kt         454           529            541           604           682         693          712             738
World nickel usage                                     Kt        1,464         1,608          1,643         1,807         1,967       2,014        2,068           2,119
                                                                                                                                                                                    market balance.
 year-over-year                                        %         18.8           9.9            2.2           10.0          8.8         2.4          2.7             2.5

Refined Nickel Market Balance                          Kt         -11.2         46.4          73.9           38.1           20.8       19.2         37.4            8.1

Reported total commercial stocks                      Kt          235           191           238            276            297        317          354             362
Reported stock to usage ratio                        Wks          8.33         6.16           7.55           7.96           7.86       8.17         8.90            8.88
Average LME Cash Nickel Price                       US$/lb        9.92         10.40          7.98           8.19           8.88       9.00         9.80           10.00
e = Morgan Stanley Research estimates Source: Wood Mackenzie Brook Hunt, INSG, Morgan Stanley Commodity Research




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Nickel: Demand / Supply
Global NPI Production                                                                           China NP Production vs. % Share NPI Consumption
(‘000 MT)                                                                                       (Left axis: NPI production, ‘000 MT; right axis: China NPI production /
                                                                                                consumption, %)
  50                                                                                              400                                                                                 50%
  40                                                                                              350                                                                                 45%

  30                                                                                                                                                                                  40%
                                                                                                  300
  20                                                                                                                                                                                  35%
                                                                                                  250                                                                                 30%
  10
  -                                                                                               200                                                                                 25%

                                                                                                  150                                                                                 20%
  (10)
                                                                                                                                                                                      15%
  (20)                                                                                            100
                                                                                                                                                                                      10%
  (30)
                                                                                                     50                                                                               5%
  (40)
                                                                                                   -                                                                                  0%
  (50)
                                                                                                                 2006      2008           2010     2012e        2014e         2016e
     2003         2004     2005        2006     2007       2008     2009        2010     2011
                                                                                                                        China NPI Production           Production / Consumption
              Total World Primary Production                  Total Refined Consumption
                                                                                                Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                estimates

Nickel Exchange Inventory                                                                       Nickel Stock-to-Consumption Ratio
( ‘000 MT)                                                                                      (Left axis: ‘000 MT; right axis: ex. days-of-consumption)
  180                                                                                            300              Kt                                                                     100
                                                                                                                                                                                      Days

  160                                                                                                                                                                                      90
                                                                                                 250
                                                                                                                                                                                           80
  140
                                                                                                                                                                                           70
  120                                                                                            200
                                                                                                                                                                                           60
  100
                                                                                                 150                                                                                       50
      80                                                                                                                                                                                   40
                                                                                                 100
      60                                                                                                                                                                                   30

      40                                                                                                                                                                                   20
                                                                                                   50
                                                                                                                                                                                           10
      20
                                                                                                       0                                                                  0
  -                                                                                                    Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
           1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011                                          Total commercial stocks (LHS)     Stock to consumption ratio (RHS)
                                         LME                                                               Avg ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                            Source: Bloomberg, Morgan Stanley Commodity Research


Est. Yield on US-based Nickel Inventory Financing Deals                                         LME Nickel Price vs. Marginal Cost
(Yield, %)                                                                                      (¢/lb)
      10%                                                                                                24.00                                                                                  24.00


                                                                                                         21.00          50th Percentile            60th Percentile                              21.00
      0%
                                                                                                                        70th Percentile            80th Percentile
                                                                                                         18.00          LME Cash Nickel Price      90th Percentile                              18.00
  -10%

                                                                                                         15.00                                                                                  15.00
  -20%
                                                                                                 US$/t




                                                                                                                                                                                                        US$/t




                                                                                                         12.00                                                                                  12.00
  -30%
                                                                                                          9.00                                                                                  9.00

  -40%
                                                                                                          6.00                                                                                  6.00

  -50%
                                                                                                          3.00                                                                                  3.00
      2003       2004    2005   2006     2007   2008       2009   2010   2011     2012

                                                 3-month          15-month          27-month              0.00                                                                                  0.00
                                                                                                             Jan-81        Jan-87         Jan-93      Jan-99         Jan-05       Jan-11
Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research
                                                                                                Source: Global Insight, Morgan Stanley Commodity Research




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Nickel: Prices
Nickel Term Structure vs. Inventories                                                                                 Nickel Pinch Point
(Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)                                       (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)
  6,000                                                                                                                       Price (USc/lb)
                                                                                                                        25
  5,000
                                                                                                                        20
  4,000
                                                                                         Backwardation
  3,000                                                                                                                 15

  2,000
                                                                                                                        10
                                                                                                                                                               2011
  1,000
                                                                                                                         5
          0

 -1,000           Contango                                                                                               0
              0               10               20                      30                  40                   50           2.0          4.0           6.0       8.0     10.0   12.0      14.0                  16.0     18.0
                                        month-end data                      4/13/2013                                                                         Stock to consumption ratio (weeks)

Source: Bloomberg, Morgan Stanley Commodity Research                                                                  Source: Bloomberg, Morgan Stanley Commodity Research


Nickel Production Balance vs. Price                                                                                   Stainless Steel Production & Austenitic Ratio
(Left axis: production less consumption – ‘000 MT; right axis: price, $/lb)                                           (Left axis: production, ‘000 MT; right axis: Austenitic ratio, %)
  30                                                                                                            $25     45000      Kt                                                                                     80.0%
              Surplus Production
                                                                                                                        40000
  20                                                                                                                                                                                                                      78.0%
                                                                                                                $20     35000
  10                                                                                                                                                                                                                      76.0%
                                                                                                                        30000

                                                                                                                $15     25000                                                                                             74.0%
   0
                                                                                                                        20000                                                                                             72.0%
 -10
                                                                                                                $10     15000
                                                                                                                                                                                                                          70.0%
 -20                                                                                                                    10000
                                                                                                                                                                                                                          68.0%
                                                                                                                $5       5000
 -30
                                                                                                                              0                                                                                           66.0%
                                      Production Deficit
                                                                                                                                   2003          2005          2007      2009         2011e      2013e          2015e
 -40                                                                                                            $0                        Stainless Steel Melt Output (LHS)            Austenitic Ratio (RHS)
    2005           2006     2007    2008   2009                     2010         2011     2012                        Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research estimates
                   Production Less Consumption                                     Price, $/lbs (RHS)
Source: Bloomberg, Morgan Stanley Commodity Research

Nickel and Stainless Steel price                                                                                      Nickel to Aluminum Ratio
(Left axis: LME nickel, $/lb; right axis: China stainless steel, $/MT)                                                (LME spot nickel / LME spot aluminum, $/MT)

  25.00                                                                                               US$/t 5500         20
                                                           US$/lb
                                                                                                                         18

  20.00                                                                                                                  16
                                                                                                             4500
                                                                                                                         14
                                                                                                                         12
  15.00
                                                                                                                         10
                                                                                                             3500
                                                                                                                          8
  10.00
                                                                                                                          6
                                                                                                             2500         4
   5.00
                                                                                                                          2
                                                                                                                          0
   0.00                                                                                                      1500
                                                                                                                          2005            2006      2007          2008         2009     2010        2011         2012
      Jan-04       Jan-05    Jan-06     Jan-07    Jan-08      Jan-09    Jan-10       Jan-11     Jan-12
                                             LME Nickel Price (LHS)              China Stainless Steel Price (RHS)                  Nickel / Aluminum                         Long-run-average                   Current Ratio
Source: ILZSG, Morgan Stanley Commodity Research                                                                      Source: Bloomberg, Morgan Stanley Commodity Research




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Commodity Snapshot: Lead and Zinc
                 Zinc Demand by Region                                                      Lead Production by Region                                        Investment Thesis
(Global demand, ‘000 MT/year)                                               (Global refined production, ‘000 MT/year)                                        After 6 consecutive years of global surplus, we
 18,000                                                                      7,000                                                                           are forecasting a small, but directionally important
 16,000
                                                                             6,000                                                                           shift in the global zinc market to deficit conditions
 14,000
                                                                                                                                                             in 2013 for the slab zinc market. We believe this
 12,000                                                                      5,000
                                                                                                                                                             will occur owing to a slowdown in mine and
 10,000
                                                                             4,000                                                                           associated smelter production growth while
  8,000

  6,000
                                                                             3,000                                                                           consumption is showing signs of a cyclical
  4,000                                                                      2,000
                                                                                                                                                             recovery. In 2013, we expect lead demand growth
  2,000
                                                                                                                                                             to outstrip refined production growth leading to a
    -
                                                                             1,000                                                                           structural market deficit.

  China
          2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e

           BRI (Brazil, Russia, India)   USA   W Europe   Japan   ROW
                                                                                0
                                                                                     2007    2008       2009   2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                                                                                             Supply
                                                                               China        Australia      Mexico      Peru   Europe          • The expected supply adjustment in zinc is twofold.
                                                                                                                                         N America     ROW

Source: ILZSG, Morgan Stanley Commodity Research                                                                                                More immediately, Chinese smelting output in
                                                                      Source: ILZSG, Morgan Stanley Commodity Research
estimates
                                                                      estimates
                                                                                                                                                2012 declined YoY for the first time since
                                                                                                                                                industrialization began in earnest following a
        Zinc Monthly Supply/Demand Balance                                      Lead Monthly Supply/Demand Balance                              two-year period of poor profitability. Longer term,
(Left axis: ‘000 MT; right axis: YoY change %)                           (Left axis: ‘000 MT; right axis: YoY change %)                         a number of large mines are reaching the end of
                                                                                                                                                their lives. We are less concerned over the recent
   600                                                            40%        150                                                         25%
                                                                                                                                         20%
                                                                                                                                                sharp rise in exchange inventories, which have
   400                                                            30%        100
                                                                                                                                         15%
                                                                                                                                                reached 20-year highs. The recent accumulation
                                                                  20%                                                                    10%    in Antwerp suggests that this reflects financially
   200                                                                        50
                                                                  10%
                                                                                                                                         5%     driven trading strategies of large physical trading
   -                                                                         -                                                           0%     companies.
                                                                  0%
                                                                                                                                         -5% • Outages of large-scale lead smelters and
  (200)                                                                      (50)
                                                                  -10%                                                                   -10%
                                                                                                                                                increasingly longer queues to receive lead from
                                                                                                                                         -15%
  (400)                                                           -20%      (100)                                                               LME warehouses has constrained metal
                                                                                                                                         -20%
                                                                                                                                                availability and helped push the refined market
  (600)                                                           -30%      (150)                                                        -25%
       2005   2006 2007     2008   2009    2010    2011   2012                   2006     2007   2008        2009      2010     2011            closer to balance. Primary supply growth should
                      Rolling 12-month balance (LHS)                                           Rolling 12-month balance (LHS)                   be limited by a rising number of lead/zinc mine
                      YoY chg in global consumption (RHS)                                      YoY chg in global consumption (RHS)
                                                                                                                                                closures in the next two years. Similar to
Source: ILZSG, Morgan Stanley Commodity Research                         Source: ILZSG, Morgan Stanley Commodity Research                       aluminium and zinc, lead stocks in Europe have
                                                                                                                                                been concentrating in trader-owned locations.
Supply-Demand Balance: Zinc                                                                                                                     For example, WMBH reports that 60Kt was
 Supply                                      Unit      2010    2011      2012e        2013e    2014e       2015e      2016e       2017e         moved to non-LME storage facilities in Antwerp
 World mine production                        Mt      12.36    13.02      12.94       13.81    14.45       14.91       15.19       15.34
   year-over-year                             %         8.6     5.4        -0.6        6.7      4.7         3.2         1.9         1.0
                                                                                                                                                in 3Q12, effectively removing the material from
 Refined Production
                                                                                                                                                the market – at least in the short term.
Primary Refined Production
Secondary Refined Production
                                                  Mt
                                                  Mt
                                                          12.14
                                                          0.69
                                                                    12.39
                                                                    0.71
                                                                               12.07
                                                                               0.70
                                                                                              12.72
                                                                                              0.77
                                                                                                               13.45
                                                                                                                0.83
                                                                                                                          14.13
                                                                                                                          0.89
                                                                                                                                       14.58
                                                                                                                                       1.00
                                                                                                                                                 -1.03
                                                                                                                                                 17.16
                                                                                                                                                             Demand
Total Refined Availability                        Mt      12.83     13.10      12.77          13.49            14.28      15.02        15.57     16.13       • While European end-market weakness helped
  year-over-year                                  %       13.7       2.1        -2.5           5.6              5.8        5.2          3.7       3.6
                                                                                                                                                               drive global zinc demand growth down 2.7% in
Demand                                           Unit     2010      2011       2012e          2013e            2014e      2015e        2016e    2017e          2012, we forecast a sharp 9.6% consumption
World Refined Usage                               Mt      12.54     12.74      12.41          13.59            14.40      15.03        15.69    16.27          increase in 2013. A more stable global
 year-over-year                                   %       15.7       1.6        -2.7           9.6              5.9        4.4          4.4      3.7
                                                                                                                                                               macroeconomic outlook should support the price,
Market balance                                  Mt         0.29     0.36        0.37          -0.10            -0.13      -0.02        -0.12     -0.14
Reported commercial stocks                      Mt         1.44     1.80        2.17          2.07              1.94       1.93        1.81       1.67         with the surge in infrastructure spending in China
Stock to usage ratio                            Wks        5.98     7.35        9.09          7.90              7.01       6.66        6.00       5.34         and a strengthening automotive market in the US
Annual average LME cash prices                 US$/lb      0.99     1.00        0.89          0.98              1.05       1.10        1.08       1.10
                                                                                                                                                               and China particularly beneficial for galvanized
                                                                                                                                                               steel demand.
Supply-Demand Balance: Lead                                                                                                                                  • In China, automobile and electric bike sales
Supply                                          Unit      2010      2011      2012e          2013e         2014e         2015e     2016e       2017e           held up well in the face of the broader
World mine production                            Kt       4,205     4,616     4,967          5,361         5,619         5,653     5,722       5,942
 year-over-year                                  %         9.8       9.8       7.6            7.9           4.8           0.6       1.2         3.9
                                                                                                                                                               economic slowdown throughout 2012 -
Refined Production
                                                                                                                                                               positives for lead demand. We expect a
Primary Refined Production                       Kt       4,258    4,616      5,325          6,021         6,220        6,285      6,470        6,623          recovery in the economy, especially in the
Secondary Refined Production
Total Refined Availability
                                                 Kt
                                                 Kt
                                                          5,424
                                                          9,682
                                                                   5,756
                                                                   10,372
                                                                              5,467
                                                                              10,792
                                                                                             5,096
                                                                                            10,983
                                                                                                           5,087
                                                                                                           11,261
                                                                                                                        5,020
                                                                                                                        11,531
                                                                                                                                   5,286
                                                                                                                                   11,991
                                                                                                                                               5,626
                                                                                                                                               12,494
                                                                                                                                                               automotive sector and demand for some
  year-over-year                                 %         6.9      7.1        4.1            1.8           2.5          2.4        4.0          4.2           consumer products to carry improved demand
                                                                                                                                                               momentum into 2013. In the US, battery
Demand                                          Unit      2010      2011      2012e         2013e          2014e        2015e      2016e       2017e
World Usage                                      Kt       9,683    10,216     10,719        11,023         11,527       11,596     11,884      12,198          demand remained solid on the back of robust
 year-over-year                                  %         6.8       5.5       4.9           2.8            4.6          0.6        2.5         2.6            auto sales in 2012 and we expect it to grow
Market balance                                   Kt        -1       156         73            -40              -266       -66          107      296            further in 2013 – a development that should be
Reported total commercial stocks                 Kt       446       622        695            655               389       323          430      725
Reported stock to usage ratio                   Wks       2.40      3.16       3.37           3.09             1.75       1.45         1.88     3.09           good news for Chinese battery exports.
Annual average LME cash prices                 US$/lb     0.98      1.09       0.94           1.07             1.06       1.08         1.09     1.11

e = Morgan Stanley Research estimates Source: Wood Mackenzie Brook Hunt, ILZSG, Morgan Stanley Commodity Research




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Zinc
Global Zinc Slab Production and Consumption                                                 Chinese Zinc Net Exports
(‘000 MT)                                                                                   (‘000 MT)
 1,200                                                                                                800
 1,150
 1,100
                                                                                                      300
 1,050
 1,000
   950
                                                                                                  -200
   900
   850
   800                                                                                            -700
   750
   700
     2005      2006     2007       2008      2009       2010      2011       2012            -1,200
                        Consumption                             Production                                   2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: Bloomberg, Morgan Stanley Commodity Research                                        Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research


Zinc Exchange Inventory                                                                     Zinc Stock-to-Consumption Ratio
(‘000 MT)                                                                                   (Left axis: ‘000 MT; right axis: ex. days-of-consumption)
  1,800                                                                                           600           Kt                                                         Days     1400

  1,600                                                                                                                                                                             1200
                                                                                                  500
  1,400
                                                                                                                                                                                    1000
  1,200                                                                                           400
                                                                                                                                                                                    800
  1,000
                                                                                                  300
   800                                                                                                                                                                              600
                                                                                                  200
   600                                                                                                                                                                              400

   400                                                                                            100                                                                               200
   200
                                                                                                       0                                                                            0
    -                                                                                                  Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
          1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011                                            Total commercial stocks (LHS)                 Stock to consumption ratio (RHS)
                     LME           Comex          SHFE                                                      Avg ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                        Source: Bloomberg, Morgan Stanley Commodity Research


Est. Yield on US-based Zinc Inventory Financing Deals                                       LME Zinc Price vs. Marginal Cost
(Yield, %)                                                                                  (¢/lb)
   20%                                                                                                225                                                                            225

                                                                                                      200                                                                            200
   10%                                                                                                               50th Percentile            60th Percentile
                                                                                                      175                                                                            175
                                                                                                                     70th Percentile            80th Percentile
    0%                                                                                                               LME Cash Zinc Price        90th Percentile
                                                                                                      150                                                                            150

                                                                                                      125                                                                            125
                                                                                             USc/lb




                                                                                                                                                                                           USc/lb




  -10%

                                                                                                      100                                                                            100
  -20%
                                                                                                      75                                                                             75

  -30%                                                                                                50                                                                             50

                                                                                                      25                                                                             25
  -40%
     Jan-01        Jan-03         Jan-05       Jan-07          Jan-09        Jan-11                    0                                                                             0
                Cash to 3-month            Cash to 15-month             Cash to 27-month               Jan-81        Jan-87            Jan-93    Jan-99           Jan-05   Jan-11

                                                                                            Source: Global Insight, Morgan Stanley Commodity Research
Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research




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Zinc: Prices
Zinc Term Structure vs. Inventories                                                                Zinc Pinch Point
(Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)                    (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)
  450                                                                                                       Price (USc/lb)
                                                                                                     18
  400
                                                                                                     16
  350
  300                                                                                                14

  250                                                                      Backwardation             12
  200                                                                                                10
  150
                                                                                                      8
  100
                                                                                                      6
      50
                                                                                                      4
       0
  -50 Contango                                                                                        2

 -100                                                                                                 0
           0             10             20               30                 40              50            0.0        500.0      1000.0   1500.0  2000.0    2500.0    3000.0             3500.0
                                 month-end data                4/13/2013                                                          Stock to consumption ratio (weeks)

Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Bloomberg, Morgan Stanley Commodity Research


SHFE/LME Arbitrage vs SHFE inventories                                                             Zinc Commercial Stocks vs. Price
(Left axis: arbitrage, US cents/lb; right axis: SFE stocks, ‘000 MT)                               (Left axis: MT; right axis: $/MT)
  250                                                                                        450    600                                                                                 $5,000
  200                              Shanghai Premium                                          400                                                                                        $4,500
                                                                                                    500
  150                                                                                                                                                                                   $4,000
                                                                                             350
  100                                                                                                                                                                                   $3,500
                                                                                             300    400
      50                                                                                                                                                                                $3,000
                                                                                             250
       0                                                                                            300                                                                                 $2,500
                                                                                             200
  -50                                                                                                                                                                                   $2,000
                                                                                             150    200
 -100                                                                                                                                                                                   $1,500

 -150                                                                                        100                                                                                        $1,000
                                                                                                    100
 -200                                                                                        50                                                                                         $500
                                                       London Premium
                                                                                                      0                                                                                 $0
 -250                                                                                        0
                                                                                                      Jul-97       Jul-99     Jul-01   Jul-03    Jul-05   Jul-07    Jul-09   Jul-11
    2007            2008          2009          2010       2011            2012
                                                                                                                     Total commercial stocks (LHS)                           Price (RHS)
                       Arbitrage, USc/lb (lhs)                SFE Stocks, Kt (rhs)
Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Bloomberg, ILZSG, Morgan Stanley Commodity Research

Zinc to Iron Ore Ratio                                                                             Nickel to Zinc Ratio
(Left axis: LME Zinc, $/MT; right axis: iron ore spot price index)                                 (Left axis: LME nickel / LME zinc $/MT)
  30                                                                                                 16.0

                                                                                                     14.0
  25
                                                                                                     12.0
  20
                                                                                                     10.0

  15                                                                                                  8.0

                                                                                                      6.0
  10
                                                                                                      4.0
      5
                                                                                                      2.0

  -                                                                                                   -
       2008            2009              2010           2011           2012                                 1998       2000        2002     2004      2006         2008      2010     2012

               Zinc / Iron Ore              Long-run-average                     Current Ratio                     Nickel / Zinc                Long-run-average                Current Ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                               Source: Bloomberg, Morgan Stanley Commodity Research




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Lead
Global Lead Slab Production and Consumption                                                  YoY Change in Lead Regional Demand
(‘000 MT)                                                                                    (‘000 MT)
 1,000                                                                                         1,500
   950
                                                                                               1,000
   900
   850
                                                                                                 500
   800
   750                                                                                              -

   700
                                                                                                (500)
   650
   600
                                                                                               (1,000)
   550
   500                                                                                         (1,500)
     2005      2006     2007      2008       2009    2010     2011       2012                                 2007     2008 2009 2010       2011 2012e 2013e 2014e 2015e 2016e
                                                                                                     China             W Europe          USA          Brazil        India           ROW
                        Consumption                         Production
Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: ILZSG, Morgan Stanley Commodity Research estimates


Lead Exchange Inventory                                                                      Lead Stock-to-Consumption Ratio
(‘000 MT)                                                                                    (Left axis: ‘000 MT; right axis: ex. days-of-consumption)
  500                                                                                         800        Kt                                                                  Days     45
  450                                                                                         700                                                                                     40
  400                                                                                                                                                                                 35
                                                                                              600
  350                                                                                                                                                                                 30
                                                                                              500
  300
                                                                                                                                                                                      25
  250                                                                                         400
                                                                                                                                                                                      20
  200                                                                                         300
                                                                                                                                                                                      15
  150                                                                                         200
                                                                                                                                                                                      10
  100
                                                                                              100                                                                                     5
   50
                                                                                                0                                                                                     0
  -                                                                                             Jan-96        Jan-98   Jan-00   Jan-02   Jan-04   Jan-06   Jan-08   Jan-10   Jan-12
        1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011                                          Total commercial stocks (LHS)               Stock to consumption ratio (RHS)
                     LME          Comex          SHFE                                                   Avg ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                         Source: Bloomberg, Morgan Stanley Commodity Research


Est. Yield on US-based Lead Inventory Financing Deals                                        Chinese Lead Net Exports
(Yield, %)                                                                                   (‘000 MT)
  200%                                                                                         600

                                                                                               500
  150%

                                                                                               400

  100%
                                                                                               300

                                                                                               200
      50%

                                                                                               100
      0%
                                                                                                 0


   -50%
                                                                                              -100
       2003   2004    2005     2006   2007    2008   2009    2010    2011     2012
                                                                                              -200
                       Cash to 3-month         Cash to 15-month          Cash to 27-month
                                                                                                        2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research
                                                                                             Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research




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Lead: Prices
Lead Term Structure vs. Inventories                                                              Lead Pinch Point
(Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)                  (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)
  200                                                                                                       Price (USc/lb)
                                                                                                   160

  150                                                                                              140

                                                                                                   120
  100
                                                                        Backwardation
                                                                                                   100
                                                                                                                                   4Q11
      50                                                                                               80

                                                                                                       60
       0
                                                                                                       40
  -50
                                                                                                       20
           Contango
 -100                                                                                                   0
           0                 5                    10                  15                    20              0.0         2.0         4.0        6.0       8.0        10.0          12.0
                                 month-end data                4/13/2013                                                          Stock to consumption ratio (weeks)

Source: Bloomberg, Morgan Stanley Commodity Research                                             Source: Bloomberg, Morgan Stanley Commodity Research


Global Refined Production – Consumption vs. Price                                                Lead Commercial Stocks vs. Price
(Left axis: production less consumption; right axis: LME price, $/lb)                            (Left axis: MT; right axis: $/MT)
  70                                                                                    1.80      800                                                                        $4,000

                                           Surplus Production                           1.60      700                                                                        $3,500
  50
                                                                                        1.40      600                                                                        $3,000
  30
                                                                                        1.20      500                                                                        $2,500
  10                                                                                    1.00      400                                                                        $2,000

 -10                                                                                    0.80      300                                                                        $1,500

                                                                                        0.60      200                                                                        $1,000
 -30
                                                                                        0.40      100                                                                        $500
 -50
                                                                                        0.20           0                                                                     $0
                            Production Deficit
 -70                                                                                    -              Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11
    2005        2006    2007    2008   2009             2010     2011    2012                                       Total commercial stocks (LHS)                 Price (RHS)
                Production Less Consumption                         Price, $/lbs (RHS)
                                                                                                 Source: Bloomberg, ILZSG, Morgan Stanley Commodity Research
Source: Bloomberg, Morgan Stanley Commodity Research

Lead to Iron Ore Ratio                                                                           Lead to Zinc Ratio
(Left axis: LME Lead, $/MT; right axis: Iron Ore spot price index)                               (LME Lead/ LME Nickel $/MT)
  35                                                                                               1.4

  30                                                                                               1.2

  25                                                                                               1.0

  20                                                                                               0.8

  15                                                                                               0.6

  10                                                                                               0.4

      5                                                                                            0.2

  -                                                                                                -
       2006        2007      2008       2009           2010      2011      2012                          1998        2000       2002   2004     2006     2008    2010      2012

               Lead / Iron Ore            Long-run-average                 Current Ratio                          Lead / Zinc             Long-run-average           Current Ratio
Source: Bloomberg, Morgan Stanley Commodity Research                                             Source: Bloomberg, Morgan Stanley Commodity Research




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Global Commodities Strategy Team
Commodity Strategist1                Adam Longson, CFA, CPA, Vice President       Adam.Longson@morganstanley.com       +1 212 761 4061
Commodity Strategist1                Chris Corda, Vice President                  Chris.Corda@morganstanley.com        +1 212 761 6005
Commodity Strategist1                Tai Liu, Associate                           Tai.Liu@morganstanley.com            +1 212 761 3585
Commodity Strategist1                Bennett Meier, Associate                     Bennett.Meier@morganstanley.com      +1 212 761 4967
Commodity Strategist1                Alan Lee, Associate                          Alan.H.Lee@morganstanley.com         +1 212 761 3266

Chief Metals Economist2              Peter G Richardson, Managing Director        Peter.Richardson@morganstanley.com   +61 3 9256 8943
Commodities Strategist2              Joel B Crane, Vice President                 Joel.Crane@morganstanley.com         +61 3 9256 8961

1 Morgan Stanley & Co. LLC
2 Morgan Stanley Australia Limited




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