SEB report: will oil kill the recovery

8/2/2019 SEB report: will oil kill the recovery

1/20

Commodities MonthlyWill oil kill the recovery? 29 FEBRUARY 2012


2/20

2

Commodities Monthly

Will oil kill the recovery?

GENERAL 0-3 M 4-6 M 7-12 M A rapidly increasing oil price is beginning to threaten

prospects for recovery and better growth. Paradoxically,

recent rises are largely due to improving economic sentimentbut also tight supply. In addition, outstanding geopoliticalissues present further major upside risks.

The US economy continues its gradual recovery, European tailrisks have decreased with the second Greek bailout packagealmost in place, while China has taken steps to ease itsmonetary policy.

ENERGY 0-3 M 4-6 M7-12 M We revise our average 2012 Brent price forecast upward from

$114/b to a conservative $118/b with risk skewed to theupside.

Crude oil prices have moved higher due to more optimistic

macroeconomic signals driving increasingly positive growthexpectations, and tight supply following several disruptions.

With Iran unwilling to return to the negotiating table or allowinspections an early solution to the present nuclear crisisseems unlikely.

INDUSTRIAL METALS 0-3 M4-6 M7-12 M We remain cautious regarding the industrial metals sector. Tail

risks have decreased but remain significant.

The recent rally has mainly reflected the increasing likelihoodthat China is heading for a soft landing, and the beginnings ofa monetary easing cycle.

However, despite our still bullish long-term view, we expect

further volatility due to significant stresses within the Chineseeconomy and other threats to global growth.

PRECIOUS METALS 0-3 M4-6 M7-12 M Our bullish view on the gold market has moderated

significantly because economic tail risks continue to decrease,it is becoming harder for efforts to increase liquidity to exceedmarket expectations, and inflation projections remainsubdued.

We revise our 2012 average price forecast downward to$1800/ozt but still expect new highs later this year before thepost-2008 rally finally comes to an end.

Over the long term, we do not expect the gold price to

collapse as liquidity is likely to remain high, Asian demandgrowth strong and mine supply growth weak.

AGRICULTURE 0-3 M4-6 M7-12 M With the exception of soybeans, which remain affected by

drought, the rebound in the grains complex appears to havelost steam suggesting the imminent resumption of a bearishtrend.

The outlook for corn production and consumption isbecoming increasingly bearish.

La Nia forecasts continue to suggest conditions willnormalize by summer.

Current strong incentives to boost production include more

normal weather conditions and still high prices generally.

Arrows indicate the expected price action during the period in question.

UBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector IndicesUBS Bloomberg CMCI Sector Indices(price indices, weekly closing, January 2010 = 100)

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SectSectSectSector performanceor performanceor performanceor performance over theover theover theover the last monthlast monthlast monthlast month(MSCI World, UBS Bloomberg CMCI price indices)

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Winners & Losers last monthWinners & Losers last monthWinners & Losers last monthWinners & Losers last month(%)

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68

1012

141618

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CO2(EUA)

Chart Sources: Bloomberg, SEB Commodity Research


3/20

3

Commodities Monthly

General

The high oil price is rapidly becoming a threat toglobal growth and recovery. Most recent increaseshave been due to improved economic sentiment

attributable to better than expected US dataunderlining the countrys continued recovery andthe neutralization of much of Europes credit crunchrisk by the ECBs 489bn LTRO operation inDecember. In addition, it is due to a physically tightoil market with disappointing gains in non-OPECproduction. Consequently, we see substantialupside oil price risk in the event of additional supplydisruption resulting, for example, from the Iraniannuclear issue.

The OECDs Composite Leading Indicators (CLI) eitherimproved or declined less rapidly in the February release.

They still point to below trend growth in six months inmost countries although the recent deterioration in CLIsin many countries may be coming to an end. Only Japan,Russia and the US posted CLIs signalling above trendgrowth while China was the only country thatdeteriorated more rapidly.

Since our previous report the CMCI commodity priceindex has increased 5.8%, economic sentimentimproved, equity prices risen and the USD depreciated.Precious metals performed best gaining 8.9% due toimproved liquidity provisions following the ECB LTRO in

December with more to come at the end of February, aweaker USD and some risk aversion resulting from thesituation in Iran. The energy index gained almost asmuch (+8.8%) in response to a fundamentally tightmarket, US growth optimism and increasing MENA risk.Industrial metals and agricultural products increasedleast with respective gains of 4.1% and 3.5%. Beingclosely matched by a USD index decrease of 3.5%, bothwere largely unchanged in real terms. Industrial metalsremain relatively hesitant due to developments in China.The countrys manufacturing levels look set to decreasefor a fourth consecutive month in February, with slowingexports to struggling Europe and a cooling Chinesehousing market. As expected Reserve RequirementRatios for large Chinese banks were reduced on February24 to 20.5% to bolster the economy. In addition curbs onbank lending to Chinese Special Purpose Vehicles (SPV)were lifted at the end of February. More than 6000 suchSPVs hold most of the $1.7 trillion in debt acquired bylocal governments after the financial crisis, of which 70%is expected to mature by 2015.

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4/20

4

Commodities Monthly

Crude oil

A wide range of supportive factors have pushedcrude oil prices towards $130/b. On the supply sideseveral issues have taken hundreds of thousands of

barrels off the market. In addition, the Iranianembargo is exerting pressure on supplyexpectations going forward. In terms of demand anumber of factors are also increasing expectations.US economic conditions remain stable and the Feddovish; Chinese monetary policy is loosening; whileEuropean tail risk is moderating as a result, forexample, of the Long Term Refinancing Operation(LTRO). Due to the more bullish overall picture werevise our Q1 average price forecast from $110/b to$120/b. We also make a conservative upwardincrease for Q2 from $110/b to $115/b. Our Q3 andQ4 forecasts remain at $115/b and $120/brespectively as current events have so far had littleimpact that far into the future. Our full year averageprice forecast is therefore $118/b, which we regardas a conservative estimate. Currently, risk appearsskewed to the upside though several threats toglobal growth remain including high energy prices.

Since the European embargo against Iranian crude oilwas agreed in late January Brent crude has ralliedstrongly. The immediate ban on new contracts and thecancellation of old ones from July 1 has clearly exertedadditional pressure on market balance expectations

while further stimulating what was initially a demanddriven rally as consumers race to secure supplies. WithAsian countries likely to join in cutting imports goingforward, barrels will begin disappearing from the marketfairly quickly. The unwillingness of Iran to negotiate orallow inspections signals the improbability of a quicksolution. So far the IEA has remained silent regarding therelease of strategic petroleum reserves although theycould clearly come into play at any time as the supplydisruption release criterion has already been fulfilled.The most logical time for the actual release is when theembargo reaches its full extent this summer.

Considering the wide range of supply issues operating atpresent, the Iranian embargo comes at a very bad time.Supply from South Sudan, Syria and Yemen are down,Libya has not yet restored its pre-war capacity whileunrest remains widespread in both the MENA region andNigeria. In addition, North Sea deliveries continue todisappoint. In total, hundreds of thousands of barrels areabsent from the market. When Saudi Arabia replaces therejected Iranian barrels, reserve capacity will again havereached uncomfortably low levels, leaving the oil marketalmost entirely without a spare capacity buffer to handleadditional supply disruptions or a further increase in

global growth expectations.

Crude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, weekly closing)

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Current global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimates

2011

(mb/d)

Revision

(kb/d)

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Revision

(kb/d)IEA 89.1 +100 89.9 -150EIA 87.93 -180 89.25 -130

OPEC 87.82 -20 88.76 -140

SEB average Brent crude oil price forecastSEB average Brent crude oil price forecastSEB average Brent crude oil price forecastSEB average Brent crude oil price forecast

($/b) Q1 Q2 Q3 Q4 FullYear

2012 120 115 115 120 1182013 - - - - 120


5/20

5

Commodities Monthly

EnergyWTIWTIWTIWTI futures curvefutures curvefutures curvefutures curve(NYMEX, $/b)

Brent futures curveBrent futures curveBrent futures curveBrent futures curve(ICE, $/b)

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Chart Sources: Bloomberg, SEB C ommodity Research


6/20

6

Commodities Monthly

Nordic power

Last month we focused on available Swedish nuclearcapacity, the hydro balance and, most importantly,temperatures. Currently, that capacity is operating at

around 75%, albeit an improvement since January. Thehydro balance surplus has decreased to around +10-12TWh which we regard as fairly insignificant surplus.Going forward it may either swing rapidly into deficit orproduce a significant surplus within a matter of weeks.Recently, when temperatures fell below normal, pricesimmediately sky-rocketed. We have highlighted thisupside risk several times already. The delicateequilibrium between nuclear capacity, the hydro balanceand temperature is the key to pricing currently. Forexample, colder weather will generate higherconsumption resulting in greater hydro generatedproduction which in turn weakens the hydro balance.

The February system spot price averaged EUR49.06/MWh with major daily variations becauseunusually cold temperatures caused prices to spike,particularly in Sweden which already faced problemsassociated with its nuclear capacity. The highest dailyaverage spot price was EUR 96.15/MWh. Nevertheless,the fairly strong hydro balance led to prices falling as lowas EUR 30.90/MWh with lowest values posted onweekend loads and when temperatures were abovenormal. Stockholm and Helsinki price areas both settledwith respective premiums vs. system at EUR 50.80 and

EUR 52.81/MWh in February.

The long end of the forward market traded fairly flat inFebruary while the short end was heavily influenced bythe shift fundamentals. Weekly contracts generally rosesharply before coming off again later in the month. OnFebruary 28, Q2-12 settled lower at EUR 34.30 /MWhwhile Cal-13 settled largely unchanged at EUR 41.85/MWh. We regard the short end as fairly priced but seegood buying opportunities in contracts far out on theforward curve.

Nordic power priceNordic power priceNordic power priceNordic power price(Nord Pool, /MWh, front quarter, weekly closing)

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7/20

7

Commodities Monthly

Industrial metals

We do not believe the rally in industrial metals overthe last few months represents a decisive breakhigher in 2012. Clearly however, the combined effect

of a continued US recovery, Greece being well onthe way towards securing a second bailout package,and most importantly the reserve ratio requirementcuts that have occurred in China has sent the LMEindex almost 20% higher. Nevertheless, whilepositive signals dominate at present, it would beunrealistic not to anticipate at least temporarysetbacks to affect one or several of these issuesbefore growth expectations finally stabilize. We donot expect this to happen before the second half ofthis year and therefore continue to recommend acautious short term approach to the sector.Investors should aim to sell on rallies and buy ondips. Our long term expectations remain bullishthough the ride is likely to remain bumpy in theshort- to medium-term. In addition to setbacks inEurope, China and possibly the US the negativeimpact of a geopolitically induced oil price spikepresents downside risks to the sector.

There is still some way to go before market conditionsbecome more growth focused once again. Chineseauthorities may have begun easing monetary policy on amore general basis through bank reserve requirementratio cuts but both growth and inflation rates remain

high and the balance is therefore delicate. Chineseindustrial production growth continues to slow butremains impressive at nearly 13% y/y whilemanufacturing PMI appears to be bottoming around the50 level. Overall we see few warning signals other thanthe continued downtrend in the real estate sector. So far,the European recession appears milder than many hadfeared. While industrial production fell in late 2011 theEurozone manufacturing PMI has recovered to just below50. German economic performance remains impressivelyrobust under the circumstances, pulling the rest of theregion forward. Following several depressed years,

European metal demand is weak. The most positivetrend signals emanate from the US where industrialproduction growth is holding up well above 3% whilemanufacturing PMI is approaching 55.

Excepting copper and tin, LME inventories have beenrising over the last few months. Cancelled warrant levelsare more mixed with sharp increases in aluminium andcopper particularly apparent. While this is mostlyattributable to the movement of aluminium betweendifferent warehouses, it appears to reflect strongdemand for copper, particularly in the US.

LME indexLME indexLME indexLME index(weekly closing)

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CopperNickel

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n

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Price (%) Inventories (%)



8/20

8

Commodities Monthly

Industrial metalsAluminiumAluminiumAluminiumAluminium LME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventories

(weekly data)

LME aluminium inventories rose to a record 5.1 mt inFebruary with the slowdown in demand outstripping

production cutbacks. SHFE inventories have also risen. With metal currently being moved between different

warehouses as part of various financing transactions,large numbers of cancelled warrants should not bemisinterpreted purely as increasing demand.

At least 25% of global aluminium production remainsunprofitable even after the latest rally.

Our long term aluminium market view remains bullishdue to structurally rising costs for labour and energy.

We expect the aluminium market to become increasinglywell balanced this year with destocking progressingrelatively well, while restocking looks set to gain

momentum.

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LME inventories have continued to decrease sharply asthey have since Q4-11. Instead, metal has flowed intoChinese inventories, for example, driving SHFE copperinventories to record highs. Bonded warehouse andindustry inventories are also reported to have risensubstantially. These developments should be monitoredfor signs that weak demand is the driver responsiblerather than strategic restocking.

Since the end of the year, copper speculators at COMEXhave turned net long once again.

The ICSG reports a refined copper market deficit forJanuary-November 2011 of 291 kt vs. total refinedproduction of 17,897 kt. Mine supply growth remains atzero with a significant market deficit also likely in 2012.

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NickelNickelNickelNickel LME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventories(weekly data)

LME nickel inventories have trended higher since late2011 while futures curve backwardation has increased.

Opinions concerning the outlook for the nickel balancevary considerably due to major uncertainty regarding therate at which HPAL capacity will come online.

The most bearish scenarios suggest the nickel price mayexperience some difficulty in remaining above $20000/tdue to increased supply, while stronger than expectedeconomic growth and disappointing HPAL supply coulddrive prices up to $30000/t later this year.

Currently, NPI producers suffer from high energy pricesand low steel prices. Approximately 50% of capacity hasbeen closed down but could be brought back quickly.

Increasing supply is mainly a year-end threat with

restocking in China and Europe potentially supportivebefore then.

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9/20

9

Commodities Monthly

Industrial metalsZinZinZinZincccc LME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventories

(weekly data)

After decreasing during the second half of 2011, LMEzinc inventories have resumed their upward trend,

heading towards previous record highs, as have SHFEinventories.

According to the ILZSG the refined zinc surplus during2011 was 353 kt vs. refined production of 13,062 kt, thefifth consecutive surplus year.

With production growth significantly outstrippingincreases in consumption the 2012 surplus could exceed2011. We believe 2013 could also produce a significantsurplus.

Zinc remains the least attractive main industrial metal.As relatively high prices risk adding to the surplus,previous lows could be revisited whenever the marketturns bearish.

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Ferrous metalsFerrous metalsFerrous metalsFerrous metals LME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventories(weekly data)

Since November, iron ore has traded between $130-150/t and is currently quoted midrange. Our 2012forecast remains at $140/t.

After falling 10% from its January highs ($470/t) theTurkish scrap trend has turned with prices beginning toincrease once again, as also reflected in LME steel billets.

With prices of raw materials and some finished steelproducts improving, we mainly see bullish short termindicators.

Conversely, finished steel demand in China remainsrelatively weak.

The Chinese Federation of Logistics and Purchasing(CFLP) reported a new steel PMI at 47.9 in January,indicating a contraction, one we expect will continue atleast during the first quarter of this year.

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10/20

10

Commodities Monthly

Industrial metalsAluminiumAluminiumAluminiumAluminium futures curvefutures curvefutures curvefutures curve(LME, $/t)

Copper futures curveCopper futures curveCopper futures curveCopper futures curve(LME, $/t)

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Nickel futures curveNickel futures curveNickel futures curveNickel futures curve(LME, $/t)

Zinc futures curveZinc futures curveZinc futures curveZinc futures curve(LME, $/t)

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sep-12

dec-12

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

11-12-28

12-01-27

12-02-27

175017751800182518501875

190019251950197520002025205020752100212521502175220022252250

mar-12

jun-12

sep-12

dec-12

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

11-12-28

12-01-27

12-02-27

Lead futures curveLead futures curveLead futures curveLead futures curve(LME, $/t)

Tin futures curveTin futures curveTin futures curveTin futures curve(LME, $/t)

1925195019752000202520502075210021252150217522002225225022752300

232523502375240024252450

mar-12

jun-12

sep-12

dec-12

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

11-12-28

12-01-27

12-02-27

18000

18500

19000

19500

20000

20500

21000

21500

22000

22500

23000

23500

24000

24500

mar-12

apr-12

maj-12

jun-12

jul-12

aug-12

sep-12

okt-12

nov-12

dec-12

jan-13

feb-13

mar-13

apr-13

maj-13

11-12-28

12-01-27

12-02-27



11/20


12/20

12

Commodities Monthly

Precious metalsGoldGoldGoldGold Gold priceGold priceGold priceGold price

(COMEX, $/ozt, front month, weekly closing)

Physical gold ETF holdings rose to record 2398 tonnes inFebruary.

Financial speculators are also still building positions inCOMEX gold though net speculative long positions stillremain low compared to 2010 and 2011 averages.

US mint gold coin sales almost doubled in Januarycompared to December last year. At 127,000 ozt theywere slight lower than in January 2011 (133,500 ozt), thehighest monthly sales volume last year. January oftenreports seasonally strong coin sales as collectors addnew 2012 issues.

Gold mine output growth improved in December lastyear following a weak performance in November but wasstill down by just over 1% y/y.

200300400

500600700

800900

10001100

1200

130014001500

16001700

18001900

2000

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

SilverSilverSilverSilver Silver priceSilver priceSilver priceSilver price(COMEX, $/ozt, front month, weekly closing)

At 17681 tonnes, physical silver ETF holdings havecontinued to recover slowly while remaining some wayoff their record high of 18639 tonnes reported in H1-11.

Net long speculative positions in COMEX silver haverisen sharply since the year end due to a buildup of long-and reduction of short positions, after revisiting 2009lows in late 2011.

Silver has strengthened relative to gold in early 2012

with the gold to silver ratio now standing at 50 comparedto an average of 60 and a range of 32-84 over the lastdecade.

US Mint silver coin sales trebled m/m to 6,107,000 ozt inJanuary, the highest level of silver coin sales since lastJanuary (6,422,000 ozt).

2468

101214161820

222426283032343638404244464850

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Platinum & PalladiumPlatinum & PalladiumPlatinum & PalladiumPlatinum & Palladium Platinum and palladium pricesPlatinum and palladium pricesPlatinum and palladium pricesPlatinum and palladium prices(NYMEX, $/ozt, front month, weekly closing)

Both physical platinum and palladium ETF holdings havebegun to recover so far this year. Platinum holdings total

43 tonnes, vs. a record 46 tonnes in mid 2011, andpalladium holdings 57 tonnes, vs. a record 73 tonnesearly last year.

At NYMEX speculators are reducing short- and buildinglong positions in both metals, resulting in a sharp rise innet speculative length. Relative to historical positioningspeculators are considerably more long platinum thanpalladium.

Compared to the start of the year, the platinum vs. goldprice differential has narrowed while that of palladiumhas remained largely unchanged.

100

200

300

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500

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700

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1100

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003

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009

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011

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012

300

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1050

1300

1550

1800

2050

2300Palladium (left axis)

Platinum(right axis)



13/20

13

Commodities Monthly

Precious metalsGoldGoldGoldGold futures curvefutures curvefutures curvefutures curve(COMEX, $/ozt)

SilverSilverSilverSilver futures curvefutures curvefutures curvefutures curve(COMEX, $/ozt)

1550

1575

1600

1625

1650

1675

1700

1725

1750

1775

1800

1825

1850

1875

1900

1925

apr-12

jul-12

okt-12

jan-13

apr-13

jul-13

okt-13

jan-14

apr-14

jul-14

okt-14

jan-15

apr-15

jul-15

okt-15

jan-16

apr-16

jul-16

okt-16

jan-17

apr-17

jul-17

okt-17

11-12-28

12-01-2712-02-27

26,0

27,0

28,0

29,0

30,0

31,0

32,0

33,0

34,0

35,0

36,0

mar-12

jun-12

sep-12

dec-12

mar-13

jun-13

sep-13

dec-13

mar-14

jun-14

sep-14

dec-14

mar-15

jun-15

sep-15

dec-15

mar-16

jun-16

11-12-28

12-01-27

12-02-27

Palladium futures curvePalladium futures curvePalladium futures curvePalladium futures curve(NYMEX, $/ozt)

Platinum futures curvePlatinum futures curvePlatinum futures curvePlatinum futures curve(NYMEX, $/ozt)

640

645

650

655

660

665

670

675

680

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695

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705

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mar-12

jun-12

sep-12

dec-12

mar-13

11-12-28

12-01-27

12-02-27

1350137013901410143014501470

1490151015301550157015901610163016501670169017101730

apr-12

jul-12

okt-12

jan-13

apr-13

11-12-28

12-01-27

12-02-27

Physical sPhysical sPhysical sPhysical silverilverilverilver and goldand goldand goldand gold ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)

Physical pPhysical pPhysical pPhysical palladium and platinumalladium and platinumalladium and platinumalladium and platinum ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)

1400

1500

1600

1700

1800

1900

2000

2100

2200

2300

2400

jan-10

feb-10

mar-10

apr-10

maj-10

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jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

mar-11

apr-11

maj-11

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jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

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feb-12

Silver holdings / 10

Gold holdings

20

25

30

35

40

45

50

55

60

65

70

75

jan-10

feb-10

m

ar-10

apr-10

maj-10

jun-10

jul-10

aug-10

sep-10

okt-10

nov-10

dec-10

jan-11

feb-11

m

ar-11

apr-11

maj-11

jun-11

jul-11

aug-11

sep-11

okt-11

nov-11

dec-11

jan-12

feb-12

Palladium

Platinum



14/20

14

Commodities Monthly

Agriculture

After having temporarily adopted a more cautiousshort-term position in the grains complex due tosupportive weather issues we are once again

becoming more negative, reiterating our previousmedium- to long term bearish position. Cornremains the Achilles heel of the grains segmentalthough the future market balance appearssignificantly brighter. Regarding the entireagricultural sector, high prices are stimulatinginvestments and planting on a global scale withgenerally bearish implications. The two mainpotential bull triggers affecting the sector arefurther adverse weather conditions and spikingenergy prices.

While corn inventory estimates are at a decade low

relative to consumption it is very difficult to maintain abullish outlook at present. Last year, the corn yield washit both by flooding and drought. Merely resumingnormal yield levels would increase US productionsubstantially. In addition, corn acreage is expected toreach post-1940s highs in the US. Production outside theUS has continued to trend higher, boosted further byhigh prices. Another key factor is potentially weakerdemand for corn for use in ethanol production. Since theethanol blending subsidy was removed US ethanolinventories have sky-rocketed to record levels. The liftingof import tariffs has also paved the way for competition

from sugar-based ethanol. In addition, the 2012renewable fuel production target was exceeded last year.Consequently, there is significant downside potentiallikely to affect corn demand for use in ethanolproduction going forward. The wheat market remainswell supplied with estimated inventories relative toconsumption at their highest level since the early 2000s.Despite low temperatures and limited snow cover inEurope and the FSU raising concerns over yields, therecord Australian crop is a reality. With high inventoriesand relatively low prices the main risk is that plantedacreage disappoints. The most supportive fundamentalsin the grains complex are to be found in soybeans.Strong Chinese demand, a locally persistent drought inBrazil and related downward revisions of production andinventory estimates remain supportive factors. However,relative to consumption estimated inventories stillappear comfortable.

Global weather conditions continue to be affected by theLa Nia phenomenon. However, there are strongindications that the current weak to moderate event hasreached its climax and that conditions will have returnedto normal sometime between March and May. Droughtconditions in South America, the trigger for the rebound

in grain prices in recent months, have eased with similardevelopments taking place in South Central US.

Grains pricesGrains pricesGrains pricesGrains prices(CBOT, indexed, weekly closing, January 2010 = 100)

70

80

90

100

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190

jan-10

feb-10

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feb-12

Wheat

Soybeans

Corn

Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)(WASDE, yearly data updated monthly)

45

55

65

75

85

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105

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11/12

Wheat

Soybeans

Corn

Production and inventory estimate rProduction and inventory estimate rProduction and inventory estimate rProduction and inventory estimate revisionsevisionsevisionsevisions(WASDE, monthly data, %)

-5

-4

-3

-2

-1

0

1

2

34

5

6

sep-11

okt-11

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feb-12

Corn productionCorn stocksWheat production

Wheat stocksSoybean productionSoybean stocks

Chart Sources: Bloomberg, USDA, SEB Commodity Research


15/20

15

Commodities Monthly

AgricultureCornCornCornCorn Corn priceCorn priceCorn priceCorn price

(CBOT, /bu, front month, weekly closing)

Speculators in CBOT corn have been in disagreementsince the beginning of the year, with both short and long

positions increasing. However, the long term downtrendin net longs appears intact.

Demand for US export corn is seasonally normal.

With the start of US planting probably due in late March,the market is slowly refocusing on weather conditions inthe Midwest which are currently mixed.

From a corn-based perspective, South American droughtrelated concerns have eased.

Weak US fuel demand in general and the removedethanol blending subsidy in particular are bearishlyimpacting US ethanol demand. 100

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WheatWheatWheatWheat Wheat priceWheat priceWheat priceWheat price(CBOT, /bu, front month, weekly closing)

Speculators have been net short wheat since mid-2011.Like the corn market in early 2012, both short and longpositions have increased.

Winter wheat remains dormant with some worriesrelated to cold weather in combination with aninsufficient protective snow cover in Europe and the FSUas well as continued drought in the US Great Plains. Sofar, these issues remain of only moderate importance.

Due to delivery problems from the Black Sea, US wheatexports have enjoyed an exceptionally strong start to theyear.

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SoybeansSoybeansSoybeansSoybeans Soybean prSoybean prSoybean prSoybean priceiceiceice(CBOT, /bu, front month, weekly closing)

Speculators are also building both long and shortpositions in soybeans. Net long positions have remained

largely unchanged since the year end after increasing inlate 2011.

US soybean planting starts later than corn. Thereforesoybean acreage is often affected positively by adverseconditions during corn planting with farmers sometimeschoosing to wait and plant soybeans instead of corn.

Brazilian drought conditions remain supportive of thesoybean market.

US soybean exports began 2012 strongly, indicating solidglobal demand.

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16/20

16

Commodities Monthly

AgricultureCorn futures curveCorn futures curveCorn futures curveCorn futures curve(CBOT, /bu)

Wheat futures curveWheat futures curveWheat futures curveWheat futures curve(CBOT, /bu)

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12-01-2712-02-27

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Soybean futures curveSoybean futures curveSoybean futures curveSoybean futures curve(CBOT, /bu)

SugarSugarSugarSugar(NYBOT, /lb)

1185

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0

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CottonCottonCottonCotton(NYBOT, /lb)

CocoaCocoaCocoaCocoa(NYBOT, $/t)

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17/20


18/20

18

Commodities Monthly

PerformanceClosing

last weekYTD(%)

1 m(%)

1 q(%)

1 y(%)

5 y(%)

UBS Bloomberg CMCI Index (TR) 1376,33 8,5 0,2 10,4 -4,3 26,4UBS Bloomberg CMCI Index (ER) 1294,43 8,5 0,1 10,4 -4,4 19,3UBS Bloomberg CMCI Index (PI) 1654,16 8,8 1,1 10,9 -3,5 52,2UBS B. CMCI Energy Index (PI) 1635,30 9,6 12,1 9,4 3,0 46,2UBS B. CMCI Industrial Metals Index (PI) 1177,95 12,7 -7,5 16,2 -12,3 7,0UBS B. CMCI Precious Metals Index (PI) 2672,69 15,6 34,3 6,8 23,8 148,8UBS B. CMCI Agriculture Index (PI) 1798,19 3,0 -11,8 9,1 -10,9 71,4Baltic Dry Index 730,00 -59,3 -38,4 -59,6 -41,4 -84,2

Crude Oil (NYMEX, WTI, $/b) 108,56 9,8 26,8 12,2 10,9 76,8Crude Oil (ICE, Brent, $/b) 124,17 15,6 27,5 16,7 10,7 102,5Aluminum (LME, $/t) 2331,00 15,4 -4,0 17,0 -9,1 -19,5Copper (LME, $/t) 8536,00 12,3 -9,6 18,1 -12,5 35,7Nickel (LME, $/t) 20155,00 7,7 -23,9 18,9 -28,5 -51,2Zinc (LME, $/t) 2098,00 13,7 -7,2 9,8 -15,8 -41,7Steel (LME, Mediterranean, $/t) 535,00 0,9 -6,1 1,9 -4,4 N/AGold (COMEX, $/ozt) 1773,60 13,2 34,5 5,2 25,8 158,4

Corn (CBOT, /bu) 644,50 -0,3 -1,0 10,6 -9,5 51,5Wheat (CBOT, /bu) 645,75 -1,1 -23,7 12,4 -16,8 33,7Soybeans (CBOT, /bu) 1293,75 7,9 -7,6 16,9 -5,3 66,1

Sources: Bloomberg, SEB Commodity Research

Major upcoming commodity eventsDate Source

Department of Energy, US inventory data Wednesdays, 16:30 CET www.eia.doe.gov

American Petroleum Institute, US inventory data Tuesdays, 22:30 CET www.api.org

CFTC, Commitment of Traders Fridays, 21:30 CET www.cftc.gov

US Department of Agriculture, Crop Progress Mondays, 22.00 CET (season) www.usda.gov

International Energy Agency, Oil Market Report March 14 www.oilmarketreport.com

OPEC, Oil Market Report March 9 www.opec.org

Department of Energy, Short Term Energy Outlook March 6 www.eia.doe.gov

US Department of Agriculture, WASDE March 9 www.usda.gov

International Grains Council, Grain Market Report March 29 www.igc.org.uk

OPEC ordinary meeting, Vienna, Austria June 14 www.opec.orgSources: Bloomberg, SEB Commodity Research

Contact listCOMMODITIES Position E-mail Phone MobileTorbjrn Iwarson Global Head of

[email protected] +46 8 506 234 01

RESEARCH

Bjarne Schieldrop Chief analyst [email protected] +47 22 82 72 53 +47 92 48 92 30

Filip Petersson Strategist [email protected] +46 8 506 230 47 +46 70 996 08 84

SALES SWEDEN

Pr Melander Corporate [email protected] +46 8 506 234 75 +46 70 714 90 79Karin Almgren Institutional [email protected] +46 8 506 230 51 +46 73 642 31 76

SALES NORWAY

Maximilian Brodin Corporate/Institutional [email protected] +47 22 82 72 73 +47 92 45 67 27

SALES FINLAND

Jussi Lepist Corporate/Institutional [email protected] +358 9 616 285 21 +358 40 844 187 7

SALES DENMARK

Peter Lauridsen Corporate/Institutional [email protected] +45 331 777 34 +45 616 211 59

TRADING

Niclas Egmar Corporate/Institutional [email protected] +46 8 506 234 55 +46 70-618 560 4


19/20

19

Commodities Monthly

DISCLAIMER & CONFIDENTIALITY NOTICE

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska EnskildaBanken AB (publ) (SEB).

Opinions contained in this report represent the banks present opinion only and are subject to change without notice. All

information contained in this report has been compiled in good faith from sources believed to be reliable. However, norepresentation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents andthe information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of thisdocument is urged to base his or her investment decisions upon such investigations as he or she deems necessary. Thisdocument is being provided as information only, and no specific actions are being solicited as a result of it; to the extentpermitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this documentor its contents.

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic andother European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets)for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange,Deutsche Brse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden;

it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designatedinvestment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEBconducts operations.

SEB Merchant Banking. All rights reserved.

SEB Commodity Research

Bjarne Schieldrop, Chief Commodity [email protected]

+47 9248 9230

Filip Petersson, Commodity [email protected]

+46 8 506 230 47


20/20

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