seb commodities monthly: waiting for a technical correction
TRANSCRIPT
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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SEB Commodities MonthlyWaiting for a technical correction
3 MAY 2011
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
2/20
2
Commodities Monthly
Waiting for a technical correction
GENERAL 0-3 M 4-6 M 7-12 M We see little upside in commodity prices at the moment other
than potential bullish influence from a continued dollar slump
Several commodities are still supported by tight supply A technical correction is unavoidable due to a high level of
speculative positions but it may not materialize before we seea proper dollar trend reversal
ENERGY 0-3 M 4-6 M7-12 M We expect Brent crude prices to remain high in Q2-11 with risk
skewed to the upside of $120/b
We also raise our H2-11 average Brent price forecast from
$95/b to $105/b on drawn out unrest in the MENA region
The Libyan supply loss has created a shortage of sweet crude
that could be exacerbated in Q2 as US and European refineries
ramp up production So far there seems to have been only limited demand
destruction due to high oil prices
INDUSTRIAL METALS 0-3 M4-6 M7-12 M The industrial metals market currently focuses on Chinese soft
vs. hard landing expectations as leading indicators signal anapproaching downturn
Temporary sell-offs are likely over the nearest months on
periods of Chinese hard landing fear
The long term picture is supported by ambitious Chinese plans
to build low cost housing
Japanese reconstruction demand, potentially recovering OECDdemand and approaching Chinese industry restocking alsolends long term support
PRECIOUS METALS 0-3 M4-6 M7-12 M The short term gold market outlook remains bullish on
sovereign debt fear, inflation hedging, dollar softness andelevated geopolitical risk
The long term view is however starting to be moderated by
potential dollar strength when QE2 comes to an end thissummer and FED could start signalling future rate hikes
In addition, Chinese inflation is likely to start to retreat later
this year and reduce inflation hedging demand
Gold could therefore peak in the $1700-1800/ozt area in 2011
AGRICULTURE 0-3 M4-6 M7-12 M Even though agricultural commodity prices remain elevated
due to low inventory levels and continued adverse weather theuptrend has clearly been broken
Demand destruction and more favourable long term weather
prospects are the main drivers
While the short term outlook is supported by low inventory
levels and high uncertainty we expect an increasingly bearishdevelopment over the year
Arrows indicate the expected price change during the period in question.
UBS Bloomberg CMCI SectoUBS Bloomberg CMCI SectoUBS Bloomberg CMCI SectoUBS Bloomberg CMCI Sector Indicesr Indicesr Indicesr Indices(price indices, weekly closing, January 2010 = 100)
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Industrial Metals
Precious Metals
Energy
Agriculture
Sector performance last monthSector performance last monthSector performance last monthSector performance last month(MSCI World, UBS Bloomberg CMCI price indices)
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468
1012141618202224
Equities
Commodities
Energy
Industrial
metals
Precious
metals
Agriculture
YTD (%) M/M(%)
Winners & Losers last monthWinners & Losers last monthWinners & Losers last monthWinners & Losers last month(%)
-15
-10
-5
0
5
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1520
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Cotton
Sugar
LeadZinc
Soybeans
Wheat
Copper
CO2(EUA)
Power(Cont.)
SteelbilletsTi
n
Palladium
Power(Nordic)
Nickel
Platinum
Nat.gas(US)
Corn
Aluminium
Heat.oil(US)WTI
Gold
Brent
Gasoline(US)
Cocoa(US)
Coffe(Ar.)
Silver
Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
General
The commodity outlook is becoming less clear.Recovery, USD weakness and plentiful liquidityremain positive forces, but Libyan oil outage is now
discounted and China continues to implementmeasures to dampen its own (inflationary)economic activity. With broad commodity indices ator close to record highs we see little further upsideat present other than the possibility that they couldcontinue to move higher as the USD depreciates. Atechnical correction is unavoidable at some pointwith speculative positions near record highs andvolatilities at complacent lows. It is hard to imaginewhat factor will trigger such a correction. Examplesinclude a strong reversal in the USD downturndriven by European debt flare-ups; bad news fromChina suggesting the possibility of a hard landing;
deterioration in US growth; or an improvement inthe situation in MENA. The unavoidable technicalcorrection is however unlikely to mark the end ofthe current cyclical bull market in commodities. Itmay instead create attractive buying opportunities.
In April, the CMCI index (UBS Bloombergs broadcommodity price benchmark) gained 1% due to higherprecious metals (+8.4%) and energy (+5.0%) prices.Industrial metals were unchanged and agriculturalcommodities down 3.0%. At the same time however, theUSD index fell 3.0%. In other words, denominated in
most currencies commodities have become slightlycheaper over the past month.
A depreciated USD, strong liquidity, speculativepositions, growth optimism and rising demand are alldriving commodity prices at present, although Brentcrude has outperformed most commodities lately mainlyas a result of radically tighter fundamentals in Q1. Inresponse to rising demand many commodities are pricedeither based on tight supply (e.g. cotton, corn, copper,tin, sweet crude, coking coal and iron ore) or on risingmarginal costs (e.g. aluminium) while precious metalsmove upwards because of liquidity, risk aversion and asofter USD. Currently, commodities generally aresupported by both liquidity and growth, enjoying thebest of all worlds with support for both precious metals,industrial metals and energy. Sooner or later one of thesedrivers will have to give way. Either surplus liquidity willneed to be removed as growth is solid or growth willbreak down paving the way for even higher liquidity. Butfor now they co-exist together.
In terms of plain long positions we prefer gold, longdated oil and copper while maintaining a bearish view onagriculture generally as conditions normalise after La
Nia episode. However, with an unavoidable correctionahead and commodities priced fairly high, spread tradesare preferable to outright longs with the long leg taken inthose commodities with the tightest fundamentals (e.g.copper).
UBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCIUBS Bloomberg CMCI(price index, weekly closing)
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JPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMIJPM global manufacturing PMI(monthly, PMIs >50 expansive)
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OECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicatorsOECD composite leading indicators(monthly, 100 corresponds to long term trend in industrial production)
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ChinaEurozone
OECD
USAReference
Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
Crude oil
The physical tightness created by the loss of Libyansweet crude is probably discounted in the presentBrent crude price and in the size of speculative long
positions. The shortage in sweet crude couldhowever be exacerbated as US and Europeanrefiners ramp up production in coming months. Wetherefore expect sweet crude prices to remain highfor at least the rest of the second quarter with riskskewed above $120/b. For H2-11 we expect the oilprice to ease once the summer driving season isover with softer demand for sweet crude. We alsoanticipate further signs of demand destruction andpotentially a reduced MENA risk premium. However,we raise our Brent crude oil forecast for H2-11 from$95/b to $105/b as the MENA situation hascontinued to deteriorate and therefore is unlikely tobe resolved in 2011.
The crude oil market is supported by a range of bullishfactors making record long speculators reluctant to takeprofits despite a 33% rally by Brent crude so far this year.The main reason is the increasing likelihood that Libyanoil will be out of the market for a long time, particularlywith Gaddafi loyalists attacking rebel held oil fields toprevent further exports. Primarily, this has resulted in amarket shortage of sweet, i.e. low sulphur, crude oil. Withdesulphuring capacity in the Atlantic basin limited, sweetcrude oils such as Brent, WTI and Bonny Light are trading
at a substantial premium to sour crude oils. In addition,US growth optimism on strong economic indicators,potential further dollar weakness and growing inflationworries are keeping crude oil bulls happy. The mainupside risks concern a potential escalation in post-election unrest in Nigeria, a further deterioration in theMENA situation, and a more acute sweet crude shortage.However, a technical correction is unavoidable sooner orlater.
OPEC is insisting that the crude oil market isoversupplied which may be true from a sour crude
perspective. However, it can do very little to relieve thesweet crude shortage. Refinery activity was at a seasonallow when Libya left the market and the situation couldtherefore deteriorate further in Q2-11 as refineries rampup production. Indications suggest OECD crude oil andproduct inventories have begun to fall rapidly.
It is still too early to gauge the full impact of the currenthigh oil price on the global economy. So far it hasreduced growth in US consumer spending, but has notyet had an abrupt impact on worldwide economicactivity. The correlation between oil and equities is onceagain positive, with the US VIX index below 15%
indicating that financial markets are not over-concerned.
Crude oil priceCrude oil priceCrude oil priceCrude oil price(NYMEX/ICE, $/b, front month, weekly closing)
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US crude oil inventoriesUS crude oil inventoriesUS crude oil inventoriesUS crude oil inventories(DOE, mb, weekly data)
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j f m a m j j a s o n d
2006-2010 avg.
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Chart Sources: Bloomberg, SEB Commodity Research
Current global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimatesCurrent global crude oil demand estimates
2010
(mb/d)
Revision
(kb/d)
2011
(mb/d)
Revision
(kb/d)IEA 87.9 +10 89.4 +/-0EIA 86.68 -10 88.20 +/-0
OPEC 86.55 +160 87.94 +110
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
EnergyWTI futures curveWTI futures curveWTI futures curveWTI futures curve(NYMEX, $/b)
Brent futurBrent futurBrent futurBrent futures curvees curvees curvees curve(ICE, $/b)
96979899
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Gasoline and heating oil pricesGasoline and heating oil pricesGasoline and heating oil pricesGasoline and heating oil prices(NYMEX, /gal, front month, weekly closing)
Gasoline and distillate inventoriesGasoline and distillate inventoriesGasoline and distillate inventoriesGasoline and distillate inventories(DOE, mb, weekly data)
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Gasoline 2011
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Distillate fuel oil 2011
US natural gas pricesUS natural gas pricesUS natural gas pricesUS natural gas prices(NYMEX, $/MMBtu, front month, weekly closing)
US natural gasUS natural gasUS natural gasUS natural gas futufutufutufutures curveres curveres curveres curve(NYMEX, $/MMBtu)
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Chart Sources: Bloomberg, SEB C ommodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
Nordic power
During April the power market was dominated by theaftermath of the Japanese earthquake and itsimplications for the future of nuclear power, as well as
weather issues and the spring flood. In Germany anearlier decision to extend the current nuclear programwas withdrawn as a result of the Japanese accident. Thenuclear debate in Europe and elsewhere is fierce andwhere it will end is very difficult to predict. We believe itwill be impossible to significantly replace existing nuclearcapacity in the foreseeable future without switching toCO2 intensive fossil fuel-based power generation. Fornow, other cleaner energy sources are not realisticalternatives and are also far more expensive. We believethat both the industry and the unions will do their best toturn public opinion around primarily because shuttingdown nuclear capacity is more than likely to reduceEuropean industrial competitiveness with obviousimplications for employment.
Spot prices fell in April on normal seasonality, i.e. fewerdark hours and higher temperatures. At the beginning ofthe month prices were above EUR 60/MWh but hit a lowof EUR 33.63/MWh over Easter when a low load inconjunction with the spring flood and warm weathercaused prices to collapse. While the warm and dryweather has acted as a short term bearish price driver itis bullish from a mid- to long term perspective as itworsens an already very stretched hydrological balance.
As a result forward prices have increased over the pastmonth. The spot market traded above EUR 50/MWh inthe last days of April. The April average was EUR53.84/MWh, EUR 10.37/MWh lower than in March. TheSwedish spot traded largely in line with the system price.
For the most part, forward prices moved sideways overthe month but finished higher. Q3-11 gained EUR2.05/MWh to close at EUR 56.25/MWh while YR-12gained EUR 2.20/MWh before closing at EUR52.35/MWh. The German curve remained stable duringthe period despite higher fuel prices, narrowing the
spread between markets with the German YR-12 nowtrading at a EUR 6.95/MWh premium to the Nordic YR-12after hitting a low of EUR 10.00/MWh in the first fewdays of April.
Going forward, we still believe prices will remainhigh. The spring flood continues. What remains isexpected to be very controlled with smeltingconcentrated in areas with very good reservoirfilling capacity due to their current low levels.Despite a possibility that the prompt end of thecurve may continue to ease slightly as a result of thespring flood and higher temperatures we expect its
back end to remain strong due to support from highfuel prices and the large hydro balance deficit.
Nordic power priceNordic power priceNordic power priceNordic power price(Nord Pool, /MWh, front quarter, weekly closing)
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Continental power priceContinental power priceContinental power priceContinental power price(EEX, /MWh, front quarter, weekly closing)
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EUA priceEUA priceEUA priceEUA price(ECX ICE, /t, Dec. 11, weekly closing)
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Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
Industrial metals
Currently the industrial metals sector is exclusivelyconcerned with the outlook for a soft or hardlanding in China where the business cycle is
beginning to show signs of weakness. Authoritiescontinue to dampen economic activity by raisinginterest rates and reserve requirement ratios.Nevertheless, both economic growth and inflationremain strong. On the other hand, leading indicatorsare signalling a moderate downturn. Under currentcredit conditions and given present high levels ofuncertainty it is difficult to imagine a situation inwhich a sustained industrial metals rally couldoccur. Our overall short term view of the sector isneutral. A sharper than expected Chinese downturnis likely to have a strong bearish effect on industrialmetals prices. However, further out, their prospectsare significantly brighter. Although more Chineseinterest rate hikes are expected this summer,lending restrictions could be eased as early as H2-11if the economy cools to a desired level. In addition,Chinas fixed asset investments remain high withfurther plans to build tens of millions of low costhousing units under the 2011-2015 five year plan.The long term situation is further supported byJapanese reconstruction requirements, potentiallyrecovering OECD demand, and the fact that Chineserestocking needs are apparently increasing due to acombination of continued strong economic growth
and relatively weak metal imports. In the near termsoft spots could therefore be used to build long termpositions.
Chinese authorities continue to clamp down on energyinefficient industrial metals production and overcapacityeven though such efforts have proven relativelyunsuccessful historically. This is due to a cleardivergence between central government efforts towardmore efficient use of resources and local governmentsstrategy to boost regional employment and growth.However, current indications suggest the central
government will try to limit annual production growth often non-ferrous metals to 8% over the next five years.
Indifference in industrial metals markets todevelopments within the OECD has been well illustratedby their limited reaction to the European and USsovereign debt debacle, which implies strong austeritymeasures over the next decade, as well as industrialproduction disturbances resulting from componentshortages following the Japanese earthquake. The lack ofinterest in events within the OECD is probablyattributable to already modest demand growthexpectations that are more likely to surprise on the
upside than the down. For example, the US housingmarket remains depressed with housing starts stillaround 25% of pre-crisis levels.
LME indexLME indexLME indexLME index(weekly closing)
900110013001500170019002100230025002700290031003300350037003900
4100430045004700
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Industrial metal pricesIndustrial metal pricesIndustrial metal pricesIndustrial metal prices(LME, indexed, weekly closing, January 2010 = 100)
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CopperNickel
Aluminium
Zinc
Lead
Tin
LME price andLME price andLME price andLME price and inventory changesinventory changesinventory changesinventory changes last monthlast monthlast monthlast month
-8-7-6-5-4-3-2-10123456789
10111213
Aluminium
Copper
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Zinc
Lead Ti
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Steel
Price (%) Inventories (%)
Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
Industrial metalsAluminiumAluminiumAluminiumAluminium LME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventoriesLME aluminium price and inventories
(weekly data)
Chinese authorities have initiated a new wave of
clampdowns on inefficient production and capacity
expansion. Planned projects are to be haltedimmediately.
Reduced capacity expansion and energy efficiency
ambitions could compel China to become a net importeras early as this year although historically localgovernments have been reluctant to comply with centralgovernment mandates.
Prices are well supported by high input costs. Sensitivity
to changes in energy prices is however likely to be high.
While LME inventories remain stable SHFE inventories
are falling back. Anecdotal evidence also suggests thatunregistered Chinese inventories are falling.
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LME price ($/t, right axis)
CopperCopperCopperCopper LME copper price and inventoriesLME copper price and inventoriesLME copper price and inventoriesLME copper price and inventories(weekly data)
While LME and Chinese bonded warehouse inventories
appear to be rising Chinas industry inventories are likelyto trend lower together with SHFE inventories. Extensiverestocking should therefore be expected later this year.
We believe copper prices are well supported in both the
short and long term and do not expect prices below$8500/t during periods of temporary risk aversion.
The International Copper Study Group (ICSG) forecasts a
market deficit of 377 kt in 2011 and 279 kt in 2012. The second round of the Peruvian presidential election in
June will be extremely important for the copper market.If Ollanta Humala wins, which could happen, contractswith foreign mining companies will be renegotiatedwhich could have a negative effect on supply.
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NickelNickelNickelNickel LME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventoriesLME nickel price and inventories(weekly data)
So far this year the nickel market has been supported by
solid demand, falling LME inventories and supply
disruptions. The outlook is however worse. While the market appears
likely to be in deficit in H1-11, a surplus appears morelikely during H2.
The International Nickel Study Group (INSG) expects a
full year surplus of 60 kt.
Chinese nickel pig iron (NPI) supply represents the
greatest market uncertainty and is likely to determine themarkets eventual balance.
Our long term price target remains around $20000/t.
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Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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Commodities Monthly
Industrial metalsZinZinZinZincccc LME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventoriesLME zinc price and inventories
(weekly data)
The zinc market remains in oversupply with prices well
above production costs. It therefore continues to
represent one of the weakest segments of the industrialmetals sector.
The International Lead and Zinc Study Group (ILZSG)
expects this years increased supply to exceed growth indemand for a fifth consecutive year. It forecasts a marketsurplus of 200 kt.
While the zinc market appears relatively balanced next
year, it may be in deficit in 2013. We see a predominantrisk that the surplus will continue into 2012.
LME inventories once again moved higher in April while
SHFE inventories also continued their uptrend. 0
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SteelSteelSteelSteel LME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventoriesLME steel billet price and inventories
(weekly data)
Sluggish MENA steel demand gives a bearish flavour to
the European steel market.
Chinese economic cool down efforts are making marketstakeholders careful.
An approaching mild inventory cycle with rising steel
inventories is also putting a lid on the upside for steelproducts.
Mainly sideways prices in April with small price changes
in most steel products.
Iron ore is trading at $181.5/t, up 4.4% m/m while cokingcoal was negotiated as high as $330/t in April.
The European steel market looks sideways to bearish
over the nearest months.0
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Chart Sources: Bloomberg, SEB C ommodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
10/20
10
Commodities Monthly
Industrial metalsAluminiumAluminiumAluminiumAluminium futures curvefutures curvefutures curvefutures curve(LME, $/t)
Copper futures curveCopper futures curveCopper futures curveCopper futures curve(LME, $/t)
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maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
11-02-28
11-03-31
11-04-28
8500
8600
8700
8800
8900
9000
9100
9200
9300
9400
9500
96009700
9800
9900
10000
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
11-02-28
11-03-31
11-04-28
Nickel futures curveNickel futures curveNickel futures curveNickel futures curve(LME, $/t)
Zinc futures curveZinc futures curveZinc futures curveZinc futures curve(LME, $/t)
23000
23500
24000
24500
25000
25500
26000
26500
27000
27500
28000
28500
29000
29500
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
11-02-28
11-03-31
11-04-28
2225
2250
2275
2300
2325
2350
2375
2400
2425
2450
2475
2500
2525
2550
2575
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
11-02-28
11-03-31
11-04-28
Lead futures curveLead futures curveLead futures curveLead futures curve(LME, $/t)
Tin futures curveTin futures curveTin futures curveTin futures curve(LME, $/t)
2375
2400
2425
2450
2475
2500
2525
2550
2575
2600
26252650
2675
2700
2725
2750
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
11-02-28
11-03-31
11-04-28
31650
31700
31750
31800
31850
31900
31950
32000
32050
32100
3215032200
32250
32300
32350
32400
maj-11
jun-11
jul-11
aug-11
sep-11
okt-11
nov-11
dec-11
jan-12
feb-12
mar-12
apr-12
maj-12
jun-12
jul-12
11-02-28
11-03-31
11-04-28
Chart Sources: Bloomberg, SEB C ommodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
11/20
11
Commodities Monthly
Precious metals
Our short term gold market view remains bullish onEuropean and US sovereign debt fears, inflationworries, the current bearish dollar trend and high
geopolitical risk. Our bullish long term view ishowever beginning to moderate due to a potentialdollar bullish end to QE2 and expectations of USinterest rate hikes in early 2012. In addition, Chineseinflation is likely to begin to show signs of slowinggoing forward, resulting in reduced demand forinflation hedging. Gold could therefore peakbetween $1700-1800/ozt this year. However,European and US sovereign debt concerns areunlikely to recede and therefore represent thegreatest upside risk to the gold market togetherwith a situation in which inflation accelerates. Keydownside risks include a stronger than expected
economic recovery and a sharp upturn in the dollar.
Although Chinese inflation continues to rise, substantialtightening measures already implemented should soonbegin to impact. Still, real interest rates are likely toremain negative into the second half of this year. As aresult, its inflation hedging demand may not yet havepeaked. In Europe headline and core inflation are risingrelatively rapidly although ECB rhetoric has becomeincreasingly hawkish. However, the division betweeneconomically stronger northern Europe and the weakersouth is increasing. This creates problems for the ECB
when raising interest rates. In the US inflation is alsorising although the Fed appears confident that it willremain acceptable and has expressed no intentions yetof hiking interest rates in 2011. Gold bulls are howeversceptical concerning the central banks ability to controlthe situation and therefore strongly prefer gold and silverto paper money. Overall however, the real interest rateenvironment appears likely to remain gold supportiveduring the rest of this year, at least throughout the thirdquarter. Potentially softer food and energy prices couldhelp dampen inflation in H2-11.
While most people still consider the US AAA rating assacrosanct in current circumstances S&Ps outlookrevision from stable to negative managed to move themarket. As long as US politicians fail to agree on how tohandle mounting debt over the coming decade the USwill follow the same course as Europe from a sovereigndebt perspective. European and US leaders are obviouslyequally unwilling to decide on measures that risk turningtheir voters against them. In Europe, markets areincreasingly focusing on potential Greek debtrestructuring after Portugal gave in to pressure andasked to be bailed out. Greek restructuring is howeverunlikely to be implemented before its budget has been
rebalanced once again. Restructuring in itself is notnecessarily bullish for gold if performed in a controlledmanner.
Precious metal pricesPrecious metal pricesPrecious metal pricesPrecious metal prices(COMEX/NYMEX, indexed, weekly closing, January 2010 = 100)
8090
100110120130140150160170180190200210220230240250260
270280290
jan-10
feb-10
mar-10
apr-10
maj-10
jun-10
jul-10
aug-10
sep-10
okt-10
nov-10
dec-10
jan-11
feb-11
mar-11
apr-11
Silver
PlatinumGold
Palladium
Gold to silver ratioGold to silver ratioGold to silver ratioGold to silver ratio(front month, weekly closing)
30
34
38
42
46
50
54
58
62
66
70
74
78
82
86
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Gold and currencies vs. USDGold and currencies vs. USDGold and currencies vs. USDGold and currencies vs. USD
-1
0
1
2
3
4
5
6
7
8
910
11
12
GOLD EUR JPY GBP SEK RUB NOK CHF
YTD (%) MoM (%)
Chart Sources: Bloomberg, SEB Commodity Research
-
8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
12/20
12
Commodities Monthly
Precious metalsGoldGoldGoldGold Gold priceGold priceGold priceGold price
(COMEX, $/ozt, front month, weekly closing)
We maintain our bullish outlook for gold despite the fact
that the long term view is being undermined by potential
renewed dollar strength and the inflation dampeningeffects of Chinese monetary tightening.
A short term bullish view is largely justified by European
and US sovereign debt concerns, inflation worries, thecurrent bearish dollar trend and high geopolitical risk.
Demand for coins and bars remains strong.
Physical gold Exchange Traded Product (ETP) holdings
continued to recover in April, increasing 43 tonnes to2070 tonnes, while remaining below late 2010 highs(2115 tonnes).
Long speculative positions in COMEX gold have againincreased during the past two months but remain below
record highs.
200
300
400
500
600
700
800
900
1000
1100
1200
13001400
1500
1600
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
SilverSilverSilverSilver Silver priceSilver priceSilver priceSilver price(COMEX, $/ozt, front month, weekly closing)
Extremely strong demand for physical investment
products, mainly coins, bars and ETPs have driven silverclose to the 1980 nominal record high, i.e. $50/ozt.However, in real terms prices need to move above$140/ozt to post a new top.
The US mint is currently selling four times as many silvercoins as they have historically.
Physical gold Exchange Traded Product (ETP) holdings
posted a new record high in late April at 15518 tonnes. Meanwhile silver supply is growing and the market
heading towards a surplus in 2011.
Considering the retail silver hype and exceptionally
strong silver outperformance vs. gold, we see increasingevidence that violent corrections lower like the one inearly May are likely to continue to occur.
2468
101214161820
222426283032343638404244464850
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Platinum & PalladiumPlatinum & PalladiumPlatinum & PalladiumPlatinum & Palladium PlaPlaPlaPlatinum and palladium pricestinum and palladium pricestinum and palladium pricestinum and palladium prices(NYMEX, $/ozt, front month, weekly closing)
As expected Japanese data show vehicle production
more than halved following the earthquake and tsunami
in early March. Production elsewhere in the world hasalso been severely affected due to componentshortages.
With normalization expected during Q2 demand for
palladium and platinum should recover with bullishimplications.
The long term outlook for palladium vs. platinum is morebullish due to a tighter supply situation and its use ingasoline powered cars favoured in China.
Physical platinum and palladium ETP holdings rose to 43
and 69 tonnes respectively in April. 100
200
300
400
500
600
700
800
900
1000
1100
2
002
2
003
2
004
2
005
2
006
2
007
2
008
2
009
2
010
2
011
300
550
800
1050
1300
1550
1800
2050
2300
Palladium (left axis)
Platinum (right axis)
Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
13/20
13
Commodities Monthly
Precious metalsGoldGoldGoldGold futures curfutures curfutures curfutures curveveveve(COMEX, $/ozt)
SilverSilverSilverSilver futures curvefutures curvefutures curvefutures curve(COMEX, $/ozt)
1400
1450
1500
1550
1600
1650
1700
1750
1800
jun-11
sep-11
dec-11
mar-12
jun-12
sep-12
dec-12
mar-13
jun-13
sep-13
dec-13
mar-14
jun-14
sep-14
dec-14
mar-15
jun-15
sep-15
dec-15
mar-16
jun-16
sep-16
dec-16
11-02-2811-03-31
11-04-28
32
33
34
35
36
37
38
39
40
41
42
43
4445
46
47
48
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
feb-15
maj-15
aug-15
nov-15
11-02-28
11-03-31
11-04-28
Palladium futures curvePalladium futures curvePalladium futures curvePalladium futures curve(NYMEX, $/ozt)
Platinum futures curvePlatinum futures curvePlatinum futures curvePlatinum futures curve(NYMEX, $/ozt)
760
765
770
775
780
785
790
795
800
805
810
jun-11
sep-11
dec-11
mar-12
jun-12
11-02-28
11-03-31
11-04-28
1770
1780
1790
1800
1810
1820
1830
1840
1850
1860
jul-11
okt-11
jan-12
apr-12
jul-12
11-02-28
11-03-31
11-04-28
Physical sPhysical sPhysical sPhysical silver and goldilver and goldilver and goldilver and gold ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)
Physical pPhysical pPhysical pPhysical palladium and platinumalladium and platinumalladium and platinumalladium and platinum ETPETPETPETP holdingsholdingsholdingsholdings(weekly data, tonnes)
1100
1200
1300
1400
1500
1600
1700
1800
1900
2000
2100
2200
jan-10
feb-10
mar-10
apr-10
maj-10
jun-10
jul-10
aug-10
sep-10
okt-10
nov-10
dec-10
jan-11
feb-11
mar-11
apr-11
Silver holdings / 10
Gold holdings
20
25
30
35
40
45
50
55
60
65
70
75
jan-10
feb-10
m
ar-10
apr-10
maj-10
jun-10
jul-10
aug-10
sep-10
okt-10
nov-10
dec-10
jan-11
feb-11
m
ar-11
apr-11
Palladium
Platinum
Chart Sources: Bloomberg, SEB C ommodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
14/20
14
Commodities Monthly
Agriculture
We expect agricultural commodity prices tocontinue to trend lower for the rest of this year asproduction estimates are raised and risk premiums
lowered due to the diminishing effects of the LaNia weather anomaly. The current NationalOceanic and Atmospheric Administration (NOAA)forecast suggests that global weather patterns willhave normalized by June. Due to generally highagricultural prices, upside risk is limited by demanddestruction. However, inventories for severalagricultural commodities are low and sensitivity todisturbances therefore very high. As bothdecreasing La Nia related disturbances and normalvariations will continue to hamper production weexpect further temporary price rallies during the restof the year. Current examples include extremely dry
conditions in the US Great Plains where winterwheat is growing, and cold, wet conditions in thenorthern United States where soybeans, corn andspring wheat are about to be planted. In the grainssector, corn is most exposed to disruptions andcould also pull other associated crops higherthrough substitution effects.
According to the International Grains Council (IGC) theoutlook for grain production in the 2011/2012 season isfavourable. IGC expects production to increase by 4.5%after weather disturbances weighed on production in the
previous harvest year. Consumption is forecast toincrease by a more modest 1.5% but will slightly exceedsupply in absolute terms. The current forecast thereforesuggests a relatively well balanced market. IGC alsoprojects record high grain consumption during thecurrent season.
Soft commodity prices generally also continue to fallback. Sugar prices began to decrease earlier this year onstrong Brazilian and Thai production and have recentlybeen joined by cotton. Exceptionally high cotton priceshave finally caused demand to slow down resulting incancelled orders. Although the general sector is trendingtowards lower prices there are some exceptions. Arabicacoffee has continued to move higher, trading above$3/lb for the first time ever. The coffee market issupported by strong demand, record low inventories andproduction disruptions in several major producernations. The situation originated with three consecutivedisappointing Columbian crop years. However, givencurrent record high prices, demand destruction is boundto put an end to the coffee rally sooner or later.
Grains pricesGrains pricesGrains pricesGrains prices(CBOT, indexed, weekly closing, January 2010 = 100)
70
80
90
100
110
120
130
140
150
160
170
180
190
jan-10
feb-10
mar-10
apr-10
maj-10
jun-10
jul-10
aug-10
sep-10
okt-10
nov-10
dec-10
jan-11
feb-11
mar-11
apr-11
Wheat
SoybeansCorn
Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)Year end grain inventories (days of supply)(USDA, yearly data updated monthly)
50
60
70
80
90
100
110
120
130
00/01
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
Wheat
Soybeans
Corn
Chart Sources: Bloomberg, USDA, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
15/20
15
Commodities Monthly
AgricultureCornCornCornCorn Corn priceCorn priceCorn priceCorn price
(CBOT, /bu, front month, weekly closing)
Snow, rain and cold weather continue to delay US
planting with acreage losses to soybeans and lower
yields the potential result if conditions do not improve. Due to low inventories, the corn market will remain
highly sensitive to future disruptions.
Although demand destruction and substitution appear to
be holding back the corn market, high oil prices continueto stimulate demand from ethanol producers.
According to the US Department of Agriculture (USDA)
global 2010/2011 ending stocks will reach 71.0 days ofsupply, some 24% below their 10-year average.
Even though high prices stimulate planting the IGC
expects consumption to slightly exceed productionduring the 2011/2012 season. A record crop is needed to
relieve the tight inventory situation.
100
200
300
400
500
600
700
800
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
WheatWheatWheatWheat Wheat priceWheat priceWheat priceWheat price(CBOT, /bu, front month, weekly closing)
While dry conditions in the US heartland, Europe and
China are damaging the developing winter wheat crop,rain in the northern US and Canada is delaying springwheat planting. However, conditions are now showingsigns of improvement on several fronts.
The US winter wheat situation is the most severe in living
memory. USDA now rates 41% of the crop as poor orvery poor compared with 7% last year. This situation
could result in a tighter supply of high quality wheat. Global wheat inventory estimates for the end of the
2010/2011 season remain relatively solid at 96.9 days ofsupply, some 3% above their 10-year average.
IGC expects a well balanced market in the 2011/2012
season. We regard wheat as the weakest grain althoughbullish influences could come from the more strainedcorn market.
200
300
400
500
600
700
800
900
1000
1100
1200
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
SoybeansSoybeansSoybeansSoybeans Soybean pricSoybean pricSoybean pricSoybean priceeee(CBOT, /bu, front month, weekly closing)
Potential record crops in Brazil and Argentina havebegun to enter the market, exerting bearish pressure onprices.
Although the USDA expects US soybean acreage to
decrease this year, delayed corn planting could result inacreage being transferred to soybeans.
The USDA estimates global 2010/2011 ending stocks at
81.4 days of supply, some 1% above their 10-yearaverage, although US inventories are significantlytighter.
Strong Chinese imports appear to have replenished
inventories and could lead to a period of softer demandeven though the long term demand outlook remainsfirm.
We regard soybean fundamentals as stronger than thoseof wheat but weaker than corn.
400
600
800
1000
1200
1400
1600
1800
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Chart Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
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16
Commodities Monthly
AgricultureCorn futures curveCorn futures curveCorn futures curveCorn futures curve(CBOT, /bu)
Wheat futures curveWheat futures curveWheat futures curveWheat futures curve(CBOT, /bu)
500
525
550
575
600
625
650
675
700
725
750
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
feb-14
maj-14
aug-14
nov-14
11-02-28
11-03-31
11-04-28
725
750
775
800
825
850
875
900
925
950
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
11-02-28
11-03-31
11-04-28
Soybean futures curveSoybean futures curveSoybean futures curveSoybean futures curve(CBOT, /bu)
SugarSugarSugarSugar(NYBOT, /lb)
1200
1225
1250
1275
1300
1325
1350
1375
1400
1425
1450
maj-11
aug-11
nov-11
feb-12
maj-12
aug-12
nov-12
feb-13
maj-13
aug-13
nov-13
11-02-28
11-03-31
11-04-28
0
5
10
15
20
25
30
35
40
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
CottonCottonCottonCotton(NYBOT, /lb)
CocoaCocoaCocoaCocoa(NYBOT, $/t)
20
40
60
80
100
120
140
160
180
200
220
2
002
2
003
2
004
2
005
2
006
2
007
2
008
2
009
2
010
2
011
1200
1400
1600
1800
2000
2200
2400
2600
2800
3000
3200
3400
3600
3800
2
002
2
003
2
004
2
005
2
006
2
007
2
008
2
009
2
010
2
011
Chart Sources: Bloomberg, SEB C ommodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
17/20
17
Commodities Monthly
Commodity related economic indicatorsEUROZONE Current Date Previous Date NextIndustrial production (%, YoY) 7,5 2011-02-28 6,3 2011-01-31 2011-05-12
Industrial production (%, MoM) 0,5 2011-02-28 0,2 2011-01-31 2011-05-12
Capacity utilization (%, sa) 80,0 2011-03-31 78,1 2010-12-31
Manufacturing PMI 58,0 2011-04-30 57,5 2011-03-31 2011-05-02
Real GDP (%, YoY) 2,0 2010-12-31 2,0 2010-09-30 2011-05-13
Real GDP (%, QoQ, sa) 0,3 2010-12-31 0,4 2010-09-30 2011-05-13
CPI (%, YoY) 2,7 2011-03-31 2,4 2011-02-28 2011-05-16
CPI (%, MoM) 1,4 2011-03-31 0,4 2011-02-28 2011-05-16
Consumer confidence -11,6 2011-04-30 -10,6 2011-03-31 2011-05-20
USA
Industrial production (%, YoY) 5,9 2011-03-31 5,6 2011-02-28
Industrial production (%, MoM) 0,8 2011-03-31 0,1 2011-02-28 2011-05-17
Capacity utilization (%) 77,4 2011-03-31 76,9 2011-02-28 2011-05-17
Manufacturing PMI 61,2 2011-03-31 61,4 2011-02-28 2011-05-02
Real GDP (%, YoY) 2,3 2011-03-31 2,8 2010-12-31
Real GDP (%, QoQ, saar) 1,8 2011-03-31 3,1 2010-12-31 2011-05-26
CPI (%, MoM) 2,7 2011-03-31 2,1 2011-02-28 2011-05-13
CPI (%, MoM, sa) 0,5 2011-03-31 0,5 2011-02-28 2011-05-13
OECD Composite Leading Indicator 103,2 2011-02-28 102,9 2011-01-31Consumer confidence (Michigan) 69,8 2011-04-30 67,5 2011-03-31 2011-05-13
Nonfarm payrolls (net change, sa, 000) 216 2011-03-31 194 2011-02-28 2011-05-06
JAPAN
Industrial production (%, YoY, nsa) -12,9 2011-03-31 2,9 2011-02-28 2011-05-19
Industrial production (%, MoM, sa) -15,3 2011-03-31 1,8 2011-02-28 2011-05-19
Capacity utilization (%, sa) 93,7 2011-02-28 91,1 2011-01-31
Manufacturing PMI 45,7 2011-04-30 46,4 2011-03-31 2011-05-30
Real GDP (%, YoY, nsa) 2,2 2010-12-31 4,9 2010-09-30
Real GDP (%, QoQ, sa) -0,3 2010-12-31 0,8 2010-09-30 2011-05-19
CPI (%, YoY) -0,1 2011-04-30 -0,2 2011-03-31 2011-05-27
CPI (%, MoM) 0,3 2011-03-31 -0,1 2011-02-28
OECD Composite Leading Indicator 105,4 2011-02-28 104,5 2011-01-31
Consumer confidence 38,3 2011-03-31 40,7 2011-02-28
CHINAIndustrial production (%, YoY) 14,8 2011-03-31 14,9 2011-02-28 2011-05-11
Manufacturing PMI 52,9 2011-04-30 53,4 2011-03-31 2011-06-01
Real GDP (%, YoY) 9,7 2011-03-31 9,8 2010-12-31 2011-07-15
CPI (%, YoY) 5,4 2011-03-31 4,9 2011-02-28 2011-05-11
OECD Composite Leading Indicator 101,9 2011-02-28 101,8 2011-01-31
Consumer confidence 107,6 2011-03-31 99,6 2011-02-28
Bank lending (%, YoY) 17,9 2011-03-31 17,7 2011-02-28
Fixed asset investment (%, YoY) 23,8 2010-12-31 24,0 2010-09-30
OTHER
OECD Area Comp. Leading Indicator 103,2 2011-02-28 103,0 2011-01-31
Global manufacturing PMI 55,8 2011-03-31 57,4 2011-02-28
Sources: Bloomberg, SEB Commodity Research
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8/7/2019 SEB Commodities Monthly: Waiting for a technical correction
18/20
18
Commodities Monthly
PerformanceClosing YTD
(%)1 m(%)
1 q(%)
1 y(%)
5 y(%)
UBS Bloomberg CMCI Index (TR) 1481,64 8,8 1,3 38,4 30,3 42,7UBS Bloomberg CMCI Index (ER) 1393,86 8,7 1,3 38,1 30,1 29,3UBS Bloomberg CMCI Index (PI) 1761,07 8,7 1,1 42,5 33,3 71,1UBS B. CMCI Energy Index (PI) 1766,53 22,6 5,0 44,1 27,9 44,8UBS B. CMCI Industrial Metals Index (PI) 1330,75 3,2 0,1 32,6 18,2 32,7UBS B. CMCI Precious Metals Index (PI) 2424,41 12,2 8,4 54,6 40,4 139,5UBS B. CMCI Agriculture Index (PI) 1922,95 -2,2 -3,0 43,8 51,5 106,9Baltic Dry Index 1269,00 -29,3 -17,1 -29,3 -62,2 -46,4
Crude Oil (NYMEX, WTI, $/b) 112,86 23,5 5,8 54,8 31,0 57,0Crude Oil (ICE, Brent, $/b) 125,02 31,9 6,5 75,0 43,0 73,6Aluminum (LME, $/t) 2767,50 12,0 4,5 33,1 22,7 0,5Copper (LME, $/t) 9320,00 -2,9 -1,1 38,2 25,4 33,3Nickel (LME, $/t) 26850,00 8,5 2,9 45,1 2,1 39,3Zinc (LME, $/t) 2247,00 -8,4 -4,9 6,5 -1,7 -29,2Steel (LME, Mediterranean, $/t) 559,00 -1,9 0,7 35,5 6,5Gold (COMEX, $/ozt) 1531,20 7,7 6,4 41,4 29,7 133,9
Corn (CBOT, /bu) 723,00 14,9 4,3 102,8 97,4 203,5Wheat (CBOT, /bu) 743,00 -6,5 -2,7 56,8 51,1 114,6Soybeans (CBOT, /bu) 1350,25 -3,1 -4,3 47,7 36,5 129,9
Sources: Bloomberg, SEB Commodity Research
Major upcoming commodity eventsDate Source
Department of Energy, US inventory data Wednesdays, 16:30 CET www.eia.doe.gov
American Petroleum Institute, US inventory data Tuesdays, 22:30 CET www.api.org
CFTC, Commitment of Traders Fridays, 21:30 CET www.cftc.gov
US Department of Agriculture, Crop Progress Mondays, 22.00 CET www.usda.gov
International Energy Agency, Oil Market Report May12 www.oilmarketreport.com
OPEC, Oil Market Report May 11 www.opec.org
Department of Energy, Short Term Energy Outlook May 10 www.eia.doe.gov
US Department of Agriculture, WASDE May 11 www.usda.gov
International Grains Council, Grain Market Report May 26 www.igc.org.uk
OPEC ordinary meeting, Vienna, Austria June 8 www.opec.orgSources: Bloomberg, SEB Commodity Research
Contact listCOMMODITIES Position E-mail Phone MobileTerje Anderson Global Head of
[email protected] +47 22 82 71 03 +47 92 61 26 76
RESEARCH
Bjarne Schieldrop Chief analyst [email protected] +47 22 82 72 53 +47 92 48 92 30
Filip Petersson Strategist [email protected] +46 8 506 230 47 +46 70 996 08 84
SALES SWEDEN
Katarina Johnsson Corporate [email protected] +46 8 506 233 95 +46 73 501 52 02Karin Almgren Institutional [email protected] +46 8 506 230 51 +46 73 642 31 76
SALES NORWAY
Maximilian Brodin Corporate/Institutional [email protected] +47 22 82 71 62 +47 92 45 67 27
SALES FINLAND
Vesa Toropainen Corporate/Institutional [email protected] +358 9 616 286 08 +358 50 597 000 6
SALES DENMARK
Peter Lauridsen Corporate/Institutional [email protected] +45 331 777 34 +45 616 211 59
TRADING
Mats Hedberg Chief Dealer [email protected] +46 8 506 230 15 +46 70 462 29 78
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DISCLAIMER & CONFIDENTIALITY NOTICE
The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska EnskildaBanken AB (publ) (SEB).
Opinions contained in this report represent the banks present opinion only and are subject to change without notice. All
information contained in this report has been compiled in good faith from sources believed to be reliable. However, norepresentation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents andthe information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of thisdocument is urged to base his or her investment decisions upon such investigations as he or she deems necessary. Thisdocument is being provided as information only, and no specific actions are being solicited as a result of it; to the extentpermitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this documentor its contents.
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SEB Merchant Banking. All rights reserved.
SEB Commodity Research
Bjarne Schieldrop, Chief Commodity [email protected]
+47 9248 9230
Filip Petersson, Commodity [email protected]
+46 8 506 230 47
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www.seb.se/mb