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Morgan stanley -The Commodity Manual

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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
May 6, 2013                                                                                                                                         Alan H Lee


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

                                                                                                                                                    Joel B Crane
Not Just Sentiment: Structure
                                                                  Brent Flat Price Tends to Bottom with Structure
Confirms Tighter Oil Markets                                      (Left axis: prompt month Brent spreads, $/bbl; right axis: Brent flat
                                                                  price, $/bbl)
                                                                   1.5                                                                                                                                                                             135

Stronger curve structure indicates firmer physical                 1.0                                                                                                                                                                             125
market for Brent. Improving sentiment has lifted asset                                                                                                                                                                                             115
prices broadly. However, Brent structure – an indicator of         0.5
                                                                                                                                                                                                                                                   105
physical market strength – has also rallied (+$0.36/bbl            0.0
WoW), suggesting higher Brent prices are not simply a                                                                                                                                                                                              95
                                                                   -0.5
result of sentiment. In fact, flat price tends to bottom at the                                                                                                                                                                                    85
same time as structure. Given that prompt month Brent              -1.0
                                                                                                                                                                                                                                                   75
spreads fell into contango in mid-April, the lowest seasonal
                                                                   -1.5                                                                                                                                                                            65
level since 2010 (p.22), Brent prices have likely bottomed           Jan-10               Jul-10                  Jan-11                   Jul-11                      Jan-12                    Jul-12                   Jan-13
as well. The return of backwardation also provides another                         Prompt Month Brent Spreads (LHS)                                                                                         Brent Price (RHS)
source of return (roll yield) along with higher spot prices.
                                                                  Source: Bloomberg, Morgan Stanley Commodity Research

Crude oil fundamentals continue to tighten, with
                                                                  Declining Refinery Maintenance to Help Flat Price
supply disappointing yet again. June Nigerian loadings            (Left axis: inverted MoM ∆ in Brent price, $/bbl; right axis: global
will likely fall to 3-year lows. June Ekofisk oil production is   refinery turnarounds, mmb/d)
set to decline by 190 kb/d, and up to 350 kb/d of US GoM            $(20)                                                                                                                                                                          10
                                                                                                                                                                                                                                                   9
production will shut during May (44 kb/d from PXP’s Horn            $(15)
                                                                                                                                                                                                                                                   8
Mountain and Marlin Hub, 310 kb/d from BP’s Thunder                 $(10)                                                                                                                                                                          7
Horse and Na Kika). With Brent net spec length still low             $(5)                                                                                                                                                                          6
(p.18), better fundamentals should return flows to the                                                                                                                                                                                             5
                                                                    $-                                                                                                                                                                             4
market. The key risk remains weak demand, which
                                                                         $5                                                                                                                                                                        3
pressures product prices and refinery margins (p.30-31).                                                                                                                                                                                           2
                                                                    $10
                                                                                                                                                                                                                                                   1
Higher gas injection the result of lower power demand,
                                                                    $15                                                                                                                                                                            -
                                                                                                                                                                                                                              M ay- 13
higher supply and a muted heating response. A
                                                                                                                                Aug- 12


                                                                                                                                                    O c t-1 2
                                                                              M ar- 12


                                                                                                   M ay-12




                                                                                                                                          S ep-12


                                                                                                                                                                 Nov -12
                                                                                                                                                                            Dec -12
                                                                                         A pr-12


                                                                                                             Jun- 12




                                                                                                                                                                                      Jan- 13




                                                                                                                                                                                                                    A pr-13
                                                                                                                                                                                                F eb-13
                                                                                                                                                                                                          Mar- 13




                                                                                                                                                                                                                                         Ju n-13
                                                                                                                       Jul-12




higher-than-expected storage injection (43 bcf vs.
consensus in the low 30s) triggered a sharp correction in                        MoM Chg Total (RHS)                                                                       MoM Chg in Price (inverted, LHS)

natural gas last week. The significant length in the market       Source: Bloomberg, Morgan Stanley Commodity Research
only exacerbated the decline. Pipeline scrapes imply lower
                                                                  Datapoints of the Week
power demand (~1 bcf/d WoW) and higher supply (~0.5
bcf/d WoW) could explain an injection of ~40 bcf, assuming        DM economic surprise indices                                                                  US corn planting pace tied for
                                                                  largely turn higher WoW. P.9                                                                  the slowest on record. P.71
no change in weather. However, we actually had 13 more
                                                                  North Sea differentials decline;                                                              New-crop soybean export sales
GWHDD WoW and even higher injection. One possible                 WAF differentials rally. P.21                                                                 at record highs last week. P.74
explanation is that we are already well past the traditional      Urals differentials continue to                                                               US cotton sales continue to run
end of the heating season. Those who turned off heaters in        strengthen. P.21                                                                              above the pace to reach the
                                                                                                                                                                USDA's mln bale forecast. P.89
the past few weeks simply may not have turned them back
on, which could explain the apparent lack of response to a
supposedly stronger heating load.
Summer should offer some upside for gas. Coal units
returning from maintenance and a seasonal demand lull
could create a soft patch near term. However, we continue
to see solid fundamentals and higher prices this summer.          For important disclosures, refer to the
                                                                  Disclosures Section, located at the end of
                                                                  this report.
                                                      MORGAN       STANLEY   RESEARCH

                                                      May 6, 2013
                                                      The Commodity Manual




Table of Contents

Macro                                                                                    3
  Week in Review                                                                         3
  MS Forecasts, Forward Curves, and Recommendations                                      4
  Monthly Index Performance                                                              6
  Catalyst Calendar                                                                      8
  Macro Indicators                                                                       9
  Forward Curves                                                                        13
  Net Speculative Length                                                                18
Energy                                                                                  19
  Crude Oil                                                                             20
  Crude Products                                                                        29
  Natural Gas                                                                           52
Agriculture                                                                             64
  Weather Map                                                                           65
  Corn                                                                                  66
  Soybeans                                                                              72
  Wheat                                                                                 81
  Cotton                                                                                88
  Sugar                                                                                 92
  Coffee                                                                                97
  Livestock                                                                             98
Metals                                                                                  100
  Gold                                                                                  101
  Silver                                                                                104
  Aluminum                                                                              107
  Copper                                                                                110
  Nickel                                                                                113
  Lead and Zinc                                                                         116




                                                                                              2
                                                                           MORGAN              STANLEY             RESEARCH

                                                                           May 6, 2013
                                                                           The Commodity Manual




Week in Review
Energy                                                  Performance Tables
Oil prices ended the week higher and structure         Updated as of May 03, 2013
tightened as global refinery maintenance declined      Energy                              Latest          4/26 - 5/3          MTD             QTD            YTD
from peak levels. In the US, the DOEs were             NYMEX WTI Crude                        96              2.8%             2.3%           -1.7%          4.1%
bearish, as crude stocks built on higher Gulf Coast    ICE Brent Crude                       104              1.0%             1.8%           -5.3%          -6.2%
imports. US product demand declined substantially
                                                       NYMEX RBOB Gasoline                   283             -0.3%             0.9%           -9.0%          0.5%
WoW. Natural gas prices declined on a bearish
                                                       NYMEX Heating Oil                     288             -0.6%             0.4%           -1.1%          -5.3%
injection report.
                                                       NYMEX HH Natural Gas                  4.04            -2.7%             -7.0%          0.4%           20.6%

                                                       Metals                              Latest          4/26 - 5/3          MTD             QTD            YTD
Base Metals
                                                       Aluminium (LME cash)                 1,828            -3.3%             -1.0%          -2.8%         -10.4%
Base metals rallied at the end of week as optimism     Copper (LME cash)                    7,122             1.0%             0.7%           -6.1%         -10.0%
regarding the US growth outlook returned following
                                                       Nickel (LME cash)                    14,910           -2.4%             -1.9%          -9.9%         -12.7%
the release of April non-farm payroll data,
                                                       Zinc (LME cash)                      1,822            -3.5%             -1.8%          -2.6%         -10.5%
triggering a relief rally and short covering. The
complex was led higher by copper as falling LME        Lead (LME cash)                      1,970            -3.3%             -2.4%          -5.9%         -15.8%
stocks also left widespread shorts exposed in an       Tin (LME cash)                       19,975           -3.9%             -4.0%         -13.7%         -15.0%
improving growth and supply environment.               Gold (spot)                          1,471             0.6%             -0.4%          -7.9%         -12.2%

                                                       Silver (spot)                        24.12             0.5%             -0.9%         -14.8%         -20.5%

Precious Metals                                        Platinum (spot)                      1,500             1.6%             -0.4%          -4.5%          -2.5%

Precious metals effectively consolidated recent        Agriculture                         Latest          4/26 - 5/3          MTD             QTD            YTD

gains last week as the recovery from the dramatic      Corn                                  700              8.6%             2.4%           0.6%           0.2%
sell-off in the gold and silver markets in mid-April   Soybeans                             1,455             1.7%             -0.9%          3.6%           2.6%
continued. Gold labored in the face of continued       Wheat                                 711              3.3%             -1.5%          3.4%           -8.6%
long liquidation from ETFs and easing net long
                                                       Sugar                                  18              1.0%             -0.8%          -0.7%         -10.1%
positions in the CFTC market, but held gains as
                                                       Cotton                                 85              3.0%             -0.9%          -4.2%          12.7%
bargain hunting in the physical markets of Asia
continued. Silver and platinum followed suit.          Coffee                                140              4.8%             4.0%           2.3%           -2.4%

                                                       Cocoa                                2,404             1.7%             1.5%           10.8%          7.5%

Agriculture and Softs                                  Livestock                           Latest          4/26 - 5/3          MTD             QTD            YTD
                                                       Live Cattle                           122             -4.7%             -5.1%          -5.5%          -6.2%
Agriculture prices rallied as weather continued to
                                                       Feeder Cattle                         139             -2.1%             -0.6%          2.4%           -8.3%
delay the US planting season. Corn led the
                                                       Lean Hogs                              91              2.3%             1.4%           13.4%          6.6%
complex higher, posting the largest 1-week gain
since July 2012 as the US planting pace tied the       Selected Indices                    Latest          4/26 - 5/3          MTD             QTD            YTD
slowest on record. Wheat prices also ended the         DXY (USD Index)                        82             -0.5%             0.5%           -1.0%          3.0%
week higher, supported by additional snow and
                                                       DJ-AIG                                133              0.9%             -0.4%          -3.2%          -4.3%
freezing temperatures across the southern plains.
                                                       DJIA                                 14,974            1.8%             0.9%           2.7%           14.3%
Soybean prices rose WoW, supported by adverse
weather and strong export shipment data.               S&P 500                              1,614             2.0%             1.1%           2.9%           13.2%

                                                       MSCI World                           1,482             1.7%             0.4%           3.3%           10.8%

                                                       Eurostoxx 50                         2,764             3.0%             1.9%           5.3%           4.8%
                                                       Source: Bloomberg; Energy - New York Mercantile Exchange; Base Metals - London Metals Exchange; Precious
                                                       Metals - Bloomberg; Agriculture - Chicago Board of Trade, New York Board of Trade/InterContinental Exchange;
                                                       Livestock - Chicago Mercantile Exchange




                                                                                                                                                                      3
                                                                          MORGAN        STANLEY        RESEARCH

                                                                          May 6, 2013
                                                                          The Commodity Manual




Morgan Stanley Price Forecasts and Forward Curve
Average Period Price                                                                                                          As of 03-May-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                                                                                            -10.63                 -8.40
Natural Gas                 US$/                  3.48          4.23          4.30           4.61           4.15                     -
  Bull case                 mmBtu                3.48          4.38          4.56           5.15            4.39
  Bear case                                      3.48          3.94          3.78           3.90            3.78
  Forward Curve                                                                                             4.03                   4.3
Base Metals                                      1Q13          2Q13          3Q13           4Q13            2013                  2014
Aluminum                    US$/MT               2,100         1,900         2,000          2,000           2,000                 2,100
  Forward Curve                                                                                             1,922                 1,982
Copper                      US$/MT               8,000         7,600         7,700          7,900           7,800                 7,900
  Forward Curve                                                                                             7,432                 7,348
Nickel                      US$/MT              17,400        16,400        17,100        17,600           17,100               18,700
  Forward Curve                                                                                            15,794                15,467
Zinc                        US$/MT               2,100         1,900         2,000         2,000            2,000                 2,100
  Forward Curve                                                                                             1,925                 1,959
Precious Metals                                  1Q13          2Q13          3Q13           4Q13            2,013                 2,014
Gold                        US$/oz               1,632         1,391         1,450          1,475           1,487                 1,563
  Bull case                                     1,632         1,600         1,668          1,696           1,752                 1,797
  Bear case                                     1,632          1,252        1,305          1,328           1,371                 1,406
  Forward Curve                                                                                             1,508                 1,473
Silver                      US$/oz               30.10         23.65         27.10          27.83           27.17                 29.48
  Forward Curve                                                                                             25.62                 24.25
Platinum                    US$/oz               1,632         1,500         1,650          1,700           1,621                 1,785
  Forward Curve                                                                                             1,533                 1,506
Softs *                                                                                                   2012/13               2013/14
Cotton                      US¢/lb                                                                           80                    N.A.
  Forward Curve                                                                                               80                    85
Sugar                       US¢/lb                                                                           19                    20
  Forward Curve                                                                                              18                    19
Grains *                                                                                                  2012/13               2013/14
Corn                        US$/bu                                                                          7.85                  5.90
  Forward Curve                                                                                             6.91                  5.65
Soybean                     US$/bu                                                                         15.70                 14.50
  Forward Curve                                                                                            14.43                 12.36
Wheat                       US$/bu                                                                          8.30                  7.30
  Forward Curve                                                                                             7.87                  7.47
Livestock                                                                                                   2013
Live Cattle                 US¢/lb                                                                           126
  Forward Curve                                                                                              125
Feeder Cattle               US¢/lb                                                                           144
  Forward Curve                                                                                              142
Lean Hogs                   US¢/lb                                                                           100
  Forward Curve                                                                                               85
* 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




                                                                                                                                                4
                                                                 MORGAN           STANLEY             RESEARCH

                                                                 May 6, 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.

                                                   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.
                                                   We expect gas prices will average $4.45/mmBtu in 2H2013. An end-Mar inventory in-line
                                                   with the 5-Y average, structural increase in CCGT capacities, lower YoY Western hydro,
    Natural Gas
                                                   and more Mexcio export capacities coming on-line will keep summer gas price risks
                                                   skewed to the upside.
                                                   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.

                                                   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.
                                                   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.




                                                                                                                                                  5
                                                                                                          MORGAN             STANLEY                RESEARCH

                                                                                                          May 6, 2013
                                                                                                          The Commodity Manual




Monthly Index Performance Table
 As of 30-Apr-13                                            % in GSCI    Total Return             Month                 QTD                   YTD            Dec00(1) to Dec12     Roll Yield L12M

                            S&P GSCI TR                      100%            4,683                -4.7%                 -4.7%                -4.2%                 1.3%                 -0.3%

                            Back Bsk S&P GSCI TR (2)          N/A             127                 -5.0%                 -5.0%                -4.2%                 8.0%                  1.2%
   Commodities




                            GSCI Pre Roll Alpha (4)           N/A            4,990                0.0%                  0.0%                  0.3%                 1.6%                  N/A

                            DJUBS TR                          N/A             269                 -2.8%                 -2.8%                -3.9%                 3.2%                 -3.8%

                            Back Bsk DJUBS TR (3)             N/A             199                 -3.9%                 -3.9%                -5.5%                11.6%                  1.7%

                            DJUBS Pre Roll Alpha (4)          N/A             290                 0.0%                  0.0%                  0.2%                 1.2%                  N/A

                            GSCI Light Energy TR              N/A            3,279                -3.6%                 -3.6%                -5.7%                 2.0%                 -0.8%

                            US S&P 500 TR                     N/A            2,823                1.9%                  1.9%                 12.7%                 2.4%                  N/A

                            UK FTSE 100 TR                    N/A            4,580                0.6%                  0.6%                 10.5%                 2.8%                  N/A
   Equities/Bonds




                            MSCI World TR                     N/A             652                 2.9%                  2.9%                  9.7%                 3.5%                  N/A

                            MSCI Europe TR                    N/A            7,372                4.5%                  4.5%                  7.5%                 3.4%                  N/A

                            MSCI EM TR                        N/A             418                 0.8%                  0.8%                 -0.9%                11.7%                  N/A

                            MSCI EM Asia Pac ex. Japan TR     N/A             291                 2.2%                  2.2%                  5.0%                 8.2%                  N/A

                            Iboxx 7-10 Yr Treas TR            N/A             241                 1.4%                  1.4%                  1.5%                 6.2%                  N/A

                            Energy                           70.1%           1,041                -5.8%                 -5.8%                -2.8%                 0.5%                  0.2%
   Commodity Sectors




                            Non Energy                       29.9%           2,439                -2.2%                 -2.2%                -7.3%                 2.7%                 -1.3%

                            Grains                           11.9%            478                 0.5%                  0.5%                 -4.2%                 0.0%                  4.0%

                            Agriculture                      15.3%            711                 0.1%                  0.1%                 -3.9%                 -0.3%                 2.4%

                            Livestock                         5.0%           1,987                -0.8%                 -0.8%                -7.4%                 -3.4%                -9.8%

                            Base Metals                       6.5%           1,383                -5.1%                 -5.1%               -11.9%                 7.7%                 -2.9%

                            Prec. Metals                      3.2%           1,877                -8.7%                 -8.7%               -13.5%                14.2%                 -0.9%

                            WTI Crude                        25.2%           1,293                -4.2%                 -4.2%                -0.1%                 2.3%                 -5.2%

                            Brent Crude                      21.6%           1,110                -6.9%                 -6.9%                -5.2%                11.3%                  6.4%

                            Natural Gas                       3.1%           72.53                 6.9%                 6.9%                 24.0%                -34.4%               -24.1%

                            GasOil                            8.0%            924                 -7.8%                 -7.8%                -7.3%                10.5%                  3.5%

                            Heating Oil                       6.1%           1,359                -6.6%                 -6.6%                -8.1%                 5.7%                 -2.1%

                            Unleaded Gasoline                 6.1%           4,602               -10.0%                -10.0%                -5.1%                12.5%                 19.5%

                            Aluminum                          2.0%             66                 -3.0%                 -3.0%                -12.3%                -0.3%                -6.6%

                            Copper                            3.1%           4,226                -6.6%                 -6.6%                -11.5%               15.5%                 -0.5%

                            Nickel                            0.5%            415                 -7.8%                 -7.8%                -10.3%               10.6%                 -1.5%
   Individual Commodities




                            Zinc                              0.5%             98                 -2.2%                 -2.2%                -11.9%                2.6%                 -4.3%

                            Lead                              0.4%            356                 -4.4%                 -4.4%                -14.0%               14.4%                 -2.3%

                            Gold                              2.8%            803                 -7.7%                 -7.7%                -12.4%               14.3%                 -0.8%

                            Silver                            0.4%            877                -14.8%                -14.8%                -20.3%               14.6%                 -1.2%

                            Corn                              4.8%            178                 -4.2%                 -4.2%                -4.5%                 -2.6%                12.2%

                            Wheat                             3.5%            187                  5.5%                 5.5%                 -7.6%                 -5.3%                -7.6%

                            Soybeans                          2.8%           4,474                 1.4%                 1.4%                  2.0%                11.1%                 10.0%

                            Sugar                             1.5%            206                 -0.3%                 -0.3%                -9.8%                 3.7%                 -2.6%

                            Cotton                            1.1%            330                 -3.3%                 -3.3%                12.4%                 -7.7%                 2.0%

                            Kansas Wheat                      0.8%             70                  7.6%                 7.6%                 -7.3%                 0.2%                 -8.9%

                            Coffee                            0.6%             85                 -3.2%                 -3.2%                -9.6%                 -6.1%                -9.5%

                            Cocoa                             0.2%             31                  8.3%                 8.3%                  5.0%                 7.5%                 -0.5%

                            Live Cattle                       2.7%           3,427                -2.0%                 -2.0%                -7.2%                 -0.7%                -10.1%

                            Feeder Cattle                     0.5%            123                 -2.1%                 -2.1%                -11.5%                 N/A                 -14.6%

                            Lean Hogs                         1.7%            193                  1.7%                 1.7%                 -6.8%                -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 Mar 29, 2013 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
  300              Livestock                      Base Metals
                   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, May 8                                  EIA Weekly Petroleum Status Report
Thursday, May 9                                   ARA and Singapore Oil Stocks
Thursday, May 9                                   Japanese Weekly Oil Stocks
Friday, May 10                                    OPEC Monthly Oil Market Report
Tuesday, May 14                                   IEA Oil Market Monthly Report
Tuesday, May 14                                   IEA Medium Term Outlook Report
Wednesday, May 15                                 EIA Weekly Petroleum Status Report
Thursday, May 16                                  ARA and Singapore Oil Stocks
Thursday, May 16                                  Japanese Weekly Oil Stocks
Sunday, May 19                                    JODI Database Update
Wednesday, May 22                                 EIA Weekly Petroleum Status Report
Thursday, May 23                                  ARA and Singapore Oil Stocks
Thursday, May 23                                  Japanese Weekly Oil Stocks


                                                                                 Natural Gas
Wednesday, May 8                                  EEI Weekly Electric Output
Thursday, May 9                                   Weekly Natural Gas Storage Report
Friday, May 10                                    Baker Hughes US Rig Count
Wednesday, May 15                                 EEI Weekly Electric Output
Thursday, May 16                                  Weekly Natural Gas Storage Report
Friday, May 17                                    Baker Hughes US Rig Count
Wednesday, May 22                                 EEI Weekly Electric Output
Thursday, May 23                                  Weekly Natural Gas Storage Report
Friday, May 24                                    Baker Hughes US Rig Count



                                                                                 Agriculture
Monday, May 6                                     Crop Progress
Wednesday, May 8                                  Weekly Ethanol report
Thursday, May 9                                   USDA Weekly Exports
Friday, May 10                                    USDA WASDE
Monday, May 13                                    Crop Progress
Wednesday, May 15                                 Weekly Ethanol report
Thursday, May 16                                  USDA Weekly Exports
Friday, May 17                                    Cattle on Feed
Monday, May 20                                    Crop Progress
Wednesday, May 22                                 Cold Storage
Wednesday, May 22                                 Weekly Ethanol report
Thursday, May 23                                  Livestock Slaughter
Thursday, May 23                                  USDA Weekly Exports
Tuesday, May 28                                   Crop Progress
Thursday, May 30                                  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                   1.7%                  Feb-13              2.8%             Jan-13       ▼

Industrial Production (YoY % Change):
  Global                                            Monthly                    1.4%                 Feb-13               1.4%            Jan-13       ▬
  U.S.                                              Monthly                    3.5%                 Mar-13               2.5%            Feb-13       ▲
  Euro Area                                         Monthly                   -2.6%                 Feb-13              -2.6%            Jan-13       ▬
  Japan                                             Monthly                   -6.1%                 Mar-13              -5.1%            Feb-13       ▼
  Brazil                                            Monthly                    1.0%                 Mar-13              -0.8%            Feb-13       ▲
  Russia                                            Monthly                    2.4%                 Mar-13              -2.3%            Feb-13       ▲
  India                                             Monthly                    0.6%                 Feb-13               2.4%            Jan-13       ▼
  China                                             Monthly                   8.9%                  Mar-13               9.9%            Feb-13       ▼

Real GDP (YoY % Change):
  U.S.                                                Qtrly                    1.8%                 Mar-13              1.7%             Dec-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                   7.7%                  Mar-13              7.9%             Dec-12       ▼

PMI (index):
 Global                                             Monthly                    50.5                 Apr-13              51.1             Mar-13       ▼
 U.S.                                               Monthly                    50.7                 Apr-13              51.3             Mar-13       ▼
 Euro zone                                          Monthly                    46.7                 Apr-13              46.8             Mar-13       ▼
 Japan                                              Monthly                    51.1                 Apr-13              50.4             Mar-13       ▲
 Brazil                                             Monthly                    50.8                 Apr-13              51.8             Mar-13       ▼
 China                                              Monthly                    50.6                 Apr-13              50.9             Mar-13       ▼

CPI (YoY % Change):
 U.S.                                               Monthly                    1.5%                 Mar-13               2.0%            Feb-13       ▼
 Euro Zone                                          Monthly                    1.7%                 Mar-13               1.8%            Feb-13       ▼
 Japan                                              Monthly                   -0.9%                 Mar-13              -0.7%            Feb-13       ▼
 Brazil                                             Monthly                    6.6%                 Mar-13               6.3%            Feb-13       ▲
 Russia                                             Monthly                    7.0%                 Mar-13               7.3%            Feb-13       ▼
 India                                              Monthly                   11.4%                 Mar-13              12.1%            Feb-13       ▼
 China                                              Monthly                    3.2%                 Feb-13               2.0%            Jan-13       ▲

Economic Surprise Index
  G10                                               Weekly                    -28.6                3-May-13             -36.3           26-Apr-13     ▲
  U.S.                                              Weekly                      0.3                3-May-13             -12.4           26-Apr-13     ▲
  Eurozone                                          Weekly                    -77.7                3-May-13             -78.3           26-Apr-13     ▲
  Japan                                             Weekly                    -38.5                3-May-13             -54.4           26-Apr-13     ▲
  Australia                                         Weekly                    25.2                 3-May-13             30.2            26-Apr-13     ▼
  Canada                                            Weekly                     -3.8                3-May-13             -14.7           26-Apr-13     ▲
  Emerging Markets                                  Weekly                    -44.8                3-May-13             -40.4           26-Apr-13     ▼
  Asia Pacific                                      Weekly                    -41.6                3-May-13             -32.0           26-Apr-13     ▼
  Latin America                                     Weekly                    -92.8                3-May-13             -94.3           26-Apr-13     ▲
  CEEMEA                                            Weekly                     -6.3                3-May-13             -11.8           26-Apr-13     ▲
  China                                             Weekly                    -29.3                3-May-13             -27.9           26-Apr-13     ▼

Global Risk Demand                                    Daily                   125.6                29-Apr-13            123.8           22-Apr-13     ▲
GRDI - Standardized                                   Daily                   0.90                 29-Apr-13            -0.75           22-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%                                                                           135    4.0

  20%                                                                           130
  15%                                                                                  2.0
                                                                                125
  10%
   5%                                                                           120    0.0

   0%                                                                           115
                                                                                       -2.0
  -5%                                                                           110
 -10%
                                                                                105    -4.0
 -15%
 -20%                                                                           100
                                                                                       -6.0
 -25%                                                                           95
                                                                                         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    82.13    -0.5%      3.3%           83.22      79.13       -0.4%         2.3%          1.1%          3.0%
                 EUR       EURO                  USD      1.31      0.6%      0.2%            1.36       1.28        0.9%        -1.9%          2.9%         -0.7%
                 JPY       JAPANESE YEN          JPY      98.99    -0.9%     -19.3%          99.78      86.70       -1.4%        -6.4%        -17.9%        -12.4%
                 GBP       BRITISH POUND         USD      1.56      0.7%      -3.6%           1.63       1.49        1.6%        -1.4%         -1.9%         -4.2%
                 CAD       CANADIAN DOLLAR       CAD      1.01      0.9%      -1.2%           1.03       0.98        1.0%        -0.6%         -0.7%         -1.4%
 G10




                 AUD       AUSTRALIAN DOLLAR     USD      1.03      0.4%      1.3%            1.06       1.02       -0.6%         0.0%         -0.2%         -0.7%
                 CHF       SWISS FRANC           CHF      0.94      0.8%      -1.8%           0.95       0.91       -0.1%        -1.9%          1.1%         -2.1%
                 NOK       NORWEGIAN KRONE       NOK      5.80      0.9%      0.0%            5.92       5.46       -1.2%        -4.6%         -0.3%         -4.1%
                 SEK       SWEDISH KRONA         SEK      6.51      1.0%      4.8%            6.65       6.28       -0.8%        -0.9%          4.4%         -0.1%
                 NZD       NEW ZEALAND DOLLAR    USD      0.85      0.6%      7.3%            0.86       0.82        1.2%         2.1%          5.0%          3.1%
                   Average Change in USD Terms                      0.4%      -0.9%                                  0.0%        -1.3%         -0.7%         -2.0%

                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H      52w L      1 Month      3 Month      6 Month         YTD
                 INR       INDIAN RUPEE          INR      53.94     0.8%     -0.9%           55.23      53.14        1.6%        -0.8%         2.3%          1.4%
                 CNY       CHINA RENMINBI        CNY      6.16      0.1%      2.4%            6.24       6.16        0.8%         1.3%         1.3%          1.3%
                 CNH       OFFSHORE CNY          CNH      6.16      0.2%      2.4%            6.24       6.16        0.7%         1.0%         1.4%          1.1%
 Asia ex-Japan




                 HKD       HONG KONG DOLLAR      HKD      7.76      0.1%      0.0%            7.77       7.75        0.1%         0.0%        -0.1%         -0.1%
                 IDR       INDONESIAN RUPIAH     IDR      9,735    -0.1%     -5.4%           9,868      9,618        0.2%        -0.8%        -1.1%          0.6%
                 KRW       SOUTH KOREAN WON      KRW      1,097     1.3%      3.1%           1,140      1,055        3.1%        -0.1%        -0.5%         -3.0%
                 MYR       MALAYSIAN RINGGIT     MYR      3.03      0.0%      0.3%            3.13       3.01        0.8%         2.1%         1.2%          0.8%
                 PHP       PHILIPPINES PESO      PHP      40.85     1.0%      3.7%           41.38      40.56        0.8%        -0.4%         1.2%          0.4%
                 SGD       SINGAPORE DOLLAR      SGD      1.23      0.2%      0.9%            1.25       1.22        0.5%         0.3%        -0.6%         -1.0%
                 THB       THAI BAHT             THB      29.70    -1.5%      4.2%           30.59      28.67       -1.5%         0.3%         3.5%          3.0%
                   Average Change in USD Terms                      0.2%      1.1%                                   0.7%         0.3%         0.9%          0.4%

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




                 ARS       ARGENTINE PESO        ARS      5.20     -0.4%     -14.8%           5.20       4.92       -1.2%        -3.9%        -7.7%         -5.4%
                 CLP       CHILEAN PESO          CLP       470      0.6%      2.8%            479        467        -0.2%         0.5%         3.2%          1.9%
                 COP       COLOMBIAN PESO        COP      1,834     0.0%      -4.1%          1,849      1,759       -0.8%        -2.5%        -0.6%         -3.7%
                 MXN       MEXICAN PESO          MXN      12.07     0.6%       9.1%          12.89      12.04        0.8%         5.4%         8.8%          6.8%
                 BRL       BRAZILIAN REAL        BRL      2.01     -0.5%      -4.0%           2.05       1.94       -1.2%        -1.8%         3.8%          2.1%
                   Average Change in USD Terms                      0.1%      -2.2%                                 -0.5%        -0.5%         1.5%          0.3%

                 Currency Description            Units    Spot    WoW % ∆   YoY % ∆          52w H      52w L      1 Month      3 Month      6 Month         YTD
                 RUB       RUSSIAN RUBLE         RUB      31.05    0.7%       -4.1%          31.84      29.85        1.6%        -2.9%         2.2%         -1.6%
 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      8.91     2.2%      -12.1%           9.33       8.46        2.1%        -0.3%        -0.4%         -5.1%
                 TRY       TURKISH LIRA          TRY      1.79     0.2%       -2.0%           1.83       1.75       -0.1%        -1.3%         0.3%         -0.5%
                   Average Change in USD Terms                     0.8%       -4.5%                                  0.9%        -1.1%         0.5%         -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)
  99                                                                                 107



  94                                                                                 101




  88                                                                                  96



                                                                                      90
  83



                                                                                      84
  77
                                                                                             0               20            40                    60               80               100
        0             20            40         60        80             100
                May-03                   Apr-26                  Apr-18                              May-03                               Apr-26                            Apr-18
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)
  104                                                                                292



  101                                                                                285



   98                                                                                277




   95                                                                                270




   92                                                                                263
            0     2        4         6     8        10      12     14         16             0       5        10      15        20          25         30        35    40          45
                May-03                   Apr-26                  Apr-18                          May-03                               Apr-26                            Apr-18
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)
  900                                                                                290



  875                                                                                273




  850                                                                                255



                                                                                     238
  825



                                                                                     220
  800                                                                                        0   3       6        9   12   15        18     21        24    27    30   33     36         39
            0                  12                   24                  36
                May-03                   Apr-26                  Apr-18                          May-03                               Apr-26                            Apr-18
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)
  -3                                                                               -



  -5                                                                             -14



  -8                                                                             -27



 -10
                                                                                 -41



 -12
       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
            May-03                    Apr-26                    Apr-18                         May-03                       Apr-26                         Apr-18
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
            May-03                    Apr-26                    Apr-18
Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research




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Forward Curves: Metals
Gold Forward Curve                                                                          Silver Forward Curve
($/troy oz)                                                                                 ($/troy oz)
  1,600                                                                                       26.0



  1,525                                                                                       25.0




  1,450                                                                                       24.0




  1,375                                                                                       23.0



                                                                                              22.0
  1,300
                                                                                                      0          10    20     30         40       50      60        70
           0          10    20        30           40         50        60        70
                   May-03                   Apr-26                           Apr-18                           May-03                Apr-26                Apr-18
Source: COMEX, Bloomberg, Morgan Stanley Commodity Research                                 Source: COMEX, Bloomberg, Morgan Stanley Commodity Research

Aluminum Forward Curve                                                                      Copper Forward Curve
($/MT)                                                                                      ($/MT)
  2,350                                                                                       7,800



  2,208                                                                                       7,550



  2,065                                                                                       7,300



  1,923                                                                                       7,050




  1,780                                                                                       6,800
           0          10    20         30            40            50        60        70                 0       10   20      30            40   50      60        70

                   May-03                   Apr-26                           Apr-18                           May-03                Apr-26                 Apr-18
Source: LME, Bloomberg, Morgan Stanley Commodity Research                                   Source: LME, Bloomberg, Morgan Stanley Commodity Research

Nickel Forward Curve                                                                        Zinc Forward Curve
($/MT)                                                                                      ($/MT)
  16,800                                                                                      2,200




  16,275                                                                                      2,100



                                                                                              2,000
  15,750



                                                                                              1,900
  15,225


                                                                                              1,800
  14,700                                                                                                  0      10    20      30            40   50      60        70
               0       10        20        30            40        50        60        70
                   May-03                       Apr-26                        Apr-18                          May-03                Apr-26                Apr-18
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                                                                                1,500



  663                                                                                1,405




  605                                                                                1,310



                                                                                     1,215
  548



                                                                                     1,120
  490                                                                                               0           5        10        15             20         25        30             35        40        45
         0           10            20         30             40          50
             May-03                      Apr-26                     Apr-18                                  May-03                                     Apr-26                                   Apr-18
Source: CBOT, Bloomberg, Morgan Stanley Commodity Research                         Source: CBOT, Bloomberg, Morgan Stanley Commodity Research

Wheat Forward Curve                                                                Kansas Wheat Forward Curve
(¢/bu)                                                                             (¢/bu)
  810                                                                                840



  775                                                                                810



  740                                                                                780



  705
                                                                                     750



  670
         0   3   6        9   12   15   18   21    24   27   30    33   36    39
                                                                                     720
                                                                                                0           3        6         9             12         15        18             21        24        27         30
             May-03                      Apr-26                     Apr-18                                  May-03                                     Apr-26                                   Apr-18
Source: CBOT, Bloomberg, Morgan Stanley Commodity Research                         Source: ICE, Bloomberg, Morgan Stanley Commodity Research

Sugar Forward Curve                                                                Cotton Forward Curve
(¢/lb)                                                                             (¢/lb)
  21.0                                                                               90



  19.8                                                                               88



  18.5                                                                               85




  17.3                                                                               83



                                                                                     80
  16.0
                                                                                            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

             May-03                      Apr-26                     Apr-18                                  May-03                                     Apr-26                                   Apr-18
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)
  133                                                                       160


                                                                            155
  129

                                                                            150

  126
                                                                            145


  122
                                                                            140



  118                                                                       135
             0         3       6         9        12        15       18            0        3          6          9          12       15       18

                 May-03                Apr-26               Apr-18                     May-03                   Apr-26                Apr-18
Source: CME, Bloomberg, Morgan Stanley Commodity Research                 Source: CME, Bloomberg, Morgan Stanley Commodity Research

Lean Hogs Forward Curve
(¢/lb)
  96




  91




  86




  81




  76
         0         3       6       9         12        15    18      21
                 May-03                Apr-26               Apr-18
Source: CME, Bloomberg, Morgan Stanley Commodity Research




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CTFC Commitment of Traders Report Summary
      As of 4/24/13       Brent      Net Spec                                                                                 Open Interest
                                                WoW Δ      WoW % Δ   52w H       52w L      Price ($)   WoW Δ ($)   WoW % Δ                   WoW Δ       NSL as a % of OI
                  as of 4/17/13       Length                                                                                      (OI)

                      ICE Brent       57,556    (10,492)    -15.4%   229,562    38,238      101.73        4.04       4.1%      1,798,482      40,732           3.2%


                     NYMEX WTI       257,742    6,249       2.5%     324,005    178,866      91.43        4.75       5.5%      2,542,337      75,758           10.1%


                       ICE WTI        80,044    9,577       13.6%    80,044     (12,803)     91.43        4.75       5.5%       743,789       17,068           10.8%
       Energy




                        RBOB          45,535    (7,191)     -13.6%   94,043     45,535      274.74        1.84       0.7%       284,879       (26,403)         16.0%


                      Heating Oil    (16,942)   4,927       22.5%    40,594     (21,869)    284.13        10.67      3.9%       326,145        (9,778)         5.2%


                       NYMEX
                                     (49,980)    792        1.6%     (49,980)   (163,794)     4.17        (0.05)     -1.1%     1,603,688      (24,162)         3.1%
                     Natural Gas

                        Other
                                     537,249    5,095       1.0%     599,754    90,040        N/A          N/A        N/A         N/A           N/A             N/A
                     Natural Gas*

                         Gold         85,890    2,199       2.6%     244,295    83,691      1,423.40      41.20      3.0%       749,677       (74,983)         11.5%


                        Silver        11,607     (986)      -7.8%    45,662      6,588       22.83        (0.47)     -2.0%      194,361       (33,708)         6.0%
       Metals




                       Platinum       31,484    3,749       13.5%    52,576     14,069      1,429.80      (5.00)     -0.3%       69,411        1,462           45.4%


                      Palladium       18,615      32        0.2%     28,497      3,607      667.65        6.25       0.9%        42,070         935            44.2%


                       Copper        (23,342)   (2,772)     -13.5%   16,187     (27,344)    315.70        (3.05)     -1.0%      167,425        (6,847)         13.9%


                         Corn        109,243    35,348      47.8%    375,801    73,895      639.50       (21.00)     -3.2%     1,694,481      (227,696)        6.4%


                        Wheat          (550)    12,791      95.9%    64,792     (49,058)    691.75       (12.00)     -1.7%      534,939       (47,673)         0.1%
       Agriculture




                       Soybean        96,084    14,580      17.9%    256,488    72,541      1,404.00     (18.25)     -1.3%      730,966       (79,532)         13.1%


                     Soybean Meal     34,410    4,295       14.3%    100,229    15,937      405.90        (1.40)     -0.3%      292,184        (6,031)         11.8%


                     Soybean Oil     (49,063)   7,562       13.4%    52,337     (56,625)     49.18        (0.21)     -0.4%      375,540       (29,148)         13.1%


                        Sugar         (7,243)   (5,617)    -345.4%   155,870    (37,034)     17.40        (0.45)     -2.5%      939,572        (9,469)         0.8%


                        Coffee       (17,963)   (3,195)     -21.6%    1,460     (26,614)    138.40        2.30       1.7%       213,390        9,642           8.4%
       Softs




                        Cocoa         46,381    8,777       23.3%    46,381     (11,655)    2,322.00      23.00      1.0%       234,574       13,678           19.8%


                        Cotton        59,625    (4,299)     -6.7%    94,032       998        81.10        (3.55)     -4.2%      235,369        (1,831)         25.3%


                      Live Cattle     33,948    6,775       24.9%    76,325     16,681      126.93        0.05       0.0%       401,158        (3,886)         8.5%
       Livestock




                     Feeder Cattle    (2,527)   1,578       38.4%     9,677      (4,968)    133.75        (2.78)     -2.0%       41,943        (5,921)         6.0%


                      Lean Hogs       14,513    7,516       107.4%   60,447     (10,834)     88.60        0.47       0.5%       272,659        5,070           5.3%

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                                                         20
  Cash Prices and Spreads                                         21
  Refining Throughput                                             23
  Imports                                                         24
  Production                                                      25
  Stocks                                                          28
Crude Oil Products                                                29
  Prices and Refining Margins                                     29
  Demand                                                          32
  OECD Stocks                                                     37
  Country Profiles                                                41
Natural Gas                                                       52
  Storage                                                         53
  North American Profile                                          55
  Production                                                      60
  Asian Demand                                                    61




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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)                                                           Near-term risks remain, but we would be buyers
     4.0                                                                              2.5                                                                                 as Brent approaches $100/bbl. Although
                                                                           Est
     3.0
                                                                                      2.0
                                                                                                                                                                          near-term downside risk remains, the 2Q13
     2.0
                                                                                                                                                          Estimate        sell-off in Brent is unlikely to match that of 2Q12.
     1.0                                                                              1.5                                                                                 In fact, the global oil balance looks much tighter
     0.0                                                                                                                                                                  this summer with prices likely to trade back up to
                                                                                      1.0
  -1.0                                                                                                                                                                    $110-115/bbl in 2H13. As a result, we believe the
  -2.0                                                                                0.5                                                                                 risk-reward for 2H13 becomes quite attractive as
  -3.0                                                                                                                                                                    front-month prices approach $100/bbl with
  -4.0
                                                                                      -
                                                                                              Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13
                                                                                                                                                                          potential to capture upside from both spot prices
      1Q05     1Q06    1Q07    1Q08   1Q09    1Q10    1Q11    1Q12      1Q13
                                                                                              Libya             North Sea      Argentina       Yemen           Syria
                                                                                                                                                                          and backwardation.
           OECD YoY Δ                 Non-OECD YoY Δ                   Total Δ                Canada            US             Angola          Nigeria         China
                                                                                              UAE               Sudan          Brazil                                     Supply
Source: IEA, Morgan Stanley Commodity Research estimates                             Source: IEA, Morgan Stanley Commodity Research estimates                              Supply has disappointed again, with outages
                                                                                                                                                                            continuing to crop up around the world.
                                                                                                                                                                            Geopolitical tensions continue to remain an
OPEC Production Likely to Remain Elevated                                              2013 YTD OECD Inventories Have Built in
                                                                                                                                                                            issue in the Mideast, though the bright spot for
       as Long as Prices Are High                                                         Line with Normal through February
                                                                                                                                                                            the year is Sudan, where production appears
(Left axis: OPEC crude production, mmb/d; right axis: OPEC                           (2013 YTD Δ in inventory, mmb)
Secretariat Basket Price, $/bbl)                                                                                                                                            to be ramping back up. We model 220 kb/d of
                                                                                      35
33                                                                 $130               30
                                                                                                                                        29                                  supply back by the end of the year, in line with
                                                                                      25
                                                                                                                                                                            the IEA's estimates.
32                                                                                                                              21
                                                                   $110                                18     19
                                                                                      20
                                                                                                                                                                           Non-OPEC: While we remain upbeat on US
31                                                                                    15
                                                                   $90                                                                                                      supply growth with non-OPEC QoQ supply
                                                                                      10
30                                                                                                                                                                          growth outpacing the 5Y avg in 3Q13, it likely
                                                                                          5
29
                                                                   $70
                                                                                          0
                                                                                                                                                                            won’t be enough to offset the large increase in
                                                                   $50                 -5                                                                -3
                                                                                                                                                                            crude demand. Moreover, US ANS pipeline
28
                                                                                      -10                                                                                   maintenance (a 90 kb/d drag on 3Q12 US
27                                                                 $30                -15                                                                       -11         crude production) and significant maintenance
  2005     2006    2007   2008     2009   2010    2011    2012                                          Total                       Crude            Products & Others      at Russia’s Sakhalin field are notable drags.
           OPEC Production (LHS)             OPEC Basket Price (RHS)                                        2013 YTD                              5Y Average                Our biofuels estimate for this summer is also
Source: Bloomberg, Morgan Stanley Commodity Research                                 Source: IEA, Morgan Stanley Commodity Research                                         markedly lower than the IEA’s estimate.
                                                                                                                                                                           OPEC: OPEC will likely need to increase crude
Supply-Demand Balance                                                                                                                                                       production, reducing spare capacity. The IEA
                                                                                                                               YoY Change (mmb/d)
                                                                                                                                                                            now expects global crude throughput to
DEMAND                                                      2011                  2012            2013e                     2011      2012     2013e
                                                                                                                                                                            increase by over 2.1 mmb/d from Mar to Jun
OECD Americas                                              24,003                23,728           23,694                    -134      -274       -34                        vs. seasonal avg of only 1.7 mmb/d. As a
OECD Europe                                                14,354                13,702           13,396                    -347      -652      -306                        result, OPEC should lift production to keep
OECD Asia Oceania                                          8,145                 8,496            8,492                      21        351        -4                        inventories from drawing more than seasonal
OECD Demand                                                46,502                45,926           45,583                    -460      -576      -344                        norms. Some supply growth is expected from
                                                                                                                                                                            Iraq and West Africa, but the bulk of supply will
China                                                      9,232                 9,600            9,979                      387              368              379
                                                                                                                                                                            likely need to come from Saudi Arabia.
India                                                      3,517                 3,651            3,772                      145              134              120
Other Asia                                                 7,526                 7,724            7,927                       48              197              204        Demand
Africa                                                     3,264                 3,404            3,453                      -34              140               49         Global oil balances look tighter this summer,
Non OECD Europe                                             693                   714              706                        9                21               -7
                                                                                                                                                                            with Morgan Stanley economists expecting
FSU                                                        4,453                 4,607            4,756                      302              154              149
                                                                                                                                                                            stronger global growth in 2H13. Beyond
Latin America                                              6,304                 6,524            6,669                      268              221              145
                                                                                                                                                                            stronger GDP, we also see several additional
Middle East                                                7,404                 7,649            7,880                       83              245              231
                                                                                                                                                                            sources of seasonal crude demand not present
Non OECD                                                   42,393                43,873           45,142                    1,208            1,480            1,269
                                                                                                                                                                            in size 3-5 years ago (Saudi and Japanese
Total Demand                                               88,895                89,799           90,725                     747              904              926
                                                                                                                                                                            crude burn). Physical crude markets will
SUPPLY                                                      2011                  2012            2013e                     2011             2012             2013e         tighten as well from here, with runs poised to
Non OPEC Supply                                            52,784                53,381           54,302                    111              597               921          climb higher.
OPEC NGLs + Unconv.                                        5,776                 6,153            6,306                  395                  377              153         OECD: In line with our economists’ upward
OPEC Crude Production                                      29,879                31,374           30,653                 644                 1,495            -720          revisions in the US and Japan, we now expect
OPEC Spare Capacity                                        4,581                 3,666            4,968                 -1,561               -915             1,302         a 344 kb/d decline in OECD demand. Europe is
YoY % Δ                                                    88,438                90,907           91,261                1,150                2,469             354          the weakest link, where weakness leads us to
                                                                                                                                                                            forecast a 218 kb/d decline in OECD Europe.
Source: IEA, Morgan Stanley Commodity Research estimates
                                                                                                                                                                           Non-OECD: The more oil-intensive non-OECD
                                                                                                                                                                            (+1.3 mmb/d in 2013) should again drive global
                                                                                                                                                                            demand growth. A reacceleration already
                                                                                                                                                                            appears to be underway in China (+379 kb/d).




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

 130                                                                         35
                                                                             25
 120
                                                                             15

 110                                                                          5
                                                                             -5
 100                                                                        -15
                                                                            -25
  90
                                                                            -35
  80                                                                        -45
                                                                              Jan 11          Jul 11       Jan 12        Jul 12       Jan 13
  70                                                                               LLS                      WTS                     Mars
   Jan-11        Jul-11         Jan-12           Jul-12       Jan-13               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         Jul 11         Jan 12       Jul 12       Jan 13
   Jan 11        Jul 11        Jan 12         Jul 12          Jan 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         Jul 11        Jan 12        Jul 12       Jan 13              Jan 11          Jul 11       Jan 12        Jul 12       Jan 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          Jul 11        Jan 12             Jul 12       Jan 13
             Arab Light-Heavy                         Minas-Duri                   -35
             Brent-Urals (NWE)                        Saharan Blend-Urals (Med)      Jan 11        Jul 11       Jan 12         Jul 12         Jan 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


                                                                                     5.0
  2.0

                                                                                     0.0
  1.0
                                                                                    -5.0

  0.0
                                                                                   -10.0


 -1.0                                                                              -15.0
    Jul 11             Jan 12              Jul 12              Jan 13                 Jan 11        Jul 11       Jan 12        Jul 12           Jan 13

                WTI                       Brent                      Dubai                            WTI                                   Brent

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




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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

                    2013               2012           2011            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

  9.5                                                                                          7.5

  9.0                                                                                          7.0

  8.5                                                                                          6.5

  8.0                                                                                          6.0

  7.5                                                                                          5.5

  7.0                                                                                          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-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

 2.2
                                                                                            1.9

 2.1
                                                                                            1.8
 2.0
                                                                                            1.7
 1.9

                                                                                            1.6
 1.8

 1.7                                                                                        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)
 420                                                                           1,040


 400
                                                                               1,000
 380


 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)
 355                                                                           360

 340

 325
                                                                               330

 310

 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)
 375                                                                  50


                                                                      40
 325

                                                                      30
 275
                                                                      20


 225
                                                                      10


                                                                       0
 175
                                                                        Jan         Mar        May            Jul          Sep        Nov
   Jan-11         Jul-11       Jan-12         Jul-12      Jan-13
                   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)
 350                                                                  60


 325
                                                                      45


 300
                                                                      30


 275
                                                                      15

 250
                                                                       0
                                                                        Jan         Mar        May            Jul          Sep        Nov
 225
   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
   Jan 11         Jul 11       Jan 12        Jul 12       Jan 13      Jan 11          Jul 11         Jan 12          Jul 12        Jan 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




                                                                                                                                                                36
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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




                                                                                                                                                                 40
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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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                                                                                   The Commodity Manual




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)
                                                                                                 0.5
 3.50                                                                                            0.5
                                                                                                 0.4
 3.25                                                                                            0.4
                                                                                                 0.3
                                                                                                 0.3
 3.00
                                                                                                 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                                                                                               130

                                                                                                   120
 1.0
                                                                                                   110
 0.9
                                                                                                   100

 0.8                                                                                                90

                                                                                                    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
(US natural gas demand, bcf/d)                                                                (US natural gas supply, bcf/d)                                         We are bullish 2013 summer natural gas
 70                                                                                             70
                                                                                                                                                                     prices. We see a number of factors that will
                                                                                                60
 60
                                                                                                                                                                     keep gas prices elevated between now and
                                                                                                50
 50
                                                                                                40
                                                                                                                                                                     3Q13, including: 1) an end-Mar inventory in
 40
                                                                                                30
                                                                                                                                                                     line with the 5Y average, 2) more Mexico
 30
                                                                                                20                                                                   export pipeline capacities coming online, 3)
 20                                                                                             10                                                                   structural increase in gas-based CCGT
 10                                                                                              0                                                                   capacities, and 4) a lower YoY water supply
  0
                                                                                               -10                                                                   forecast for the western states, which would
                                                                                                       2007 2008 2009             2010      2011 2012 2013
               2007      2008        2009      2010     2011          2012      2013
                                                                                                       LNG Send-Outs                        Domestic Production
                                                                                                                                                                     increase the call on gas-based generation.
               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 be flattish YoY in
                  US Shale Gas Production Leads                                                                         Inventories Near                               2013. We expect Marcellus production to
                    to Large Supply Expansion                                                                          the 5-Year Average                              continue to increase, but declines in other
(US shale gas production, bcf/d)                                                              (Total US inventories, bcf)                                              gas plays (Haynesville, Barnett, on-shore
          25
                                                                                               4,500
                                                                                                                                                                       conventional, etc) should act as an offset.
          20
                                                                                               4,000
                                                                                                                                                                      US shale: US production should remain
                                                                                               3,500                                                                   elevated on the back of growing shale
          15                                                                                   3,000                                                                   production. We expect 2013 US
          10                                                                                   2,500                                                                   production to average 65.8 bcf/d. For
                                                                                               2,000                                                                   2013, Marcellus production should
          5
                                                                                               1,500
                                                                                                                                                                       continue to increase as the region's
      -
                                                                                               1,000
                                                                                                                                                                       infrastructure de-bottlenecks. However,
           2007          2008         2009      2010           2011      2012          2013

      Barnett                   Fayetteville      Woodford               Haynesville (LA)
                                                                                                    Jan          Mar      May         Jul       Sep     Nov            we expect production from dry gas plays
      Haynesville (TX)          Marcellus         Eagle Ford                                              5-Yr range        5-yr average         2012         2013     (Barnett, Haynesville, etc) to decline YoY.
Source: EIA, Morgan Stanley Commodity Research estimates                                      Source: EIA, Morgan Stanley Commodity Research estimates                Import/export: Flat to lower Canadian and
                                                                                                                                                                       LNG imports, combined with elevated
                                                                                                                                                                       exports to Mexico as new pipeline
Supply-Demand Balance                                                                                                                                                  projects come online should support
                                                                              bcf/d                                       YoY Change (bcf/d)
                                                                                                                                                                       overall demand.
SUPPLY                                                   2011                2012e            2013e              2010       2011    2012e               2013e        Demand
Domestic Production                                      62.7                 65.7             65.8               1.9        4.3      2.9                 0.1         Near term, we expect higher gas prices to
Canadian Imports                                          6.0                 5.4              5.5                0.2       -0.9     -0.7                 0.1          lower YoY coal-to-gas switching. But a
Mexican Exports                                          -1.4                 -1.7             -2.0               0.0       -0.5     -0.3                -0.3
                                                                                                                                                                       structural increase in gas-based capacity
LNG Send-Outs                                             0.9                 0.6              0.6               -0.1       -0.3     -0.3                 0.0
Supply                                                   68.3                 70.0             69.9               2.0        2.6      1.7                 0.0
                                                                                                                                                                       should support gas-based power
                                                                                                                                                                       generation in the months ahead.
DEMAND                                                   2011                2012e            2013e              2009        2011           2012e       2013e          Industrial gas demand will likely stay
Residential and Commercial                               21.6                 19.3             22.4              -0.9         1.0            -2.2         3.1          elevated as US natural gas remains
Power                                                    20.8                 25.0             21.8               1.4         0.5             4.2        -3.2          competitive vs. rest of the world, unless
Industrial Demand                                        18.9                 19.4             19.9               1.8         0.2             0.5         0.5          the economy slows.
Miscellaneous                                             5.7                  5.9              5.9               0.2         0.3             0.3         0.0         Summer weather will soon take center
Balancing Item                                            0.4                  0.5              0.6                          -0.4             0.0         0.1          stage. Gas power demand should
Demand                                                   67.3                 70.1             70.7               2.8         1.6             2.8         0.6          become an increasingly larger share of
Storage Change                                            1.0                 -0.1             -0.7              -0.8         1.0            -1.1        -0.6
                                                                                                                                                                       total demand. Summer weather and
WEATHER                                                  2011                2012e            2013e              2009        2011           2012e       2013e
                                                                                                                                                                       end-Oct inventory outlook will dictate
Cooling Degree Days                                       4.0                 4.1              3.8                0.6         0.1             0.0        -0.3          where prices will go.
Gas Wgt-Heating Deg Days                                 13.0                 11.3             13.4               0.0        -0.2            -1.7        2.2          Longer term, the demand outlook is more
                                                                                                                                                                       constructive, owing to 1) US LNG exports,
INVENTORY (bcf)                                          2011                2012e            2013e              2009        2011           2012e       2013e          2) more stringent EPA rules, which should
End-March Inventory                                      1,577               2,477            1,688               -7          -75            900         -789          benefit gas demand in the power sector,
End-October Inventory                                    3,804               3,930            3,645               41          -47            126         -284          3) stronger industrial gas demand, and 4)
                                                                                                                                                                       higher Mexico exports.
Source: EIA, Morgan Stanley Commodity Research estimates




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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      Apr-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)                                       $62.00         $64.00                    $11.00                                   $4.06                $4.06
Estimated Shipping cost                                                           $15.00         $20.00                    $22.00                                   $0.30                $0.30
Delivered cost of fuel, $/ton                                       $               77.00 $       84.00 $                   33.00
Delivered cost of fuel, $/mmBtu + Emissions                                          $2.97         $3.36                     $1.88                                  $4.36                $4.36
Plant Heat Rate (btu/kwh)                                                         10,000         10,000                    10,000                                  7,200                10,000
Fuel generation costs, $/Mwh                                                      $29.66         $33.63                    $18.78                                  $31.41               $43.62
Variable O&M costs, $/Mwh                                                          $3.50          $3.50                     $4.00                                   $1.50                $1.50
Total variable generation costs, $/Mwh                                            $33.16         $37.13                    $22.78                                  $32.91               $45.12

Note: Coal prices are Morgan Stanley Coal team estimates for 2013
Source: Morgan Stanley Commodity Research estimates
Henry Hub, NBP, and CAPP Coal Prices                                                             Heating Degree Days
($/mmBtu)                                                                                        (US total HDD)
                                                                                                    180                    168
      12                                                                                                       164
                                                                                                    160
                                                                                                                     143
      10
                                                                                                    140                          129   126                                               123
                                                                                                                                             117
        8                                                                                           120                                                                                        110
                                                                                                                                                           103               104
                                                                                                    100                                                            91 90
                                                                                                                                                      86
        6                                                                                                                                                                          77
                                                                                                        80

        4                                                                                               60
                                                                                                        40
        2
                                                                                                        20
       0                                                                                                0
      5/4/2010              5/4/2011              5/4/2012               5/4/2013                              Mar-21      Mar-28      Apr-04        Apr-11        Apr-18    Apr-25       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)

  600                                                                        $4.5                   -                                                                                      $1.5

                                                                                                                                                                                           $2.0
  500                                                                        $4.0                  (100)
                                                                                                                                                                                           $2.5
  400                                                                        $3.5                  (200)
                                                                                                                                                                                           $3.0

  300                                                                        $3.0                  (300)                                                                                   $3.5

                                                                                                                                                                                           $4.0
  200                                                                        $2.5                  (400)
                                                                                                                                                                                           $4.5
  100                                                                        $2.0                  (500)
                                                                                                                                                                                           $5.0
  -                                                                          $1.5                  (600)                                                                                   $5.5
      May-12      Jul-12    Sep-12     Nov-12     Jan-13     Mar-13                                   May-12           Jul-12      Sep-12          Nov-12        Jan-13     Mar-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                                                                                                  27
  1.80                                                                                                  25
  1.60                                                                                                  23
  1.40
                                                                                                        21
  1.20
                                                                                                        19
  1.00
                                                                                                        17
  0.80
                                                                                                        15
  0.60
  0.40                                                                                                  13

  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           2012            2013                     5-year range           5-year average           2012            2013

Source: CEI, Morgan Stanley Commodity Research                                           Source: CEI, Morgan Stanley Commodity Research estimates
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           2012            2013                     5-year range           5-year average           2012            2013

Source: CEI, Morgan Stanley Commodity Research                                           Source: CEI, Morgan Stanley Commodity Research estimates
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                                                       65
Corn                                                               66
  Prices, Spreads, and Basis                                       67
  Demand                                                           68
  Ethanol                                                          70
  Supply                                                           71
Soybeans                                                           72
  Prices, Spreads, and Basis                                       73
  Soybean Demand                                                   74
  Soybean Products Demand                                          77
  Soybean Supply                                                   79
  Biodiesel Fundamentals                                           80
Wheat                                                              81
  Prices, Spreads, and Margins                                     82
  Demand                                                           83
  Wheat by Class Exports                                           85
  Supply                                                           87
Cotton                                                             88
  Demand                                                           89
  Supply                                                           91
Sugar                                                              92
  Prices and Spreads                                               93
  Demand                                                           94
  Supply                                                           95
Coffee                                                             97
Livestock                                                          98




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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
                                                                      50%                76%                   Wisconsin
                      Growing Degree Days                            -61%               -58%                      55%                   Michigan
                                                                                                                 -72%                      78%
                                                                                                                                          -68%
                                     North Dakota
                                         -31%
                                         -57%

                                     South Dakota
                                         15%
                                        -50%                                                                                                       Ohio
                                                                                                                                                   29%
                                                                                                                                                   -3%
                                       Nebraska
                                          17%
                                         -46%

                                                                                                                                        Indiana
                                                                                                                                          95%
                                                                                                                                         -22%
                                                                                                                          Illinois
                                         Kansas                                                                             71%
                                           6%                                                            Missouri          -38%
                                          -54%                                                             30%
                                                                                                          -37%

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                                                183%                        -27%                154%
                                                                                           -10%                        2%                  1%
                             Growing Degree Days

                                    Mato Grosso
                                        2%                                                                                                Bahia
                                        -2%                                                                                               -44%
                                                                                                                                           -5%

                                       Chaco
                                       -36%
                                        -6%                                                                                               Goais
                                                                                                                                          -19%
                                                                                                                                          -10%

                                      Cordoba
                                        96%
                                        0%                                                                                               São Paulo
                                                                                                                                           23%
                                                                                                                                            9%


                                     La Pampa                                         Buenos Aires            Rio Grande Do Sul           Parana
                                       136%                                              126%                        1%                     3%
                                        9%                                                7%                         -6%                   -11%



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                                                              Drought in the US has pressured US
                                                                                                                                                  production to its lowest in 7 years even as
                 Ethanol Mandates Make up                                     Yield Growth No Longer Main Source of                               acreage climbed to the highest in the
                 Majority of Ethanol Demand                                            Incremental Bushels                                        post-war era.
(Biofuels Mandate, mln gal)                                               (Annual incremental change in bushels, mln bu)
 40                                                                        4,000                                                                 Long term, we believe that global supply
 30
                                                                                                                                                  growth will need to come from better
                                                                           2,000
                                                                                                                                                  global corn yields, which have grown at a
 20
                                                                                 0
                                                                                                                                                  1.7% CAGR over the past 10 years. In the
 10                                                                                                                                               meantime, corn prices need to remain
                                                                           -2,000                                                                 elevated to continue incentivizing
  0
      2007 2008 2009 2010 2011 2012 2013 2014 2015 2022                                                                                           acreage expansion in Brazil.
                                                                           -4,000
                                                                                 88/89       93/94       98/99    03/04      08/09     13/14e
                 Ethanol-All Feedstocks     Cellulosic Ethanol
                                                                                           Impact in Bushels of YoY Δ in Yield                  Demand
                 Biodiesel                  Other Advanced Biofuels
                                                                                           Impact in Bushels of YoY Δ in Area Harvested          We still see the need for higher corn
Source: USDA, Morgan Stanley Commodity Research                           Source: USDA, Morgan Stanley Commodity Research                         prices to shock the US livestock industry
estimates                                                                 estimates                                                               into rationing the amount of demand
                                                                                                                                                  needed to balance out a substantial
Supply-Demand Balance                                                                                                                             decline in US 12/13 production.
World                                                                       USDA                           Morgan Stanley
SUPPLY                                                               11/12e     12/13e                   11/12e     12/13e                       US ethanol production should continue to
Beginning Stocks (mln bu)                                             5,047      5,192                   5,047       5,192                        strengthen as we move through the
                                                                                                                                                  coming months, supported by limited
Area Harvested (mln acres)                                             419        432                     419         436
                                                                                                                                                  imports of Brazilian ethanol.
Production (mln bu)                                                  34,742     33,696                   34,742     33,851
  United States                                                      12,360     10,780                   12,360     10,780
  Brazil                                                              2,874      2,913                   2,874       2,885
  Argentina                                                            827       1,043                    827         905
Supply (mln bu)                                                      43,699     42,646                   43,689     42,830

DEMAND                                                               11/12e          12/13e              11/12e              12/13e
Consumption (mln bu)                                                 33,920          34,252              33,910              34,218
  Feed & Residual (mln bu)                                           19,881          20,374              19,881              20,252
   United States                                                      4,545           4,400              4,545                4,471
   Brazil                                                             1,693           1,772              1,693                1,742
  FSI Consumption (mln bu)                                           14,039          13,877              14,029              13,966
Ending Stock                                                          5,192           4,932              5,192                5,168
Stocks to Use %                                                      15.3%           14.4%               15.3%               15.1%
  United States                                                       7.9%            6.8%                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             -25.75          18.14             -141.9%
                                                                                                                C H4             -15.75          36.49              -43.2%
    9                                                                                                           C N4              -1.25          60.68               -2.1%
                                                                                                                C U4             -19.75          73.38              -26.9%
                                                                                                     C Z3       C H4              10.00          18.20              55.0%
    6                                                                                                           C N4              24.50          42.20              58.1%
                                                                                                                C U4               6.00          54.79              11.0%
                                                                                                     C H4       C N4              14.50          24.07              60.2%
    3
                                                                                                                C U4              -4.00          36.71              -10.9%
                                                                                                                C z4              -4.50          54.77               -8.2%
    0                                                                                                C N4       C U4             -18.50          12.70             -145.7%
    2008             2009              2010               2011          2012              2013                  C z4             -19.00          30.83              -61.6%

        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
                                                                                                       200
    0

  -50                                                                                                  150


 -100
                                                                                                       100
    Jan 12          Apr 12         Jul 12          Oct 12           Jan 13       Apr 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
                                                                                    30%
 400

 350                                                                                29%

 300                                                                                28%
 250
                                                                                    27%
 200
                                                                                    26%
 150

 100                                                                                25%

  50
                                                                                    24%
   0
    Sep    Oct   Nov Dec      Jan   Feb Mar    Apr   May   Jun   Jul   Aug          23%
                                                                                                     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
   05/06Q1 06/07Q1 07/08Q1 08/09Q1 09/10Q1 10/11Q1 11/12Q1 12/13Q1
                                                                                 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 May-13                          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
        4/25/2013            Sales           Shipments            Estimate
Current Week                    13                 16
CMYTD                          659                 502                800
10-week Avg                     10                 15
Needed/ Week                     7                 16
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)                                  $2.71                                   Economic to blend ethanol
DDGS price ($/gal)                                     $0.75                          1.5
Costs
Corn cost ($/gal)                                      $2.54                          1.0
Natural gas cost ($/gal)                               $0.12
Total other operating costs ($/gal)                    $0.51                          0.5

Total Revenue ($/gal)                                  $3.46                          0.0
Total Costs ($/gal)                                    $3.17
Cash Margin ($/gal)                                    $0.29                         -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: planting progress, %; horizontal axis: weeks)                                 (Soy/corn price ratio)

 100                                                                                           2.80
   90                                                                                          2.70
   80                                                                                          2.60
   70                                                                                          2.50
   60                                                                                          2.40
   50                                                                                          2.30
   40                                                                                          2.20
   30                                                                                          2.10
   20                                                                                          2.00
   10                                                                                          1.90
    0
                                                                                               1.80
             13        14    15      16     17     18      19     20      21      22     23        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   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 Stanley                 back of increased export business.
SUPPLY                                            10/11       11/12e          12/13e         12/13e    13/14e                Additionally, we believe that soyoil
Beginning Stocks (mln bu)                         2,233        2,576           2,026         2,027      2,129                demand from biodiesel mandates and an
Area Harvested (mln acres)                         255          254             269            268       276                 increase in soy meal export demand will
Production (mln bu)                               9,697        8,810           9,907          9,828    10,435                continue to support US crush in 1Q13.
Yield (bu/acre)                                   38.0         34.7            36.9            36.7     37.8
Imports (mln bu)                                  3,260        3,425           3,508          3,506     3,815               Recent supply shortages in South
Total Supply (mln bu)                            15,190       14,811          15,441         15,361    16,379                America have shifted export demand in
                                                                                                                             China and other traditional trade partners
DEMAND                                           10/11        11/12e          12/13e         12/13e         13/14e           back to the US, though we expect better
Crush Consumption (mln bu)                        8,134        8,331           8,464          8,449          8,902           Brazilian supplies should reverse this
Food Domestic Consumption                          553          565             574            575            593
                                                                                                                             trend in the coming months.
Seed and Residual (mln bu)                         559          511             506            512            536
Total Dom. Consumption (mln bu)                   9,246        9,408           9,544          9,536         10,031          Weak soybean production in Argentina
 Brazil                                          1,445         1,471           1,422         1,423           1,491           has kept the country's crush volumes and
 China                                            2,423       2,648            2,823         2,823           2,993           soy meal exports depressed, increasing
 US                                               1,779        1,793           1,730          1,730          1,877
                                                                                                                             the call on US meal exports and
Exports (mln bu)                                  3,368        3,378           3,596          3,695          3,910
                                                                                                                             supporting meal (and soybean) prices.
Total Demand (mln bu)                            12,613       12,786          13,140         13,231         13,942
Ending Stock                                     2,576        2,026           2,301          2,129          2,437
World Stocks to Use %                            27.9%        21.5%            24.1%          22.3%          24.3%
US Stocks to Use %                               6.6%         5.4%             4.0%           4.0%           5.1%
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 May
                                                                                                             10 10 10 11 11 11 11 12 12 12 12 13 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
                                                                                   16%
 600
                                                                                   14%

 500                                                                               12%

 400                                                                               10%

                                                                                      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-   Apr-          0
        11     11       11     11     12     12     12       12     13     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
                                                                                       4/25/2013             Sales           Shipments     Estimate
                                            Incentive to Import from US
    4                                                                             Current Week                  -4                  13
                                                                                  CMYTD                       1,333                1,245     1,350
    2
                                                                                  10-week Avg                   18                  38
    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 May-13

                     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
         4/25/2013          Sales            Shipments          Estimate
                                                                             300
Current Week                    2                  8
CMYTD                        1,834                1,729           2,299      200

10-week Avg                     48                 56                        100
Needed Per Week                 20                 25
                                                                               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%
      4/25/2013                Sales           Shipments          Estimate
Current Week                    205               260                              25%
CMYTD                          19,126           16,042             18,700
                                                                                   20%
10-week Avg                     423               473
Needed Per Week                 -19               116                              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)                           $4.70                       3000

Glycerin Revenue ($/gal BD)                 $0.38
Total Revenues ($/gal)                      $5.08                       2500


                                                                        2000
Costs
Feedstock                                      $3.75
                                                                        1500
Chemicals                                      $0.27
Energy                                         $0.11                    1000
Other operating Costs                          $0.26
Total Costs ($/gal)                            $4.39                    500

Cash Margin                                    $0.69                        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, with recent frosts adding to
 30%
                                                             800                                                                winterkill concerns.
 25%
                                                             700
 20%
 15%                                                         600
                                                                                                                               Argentina's wheat production has
 10%                                                         500
                                                                                                                                declined YoY as flooding pressured both
  5%
                                                             400
                                                                                                                                quality and harvested area.
  0%
                                                             300
  -5%
 -10%                                                        200
                                                                                                                              Demand
 -15%                                                        100
        92/93     98/99      03/04     08/09    13/14e        0                                                                Wheat's return to its historical premium to
                 Wheat                 Corn                        02/03                   07/08                 12/13e
                                                                                                                                corn places in jeopardy its
                                                                                                                                higher-than-normal penetration in the
Source: USDA, Morgan Stanley Commodity Research             Source: USDA, Morgan Stanley Commodity Research
estimates                                                   estimates                                                           global feed ration.
                                                                                                                               US exports should rise YoY in 12/13 as
Supply-Demand Balance
                                                                                                                                Ukrainian and Russian wheat export
World                                                USDA                                    Morgan Stanley                     volumes fall YoY through 2H 12/13.
SUPPLY                                 10/11         11/12e                 12/13e          12/13e    13/14e
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
                                                                                     18%

 200

                                                                                     12%
 150


 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
        4/25/2013                 Sales          Shipments          Estimate
                                                                                       1200
Current Week                         8                31
                                                                                       1000
CMYTD                               975               871             1,025
                                                                                        800
10-week Avg                          15               25
                                                                                        600
Needed/ Week                         8                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: planting progress, %; horizontal axis: weeks)                              (Vertical axis: % rated Good/Excellent; horizontal axis: weeks)

                                                                                            90
   100
     90                                                                                     80

     80                                                                                     70
     70
                                                                                            60
     60
     50                                                                                     50
     40
                                                                                            40
     30
     20                                                                                     30

     10                                                                                     20                                            Dormancy
      0
              13   14   15    16    17   18   19    20    21   22   23     24   25   26     10
                                                                                                 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
               2013          2012        2011         2010          2009         2008                     20-yr Range          2013           2012          20-Yr Average

Source: Bloomberg, Morgan Stanley Commodity Research                                       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: planting pace, %; horizontal axis: weeks)                                     (Vertical axis: crops rated good or excellent, %; horizontal axis: weeks)


   100                                                                                           80
    90                                                                                           70
    80                                                                                           60
    70
                                                                                                 50
    60
                                                                                                 40
    50
    40                                                                                           30

    30                                                                                           20
    20                                                                                           10
    10                                                                                            0
      0                                                                                                20   22    24     26   28    30    32    34    36   38     40   42    44    46
           13     14       15     16     17   18    19      20   21     22       23     24
                                                                                                                   2013            2012         2011        2010            2009
           2008            2009           2010        2011            2012            2013
                                                                                              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.
                                                                                     0
                                                                                                                                                        With only modest production
 200
                                                                                     -5
 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)
 0.4                                                                                        0.55


                                                                                            0.45
 0.3

                                                                                            0.35


 0.2
                                                                                            0.25



                                                                                            0.15
 0.1
                                                                                               Jan 12      Apr 12         Jul 12       Oct 12         Jan 13       Apr 13
  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                                                     2.80           1,100
Freight                                                                        0.17           1,000
VAT                                                                            0.74
Handling Costs                                                                 0.15             900
DVE Brazil                                                                     3.86             800

Current Brazilian Anhydrous Ethanol Price                                         2.50          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     Apr
           11    11       11      11      12      12       12      12        13     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                                                         101
   Demand/ Supply                                            102
   Prices                                                    103
Silver                                                       104
   Demand/ Supply                                            105
   Prices                                                    106
Aluminum                                                     107
   Demand/ Supply                                            108
   Prices                                                    109
Copper                                                       110
   Demand/ Supply                                            111
   Prices                                                    112
Nickel                                                       113
   Demand/ Supply                                            114
   Prices                                                    115
Lead and Zinc                                                116
   Zinc                                                      117
   Zinc Prices                                               118
   Lead                                                      119
   Lead Prices                                               120




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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)                                                                                                                                                                                                                         The dramatic sell-off in the gold market in
  2,500                                                                                       $1,800             9,000
                                                                                                                 8,000
                                                                                                                                                                                                                                                                                                                                             mid-April 2013 was an intensification of the
                                                                                              $1,600
  2,000
                                                                                              $1,400             7,000                                                                                                                                                                                                                       selling pressures evident throughout 2013,
  1,500
                                                                                              $1,200
                                                                                                                 6,000
                                                                                                                 5,000
                                                                                                                                                                                                                                                                                                                                             in our view. We think the negative relative
  1,000                                                                                       $1,000
                                                                                                                 4,000                                                                                                                                                                                                                       and absolute performance has increasingly
          500                                                                                 $800
                                                                                              $600
                                                                                                                 3,000
                                                                                                                 2,000
                                                                                                                                                                                                                                                                                                                                             reflected the erosion of some of the major
            0
                                                                                              $400               1,000                                                                                                                                                                                                                       pillars supporting the gold bull market.
     -500                                                                                     $200                    -
                                                                                                                                                                                                                                                                                                                                             Investor Demand




                                                                                                                                                                                                   Switzerland




                                                                                                                                                                                                                                                               Taiwan


                                                                                                                                                                                                                                                                                   Venezuela
                                                                                                                                                            IMF


                                                                                                                                                                          Italy
                                                                                                                                                                                  France
                                                                                                                                                                                           China


                                                                                                                                                                                                                 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                                                                                                                                                                                                                                                                                Arguably, the single most important of
                       Implied investment                            Bar Hoarding
                       Official Coin Sales                           Medals/Imitation coins                                                                                                                                                                                                                                                     these pillars has been the rise in
                       Change in ETF Holdings                        Gold Price (RHS)                                                                                                      2Q 2012                                       2Q 2007                                                                                                investment demand for physical gold. We
Source: WGC, GFMS, Morgan Stanley Commodity Research                                                            Source: WGC, GFMS, Morgan Stanley Commodity Research                                                                                                                                                                            have long argued that this form of
estimates                                                                                                                                                                                                                                                                                                                                       demand for physical gold primarily
                                                                                                                                                                                                                                                                                                                                                reflected investor demand to hedge
  Known Gold Holdings by ETFs Worldwide                                                                                                                                   Gold vs Oil (Brent)
(Left axis: gold ETF holdings, MT; right axis: gold price, US$/oz) (Gold/Brent, $/oz per $/bbl)
                                                                                                                                                                                                                                                                                                                                                systemic financial risk during the 08-09
          3,000                                                                               $2,000                 40
                                                                                                                                                                                                                                                                                                                                                financial crisis and its aftermath, while
                                                                                              $1,800                 35
                                                                                                                                                                                                                                                                                                                                                providing a long-term hedge against fiat
          2,500
                                                                                              $1,600                 30
                                                                                                                                                                                                                                                                                                                                                currency debasement risk at a time of
          2,000                                                                               $1,400
                                                                                                                     25
                                                                                                                                                                                                                                                                                                                                                sustained financial risk-aversion. The
                                                                                              $1,200                                                                                                                                                                                                                                            dramatic sell-off in mid-April suggests that
                                                                                                       US$/oz
 tonnes




                                                                                                                     20
          1,500
                                                                                              $1,000                                                                                                                                                                                                                                            demand for this type of investment is
                                                                                                                     15
          1,000                                                                               $800                                                                                                                                                                                                                                              declining.
                                                                                                                     10
                                                                                              $600                                                                                                                                                                                                                                            Furthermore, this decline in investor
                                                                                                                     5
           500
                                                                                              $400                                                                                                                                                                                                                                              demand for gold is occurring when
                                                                                                                 -
                                                                                                                                                                                                                                                                                                                                                another pillar of the gold bull market is
                                                                                                                          1970

                                                                                                                                      1973

                                                                                                                                                           1976

                                                                                                                                                                   1979

                                                                                                                                                                             1982

                                                                                                                                                                                           1985

                                                                                                                                                                                                       1988

                                                                                                                                                                                                                          1991

                                                                                                                                                                                                                                    1994

                                                                                                                                                                                                                                                    1997

                                                                                                                                                                                                                                                               2000

                                                                                                                                                                                                                                                                           2003

                                                                                                                                                                                                                                                                                               2006

                                                                                                                                                                                                                                                                                                                 2009

                                                                                                                                                                                                                                                                                                                              2012




                0                                                                             $200
                2004    2005    2006    2007    2008   2009
                                         Gold ETFs (LHS)
                                                              2010    2011    2012
                                                               Gold Price (RHS)
                                                                                      2013
                                                                                                                                         Gold/Brent                                                 Long-run-average                                                                       Current Ratio
                                                                                                                                                                                                                                                                                                                                                potentially eroding - the notable absence
                                                                                                                                                                                                                                                                                                                                                of ECB selling. Should this trend reverse
Source: Bloomberg, Morgan Stanley Commodity Research                                                            Source: Bloomberg, Morgan Stanley Commodity Research                                                                                                                                                                            at a time of lowered risk-aversion, further
                                                                                                                                                                                                                                                                                                                                                gold price falls would be likely. While we
Supply-Demand Balance
                                                                                                                                                                                                                                                                                                                                                think this is unlikely to materialize, the fact
SUPPLY                                                                Unit         2010              2011                 2012                                    2013e                     2014e                                  2015e                         2016e                                           2017e
Total Mine Production                                                tonnes        2,741            2,819                 2,820                                   2,884                     2,936                                  2,946                         2,980                                           3,023                          that the market is beginning to price this
 year-over-year chg                                                    %             5.0              2.8                   0.0                                     2.3                       1.8                                    0.3                          1.2                                             1.4                           outcome is clearly negative for the gold
Scrap supply                                                         tonnes        1,645            1,605                 1,580                                   1,410                     1,320                                  1,180                         1,100                                           1,100
 year-over-year chg                                                    %            -1.6             -2.4                  -1.6                                   -10.8                      -6.4                                  -10.6                          -6.8                                            0.0                           price in the near to medium term.
Official sector net sales/(purchases)                                tonnes          25              -402                  -280                                    -220                      -160                                   -125                           -90                                            -30                         Consequently, we lowered our gold price
 year-over-year chg                                                    %          -125.2           -1730.7                -30.3                                   -21.4                     -27.3                                  -21.9                         -28.0                                           -66.7
Net producer hedging                                                 tonnes        -121               12                    20                                      35                        50                                     70                             90                                            125                           forecasts on 16 April for 2013 by 16.0% to
Total Supply                                                           %           4,290            4,034                 4,140                                   4,109                     4,146                                  4,071                         4,080                                           4,218                          US$1,487/oz and for 2014 by 15.0% to
 year-over-year chg                                                    %             9.1             -6.0                   2.6                                    -0.7                       0.9                                   -1.8                          0.2                                             3.4
                                                                                                                                                                                                                                                                                                                                                1,563/oz.
DEMAND                                                                 Unit          2010            2011                 2012                                    2013e                     2014e                                  2015e                         2016e                                           2017e
Jewelry                                                              tonnes          2,017           1,973                1,910                                   1,860                     1,953                                  2,054                         2,100                                           2,178                       Supply
  year-over-year chg                                                    %            11.2             -2.2                 -3.2                                    -2.6                       5.0                                    5.2                           2.3                                             3.7                        Gold miners are nevertheless still
Electronics                                                          tonnes           326             330                  320                                     310                       320                                    325                           345                                             370
  year-over-year chg                                                    %            18.6              1.3                 -3.1                                    -3.1                       3.2                                    1.6                           6.2                                             7.2                         struggling to deliver growth in production -
Dental                                                               tonnes            50              53                   53                                      53                        55                                     55                            55                                              55                          in 2012 new mine production of gold rose
  year-over-year chg                                                    %             -4.9            4.8                  0.0                                     0.0                        4.8                                    0.0                          0.0                                              0.0
Official Coins, Medals & Imitation coins                             tonnes           302             333                  397                                     389                       375                                    357                           340                                             325                          0.8% and production growth in 2013 is
  year-over-year chg                                                    %              2.9           10.5                 19.1                                     -2.0                      -3.5                                   -4.9                          -4.7                                            -4.6                         forecast to increase by only 3.1%, an
Total Fabrication Demand                                             tonnes          2,694           2,689                2,679                                   2,611                     2,703                                  2,791                         2,840                                           2,927
  year-over-year chg                                                    %            10.7             -0.2                 -0.4                                    -2.5                       3.5                                    3.2                           1.8                                             3.1
                                                                                                                                                                                                                                                                                                                                               amount just adequate to meet fabrication
                                                                                                                                                                                                                                                                                                                                               demand.
Change in ETF Holdings                                               tonnes           368             238                  285                                    -200                       75                                      25                            -50                                              -50
Bar Hoarding                                                         tonnes           882            1,209                1,364                                   1,397                     1,355                                  1,314                          1,248                                            1,186                      Furthermore, scrap supply growth was
Implied Investment/(Disinvestment)
Total Investment Demand
                                                                     tonnes           346
                                                                                      978
                                                                                                     -103
                                                                                                      977
                                                                                                                          -188
                                                                                                                          1,223
                                                                                                                                                                   301
                                                                                                                                                                  1,212
                                                                                                                                                                                             13
                                                                                                                                                                                            1,642
                                                                                                                                                                                                                                    -59
                                                                                                                                                                                                                                   1,205
                                                                                                                                                                                                                                                                   41
                                                                                                                                                                                                                                                                  1,215
                                                                                                                                                                                                                                                                                                                    155
                                                                                                                                                                                                                                                                                                                   1,341
                                                                                                                                                                                                                                                                                                                                               negative in 2012, declining by 1.6%,
Investment as a % of Total Demand                                      %             37.2            33.3                 35.3                                    36.4                      34.8                                   31.4                           30.4                                             30.6                        despite an 8% increase in the price.
Total Demand                                                         tonnes          3,673           3,666                3,901                                   3,824                     4,346                                  3,996                          4,055                                            4,268                       Given our projections of a 10.9%
Gold Price                                                           US$/oz          1,226           1,546                1,669                                   1,487                     1,563                                  1,450                          1,400                                            1,375
                                                                                                                                                                                                                                                                                                                                               decrease in the price in 2013, we are
e = Morgan Stanley Research estimates Source: WGC, GFMS, CRU, Morgan Stanley Research
                                                                                                                                                                                                                                                                                                                                               forecasting a 10.8% decrease in scrap
                                                                                                                                                                                                                                                                                                                                               supply, a level that would 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                                                                                                 $1,800                                                                            1800
                                                                                     1400
 $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
           Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13                                            Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-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
           Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-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)
          3,000                                                                     $2,000               80%                                                                   180

                                                                                    $1,800
          2,500                                                                                          60%                                                                   160
                                                                                    $1,600
                                                                                                         40%                                                                   140
          2,000                                                                     $1,400

                                                                                    $1,200               20%                                                                   120
                                                                                             US$/oz
 tonnes




          1,500
                                                                                    $1,000
                                                                                                          0%                                                                   100
          1,000                                                                     $800
                                                                                                        -20%                                                                   80
                                                                                    $600
           500
                                                                                    $400                -40%                                                                   60
                                                                                                            2001      2003       2005     2007    2009     2011         2013
             0                                                                      $200                                             YoY % Change      GRDI
             2004   2005   2006   2007   2008   2009   2010   2011    2012   2013
                                                                                                       Global Risk Demand Index – US Pat. No. 7,617,143
                                   Gold ETFs (LHS)      Gold Price (RHS)                               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%                                   The sharp price correction in the gold
 100
                                                                                                                                                                                          market that has forced us to make large
                                                                                                             Coins, 9%
                                                                                                                                                                                          downgrades to our forecasts has had a
      80
                                                                                                                                                                     Industrial, 39%      similar impact on silver as the cheap proxy
      60                                                                                                                                                                                  for the gold market. Just as the fall in gold
      40
                                                                                                                                                                                          prices made a clear and decisive break of
                                                                                                                                                                                          the uptrend price channel for that metal, so
      20
                                                                                                            Jewelry &                                                                     too in silver.
                                                                                                        Silverware, 25%
  -
           1975      1980       1985      1990      1995     2000     2005      2010

                  Gold/Silver              Long-run-average                 Current Ratio                                                          Investment, 15%                        Demand
Source: Bloomberg, Morgan Stanley Commodity Research                                          Source: CRU, Morgan Stanley Commodity Research                                               In our view, the greater percentage fall in
                                                                                                                                                                                            silver than gold prices, despite the fact
                            Reported Holdings in                                                                  Precious Metal Relative
                                                                                                                                                                                            that the primary selling pressure was
                            Silver ETFs vs. Price                                                                   Price Performance
(Left axis: ETF holdings, MT; right axis: closing price, $/troy oz.) (Index of prices with Jan 2010 = 100)
                                                                                                                                                                                            located in the gold market, reflects silver’s
 25,000                                                                                 $50    350                                                                                          traditional and historically greater volatility
                                                                                               300
                                                                                                                                                                                            linked to the higher percentage of retail
 20,000                                                                                 $40                                                                                                 investors. This can even be seen in the
                                                                                               250
                                                                                                                                                                                            trend in physically backed silver ETFs,
 15,000                                                                                 $30    200
                                                                                                                                                                                            which have fallen by a similar amount in a
 10,000                                                                                 $20
                                                                                               150                                                                                          far shorter time.
                                                                                               100
  5,000                                                                                 $10                                                                                                We think the sharp drop in the silver price
                                                                                                   50
                                                                                                                                                                                            has not only done material technical
            0                                                                           $0     -
                                                                                                    Jul-10       Jan-11         Jul-11       Jan-12         Jul-12     Jan-13
                                                                                                                                                                                            damage to the metal’s upward price trend
            2007        2008       2009          2010      2011      2012      2013
                  Total Tonnes of Silver in the Trust                   Closing Price                     Gold                 Silver                Palladium              Platinum        but will also act as a significant deterrent
Source: Bloomberg, Morgan Stanley Commodity Research                                          Source: Bloomberg, Morgan Stanley Commodity Research
                                                                                                                                                                                            to bargain hunters who fear further
                                                                                                                                                                                            volatility and vulnerability to downside
Supply-Demand Balance                                                                                                                                                                       support levels.
Supply                                                       Unit       2010        2011       2012          2013e          2014e         2015e           2016e      2017e
New Mine Production                                         tonnes     23,765      23,947     24,939         25,325         26,425        27,450          27,775     26,725                The sharp price correction in the gold
 year-over-year
Net Government Purchase/(Sales)
                                                              %
                                                            tonnes
                                                                         3.6
                                                                       -1,300
                                                                                      0.8
                                                                                     -750
                                                                                                 4.1
                                                                                                -500
                                                                                                                1.5
                                                                                                               -250
                                                                                                                               4.3
                                                                                                                              -100
                                                                                                                                             3.9
                                                                                                                                             -75
                                                                                                                                                             1.2
                                                                                                                                                             -75
                                                                                                                                                                       -3.8
                                                                                                                                                                        -75
                                                                                                                                                                                            market that has forced us to make large
 year-over-year                                               %        205.9        -42.3      -33.3          -50.0          -60.0         -25.0             0.0        0.0                 downgrades to our forecasts has had a
Old Silver Scrap                                            tonnes      7,050       7,925      7,002          6,501          6,502         6,239           6,236      6,340
 year-over-year                                               %         15.1        12.4       -11.6           -7.2            0.0          -4.0            -0.1        1.7
                                                                                                                                                                                            similar impact on silver as the cheap
Net Producer Hedging                                        tonnes     1,500         750          0              0              0             0               0          0                  proxy for the gold market. Just as the fall
Total Supply                                                  %        31,017      31,872     31,441         31,576         32,827        33,614          33,936     32,990
 year-over-year                                               %         10.3          2.8       -1.4            0.4            4.0           2.4            1.0        -2.8                 in gold prices made a clear and decisive
                                                                                                                                                                                            break of the uptrend price channel for that
                                                                          23          24          25            26             27            28              29         30
Demand                                                        Unit      2010        2011        2012         2013e          2014e         2015e           2016e      2017e                  metal, so too in silver.
Electronics                                                 tonnes     7,720        7,470       7,192         7,570         8,004          8,445           8,770      9,157
  year-over-year                                               %         35.0        -3.2        -3.7           5.3            5.7           5.5             3.9        4.4
Brazing Alloys and Solders                                  tonnes     2,230        2,310       2,394         2,504          2,610         2,719           2,835      2,951
  year-over-year                                               %          9.3         3.6         3.6           4.6            4.2           4.2             4.3        4.1
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       4,797         4,909          5,068         5,258           5,431      5,607
  year-over-year                                               %         16.1        -5.6         2.1           2.3            3.2           3.8             3.3        3.2
Total Fabrication Demand                                    tonnes     26,940      26,620      25,925        26,750         27,425        28,300          28,675     29,050
  year-over-year                                               %         13.1        -1.2        -2.6           3.2            2.5           3.2             1.3        1.3
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      261         6,080       3,863         4,076         5,152          5,664           5,761      4,690
Total Demand                                                           31,017      31,872      31,441        31,576         32,827        33,614          33,936     32,990
  year-over-year                                             %          10.3          2.8        -1.4          0.4           4.0             2.4             1.0       -2.8
Price                                                      US$/oz      20.11       32.91       31.15         27.17          29.48          27.88           26.92      26.44

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                                                                                            $35     35,000

   25,000                                                                                            $30     30,000

   20,000                                                                                                    25,000
                                                                                                     $25
   15,000                                                                                                    20,000
                                                                                                     $20
   10,000
                                                                                                             15,000
                                                                                                     $15
    5,000
                                                                                                             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
                Mar-07



                                   Mar-08



                                                       Mar-09



                                                                             Mar-10



                                                                                                    Mar-11



                                                                                                                             Mar-12



                                                                                                                                                       Mar-13
       Sep-06



                         Sep-07



                                             Sep-08



                                                                  Sep-09



                                                                                        Sep-10



                                                                                                                Sep-11



                                                                                                                                          Sep-12



                                                                                                                                                                     Sep-13




                                                                                                                                                                                                   Mar-07



                                                                                                                                                                                                                     Mar-08



                                                                                                                                                                                                                                        Mar-09



                                                                                                                                                                                                                                                          Mar-10



                                                                                                                                                                                                                                                                            Mar-11



                                                                                                                                                                                                                                                                                              Mar-12



                                                                                                                                                                                                                                                                                                                Mar-13
                                                                                                                                                                                          Sep-06



                                                                                                                                                                                                            Sep-07



                                                                                                                                                                                                                              Sep-08



                                                                                                                                                                                                                                                 Sep-09



                                                                                                                                                                                                                                                                   Sep-10



                                                                                                                                                                                                                                                                                     Sep-11



                                                                                                                                                                                                                                                                                                       Sep-12



                                                                                                                                                                                                                                                                                                                         Sep-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
                Mar-07



                                  Mar-08



                                                      Mar-09



                                                                           Mar-10



                                                                                                 Mar-11



                                                                                                                         Mar-12



                                                                                                                                                   Mar-13
       Sep-06



                         Sep-07



                                            Sep-08



                                                                Sep-09



                                                                                      Sep-10



                                                                                                             Sep-11



                                                                                                                                      Sep-12



                                                                                                                                                                Sep-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
 70,000                                                                        70,000
                                                                                                                                                              unique in having a relatively positive price
 60,000                                                                        60,000                                                                         outlook despite record global inventories
 50,000
                                                                               50,000                                                                         that show no signs of abating. In our view,
 40,000
                                                                               40,000
                                                                                                                                                              the disconnect is the net result of the 5-year
 30,000                                                                                                                                                       long phenomenon of inventory financing –
                                                                               30,000
 20,000                                                                                                                                                       and, given the current interest rate
 10,000
                                                                               20,000                                                                         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

                                                                               1,600
                                                                                                                                                      3,000     metal will likely remain locked away as
  300
                                                                               1,400                                                                  2,500     expiring arrangements are rolled-over or
  -200
                                                                               1,200
                                                                                                                                                      2,000
                                                                                                                                                                new deals are struck.
                                                                               1,000
                                                                                                                                                      1,500    Primary producers have little incentive to
                                                                                800
  -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
                                                                                  0                                                                   -         margins, are not receiving the price signals
 -1700                                                                            2000    2002      2004          2006     2008       2010     2012
         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
World Production
                                                   %
                                                   Mt
                                                            26.3
                                                            88.4
                                                                        8.2
                                                                       97.1
                                                                                   0.2
                                                                                  99.7
                                                                                                   5.9
                                                                                                  104.3
                                                                                                            5.7
                                                                                                           111.1
                                                                                                                          5.2
                                                                                                                         116.9
                                                                                                                                     3.2
                                                                                                                                    123.3
                                                                                                                                                  2.4
                                                                                                                                                 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
Metallurgical Consumption
                                                 Unit
                                                  Mt
                                                            2010
                                                            83.2
                                                                       2011
                                                                       89.3
                                                                                  2012
                                                                                  90.5
                                                                                                  2013e
                                                                                                   95.6
                                                                                                           2014e
                                                                                                           102.6
                                                                                                                         2015e
                                                                                                                         108.4
                                                                                                                                    2016e
                                                                                                                                    114.1
                                                                                                                                                 2017e
                                                                                                                                                 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)                        Mt        3.1        3.4        3.7              4.0     4.4            4.7       5.1          5.4           aluminum product demand will not be
USA                                                Mt        4.2        4.1        4.7              4.8     5.1            5.0       5.0          5.0
Europe                                             Mt        7.5        7.7        6.4              6.5     6.8            6.9       7.0          6.9           strong, demand indicators have levelled
Japan                                              Mt        2.0        1.9        1.7              1.7     1.7           1.7        1.6          1.5           off. In particular, in late 2012 and early
Rest of World                                      Mt        7.4        7.7        7.3             7.5      8.2           8.6        9.0          9.2
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 aluminum
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    Jan-13
   (400,000)                                                                               -
                                                                                                                            Imports as % of apparent consumption (LHS)             Pacific spot alumina, US$/t (RHS)
           1995 1997 1999 2001 2003 2005 2007 2009 2011
                     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)
                                                                                                160
  150                                                                                           140

  100                                                                                           120
                                                                 Backwardation
                                                                                                100
   50
                                                                                                    80                                                              4/30/2013
       0
                                                                                                    60
   -50
                                                                                                    40
 -100                                                                                               20
    Contango
 -150                                                                                                   0
      0                10         20          30       40               50           60                     0.0               20.0           40.0        60.0          80.0                 100.0
                               month-end data        5/3/2013                                                                           Stock to consumption ratio (days)

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              -
   Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
                                   London Premium                                                       1998           2000       2002      2004      2006        2008     2010      2012
                   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                                                                300
                                                                                                        800                                                                                         800

           250                                                                250                       700                                                                                         700

                                                                                                        600                                                                                         600
           200                                                                200
                                                                                                        500                                                                                         500
                                                                                                US$/t




                                                                                                                                                                                                          US$/t
   US$/t




                                                                                      US$/t




           150                                                                150                       400                                                                                         400

                                                                                                        300                                                                                         300
           100                                                                100
                                                                                                        200                                                                                         200

            50                                                                50                        100                                                                                         100

                                                                                                             0                                                                                      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                                                                          In our view, the copper market is now
 25,000
                                                                                                                                                                shifting from a long period of constrained
                                                                                20,000
                                                                                                                                                                mine supply to one in which new mine
 20,000
                                                                                15,000
                                                                                                                                                                capacity growth brings about the
 15,000                                                                                                                                                         long-awaited return of the refined market to
 10,000
                                                                                10,000                                                                          moderate surpluses.
  5,000                                                                          5,000                                                                          Supply
     -                                                                                                                                                           The build in reported inventory in
                                                                                       0
            2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                           2007   2008   2009     2010 2011e 2012e 2013e 2014e 2015e 2016e        exchange warehouses in Europe, Asia
   China     BRI (Brazil, Russia, India)   USA   W Europe   Japan    ROW          Africa      China   Australia   USA   Canada   Mexico   Chile   Peru   ROW
                                                                                                                                                                  and North America has been highlighted
Source: WMBH, Morgan Stanley Commodity Research                                Source: WMBH, Morgan Stanley Commodity Research                                    by the reversal of the term structure from
estimates                                                                      estimates                                                                          backwardation to mild contango.
                                                                                                                                                                  Consequently, investor sentiment has
                      China Trade Balance                                              Chinese Copper Production vs Price
(‘000 MT)                                                                      (Left axis: ‘000 MT; right axis: US$/lb)
                                                                                                                                                                  deteriorated and price performance has
   800                                                                          600                                                                      5.00     been lackluster so far this year.
   300
                                                                                500
                                                                                                                                                         4.50
                                                                                                                                                                 However, just as the bear skew in investor
                                                                                                                                                         4.00
  -200
                                                                                                                                                         3.50
                                                                                                                                                                  positions was becoming firmly
                                                                                400
  -700
                                                                                                                                                         3.00     established in 1Q13, a number of factors
 -1,200
                                                                                300                                                                      2.50     occurred over the past quarter that served
 -1,700
                                                                                200
                                                                                                                                                         2.00     as a reminder that the business of mining
 -2,200                                                                                                                                                  1.50
                                                                                                                                                                  copper is a risky one.
                                                                                                                                                         1.00
 -2,700                                                                         100

 -3,200
                                                                                                                                                         0.50    These included a number of increases to
 -3,700
                                                                                  0
                                                                                   2000     2002      2004     2006       2008       2010      2012
                                                                                                                                                         -        capital cost estimates, primarily as a
          2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012            China Refined Copper Production (LHS)         LME Price, USD/lbs (RHS)      result of rising labour, equipment and
Source: Thomson Reuters, MS Commodity Research                                 Source: Thomson Reuters, MS Commodity Research
                                                                                                                                                                  power costs. An ongoing strike at Chile’s
                                                                                                                                                                  primary ports and the specter of mine
Supply-Demand Balance: Concentrate                                                                                                                                specific strikes highlight ongoing risk in
Supply                                             Unit     2010       2011           2012        2013e         2014e     2015e      2016e        2017e           that region. The production outage at Rio
Concentrates                                        Mt      12.70      12.55          13.04       13.27         14.22     15.17      15.80        17.20
SX/EW                                               Mt       3.33       3.47           3.95        3.85          4.21      4.41       4.21         4.22           Tinto’s KUC operation in the US could
Mine Production
 year-over-year
                                                    Mt
                                                    %
                                                            16.05
                                                             0.5
                                                                       16.03
                                                                        -0.1
                                                                                      17.00
                                                                                       6.0
                                                                                                  17.14
                                                                                                   0.8
                                                                                                                18.38
                                                                                                                 7.2
                                                                                                                          19.42
                                                                                                                           5.6
                                                                                                                                     19.85
                                                                                                                                      2.2
                                                                                                                                                  21.23
                                                                                                                                                   6.9
                                                                                                                                                                  reduce output by ~100-125kt (from the
                                                                                                                                                                  ~200kt annualized).
Demand                                             Unit      2010       2011       2012           2013e         2014e     2015e      2016e        2017e
Primary                                             Mt       12.93      12.85     14.38           13.21         14.16     15.10      15.73        17.12
Secondary                                           Mt       2.71        3.12      3.79            3.82          3.42      3.49       3.47         3.39         Demand
Total Smelter Production                            Mt       15.64      15.96     18.16           17.03         17.59     18.59      19.20        20.51
  year-over-year                                    %         4.8        2.1       13.8            -6.2          3.3       5.7        3.3          6.8           We think underlying copper demand
Imputed concentrate balance                         Kt      -224.9     -301.4    -1,332.5          53.3          58.1      62.8       72.9         79.9
                                                                                                                                                                  trends remain encouraging. In the US, the
                                                                                                                                                                  European copper smelter and refiner
Supply-Demand Balance: Refined Market                                                                                                                             Aurubis said at the beginning of 2Q that
Supply                                             Unit     2010       2011           2012        2013e         2014e     2015e      2016e        2017e           its order flow was the best in 18 months.
Electrowon                                          Mt       3.33       3.47           3.95        3.85          4.21      4.41       4.21         4.22
Primary                                             Mt      12.42      12.69          14.02       12.90         13.79     14.80      15.54        16.71           In China, tube and wire demand have
Secondary                                           Mt       3.25       3.48           3.57        4.28          3.83      3.91       4.10         4.00           been robust, particularly on improving
Total Refinery Production                           %       19.01      19.65          21.54       21.02         21.84     23.11      23.85        24.93
  year-over-year                                    %        4.0        3.4            9.6         -2.4          3.9       5.8        3.2          4.5            demand for white goods and home
                                                                                                                                                                  appliances as well as from the auto
Demand                                            Unit      2010       2011           2012        2013e         2014e     2015e      2016e        2017e
China                                              Mt       7.20       7.82           8.20         8.98          9.35      9.98      10.67        11.42           sector. Easing credit conditions and
BRI (Brazil, Russia, India)                        Mt       1.48       1.70           1.68         1.78          1.78      1.88       1.99         2.11           targeted investment decisions have
Europe                                             Mt        3.47       3.30           3.06        3.24          3.24      3.41       3.57         3.66
USA                                                Mt        1.77       1.76           1.78        1.88          1.89      1.94       1.99         2.02           boosted investments in conventional
Japan                                              Mt        1.06       1.01           1.01        1.07          1.04      1.09       1.12         1.15           thermal power grids and copper intensive
ROW                                                Mt       4.39        4.29           4.79        3.97          4.22      4.48       4.63         4.82
World Copper Usage                                 Mt       19.37      19.86          20.51       20.92         21.53     22.79      23.97        25.17           smart grid technology in China as well.
  year-over-year                                   %         7.0        2.5            1.1         2.0           3.0       5.8        5.2          5.0
    China usage growth                             %        10.8        8.5            5.0         9.5           4.2       6.7        6.9          7.0           Outside of China, and the US
Refined Market Balance                             Mt       -0.37      -0.22           1.02        0.10          0.30      0.33      -0.12        -0.23
Refined Stocks End of Period                       Kt       1,193      1,222          1,422       1,526         1,831     2,160      2,044        1,809           construction and auto manufacturing are
Stock to Usage Rate                              Weeks       3.21       3.21           3.61        3.80          4.43      4.94       4.45         3.75           also supportive of stronger off-take, and
LME Copper Price                                 US$/lb      3.42       4.01           3.61        3.53          3.60      3.30       3.30         3.27
e = Morgan Stanley Research estimates Source: ICSG, Wood Mackenzie Brook Hunt, Morgan Stanley Research                                                            even in Europe. Our revised economic
                                                                                                                                                                  forecasts suggest a moderate rebound in
                                                                                                                                                                  2H13 is possible.



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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
                                                                                                               80th Percentile                     90th Percentile
    0.0%                                                                                          350                                                                                    350

   -5.0%                                                                                          300                                                                                    300

  -10.0%                                                                                          250                                                                                    250
                                                                                         USc/lb




                                                                                                                                                                                               USc/lb




  -15.0%                                                                                          200                                                                                    200

  -20.0%                                                                                          150                                                                                    150


  -25.0%
                                                                                                  100                                                                                    100

                                                                                                  50                                                                                     50
  -30.0%
        2007         2008       2009       2010          2011      2012        2013
                                                                                                      0                                                                                  0
                     Cash to 3-month        Cash to 15-month         Cash to 27-month                 1982     1986     1990       1994     1998       2002     2006     2010     2014
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, days)
  600                                                                                                     Price (USc/lb)
                                                                                                500
  500                                                                                           450

  400                                                                                           400
                                                                                                350
  300                                                                   Backwardation                                                          5/30/2013
                                                                                                300
  200                                                                                           250

  100                                                                                           200
                                                                                                150
      0
                                                                                                100
 -100
                                                                                                 50
          Contango
 -200                                                                                                0
          0          5            10       15        20           25         30          35              0.0       10.0         20.0     30.0    40.0      50.0       60.0          70.0
                                  month-end data             5/3/2013                                                             Stock to consumption ratio (days)

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                                                                                   250     300                                                                            (4.50)
                                                                                                250
                                                                                                                                                                               (3.50)
  400
               Shanghai Premium                                                         200     200
                                                                                                                                                                               (2.50)
                                                                                                150
  200
                                                                                        150     100                                                                            (1.50)
      0                                                                                              50
                                                                                                                                                                               (0.50)
                                                                                        100      -
 -200                                                                                                                                                                          0.50
                                                                                                 (50)
                                                                                        50      (100)                                                                          1.50
 -400
                                                                                                (150)
                                                                                                                                                                               2.50
 -600                                                                                   0       (200)
                                         London Premium
    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
                                                                                                                                                                                    The nickel market faces a very challenging
                                                                                         1,400
                                                                                                                                                                                    environment: LME stocks have touched their
 2,000
                                                                                         1,200                                                                                      highest level since the series started in 1979,
 1,500
                                                                                         1,000                                                                                      refined production growth remains at
                                                                                          800                                                                                       excessive levels and while indications of
 1,000                                                                                    600                                                                                       demand appear encouraging, consumption is
                                                                                          400                                                                                       unlikely to be strong enough to challenge the
   500
                                                                                          200                                                                                       sizeable market surplus that has developed
   -                                                                                           0
                                                                                                    2007    2008    2009   2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                                                                                                                    for several years.
           2007   2008    2009    2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                                   China Pig Iron              China Refined               Canada
   China      BRI (Brazil, Russia, India)   USA     W Europe      Japan     ROW                    Brazil
                                                                                                   Japan
                                                                                                                               Australia
                                                                                                                               Russia
                                                                                                                                                           New Caledonia
                                                                                                                                                           Europe                   Supply
Source: INSG, Morgan Stanley Commodity Research estimates Source: INSG, Morgan Stanley Commodity Research                                                                            China’s nickel pig iron (NPI) sector
                                                          estimates                                                                                                                   continues to develop, with an increasing
       China’s Monthly Imports of Nickel Ore                                                  Nickel Monthly Supply/Demand Balance                                                    amount of output coming from lower-cost
(Left axis: China imports, ‘000 MT; right axis: LME price, $/lb}                        (Left axis: ‘000 MT; right axis: $/lb)                                                        rotary kiln electric furnaces (RKEF), a trend
 8,000                                                                         25.00     200                                                                                25.00     we expect to continue. The net result will be
 7,000                                                                                                                                                                                an escalating proportion of NPI production
 6,000
                                                                               20.00     150                                                                                20.00     becoming less sensitive to LME nickel
 5,000
                                                                                                                                                                                      prices as this production process travels
                                                                               15.00     100                                                                                15.00
 4,000
                                                                                                                                                                                      down the cost curve.
 3,000                                                                         10.00          50                                                                            10.00    Although discouraging, the recent steep rise
 2,000                                                                                                                                                                                in exchange inventories is not solely a
                                                                               5.00       -                                                                                 5.00
 1,000                                                                                                                                                                                function of excess supply. Nickel is not
       0                                                                       -          (50)                                                                              0.00
                                                                                                                                                                                      exempt from the financing cash-and-carry
        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                    trade prevalent in aluminium. We note
                                                                                                     Rolling 12-month global market balance (LHS)             LME price (RHS)
          LME Price, USD/lbs (RHS)
                                                                                                                                                                                      much of the increase in warehouse stocks
Source: Thomson Reuters, MS Commodity Research                                          Source: INSG, Morgan Stanley Commodity Research                                               is also located in the non-traditional
                                                                                                                                                                                      warehouses of Johor, Antwerp and
Supply-Demand Balance                                                                                                                                                                 Vlissingen where the material can spend
Supply                                                Unit       2010          2011           2012e          2013e         2014e        2015e        2016e           2017e            long periods of time stranded behind
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            outbound queues of other metal in these
                                                                                                                                                                                      locations.
Refined Production
China Pig Iron                                         Kt         167           265             272           326           344          356          368             374
China Refined Nickel                                   Kt         167           187             198           225           242          259          263             262
                                                                                                                                                                                    Demand
Russia
Europe
                                                       Kt
                                                       Kt
                                                                  258
                                                                  257
                                                                                248
                                                                                257
                                                                                                251
                                                                                                215
                                                                                                              250
                                                                                                              209
                                                                                                                            249
                                                                                                                            220
                                                                                                                                         253
                                                                                                                                         216
                                                                                                                                                      255
                                                                                                                                                      220
                                                                                                                                                                      242
                                                                                                                                                                      219
                                                                                                                                                                                     From the demand perspective, the oil and
Japan                                                  Kt         168           183             196           206           206          206          206             206             gas production booms and subsequent
Canada                                                 Kt         107           148             150           132           137          122          138             144             investment in new refining and transport
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            infrastructure across many regions is a
  year-over-year                                       %          3.9           8.1             4.1           5.1           8.2          2.1          3.6             0.9             positive development for specialty
Demand                                                Unit       2010          2011           2012e          2013e         2014e        2015e        2016e           2017e
                                                                                                                                                                                      stainless steel products. In Europe,
Primary Nickel in Stainless                            Kt        1,009         1,079          1,115          1,204         1,285        1,321        1,356           1,381            demand for super alloys for the aerospace
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
                                                                                                                                                                                      sector remains strong, driven by
 year-over-year                                        %         18.8           9.9            2.2            10.0          8.8          2.4          2.7             2.5             aggressive aircraft delivery schedules for
                                                                                                                                                                                      the civil sector. In China, the continued
Refined Nickel Market Balance                          Kt         -11.2         46.4           73.9           38.1            20.8       19.2         37.4            8.1
                                                                                                                                                                                      maturity of the consumer sector is helping
Reported total commercial stocks                      Kt          235           191            238            276             297        317          354             362             increase stainless consumption, prompting
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
                                                                                                                                                                                      us to forecast 10.1% growth in demand for
                                                                                                                                                                                      nickel this year versus 6.8% last year.
e = Morgan Stanley Research estimates Source: Wood Mackenzie Brook Hunt, INSG, Morgan Stanley Commodity Research
                                                                                                                                                                                      Nevertheless, even these positive trends
                                                                                                                                                                                      cannot save nickel from the threat of
                                                                                                                                                                                      persistent surpluses in the next few years,
                                                                                                                                                                                      in our view.




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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)
  200                                                                                                       300              Kt                                                            Days       100
  180                                                                                                                                                                                                 90
                                                                                                            250
  160                                                                                                                                                                                                 80

  140                                                                                                                                                                                                 70
                                                                                                            200
  120                                                                                                                                                                                                 60
                                                                                                            150                                                                                       50
  100
                                                                                                                                                                                                      40
      80
                                                                                                            100
                                                                                                                                                                                                      30
      60
                                                                                                                                                                                                      20
      40                                                                                                      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)
      10.0%                                                                                                         24.00                                                                                   24.00


                                                                                                                    21.00          50th Percentile            60th Percentile                               21.00
      0.0%
                                                                                                                                   70th Percentile            80th Percentile

  -10.0%                                                                                                            18.00          LME Cash Nickel Price      90th Percentile                               18.00


                                                                                                                    15.00                                                                                   15.00
  -20.0%
                                                                                                            US$/t




                                                                                                                                                                                                                    US$/t




                                                                                                                    12.00                                                                                   12.00
  -30.0%

                                                                                                                     9.00                                                                                   9.00
  -40.0%

                                                                                                                     6.00                                                                                   6.00
  -50.0%
        Jan-     Jan-   Jan-    Jan-   Jan-   Jan-   Jan-   Jan-   Jan-   Jan-    Jan-    Jan-    Jan-
                                                                                                                     3.00                                                                                   3.00
         01       02     03      04     05     06     07     08     09     10      11      12      13

                                                      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, days)
  6,000                                                                                                                       Price (USc/lb)
                                                                                                                       25
  5,000
                                                                                                                       20
  4,000
                                                                                        Backwardation
  3,000                                                                                                                15

  2,000
                                                                                                                       10
  1,000
                                                                                                                                                                                     4/30/2013
                                                                                                                        5
          0

 -1,000           Contango                                                                                              0
              0               10               20                     30                  40                   50           2.0                 22.0           42.0        62.0          82.0                           102.0
                                        month-end data                     5/3/2013                                                                       Stock to consumption ratio (days)

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     50000      Kt                                                                                     80.0%
              Surplus Production
                                                                                                                       45000
  20                                                                                                                                                                                                                     78.0%
                                                                                                               $20     40000

  10                                                                                                                   35000                                                                                             76.0%

                                                                                                                       30000
                                                                                                               $15                                                                                                       74.0%
   0
                                                                                                                       25000
                                                                                                                                                                                                                         72.0%
                                                                                                                       20000
 -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 establishing an impressive trend toward
 18,000                                                                                7,000                                                                                       market balance, the global refined zinc market is
 16,000
                                                                                       6,000                                                                                       again showing signs of near-term oversupply.
 14,000
                                                                                                                                                                                   Despite maintaining a trend of declining
 12,000                                                                                5,000
                                                                                                                                                                                   oversupply, lead prices have underperformed
 10,000
                                                                                       4,000                                                                                       other LME metals year-to-date. We believe there
  8,000

  6,000
                                                                                       3,000                                                                                       are a number of factors contributing to lead’s
  4,000
                                                                                                                                                                                   anemic performance of which the most important
                                                                                       2,000
  2,000
                                                                                                                                                                                   is the ongoing economic difficulties in Europe.
                                                                                       1,000
    -
          2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                          0                                                                                        Supply
  China     BRI (Brazil, Russia, India)   USA    W Europe     Japan       ROW
                                                                                         China
                                                                                                 2007
                                                                                                            Over the past two quarters, we have become
                                                                                                         2008
                                                                                                        Australia
                                                                                                                    2009    2010 2011e 2012e 2013e 2014e 2015e 2016e
                                                                                                                       Mexico        Peru     Europe     N America    ROW
                                                                                                             more constructive towards the zinc outlook
Source: ILZSG, Morgan Stanley Commodity Research
estimates                                            Source: ILZSG, Morgan Stanley Commodity Research        primarily as a result of a supply-driven market
                                                     estimates                                               adjustment that was backed by two
                                                                                                             developments. 1) A sharp decline in Chinese
       Zinc Monthly Supply/Demand Balance                     Lead Monthly Supply/Demand Balance             smelting output has helped the outlook for a more
(Left axis: ‘000 MT; right axis: YoY change %)          (Left axis: ‘000 MT; right axis: YoY change %)
                                                                                                             balanced market. 2) A longer-term trend of the
  600                                            40%      150                                          25%   impending exhaustion of the reserves of a
  400                                            30%      100
                                                                                                       20%
                                                                                                             number of large mines in Canada, Europe and
                                                                                                       15%
                                                 20%
                                                                                                             Australia. While the latter story remains intact, the
                                                                                                       10%
  200                                                       50                                               degree to which Chinese producers can maintain
                                                                                                       5%
   -
                                                 10%
                                                           -                                           0%
                                                                                                             supply discipline is unclear.
                                                                                0%
                                                                                                                                                                            -5%
 (200)                                                                                         (50)                                                                               The combination of a Chinese domestic supply
                                                                                -10%                                                                                        -10%
                                                                                                                                                                            -15%
                                                                                                                                                                                   surplus and an unexpected strong growth in
 (400)                                                                                     (100)
                                                                                -20%
                                                                                                                                                                            -20%
                                                                                                                                                                                   secondary supply mainly from recycled batteries
 (600)                                                                          -30%       (150)                                                                            -25%   in 2012 has prompted us to shift our market
     2005     2006      2007      2008    2009   2010       2011     2012                       2006            2007          2008          2009       2010    2011                balance projections from deficit to surplus for
                           Rolling 12-month balance (LHS)
                           YoY chg in global consumption (RHS)
                                                                                                                           Rolling 12-month balance (LHS)
                                                                                                                           YoY chg in global consumption (RHS)                     this year.
Source: ILZSG, Morgan Stanley Commodity Research                                         Source: ILZSG, Morgan Stanley Commodity Research                                          Demand
                                                                                                                                                                                    On the demand side for zinc, China will continue
Supply-Demand Balance: Zinc                                                                                                                                                          to be the key market as the country continues
Supply                                             Unit        2010          2011        2012             2013e            2014e        2015e          2016e     2017e
World mine production                               Mt         12.36         13.02       13.78            13.54            14.16        14.60          15.33     15.28
                                                                                                                                                                                     down the path of modernization. Manufacturers
 year-over-year                                     %           8.6           5.4         5.8              -1.7             4.6          3.1            5.1       -0.3               are increasingly under pressure from consumers
Refined Production                                                                                                                                                                   (both domestic and export markets) to improve
Primary Refined Production
Secondary Refined Production
                                                    Mt
                                                    Mt
                                                               12.14
                                                               0.69
                                                                             12.39
                                                                             0.71
                                                                                         12.00
                                                                                         0.70
                                                                                                          12.66
                                                                                                          0.77
                                                                                                                           13.32
                                                                                                                           0.82
                                                                                                                                        13.96
                                                                                                                                        0.88
                                                                                                                                                       14.40
                                                                                                                                                       0.98
                                                                                                                                                                 -1.03
                                                                                                                                                                 17.13
                                                                                                                                                                                     the build quality and corrosion resistance of their
Total Refined Availability                          Mt         12.83         13.10       12.70            13.43            14.14        14.84          15.38     16.10               vehicles. While the auto sectors in the US and
  year-over-year                                    %          13.7           2.1         -3.1             5.8              5.3          4.9            3.7       4.6                Japan continue to show signs of impressive
Demand                                             Unit        2010          2011        2012             2013e            2014e        2015e          2016e     2017e               strength, the European automotive sector
World Refined Usage                                 Mt         12.54         12.74       12.42            13.64            14.44        15.06          15.68     16.23               continues to contract amid sagging consumer
 year-over-year                                     %          15.7           1.6         -2.5             9.8              5.9          4.2            4.1       3.6
                                                                                                                                                                                     confidence – a backdrop that keeps the zinc
Market balance                                    Mt               0.29      0.36         0.27            -0.21             -0.30       -0.22          -0.29     -0.14
Reported commercial stocks                         Mt              1.44      1.80         2.07            1.86              1.56        1.35           1.05      0.92                market outlook only modestly positive.
Stock to usage ratio                              Wks              5.98      7.35         8.67            7.10               5.63        4.65          3.49      2.94
Annual average LME cash prices                   US$/lb            0.99      1.00         0.89            0.91               0.97        1.00          1.02      1.04               In China, demand from the automobile and
                                                                                                                                                                                     electric bike (E-bike) sector remains robust and
Supply-Demand Balance: Lead                                                                                                                                                          we expect conditions to remain favorable in line
Supply                                            Unit        2010          2011         2012            2013e             2014e       2015e        2016e       2017e
                                                                                                                                                                                     with our constructive house view toward
World mine production                              Kt         4,130         4,631        5,277           5,333             5,570       5,621        5,754       5,961                economic growth and consumer sector sales in
 year-over-year                                    %           4.6          12.1         13.9             1.1               4.4         0.9          2.4         3.6                 China. However, the extended recession with
Refined Production                                                                                                                                                                   its negative impact on the domestic European
Primary Refined Production                         Kt         6,109         10,298      4,070           5,797          6,209          6,181         6,346      6,496
Secondary Refined Production                       Kt         3,305           0          6,223           5,106          5,303          5,415         5,529     5,655                 auto market has had negative consequences
Total Refined Availability                         Kt         9,414         10,298      10,294          10,903         11,397         11,828        12,113     12,394                for one of lead’s largest sources of demand. In
  year-over-year                                   %           5.8           9.4          0.0             5.9            4.5            3.8           2.4       2.3
                                                                                                                                                                                     the US, we have been disappointed over lead
Demand                                            Unit        2010           2011        2012           2013e          2014e           2015e        2016e      2017e                 demand growth following two consecutive
World Usage                                        Kt         9,395         10,191      10,258          10,780         11,438          12,032       12,201     12,443
 year-over-year                                    %           6.2            8.5         0.7            5.1            6.1             5.2          1.4        2.0
                                                                                                                                                                                     warmer-than-average winters, a phenomenon
Market balance                                     Kt           20           107          36              123              -41          -203           -89       -49
                                                                                                                                                                                     that reduces the requirement for replacement
Reported total commercial stocks                   Kt          446           622         658              780              739          536            447       398                 batteries.
Reported stock to usage ratio                     Wks          2.47          3.17        3.33             3.76             3.36         2.32           1.91      1.66
Annual average LME cash prices                   US$/lb        0.98          1.09        0.94             0.99             1.01         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%
                                                                                                        150            LME Cash Zinc Price        90th Percentile                     150

                                                                                                        125                                                                           125
                                                                                               USc/lb




                                                                                                                                                                                            USc/lb




  -10%

                                                                                                        100                                                                           100
  -20%
                                                                                                         75                                                                           75

  -30%                                                                                                   50                                                                           50

                                                                                                         25                                                                           25
  -40%
      2007          2008         2009         2010          2011          2012        2013               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: WBMS, Thomson Reuters, Morgan Stanley Commodity Research                              Source: Global Insight, 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, days)
  450                                                                                                     Price (USc/lb)
                                                                                                   220
  400
                                                                                                   200
  350
                                                                                                   180
  300
                                                                                                   160
  250                                                                    Backwardation
                                                                                                   140
  200
  150                                                                                              120

  100                                                                                              100

      50                                                                                            80
                                                                                                                                                         4/30/2013
       0                                                                                            60
  -50 Contango                                                                                      40
 -100                                                                                               20
           0             10             20              30                40              50             0.0              20.0            40.0        60.0          80.0                   100.0
                                 month-end data               5/3/2013                                                               Stock to consumption ratio (days)

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                                                                                      400                                                                                         $4,500
                                   Shanghai Premium
                                                                                                  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

 -250                                                 London Premium                       0        0                                                                                  $0
                                                                                                    Jul-97       Jul-99     Jul-01   Jul-03    Jul-05     Jul-07    Jul-09   Jul-11
    2007            2008         2009          2010      2011            2012
                       Arbitrage, USc/lb (lhs)               SFE Stocks, Kt (rhs)                                  Total commercial stocks (LHS)                             Price (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                                                                                        1,200
   950                                                                                        1,000
   900                                                                                         800
   850                                                                                         600
   800                                                                                         400
   750                                                                                         200

   700                                                                                          -

   650                                                                                         (200)

   600                                                                                         (400)

   550                                                                                         (600)

   500                                                                                         (800)
     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)
  100.0%                                                                                      600

      80.0%                                                                                   500

      60.0%                                                                                   400

      40.0%                                                                                   300

      20.0%                                                                                   200

      0.0%                                                                                    100

   -20.0%                                                                                       0

                                                                                             -100
   -40.0%
         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, days)
  200                                                                                                    Price (USc/lb)
                                                                                                180

  150                                                                                           160

                                                                                                140
  100
                                                                     Backwardation              120

                                                                                                100
      50                                                                                                                                              4/30/2013
                                                                                                    80
       0                                                                                            60

                                                                                                    40
  -50
                                                                                                    20
           Contango
 -100                                                                                                0
           0                 5                 10                  15                    20              0                10               20           30             40           50
                                 month-end data             4/1/2013                                                                  Stock to consumption ratio (days)

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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Description: Not Just Sentiment: Structure Confirms Tighter Oil Markets