15 january 2018 markets research deutsche bank quarterly...

15 January 2018

Commodities Quarterly

Global Commodities

CommoditiesQuarterly

Date15 January 2018

Deutsche BankMarkets Research

Building on strength

OverviewHealthy medium-term fundamentals are poised to continue with PMI readingsremaining near 6-month highs across the US, Eurozone, China and other EM. Ourglobal growth forecast has been lifted from 3.7% to 3.8% for 2018. The trend ofslow supply growth and policy restriction continues, and we see further upsidefor industrial metals in particular.

Crude OilThe shift into backwardation in September 2017 has proved to be prescient, onceagain marking a turning point. Prices have been strong in what is typically aweak quarter for demand. Affordability remains moderate, and demand upsideappears possible amidst a supportive macro backdrop and US dollar weakness.We raise 2018-19 Brent forecasts to USD 62/bbl in 2018-19, below spot owing toour expectations for a stronger extension of the supply rebound in the US.

Precious MetalsWe expect gold will shrug off worries of fundamental downside amidst theunwind of accommodative central bank policy, and that the market premiumover fair value will widen. Our USD 1,283/oz forecast for 2018 incorporatesboth our outlook for four Fed rate hikes and modest dollar weakness. Furthersupport for gold could also derive from the possibility that strengthening inflationexpectations are a prerequisite for the tightening policy trajectory.

Industrial MetalsIndustrial metals are our most favored sector across the commodity spectrum.Supply-side reform, disruption, or slow supply growth and robust industrialactivity are combining to establish market deficits broadly across Copper, Nickel,Zinc and Aluminium, fueling material upgrades to our price decks over themedium term. We see larger deficits in copper which could be exacerbated byfurther labour strikes, cuts of illegal Chinese aluminium capacity, and strongdemand for Nickel from stainless steel and battery production.

Bulk CommoditiesWe expect steel and iron ore to retrace from current levels as Chinese steelproduction returns to normal from March, and additional seaborne iron ore supplyenters the market from the majors. Our estimate of the market surplus has risento 65Mt with supply rising by a further 2% in 2018 to 1,515Mt. In thermal coal, wesee a balanced market and expect China will eventually raise domestic productionto control power prices, lowering seaborne prices towards USD 90/t.

Michael Hsueh

Research Analyst

+44-20-754-78015

Patrick Jones

Research Analyst

+44-20-754-53400

Paul Young

Research Analyst

+61-2-8258-2587

Janeman Latul

PT Deutsche Verdhana Sekuritas Indonesia

Research Analyst

+62-21-2964 4569

Liam Fitzpatrick

Research Analyst

+44-207-541-3233

Patrick Mann, CFA

Research Analyst

+27-11-775-7282

Deutsche Bank AG/London

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.

Distributed on: 15/01/2018 04:33:11 GMT

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Distributed on: 15/01/2018 06:29:00 GMT

7T2se3r0Ot6kwoPa

15 January 2018


Table Of ContentsCommodity Performers.......................................................................................3#1 Executive Summary.......................................................................................4Deutsche Bank Commodity price forecasts.......................................................6#2 Commodity Indices....................................................................................... 8#3: Crude Oil.................................................................................................... 10#4: US Natural Gas.......................................................................................... 21#5 Thermal Coal............................................................................................... 26#6 Precious Metals:..........................................................................................30#7 Platinum Group Metals............................................................................... 34#8 Industrial Metals: Favoring Nickel and Copper........................................... 43Copper: risk of near-term weakness, but medium-term deficits stil................ 43Nickel: Upswing Mood.....................................................................................45Aluminium: raising price estimates, watch for further supply cuts..................47Zinc outlook: potential price peak in 2018.......................................................49Can supply fill the gap?................................................................................... 50China monthly trends.......................................................................................52Tin Outlook: Arithmetic Anomaly.....................................................................53#9 Iron Ore: Seaborne market moving to small surplus in 2018......................54Steel production and demand..........................................................................56Iron ore supply................................................................................................. 59Commodities Chartbook...................................................................................61Correlation Matrix.............................................................................................69


15 January 2018


Commodity Performers

Energy

Figure 3: Energy view

Source: Deutsche Bank

Figure 1: Quarter to date Figure 2: Year to date

2.6

5.95

14.35

14.63

18.02

20.37

23.48

-10 -5 0 5 10 15 20 25 30 35 40

US natural gas

Coal (API#4)

Gasoline (RBOB)

Heating oil

Uranium

Brent

WTI% returns

quarter to date

-17.2

10.32

17.08

17.16

18.76

21.85

21.89

-30 -20 -10 0 10 20 30

US natural gas

Gasoline (RBOB)

Coal (API#4)

Uranium

WTI

Heating oil

Brent % returns year-to-date

Source: Deutsche Bank, Bloomberg Finance LP (Data as of 11January 2018)


Precious Metals

Figure 6: Precious Metals view



1.65

3.03

7.93

15.35

-10 -5 0 5 10 15 20 25

Silver

Gold

Platinum

Palladium

% returns quarter to date

6.99

9.25

14.68

58.38

-10 0 10 20 30 40 50 60 70

Silver

Platinum

Gold

Palladium

% returns year-to-date



Industrial Metals

Figure 9: Base Metals view



-2.18

2.58

3.50

7.08

10.18

20.19

-10 -5 0 5 10 15 20 25 30 35 40

Tin

Lead

Aluminium

Zinc

Copper

Nickel% returns

quarter to date

-4.26

25.95

26.41

28.50

28.99

31.4

-10 -5 0 5 10 15 20 25 30 35 40 45

Tin

Nickel

Lead

Aluminium

Copper

Zinc% returns year-

to-date




15 January 2018


#1 Executive Summary

■ WTI Crude Oil prices have now entered a range which US oil & gasexecutives expect will meet with a substantial rise in drilling activity. Webelieve capex conservatism will not appreciably dampen the responseas new frac capacity is delivered. We would also expect that Brentprices moving above USD 70/bbl would trigger OPEC to bring forwarddiscussions over the nature of an unwind. Therefore our near termexpectations are for some pullback in the oil price, although Brentdipping below USD 60/bbl appears less likely as balances have tightenedon an upgrade to African demand and a sharper decline in Venezuela.We raise our 2018/19 forecasts to USD 62/62/bbl Brent and USD 56/56/bbl WTI from USD 54/56/bbl Brent, and USD 51/53/bbl WTI previously.

■ US Natural Gas prices have been lifted above USD 3/mmBtu after thebomb cyclone delivered the largest ever weekly storage draw of -359bcf. However, speculative market positioning remains very short and thelonger-lived concern will be one of excessive supply growth this year. Alarge cohort of 2018 pipeline projects is now even larger owing to delaysfrom 2017, raising possible new capacity to +12 bcf/d. Actual supplygrowth estimates are at +6.9 bcf/d owing to uncertainty about possiblefurther delays and also the typical utilisation rate haircut. Over the courseof the year we see risks to the downside from our USD 2.98/mmBtuforecast.

■ For Gold, fundamental downside appears to be an ever-receding miragedespite the eventual pullback from unusually accommodative policyat major central banks. Investors remain skeptical of Fed policy rateincreases given the possibility of a historically low equilibrium real rate.At the same time, the impact of rate hikes on the real interest rate couldbe dampened to the extent that strengthening inflation is a prerequisitefor the Fed to continue on its path. However, we continue to be modestlybearish versus spot and we believe risks are balanced around our USD1,283/oz forecast for 2018.

■ We upgrade our Copper price forecasts by +10% in 2018 to USD 3.26/lb and +8% in 2019 to USD 3.40/lb, placing us ~10% above consensusfor the 2018-20 period. We expect a greater deficit in 2018 of 160 kt ,widening to a ~400 kt deficit by 2020e. We expect prices to be supportedover 2018 by the slow pace of commissioning at several major projects(ie Katanga, Cobre Panama) and potential for further labour strikes inChile.

■ We also upgrade our Nickel outlook by +4% in 2018 to USD 12,021/t, onthe back of robust stainless demand, supply disruption in the Philippinesand muted Indo laterite exports. We believe the market has entered astructural deficit (-68kt in 2018), as stainless steel demand and nickelrequired for the battery supply chain begins to draw on warehousedstocks. We forecast 25% CAGR growth in nickel required for the batterysupply chain, consuming 238kt in 2025 (25% of the non-SS market).


15 January 2018


■ In Zinc, we expect 2017 global mine production to be up ~4.5% YoY in2017 but close to flat on 2014 following large scale mine closures in late2015. No mine supply growth in three years has opened up a wide deficitand drawn down global inventories to very low levels. We forecast minesupply to rebound ~4% and ~9% in 2018/19 driven primarily by restartsand new projects outside of China. We expect the market to remain indeficit in 2018 but return close to balance in 2019. We have left our2018-19 zinc prices unchanged after having raised forecasts by +11%/+8% in November.

■ We hike our 2018e Aluminium price forecast by 9% to 103 USc/lb andour 2019e forecast by 13% to 104 USc/lb. With Chinese supply-sidereforms biting into global supply and relatively robust demand over thenext several years, we now expect the global Aluminium market to shiftinto deficit in 2H17 through to 2019. This is driven by the cuts of illegalcapacity in China and the implementation of heating season cuts fromNovember to March. Near-term, if potlines shut down during the winterdo not begin to restart over late February or early March, this could bethe next positive catalyst for aluminium prices.

■ For Tin, signals from supply-demand balances and inventory suggest aprice rebound given a stock-to-consumption ratio at the all-time low of3 weeks. We upgrade our price forecasts for 2018/19 by +2%/+4%. Webelieve prices will generally trade above USD 20k/t in 2018, the highestaverage in three years, as production and inventory decline.

■ We have upgraded our USD-price forecast for the platinum group metals(PGMs) on the back of a stronger Rand forward curve following positivepolitical developments in South Africa in December 2017 (increasingthe USD-cost of production). We leave our Rand-basket price largelyunchanged, but we have increased our forecast 2018 USD-prices. Weincrease our forecast palladium price by 14% and platinum by 6% owingto stronger fundamentals (a deficit market) for palladium.

■ We have lifted our benchmark Iron Ore price forecast by +8% in 2018to US$66/t on an improved outlook for 1Q (US$75/t) and 2Q (US$65/t)driven by stronger Chinese and global steel prices and mill restocking.We expect steel and iron ore prices to retrace from current levels asChinese steel production returns to normal from March and additionalseaborne iron ore supply enters the market from the majors. Our 2018base case holds flat Chinese and global steel demand and a modest1% reduction in seaborne iron ore demand. We see seaborne iron oresupply rising by a further 2% in 2018 to 1,515Mt, mostly driven by furtherincreases from the majors, raising the market surplus to 65Mt.

■ In Thermal Coal, prices continue to build on the strong finish to the yearas Chinese policy persists as one of the key driving forces. We raise 2018price forecasts by +10-15% from Newcastle FOB USD 81/t to USD 93/t,and from Richards Bay FOB USD 78/t to USD 86/t. Our forecasts remainbelow front-month as we believe the Chinese government will raisedomestic production in accordance with its intention to lower powertariffs.


15 January 2018


Deutsche Bank Commodity price forecasts

Figure 10: Energy Commodity price forecasts

USD Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

WTI (bbl) 55.3 50.9 59.0 57.0 54.0 54.0 56.0 56.0 57.0 57.0 57.0

% Change from previous forecast 8.4% 2.2% 20.4% 9.6% 3.8% 3.8% 9.3% 5.7% 3.6% 0.0% -4.5%

Brent (bbl) 61.5 54.8 65.0 63.0 60.0 60.0 62.0 62.0 63.0 65.0 65.0

% Change from previous forecast 9.7% 2.6% 22.6% 14.5% 9.1% 9.1% 13.8% 10.7% 8.6% 8.3% 3.5%

RBOB gasoline (g) 1.61 1.61 1.72 1.88 1.84 1.68 1.78 1.78 1.86 1.93 1.93


Heating oil (g) 1.78 1.63 1.98 1.89 1.86 1.89 1.91 1.93 2.02 2.09 2.09


IPE gasoil (t) 523.57 485.63 581.82 563.32 554.30 558.29 564.43 569.47 594.71 617.85 617.85


Singapore Jet (bbl) 66.87 63.84 76.42 74.09 73.92 75.13 74.89 75.78 79.14 82.22 82.22


US Natural Gas (mmBtu) 2.87 2.99 2.90 2.90 2.90 3.20 2.98 3.10 3.25 3.25 3.29

% Change from previous forecast -4.2% -1.0% -3.3% 0.0% 0.0% 0.0% -0.8% 0.0% 0.0% -3.0% -5.0%

Thermal Coal - Japanese Guide

Price (JFY)85.00 79.15 85.00 90.00 90.00 90.00 88.75 90.00 88.00 84.00 76.00


API4 (Richard's Bay) FOB (t) 93.07 85.08 93.00 83.00 83.00 83.00 85.50 78.00 75.00 72.00 71.19


Newcastle FOB (t) 97.80 88.19 100.00 90.00 90.00 90.00 92.50 85.00 82.00 78.00 73.38


Source: Deutsche Bank, Figures are period averages

Figure 11: Base Metal price forecasts

Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Aluminium

USc/lb 95.4 89.3 99.8 102.1 104.4 104.4 102.6 104.4 97.5 93.0 90.0

USD/t 2104 1968 2200 2250 2300 2300 2262 2300 2150 2050 1984

% Change from previous forecast -1.6% -0.5% 5.0% 7.4% 11.0% 12.2% 8.9% 13.4% 8.4% 3.3% 0.0%

Copper

USc/lb 309.4 280.2 317.6 322.1 331.2 331.2 325.5 340.3 350.0 342.6 335.0

USD/t 6822 6176 7000 7100 7300 7300 7175 7500 7714 7550 7383


Lead

USc/lb 112.9 104.9 95.3 90.7 86.2 83.9 89.0 81.7 81.6 81.5 81.4

USD/t 2489 2313 2100 2000 1900 1850 1963 1800 1798 1796 1794


Nickel

USc/lb 526.4 472.1 549.0 533.0 542.0 557.0 545.3 592.1 659.0 725.0 792.0

USD/t 11606 10404 12103 11751 11949 12280 12021 13054 13054 15983 17461


Tin

USc/lb 899.0 909.3 911.0 910.0 897.0 930.0 912.0 916.0 888.0 886.0 885.0

USD/t 19819 20042 20084 20062 19775 20503 20106 20194 20194 19533 19511

% Change from previous forecast -0.9% 0.0% 3.0% 0.0% 3.0% 4.0% 2.5% 4.0% 1.9% 2.8% 3.8%

Zinc

USc/lb 146.6 131.3 149.7 149.7 136.1 127.0 140.7 122.5 118.0 115.5 115.0

USD/t 3232 2894 3300 3300 3000 2800 3100 2700 2600 2545 2535




15 January 2018


Figure 12: Precious Metal price forecastsPrecious Metals Price Forecasts

USD/oz Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Gold 1277 1258 1310 1280 1280 1260 1283 1266 1305 1344 1383


Silver 16.7 17.1 17.0 16.7 16.7 16.5 16.7 17.7 19.5 20.5 21.9

% Change from previous forecast -2.2% -0.5% -8.1% -4.6% -0.6% -5.2% -4.7% -6.8% -2.5% -2.4% 1.7%

Platinum 922 950 971 1020 1055 1090 1034 1090 1190 1245 1310

% Change from previous forecast 0.7% -0.7% -0.7% 4.3% 7.9% 11.4% 5.7% 6.0% 7.6% 3.9% 1.0%

Palladium 993 871 1098 1145 1195 1235 1168 1045 990 915 860


Rhodium 1471 1106 1701 1915 2150 2420 2046 1995 2045 2040 2055



Figure 13: Bulk commodity price forecasts

USD Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Iron Ore Spot Landed Fines Price in

China CIF (t)66 71 75 65 65 60 66 58 58 58 60

% Change from previous forecast 19.2% 3.7% 36.4% -7.1% 0.0% 9.1% 8.2% 0.0% 0.0% 0.0% 2.3%

Hard Coking Coal JFY (t) 192 210 230 200 180 160 193 150 140 139 139


Low-volatile PCI JFY (t) 126 134 155 135 122 109 130 103 96 96 95



Figure 14: Minor Metals Price Forecasts

USD Q4 17 Q1 18 Q2 18 Q3 18 Q4 18

Molybdenum (USD/lb) 7.1 7.9 8.0 7.5 6.8 7.0 7.3 7.7 8.0 8.3 8.6

% Change from previous forecast -11.3% -2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.6% 1.1% 1.6% 2.0%

Cobalt (USD/lb) 29.3 25.4 34.0 34.0 33.0 33.0 33.5 33.8 33.5 32.1 29.6


Ferrochrome (USc/lb) 139.0 140.8 118.0 115.0 115.0 110.0 114.5 110.0 115.0 115.9 116.8

% Change from previous forecast 15.8% 3.5% 7.3% 21.1% 0.0% 15.8% 10.4% 0.0% 0.0% -3.4% 3.2%

Manganese Ore (USD/t) 6.5 6.0 6.5 5.5 4.5 4.5 5.3 4.5 4.2 4.1 4.0




15 January 2018


#2 Commodity Indices

Figure 15: 2017 asset class scorecard

-1.2

0.9 1.7

10.5

28.7

-10

-5

0

5

10

15

20

25

30

35

FX

Com

moditie

s

Fix

ed Incom

e

EM

Eq

uitie

s

Commodities: BCOM IndexFX: DB Currency Returns IndexFixed Income: JPMorgan Hedged USD GBI GlobalEquity: MSCI Global

EM: DBIQ EMLE

Total returns

(% year to date)

Source: Deutsche Bank, Bloomberg Finance LP (Data as of 11 January2018)

■ A strong finish for the energy sector in December pulled benchmarkcommodity index returns barely back into positive ground for the full year2017. Owing to the strong contribution from oil and oil products, S&PGSCI (60% weighting to energy) ended up outperforming BCOM (33%weighting to energy). For the fourth quarter, BCOM actually returned+4.93%, outstripped only by global equity returns of +8.56%.

■ Oil balances have improved to a slight deficit in 2018/19. We expect thatbackwardation will be persistent, sustaining positive roll in energy as aconstant contributor to returns. In addition, WTI has now joined Brent inbackwardation. Although we believe prices may have moved too far tooquickly, spot losses should be modest and mopped up by the roll return.We expect price stability as the normalisation of OECD inventory allowsOPEC to begin discussing its unwind of supply discipline.

■ Industrial metals contributed the second strongest performance out ofthe major commodity sectors in the fourth quarter as macro indicatorslargely held up, and the diffusion of economic strength remained high.

■ Precious metals remain in a holding pattern and we expect will continueto do so, as further dollar weakness counteracts the downside frommodestly higher real rates. Thus we see risks for the gold premium tomodeled fair value widening over the next two years, even as we hold agold price forecast (USD 1,283/oz) modestly below spot (USD 1,332/oz).

■ Backwardation again proved to be the strongest outperformer amongstenhanced beta strategies, while mean reversion and optimum yieldformulations also turned in respectable performances. The vol premiumindex again did well against other risk factor strategies as oil vol remainsnear 3-year lows.

Figure 16: 2017 commodity index scorecard

0.9

6.96.9 6.7

4.8

7.4 6.8

26.9

0.8

8.9

-2.7

0.8

-0.6-2.5

7.1

-10

-5

0

5

10

15

20

25

30

BC

OM

SP

GS

CI

DB

LC

I-O

Y B

ala

nce

d

DB

LC

I-O

Y D

ivers

ifie

d

DB

Bo

oste

r

DB

LC

I-M

ean R

eve

rsio

n

DB

LC

I-M

R E

nhan

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DB

LC

I B

ackw

ard

atio

n L

ong

DB

LC

I C

CA

Lite

DB

Backw

ard

atio

n A

lpha

DB

Mom

entu

m A

lpha

DB

PC

S A

lpha

DB

Box C

S A

lpha

DB

Mo

mentu

m S

imp

lifie

d

DB

Vol P

rem

ium

Excess returns ytd (%)

Enhanced Beta

AlphaBeta

Source: Bloomberg Finance LP (Data as of 11 January 2018), Deutsche Bank


15 January 2018


Figure 17: Q4-2017 sector returns headlined by energy

-10%

-5%

0%

5%

10%

15%

20%

Preciousmetals

Agriculture Industrialmetals

Livestock Energy SPGSCIIndex

Spot Roll Excess 2017 Q4

% returns

Source: Bloomberg Finance LP, Deutsche Bank

Figure 18: Commodity index excess returns in 2017

USD terms level Wtd Qtd ytd Sharpe

DBLCI-OY Balanced 203.81 0.00 6.70 6.94 0.54

DBLCI-OY Diversified 235.35 0.53 9.59 6.69 0.54

DB Booster 177.24 -0.15 5.67 4.77 0.38

DBLCI-MR 424.19 1.30 14.08 7.42 0.48

DBLCI-MR Enhanced 153.87 0.70 7.50 6.76 0.49

DBLCI Bacwardation Long 1516.84 1.83 11.19 26.91 2.02

Risk factors

DB Commodity Curve Alpha Lite 187.96 0.33 0.92 0.80 -0.28

DB Backwardation Alpha Simplified 281.94 1.64 3.54 8.94 0.84

DB Momentum Alpha 676.67 0.19 4.72 -2.65 -0.26

DB Pairs Curve Spread Alpha 214.23 0.03 -0.11 0.77 -0.41

DB Box Curve Spread Alpha 123.05 0.02 -0.34 -0.64 -2.47

DB Momentum Simplified 193.09 -1.60 -0.11 -2.51 -0.58

DB Vol Premium 257.27 0.71 1.49 7.06 1.79

Sector performance*

Energy 127.61 2.21 18.98 9.51 0.60

Industrial 206.21 -1.45 6.99 25.67 1.33

Precious 176.83 -0.13 2.44 11.80 0.59

Agriculture 36.16 -1.24 -2.61 -13.05 -1.16

Livestock 180.60 -3.10 -1.05 4.48 0.12

Performance of other benchmark indices

SPGSCI 249.42 0.82 11.80 6.91 0.52

BCOM 88.31 -0.30 4.55 0.90 0.03

Source: Deutsche Bank, Bloomberg Finance LP (Figures are cob January 11, 2018. Sharpe ratios are calculated on a YoY basis)


15 January 2018


#3: Crude Oil

Recovery gains stronger footing■ Although there was no single trigger for the rise in oil prices since mid-

December, we believe much of the re-rating will be persistent, and thatBrent dipping back below USD 60/bbl is less likely. The recovery reflectsa sharper decline in Venezuela dipping well below 2 mmb/d, a +130 kb/d upgrade to African demand, potential for demand growth above +1.3mmb/d in light of cyclical growth acceleration in the US, Eurozone andEM, and potential for more broad USD weakness in 2018 as structuraldownside risks dominate.

■ We expect price stability as the normalisation of OECD inventory allowsOPEC to begin discussing its unwind of supply discipline. Small deficitsover Q2-Q4 will allow OPEC to reach its goal of zero liquids surplus bythe end of the year. This also means OECD total liquids inventory in daysof consumption will fall from 65 days in 2016 back to 61 days in 2018.We raise our medium term Brent forecasts from USD 55/bbl to USD 62/bbl in 2018-19 and USD 65/bbl in 2021-22. WTI forecasts are raisedfrom USD 51/bbl to USD 56/bbl in 2018-19.

■ While some argue that OPEC was caught by surprise by the decline in UStight oil breakevens, it has been remarkably successful in simultaneouslyretaining market share gains and establishing a floor under prices, allwhile facing a tight oil industry which is becoming ever more efficient.We expect that an abiding interest in market share will make theextension to Dec-18 the last one.

■ One theory holds that Saudi Arabia's difficulty in further lowering itsfiscal breakeven (USD 77/bbl, down from USD 107/bbl in 2014) meansthat it would prefer overshooting on the oil price. However, fear ofreincentivising another multiyear phase of +1 mmb/d US supply growthmust also factor into the calculus, especially since well productivitygrowth shows no signs of leveling off yet. Above USD 70/bbl, the risk ofdenting demand by driving consumers to purchase more fuel-efficientvehicles should also reduce the interest in deliberately sparking anovershoot.

■ Stronger US tight oil growth, particularly in 2019 and 2020, is the keydownside risk as analysts gain greater confidence in the sustainability ofthat growth. Analysts who were asked to present on US tight oil growthto OPEC on 24 Nov in preparation for the 30 Nov meeting offered tightoil growth outlooks ranging from +500 kb/d to +1.7 mmb/d in 2018. Ourview on US supply growth stands at +773 kb/d tight oil and +940 kb/dtotal liquids, up 100 kb/d on expectation of a recovery in rig productivity,with a further upgrade to +1 mmb/d tight oil and +1.2 mmb/d total liquidspossible on the latest drilling data. This would be a complete u-turn fromthe pessimistic wave of downgrades in H2-17.

■ The tight oil completion bottleneck has now disappeared for ex-Permianand we expect will ease for Permian as well, as newly commissionedfrac capacity begins to be employed. We expect an orderbook of 0.5-1.0million hydraulic hp to be delivered over the course of this quarter. Thisshould raise rig productivity as the completion rate converges toward thedrilling rate, reversing the move initiated in September 2016. Currently,


15 January 2018


US frac pricing remains subdued at ~60% of the 2011 level, suggestingthat the impact on breakevens is moderate so far.

■ The economics of pre-FID projects shows a fall in non-OPEC full-cycle costs from USD 53/bbl to USD 46/bbl since Q4-2016. Deepwaterreserves still contribute the most reserves by resource theme, and we seeUSD 65/bbl as the marginal cost of new supply from oil sands projects.

Brent is above equilibrium priceGiven our forecasts for supply-demand to be balanced in both 2018 and 2019,the rally since June 2017 is now in danger of becoming overextended. Ourassessment of marginal incentive prices, and therefore mid-cycle equilibrium,suggests that USD 65/bbl is a level which reflects the cost of new oil sandsprojects. Therefore, in order to have confidence in prices remaining sustainablyabove USD 65/bbl, we would also have to be confident around material marketdeficits. By contrast, our market model suggests neutral balances in both 2018and 2019 as US tight oil growth recovers in 2018, and OPEC and non-OPEC supplyagreements are at least partially unwound in 2019. Therefore we suggest thatmarket prices are currently at odds with supply-demand fundamentals as weunderstand them.

Citing demand upside and USD weaknessHowever, we do recognise that the further upward march of prices since earlyDecember may hold some validity on two counts. First, we acknowledge upsiderisks to our +1.3 mmb/d assumption for global oil demand growth in 2018, giventhe strength in global composite PMI and the fact that the dollar value of global oilconsumption, even at today's price, is still only 3.1% of global GDP, well below the4.9% share of GDP in 2011 and 2012. Therefore prices may not yet be impingingon consumer and industrial demand.

Second, we note the -1.94% decline in the broad trade-weighted US dollar sinceearly December, and a -2.54% decline in the major-currency trade-weighted USdollar over the same period. Seen over the 1993-2016 period, such depreciationin the dollar has been associated with some degree of a multiplier effect on oilprices (between 3x to 6x during periods of modest dollar depreciation). However,this should be treated with a great deal of caution as the histogram as constructedconsiders the US dollar as the only independent variable. The sensitivity isexaggerated, as the chart makes the assumption that dollar movements are theonly factor driving oil prices, which of course is untrue. Nevertheless, even ifquantifying the effect is difficult, we suspect that there has been at least someinfluence from a weakening dollar.


15 January 2018


Figure 19: Global composite PMI through November2017

Figure 20: Oil consumption as share of global GDP (%)with 2018 Brent at USD 67.65/bbl

40

45

50

55

60

65

2011 2012 2013 2014 2015 2016 2017

US ISM

Eurozone

EM

0%

1%

2%

3%

4%

5%

6%

7%

8%

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018

1.9% avg 1986-2003

4.9% 2008

3.1% 2018

6.9% avg 1980-1982

Source: Bloomberg Finance LP, Deutsche Bank Source: World Bank, Bloomberg Finance LP, Deutsche Bank

Figure 21: Trade weighted US dollar Figure 22: Trade-weighted USD and oil prices since 1993

115

116

117

118

119

120

121

122

123

84

85

86

87

88

89

90

91

92

Jul-2017 Sep-2017 Nov-2017 Jan-2018

Major-currency TW$ (lhs)

Broad TW$ (rhs)

-2%

-60% -40% -20% 0% 20% 40%

[-20%, -15%)

[-15%, -10%)

[-10%, -5%)

[-5%, -2%)

[-2%, 0%)

[0%, 2%)

[2%, 5%)

[5%, 10%)

[10%, 15%)

[15%, 20%)

[20%, 25%)

Brent and WTI yoy (%)

US

D T

W y

oy (

%)

WTI crude oil

Brent crude oil

USD +, Oil -

USD -, Oil +

Source: Bloomberg Finance LP, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank

Raising medium term forecastsIn recognition of these factors we raise our medium term Brent forecasts toUSD 62/bbl in 2018-19 (+11-14%) and USD 65/bbl in 2021-22 (+4-8%), raise ourWTI forecasts to USD 56/bbl in 2018-19 (+6-9%) and leave our WTI forecastsunchanged at USD 57/bbl in 2021-22.

However, versus a spot price of USD 68/bbl Brent and USD 62/bbl WTI, wesuggest that key risks are to the downside primarily by virtue of the turning tidein US supply growth, which we discuss below. Additionally, we worry that oilprices persisting around the current level or higher would result in a new waveof investment decisions in conventional non-OPEC ex-US oil projects. Particularlyif such projects follow the trend of smaller scale and staged development,lead times could be sufficiently short to reach first production sometime in2020, with the implication that the modeled market deficit of -750 kb/d may bereduced. Finally, we envision that prices above USD 70/bbl may result in reducedcompliance with OPEC and non-OPEC supply agreements.


15 January 2018


Analysis framework is backed up by historyOur supply-demand framework holds that prices move above the mid-cycleequilibrium price only in the event of meaningful supply-demand deficits. Asevidence, we point to the last decade. Between 2006 and 2013, the marketaveraged a -500 kb/d deficit, and Brent prices averaged USD 89/bbl. From2014-2016, the market averaged a +1.1 mmb/d surplus, and Brent prices retreatedfrom USD 99/bbl in 2014 to an average of USD 49/bbl in 2015-16. Over the2017-2019 period we expect an average of a +95 kb/d surplus – in other words,nearly balanced markets. Until now, persistent inventory excesses from the2014-16 downcycle have lent a negative bias to prices, i.e., below equilibrium, butthat bias may now be fading, thus leaving the state of market balance (neutral)as the dominant factor.

Figure 23: Price performance in OPEC tightening cycles(start=100)

Figure 24: OPEC share of total crude oil production

70

90

110

130

150

170

190

-12 8 28 48 68 88 108 128 148 168 188 208 228 248

Apr-91

Feb-92

Jan-93

Apr-00

Apr-04

Feb-07

Jan-17

Number of days before/after OPEC production quota reduction

Brent indexed at 100 at month endbefore OPEC quota reduction

Current cycle

35%

36%

37%

38%

39%

40%

41%

42%

43%

44%

2000 2001 2003 2005 2006 2008 2010 2011 2013 2015 2016 2018

OPEC DB projection

OPEC maintains 30 mmb/d quota (Nov 2014)

Defending the USD 22/bbl floor

Defending the USD 28/bbl ceiling Algiers Accord (Dec

2016)

Source: Bloomberg Finance LP, Deutsche Bank Source: IEA data from Monthly Oil Data Service © OECD/IEA 2017, www.iea.org/statistics, Licence:www.iea.org/t&c; as modified by Deutsche Bank

Figure 25: Quarterly global oil supply demand balance Figure 26: Annual changes to supply/demand (kb/d)

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.520

40

60

80

100

120

1402007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

OECD stock change (rhs, mmb/d)

Balance (rhs, mmb/d)

Brent (USD/bbl)

WTI (USD/bbl)

Surplus

Deficit

+1522 kb/d

+655 kb/d

-203 kb/d

-223 kb/d

-1,000

-500

0

500

1,000

1,500

2,000

2016 2017 2018E 2019E 2020E

World demand growth (kb/d)US supply (kb/d)Other non-OPEC supply (kb/d)OPEC supply (kb/d)

Need for stronger US growth in 2020

Balanced markets

OPEC deal expires

Source: IEA data from Monthly Oil Data Service © OECD/IEA 2017, www.iea.org/statistics, Licence:www.iea.org/t&c; as modified by Deutsche Bank



15 January 2018


The turning tide in US supplyA key driver behind rising prices in the second half of 2017 was the decline inUS supply growth forecasts, a trend which we believe is in the process of turningaround, particularly with WTI above USD 61/bbl. WTI prices between USD 61 and65/bbl is cited as a range which 42% of surveyed oil and gas executives see astriggering a substantial increase in drilling activity.

Although US supply has slowly and surely turned back to growth, the extent ofthis growth is still very much up for debate. The negative warning signs aboutslower growth which we saw in H2-17 are now beginning to turn around. For onething, the gap between monthly production data compared to weekly estimateshas now closed, after measuring almost 300 kb/d in August. We believe this willcontribute to increased confidence in stronger US supply growth.

Figure 27: Weekly and monthly US crude oil productionfigures (mmb/d)

Figure 28: US oil-directed rig count and lagged WTIprice

8

8.5

9

9.5

10

10.5

Jan-15 Aug-15 Mar-16 Oct-16 May-17 Dec-17 Jul-18

Weekly production estimate (rhs, mmb/d)Dec-17 forecastActual monthly production (mmb/d)

Monthly production gap has closed

Agreement

10

20

30

40

50

60

70

80

90

100

110

0

200

400

600

800

1000

1200

1400

1600

Jan-14 Jan-15 Jan-16 Jan-17 Jan-18

Oil-directed rig count (lhs, rigs)

WTI M3 (4M lag, USD/bbl)

Trough in WTI 4-month lagged price

Source: US EIA, Deutsche Bank Source: Bloomberg Finance LP, Baker Hughes, Deutsche Bank

Figure 29: Improvement in completed/drilled ratio willaid rig productivity

Figure 30: Declines in rig productivity estimates sinceJuly 2017 (bbl/d/mon)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Jan-14 Jan-15 Jan-16 Jan-17

Permian completed/drilled ratio

Other completed/drilled ratio

1:1 ratio

Sep-16 was the peak in rig productivity

Ratio moving back to 1

200

300

400

500

600

700

800

900


Nov-16 data setJul-17 data setSep-17 data setOct-17 data setNov-17 data setDec-17 data set

Sep-16 peak in productivity coincides with the peak in completion/drilling ratio

Downward revisions

Recovery

Source: US EIA, Deutsche Bank Source: US EIA, Deutsche Bank

Also, we are now seeing the formation of a trough in drilling activity in responseto the lagged WTI price. We expect a recovery in drilling activity to take placeover the next four months, particularly if WTI prices remain in the USD 61-65/bbl


15 January 2018


range. Although the price sensitivity of drilling appears to be muted in the pastseveral weeks, we think this is likely to be revived over the next 4 months.

In addition, rig productivity is likely to recover as it is assisted by the deploymentof new frac capacity. The hydraulic fracturing subsector of US oil services iscurrently under supplied, according to our US oil services analyst, as a result ofa higher penetration of pad drilling, longer laterals, tighter stage spacing, morefrac clusters and higher sand loading.

We note that in addition to new capacity totaling 1 million hhp, an orderbook of0.5-1.0 million hhp could begin to be delivered in the first quarter. This has thepotential to raise the completed/drilled ratio from 0.73 in the Permian and 0.86 inall other regions towards 1.0, and to lift observed rig productivity by consequence.This would be a reversal of the decline in completions since September 2016which was matched by a simultaneous decline in rig productivity.

Rig counts ready to respondAfter having passed through a period of uncertainty in the middle of the year,we can see now that there has not been any meaningful breakdown of therelationship between drilling activity and the lagged WTI price, although a 4-month lag now appears more reasonable than the 3-month lag we have used inthe past. Going forward, we assume that the more frequent mentions of capitaldiscipline will not stand in the way of an uptick in drilling activity between nowand March 2018.

We believe that the downward shift in US supply growth expectations has helpedto explain the stronger oil prices over the second half of 2017, and that a rebuildingof these expectations over the next 4 months could be damaging for the oil price.

Estimating the US response functionIn order to estimate the response of the US onshore tight oil industry to variouslevels of average realised WTI price in 2018, we take as a starting point theassumption that the industry is cash neutral with 750 oil-directed rigs active ata lagged WTI price of USD 50/bbl. For every USD 5/bbl above or below this inaverage 2018 prices, we assume that incremental annual cashflow of USD 11bnfunds an additional 100 rigs, with each rig drilling 18 wells per year (the currentaverage for all tight oil regions is 17.77, or 20.54 spud-to-spud days per well).

These simple assumptions, along with current rig productivity and legacy declinestatistics by region, lead to the following sensitivities in supply growth. Thesefigures deal with onshore tight oil regions only (Anadarko, Bakken, Permian,Appalachian, Eagle Ford, Haynesville and Niobrara), excluding most conventionaland all offshore production.

The profile of rig count growth, particularly for the higher priced scenarios, showsan unrealistically sudden jump up from the current level to the 2018 average, butwe accept this artificiality as a useful simplification, rather than attempting tosmooth the ramp-up in activity. Consequently, we accept that actual productiongrowth in 2018 would be less dramatic in reality.

Importantly, these scenarios hold legacy decline and rig productivity unchangedover the longer term. However, given the so-far steady improvements inproductivity, the longer term growth estimates in these scenarios should be


15 January 2018


regarded as a lower bound, and the slowing of growth in later years is likely tobe less severe than we have indicated.

Figure 32: US tight oil growthscenarios by 2018 WTI price (kb/dyoy)

-1000

-500

0

500

1000

1500

2000

2016 2017 2018 2019 2020 2021

WTI $45/bblWTI $50/bblWTI $55/bblWTI $60/bblWTI $65/bblWTI $70/bblWTI $75/bbl

Productivitygrowth would likely lift longer term numbers

Annual tight oil growth rates (kb/d yoy)

Source: US EIA, Deutsche Bank

Figure 31: US tight oil production growth by WTI scenario in 2018

2016 2017 2018 2019 2020 2021

Base case tight oil growth (kb/d yoy) 427- 360 773 444 291 213

Base case avg oil-directed rig count 409 702 764 786 814 842

Scenario production growth (kb/d yoy) 2016 2017 2018 2019 2020 2021

WTI $45/bbl -427 360 539 -63 -45 -65

WTI $50/bbl -427 360 767 322 132 5

WTI $55/bbl -427 360 963 655 350 104

WTI $60/bbl -427 360 1,113 965 588 192

WTI $65/bbl -427 360 1,248 1,191 722 136

WTI $70/bbl -427 360 1,378 1,400 817 144

WTI $75/bbl -427 360 1,504 1,601 902 167

Scenario average rig count 2016 2017 2018 2019 2020 2021

WTI $45/bbl 409 702 650 650 650 650

WTI $50/bbl 409 702 750 750 750 750

WTI $55/bbl 409 702 850 850 850 850

WTI $60/bbl 409 702 950 950 950 950

WTI $65/bbl 409 702 1,050 1,050 1,050 1,050

WTI $70/bbl 409 702 1,150 1,150 1,150 1,150

WTI $75/bbl 409 702 1,250 1,250 1,250 1,250


Figure 34: At what West TexasIntermediate crude oil price wouldyou expect the U.S. oil rig count tosubstantially increase?

0

5

10

15

20

25

30

35

40

45

Below $50 $50–$55 $56–$60 $61–$65 $66–$70Above $70

Percent reporting

Source: Federal Reserve Bank of DallasNotes: Executives from 125 oil and gas firms answered this questionduring the survey collection period, Dec. 13-21, 2017. For reference,WTI (West Texas Intermediate) spot prices averaged $57.42 perbarrel during the period.

Figure 33: US oil production by category (kb/d)2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

US (Alaska) 576 563 540 528 539 554 555 550 540 526 ADD

US (GOM Deepwater) 1,005 1,037 1,199 1,335 1,474 1,568 1,535 1,480 1,412 1,369 ADD

US (GOM Shelf) 261 218 198 180 164 151 138 128 118 109 ADD

Conventional Onshore 5,453 5,774 6,075 6,126 5,946 6,074 6,285 6,276 6,232 6,335 ADD

DPR model 3,058 4,002 5,113 5,793 5,334 5,714 6,521 6,963 7,247 7,475

o/w Conventional 1,243 1,304 1,126 968 936 956 990 988 981 997

o/w Tight Oil 1,815 2,698 3,987 4,825 4,398 4,758 5,531 5,975 6,265 6,478 ADD

Total 9,110 10,291 12,000 12,993 12,522 13,105 14,044 14,408 14,567 14,817

Tight Oil growth (kb/d yoy) 796 883 1,289 837 427- 360 773 444 291 213

Total liquids growth (kb/d yoy) 1,044 1,181 1,709 993 471- 583 940 364 159 250

Rows marked "ADD" contribute to the total.

Source: Wood Mackenzie, US EIA, Deutsche Bank

Pre-FID breakevens fallingWith upstream project economics under pressure and oil industry capexsuppressed, it is no surprise that full-cycle breakevens of prospective projectswould be coming down. To quantify just how much, we look at pre-FID upstreamprojects where recoverable reserves are at least 50 mmboe, and where liquidsreserves constitute at least half of the resource. We also limit the survey toprojects outside of OPEC, and we include Alaska and Gulf of Mexico but excludeUS tight oil assets. Comparing the Q4-16 dataset against Q3-17, we see thatbreakevens on a 10% discount rate have fallen from USD 53/bbl to USD 46/bbl.We also observe that deepwater reserves still contribute the most reserves byresource theme, and that USD 65/bbl could still be considered a marginal cost ofnew supply from oil sands projects.


15 January 2018


Figure 35: Non-OPEC project breakevens (Q4 2016, 10%discount rate)

Figure 36: Non-OPEC project breakevens (Q3-2017, 10%discount rate)

0

20

40

60

80

100

120

140

160

180

Conventionalonshore

Conventionalshelf

Deepwater Oil Sands

Range

Average

0

20

40

60

80

100

120

140

160

180

Conventionalonshore

Conventionalshelf

Deepwater Oil sands

Range

Average

Source: Wood Mackenzie Source: Wood Mackenzie

Figure 37: Non-OPEC project breakevens (Q4 2016,USD/bbl, 10% discount rate)

Figure 38: Non-OPEC project breakevens (Q3-2017,USD/bbl, 10% discount rate)

Low Range Average

Liquids reserves

(mmbbl)

Conventional onshore 35 61 52 2,792

Conventional shelf 22 102 50 2,650

Deepwater 28 68 49 6,998

Oil Sands 63 95 70 2,466

Low Range Average

Liquids reserves

(mmbbl)

Conventional onshore 26 55 45 3,047

Conventional shelf 27 70 42 3,209

Deepwater 26 76 43 18,522

Oil sands 53 67 63 3,290

Source: Wood Mackenzie Source: Wood Mackenzie

A balanced market with first hints of deficitsWith an upward revision to African oil demand, our model now shows relativelysmall -200 kb/d deficits in 2018 and 2019, followed by a more significant -800kb/d deficit in 2020. We believe that deficits across the 2018-2020 period couldbe narrowed by stronger US supply growth, which we assume in the model atonly +360 kb/d yoy in each of 2019 and 2020. According to our US E&P analystteam, the magnitude of 2018 growth (close to 1 mmb/d) could well be repeatedin 2019 and 2020, which would significantly change the fundamental outlook.Therefore, we believe that the evolution of US drilling efficiency and activity thisyear will be one of the most important factors to watch in clarifying the medium-term fundamental outlook.

On our current modeling, we can now envision for the first time that OPEC maybe able to achieve its goal of lowering OECD commercial liquids inventories downto the rolling 5-year average by the end of the year. This would suggest that weshould begin to hear some discussion over the nature of the unwinding processby the mid-year OPEC meeting.


15 January 2018


Figure 39: OPEC-12 production (excl. Libya & Nigeria) Figure 40: OPEC-14 production (mmb/d)

28.50

29.00

29.50

30.00

30.50

31.00

31.50

32.00

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

Oct 2016 base

Venezuela assisting OPEC-12 below target, 30.221 mmb/d

31.00

31.50

32.00

32.50

33.00

33.50

34.00

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17

Oct 2016 base

Venezuela decline results in production below DB 2018assumption for OPEC-14



Figure 41: Non-OPEC production (kb/d) Figure 42: Annual supply-demand imbalance (mmb/d)

17,600

17,800

18,000

18,200

18,400

18,600

18,800

19,000

19,200

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

Oct 2016 base

Cal-2016 average Non-OPEC target

Mexico recovery

-1.000

-0.500

0.000

0.500

1.000

1.500

2.000

2014 2015 2016 2017 2018 2019 2020

Surplus (deficit)

Balanced markets through 2019




15 January 2018


Figure 43: Annual oil supply demand balance (mmb/d)2014 2015 2016 2017 2018 2019 2020 ȴ17/16 ǻ18/17 ǻ19/18 ǻ20/19

OECD Demand 45.8 46.4 46.9 47.3 47.3 47.2 47.2 0.384 -0.029 -0.024 -0.024

Non-OECD Demand 47.3 48.5 49.4 50.6 51.9 53.0 54.0 1.148 1.322 1.073 1.032

Demand 93.1 95.0 96.3 97.8 99.1 100.2 101.2 1.532 1.293 1.049 1.008

US onshore tight 4.0 4.8 4.4 4.8 5.5 6.0 6.3 0.360 0.773 0.444 0.291

Other US 8.0 8.2 8.1 8.3 8.5 8.4 8.3 0.223 0.166 -0.080 -0.132

Non-OPEC ex-US 40.2 40.6 40.3 40.3 40.5 40.0 39.8 0.096 0.154 -0.458 -0.231

Processing Gains and Biofuels 4.4 4.5 4.6 4.7 4.9 5.0 5.1 0.128 0.132 0.136 0.141

Non-OPEC Supply 56.6 58.1 57.4 58.3 59.5 59.5 59.8 0.862 1.225 0.042 0.270

OPEC NGLs 6.4 6.6 6.8 6.9 6.9 7.0 7.0 0.127 0.035 0.035 0.035

Supply 63.0 64.7 64.2 65.2 66.4 66.5 66.8 0.989 1.260 0.076 0.305

Call on OPEC 30.1 30.3 32.1 32.7 32.7 33.7 34.4 0.543 0.033 0.973 0.703

OPEC supply 30.7 31.8 32.8 32.5 32.5 33.6 33.6 -0.315 0.012 1.091 0.000

Surplus (deficit) 0.553 1.525 0.752 -0.203 -0.223 -0.105 -0.808

Source: IEA data from Monthly Oil Data Service © OECD/IEA 2017, www.iea.org/statistics, Licence: www.iea.org/t&c; as modified by Deutsche Bank

Figure 44: OECD commercial total liquids inventory,2012-16 reference period (bn bbl)

Figure 45: OECD commercial total liquids inventory(days' cover)

2.30

2.40

2.50

2.60

2.70

2.80

2.90

3.00

3.10

3.20

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

2012-16 20152016 20172012-16 avg 2017 proj.2018 proj.

Inventory draws assisted by OPEC compliance

0

10

20

30

40

50

60

70

199519971999200120032005200720092011201320152017

Days of consumption

58.0 avg54.0 avg

65.0



Figure 46: OECD total liquids surplus over 5 year rollingaverage (mmbbl)

Figure 47: Cumulative supply-demand imbalance andreal Brent price (log scale)

-200

-100

0

100

200

300

400

500

2013 2014 2015 2016 2017 2018

Surplus (Rolling 5Y avg, mmbbl liquids)

DB projection

Resumption of inventory reduction in Q2 could bring surplus to zero by end-18

15

30

60

120

-25000

-20000

-15000

-10000

-5000

0

5000

10000

1986 1990 1994 1998 2002 2006 2010 2014 2018

Cum. imbalance (lhs, kb/d)DB forecastReal Brent (rhs, log scale)DB forecast




15 January 2018


Figure 48: Global total liquids supply and demandANNUAL AVERAGE RATE

Unit: Million bbl/day 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E '00-05 '05-10 '10-15

CONSUMPTION

OECD Americas 25.8 25.8 25.9 24.6 23.8 24.3 24.1 23.7 24.2 24.2 24.6 24.7 24.9 25.0 25.0 25.0 1.2% -1.2% 0.2%

USA 20.8 20.7 20.7 19.5 18.8 19.2 18.9 18.5 19.0 19.1 19.5 19.7 19.9 20.0 20.0 20.0 1.1% -1.6% 0.4%

OECD Europe 15.9 15.9 15.6 15.5 14.8 14.7 14.3 13.8 13.6 13.5 13.8 14.0 14.3 14.3 14.3 14.3 0.6% -1.4% -1.3%

Germany 2.6 2.6 2.4 2.5 2.4 2.5 2.4 2.4 2.4 2.4 2.4 2.4 2.5 2.5 2.5 2.5 -1.1% -1.2% -0.8%

OECD Asia-Pacific 8.7 8.6 8.5 8.2 7.8 8.0 8.1 8.5 8.3 8.1 8.1 8.1 8.1 8.0 8.0 7.9 -0.1% -1.6% 0.1%

Japan 5.2 5.0 4.9 4.7 4.3 4.3 4.3 4.6 4.5 4.2 4.1 4.0 3.9 3.8 3.7 3.7 -1.2% -3.5% -1.0%

TOTAL OECD 50.4 50.2 50.1 48.3 46.4 47.1 46.5 46.0 46.1 45.8 46.4 46.9 47.3 47.3 47.2 47.2 0.8% -1.4% -0.3%

FSU 3.8 4.0 3.9 4.1 3.9 4.0 4.3 4.4 4.5 4.6 4.5 4.8 4.8 4.9 5.0 5.1 0.6% 1.0% 2.4%

Europe 0.8 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.8 4.5% -1.4% -0.4%

China 6.8 7.2 7.6 7.7 8.0 9.0 9.4 9.8 10.4 10.8 11.6 11.9 12.4 12.8 13.1 13.2 7.8% 5.9% 5.1%

India 2.6 2.8 3.1 3.1 3.2 3.3 3.5 3.6 3.7 3.8 4.2 4.5 4.7 5.0 5.1 5.3 2.4% 4.6% 5.2%

Other Asia (excl. India) 6.3 6.4 6.7 6.6 6.9 7.4 7.5 7.6 7.9 8.0 8.2 8.4 8.7 8.9 9.1 9.3 3.1% 3.2% 2.0%

Latin America 5.1 5.2 5.4 5.7 5.7 6.1 6.3 6.6 6.7 6.9 6.7 6.6 6.6 6.7 6.7 6.7 1.3% 4.0% 1.8%

Middle East 6.0 6.2 6.4 6.8 7.2 7.3 7.4 7.8 8.1 8.4 8.4 8.3 8.3 8.4 8.6 8.9 4.6% 4.1% 2.8%

Africa 2.9 2.9 3.1 3.3 3.4 3.6 3.6 3.9 4.0 4.1 4.3 4.3 4.4 4.5 4.6 4.8 3.5% 4.3% 3.4%

TOTAL NON-OECD 34.2 35.5 36.9 38.1 39.0 41.5 42.7 44.3 45.9 47.3 48.5 49.4 50.6 51.9 53.0 54.0 3.6% 3.9% 3.2%

GLOBAL OIL DEMAND 84.7 85.7 87.0 86.4 85.4 88.5 89.2 90.3 92.0 93.1 95.0 96.3 97.8 99.1 100.2 101.2 1.9% 0.9% 1.4%

SUPPLY

OECD Americas 13.9 13.9 13.8 13.3 13.6 14.1 14.6 15.8 17.2 19.1 20.0 19.5 20.2 21.1 21.3 21.6 -0.4% 0.2% 7.3%

USA 7.1 7.0 7.0 6.9 7.4 7.8 8.1 9.1 10.3 12.0 13.0 12.5 13.2 14.1 14.5 14.8 -2.4% 1.8% 10.9%

Mexico 3.8 3.7 3.5 3.2 3.0 3.0 2.9 2.9 2.9 2.8 2.6 2.5 2.2 2.1 1.8 1.7 1.8% -4.7% -2.6%

Canada 3.0 3.2 3.3 3.2 3.2 3.3 3.5 3.7 4.0 4.3 4.4 4.5 4.7 4.9 5.0 5.1 2.2% 1.8% 5.6%

OECD Europe 5.7 5.3 5.0 4.7 4.5 4.2 3.8 3.5 3.3 3.3 3.5 3.5 3.4 3.4 3.2 3.5 -3.5% -6.0% -3.5%

North Sea 5.2 4.8 4.6 4.3 4.1 3.8 3.4 3.1 2.9 2.9 3.1 3.1 3.0 3.0 2.8 2.9 -3.9% -6.4% -4.0%

Other OECD 0.6 0.6 0.6 0.6 0.6 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.4 0.5 0.6 0.6 -7.2% 1.3% -6.8%

TOTAL OECD 20.2 19.8 19.4 18.7 18.8 18.9 18.9 19.8 21.0 22.9 23.9 23.4 24.0 25.0 25.1 25.6 -1.6% -1.3% 4.9%

FSU 11.8 12.3 12.8 12.9 13.3 13.5 13.5 13.6 13.8 13.9 14.1 14.2 14.5 14.6 14.5 14.4 8.2% 2.7% 0.8%

Non-OECD Europe 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 -3.3% -2.4% 0.6%

China 3.6 3.6 3.7 3.7 3.8 4.0 4.0 4.1 4.1 4.2 4.3 4.0 3.9 3.8 3.7 3.6 2.3% 2.3% 1.2%

Other Asia 3.8 3.8 3.7 3.7 3.7 3.7 3.6 3.6 3.5 3.5 3.6 3.6 3.5 3.4 3.3 3.1 0.0% -0.5% -0.6%

Latin America 3.5 3.6 3.6 3.7 3.9 4.1 4.2 4.2 4.2 4.4 4.6 4.5 4.6 4.8 4.8 4.8 1.9% 3.2% 2.3%

Middle East 1.8 1.7 1.7 1.7 1.7 1.8 1.7 1.5 1.4 1.3 1.3 1.3 1.3 1.3 1.2 1.2 -3.3% -1.0% -6.4%

Africa 1.8 1.9 2.0 2.0 2.0 2.0 1.9 1.7 1.7 1.8 1.8 1.7 1.7 1.7 1.8 1.8 2.8% 1.6% -2.0%

TOTAL NON-OECD SUPPLY 26.5 27.1 27.5 27.8 28.3 29.2 29.1 28.8 29.0 29.3 29.7 29.4 29.5 29.6 29.4 29.0 3.7% 1.9% 0.3%

PROCESSING GAINS 2.0 2.0 2.0 2.0 2.0 2.1 2.1 2.1 2.2 2.2 2.2 2.3 2.3 2.3 2.4 2.4 1.3% 1.2% 1.5%

GLOBAL BIOFUELS 0.6 0.8 1.0 1.4 1.6 1.8 1.9 1.9 2.1 2.2 2.3 2.3 2.4 2.5 2.6 2.7 17.3% 23.9% 4.5%

TOTAL NON-OPEC SUPPLY 49.3 49.7 50.0 49.9 50.7 52.0 52.0 52.5 54.2 56.6 58.1 57.4 58.3 59.5 59.5 59.8 1.3% 1.1% 2.3%

TOTAL SUPPLY 84.8 85.4 85.6 86.6 85.4 87.1 88.1 90.5 91.2 93.6 96.5 97.0 1.9% 0.6% 2.1%

Total Supply Assumption 97.6 98.9 100.1 100.4

OECD STOCK CHANGE 0.23 0.25 -0.24 0.32 0.01 0.06 -0.28 0.20 -0.18 0.38 0.78 0.02

Industry 0.13 0.22 -0.31 0.32 -0.09 0.07 -0.21 0.17 -0.21 0.39 0.77 -0.01

Government 0.10 0.03 0.07 0.01 0.10 -0.01 -0.08 0.03 0.03 -0.01 0.02 0.03

OPEC NGLS 4.3 4.3 4.4 4.6 5.1 5.5 5.9 6.2 6.2 6.4 6.6 6.8 6.9 6.9 7.0 7.0 7.4% 5.2% 3.6%

*MARKET SURPLUS (DEFICIT) -0.13 -0.55 -1.18 -0.18 0.01 -1.49 -0.80 -0.03 -0.62 0.17 0.74 0.73 -0.20 -0.22 -0.11 -0.81

Including OECD Stock Changes 0.10 -0.30 -1.43 0.14 0.02 -1.43 -1.08 0.17 -0.80 0.55 1.53 0.75 -0.20 -0.22 -0.11 -0.81

OPEC CRUDE OIL 31.2 31.4 31.2 32.1 29.6 29.7 30.2 31.7 30.8 30.7 31.8 32.8 2.0% -1.0% 1.4%

OPEC Assumption 32.5 32.5 33.6 33.6

IEA's Call on OPEC Crude 31.1 31.7 32.6 32.0 29.6 31.1 31.3 31.6 31.6 30.1 30.3 32.1

DB's Call on OPEC Crude 32.7 32.7 33.7 34.4

Brent (1st Month) USD/bbl 55.25 66.10 72.66 98.52 62.67 80.34 110.91 111.68 108.70 99.45 53.60 45.13 54.76 62.00 62.00 62.00

WTI (1st Month) USD/bbl 56.70 66.25 72.36 99.75 62.09 79.61 95.11 94.15 98.05 92.91 48.76 43.47 50.86 56.00 56.00 56.00

WTI-Brent 1.45 0.15 -0.29 1.23 -0.58 -0.73 -15.80 -17.53 -10.66 -6.54 -4.84 -1.66 -3.90 -6.00 -6.00 -6.00

Source: IEA data from Monthly Oil Data Service © OECD/IEA 2017, www.iea.org/statistics, Licence: www.iea.org/t&c; as modified by Deutsche Bank*Market surplus/deficit excluding OECD stock changes in prior years.

This work is partially based on the Monthly Oil Data Service developed by theInternational Energy Agency, © OECD/IEA 2017 but the resulting work has beenprepared by Deutsche Bank and does not necessarily reflect the views of theInternational Energy Agency.


15 January 2018


#4: US Natural Gas

Winter snooze■ Only a bomb cyclone lifting res/comm demand by +16 bcf/d yoy in the

first week of January has been able to revive the moribund natural gasmarket above USD 3.0/mmBtu. In the week ending 5 Jan, we saw thelargest ever weekly storage draw on record since 2000 of -359 bcf,outstripping the previous record of -288 bcf. However, annual demandis more influenced by longer-lived trends and on that score, this winteris still very close to normal. The lack of a strong price reaction to boththe storm as well as storage dropping below normal in Q4-17 shows themarket's bearish bias. This is confirmed by NYMEX non-commercial netpositioning falling to -175k contracts from a brief net long in May 2017.

■ Realised 60-day volatility has managed to rise from the September low of26% to a peak of 50% this month. This reflects the typical rise in volatilityinto Dec/Jan followed by seasonal decline.

■ We maintain 2018-19 Henry Hub forecasts just under USD 3/mmBtuto which downside risks dominate, owing to the new wave of supplygrowth unleashed by Northeast region pipeline commissioning this year.Quantifying this new wave is difficult mostly because constructionschedules are known to slip. The EIA has raised its 2018 supply growthestimate from +4.4 bcf/d to +6.8 bcf/d, but our schedule of pipelineprojects suggests that this growth could potentially rise to +10-11 bcf/dif all projects are both completed as scheduled, after considering ramp-up time and typical utilisation rates.

■ Lawsuits and legal proceedings have dogged some projects, introducinguncertainty on completion dates of pipelines such as Atlantic Sunrise(1.7 bcf/d) among others. While Williams Partners expects a mid-2018start date, Cabot Oil & Gas only plans to begin shipping volumes inQ4-18.

■ The problem of excess supply growth may not be alleviated in 2019 eitheras further pipeline completions add up to +6.6 bcf/d in total capacity.To this we may end up adding any pipeline schedule pushbacks from2018. A map of some of the larger pipelines scheduled to be completedin 2018 suggests there is not significant overlap amongst them and thatincreases in takeaway capacity should generally be considered additivefrom the perspective of national balances.

■ The silver lining is residential-commercial demand growth which iscoming off of a relatively weak year, and therefore could show largerthan expected growth if the whole of winter is colder than normal.Additionally, gas volume in storage which begins the year at a -5% deficitto the 10 year average percentage of working gas capacity, and thereforethere is some degree of catch-up required before we begin countingsurplus volumes.

■ We expect natural gas storage capacity to rise by 15 bcf to 4,713 bcf. Therise of only 0.3% again falls short of the rolling five year demand growthaverage of +1.3%, meaning that marginally higher storage volumesshould be considered as normal, assuming no change in the intensity ofseasonal demand patterns.


15 January 2018


Figure 49: Henry Hub prices and major events Figure 50: Annualised Henry Hub volatility, 60 daywindow

0

2

4

6

8

10

12

14

16

18

2004 2006 2008 2010 2012 2014 2016

Hurricane-induced processing shut-ins

Higher oil prices and cold winter

Overhang of new supply

Mild winters

Coldwinters

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%


25% to

50%

Source: Bloomberg Finance LP Source: Bloomberg Finance LP, Deutsche Bank

Figure 51: Bomb cyclone aside, this winter has beenvery normal in HDDs

Figure 52: Pipeline commissioning schedule

-50

0

50

100

150

200

250


2017201810Y Average-1 SD+1 SD

0.0

5.0

10.0

15.0

20.0

25.0

Aug-16 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Aug-19

Monthly new capacity (bcf/d)

Annual average (bcf/d)

2017 adds 2.6 bcf/d

2018 adds 12.0 bcf/d

Source: Bloomberg Finance LP Source: Thomson Reuters, Bloomberg Finance LP, Company websites, Deutsche Bank

Figure 53: Major pipeline route maps indicate limitedoverlap

Figure 54: 2018 winter follows weak comparables in2016 and 2017

1000

1500

2000

2500

3000

3500

4000

2004 2007 2010 2013 2016 10YAverage

Source: Thomson Reuters, Bloomberg Finance LP, Company websites, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank


15 January 2018


Figure 55: NYMEX Henry Hub positioning falls to -175 kfrom net long in May 2017

Figure 56: Gas-directed rig count and lagged Henry Hub(USD/mmBtu)

-400

-300

-200

-100

0

100

200

300

400

500

600

700

2006 2008 2010 2012 2014 2016

NonCom Long (k contracts)

NonCom Short (k contracts)

NonCom Net (k contracts)

0

1

2

3

4

5

6

7

0

50

100

150

200

250

300

350

400

2014 2015 2016 2017 2018

Gas-directed rig count

Henry Hub M1 (rhs, 3M lag)

Source: CFTC, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank

Figure 57: US gas production strength to continue in2018 (bcf/d)

Figure 58: Little price impact from storage falling intodeficit; stronger decline than in analogue years

40

45

50

55

60

65

70

75

80


2008-15 Range

2016

2017

2018

-10%

-5%

0%

5%

10%

15%

20%


Storage Surplus 2012 (%)



Source: Thomson Reuters, Deutsche Bank Source: Bloomberg Finance LP, Deutsche Bank

Figure 59: Natural gas storage, % of working gascapacity

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%


10Y Range (%)

10Y Avg (%)

2015 Actual (%)

2016 Actual (%)

2017 Actual (%)



15 January 2018


Figure 60: Changes to natural gas balance in 2018versus 2017

Figure 61: Changes to natural gas balance in 2019versus 2018

6.85

-0.57

6.29

1.08

1.17

0.05

1.48

0.47

0.33

4.58

-2 0 2 4 6 8

Dry Gas Production

Pipeline Gross Imports

Supply

LNG net exports

Electric Power

Industrial

Res/Com

Pipeline Gross Exports

Other

Demand

3.01

0.72

3.73

1.78

2.32

0.56

-0.10

0.91

0.59

6.08

-1 0 1 2 3 4 5 6 7

Dry Gas Production

Pipeline Gross Imports

Supply

LNG net exports

Electric Power

Industrial

Res/Com

Pipeline Gross Exports

Other

Demand

Source: US EIA, Deutsche Bank Source: US EIA, Deutsche Bank


15 January 2018


Figure 62: United States natural gas supply and demand

Bcf/day1Q

2017

2Q

2017

3Q

2017

4Q

20172017

1Q

2018

2Q

2018

3Q

2018

4Q

20182018

1Q

2019

2Q

2019

3Q

2019

4Q

20192019

CONSUMPTION

Residential 20.5 6.7 3.6 16.9 11.9 25.3 7.2 3.5 15.7 12.9 25.0 7.1 3.5 15.8 12.9

Commercial 13.0 5.8 4.6 11.0 8.6 14.9 6.1 4.6 10.7 9.1 14.8 6.1 4.6 10.7 9.0

Industrial 23.2 20.7 20.5 22.2 21.6 23.2 20.9 20.5 22.2 21.7 23.7 21.5 21.1 22.7 22.3

Electric Power 20.8 23.0 31.7 23.8 24.8 22.6 25.5 31.9 23.8 26.0 24.6 27.7 34.8 26.1 28.3

Other 6.6 6.0 6.3 6.7 6.4 7.0 6.5 6.5 6.9 6.7 7.5 7.0 7.2 7.6 7.3

Lease and Plant Fuel 4.3 4.3 4.4 4.6 4.4 4.7 4.7 4.8 4.8 4.7 4.9 5.0 5.0 5.1 5.0

Pipeline and Distribution 2.2 1.6 1.7 2.0 1.9 2.3 1.6 1.6 2.0 1.9 2.5 1.9 2.0 2.4 2.2

Total Demand 84.0 62.2 66.6 80.7 73.4 93.1 66.1 67.0 79.4 76.4 95.6 69.3 71.2 83.0 79.8

YoY % change -5.8% -6.7% -3.5% 6.7% -2.3% 10.8% 6.3% 0.7% -1.6% 4.1% 2.7% 4.9% 6.2% 4.5% 4.4%

DOMESTIC SUPPLY 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Alaska 1.0 1.0 0.8 1.0 0.9 1.0 0.9 0.8 0.9 0.9 1.0 0.9 0.8 0.9 0.9

Gulf of Mexico 3.3 3.0 2.9 3.0 3.0 3.5 3.3 3.2 3.2 3.3 3.5 3.3 3.2 3.2 3.3

Other US 71.5 72.8 75.0 77.9 74.3 80.3 81.5 82.8 82.8 81.8 83.6 84.8 86.0 86.8 85.3

Marketed Production 75.7 76.8 78.7 81.9 78.3 84.8 85.7 86.7 87.0 86.0 88.1 88.9 89.9 90.9 89.5

Dry Gas Production 70.9 71.7 73.6 76.4 73.2 78.9 79.7 80.6 80.8 80.0 81.8 82.6 83.4 84.3 83.0

YoY % change -4.4% -2.2% 1.6% 6.8% 0.4% 11.3% 11.2% 9.6% 5.7% 9.4% 3.7% 3.5% 3.5% 4.3% 3.8%

Net Storage Withdraws 11.6 -9.4 -7.6 7.0 0.4 16.2 -11.3 -10.7 2.7 -0.8 17.0 -10.0 -8.3 3.8 0.7

Other & Balance 1.3 0.3 0.9 -1.3 0.3 0.6 -0.3 -0.3 -0.8 -0.2 0.8 0.6 1.0 0.4 0.7

Total Domestic Supply 83.8 62.6 66.9 82.1 73.9 95.7 68.1 69.6 82.6 79.0 99.6 73.2 76.2 88.5 84.4

LNG net exports 1.3 1.6 1.5 2.5 1.7 2.6 2.7 2.7 3.3 2.8 3.7 4.1 5.0 5.6 4.6

LNG Gross Imports 0.3 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.3 0.2

LNG Gross Exports 1.6 1.8 1.7 2.7 1.9 2.9 2.9 2.9 3.5 3.0 4.0 4.2 5.1 5.9 4.8

Pipeline net imports 1.5 1.2 1.2 1.0 1.2 0.0 0.7 0.1 0.0 0.2 -0.2 0.2 0.0 0.1 0.0

Pipeline Gross Imports 8.8 7.7 7.6 7.4 7.9 7.9 7.4 7.0 6.9 7.3 8.6 7.9 7.8 7.8 8.0

Pipeline Gross Exports 7.2 6.5 6.4 6.4 6.6 7.9 6.8 6.8 6.9 7.1 8.8 7.7 7.8 7.7 8.0

End Period Wrkg Storage (b 2252 3107 3809 3168 1709 2737 3723 3479 1950 2856 3616 3264


Memo: Marketed production includes natural gas plant liquids which are removedat processing, fractionating, and cycling plants (ethane, propane, butane, pentaneor natural gasoline). Dry gas production, also known as consumer-grade naturalgas, is the primary building block of supply. Total domestic supply is calculatedas the sum of dry gas production, net storage withdraws (positive figure beinga storage withdrawal contributing to supply), and other & balance. As a balancecheck, we can subtract total demand and LNG net exports from total domesticsupply and add back pipeline net imports to reach a presumed value of zero.


15 January 2018


#5 Thermal Coal

No winter weakness■ Prices continue to build on the strong finish to the year as Chinese

policy persists as one of the key driving forces. We raise 2018 priceforecasts by +10-15% from Newcastle FOB USD 81/t to USD 93/t, andfrom Richards Bay FOB USD 78/t to USD 86/t. This is posited on theChinese government raising domestic production further in accordancewith its intention to lower power tariffs. This should eventually drivea reconvergence between BSPI and Qinhuangdao around RMB 570/t,down from BSPI at RMB 578/t and Qinhuangdao spot of RMB 716/t. Front-month January 2018 Newcastle FOB stands at USD 106/t andRichards Bay FOB at USD 97/t.

■ In addition to pure policy driving short-term bullishness, we also see avery real decline in China utility inventories with levels falling back to 14days' consumption, equaling the October low. Instead of a suppressionof winter Chinese coal demand resulting from anti-pollution measures,we may now expect (i) incremental demand to satisfy a higher statutoryrequirement for power station inventory and (ii) demand recovery due toa reversal of the coal ban for households in Beijing and the wider Hebeiprovince after shortages of natural gas for heating.

■ In the longer term we do not see any reason to significantly raiselong-term price assumptions in a market calling for limited greenfieldinvestment, in our view. Our model suggests minor supply-demanddeficits through 2020, and our assessment of global incentive pricesshows that the mid USD 70's/t justifies 80% of possible projects totaling525 mt in 2030 production.

■ China supply reform is slated to continue through 2020, although the neteffect to capacity should be limited as newer and more efficient capacityis planned to replace shuttered capacity. Our China metals & miningteam expect utilisation of coal capacity to be stable at 70-71% through2020. Nevertheless, the Bohai Rim Steam Coal Price Index (BSPI) hasshown the longest period of divergence from Qinhuangdao spot priceon record (7 months), which shows the government's tolerance for coalprices at the upper threshold of RMB 600/t.

■ A rising China coastal freight rate has played a role in lifting seaborneprices, in our view, as this raises the landed South China price atwhich imports can remain competitive against domestic coal. Since mid-November, Qinhuangdao to Guangzhou freight on 40-50 kt vessels hasrisen by USD 4/t

■ International seaborne benchmarks remain more or less tied to Chineseprices as the arb oscillates around zero. The most recent phase is anopen import arb for coal into China since mid-November, with Australia,eastern Russia, and Colombia all pricing into China at mildly positivedifferentials of USD 2-3/t. We see wider arbs for Indonesia (USD 7/t) andUS Powder River Basin (USD 17/t) making the demand pull strongest forthese regions.


15 January 2018


Figure 63: Global seaborne thermal coal demand phases(mt)

Figure 64: Global thermal coal incentive costs, energyadjusted ($/t)

0

200

400

600

800

1000

1200

2003 2005 2007 2009 2011 2013 2015 2017 2019e

2003-14+7% p.a.

2017-20+2% p.a.

0

20

40

60

80

100

120

140

0 200 400 600

Therm

al B

reakeven P

rice

(Dis

count date

, energ

y-a

dj)

metric tonnes

2025 economic production2030 economic production2025 non-economic production2030 non-economic production

156 mt 419 mt

Source: IHS McCloskey, Deutsche Bank Source: Wood Mackenzie, Deutsche Bank

Figure 65: China raw coal production Figure 66: Pacific Basin seaborne import arb to SouthChina (USD/t)

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

50

100

150

200

250

300

350

400

1995 2000 2005 2010 2015

Monthly coal production (mt)

Reported YoY% (RHS)

Govt encouragesrebound in production

-20

-15

-10

-5

0

5

10

15

20

Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18

QHD-Indonesia ($/t)

QHD-Newcastle (lhs, $/t)

QHD-Vostochny ($/t)

Pacific Basin seaborne import advantage into China

Imports back in the money

Source: Wind, Sxcoal, Coalstudy Source: IHS McCloskey, Bloomberg Finance LP, Deutsche Bank

Figure 67: Atlantic Basin seaborne import arb to SouthChina (USD/t)

Figure 68: Newcastle FOB and marginal costs (USD/t)

-30

-25

-20

-15

-10

-5

0

5

10

15

20


QHD-Richards Bay ($/t)

QHD-Colombia ($/t)

Atlantic Basin seaborne importadvantage into China

0

20

40

60

80

100

120

140

160

180

200

2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

FOB Newcastle

DB forecast

85% of seaborne FOB cost

Source: IHS McCloskey, Bloomberg Finance, Deutsche Bank Source: Bloomberg Finance LP, Wood Mackenzie, Deutsche Bank


15 January 2018


Figure 69: Bohai Rim Steam-Coal Price Index andQinhuangdao 5,500 kcal/kg index (RMB/t)

Figure 70: China thermal coal net import (mt)

300

350

400

450

500

550

600

650

700

750

800

Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

BSPI

QHD

BSPI above 600

Market intervention indicated

56%

40%

36%8%

-9%

-32%16%

13%

-100

-50

0

50

100

150

200

250

300

2002 2004 2006 2008 2010 2012 2014 2016

Chinese annual net import demand has rebounded

Forecast

Source: NDRC, Maritime Coal Network, Bloomberg Finance LP Source: IHS McCloskey, Deutsche Bank

Figure 71: China manufacturing PMI and IPP demandgrowth

Figure 72: China real GDP and electricity productiongrowth (%)

-30%

-20%

-10%

0%

10%

20%

30%

40%

46

47

48

49

50

51

52

53

54

55

2011 2012 2013 2014 2015 2016 2017

HSBC Manf. PMI (lhs)

NBS Manf. PMI (lhs)

IPP demand growth yoy (rhs, 90d avg)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2002 2004 2006 2008 2010 2012 2014 2016 2018

China powerdemand growth(%)

GDP growth

Source: Bloomberg Finance LP, SXCOAL, Wind Source: NBS, Bloomberg Finance LP, Deutsche Bank

.

Figure 73: China IPP utility inventory of thermal coal Figure 74: Qinhuangdao port inventory and monthlythroughput

10

15

20

25

30

35

40


Days' consumption (lhs)

Avg days consumption

0

5

10

15

20

25

30

35

0

1

2

3

4

5

6

7

8

9

10


QHD Inventory (mt)

QHD Throughput (rhs, mt/mon)

Source: SXCOAL, Wind Source: Bloomberg Finance LP, Deutsche Bank


15 January 2018


Figure 75: Global thermal coal supply demand balance

Including Anthracite, Bituminous, Sub-bituminous, and Lignite

2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e

Indonesian exports 298 353 384 424 408 366 369 371 386 409 417

growth 27% 18% 9% 10% -4% -10% 1% 10% 4% 6% 2%

Australian exports 142 148 171 188 201 202 201 208 212 215 219

growth 2% 4% 16% 10% 7% 0% -1% 4% 2% 1% 2%

Russia exports 75 86 103 110 117 116 115 114 109 105 103

growth -3% 15% 20% 7% 6% -1% 0% -1% -4% -4% -2%

South African exports 71 69 76 71 76 77 75 77 79 79 80

growth 5% 0% 6% -5% 7% 2% -5% 5% 2% 1% 1%

Colombian exports 69 76 79 74 75 80 88 86 86 88 90

growth 9% 10% 4% -7% 2% 7% 10% -2% 0% 2% 2%

US exports excl. Canada & Mexico 15 30 46 42 30 21 14 29 29 29 29

China exports 18 11 8 6 5 4 7 7 7 7 7

Other exports 127 131 135 139 143 139 135 135 135 135 135

Total seaborne thermal supply (Mt) 815 905 1002 1054 1056 1005 1004 1027 1043 1068 1080

growth 10% 11% 11% 5% 0% -5% 0% 2% 2% 2% 1%

Japanese imports 131 126 139 141 145 150 145 147 149 151 153

growth 12% -4% 10% 2% 3% 3% -3% 1% 1% 1% 1%

Korea imports 100 107 105 105 108 110 110 121 121 123 125

growth 14% 7% -2% 0% 2% 2% 0% 10% 0% 2% 2%

Taiwan and HK imports 73 79 78 80 81 78 77 83 83 85 87

growth 2% 8% -1% 3% 1% -4% -2% 8% 1% 2% 2%

European imports 187 209 223 245 239 212 175 175 175 160 164

growth -5% 12% 7% 10% -2% -11% -18% 0% 0% -8% 3%

China imports 137 178 235 252 229 156 184 207 234 234 234

growth 40% 29% 32% 7% -9% -32% 18% 12% 13% 0% 0%

India imports 75 92 119 139 172 164 141 141 121 121 121

growth 25% 22% 30% 16% 24% -4% -14% 0% -14% 0% 0%

Vietnam imports 1 1 1 1 1 3 7 7 15 22 32

growth 11% 65% 1% 56% -18% 147% 135% 0% 110% 48% 48%

Malaysia imports 15 17 16 17 15 17 17 17 20 23 23

growth 31% 15% -9% 9% -9% 12% 1% 0% 16% 14% 0%

Philippines imports 7 7 6 7 7 8 8 8 14 19 23

growth 45% -8% -7% 14% -1% 15% -3% 0% 82% 38% 17%

Thailand imports 8 9 9 9 10 11 10 10 11 12 13

growth 5% 15% -7% 5% 11% 8% -10% 0% 10% 9% 9%

Other imports 90 98 105 105 119 125 120 120 120 120 120

Total seaborne thermal demand (Mt) 825 922 1034 1101 1127 1034 994 1036 1063 1071 1096

growth 11% 12% 12% 7% 2% -8% -4% 4% 3% 1% 2%

Notional market balance -10 -18 -32 -47 -71 -29 10 -9 -20 -3 -16

Source: IHS McCloskey, Bloomberg Finance LP


15 January 2018


#6 Precious Metals:

How I Learned to Stop Worrying and Love Gold■ We take a step back from our long-held concerns over gold downside

on higher real rates and central bank balance sheet reductions. Thisreflects an acceptance of persistent investor skepticism regarding theFed-forecast terminal rate, as may not entirely factor in a historically lowequilibrium real rate of interest (R*).

■ The resilience of gold also rests on the argument that Fed policy rateincreases are likely to surprise to the upside only if inflation rises morestrongly, which would partly neutralise the impact from a real ratesperspective. Of course, this insulates gold as well since it is sensitive tothe real rate environment.

■ As we expect a lesser negative impact to gold from our house view of 3to 4 Fed rate hikes this year, we raise our gold price forecasts by +3%to USD 1,283/oz for 2018, and leave our 2019 forecast in place at USD1,266/oz.

■ This also means that the divergence between our gold price forecastand the model-implied gold price widens substantially over the next twoyears. We expect 10Y Treasuries to finish 2018 and 2019 at 2.96%, 10Ybreakeven inflation at 2.15% in both years, and the S&P rising to 3,000at the end of 2018. Altogether this implies that the actual versus "fairvalue" spread for gold widens from 7.5% to 28% by the end of 2018 andpossibly 30% in 2019.

■ The tendency for the gold market to tolerate an expansion of thispremium has been demonstrated in just the last week, as real rates roseby 9 bps, the model gold price fell by USD 14/oz, and the market goldprice rose by USD 3/oz. While a 30% premium is certainly large by recenthistorical standards it is not unprecedented.

■ Gold annualised volatility remains exceptionally low, having droppedfrom 9.3% in October to 8.8% currently, now just slightly below the 9th

percentile of the vol range since 1975. ETF buying has recovered fromthe zero annualised level in November 2017, while central bank buyingremains stable.

■ China's negative statement regarding the attractiveness of US Treasuriesas a component of central bank reserves could result in a shift in favorof gold. As yet we can observe no change in China's policy on gold, asgold's share of total reserves stands unchanged at 1.4% since mid-2016.This followed a gold buying spree raising its holdings from 33.9 to 59.2mm troy oz between Jun 2015 and Nov 2016.

■ Major DM central banks average at 5.8% of reserves (BoJ, ECB, Fed,BoE). In order for China to reach 5%, it would need to buy 153.7 mmtroy oz. If performed over 10 years, this would double the current rate ofglobal central bank buying of 15.9 mm troy oz per year.


15 January 2018


Figure 76: Gold four-factor model and market prices(USD/oz)

Figure 77: Gold market premium/discount versus model

500

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2007 2009 2011 2013 2015 2017 2019

Actual with DB gold forecast

Fitted with DB rate forecasts

Model warns of downside risks

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2007 2009 2011 2013 2015 2017 2019

Actual versus "Fair value"

Forecast-implied ResidualBull market

Bear market

A new Bull market?


Figure 78: ETF buying recovers, CB buying stable Figure 79: China's gold reserves have room to climb (%of CB reserves)

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Source: Bloomberg Finance LP, Deutsche Bank Source: Bloomberg Finance LP

Figure 80: Gold realised volatility (3 month, annualised)

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

3M realised vol

Taper tantrum,

Operation Twist, Sep 2011

QE1, Nov 2008

Fed tightening cycle ends, May 2006



15 January 2018


Figure 81: Brent crude oil and inflation expectations Figure 82: Narrowing output gap lessens gold's appeal

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1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

World IP Growth

1995-2014 WtdAverage

Source: Bloomberg Finance LP Source: Bloomberg Finance LP, Deutsche Bank

Figure 83: Gold relative to copper and crude oil Figure 84: S&P 500 and gold prices

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15 January 2018


Figure 85: Gold supply demand model

2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

Mine Production tonnes 2,651 2,775 2,868 2,883 3,077 3,172 3,209 3,222 3,170 3,038 2,988 3,027

growth 7.5% 4.7% 3.4% 0.5% 6.7% 3.1% 1.2% 0.4% -1.6% -4.2% -1.6% 1.3%

Producer Hedging tonnes -234 -106 18 -40 -39 108 21 21 40 100 100 50

Official Sector Sales tonnes 34 0 0 0 0 0 0 0 0 0 0 0

Secondary Supply, Scrap tonnes 1,765 1,743 1,704 1,700 1,303 1,158 1,172 1,268 1,264 1,379 1,431 1,488

growth 27.2% -1.2% -2.2% -0.2% -23.4% -11.1% 1.2% 8.2% -0.3% 9.1% 3.8% 3.9%

Total Supply tonnes 4,216 4,412 4,590 4,543 4,341 4,438 4,402 4,511 4,475 4,517 4,519 4,565

Jewellery tonnes 1,866 2,083 2,091 2,061 2,610 2,469 2,395 1,891 1,850 2,050 2,150 2,215

-20.8% 11.6% 0.4% -1.4% 26.6% -5.4% -3.0% -21.0% -2.2% 10.8% 4.9% 3.0%

Industrial, other tonnes 426 480 471 429 421 403 365 354 368 361 354 364

-11.1% 12.7% -1.9% -8.9% -1.9% -4.3% -9.4% -3.0% 4.0% -2.0% -2.0% 3.0%

Total fabrication demand tonnes 2,292 2,563 2,562 2,490 3,031 2,872 2,760 2,245 2,218 2,411 2,504 2,579

-19.1% 11.8% 0.0% -2.8% 21.7% -5.2% -3.9% -18.7% -1.2% 8.7% 3.8% 3.0%

Bar & coin investment t 866 1,263 1,616 1,407 1,873 1,163 1,162 1,057 1,239 1,229 1,251 1,283

ETF t 623 382 185 279 -880 -155 -125 405 300 100 50 50

Total investment demand tonnes 1,489 1,645 1,801 1,686 993 1,008 1,037 1,462 1,539 1,329 1,301 1,333

growth 18.4% 10.5% 9.5% -6.4% -41.1% 1.5% 2.9% 45.0% 48.4% -9.1% -15.5% 0.3%

Exchange inventory build tonnes 39.0 54.0 -6.0 -10.0 -98.0 1.0 -48.0 86.0

Official Sector Purchase 0 77 457 544 409 466 436 257 350 400 380 350

OTC investment & stock flows 396 73 -224 -167 6 91 217 461 368 377 335 303

Total Demand tonnes 4,216 4,412 4,590 4,543 4,341 4,438 4,402 4,511 4,475 4,517 4,519 4,565

Gold bullion price USD/oz 974 1,225 1,576 1,669 1,411 1,266 1,161 1,249 1,252 1,240 1,266 1,305

Source: Deutsche Bank, World Gold Council, GFMS


15 January 2018


#7 Platinum Group Metals

Fundamentals continue to favour Palladium and Rhodium over PlatinumWe have upgraded our USD-price forecast for the platinum group metals (PGMs)on the back of a stronger Rand forward curve following positive politicaldevelopments in South Africa in December 2017 (increasing the USD-cost ofproduction). We leave our Rand-basket price largely unchanged, but we haveincreased our forecast 2018 USD-prices. We increase our forecast palladium priceby 14% and platinum by 6% owing to stronger fundamentals (a deficit market)for palladium.

We forecast Platinum demand to stabilise in 2018E after two years of c.3%declines in both 2016 and 2017, as diesel vehicles have continued to lose marketshare. We forecast these losses to be offset by gains in other components ofdemand. This leaves the platinum market largely balanced for the medium-term,in our view. Palladium remains in a significant, albeit declining deficit, as gasolinevehicles gain market share from diesel. We believe 2018 could mark the peakpalladium price in the short-term, after a strong run in 2017, as the palladiumdeficits begin to moderate. Rhodium demand growth remains strong owing toheightened focus on NOx emissions control; however the market remains well-supplied.

Platinum: a balanced market over the medium-termWe expect platinum demand (gross, including investment) to stabilise in 2018E atc.7.4Moz after declining c.3% year-on-year in both 2016 and 2017. We also expectsupply to stabilise at 2017 levels of c.7.25Moz. This leaves the market in a modestdeficit of 184koz but, if one excludes investment demand of c.210koz (which canbe thought of as an inventory flow) then the market is in a surplus position of26koz ("industrial" surplus). We forecast the industrial balance (balance excludinginvestment demand) to swing to a modest deficit of c.69koz by 2022E. The smallchange in market balance is owing to well-matched supply and demand growthover the five-year period.


15 January 2018


Figure 86: Platinum supply-demand balance

Platinum 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F

South African supply Koz 3,044 4,582 4,373 4,175 4,219 4,215 4,210 4,319 4,386

North American supply Koz 395 365 405 363 383 396 409 422 435

Russian production Koz 740 710 715 710 705 700 695 695 695

Zimbabwe Koz 390 404 480 484 459 455 455 455 455

Other Koz 225 200 195 185 175 180 185 190 195

Autocat recycling Koz 1,265 1,190 1,235 1,261 1,310 1,392 1,485 1,589 1,700

Total supply Koz 6,059 7,452 7,403 7,179 7,252 7,338 7,438 7,670 7,866

Supply growth % -17.1 23.0 -0.7 -3.0 1.0 1.2 1.4 3.1 2.6

Total demand Koz 7,488 7,861 7,644 7,421 7,435 7,560 7,763 7,981 8,186

Demand growth % -2.3 5.0 -2.8 -2.9 0.2 1.7 2.7 2.8 2.6

Autocatalyst Koz 3,293 3,372 3,415 3,379 3,355 3,345 3,393 3,491 3,575

Chemical Koz 540 590 590 582 593 610 627 645 664

Electrical Koz 215 173 159 150 158 158 158 158 158

Glass Koz 195 160 215 175 190 205 226 237 248

Investment Koz 280 450 485 250 210 220 230 240 250

Jewellery Koz 2,215 2,365 1,940 2,060 2,100 2,164 2,238 2,296 2,360

Medical & Biomedical Koz 220 225 230 230 235 240 245 250 255

Petroleum Koz 165 146 215 100 190 200 215 225 230

Other Koz 365 380 395 385 405 418 431 439 447

Market balance Koz -1,429 -409 -241 -242 -184 -221 -324 -311 -319

Annual average price US$/oz 1386 1056 988 950 1034 1090 1190 1245 1310

Market balance excl.

investment demand -1,149 41 244 8 26 -1 -94 -71 -69

Source: Deutsche Bank, Johnson Matthey, SFA Oxford, ACEA, LMC Automotive, Company Data

Figure 87: Platinum market balance including &excluding investment demand

Figure 88: Platinum market balance (excludinginvestment); USD-platinum price

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Switch from industrial

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Source: Deutsche Bank, Johnson Matthey, SFA Oxford, ACEA, LMC Automotive, Company Data Source: Deutsche Bank, Johnson Matthey, SFA Oxford, ACEA, LMC Automotive, Company Data

Significant risks to our base case view of a well-balanced industrial marketinclude:

■ Diesel market share of light duty vehicles in Western Europe

■ Forecast to continue its sharp decline from 49.5% (in 2016) and44.5% in 2017 to 39% in 2020 and 35% by 2022 (per LMCAutomotive data).

■ We estimate a 1% change in light duty diesel market share fromcurrent levels results in a c.25-30koz reduction in gross demand.

■ South African supply and the potential for further cuts


15 January 2018


■ South African supply has declined year on year in both 2016 and2017 on the back of low prices and production cuts. We nowforecast South African supply to stabilise at c.4.2-4.4Mozpa.

■ Production cuts in excess of our estimates, in response to low pricesand low profitability, could reduce this estimate, in our view. Impalais currently undertaking a strategic review of its Lease Area mineand Lonmin is planning to retrench c.12k employees in the medium-term in line with its declining production base.

Autocats: Platinum pain is Palladium gain, NOx emission regulations positivefor Rhodium demandWe forecast declining demand from European autocatalysts as we forecastdeclining volumes of diesel vehicles (on lower market share) while loadings havealso already likely peaked in this cycle of European emissions legislation.

Autocats make up 31% of 2018E platinum demand, of which Europe is 43% (13%overall of gross autocat demand). This is in excess of Europe's c.23% share of theglobal light duty vehicle market.

Figure 89: Components of gross platinum demand, focus on Autocat regions

Jewellery19%

Other industrial demand

48%

Investment2%

Europe13%

North America4%

Japan5% China

2%

India2%

ROW5%

Autocatalysts 3,355 , 31%


The 43% share of autocat demand from Europe is far higher than Europe's c.23%of the global light duty vehicle market because of diesels higher-than-averagemarket share in Europe. Diesel autocatalysts are heavily weighted to platinumcontent while gasoline catalysts are heavily weighted towards palladium content.We forecast the volume of diesel vehicles in Western Europe to decline for theforeseeable future as diesel loses market share to gasoline, hybrids and electricvehicles.


15 January 2018


Figure 90: Diesel market share, number of vehiclesdeclining in Western Europe

Figure 91: Light duty autocatalysts composition(Western Europe)

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86

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Light Duty Diesel Gasoline

Platinum Palladium Rhodium

Source: Deutsche Bank, LMC Automotive. Source: Deutsche Bank estimates, Johnson Matthey

Figure 92: Global light duty emissions legislation roadmap

Source: Johnson Matthey PGM Market Report May 2017

The decline in light duty diesel vehicles is most likely to be picked up by highervolumes in hybrid vehicles and gasoline vehicles, in our view, leading to higherdemand for palladium at the expense of platinum.


15 January 2018


At the same time, loadings in diesel vehicles (platinum per vehicle) is likely to havepeaked in 2016, according to Johnson Matthey's May 2017 PGM Market Report,owing to the European emissions legislation cycle which saw the increased useof LNT emissions technology in 2016.

We forecast slight growth in gross autocat demand by 2022 with China, India andthe Rest of the World offsetting declining European demand over the medium-term.

Figure 93: Regional autocat demand for platinum

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We also expect Rhodium demand to continue to benefit in the short-term from ahigher focus on NOx emissions in the new round of emissions tests.


15 January 2018


Palladium: remains in deficit, albeit declining deficit as demand growth slowsWe forecast demand growth in palladium to moderate in 2018 after two years ofstrong growth driven by autocatalyst demand. While we forecast autocat growthto continue, other elements of industrial demand are likely to decline in responseto higher prices, in our view. We expect that 2018 could be the year of peakpalladium prices in the foreseeable future as market deficits begin to decline.

Figure 94: Palladium supply demand summary

Palladium 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F 2021F 2022F

South African supply koz 2,504 2,517 1,794 2,583 2,346 2,446 2,433 2,453 2,507 2,665 2,653

North American supply koz 910 975 1,035 1,000 1,100 1,093 1,200 1,232 1,277 1,314 1,355

Zimbabwe koz 265 331 315 327 380 386 362 359 359 359 359

Russian production koz 2,630 2,650 2,690 2,605 2,555 2,684 2,600 2,600 2,600 2,600 2,600

Russian sales koz 2,890 2,750 2,690 2,605 2,555 2,684 2,600 2,600 2,600 2,600 2,600

Other mine koz 480 490 500 475 435 444 444 444 444 444 444

Secondary Supply 1,575 1,665 1,730 1,620 1,755 1,835 1,931 2,074 2,207 2,324 2,445

Total supply koz 8,624 8,728 8,064 8,610 8,571 8,888 8,970 9,162 9,393 9,705 9,856

Supply growth % -8.4 1.2 -7.6 6.8 -0.5 3.7 0.9 2.1 2.5 3.3 1.5

Total demand koz 9,476 9,183 10,181 8,911 9,180 9,477 9,512 9,585 9,631 9,794 9,797

Demand growth % 21.3 -3.1 10.9 -12.5 3.0 3.2 0.4 0.8 0.5 1.7 0.0

Autocatalyst koz 6,806 7,203 7,499 7,715 7,960 8,030 8,149 8,276 8,365 8,566 8,603

Dental koz 535 490 485 510 460 440 428 415 400 391 382

Electronics koz 780 695 615 556 545 492 451 412 374 345 318

Chemical koz 525 490 353 495 540 465 451 439 430 423 418

Jewellery koz 250 205 165 165 165 155 130 130 140 138 136

Investment koz 470 -10 944 -670 -640 -250 -246 -242 -238 -234 -231

Other koz 110 110 120 140 150 145 150 155 160 165 170

Market balance koz -852 -455 -2,117 -301 -610 -589 -542 -423 -238 -89 59

Annual average price US$/oz 644 726 803 692 614 871 1,168 1,045 990 915 860

Market balance without

investment demand koz -642 -565 -1,173 -971 -1,250 -839 -788 -665 -476 -323 -172


Figure 95: Palladium market balance and price Figure 96: Palladium demand composition in 2018

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Autocatalyst82%

Dental4%

Electronics4%

Chemical4%

Investment-1%

Other2%



15 January 2018


Rhodium: robust demand growth matched by supplyWe forecast demand growth in rhodium to remain strong as the focus onNOx emissions encourages further use of the metal in autocatalytic convertors.However, supply growth keeps pace and we forecast the market to remain well-balanced over the medium-term.

Figure 97: Rhodium supply demand summary

Rhodium

Total supply 1,000 1,035 1,090 1,060 1,041 1,082 1,133 1,175 1,210

Supply growth % -1 1 -14 21 5 -3 -1.8 3.9 4.7 3.8 2.9

South African supply koz 599 589 425 620 650 617 568 594 630 657 676

North American supply koz 35 35 30 30 30 30 30 30 30 30 30

Zimbabwe koz 30 31 37 35 45 25 24 23 24 24 24

Other koz 10 10 10 10 10 14 15 15 16 16 17

Russian sales koz 75 70 75 75 70 75 80 79 79 79 79

Secondary koz 240 265 280 265 285 300 325 340 355 370 385

Total demand 1,025 1,024 1,049 1,096 1,132 1,162 1,177

Demand growth % 1.9 5.1 -1.0 6.6 -2.5 -0.1 2.5 4.4 3.3 2.6 1.2

Autocat koz 772 786 831 866 835 850 869 909 939 963 971

Chemical koz 80 85 85 90 90 93 96 99 103 106 110

Electrical koz 5 5 5 5 5 10 9 8 8 6 5

Glass koz 25 35 30 55 65 40 43 46 49 52 56

Investment koz 36 60 10 10 5 5 5 5 5 5 5

Other koz 30 25 25 25 25 26 27 28 29 30 31

Market balance 4 -128 -16 -14 0

Annual average price

(USD/oz) US$/oz 1,274 1,067 1,172 1,106 2,046 1,995 2,045 2,040 2,055


Figure 98: Rhodium demand composition in 2018 Figure 99: Rhodium market balance and price

Autocat

83%

Chemical

9%

Electrical

0.9%

Glass

4%

Other

3%

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15 January 2018


Price changes: upgrades to USD prices on stronger Rand forecastsWe set our PGM prices at the Rand marginal cost of production, rising to incentiveprice by 2025. We have made no changes to forecast Rand cost of production;and so the stronger Rand forecasts have mechanically resulted in higher USD-price forecasts. Overall, we record below 1% absolute changes to Rand-basketprice forecasts.

■ Stronger Rand: Rand strengthened c.10.5% from c.R13.70/USD at thebeginning of December to current levels of c.R12.40/USD. We have usedthe forward curve for the Rand and have strengthened our Rand/USDforecasts by 10%/9%/8%/6% in 2018/2019/2020/2021 as a result and by4% thereafter.

■ The Rand strengthened post the ANC-elective conference inDecember when Cyril Ramaphosa, the candidate perceived asmore market friendly, narrowly edged out Nkosazana Dlamini-Zuma for the ANC Presidency post. Ramaphosa campaigned on anundertaking to root out corruption and “state-capture”.

■ Stronger USD Platinum Group Metal prices on the back of a strongerRand.

Figure 100: Rand-basket price of PGMs vs. marginal cost of production

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Rand (4PGE) Basket Price Marginal cost Marginal cost (AISC)

Source: Deutsche Bank, FactSet, Company Data

Amongst the metals, however, the fundamentals for Platinum are weakest (dieselvehicles in Europe are fast losing market share to mild hybrids and more efficientgasoline vehicles), which benefits palladium (gasoline vehicle autocatalysts).Rhodium is also strongly supported by a growing focus on NOx reductions.Platinum remains a balanced market, for all intents and purposes, while palladiumis in a significant, albeit shrinking, deficit. We have thus adjusted the pricing ratiosin the short term and expect palladium to remain at a premium to platinum in2018; with the palladium price forecast to peak in this year, in our view. We havealso adjusted our long-term price ratio from 2.7:1 Plat:Palladium to 2:1 on thestructural changes in demand as smaller diesel vehicles look increasingly likely tobe replaced by mild hybrids and gasoline vehicles (i.e. structurally lower long-termdiesel vehicle market share). However, in the medium-to-longer term, palladiumwill also be negatively impacted by growing electric vehicle production. We havenot (yet) seen a switch from palladium back into platinum by automakers owing


15 January 2018


to price differential and we think that the palladium premium over platinum wouldneed to be higher before switching is sufficiently attractive.

This results in single digit percentage increases in our forecast USD Platinumprice and larger double-digit increases in forecast palladium and rhodium pricesto average out at the basket price which offsets the stronger ZAR/USD exchangerate forecasts.

Figure 101: Summary DB forecast PGM prices and Rand

Deutsche Bank PGM and ZAR/USD price forecasts

2016A 2017 Spot 1Q18e 2Q18e 3Q18e 4Q18e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e

Rand basket price (4E)* ZAR/oz 12,536 12,583 13,342 13,448 14,386 15,243 16,137 14,793 15,501 17,055 18,179 19,656 21,158 22,645 24,061 25,441 7.0%

% change y-on-y 3.9% 0.4% 11.0% 19.2% 20.9% 19.0% 17.6% 4.8% 10.0% 6.6% 8.1% 7.6% 7.0% 6.2% 5.7%

Previous 12,909 14,893 14,893 14,893 14,893 14,893 15,592 17,081 18,179 19,637 21,089 22,527 24,061 25,398 6.9%

% change from previous -2.5% -9.7% -3.4% 2.4% 8.4% -0.7% -0.6% -0.1% 0.0% 0.1% 0.3% 0.5% 0.0% 0.2%

Platinum US$/oz 988 950 972 971 1,020 1,055 1,090 1,034 1,090 1,190 1,245 1,310 1,380 1,450 1,500 1,520 4.9%

% change y-on-y -32.0% -3.9% -1.0% 8.3% 10.3% 18.2% 8.8% 5.4% 9.1% 4.6% 5.2% 5.3% 5.1% 3.4% 1.3%

Previous 963 978 978 978 978 978 1,029 1,106 1,198 1,298 1,385 1,460 1,571 1,595 6.3%

% change from previous -1.3% -0.7% 4.3% 7.9% 11.4% 5.7% 6.0% 7.6% 3.9% 1.0% -0.3% -0.7% -4.5% -4.7%

Palladium US$/oz 614 871 1,099 1,098 1,145 1,195 1,235 1,168 1,045 990 915 860 820 790 750 770 -5.1%

% change y-on-y -15.1% 41.7% 42.9% 39.6% 32.5% 24.4% 34.2% -10.5% -5.3% -7.6% -6.0% -4.7% -3.7% -5.1% 2.7%

Previous 897 1,029 1,029 1,029 1,029 1,029 935 922 826 764 710 664 582 591 -6.7%

% change from previous -2.9% 6.7% 11.3% 16.2% 20.0% 13.5% 11.7% 7.4% 10.8% 12.6% 15.4% 19.0% 28.9% 30.4%

Rhodium US$/oz 694 1,106 1,700 1,701 1,915 2,150 2,420 2,046 1,995 2,045 2,040 2,055 2,090 2,135 2,255 2,300 1.5%

% change y-on-y -30.4% 59.3% 90.7% 94.5% 100.0% 64.5% 85.1% -2.5% 2.5% -0.2% 0.7% 1.7% 2.2% 5.6% 2.0%

Previous 1,163 1,592 1,592 1,592 1,592 1,592 1,641 1,808 1,793 1,815 1,836 1,854 1,746 1,772 1.4%

% change from previous -4.9% 6.9% 20.3% 35.1% 52.0% 28.6% 21.6% 13.1% 13.8% 13.2% 13.8% 15.2% 29.2% 29.8%

Rand ZAR 14.61 13.32 12.41 12.52 12.68 12.82 12.98 12.75 13.45 14.20 15.00 15.90 16.66 17.32 18.01 18.74 4.9%

% change y-on-y 44.8% -8.9% -5.5% -3.8% -2.8% -4.8% -4.2% 5.5% 5.6% 5.6% 6.0% 4.8% 4.0% 4.0% 4.0%

Previous 13.38 14.22 14.22 14.22 14.22 14.22 14.78 15.38 15.99 16.63 17.30 17.99 18.71 19.46 4.0%

% change from previous -0.5% -11.9% -10.8% -9.8% -8.7% -10.3% -9.0% -7.6% -6.2% -4.4% -3.7% -3.7% -3.7% -3.7%

*Based on a simplified standardised prill split of Pt/Pd/Rh/Au of 60/30/8/2

CAGR 2018-

2026

Source: Deutsche Bank, FactSet


15 January 2018


#8 Industrial Metals: Favoring Nickel and Copper

Copper: risk of near-term weakness, but medium-termdeficits still there

We remain positive on the outlook for the copper market over 2018 and thenext several years as we expect the market deficit to reach ~300 kt this year.We expect market deficits to remain at this level for several years, helping todraw down inventories from the 2012-16 surplus period. Our positive thesisremains underpinned by higher than consensus expectations for Chinese copperdemand (~4% pa) over the next several years. although we previously did notexpect China's supply side reforms to spread to the copper industry, the recentannouncements of smelter suspensions at Tongling and Jiangxi have excitedthe market that further action could be forthcoming. Although these have beenrelatively small to date (for both totaling ~400 ktpa, with not all implemented),this could present further upside to copper over 2018 if more suspensions areordered. Thus, we have raised our 2018 and 2019 copper price forecasts by 10%and 8% to 326 and 340 USc/lb respectively.

Nevertheless, after the recent copper rally (+5% since 1 December), we believecopper could be weak over the near-term given several near-term indicatorshave been weakening. Scrap discounts have been widening over the last month(currently ~20% of the LME price) despite China's crackdown of low quality scrapimports, which has been restricting supply.

Figure 102: Chart of balances & balance as % ofdemand

Figure 103: Market balance under demand scenarios

-3%

-2%

-1%

0%

1%

2%

3%

4%

-800

-600

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-200

0

200

400

600

800

2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e

Surplus/(Deficit) Surplus (Deficit) % of total demand

(kt)

20

21

22

23

24

25

26

27

2016 2017e 2018e 2019e 2020e 2021e

(mt)

Supply Demand (DBe) 1% pa demand growth 3% pa demand growth

Source: Deutsche Bank Source: Deutsche Bank


15 January 2018


Figure 104: Physical Premiums across different locations Figure 105: Scrap discounts

-

50

100

150

200

250

Dec 0

9

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10

Ju

n 1

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0

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11

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5

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7

Shanghai Yanghsan Rotterdam US midwest

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

Daily Discount 12-week rolling average

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Factset, Bloomberg Finance LP

Figure 106: Copper Supply Demand

2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e

Chile production Mt 5.49 5.89 5.83 5.82 5.59 5.38 5.69 5.80 5.63 5.64

Production Growth 4.0% 7.3% -1.1% -0.1% -4.0% -3.7% 5.7% 1.8% -3.0% 0.3%

Chile share of global production 33% 33% 32% 30% 28% 27% 27% 27% 26% 26%

Peru production Mt 1.26 1.34 1.34 1.65 2.31 2.37 2.42 2.45 2.49 2.45

Production Growth % 5.0% 5.8% 0.1% 23.1% 40.6% 2.3% 2.4% 1.1% 1.6% -1.5%

USA production Mt 1.17 1.27 1.40 1.45 1.47 1.35 1.35 1.40 1.38 1.33

Production Growth % 4.0% 9.1% 10.1% 3.1% 2.0% -8.7% 0.6% 3.6% -1.5% -3.7%

China production Mt 1.44 1.50 1.59 1.55 1.48 1.58 1.67 1.76 1.87 1.94

Production Growth % 11.8% 4.6% 6.0% -2.8% -4.0% 6.3% 6.0% 5.4% 6.2% 3.6%

Africa production Mt 1.54 1.91 2.10 2.09 2.04 2.20 2.44 2.74 2.89 2.81

Production Growth % 9.6% 24.1% 9.8% -0.2% -2.3% 7.9% 10.7% 12.3% 5.6% -2.8%

Global Mine Production Mt 16.66 18.07 18.47 19.17 20.13 19.98 21.00 21.40 21.62 21.58

World Mined Production Growth % 3.9% 8.5% 2.2% 3.8% 5.0% -0.7% 5.1% 1.9% 1.0% -0.2%

Copper smelting capacity Mt 18.76 19.47 20.24 20.99 21.74 22.13 23.29 23.80 24.06 24.19

Utilisation 70% 74% 73% 73% 75% 73% 69% 70% 71% 72%

Anode production Mt 15.62 16.26 17.19 17.44 18.54 18.64 18.70 19.24 19.70 20.35

Production Growth 1.6% 4.1% 5.7% 1.5% 6.3% 0.5% 0.3% 2.9% 2.4% 3.3%

Total scrap consumption Mt 4.92 4.67 4.60 4.46 4.43 4.64 5.00 4.88 5.26 5.68

Consumption Growth % 6.0% -5.0% -1.6% -3.1% -0.7% 4.8% 7.8% -2.4% 7.8% 8.0%

Total SxEw Production Mt 3.5 3.7 3.7 3.8 3.8 3.7 3.9 3.9 3.7 3.3

Global Copper Supply Mt 20.17 20.84 21.77 22.01 22.75 22.94 23.35 23.74 24.24 24.59

Global Supply Growth % 2.2% 3.3% 4.5% 1.1% 3.4% 0.9% 1.8% 1.6% 2.1% 1.4%

China Mt 8.20 9.16 9.84 10.20 10.71 11.10 11.53 11.97 12.38 12.73

growth % 5.0 11.7 7.3 3.7 5.0 3.6 3.9 3.8 3.4 2.8

Japan Mt 0.98 0.99 1.05 1.01 0.99 0.99 0.96 0.93 0.92 0.90

growth % -1.8 0.5 6.1 -4.0 -2.3 0.1 -2.6 -2.7 -2.0 -1.9

Korea Republic Mt 0.67 0.70 0.68 0.68 0.68 0.68 0.67 0.67 0.66 0.65

growth % -15.6 4.9 -2.6 -0.7 1.0 -0.5 -1.0 -0.5 -0.9 -1.7

India Mt 0.45 0.42 0.43 0.49 0.50 0.53 0.57 0.60 0.64 0.69

growth % 1.4 -7.1 2.2 12.8 2.6 6.5 6.5 6.4 7.2 7.0

Middle East Mt 0.60 0.65 0.74 0.78 0.79 0.79 0.80 0.81 0.82 0.84

growth % 7.3 9.2 13.7 5.9 0.7 0.7 0.8 1.4 1.5 1.7

United States Mt 1.76 1.80 1.82 1.85 1.82 1.84 1.85 1.87 1.89 1.89

growth % 0.3 1.9 1.1 1.8 -1.7 1.4 0.5 1.1 0.7 -0.5

Latin America Mt 0.60 0.60 0.58 0.51 0.45 0.46 0.47 0.48 0.49 0.50

growth % 3.8 -0.1 -3.8 -12.0 -11.9 3.1 1.6 1.9 2.0 1.8

Europe Mt 3.43 3.47 3.61 3.71 3.76 3.75 3.73 3.74 3.75 3.74

growth % -6.8 1.1 4.1 2.9 1.3 -0.2 -0.6 0.2 0.2 -0.1

Russia (inc CIS) Mt 0.70 0.72 0.65 0.42 0.40 0.40 0.41 0.41 0.42 0.43

growth % -10.5 2.2 -8.8 -35.4 -4.8 -0.1 1.4 1.8 1.6 2.0

Global Consumption Mt 19.56 20.66 21.60 21.93 22.53 23.02 23.52 24.09 24.66 25.14

Global Consumption Growth % -0.2 5.6 4.6 1.5 2.7 2.2 2.2 2.4 2.4 2.0

Market balance Mt 0.61 0.18 0.17 0.07 0.22 -0.07 -0.16 -0.35 -0.42 -0.56

Metal stocks Mt 4.05 4.23 4.40 4.47 4.69 4.62 4.45 4.10 3.68 3.12

Reported-stock-to-consumption ratio Wks 10.78 10.65 10.59 10.60 10.83 10.43 9.85 8.85 7.77 6.46

Reported-stock-to-consumption ratio Days 75 75 74 74 76 73 69 62 54 45

Average LME cash price USD/t 7,953 7,354 6,846 5,512 4,867 6,178 7,177 7,502 7,716 7,552

Average LME cash price USc/lb 361 334 311 250 221 280 326 340 350 343

Source:Deutsche Bank, Wood Mackenzie


15 January 2018


Nickel: Upswing Mood

By the end of 2017, the nickel market appeared to be in an upswing mood withheating season cuts in China impacting NPI production (November and March2018), optimism around higher nickel consumption in electric vehicle batteriesand falling LME/SHFE stocks. As a result, LME nickel prices have pushed higher toover US$12,000/t, however, the Chinese NPI premium over LME price has fallenover the quarter c.40% to US$2,250/t (contained Ni) and the discount for lateriteore has increased c. 20% (contained Ni), pointing to subdue demand. Visiblestocks of refined Nickel (LME and SHFE) have trended downward during thequarter, with full plate cathode inventories drawn before an increase in Chinesetariffs.

Austenitic stainless steel is the key demand driver for nickel and we expectstainless steel to reman robust in 2018 with 3% growth in China (65% of globalstainless production) and 1% for the rest of the world. This implies an additional57kt of nickel units on top of the 1,453kt market in 2017. Much of this will continueto be sourced through Philippine and Indonesian laterites, with the Indonesiangovernment approving 20mtpa in ore exports for 2018.

During 2017 there were high expectations for growth in nickel consumed in thebattery market. We estimate 32kt was consumed last year and that this will growat 45% CAGR over the next two years and at an average 25% to 2025. Thisrepresents a positive growth story for nickel and by 2025 we estimate the sectorwill consume 238kt of nickel, roughly 10% of the 2.6mtpa market.

Structurally, we see a shift in NPI production from China to Indonesia. Productionof NPI peaked in 2013 at 945kt (contained Ni) and has since fallen to 628kt in2017. Chinese NPI is expected to be curtailed while Indonesian production lifts.Indonesian NPI production from January to October jumped by 189% YoY to135kt Ni. We expect Philippine ore exporters, which export lower grade ore, tobegin to come under pressure due to low ore prices and regulatory risk. Ourchannel checks with the miners suggest that the worst might not be over with thegovernment aiming to push for shutdowns, via higher mining taxes and ore exportbans. An draft mining law proposal is still being discussed in congress, with notimeline for adopting the changes. Nickel reserves have also been depleting dueto overproduction since 2013 and a lack of exploration.

The market appears to be pricing in lower production from the Philippines thisyear and is discounting the Indonesian export quotas. In 2017, Indonesia issued20mtpa in ore quotas, however only 3mt was exported in the 11 months toNovember and was tracking below our already conservative 5-6mt forecast for2017. We expect there to be a level of balance in the laterite market as; 1)Indonesia nickel ore, due to its high grade nature, is likely to replace a largeportion of Philippines' nickel ore exports; 2) Given the weak laterite ore price,some of the low-grade ore miners in Philippines are running at a loss and mayshutdown; 3) China, as the biggest ore buyers, is shifting its strategy to buildsmelters in Indonesia and shutting local operations; and 4) 20mtpa export quotamay be cut to only 10-15mt as some companies are unable to comply with thestrict requirement to show progress on smelter development.

Longer term we expect market deficits to 2025, however, we believe there willbe some level of supply response from the laterite miners, previously shuttered


15 January 2018


sulphide operations may consider restarts at current pricing levels and there aresignificant off-market stocks which will also need to be worked down.

Our recent report, looking at the relationship of historical prices and cash cost(Are we heading into the next 25-year nickel bull cycle?) suggests that the floorprice might be around the 90th percentile of cash cost. We expect the price tobe range bound around the 90th percentile of cash cost over the next 24 months,with the potential to shoot up further if either the Philippines decides to ban oreexports or demand rises strongly from battery cathode manufacturers.

Hence, we upgrade nickel prices again by around 4% for 2018 to US$12,150/t, the second upgrade in the last 6 months on a more constructive outlook forboth demand over the next few years. We retain our prices for 2019 onward,calling for an ongoing recovering to a long-run real nickel price of US$16,500/t. For further detail, refer to our report, “Global Nickel Sector – Market tightnessshould continue to support price into 2018”.

Figure 107: Philippines' ore export to China still down by3% YoY from Jan to Nov'17

Figure 108: NPI imports to China jumped by 32% YoYfrom Jan to Nov'17

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

Jun

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Au

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2

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2

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Ap

r-13

Jun

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Au

g-1

3

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3

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3

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4

Ap

r-14

Jun

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Au

g-1

4

Oct-1

4

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4

Feb-1

5

Ap

r-15

Jun

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Au

g-1

5

Oct-1

5

Dec-1

5

Feb-1

6

Ap

r-16

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Au

g-1

6

Oct-1

6

Dec-1

6

Feb-1

7

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Au

g-1

7

Oct-1

7tonnes

Philippines Indonesia Others

0

20

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60

80

100

120

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200Jan

-13

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3

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-14

Jul-1

4

Jan

-15

Jul-1

5

Jan

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Jul-1

6

Jan

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Jul-1

7

(kt)

FeNi imports grew from c. 250ktpa to c. 1,500ktpa on shifting of NPI/FeNi

production base and ramp-up of ITsingshan Indonesia (Kalimantan)

Source: NBS, Bloomberg Finance, Deutsche Bank Source: NBS, Bloomberg Finance, Deutsche Bank

Figure 109: Domestic NPI output likely to decline in2017 due to environmental closures

Figure 110: Ni floor price seems hovering above 90thpercentile of cash cost

-40

-30

-20

-10

0

10

20

30

40

0

5

10

15

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p-1

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Ma

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5

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6

Se

p-1

6

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-17

Ma

y-1

7

Se

p-1

7

Monthly Output (kt) YoY (%)(kt) (%)

Source: Shanghai Metal Market, Deutsche Bank Source: Wood Mackenzie, LME, Deutsche Bank


15 January 2018


Aluminium: raising price estimates, watch for furthersupply cuts over 2018

We expect the aluminium market to remain tight over 2018 and we see severalcatalysts for further upside over the year. We estimate the global aluminiummarket to be in a deficit of c.600 kt in 2018e given the curtailing of smelteroutput from both China's supply side reforms (shuttering of illegal capacity)and winter environmental restrictions. although falling alumina prices will relievesome cost-push pressure, we still expect that various cost pressures includinghigher carbon anode costs (coal tar pitch and petroleum coke), energy (coal)costs, and newly introduced emissions tariffs in China will help raise the costcurve over the medium-term. Thus, we have raised our 2018 and 2019 aluminiumprices forecasts to 103 and 104 USc/lb respectively, 9% and 13% above ourprevious forecasts.

Although the initial winter suspensions appear to have been less than we initiallyexpected (~ 500 kt impact, compared to our initial estimate of ~800 kt), we stillbelieve that given the difficulty in restarting aluminium potlines that a significantproportion of capacity shut down during the winter will likely not restart comespring. We expect this could become apparent by late February or early March,and thus this could be a catalyst for aluminium prices through Q1.

Figure 111: Global deficits through 2019e... Figure 112: ... and tightening the market

0

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Market balance (Mt) - lhs LME price (USC/lb, rhs)

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2007 2009 2011 2013 2015 2017e 2019e

(Days, USc/lb)

Days of consumption - reported Days of consumption - implied LME price

Source: Deutsche Bank, Wood Mackenzie Source: Deutsche Bank

Figure 113: Physical Premiums (USD/t) Figure 114: Alumina Spread decreasing due toincreasing raw material prices

0

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Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

Shanghai US Midwest Rotterdam

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Alumina spread (alumina px - bauxite/caustic soda) Alumina price (RMB/t) RHS

Source:Bloomberg Finance LP Source: Deutsche Bank


15 January 2018


Figure 115: Aluminium Supply Demand 2012 2013 2014 2015 2016 2017e 2018e 2019e 2020e 2021e 2022E

Primary Aluminium

Chinese Production Mt 22.5 24.8 27.8 30.7 32.5 35.7 37.1 39.3 41.7 43.8 48.4

growth % 13.6% 10.2% 12.3% 10.2% 6.0% 9.8% 4.1% 5.8% 6.2% 4.9% 10.7%

Russia Production Mt 4.0 3.7 3.5 3.6 3.7 3.7 3.8 3.9 4.4 4.5 4.7

growth % 0.8% -7.1% -6.7% 2.0% 4.3% 0.4% 0.9% 4.1% 11.3% 3.6% 4%

Middle East Production Mt 4.0 4.3 5.2 5.4 5.6 5.5 5.8 6.0 6.3 6.4 6.4

growth % 4.6% 5.9% 20.7% 5.2% 2.5% -0.5% 3.7% 3.6% 5.9% 1.0% 0%

Europe & N. American Production Mt 8.5 8.5 8.2 8.2 7.8 7.8 8.1 8.2 8.2 8.2 8.6

growth % -5.9% 0.6% -4.0% 0.4% -5.0% 0.3% 3.3% 0.9% 0.4% 0.0% 5%

Others Mt 9.2 9.2 9.0 9.0 9.8 10.1 11.0 11.3 11.7 12.3 14.5

growth % -3.5% 0.0% -2.0% 0.7% 8.3% 3.6% 8.5% 2.7% 3.8% 5.2% 17.5%

Global Production Mt 48.2 50.5 53.6 56.9 59.4 62.9 65.7 68.6 72.3 75.2 82.6

growth % 4.4% 4.8% 6.3% 6.1% 4.4% 6.0% 4.5% 4.4% 5.4% 4.0% 9.9%

Global Capacity Mt 53.1 55.7 60.1 65.6 68.0 72.3 78.0 79.7 80.5 82.1 82.9

utilisation rate % 91% 91% 89% 87% 87% 87% 84% 86% 90% 92% 100%

Primary Aluminium Consumption

China Consumption Mt 21.7 24.3 27.1 29.2 31.3 34.1 36.1 38.0 39.8 41.4 43.2

growth % 11.5% 11.8% 11.8% 7.5% 7.2% 9.0% 6.0% 5.0% 4.8% 4.3% 4.3%

China net imports (exports) Mt 0.0 -0.1 -0.3 -0.3 -0.3 -1.6 -1.0 -1.3 -1.9 -2.3 -5.2

North America Mt 5.9 5.9 6.2 6.6 6.7 7.0 7.2 7.4 7.6 7.7 7.8

growth % 8.7% 0.2% 5.5% 5.8% 1.5% 4.5% 4.0% 1.8% 2.8% 2.1% 1.4%

EU15 Mt 5.6 5.6 5.7 5.8 5.9 6.0 6.1 6.2 6.3 6.4 10.0

growth % 0.0% 0.3% 2.1% 1.3% 1.7% 2.0% 1.5% 1.5% 1.5% 1.5% 57%

Others Mt 14.1 14.3 14.8 15.0 15.4 16.1 16.8 17.5 18.2 18.9 17.0

growth Mt 2.0% 1.2% 3.9% 1.2% 2.9% 4.4% 4.5% 4.0% 4.0% 3.8% 1%

Global Consumption Mt 47.3 50.0 53.9 56.6 59.3 63.2 66.3 69.0 71.8 74.5 77.1

growth % 6.7% 5.8% 7.7% 4.9% 4.8% 6.6% 5.0% 4.1% 4.0% 3.7% 3.6%

Global market balance Mt 0.91 0.45 -0.26 0.34 0.09 -0.27 -0.58 -0.42 0.46 0.71 5.50

0.48

Reported metal stocks Mt 13.20 13.64 13.38 13.73 13.82 13.55 12.97 12.54 13.00 13.71 19.20

Stocks to consumption weeks 14.52 14.18 12.91 12.62 12.12 11.15 10.17 9.45 9.41 9.57 12.95

LME stocks (end-of-year) Mt 5.52 5.97 5.71 6.05 6.14 5.87 5.29 4.87 5.33 6.03 11.53

Avg. LME cash price $/t 2,052 1,889 1,893 1,665 1,604 1,968 2,262 2,301 2,151 2,050 1,966

Avg. LME cash price c/lb. 93 86 86 76 73 89 103 104 98 93 90

Source: Deutsche Bank, Wood Mackenzie


15 January 2018


Zinc outlook: potential price peak in 2018

We have left our 2017-20 zinc prices unchanged from our zinc report publishedin November (Supply tightness to persist: raising prices, potential peak in 2018 ).We expect 2017 global mine production to be up ~4.5% YoY in 2017 but close toflat on 2014 following the large scale mine closures in late 2015. No mine supplygrowth in three years has opened up a wide deficit in the market and drawn downglobal inventories to very low levels. We forecast mine supply to rebound ~4%and ~9% in 2018 and 2019 driven primarily by restarts and new projects outsideof China. We expect the market to remain in deficit in 2018 but return close tobalance in 2019. With inventories low and prices elevated the outlook for 2018/19will be very sensitive to demand changes and supply performance. On the supplyside, if Chinese domestic supply continues to underperform the market couldtighten further and keep the market in deficit until at least 2020. On the demandfront we assume a gradual slowing 2017-20.

Figure 116: DB global zinc supply & demand model

2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E

China mine production Mt 4.5 4.7 4.9 4.8 4.9 4.8 5.0 5.2 5.5

China mine production growth % 5.2% 4.2% 4.5% -0.6% 1.0% -2.5% 4.8% 4.1% 6.6%

Australia mine production Mt 1.5 1.5 1.5 1.6 0.9 0.8 1.1 1.5 1.7

Australia mine production growth % 0% 0% 2% 5% -45% -5% 29% 37% 15%

Peru mine production Mt 1.2 1.2 1.2 1.3 1.2 1.4 1.5 1.5 1.5

Peru mine production growth % 0% 5% -1% 6% -7% 15% 5% -2% 1%

North America mine production Mt 2.0 1.8 1.8 1.8 1.7 1.8 1.9 2.2 2.1

North America mine production growth % 0% -9% 1% -2% -2% 5% 6% 13% -3%

Other mine production Mt 3.6 3.7 3.6 3.7 3.7 4.1 4.3 4.6 4.7

Other mine production growth % -1.3% 1.2% -2.8% 3.1% -0.1% 13.0% 3.8% 6.5% 3.1%

Probable/Possible Mine Growth Kt 0 2 185 376

Production disruption allowance Kt -32 -344 -376 -398

World Mine Production Mt 12.72 12.83 12.96 13.16 12.36 12.92 13.42 14.68 15.50

World Mine Production Growth % 1.3% 0.9% 1.1% 1.6% -6.1% 4.5% 3.9% 9.4% 5.6%

Concentrate for smelting Mt 12.72 12.83 12.96 13.16 12.36 12.92 13.42 14.68 15.50

Secondary & other zinc Mt 1.0 1.1 1.1 1.2 1.2 1.2 1.3 1.4 1.5

Losses Mt 0.7 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.9

Total Refined output Mt 12.45 12.94 13.23 13.71 13.58 13.63 14.16 15.06 15.91

World refined availability growth % -4.0% 3.9% 2.3% 3.6% -0.9% 0.3% 3.9% 6.4% 5.7%

World Refined Consumption Mt 12.71 13.15 13.67 13.79 14.10 14.45 14.78 15.09 15.38

World Refined Consumption Growth % 2.0% 3.5% 3.9% 0.9% 2.2% 2.5% 2.3% 2.1% 1.9%

Market balance Mt -0.25 -0.22 -0.43 -0.07 -0.51 -0.82 -0.62 -0.03 0.53


Figure 117: DB zinc price changes 2017-2020DB Zn forecasts unit 1Q17 2Q17 3Q17 4Q17 FY17 1Q18 2Q18 3Q18 4Q18 FY18 FY19 FY20

old $/t 2,778 2,591 2,954 3,250 2,893 N/A N/A N/A N/A 3,100 2,700 2,600

new $/t 2,778 2,591 2,954 3,232 2,889 3,300 3,300 3,000 2,800 3,100 2,700 2,600

new vs old % 0% 0% 0% -1% 0% 0% 0% 0%

old $c/lb 126 118 134 147 131 141 122 118

new $c/lb 126 118 134 147 131 150 150 136 127 141 122 118

new vs old % 0% 0% 0% -1% 0% 0% 0% 0%



15 January 2018


The industry cost curve is illustrated below. Industry margins are currently veryhealthy and well above long-term averages, although it is important to note thatthe cost curve below only includes ~82% of global mine output and excludessmaller mines, primarily in China but also Latam, CIS and Africa. Our long-termprice assumption (from 2022) is 105c or $2,300/t in real terms.

Figure 118: Historical Cost Curve

25

525

1025

1525

2025

2525

3025

3525

4025

4525

5025

Dec-81 Dec-85 Dec-89 Dec-93 Dec-97 Dec-01 Dec-05 Dec-09 Dec-13 Dec-17

50th Percentile 60th Percentile

70th Percentile 80th Percentile

90th Percentile LME Cash Zinc Price

USD/t


Figure 119: Zinc Inventories continue to decline Figure 120: Zinc Physical Premiums

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9

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9

Ju

n 1

0

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0

Ju

n 1

1

Dec 1

1

Ju

n 1

2

Dec 1

2

Ju

n 1

3

Dec 1

3

Ju

n 1

4

Dec 1

4

Ju

n 1

5

Dec 1

5

Ju

n 1

6

Dec 1

6

Ju

n 1

7

Dec 1

7

LME Inventory - LHS (Kt) SHFE Inventory - LHS (Kt) Zinc Price - RHS -(USD/t)

Kt USD/t

50

70

90

110

130

150

170

190

210

230

Ju

n-1

2

Sep

-12

Dec-1

2

Mar-

13

Ju

n-1

3

Sep

-13

Dec-1

3

Mar-

14

Ju

n-1

4

Sep

-14

Dec-1

4

Mar-

15

Ju

n-1

5

Sep

-15

Dec-1

5

Mar-

16

Ju

n-1

6

Sep

-16

Dec-1

6

Mar-

17

Ju

n-1

7

Sep

-17

Dec-1

7

Shanghai (USD/t) Singapore (USD/t)

USD/t

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP

Can supply fill the gap?

Zinc has been one of the top performing commodities over the past two years,driven by a sharp reduction in global mine supply in 2016 (down ~6% YoY). Thishad fed through the supply chain and led to a drop in both concentrate and refinedinventories. We estimate the market deficit will be close to 1 mt in 2017 or ~7%of global consumption. We expect mine supply to rebound in 2018 and 2019, butunless there is a major slow down in demand we expect the market to remaintight and inventories low in 2018 and 2019. Excluding Glencore, ex-China volumesshould be lifted in 2018/19 by several large projects including Gamsberg (~250ktpa), Dugald River (~170 ktpa) and Century tailings (targeting up to 290 ktpa).


15 January 2018


China currently makes up ~38% of global mine output. The zinc mining industryis notoriously fragmented and small scale, and data on monthly productiontrends has historically been unreliable. However, several data sources show thatdomestic concentrate production is down YoY in 2017, despite high zinc prices.In the past, China (currently ~38% of global mine production) has been a majorsource of elastic marginal supply responding to higher prices in 2005-7 and2010-11. Since 2014, mine supply has struggled and has declined YoY in both2016 and 2017, despite the strong recovery in prices. We assume mine supplygrows at ~250 kt in each of 2018 and 2019, but if this fails to materialise due toongoing environmental restrictions the zinc price could re-rate even higher.

Figure 121: China zinc mine production and growth

-200

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Glencore suspended volumes to return in 2018, but graduallyIn December, Glencore announced the much anticipated restart of some of itssuspended mines. As we expected, the restarts will be gradual. Of the 500 ktpaof suspended capacity, only Lady Loretta (~140 ktpa) will be restarted in H118.The company did not announce any other restarts, but we assume Iscaycruz(Peru, ~80 ktpa) restarts in H218 and McArthur River and George Fisher in 2019,reaching full capacity in 2020.

Figure 122: Zinc production suspensionsZinc reduction

George Fisher & Lady Loretta (Mt Isa) 245

McArthur River 135

Other zinc (South America) 80

Kazzinc 40

Group change 500

Source: Deutsche Bank, Company data


15 January 2018


China monthly trends

Figure 123: Chinese August zinc concentrate outputdown by c.18% YoY, Jan -Aug YTD down by c.9.2%

Figure 124: Chinese zinc ores and concentrates importsfor the month of November decreased by c.26% YoY,Jan - Nov YTD increased by c.23%

-30%

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Zinc concentrate output - China -Kt - (LHS) % change YoY - (RHS)

(kt)

2008 2010 2012 2014 2016

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Oct-

17

0.0

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Zinc Ores & Concentrates - RHS YoY % change

Kt


Figure 125: Chinese Refined Zinc Production Novemberproduction increased by c.7% YoY, Jan - Nov YTD downby c.1%

Figure 126: Chinese refined zinc imports for the monthof November increased by c.380% YoY, Jan - Nov YTDincreased by c.44%

0

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1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Refined Zinc Imports kt

-100

0

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1998 2000 2002

6

-20.0%

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-5.0%

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30.0%

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-12

Ap

r-12

Ju

l-1

2

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12

Jan

-13

Ap

r-1

3

Ju

l-1

3

Oct-

13

Jan

-14

Ap

r-14

Ju

l-1

4

Oct-

14

Jan

-15

Ap

r-1

5

Ju

l-1

5

Oct-

15

Jan

-16

Ap

r-16

Ju

l-1

6

Oct-

16

Jan

-17

Ap

r-1

7

Ju

l-1

7

Oct-

17

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

China Refined Zinc Production - RHS YoY % change -LHS

Kt

-200.0%

-100.0%

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

Jan

-12

Ap

r-1

2

Ju

l-1

2

Oct-

12

Jan

-13

Ap

r-1

3

Ju

l-1

3

Oct-

13

Jan

-14

Ap

r-1

4

Ju

l-1

4

Oct-

14

Jan

-15

Ap

r-1

5

Ju

l-1

5

Oct-

15

Jan

-16

Ap

r-1

6

Ju

l-1

6

Oct-

16

Jan

-17

Ap

r-1

7

Ju

l-1

7

Oct-

17

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Refined Zinc Imports YoY % change

Kt

Source: Bloomberg Finance LP Source: Bloomberg Finance LP


15 January 2018


Tin Outlook: Arithmetic Anomaly

The supply and demand balance of tin, the smallest metal market in LME, was inthe deficit territory in the past three years as supply from key markets, Indonesiaand Myanmar, have been in declining trend. This has caused total inventory,which includes LME, SHFE, producers and consumers, to fall by 43% since 2014.It's widely expected that tin market will face another deficit in 2018.

Indonesia, as the world's biggest refined tin exporter, has seen its official miningproduction has been declining below 80ktpa. This was followed by Myanmar,No.3 producer, which saw its production decline to below 50ktpa. Both mostlyon the reserves depletion. Even China, as the world's biggest producer and thebiggest consumer saw its production decline below 90ktpa in the past three years.

Although demand growth is expected to fall from 2% pa to only 1% over thenext five years as the usage of tins slightly declining but with the current pace ofproduction declining, the deficit could continue to expand. Stocks are currentlyonly enough for 3 weeks of usage. This is a recipe for bullish view on tin price.

Hence, we expect tin price to finally return and stay above $20k/t after 3 yearstrading below the level. We raise our forecast by 3% and 5% for 2018 and 2019to $20,245/t and $20,378/t. We keep our forecast for 2020 onwards due to some50ktpa new capacity is expected to come online in 2020 to balance out decliningoutput of existing miners.

One of the reasons of why we are not raising our forecast higher for 2018/2019is because of illegal exports from Indonesia are still rampant, according to localminers. Hence, we would need to see supply discipline and legal enforcement onthe illegal miners to be more bullish on the metal.

Figure 127: Tin market is in deficit for 3 consecutiveyears but prices hasn't really move

Figure 128: China still command the biggest share of therefined tins market

-

5,000

10,000

15,000

20,000

25,000

30,000

-20

-10

0

10

20

30

40

50

2011 2012 2013 2014 2015 2016 2017e 2018e

kt

Surplus/Deficit Total reported Stocks Average tin price ($/t)

China

45%

Asia Ex-China

24%

Europe

16%

America

14%

Others

1%

Source: ITRI, Bloomberg Finance LP, LME, Deutsche Bank Source: ITRI, Deutsche Bank


15 January 2018


#9 Iron Ore: Seaborne market moving to small surplus in2018

The iron ore price exceeded expectations in 2017 averaging US$71/t (CIF deliveredto China) compared to US$58/t in 2016. A combination of supply side disciplinefrom the major iron ore producers and Rio Tinto and Vale, ongoing supplydisruptions from operations such as Samarco, Minas Rio and a further fall in non-traditional supply resulted in a 3% lift in seaborne iron ore supply. On the otherhand, demand was relatively flat. We estimate that the seaborne iron ore marketregistered a small 20Mt surplus in 2017 which mostly found its way into Chineseport stockpiles.

Strong steel demand in China (+3-5%) and emerging markets combined withongoing steel capacity cuts in China (both Induction Furnace and Blast Furnace)resulted in a further sharp reduction in Chinese steel exports, tightening the steelmarket and boosting the steel price, in turn pushing Chinese steel spreads andsteel mill margins to record levels. This combined with the rise in the coking coalprice resulted in an ongoing preference for high grade iron ore (+62% Fe fines,63-63% lump, and +65% pellets) boosting the benchmark fines price.

Our base case in 2018 is for flat Chinese and global steel demand and a modest1% reduction in seaborne iron ore demand. We see seaborne supply increasing bya further 2% to 1,515Mt mostly driven by further increases from the majors. Thiswill increase the market surplus to 65Mt even with further reductions in Chinesedomestic iron ore production (from 250Mt to 220Mt) and shipments from non-majors such as India and the Middle East (Iran).

Chinese heating season cuts (2 + 26 policy) have reduced steel production by over10% as expected, however the iron ore price strengthened throughout Decemberwhich was unexpected. Steel and iron ore prices seasonally pick up Nov onwards.Indeed, Chinese steel prices rallied strongly over December. The uplift in iron oreprice was mostly likely due to restocking by Chinese mills, sustained strength inthe steel price, and the ongoing influence of traders.

We expect Chinese steel production to increase from March and for both steeland iron ore prices to retrace from current levels. We also expect Chinese EAFproduction to rebound and for blast furnaces to continue increasing their scrap% in the BOF, both of which are negative for seaborne iron ore demand.

We have lifted our 2018 benchmark iron ore price forecast by 8% to US$66/t buthave reduced our lump forecasts by US$3/t to US$78/t. Looking at the quarterlyprice profile, we forecast an average price of US$75/t for fines in 1Q18 and US$65/t in 2Q.


15 January 2018


Figure 129: DB seaborne iron ore SD model summary

Seaborne Exports

Brazil

growth % 4% 5% -2% -1% 7% 6% 4% 0% 0% 0% -1% -1%

Australia

growth % 24% 8% 6% 2% 4% 1% -1% 1% 1% -1% 0% 0%

South Africa

growth % 11% -3% 0% 3% -10% -3% 0% 0% 0% 0% 0% -4%

India 2 2 6 0 0 0 0 0 0 0

growth % -16% -80% -17% 1029% -70% -100% 0% 0% 0% 0% 0% 0%

South East Asia 1 0 0 0 0 0 0 0 0 0 0

growth % -55% -93% -100% 0% 0% 0% 0% 0% 0% 0% 0% 0%

Middle East 8 8 6 4 2 0

growth % -7% -23% 17% 13% -41% -48% -14% -5% -26% -36% -56% -126%

South America ex Brazil

growth % 5% 10% 9% 0% 5% 0% -1% -1% -1% -1% -1% -1%

Europe

growth % 3% -12% 0% 0% 4% -1% -1% 0% 0% 0% -6% 0%

Africa ex South Africa

growth % 9% -47% 18% 7% 4% 2% 0% 0% 0% 0% 0% 0%

Other exports

Total Traded iron ore supply 1,341 1,385 1,436 1,483 1,515 1,531 1,530 1,535 1,542 1,528 1,520 1,506

growth % 14% 3% 4% 3% 2% 1% 0% 0% 0% -1% -1% -1%

Seaborne Imports

China steel production (crude steel) Mt 875 844 879 875 854 838 835 831 827 823 818 814

China Hot Metal (BF)

growth % 6% -1% 2% 2% -4% -2% -1% -1% -1% -1% -1% -1%

China

growth % 19% 9% 7% -1% -2% -2% 0% 0% 0% 0% 0% 0%

Japan

growth % 0% -3% -1% -3% 0% 0% 0% 0% 0% 0% -1% -2%

S. Korea

growth % 14% 2% -3% 2% 0% 0% 0% 0% 0% 0% 0% 0%

Taiwan

growth % 8% 0% 4% 0% -4% 2% 2% 0% 0% 0% 0% -1%

India 0 0 0 0 0 2

growth % 0% 0% 0% 0% 0% 0% 537% 11% 5% 4% 5% 7%

South East Asia 0 0 2 5

growth % 0% 0% 0% 175% 105% 42% 28% 20% 20% 6% 6% 6%

Europe

growth % 1% 0% -3% 1% 2% 1% 2% 0% 0% 0% 1% 0%

Other imports 7

Total traded iron ore imports 1,302 1,395 1,465 1,461 1,450 1,438 1,448 1,451 1,455 1,456 1,456 1,454

growth % 17% 7% 5% 0% -1% -1% 1% 0% 0% 0% 0% 0%

Notional market balance -10 -29

China imported fines (62% CFR) USD/t

Iron Ore lump USD/t

Iron Ore pellets USD/t

Source:Deutsche Bank, CRU, CEIC, Wood Mackenzie, Bloomberg


15 January 2018


Figure 130: Iron ore price and China rebar and HRC price Figure 131: Seasonal trends in seaborne iron ore andChinese steel prices (2010 to 2017)

0

50

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1,5002,0002,5003,0003,5004,0004,5005,0005,5006,000

Sep…

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-8%

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0%

2%

4%

6%


HRC Price (MoM %∆) Rebar Price (MoM %∆)Iron Ore Price (MoM %∆) Copper Prices (MoM %∆)

Source: Deutsche Bank, NBS, CEIC, Bloomberg, CISA Source: Deutsche Bank, Bloomberg Finance LP

Steel production and demand

Global steel production was up 5.5% YoY to the end of November 2017 drivenby growth across most of the key regions. Chinese steel production was up 5.3%YoY but dropped from 72.4Mt in October to 66.1Mt in November due to theheating season cuts and had dropped to around 64-65Mtpm in early December.This equates to a 200ktpd drop from the peak and compares to our 350ktpdestimate leading into 2 + 26 heating season cuts under the worst case scenario,where utilisation rates are cut to 50%. In fact, data shows that utilisation rates inTangshan were cut to 50% by mid-November and the China average declined from84% to 72%. Therefore, we expect the data from mid to late December to showa further drop in steel production. Spread over the four months, this still equatesto 20Mt lower steel production and a 30Mt drop in imported iron ore demand.

Figure 132: Monthly Chinese steel production (adjustedfor unreported induction furnace production)

Figure 133: Global monthly steel production (2015-2017)by key region

45

50

55

60

65

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80

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Feb

Ma

r

Ap

r

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y

Ju

n

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l

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g

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(Mt)

2010 2011 2012 2013

(Mt)

0

20

40

60

80

100

120

140

160

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

European Union (28) Other Europe C.I.S (6) North America

SouthAmerica Africa MiddleEast China

India Japan SouthKorea Other Asia

Source: Deutsche Bank, Bloomberg Finance LP Source:Deutsche Bank, WSA

We estimate that Chinese steel demand increased 3% in 2017 however basedon official steel production figures and adjusting for unreported production fromInduction Furnaces (IF) – apparent demand was up closer to 5%. Looking ahead,our forecasts do assume a fading impact from both property and infrastructureconstruction; on an annual basis, we expect zero growth in 2018 and a mild 3%


15 January 2018


contraction in 2019. In other words, a relatively stable outlook at a time whencapacity is still falling, with a reduction of a further 40Mt in 2018 after the closureof almost 300Mt in the prior 2-3 years. However, our flat outlook for 2018 assumesa fall in Chinese property sales and little demand growth from exports and benefitsfrom the One-Belt-One-Road (OBOR) initiative. There is a possibility that Chinesesteel demand grows again in 2018.

Chinese steel mill and trader inventories declined further in December remain lowand steel exports increased slightly in November to 5.4Mt from 5Mt in October.

Figure 134: Adjusted China crude steel supply and demand

Mt 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020ELegal capacity 976 1030 1150 1120 1060 1010 970 970 970 Legal production 724 797 823 804 812 855 854 838 835

YoY 10.1% 3.2% -2.3% 1.0% 5.4% -0.1% -1.9% -0.4%

Utilization of legal capacity 79% 75% 71% 74% 83% 86% 86% 86%

Illegal capacity (IF) 120 150 150 150 140 0 IF production (estimated) 31 71 52 40 67 20

YoY 127% -26% -24% 69% -70%

Utilization of IF 52% 35% 27% 46% 29%

Adjusted total capacity 1096 1180 1300 1270 1200 1010 970 970 970 Adjusted total production 755 868 875 844 879 875 854 838 835

YoY 15% 1% -4% 4% 0% -2% -2% 0%

Real utilization 76% 71% 66% 71% 79% 86% 86% 86%

Net import(export) (45) (51) (87) (106) (102) (74) (55) (60) (65)

Total Apparent Consumption (Adj.) 710 817 788 738 777 801 799 778 770 YoY 15% -3% -6% 5% 3% 0% -3% -1%

Source: Deutsche Bank, Wind

Figure 135: HRC spread-concurrent vs. coking coal Figure 136: Rebar spread-concurrent vs coking coal

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China HRC spread @ spot ore+spot coking coal (concurrent)

China HRC spot (LHS)

1.65*spot ore +0.6*coking coal(LHS)

4Q avg

spread

2115

RMB/t2Q avg

spread

1389

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1935

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spread

1442

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5

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6

Jun

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c-1

6

Ma

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7

Jun

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China rebar spread @ spot ore+spot coking coal (concurrent)

China domestic rebar (LHS)

1.65*spot ore +0.6*coking coal(LHS)

Average

RMB/t RMB/t2Q avg

spread

1873

3Q avg

spread

2102

1Q avg

spread

1410

4Q avg

spread

2332

Source: Deutsche Bank, Bloomberg Finance LP, Sx co Source: Deutsche Bank, Bloomberg Finance LP, Sx coal


15 January 2018


Figure 137: Traders’ steel inventory in 26 major cities Figure 138: Large and medium steel mills' inventory

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5

Ap

r-1

6

Au

g-1

6

De

c-1

6

Ap

r-1

7

Au

g-1

7

De

c-1

7

Rebar Wire rod HRC Medium Plate CRCmt

-45%

-30%

-15%

0%

15%

30%

45%

60%

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

De

c-1

2

Ma

r-1

3

Jun

-13

Se

p-1

3

De

c-1

3

Ma

r-1

4

Jun

-14

Se

p-1

4

De

c-1

4

Ma

r-1

5

Jun

-15

Se

p-1

5

De

c-1

5

Ma

r-1

6

Jun

-16

Se

p-1

6

De

c-1

6

Ma

r-1

7

Jun

-17

Se

p-1

7

De

c-1

7

Large & medium steel mills' inventory YoY (RHS)mt

Source: Deutsche Bank, Wind, Mysteel Source: Deutsche Bank, CISA

Figure 139: China steel product exports Figure 140: Monthly crude steel production - NBS

-50%

-30%

-10%

10%

30%

50%

70%

90%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Au

g-1

1

No

v-1

1

Fe

b-1

2

Ma

y-1

2

Au

g-1

2

No

v-1

2

Fe

b-1

3

Ma

y-1

3

Au

g-1

3

No

v-1

3

Fe

b-1

4

Ma

y-1

4

Au

g-1

4

No

v-1

4

Fe

b-1

5

Ma

y-1

5

Au

g-1

5

No

v-1

5

Fe

b-1

6

Ma

y-1

6

Au

g-1

6

No

v-1

6

Fe

b-1

7

Ma

y-1

7

Au

g-1

7

No

v-1

7

Steel products export YoY (RHS)mt %

-20%

-10%

0%

10%

20%

30%

40%

50%

30

35

40

45

50

55

60

65

70

75

80

No

v-0

8F

eb

-09

Ma

y-0

9A

ug

-09

No

v-0

9F

eb

-10

Ma

y-1

0A

ug

-10

No

v-1

0F

eb

-11

Ma

y-1

1A

ug

-11

No

v-1

1F

eb

-12

Ma

y-1

2A

ug

-12

No

v-1

2F

eb

-13

Ma

y-1

3A

ug

-13

No

v-1

3F

eb

-14

Ma

y-1

4A

ug

-14

No

v-1

4F

eb

-15

Ma

y-1

5A

ug

-15

No

v-1

5F

eb

-16

Ma

y-1

6A

ug

-16

No

v-1

6F

eb

-17

Ma

y-1

7A

ug

-17

No

v-1

7

Crude steel production - NBS Reported YOY(RHS)mt %

Source: Deutsche Bank, CEIC, China Customs Source: Deutsche Bank, CEIC


15 January 2018


Iron ore supply

Based on Bloomberg shipping data, the shipments from the Big 5 iron ore minersrebounded strongly in December. Rio operated at 382Mtpa, BHP 307Mtpa, FMG174Mtpa, all above guidance, and Roy Hill 54Mtpa (close to nameplate). Valeshipped 98Mt in the December Q. The strong December performance seemed tohave little impact on the iron ore price.

Figure 141: Australian iron ore shipments (Mt): Strongrecovery from the majors in December

Figure 142: Annualised run-rate by company

28.6 27.5 29.5 29.2 27.5 31.8

18.5 22.1 22.6 22.2 23.225.6

13.614.8 14.3 13.4 11.7

14.54.43.8 4.4 3.6 4.7

4.5

1.32.1 2.0 1.8 1.7

1.666.5

70.3 72.9 70.2 68.7

78.0

0

20

40

60

80

Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

(Mt)

Rio BHP FMG Hancock Utah

343 330354 351

330

382

222

265 272 266 278307

163 177 172 161140

174

53 46 53 44 56 54

16 25 24 21 21 190

50

100

150

200

250

300

350

400

450

Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

RIO BHP FMG Roy Hill Utah

(Mtpa)

Source: Deutsche Bank, Bloomberg Finance LP. Shipping data to 31st Dec. Source: Deutsche Bank, Bloomberg Finance LP. Shipping data to 31st Dec.

Chinese iron ore imports from non-traditional suppliers (excl. Australia and Brazil)has dropped to 14Mt (annualising c. 170Mtpa) in November, down from the peakof 17.5Mt (210Mtpa) in May. The key reduction has mostly come from India.Chinese domestic iron ore concentrate production has also been on a downwardtrend, declining to c. 240Mtpa (62% Fe Eq) in December down from a peak of285Mtpa in April (see Figure 8).

Figure 143: Chinese imports of iron ore from the non-traditional countries haven’t come back

Figure 144: Chinese iron ore production (domestic)

0

10

20

30

Ma

r-08

Se

p-0

8

Ma

r-09

Se

p-0

9

Ma

r-10

Se

p-1

0

Ma

r-11

Se

p-1

1

Ma

r-12

Se

p-1

2

Mar-

13

Se

p-1

3

Mar-

14

Se

p-1

4

Mar-

15

Se

p-1

5

Mar-

16

Se

p-1

6

Mar-

17

Se

p-1

7

(Mt)South Africa Ukraine India Iran Peru Others

0%

20%

40%

60%

80%

100%

200

220

240

260

280

300

Jan

/16

Mar/

16

Ma

y/1

6

Ju

l/1

6

Se

p/1

6

Nov/1

6

Jan

/17

Mar/

17

Ma

y/1

7

Jul/17

Se

p/1

7

Nov/1

7(Mt)

Conc. Production (Mt)

Conc. Utilisation rate (%)

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Mysteel

Chinese mills continue to prefer high grade iron ore to maximise steel output. Thelump premium has retraced from the highs seen in September with the rise inthe coking coal price and increased supply from BHP and RIO. Pellet premiumsremain high due to pellet plant closures in China and strong demand from Europeand the Middle East. The discount of high alumina 58% Fe remains at 35-40%.


15 January 2018


With high levels of lower grade 58% Fe at Chinese ports, ongoing supply sidereform in China, and a further 60-70Mt of high grade supply expected from Rio,Vale and BHP over the next 2yrs, we see 58% Fe realisations remaining underpressure.

Figure 145: 62% Fe benchmark vs. low grade 58%Fe discount (low alumina): realisation has recoveredmarginally

Figure 146: 62% Benchmark vs. Lump and Pelletpremium: pellet premium has doubled since July,though lump has pulled back

50%

60%

70%

80%

90%

100%

110%

120%

130%

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

Jan

-18

58% Std. Alumina (dmtu) 58% Low Alumina (dmtu)65% (dmtu) 62% benchmark

30405060708090

100110120130

Jan

-16

Ap

r-16

Jul-1

6

Oct

-16

Jan

-17

Ap

r-17

Jul-1

7

Oct

-17

Jan

-18

62%Fe 62% + Lump 62% + Pellet

(US$/dmt)

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, Bloomberg Finance LP

The Mysteel Chinese port stocks at the key 24 ports stood at 148Mt at the endof 2017. The split was 93Mt of 60-65% ore, 47Mt of 56-60% material and 8Mtof lower grade 50-56% Fe ore. BHP and RIO’s inventory has been steady ataround 10-12Mt or 16-18 days of consumption, however FMG’s stocks continueto increase and now stand at 20.5Mt or 44 days of consumption, up from a lowof 12 days in early 2017.

Figure 147: High grade vs. low grade Chinese portstocks: low grade continues to grow

Figure 148: Ore inventory by Aus. company: RIO, BHPsteady, FMG growing – points to high grade demand

0

20

40

60

80

100

120

140

160

Jan

-16

Ap

r-16

Jul-1

6

Oct-

16

Jan

-17

Ap

r-17

Jul-1

7

Oct-

17

(Mt) 50-56% 56-60% 60-65%

0

10

20

30

40

50

60

Jan

/16

Ap

r/16

Jul/16

Oct/16

Jan

/17

Ap

r/17

Jul/17

Oct/17

(Mt) RIO BHP FMG Roy Hill Others

Source: Deutsche Bank, Mysteel, Shanghai Steelhome E-Commerce, Bloomberg Finance LP Source: Deutsche Bank, Mysteel, Shanghai Steelhome E-Commerce, Bloomberg Finance LP


15 January 2018


Commodities Chartbook

Figure 149: Oil consumption intensity Figure 150: Gold consumption intensity

ChinaIndia

Brazil Mexico

Russia

Thailand

Indonesia

Venezuela

US

UK

Japan

Italy

Australia

France Germany

South Korea

Taiwan

Canada

Sweden

0.0

0.5

1.0

1.5

2.0

2.5

3.0

0 10 20 30 40 50 60 70

Oil

consum

ption p

er

capita (

gallo

ns p

er

day)

GDP per capita ('000)

China

India

Brazil

Mexico

Russia

Thailand

Indonesia

USUK

Japan

Italy

France

Germany

South KoreaTaiwan

Canada

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0 10 20 30 40 50 60 70

Gold

jew

elle

ry d

em

and (

gra

ms p

er

capita)


Source: DB Global Markets Research, IMF, IEA (2017) Source: DB Global Markets Research, IMF, World Gold Council (2017)

Figure 151: Aluminium consumption intensity Figure 152: Copper consumption intensity

China

India BrazilMexico

RussiaThailand

Indonesia

Venezuela

US

UK

Japan

Italy

Australia

France

Germany

South Korea

Taiwan

Canada

Sweden

0

5

10

15

20

25

30

0 10 20 30 40 50 60 70

Alu

min

ium

consum

ption (K

g p

er

capita)


China

IndiaBrazil Mexico

Russia

Thailand

Indonesia

US

UK

Japan

Italy

Australia

France

Germany

South Korea

Taiwan

Canada

Sweden

0

5

10

15

20

25

0 10 20 30 40 50 60 70

Copper

consum

ption (

Kg p

er

capita)


Source: DB Global Markets Research, IMF, Wood Mackenzie (2017) Source: DB Global Markets Research, IMF, Wood Mackenzie (2017)

Figure 153: Nickel consumption intensity Figure 154: Zinc consumption intensity

China

India BrazilMexico

Russia US

UK

Japan

Italy

Australia

France

Germany

Korea

Canada

Sweden

Taiwan

0.0

0.6

1.2

1.8

2.4

3.0

3.6

0 10 20 30 40 50 60 70

Nic

kel consum

ption (

Kg p

er

capita)


China

India

BrazilMexico

RussiaThailand

IndonesiaVenezuela

US

UK

Japan

Italy

AustraliaFrance

Germany

South Korea

Taiwan

Canada

Sweden0

2

4

6

8

10

12

0 10 20 30 40 50 60

Zin

c c

onsum

ptio

n (

Kg p

er

capita)


Source: DB Global Markets Research, IMF, Wood Mackenzie (2017) Source: DB Global Markets Research, IMF Wood Mackenzie (2017)


15 January 2018


Figure 155: Iron ore consumption intensity Figure 156: Uranium consumption intensity

China

India

Brazil

Russia

Venezuela

US

Japan

ItalyAustralia

France

Germany

South Korea

Taiwan

CanadaSweden

UK

Mexico

Indonesia0

200

400

600

800

1000

1200

1400

1600

0 10 20 30 40 50 60 70

Iron O

re c

onsum

ption (

Kg p

er

capita)


ChinaIndiaBrazil

Mexico

Russia

US

France

Germany

Canada

South Korea

Taiwan

Sweden

0.0

0.2

0 10 20 30 40 50 60 70

Ura

niu

m c

onsum

ption (

Kg p

er

capita)


UK

Japan

Source: DB Global Markets Research, IMF, BH (2017) Source: DB Global Markets Research, IMF, WNA (2017)

Figure 157: Meat consumption intensity Figure 158: Sugar consumption intensity

China

India

Brazil

Mexico

Russia

Venezuela

US

Japan

Australia

South Korea

Taiwan

Canada

0

5

10

15

20

25

30

35

40

0 5 10 15 20 25 30 35 40 45 50 55 60

Meat

consum

ption (K

g p

er

capita)


China

India

Brazil

Mexico

RussiaThailand

Indonesia

Venezuela

US

Japan

Australia

South Korea Taiwan

Canada

0

10

20

30

40

50

60

0 5 10 15 20 25 30 35 40 45 50 55 60

Sugar

consum

ption (

Kg p

er

capita)


Source: DB Global Markets Research, IMF, USDA (2017) Source: DB Global Markets Research, IMF, USDA (2017)

Figure 159: Corn consumption intensity Figure 160: Wheat consumption intensity

China

India

BrazilMexico

RussiaThailand

IndonesiaVenezuela

US

Japan Australia

South KoreaTaiwan

Canada

0

200

400

600

800

1000

0 5 10 15 20 25 30 35 40 45 50 55 60

Corn

consum

ptio

n (

Kg p

er

capita)


ChinaIndia

BrazilMexico

Russia

Thailand

Venezuela

Indonesia

US

Japan

Australia

South Korea

Taiwan

Canada

0

50

100

150

200

250

300

350

0 5 10 15 20 25 30 35 40 45 50 55 60

Wheat consum

ption (

Kg p

er

capita)


Source: DB Global Markets Research, IMF, USDA (2017) Source: DB Global Markets Research, IMF, USDA (2017)


15 January 2018


Commodities relative to G7 per capita income

Figure 161: Crude oil prices relative to per capita income Figure 162: Gold & silver prices relative to per capitaincome

0

500

1000

1500

2000

2500

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Num

ber

of barr

els

of oil

Higher oil prices cutthe purchasing powerof a G7 consumer

Oil price decline helps toboost the purchasing powerof a G7 consumer

G7 per capita income divided by the price of oil

0

1000

2000

3000

4000

5000

6000

7000

8000

0

20

40

60

80

100

120

140

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Ounces

Ounces

Gold (lhs)

Silver (rhs)

G7 per capita income divided by precious metal prices

Silver: 1972-2017 average

A decline implies adeteioration in an average G7 consumer's purchasing power

Gold: 1972-2017 average

Source: DB Global Markets Research, IMF Source: DB Global Markets Research, IMF

Figure 163: Industrial metal prices relative to per capitaincome

Figure 164: Lead & tin prices relative to per capitaincome

0

1

2

3

4

5

6

7

8

0

5

10

15

20

25

30

35

40

45

50

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Tonnes

Tonnes

Copper

Zinc

Aluminium

Nickel (rhs)

G7 per capita income divided by respective metal prices

0

10

20

30

40

50

60

70

80

90

0

1

2

3

4

5

6

7

8

9

10

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Tonnes

Tonnes

Tin Lead

G7 per capita income divided by lead and tin prices

Tin: 1972-2017 average

Lead: 1972-2017 average


Figure 165: Grain prices relative to per capita income Figure 166: Coal prices relative to per capita income

0

5000

10000

15000

20000

25000

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Bushels

Corn

Wheat

G7 per capita income divided by grain prices

Wheat:1972-2017 average

Corn:1972-2017 average

0

200

400

600

800

1000

1200

1400

1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

To

nnes

G7 per capita income divided by coal

1972-2017 average



15 January 2018


Commodity inventory-to-use ratios

Figure 167: US oil inventory-to-use ratio Figure 168: Aluminium stock-to-consumption ratio

15

20

25

30

35

40

1996 1999 2002 2005 2008 2011 2014 2017

US Crude Inventory Cover of Refining Runs (Days)

0

20

40

60

80

100

120

0

1500

3000

4500

6000

7500

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Total commercial stocks, Kt (lhs)

Avg ratio (rhs)

Stock to consumption ratio, days (rhs)

Source: IEA Source: Bloomberg Finance LP, Wood Mackenzie

Figure 169: Copper stock-to-consumption ratio Figure 170: Nickel stock-to-consumption ratio

0

10

20

30

40

50

60

70

80

0

500

1000

1500

2000

2500

3000

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017


Avg ratio (rhs)


0

20

40

60

80

100

120

0

100

200

300

400

500

600

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017


Avg ratio (rhs)


Source: Bloomberg Finance LP, Wood Mackenzie Source: Bloomberg Finance LP, Wood Mackenzie

Figure 171: Zinc stock-to-consumption ratio Figure 172: Corn, soybeans & wheat stock-to-consumption ratio

0

20

40

60

80

100

120

140

0

400

800

1200

1600

2000

2400

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017


Avg ratio (rhs)


0

20

40

60

80

100

120

140

160

180

Days o

f use

CORN

Wheat

Soybean

Total available stocksdivided by daily consumption

Source: Bloomberg Finance LP, Wood Mackenzie Source: USDA, Deutsche Bank


15 January 2018


Commodities prices in real terms

Figure 173: Crude oil prices in real terms Figure 174: Precious metal prices in real terms

0

20

40

60

80

100

120

140

160

180

1975 1982 1989 1996 2003 2010 2017

Real crude oil price (PPI deflated, 2017 US dollars)

Real crude oil price (PPI deflated, 2017 US dollars)

0

10

20

30

40

50

60

70

80

90

100

0

500

1000

1500

2000

2500

1975 1981 1987 1993 1999 2005 2011 2017

Real gold price (USD/oz, lhs)

Real silver price (USD/oz, rhs)

Deflated by US PPI(2017 US dollars)

Source: IMF, Bloomberg Finance LP Source: IMF, Bloomberg Finance LP

Figure 175: Aluminium & copper prices in real terms Figure 176: Nickel & zinc prices in real terms

0

2000

4000

6000

8000

10000

12000

14000

1000

2000

3000

4000

5000

6000

7000

1961 1969 1977 1985 1993 2001 2009 2017

Real aluminium price (USD/tonne, lhs)

Real copper price (USD/tonnes, rhs)Deflated by US PPI(2017 US dollars)

0

10000

20000

30000

40000

50000

60000

70000

0

1000

2000

3000

4000

5000

6000

7000

8000

1961 1969 1977 1985 1993 2001 2009 2017

Real zinc price (USD/tonne, lhs)

Real nickel price (USD/tonnes, rhs)

Deflated by US PPI(2017 US dollars)


Figure 177: Lead & tin prices in real terms Figure 178: Corn & wheat prices in real terms

0

1000

2000

3000

4000

5000

6000

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

1961 1969 1977 1985 1993 2001 2009 2017

Real tin price (USD/tonne, lhs)

Real lead price (USD/tonne, rhs)

Deflated by US PPI (2017 US dollars)

0

5

10

15

20

25

1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017

US

D b

ushel

Wheat price in real terms (2017 US dollars)

Corn price in real terms (2017 US dollars)

Deflated by US PPI



15 January 2018


Commodity Forward Curves

Figure 179: WTI crude oil forward curve Figure 180: Aluminium forward curve

50

52

54

56

58

60

62

64

66

Pri

ce (

US

D/b

bl)

Month

October-2017

January-2018

2150

2170

2190

2210

2230

2250

2270

2290

Pri

ce (

US

D/t

on

ne

)

Month

October-2017

January-2018

Source: DB Global Markets Research Source: DB Global Markets Research

Figure 181: Copper forward curve Figure 182: Nickel forward curve

6600

6700

6800

6900

7000

7100

7200

7300

7400

Pri

ce (

US

D/t

on

ne

)

Month

October-2017

January-2018

11000

11500

12000

12500

13000

13500P

rice (

US

D/t

on

ne)

Month

October-2017

January-2018


Figure 183: Zinc forward curve Figure 184: Wheat forward curve

2300

2400

2500

2600

2700

2800

2900

3000

3100

3200

3300

3400

Pri

ce (

US

D/t

on

ne

)

Month

October-2017

January-2018

420

440

460

480

500

520

540

560

580

Pri

ce (

US

D/b

ush

el)

Month

October-2017

January-2018



15 January 2018


BRIC & OECD commodity demand

Figure 185: Aluminium demand Figure 186: Copper demand

0%

10%

20%

30%

40%

50%

60%

0

10000

20000

30000

40000

50000

60000

70000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Emerging Markets ex China

Mature Economies China as a % of World

Emerging market as a % of World Mature Economies as a % of World

Kt

0%

10%

20%

30%

40%

50%

0

5000

10000

15000

20000

25000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018



Emerging Markets as a % of World Mature Economies as a % of World

Kt

Source: DB Global Markets Research, Wood Mackenzie Source: DB Global Markets Research, Wood Mackenzie

Figure 187: Nickel demand Figure 188: Zinc demand

0%

10%

20%

30%

40%

50%

60%

70%

-

300

600

900

1,200

1,500

1,800

2,100

2,400

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Emerging Markets ex china


Emerging markets as a % of World Mature economies as a % of World

Kt

0%

10%

20%

30%

40%

50%

60%

0

2000

4000

6000

8000

10000

12000

14000

16000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Emerging markets ex china


Emerging markets as a % of World Mature Economies as a % of World

Kt


Figure 189: Thermal coal demand Figure 190: Metallurgical coal demand

0%

10%

20%

30%

40%

50%

60%

-

100

200

300

400

500

600

700

800

900

1,000

1,100

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



Emerging markets as a % of World Mature Economies as a % of World

Mt

0%

10%

20%

30%

40%

50%

60%

70%

-

50

100

150

200

250

300

350

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China Emerging Markets ex china


Emerging Markets as a % of World Mature Economies as a % of World

Mt



15 January 2018


Figure 191: Key Economic Forecasts

Key Economic Forecasts

2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F 2017F 2018F 2019F

Global 3.7 3.8 3.7 3.0 3.2 3.0 0.4 0.1 -0.1 -3.1 -2.9 -2.8

2.3 2.6 2.2 2.1 2.1 2.2 -2.9 -3.2 -3.5 -3.6 -2.8 -3.2

Japan 1.8 1.2 0.8 0.3 0.4 0.8 4.1 4.6 4.5 -3.7 -3.2 -2.8

Euroland 2.3 2.3 1.7 1.5 1.4 1.5 3.3 2.7 2.1 -1.1 -0.9 -1.0

Germany 2.3 2.3 1.8 1.7 1.6 1.7 7.2 6.5 7.4 0.9 0.8 0.5

France 1.8 2.0 1.6 1.2 1.3 1.4 -0.8 -0.6 -0.6 -2.9 -2.7 -2.9

Italy 1.6 1.4 1.0 1.3 1.0 1.5 2.9 2.8 2.6 -2.1 -1.9 -1.8

Spain 3.1 2.9 2.3 2.0 1.5 1.6 1.8 1.7 1.6 -3.1 -2.2 -1.6

Netherlands 3.0 2.5 2.4 1.3 1.6 1.9 10.2 10.2 10.1 1.1 0.5 0.4

Belgium 1.8 2.2 1.7 2.2 1.6 1.7 -1.0 -0.7 -1.0 -1.8 -1.5 -1.5

Austria 2.8 2.5 2.3 2.2 2.0 1.7 2.2 2.5 2.8 -0.9 -0.7 -0.5

Finland 2.9 2.6 2.1 0.9 1.2 1.6 -1.0 0.0 0.5 -1.2 -1.0 -0.8

Greece 1.2 3.0 2.2 1.2 0.7 1.1 -1.0 -0.5 0.0 -1.6 0.0 1.0

Portugal 2.6 2.0 1.5 1.6 1.2 1.5 0.2 0.0 0.0 -1.4 -1.2 -1.2

Ireland 4.1 4.0 3.2 0.3 1.0 1.2 3.8 3.5 3.0 0.1 0.1 -0.4

Other Industrial Countries 2.1 1.9 2.0 2.0 2.0 2.1 -1.0 -0.7 -0.3 -1.2 -1.0 -0.6

United Kingdom 1.6 1.0 1.4 2.6 2.5 2.3 -4.5 -4.0 -3.5 -2.5 -2.1 -1.4

Sweden 3.0 2.7 2.5 1.8 2.0 2.2 5.0 4.5 4.0 1.0 1.0 0.5

Denmark 2.1 2.0 1.9 1.1 1.6 1.6 7.5 7.5 7.0 -1.0 -0.5 -0.5

Norway 1.8 2.2 2.0 1.9 1.9 1.8 6.0 6.0 5.5 3.5 4.0 5.0

Switzerland 0.9 2.1 1.8 0.5 0.3 0.7 10.5 10.6 11.0 0.3 0.3 0.2

Canada 3.0 2.3 2.1 1.6 1.8 2.0 -2.7 -2.1 -0.9 -1.1 -1.4 -1.2

Australia 2.2 2.6 3.3 2.0 2.1 2.3 -1.6 -1.5 -1.8 -1.8 -1.5 -1.0

New Zealand 2.8 3.0 2.7 2.0 2.3 2.3 -3.5 -3.3 -3.0 0.6 1.3 2.0

Emerging Europe, Middle East & Africa 2.6 2.9 2.9 6.8 7.1 5.9 -0.5 -0.4 -0.2 -4.2 -3.5 -3.0

Czech Republic 4.2 3.4 3.0 2.5 2.4 2.2 0.6 0.4 0.9 1.0 0.8 1.1

Egypt 4.1 4.5 5.1 23.5 22.5 12.2 -6.1 -4.4 -3.3 -10.9 -9.1 -8.8

Hungary 3.9 3.5 3.1 2.3 2.5 3.0 3.8 3.1 2.7 -2.3 -2.4 -2.3

Israel 3.3 3.5 3.3 0.2 0.8 1.3 3.7 3.0 2.5 -1.9 -2.6 -2.5

Poland 4.2 3.8 3.5 2.0 2.2 2.9 -1.4 -1.7 -1.9 -2.3 -2.5 -2.7

Russia 1.7 1.9 1.7 3.7 3.6 4.0 2.9 3.1 3.4 -2.5 -1.4 -0.8

South Africa 1.0 1.7 2.4 5.3 4.8 5.0 -2.5 -3.1 -3.7 -4.3 -3.9 -3.9

Turkey 5.7 4.9 4.9 11.1 10.2 9.5 -5.1 -4.8 -4.7 -1.9 -2.5 -2.5

Asia (ex-Japan) 6.1 6.0 6.0 2.3 3.1 3.0 1.4 1.0 0.6 -3.2 -3.2 -3.3

China 6.8 6.3 6.3 1.7 2.7 2.4 1.2 0.8 0.6 -4.0 -4.0 -4.0

Hong Kong 3.8 2.0 1.9 1.6 3.9 2.4 5.3 7.0 8.5 8.7 2.6 2.1

India 6.3 7.5 7.8 3.2 4.5 4.5 -1.5 -1.7 -2.0 -3.2 -3.0 -3.0

Indonesia 5.0 4.8 4.8 3.8 3.7 3.5 -1.4 -0.8 -1.2 -2.5 -2.7 -2.7

Korea 3.2 2.9 2.4 2.0 1.7 2.3 5.3 4.4 4.0 0.7 0.7 0.0

Malaysia 6.0 5.7 5.0 3.8 2.7 3.4 3.0 2.6 2.1 -3.0 -2.8 -2.9

Philippines 6.5 5.7 5.5 3.2 3.2 3.5 0.2 1.0 1.6 -2.5 -2.7 -2.4

Singapore 3.2 2.8 2.0 0.5 1.1 1.9 20.8 20.0 17.9 0.8 0.6 0.1

Sri Lanka 4.0 5.0 6.0 6.6 6.0 5.5 -2.7 -2.8 -3.0 -5.2 -5.0 -4.5

Taiwan 2.6 2.3 1.9 0.6 1.3 1.3 12.4 10.2 9.7 -0.5 -0.7 -0.8

Thailand 3.8 3.9 2.7 0.7 1.4 1.3 10.0 8.1 7.2 -2.0 -2.9 -3.1

Vietnam 6.7 6.4 6.5 3.5 4.3 5.9 0.7 0.0 -0.8 -5.8 -5.5 -5.5

Latin America (ex Venezuela) 1.7 2.7 3.0 6.9 5.4 4.9 -1.5 -2.1 -2.6 -5.1 -4.8 -4.7

Argentina 3.0 3.3 3.2 27.5 20.0 12.3 -3.8 -4.1 -4.6 -6.2 -5.2 -4.5

Brazil 1.1 2.6 3.2 3.4 3.2 4.3 -0.4 -1.2 -2.3 -8.2 -7.4 -7.8

Chile 1.5 3.4 3.0 2.2 2.3 2.9 -1.2 -1.3 -1.4 -3.2 -2.9 -2.7

Colombia 1.6 2.6 3.0 4.3 3.0 3.4 -3.6 -3.5 -3.5 -3.7 -3.3 -3.0

Mexico 1.9 2.2 2.4 6.0 4.6 4.2 -1.5 -2.2 -2.3 -1.8 -2.2 -2.0

Peru 2.7 4.0 4.1 2.9 1.8 2.5 -1.1 -1.7 -2.0 -3.0 -3.5 -3.0

Memorandum Lines:

Advance Economies 2.2 2.2 1.9 1.7 1.7 1.8 0.1 -0.1 -0.3 -2.4 -2.0 -2.1

Emerging Markets 4.8 4.9 5.0 3.8 4.3 3.8 0.6 0.3 0.1 -3.6 -3.5 -3.4

Real GDP (%) Consumer prices (% pavg) Current account (% GDP) Fiscal balance (% GDP)

Source: Deutsche Bank Research, National statistical authorities


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Correlation Matrix

Figure 192: Correlation Matrix

FALSECL LCO XB HO LGO NG MAL MCU MPB MNI MZN

TSIPIO6

2GC PL SI PA W C S DBLCI

DBLCI-

MR

GSCI-

TREUR GBP NOK CAD AUD JPY ED

SHCOMP

IndexSPX iBOX

Light Crude 0.89 0.80 0.81 0.71 0.05- 0.16 0.19 0.13 0.27 0.19 0.17 0.22 0.33 0.19 0.10 0.19 0.14 0.04 0.93 0.97 0.93 0.14- 0.01 0.12- 0.01 0.03- 0.05- 0.03 0.13 0.15 0.23

Brent 0.89 0.87 0.84 0.73 0.03 0.13 0.12 0.04 0.15 0.13 0.11 0.12 0.29 0.08 0.13 0.03 0.01- 0.08- 0.85 0.90 0.89 0.07- 0.02 0.04- 0.03 0.06- 0.06- 0.02 0.11 0.14 0.15

Unleaded Petrol 0.80 0.87 0.82 0.66 0.05- 0.20 0.05 0.06- 0.18 0.10 0.11 0.08 0.31 0.08 0.22 0.02 0.00 0.05- 0.80 0.83 0.82 0.02- 0.06 0.10- 0.04 0.04 0.03 0.04- 0.03 0.03 0.10

Heating Oil 0.81 0.84 0.82 0.79 0.14 0.19 0.12 0.07 0.17 0.15 0.13 0.18 0.28 0.11 0.26 0.06 0.04- 0.01- 0.87 0.90 0.87 0.03 0.04 0.12- 0.01- 0.01 0.16- 0.04 0.03 0.03 0.16

Gas Oil 0.71 0.73 0.66 0.79 0.08 0.24 0.18 0.23 0.19 0.20 0.16 0.22 0.33 0.19 0.17 0.05 0.05 0.12 0.75 0.76 0.79 0.08- 0.11 0.03- 0.01 0.07- 0.04- 0.08 0.07 0.15 0.22

Natural Gas 0.05- 0.03 0.05- 0.14 0.08 0.02 0.07 0.16 0.09 0.08 0.24 0.40 0.36 0.28 0.18 0.22 0.07 0.16 0.11 0.06 0.17 0.11 0.07 0.10- 0.08- 0.07 0.16- 0.19 0.25 0.12- 0.02

LME Al 0.16 0.13 0.20 0.19 0.24 0.02 0.47 0.07 0.32 0.42 0.16 0.30 0.28 0.38 0.15 0.11 0.20 0.04 0.39 0.24 0.34 0.46 0.12 0.33- 0.31- 0.37 0.18- 0.06- 0.18- 0.23- 0.11-

LME Cu 0.19 0.12 0.05 0.12 0.18 0.07 0.47 0.35 0.63 0.40 0.37 0.32 0.29 0.44 0.17 0.15 0.25 0.05- 0.28 0.21 0.31 0.20 0.15 0.19- 0.11- 0.23 0.14- 0.00 0.06- 0.03- 0.01

LME Lead 0.13 0.04 0.06- 0.07 0.23 0.16 0.07 0.35 0.22 0.37 0.25 0.12 0.24 0.17 0.07 0.21 0.32 0.11 0.18 0.15 0.20 0.17 0.16 0.10- 0.05- 0.12 0.06- 0.02 0.12 0.18 0.11

LME Nickel 0.27 0.15 0.18 0.17 0.19 0.09 0.32 0.63 0.22 0.37 0.38 0.21 0.33 0.33 0.18 0.16 0.28 0.07 0.30 0.26 0.36 0.03 0.09 0.10- 0.07- 0.08 0.14- 0.08 0.06 0.00 0.06

LME Zinc 0.19 0.13 0.10 0.15 0.20 0.08 0.42 0.40 0.37 0.37 0.25 0.34 0.32 0.32 0.18 0.18 0.32 0.16 0.30 0.22 0.32 0.31 0.29 0.24- 0.11- 0.09 0.15- 0.02 0.13 0.12- 0.15-

Iron Ore 0.17 0.11 0.11 0.13 0.16 0.24 0.16 0.37 0.25 0.38 0.25 1.00 0.21 0.31 0.26 0.01 0.22 0.22 0.19 0.25 0.21 0.26 0.01 0.20 0.04 0.03- 0.12 0.06 0.08 0.06 0.19 0.01

Comex Gold Futu 0.22 0.12 0.08 0.18 0.22 0.40 0.30 0.32 0.12 0.21 0.34 0.21 0.69 0.85 0.27 0.33 0.13 0.30 0.37 0.27 0.35 0.19 0.10 0.37- 0.28- 0.22 0.19- 0.15 0.10 0.13- 0.15

NYMEX Platinum 0.33 0.29 0.31 0.28 0.33 0.36 0.28 0.29 0.24 0.33 0.32 0.31 0.69 0.69 0.32 0.26 0.16 0.21 0.43 0.35 0.44 0.25 0.15 0.26- 0.06- 0.15 0.11- 0.06 0.08 0.10 0.06

Comex Silver 0.19 0.08 0.08 0.11 0.19 0.28 0.38 0.44 0.17 0.33 0.32 0.26 0.85 0.69 0.20 0.31 0.22 0.28 0.33 0.22 0.32 0.15 0.18 0.35- 0.29- 0.25 0.05- 0.13 0.07 0.01- 0.12

NYMEX Palladium 0.10 0.13 0.22 0.26 0.17 0.18 0.15 0.17 0.07 0.18 0.18 0.01 0.27 0.32 0.20 1.00 0.05- 0.00- 0.11 0.22 0.19 0.23 0.30 0.20 0.40- 0.07 0.16 0.19- 0.04- 0.09 0.10 0.14

Wheat CBOT 0.19 0.03 0.02 0.06 0.05 0.22 0.11 0.15 0.21 0.16 0.18 0.22 0.33 0.26 0.31 0.05- 0.63 0.15 0.28 0.21 0.24 0.05- 0.05 0.07- 0.07- 0.11 0.05- 0.03 0.06 0.11 0.01-

Corn 0.14 0.01- 0.00 0.04- 0.05 0.07 0.20 0.25 0.32 0.28 0.32 0.22 0.13 0.16 0.22 0.00- 0.63 0.42 0.23 0.15 0.19 0.04- 0.23 0.04 0.00 0.01 0.13- 0.04- 0.05- 0.04 0.18

Soy beans 0.04 0.08- 0.05- 0.01- 0.12 0.16 0.04 0.05- 0.11 0.07 0.16 0.19 0.30 0.21 0.28 0.11 0.15 0.42 0.12 0.07 0.10 0.15 0.24 0.08- 0.31- 0.07 0.21- 0.11 0.02- 0.26- 0.33

DBLCI 0.93 0.85 0.80 0.87 0.75 0.11 0.39 0.28 0.18 0.30 0.30 0.25 0.37 0.43 0.33 0.22 0.28 0.23 0.12 0.98 0.98 0.04 0.11 0.23- 0.07- 0.08 0.14- 0.02 0.09 0.04 0.20

DBLCI-MR 0.97 0.90 0.83 0.90 0.76 0.06 0.24 0.21 0.15 0.26 0.22 0.21 0.27 0.35 0.22 0.19 0.21 0.15 0.07 0.98 0.97 0.05- 0.07 0.17- 0.03- 0.02 0.11- 0.03 0.11 0.10 0.20

GSCI-TR 0.93 0.89 0.82 0.87 0.79 0.17 0.34 0.31 0.20 0.36 0.32 0.26 0.35 0.44 0.32 0.23 0.24 0.19 0.10 0.98 0.97 0.02 0.12 0.19- 0.07- 0.06 0.14- 0.05 0.15 0.07 0.18

EUR 0.14- 0.07- 0.02- 0.03 0.08- 0.11 0.46 0.20 0.17 0.03 0.31 0.01 0.19 0.25 0.15 0.30 0.05- 0.04- 0.15 0.04 0.05- 0.02 0.32 0.43- 0.37- 0.42 0.50- 0.00 0.24- 0.43- 0.24-

GBP 0.01 0.02 0.06 0.04 0.11 0.07 0.12 0.15 0.16 0.09 0.29 0.20 0.10 0.15 0.18 0.20 0.05 0.23 0.24 0.11 0.07 0.12 0.32 0.37- 0.08- 0.24 0.17- 0.00 0.04- 0.25- 0.09-

NOK 0.12- 0.04- 0.10- 0.12- 0.03- 0.10- 0.33- 0.19- 0.10- 0.10- 0.24- 0.04 0.37- 0.26- 0.35- 0.40- 0.07- 0.04 0.08- 0.23- 0.17- 0.19- 0.43- 0.37- 0.43 0.58- 0.32 0.00 0.12 0.31 0.16

CAD 0.01 0.03 0.04 0.01- 0.01 0.08- 0.31- 0.11- 0.05- 0.07- 0.11- 0.03- 0.28- 0.06- 0.29- 0.07 0.07- 0.00 0.31- 0.07- 0.03- 0.07- 0.37- 0.08- 0.43 0.61- 0.37 0.01 0.16 0.31 0.11

AUD 0.03- 0.06- 0.04 0.01 0.07- 0.07 0.37 0.23 0.12 0.08 0.09 0.12 0.22 0.15 0.25 0.16 0.11 0.01 0.07 0.08 0.02 0.06 0.42 0.24 0.58- 0.61- 0.34- 0.06- 0.20- 0.16- 0.00

JPY 0.05- 0.06- 0.03 0.16- 0.04- 0.16- 0.18- 0.14- 0.06- 0.14- 0.15- 0.06 0.19- 0.11- 0.05- 0.19- 0.05- 0.13- 0.21- 0.14- 0.11- 0.14- 0.50- 0.17- 0.32 0.37 0.34- 0.04- 0.18 0.32 0.12-

ED 0.03 0.02 0.04- 0.04 0.08 0.19 0.06- 0.00 0.02 0.08 0.02 0.08 0.15 0.06 0.13 0.04- 0.03 0.04- 0.11 0.02 0.03 0.05 0.00 0.00 0.00 0.01 0.06- 0.04- 0.23- 0.04 0.30

SHCOMP Index 0.13 0.11 0.03 0.03 0.07 0.25 0.18- 0.06- 0.12 0.06 0.13 0.06 0.10 0.08 0.07 0.09 0.06 0.05- 0.02- 0.09 0.11 0.15 0.24- 0.04- 0.12 0.16 0.20- 0.18 0.23- 1.00 0.17-

SPX 0.15 0.14 0.03 0.03 0.15 0.12- 0.23- 0.03- 0.18 0.00 0.12- 0.19 0.13- 0.10 0.01- 0.10 0.11 0.04 0.26- 0.04 0.10 0.07 0.43- 0.25- 0.31 0.31 0.16- 0.32 0.04 0.15 1.00

iBOXX Euro Corp 0.23 0.15 0.10 0.16 0.22 0.02 0.11- 0.01 0.11 0.06 0.15- 0.01 0.15 0.06 0.12 0.14 0.01- 0.18 0.33 0.20 0.20 0.18 0.24- 0.09- 0.16 0.11 0.00 0.12- 0.30 0.17- 0.17 1.00


15

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15 January 2018


Research Contribution

The authors of this report wish to acknowledge the contributions made byKarunya Srinivasan and Vinayak Vinayak employees of Irevna, a division of CRISILLimited, a third-party provider to Deutsche Bank of offshore research supportservices.


15 January 2018


Appendix 1

Important Disclosures

*Other information available upon request

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15 January 2018


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15 January 2018


Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promiseto pay fixed or variable interest rates. For an investor who is long fixed-rate instruments (thus receiving these cashflows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thuscause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, thehigher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among themost common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, clientsegmentation, regulation (including changes in assets holding limits for different types of investors), changes in taxpolicies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or liquidation ofpositions), and settlement issues related to local clearing houses are also important risk factors. The sensitivity of fixed-income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, toFX depreciation, or to specified interest rates – these are common in emerging markets. The index fixings may – byconstruction – lag or mis-measure the actual move in the underlying variables they are intended to track. The choice ofthe proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexedto a typically short-dated interest rate reference index) are exchanged for fixed coupons. Funding in a currency that differsfrom the currency in which coupons are denominated carries FX risk. Options on swaps (swaptions) the risks typical tooptions in addition to the risks related to rates movements.??Derivative transactions involve numerous risks including market, counterparty default and illiquidity risk. Theappropriateness of these products for use by investors depends on the investors' own circumstances, including theirtax position, their regulatory environment and the nature of their other assets and liabilities; as such, investors shouldtake expert legal and financial advice before entering into any transaction similar to or inspired by the contents of thispublication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of thehigh degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than theamount of funds initially deposited – up to theoretically unlimited losses. Trading in options involves risk and is notsuitable for all investors. Prior to buying or selling an option, investors must review the "Characteristics and Risks ofStandardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable toaccess the website, please contact your Deutsche Bank representative for a copy of this important document.??Participants in foreign exchange transactions may incur risks arising from several factors, including: (i) exchange rates canbe volatile and are subject to large fluctuations; (ii) the value of currencies may be affected by numerous market factors,including world and national economic, political and regulatory events, events in equity and debt markets and changes ininterest rates; and (iii) currencies may be subject to devaluation or government-imposed exchange controls, which couldaffect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of anunderlying security, effectively assume currency risk.??Deutsche Bank is not acting as a financial adviser, consultant or fiduciary to you or any of your agents with respect toany information provided in this report. Deutsche Bank does not provide investment, legal, tax or accounting advice, andis not acting as an impartial adviser. Information contained herein is being provided on the basis that the recipient willmake an independent assessment of the merits of any investment decision, and is not meant for retirement accounts orfor any specific person or account type. The information we provide is directed only to persons we believe to be financiallysophisticated, who are capable of evaluating investment risks independently, both in general and with regard to particulartransactions and investment strategies, and who understand that Deutsche Bank has financial interests in the offering ofits products and services. If this is not the case, or if you or your agent are an IRA or other retail investor receiving thisdirectly from us, we ask that you inform us immediately.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in theinvestor's home jurisdiction. Aside from within this report, important risk and conflict disclosures can also be found athttps://gm.db.com on each company ’ s research page and under the "Disclosures Lookup" and "Legal" tabs. Investorsare strongly encouraged to review this information before investing.

United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC.Analysts located outside of the United States are employed by non-US affiliates that are not subject to FINRA regulations,including those regarding contacts with issuer companies.??


15 January 2018


Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporatedin the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized underGerman Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany ’ s FederalFinancial Supervisory Authority.??United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at WinchesterHouse, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by thePrudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and FinancialConduct Authority. Details about the extent of our authorisation and regulation are available on request.??Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch or Deutsche Securities Asia Limited (save that anyresearch relating to futures contracts within the meaning of the Hong Kong Securities and Futures Ordinance Cap. 571shall be distributed solely by Deutsche Securities Asia Limited). The provisions set out above in the "Additional Information"section shall apply to the fullest extent permissible by local laws and regulations, including without limitation the Code ofConduct for Persons Licensed or Registered with the Securities and Futures Commission. .??India: Prepared by Deutsche Equities India Private Limited (DEIPL) having CIN: U65990MH2002PTC137431 and registeredoffice at 14th Floor, The Capital, C-70, G Block, Bandra Kurla Complex Mumbai (India) 400051. Tel: + 91 22 71804444. It is registered by the Securities and Exchange Board of India (SEBI) as a Stock broker bearing registrationnos.: NSE (Capital Market Segment) - INB231196834, NSE (F&O Segment) INF231196834, NSE (Currency DerivativesSegment) INE231196834, BSE (Capital Market Segment) INB011196830; Merchant Banker bearing SEBI Registrationno.: INM000010833 and Research Analyst bearing SEBI Registration no.: INH000001741. DEIPL may have receivedadministrative warnings from the SEBI for breaches of Indian regulations. The transmission of research through DEIPLis Deutsche Bank's determination and will not make a recipient a client of DEIPL. Deutsche Bank and/or its affiliate(s)may have debt holdings or positions in the subject company. With regard to information on associates, please refer to the“Shareholdings” section in the Annual Report at: https://www.db.com/ir/en/annual-reports.htm.??Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financialinstruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, TypeII Financial Instruments Firms Association and The Financial Futures Association of Japan. Commissions and risks involvedin stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying thetransaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a resultof share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming fromforeign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice,products and services. Recommended investment strategies, products and services carry the risk of losses to principaland other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value. Beforedeciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures,prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are notregistered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity.Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts withthe coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed accordingto the Financial Instruments and Exchange Law of Japan. Target prices set by Deutsche Bank's equity analysts are basedon a 12-month forecast period..??Korea: Distributed by Deutsche Securities Korea Co.??South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch RegisterNumber in South Africa: 1998/003298/10).??Singapore: This report is issued by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, SingaporeBranch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respectof any matters arising from, or in connection with, this report. Where this report is issued or promulgated by DeutscheBank in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in theapplicable Singapore laws and regulations), they accept legal responsibility to such person for its contents.??


15 January 2018


Taiwan: Information on securities/investments that trade in Taiwan is for your reference only. Readers shouldindependently evaluate investment risks and are solely responsible for their investment decisions. Deutsche Bank researchmay not be distributed to the Taiwan public media or quoted or used by the Taiwan public media without written consent.Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to beconstrued as a recommendation to trade in such securities/instruments. Deutsche Securities Asia Limited, Taipei Branchmay not execute transactions for clients in these securities/instruments.??Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial CentreRegulatory Authority. Deutsche Bank AG - QFC Branch may undertake only the financial services activities that fall withinthe scope of its existing QFCRA license. Its principal place of business in the QFC: Qatar Financial Centre, Tower, WestBay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financialproducts or services are only available only to Business Customers, as defined by the Qatar Financial Centre RegulatoryAuthority.??Russia: The information, interpretation and opinions submitted herein are not in the context of, and do not constitute, anyappraisal or evaluation activity requiring a license in the Russian Federation.

Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company (registered no. 07073-37) is regulated by theCapital Market Authority. Deutsche Securities Saudi Arabia may undertake only the financial services activities that fallwithin the scope of its existing CMA license. Its principal place of business in Saudi Arabia: King Fahad Road, Al OlayaDistrict, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia.??United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulatedby the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may undertake only the financial servicesactivities that fall within the scope of its existing DFSA license. Its principal place of business in the DIFC: DubaiInternational Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has beendistributed by Deutsche Bank AG. Related financial products or services are available only to Professional Clients, asdefined by the Dubai Financial Services Authority.??Australia and New Zealand: This research is intended only for "wholesale clients" within the meaning of theAustralian Corporations Act and New Zealand Financial Advisors Act, respectively. Please refer to Australia-specificresearch disclosures and related information at https://australia.db.com/australia/content/research-information.htmlWhere research refers to any particular financial product recipients of the research should consider any product disclosurestatement, prospectus or other applicable disclosure document before making any decision about whether to acquirethe product.??Additional information relative to securities, other financial products or issuers discussed in this report is available uponrequest. This report may not be reproduced, distributed or published without Deutsche Bank's prior written consent.Copyright © 2018 Deutsche Bank AG


David Folkerts-LandauGroup Chief Economist and Global Head of Research

Raj HindochaGlobal Chief Operating Officer

Research

Michael SpencerHead of APAC Research

Global Head of Economics

Steve PollardHead of Americas Research

Global Head of Equity Research

Anthony KlarmanGlobal Head ofDebt Research

Paul ReynoldsHead of EMEA

Equity Research

Dave ClarkHead of APAC

Equity Research

Pam FinelliGlobal Head of

Equity Derivatives Research

Andreas NeubauerHead of Research - Germany

Spyros MesomerisGlobal Head of Quantitative

and QIS Research

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