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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES AND
ANALYST CERTIFICATIONS.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
Commodities Advantage: Alive and Kicking Commodities Research
In this issue:
Petroleum: We came away from this year's London Commodities Day with the
impression that many attendees felt upside risks to oil prices were building
(page 8).
Natural Gas: In this week's article we take a quick look at the latest
developments in US weather forecasts and storage patterns, and remark on the
historic deal cemented by Russia and China on pipeline gas supplies (page 9).
Base Metals: This week nickel has once again grabbed the headlines and we
examine implications for the likely "gap" in supply to China's all-important
stainless steel sector. We also remark on the next directional moves for copper
prices (page 12).
Iron Ore & Steel: Bearish China sentiment and poor fundamentals have again
put ferrous prices under pressure, pushing iron ore below $100/t. Despite a
better flash PMI for May, there are few positives to draw for China's steel sector
and the key question for us now is to what extent negatives are already
reflected in iron ore prices (page 14).
Focus: London Commodities Day 2014
On Tuesday we held our sixth annual Credit Suisse Commodities Day in
London, hosting commodity market participants from across the corporate and
financial sectors.
As indicated by the strength of this year’s attendance, interest in the asset class
does appear to be rising. The breakdown in both cross-asset and intra-
commodity correlations, strong spot price performance in Q1 and the positive
roll yield provided by backwardated energy markets all appear to be drawing
investor attention back to the space. Furthermore, attendees brought with them
a considerably more positive price outlook than that of 12 months ago (page 3).
Macro View: Phew! China stable
The latest HSBC Flash PMI for May has come with a sigh of relief for those
worried about the pace of economic growth. The better reading does suggest
that stability has set in, with auto and consumer electronics sectors buoyant but
construction activity still weak. Headline growth appears to be tracking around
6.7% according to our regional economists, above where we had feared but
below the much-publicised target of 7.5%. Momentum remains relatively slow
but we do not expect Beijing to mount much stimulus in H2 (page 18).
Research Analysts
Marcus Garvey
+44 20 7883 4787
Tom Kendall
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Bhaveer Shah
+44 20 7883 1449
Andrew Shaw
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Jan Stuart
+1 212 325 1013
Johannes Van Der Tuin
+1 212 325 4556
22 May 2014
Fixed Income Research
http://www.credit-suisse.com/researchandanalytics
22 May 2014
Commodities Advantage: Alive and Kicking 2
Table of Contents
Focus: London Commodities Day 2014 3
Interest in commodities appears to be rising 3
Differentiated commodity outlooks 5
Petroleum 7
Resurgent bullish sentiment? 7
Natural Gas 9
US weekly update and Russia-China's historic deal 9
Base Metals – Choppy Waters 11
Nickel grabs the headlines 11
Copper wrap – a rap for prices ahead? 12
Iron Ore 14
They think it's all over … 14
Macro View: Phew! China Stable 17
Flash PMI shows improvement but momentum is slow 17
Commodity Investment Flows 18
Trade Recommendations 21
22 May 2014
Commodities Advantage: Alive and Kicking 3
Focus: London Commodities Day 2014 Interest in commodities appears to be rising
On Tuesday 20 May we held our sixth annual Credit Suisse Commodities Day in London,
hosting commodity market participants from across the corporate and financial sectors.
As indicated by the strength of this year’s attendance, interest in the asset class does
appear to be rising. The breakdown in both cross-asset and intra-commodity correlations,
strong spot price performance in Q1 and the positive roll yield provided by backwardated
energy markets all appear to be drawing investor attention back to the space.
Furthermore, attendees brought with them a considerably more positive price outlook than
that of 12 months ago, with a third of participants seeing commodity prices at least 10%
higher than they are now in a year’s time and another 50% of investors expecting prices to
remain near their current levels. Fewer than 10% thought commodity prices would fall
significantly.
Exhibit 1: In 12 months from now, commodity prices will be?
0%
10%
20%
30%
40%
50%
60%
At least 10% higherthan they are now
At about currentlevels (+/-10%)
At least 10% lowerthan they are now
No idea…
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day audience poll, 20 May 2014
Interestingly, this pick-up in sentiment echoed similarly encouraging noises from Credit
Suisse’s recent Macro Conference in New York, where commodities were perceived highly
in their current outlook and as the second most popular asset class on a five-year horizon
too (see note).
In particular, the focus fell on the prevalence of idiosyncratic fundamentals, primarily from
the supply side, driving divergent price performance and the broader potential for an
eventual return to more volatile markets. However, survey results revealed that, although
interest is growing, it may still be a while until this translates into real engagement with the
sector. As we show in Exhibit 2, 46% of investors currently remain underweight the sector
and, although coming from a lower base, fewer expect to overweight the sector in 12
months’ time than they did at this point last year (Exhibit 3).
In part, this seemed to reflect how hard it has been to extract alpha from commodities –
particularly the difficulty of timing markets where supply rather than demand is driving
prices. Nevertheless, while some expressed disappointment that last year’s outflows are
yet to reverse, Q1’s outperformance has provided a timely reminder of the ability of the
asset class to well capture geopolitical and weather-related risks.
22 May 2014
Commodities Advantage: Alive and Kicking 4
Exhibit 2: How would you define your current level of commodity investment?
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Overweight Neutral Underweight Zero exposure
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day audience poll, 20 May 2014
Exhibit 3: What do you expect your level of commodity investment to be over the coming 12 months?
0%
10%
20%
30%
40%
50%
60%
Overweight Neutral Underweight Zero exposure
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day audience poll, 20 May 2014
Exhibit 4: Over the next 12 months, which form of trading will offer the best opportunities to extract alpha from commodities?
0%
10%
20%
30%
40%
50%
60%
Relative-Value Cross assetclass
Fundamentallybased directional
trading
Quantitativebased directional
trading
Volatility
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day audience poll, 20 May 2014
22 May 2014
Commodities Advantage: Alive and Kicking 5
Stepping away from trading the markets to making longer-run investments, the difficulties in
raising equity finance were also discussed (at least outside the US energy sector), and this
has consequently kept other means of capital raising (such as high-yield issuance) in solid
demand. Bank lending at the smaller end of the spectrum appears to remain consistent, with
the benefits of commodity hedging through the development cycle illustrated in both the
energy and precious metal sectors over the past few years. Project bonds were perceived to
have become popular, and private equity involvement in the space is growing.
Differentiated commodity outlooks
Gold and oil – chalk and cheese
In terms of the sector commodity outlooks, gold was shunned again as the commodity
with the worst 12-month outlook, with many attendees anticipating an eventual rise in bond
yields to push the yellow metal lower.
Oil, in contrast, found particularly strong favour in audience voting, with a picture of tight
physical markets developing. Whilst EM demand has slowed, it was felt that OECD
consumption is now coming back to the fore, and doubts were raised about the claim that
US demand is in structural decline.
However, considerable supply risks remain; while it was felt that this can be currently met
by Saudi Arabia, spare capacity was perceived to be under pressure. It was also noted
that although crude inventories appear high in the US, they are not accessible by the
international market; on the products front the situation is much tighter at the global level,
particularly with respect to distillates. Moreover, positioning continues to be short vol in oil,
and consequently it was feared that any breakout could result in a considerable pain trade.
Exhibit 5: From current prices, the commodity market with the worst 12 month outlook is?
Exhibit 6: From current prices, the commodity market with the best 12 month outlook is?
0%
10%
20%
30%
40%
50%
60%
70%
80%
Crude Oil Copper Corn Gold
2013 2014
0%
10%
20%
30%
40%
50%
60%
Crude Oil Copper Corn Gold
2013 2014
Source: Credit Suisse London Commodities Day Audience Votes, 20 May 2014 Source: Credit Suisse London Commodities Day Audience Votes, 20 May 2014
Base metals – copper and nickel in the spotlight
For base metals, conversations suggested that, while demand growth is less than stellar,
fears of a potential collapse in China have been overdone, much as we highlighted in our
report last week (see note). Physically, copper was felt to be reasonably tight, as
evidenced by a narrowing of the SHFE-LME spread, persistent SHFE backwardation and
recovery in local premiums. However, this seems to us to stem as much from careful
management of inventory flow as it does from sound demand.
Nickel, of course, was in the spotlight, with the consensus view clearly bullish and with
few expecting the recent rally to yet result in much demand destruction. Aluminium, in
contrast, was seen as unlikely to break out sustainably from its range. Although demand
22 May 2014
Commodities Advantage: Alive and Kicking 6
has been good across almost all non-construction sectors, prices were expected to remain
under pressure. Prices appear held down by strong producer selling from newer low-cost
Middle Eastern and Indian smelters, not to mention a pick-up in Chinese semis exports
whenever the arb opens.
Platinum group metals – bullish skew
For PGMs, particularly palladium, the outlook was almost unanimously bullish. The fact that
markets are in deficit was widely acknowledged and few hold out hope for an imminent
resolution to strikes in South Africa. At the same time, auto sector demand appears strong
and physical sponge premiums have ticked up. A potential post-election cabinet reshuffle
was cited as one possible catalyst for a somewhat speedier end to South Africa’s current
round of labour unrest but the longer-term supply outlook clearly remains challenged.
Ags – going with the grain
In agricultural commodities inventory and production of sugar still seem high, and the
outlook, absent a bout of weather-induced turbulence, felt somewhat uninspiring. Better
opportunities appeared to lie in grains, with corn and wheat still offering attractive relative
value trades. In particular, wheat’s strong price gains stemming from heightened concerns
around Ukrainian supply were also questioned, given that crop planting has not been
directly impacted by recent events.
Exhibit 7: What do you currently see as the largest challenge to investing in commodities?
0%
10%
20%
30%
40%
50%
60%
70%
Correlation withother asset
classes
Negative rollyield
High volatility Regulatorychanges
Timing
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day Audience Votes, 20 May 2014
Exhibit 8: Which investment approach do you think will see the greatest asset flow?
0%
10%
20%
30%
40%
50%
60%
70%
New betabenchmarks
Activeindices/managers
Resourceequities/hybrid
indices
ETFs
2011 2012 2013 2014
Source: Credit Suisse London Commodities Day Audience Votes, 20 May 2014
22 May 2014
Commodities Advantage: Alive and Kicking 7
Petroleum Resurgent bullish sentiment?
As discussed in the previous article, coming away from this year's London Commodities
Day, we are left with the impression that many attendees felt that upside risks to oil prices
are building. In particular, those attendees who have a strong physical market perspective
demonstrated a relatively constructive view of summer oil – consensus appears to be
moving towards our firmly held view.
When asked which commodity (crude oil, copper, corn or gold) they felt had the best 12-
month outlook from current prices, ~49% of respondents chose crude. While not
conclusive evidence of positive market sentiment, such a response is a noticeable change
from last year, when only 34% of respondents chose crude oil.
Resilient oil demand growth
Despite persistent market worries over recent quarters about the effect of a Chinese
economic slowdown on global oil consumption, aggregate oil demand growth has been
quite resilient. As the latest OECD and non-OECD oil demand data, from the IEA and
JODI respectively, show, Q1 2014 global oil demand growth appears to be on track to
increase by 1.4% yoy (Exhibit 9). Further, even though there has been weakness in non-
OECD East Asia, including China, most signs do not point to global oil demand collapsing
in the near future.
In the OECD, oil demand is far from strong, but has been growing at a rate above the
underlying downtrend. In aggregate, quarterly average OECD oil consumption is ~0.1%,
although demand momentum was up in March (Exhibit 10).
Non-OECD countries, on the other hand, continue to soldier on; even with demand
growth flagging in China, aggregate non-OECD oil demand appears to be holding the line
at ~2.7% yoy (Exhibit 9), below trend, but stronger than many people have worried.
Exhibit 9: Oil demand by key economy and region
% yoy growth
1,000 b/ d Base by year (2010-14)
2013 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14E 3Q14E 4Q14E 2010 2011 2012 2013 2014E 2015E 2008-12
Glo bal 91,370 1.3% 1.0% 1.3% 0.9% 1.5% 1.1% 1.5% 1.4% 4.0% 1.2% 0.7% 1.1% 1.4% 1.7% 0.8%
OECD 46,080 -0.9% 0.0% 0.8% 0.7% 0.1% 0.2% 0.2% 0.1% 1.3% -1.0% -1.2% 0.1% 0.1% 0.4% -1.7%
Emerging M arkets 45,290 3.7% 2.1% 1.9% 1.1% 2.9% 2.1% 2.9% 2.8% 7.2% 3.7% 2.7% 2.2% 2.7% 3.0% 4.0%
OEC D A mericas 24,030 1.5% 0.8% 1.9% 2.4% 1.0% 1.9% 1.4% 0.7% 2.0% -0.8% -1.3% 1.7% 1.2% 1.5% -1.7%
Canada 2,300 4.7% 4.1% -1.3% -2.4% 1.2% 2.1% 4.4% 3.1% 4.7% 0.1% 0.5% 1.1% 2.7% 2.0% 0.0%
M exico 2,110 0.8% 0.5% -1.0% -7.2% -4.5% -1.7% -1.4% 2.8% 0.5% 1.6% 1.5% -1.8% -1.2% 1.6% -0.2%
USA 18,960 1.3% 0.3% 2.6% 4.4% 1.6% 2.3% 1.3% 0.1% 2.2% -1.2% -2.1% 2.2% 1.3% 1.4% -2.1%
So uth A merica 6,770 3.0% 2.7% 3.5% 2.5% 3.9% 2.0% 2.6% 2.7% 7.3% 3.2% 3.0% 2.9% 2.8% 2.2% 4.6%
Brazil 3,280 4.1% 3.4% 5.2% 2.9% 5.7% 2.3% 3.4% 3.6% 9.7% 3.8% 4.4% 3.9% 3.7% 2.2% 5.3%
Argentina 770 3.5% 2.8% 2.1% 2.7% 3.5% 2.4% 3.6% 3.6% 7.5% 2.5% 3.3% 2.8% 3.3% 3.5% 3.7%
Euro pe 14,520 -3.7% -0.3% 0.4% -1.2% -1.1% -2.0% -0.6% 0.3% -0.3% -2.7% -3.2% -1.2% -0.8% -0.9% -2.3%
France 1,730 -3.3% 2.3% 1.4% -1.9% -4.6% -3.6% -2.6% -1.2% -1.9% -2.2% -2.9% -0.4% -3.0% -0.1% -2.5%
Germany 2,410 -0.8% 5.2% 1.4% -2.9% 1.5% -6.0% -0.1% 0.9% 0.7% -3.0% -0.3% 0.7% -1.0% -3.9% -0.2%
Italy 1,300 -4.5% -6.1% -3.7% -1.0% -5.8% -0.1% 0.0% 0.2% 0.0% -3.3% -9.4% -3.8% -1.4% 0.2% -4.7%
UK 1,510 -1.7% 0.9% 2.5% 1.1% 1.7% -1.2% -1.0% -0.8% -0.9% -2.3% -5.1% 0.7% -0.4% -0.9% -3.0%
Oth Europe 7,570 -5.0% -1.8% 0.1% -0.9% -0.8% -0.7% -0.3% 0.6% -0.1% -2.6% -2.6% -1.9% -0.3% -0.2% -2.3%
F SU 4,440 1.3% -3.6% 2.2% 5.5% 8.0% 2.0% 2.0% 2.0% 2.4% 6.3% -0.3% 1.4% 3.4% 1.5% 1.3%
M ideast 7,540 2.3% -0.1% 1.1% 0.2% 6.7% 3.0% 4.6% 3.5% 5.1% 2.8% 2.9% 0.9% 4.4% 4.2% 3.5%
Saudi Arabia 3,010 3.0% -1.2% -0.4% -2.2% 10.6% 2.7% 5.6% 3.0% 7.8% 5.0% 6.3% -0.3% 5.3% 3.5% 7.4%
Iran 1,730 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.0% 2.0% -1.4% -2.4% -1.0% 0.0% 1.0% 3.5% -1.9%
Iraq 618 2.1% 0.6% 16.3% 5.4% 12.3% 5.0% 5.0% 5.0% 11.3% 9.2% 9.4% 6.1% 6.7% 5.0% 13.1%
A frica 3,710 6.1% 5.5% -0.2% 0.4% 1.1% 3.4% 3.2% 3.3% 4.4% -1.4% 2.6% 2.9% 2.7% 3.6% 3.7%
A sia-P ac 30,350 2.4% 2.0% 0.9% 0.0% 0.5% 1.0% 1.4% 1.4% 7.5% 3.9% 3.2% 1.3% 1.1% 2.1% 3.2%
China 10,360 5.6% 4.2% 2.0% -2.2% -1.2% 2.2% 4.2% 4.4% 14.0% 4.9% 3.9% 2.3% 2.4% 3.9% 6.4%
India 3,620 4.8% 1.8% -0.4% 1.2% 2.9% 0.7% 0.6% 0.7% 3.8% 4.7% 5.6% 1.8% 1.2% 3.3% 4.2%
Indonesia 1,730 2.6% 1.9% 5.9% 5.1% 5.2% 2.5% 2.2% 2.1% 4.7% 9.4% 2.3% 4.0% 2.9% 3.0% 4.7%
Japan 4,560 -3.7% -4.2% -3.7% -2.1% -1.3% -1.9% -4.2% -3.8% 1.5% 2.6% 3.4% -3.5% -2.8% -2.0% -1.2%
South Korea 2,310 -2.9% 1.3% -0.7% -0.2% 1.2% -1.1% -0.5% -0.4% 2.7% -0.5% 2.1% -0.7% -0.2% 0.3% 0.5%
Australia 1,140 1.5% 1.2% 0.5% 0.3% 0.6% 0.5% 1.7% 0.3% 1.7% 4.2% 1.9% 0.9% 0.8% 0.5% 1.4%
Thailand 1,270 8.8% 3.5% 0.6% 0.6% 1.4% 1.2% 1.2% 1.2% 6.4% 4.8% 7.0% 3.3% 1.2% 2.2% 3.7%
by quarter (2013 - 2014)
Source: Credit Suisse, IEA, EIA, JODI, country data
22 May 2014
Commodities Advantage: Alive and Kicking 8
Seasonally adjusted demand momentum is a little more differentiated, as non-OECD Asia
ex-China incremental demand growth has been down in the first quarter, bottoming in
February at -0.3% (Exhibit 11) 3mma/3mma percentage change, but up in other regions
such as the Middle East (+5.8% in March – see Exhibit 12) and, importantly for US
refiners, Latin America (+3.9% in March – see Exhibit 13).
Trade idea – buy summer gasoline versus Brent
With the above macro demand trends in mind, and as discussed a couple of weeks ago in
Commodities Advantage: Glass Half Full, we believe that summer gasoline is a buy and
would recommend purchasing September RBOB/Brent cracks, indicatively priced at
~$13.20/b.
Exhibit 10: OECD oil demand momentum Exhibit 11: EM Asia ex-China oil demand
momentum
SA, mom and yoy 3mma % change SA, mom and yoy 3mma % change
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
-3%
-2%
-1%
0%
1%
2%
3%
J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13 S-13 J-14
3 mma mom % change 3 mma yoy % change
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
-3%
-1%
1%
3%
5%
7%
J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13 S-13 J-14
3 mma mom % change 3 mma yoy % change
Source: Credit Suisse, IEA Source: Credit Suisse, JODI, country data
Exhibit 12: Middle East oil demand momentum Exhibit 13: Latin America oil demand momentum
SA, mom and yoy 3mma % change SA, mom and yoy 3mma % change
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13 S-13 J-14
3 mma mom % change 3 mma yoy % change
-1%
0%
1%
2%
3%
4%
5%
6%
J-11 M-11 S-11 J-12 M-12 S-12 J-13 M-13 S-13 J-14
3 mma mom % change 3 mma yoy % change
Source: Credit Suisse, JODI Source: Credit Suisse, JODI, country data
22 May 2014
Commodities Advantage: Alive and Kicking 9
Natural Gas US weekly update and Russia-China's historic deal
As discussed in our storage forecast note, US Gas Storage – 2014 Week 20, controlling
for the ~8 billion cubic feet (Bcf) reclassification of base gas to working gas in the East
Consuming region, according to scrapes, storage injections for the week ending 9 May
and 16 May are likely to leave balances increasingly tight. According to current data, US
working gas in storage is still ~804 Bcf (-41%) below year-ago levels. So, add in slightly
warmer near-term weather forecasts (Exhibit 14) and it should be no surprise that, as of
COB Wednesday (21 May), benchmark Henry Hub prices continued to work their way
higher, reaching ~$4.47/MMcf by yesterday's close (+2.5% wow).
Holding our summer residual constant at 3.1 Bcf/d, 3 Bcf/d of which is hypothetically due
to gas-coal switching, our storage forecast model is currently projecting US working gas in
storage of 3,611 Bcf/d by season's end (Exhibit 15). That said, our current ~3.6 Bcf/d may
become increasingly difficult to reach due to a combination of factors (see Commodities
Advantage: Political Spin).
Exhibit 14: NOAA 6-10 Day temperature outlook Exhibit 15: US working gas in storage projections
Forecast made 20 May 2014, valid for 26-30 May Bcf
3611
800
1,200
1,600
2,000
2,400
2,800
3,200
3,600
4,000
Apr May May Jun Jul Aug Sep Oct
Summer range summer 2014 Fcst
Source: NOAA Source: Credit Suisse, EIA
Global gas – Russia and China ink momentous deal
On a historic note, after years of negotiations, Russia has finally come to an agreement to sell
piped natural gas to China in a deal mooted to be worth US$400 billion and poised to cost
US$55 billion in infrastructure development. The agreement will result in a second major gas
market opening to Russian exports, helping to diversify its customer base away from Europe.
Over the past decade, despite the strong incentive for both parties to come to an accord,
any such deal had supposedly been held up due to discrepancies over price and other
commercial terms. However, it seems as if the crisis in Ukraine has helped to break the
log-jam, giving new urgency to the Russian desire to branch out to new markets. The
implied price comes out at just under US$10/MMBtu but, more importantly, provides China
with something of a lever to cap "expensive" LNG.
As a first instalment, the initial deal is for 38 Bcm of gas per year over a 30-year period.
However, a memo of understanding has also been signed that, if realized, could multiply
flows over time. In the meantime, according to the US Energy Information Agency (EIA),
the initially promised volume of 38 Bcm is already ~23% of total annual exports to Europe
(~162 Bcm) and ~45% of Russian gas exports through Ukraine (~85 Bcm) in 2013.
22 May 2014
Commodities Advantage: Alive and Kicking 10
First gas is targeted to flow in 2018, helping lift gas from 6% to 8% of China's energy mix.
Last year China consumed 168 Bcm of natural gas, an annual increase of almost 14%.
Exhibit 16: Prospective Russian natural gas pipeline routes to China and East Asia
Source: Credit Suisse, Gazprom
22 May 2014
Commodities Advantage: Alive and Kicking 11
Base Metals – Choppy Waters Nickel grabs the headlines
LME nickel prices continue to gyrate close to the $20,000 level as those holding stocks
ration supplies to the market – principally to Chinese NPI and stainless steel producers.
For now we are content to hold a generally neutral stance on the metal. We acknowledge
that there is scope for the price to run up further – this is a small market that has suffered
a supply shock and in which inventory is held by relatively few players that appear to be
anticipating further gains. But equally we note that the physical market is not yet stressed
(premiums remain moderate), refined production is still being delivered into LME
warehouses, mark-to-market profits on inventory are rising, and last week's correction and
spike in volatility have acted as a salutatory warning of the difficulty of timing turns in price
and managing an exit from long positions.
The CIF price for ore grading 1.9% nickel hit US$145/wmt earlier this week, an increase of
almost 2.5 times since January when Indonesia introduced its ban on ore exports. This is
now yielding very fat mark-to-market profits for those holding inventory since before the
ban took effect.
Good reasons to still be bullish?
1) Concessions from Indonesia unlikely in 2014. The chances of Indonesia introducing
modifications to its blanket ban look remote, at least in 2014. As we pointed out in our
visit report to China (see China Metals Outlook), some NPI producers are still
anticipating concessions for those companies constructing plants in Indonesia (limited
essentially to Tsingshan, which also is one of three major holders of ore stocks).
This anticipation of a loosening of the ban may be wishful thinking and lies at the heart
of those calling a major price advance once existing ore and NPI stocks get worked off
(estimates vary – we think that could take up to four months).
2) Allowing for a partial working off of oversupply in China's stainless steel sector, the
implied "gap" in nickel unit supply in China in 2014 comes to around 80 kt in our
modeling projections. This gap becomes more noticeable at the back end of the year
once ore stocks have diminished and NPI inventories have fed through to stainless
plants.
3) Nickel and ore stocks are in a few firm hands.
Reasons for caution
Our reluctance to join the super-bull camp rests on our belief that higher prices and
volatility have the capacity to trigger significant but poorly understood reactions throughout
the production chain, albeit these adjustments do not happen instantly
1) LME inventories have risen by almost 20 kt so far this year and now amount to 280 kt,
far above "normal" levels, much of which (160 kt to be precise) is held in Johor. Rising
cancelled warrants do not, as yet, represent an imminent draw down in inventory by
hard-pressed consumers in our view.
2) There are considerable refined stocks in China too, though these are harder to
quantify with any accuracy. We believe bonded warehouse volumes amount to around
70-80 kt (some put it higher). If we factor in possibly 100 kt held by the SRB,
according to some traders (there are no ways to corroborate this), this implies around
180 kt of refined nickel in China, excluding potential holdings by Jinchuan, or less
visible inventory.
22 May 2014
Commodities Advantage: Alive and Kicking 12
3) Our discussions with industry experts point to NPI stocks of up to 100 kt of contained
nickel, although we find it hard to reconcile for such a high tonnage in our "mass
balance" calculations.
4) There was significant overproduction of stainless steel in 2013 in China (it reached
14.7Mt, a yoy increase of 21%).
5) Ore prices have risen to levels that provide a powerful incentive for constraints on
production growth in the Philippines (such as land access) to be overcome, though
political obstacles are likely to limit any meaningful increases in shipments from New
Caledonia for now. Nickel prices above $20,000 will also see a focus on maximizing
run-rates by other producers and ramp-ups at new projects, notwithstanding technical
hitches at some.
Plugging the "gap"
Taking into account some destocking from bonded warehouses, the "extra call on nickel"
from outside China looks set to amount to around 50 kt in 2014 and perhaps 140-150 kt
next year. This based on 8.9% yoy growth in stainless steel output in 2014 and 4.2% yoy
growth in 2015 (WoodMackenzie forecasts), and a 3 percentage point gain in 200 series
market share over the period, and a 3ppt rise in the scrap ratio.
That looks bullish and consensus in a small market can drive sizeable overshoots in price.
However, we hold our view that a combination of new supply, gradual destocking as prices
move higher/become more volatile and demand elasticity in China will be sufficient to fill
that gap before prices reach Himalayan levels. We do not believe that rises well above
US$30,000/t would be sustainable.
Copper wrap – a rap for prices ahead?
Copper prices have managed to hold position above US$6,800/t in recent weeks, though a
break above US$7,000 is now looking a bit of a stretch. "What next?" is the key question.
The more optimistic among investors would cite a return to relative physical market
tightness as evidence that a further bounce is in the making. Evidence of this comes from
a SHFE market in a "back" and renewed strength in physical premiums at around
RMB1,500/t. The SHFE/LME spread has rebounded too and premiums on imported
copper are back up to US$140.
We would agree that Q2 has seen improved demand (seasonally) and slower ramp-ups or
maintenance at smelters has kept metal surpluses much more modest than might have
been the case. According to latest NBS data, refined copper production fell nearly 10 kt in
April (mom) to 584.3 kt. However, SMM believes this is incorrect and that production
actually rose 15 kt once double counting is removed from the NBS tallies.
Our more cautious mood on copper than many stems from other factors as we rattle
through Q2:
Imports of unwrought copper and copper semis rose 7.2% mom in April to 450 kt, on a
par with the Q1 average of 445 kt – higher imports than a year ago have meant that
bonded warehouse stocks have remained relatively high, even in high-demand season.
More importantly, imports of copper concentrates have continued to grow, rising 22%
yoy in the first four months of this year (Exhibit 17). This has taken place despite the
absence of export volumes from Freeport Indonesia and Newmont's Batu Hijau mine.
Improved premiums, largely reflecting a small squeeze in our view, will likely precipitate
higher rates of refined production than in recent weeks. A number of smelters have also
ended maintenance programs – operating rates had already edged up 3% in April mom
to 89.4% at Chinese smelters.
22 May 2014
Commodities Advantage: Alive and Kicking 13
The sharp fall in SHFE inventories is more a reflection of (i) smelters increasing tolling
trade, reducing deliveries to the SHFE and (ii) higher spot sales into the domestic
market as premiums rose and peak-season demand emerged.
There are emerging signs that peak season is now passing. March-May's operating
rates at fabricators were around 75%, similar to year-ago levels. SMM's surveys point to
an easing in rates at semis plants to around 73% in May – June typically sees a sharper
fall-off.
Aircon sales were up 27% yoy in Q1 (partly reflecting a severe inventory overhang in
2012-13) but exports fell 5% with few prospects of a turnaround soon. A cooling in the
housing sector also stands to rein back activity in domestic markets across durables.
Tube-makers are reporting slacking orders in May and a slowing of (hitherto buoyant)
auto production growth rates is filtering through to semis activity.
None of the above presents an eminently bearish outlook for the red metal but we retain
our opinion that the pull of gravity will keep copper prices restrained in a range below
US$7,000 and that management of refined metal flows will probably prevent a deeper rout.
Surpluses will probably re-emerge but these are unlikely to be severe. A harder rap would
require a greater softness in demand than we are currently anticipating.
Exhibit 18: China's imports of nickel ore – Indonesian volumes grind to a halt
Exhibit 19: Imports of copper concentrate by China are rising strongly
Mt (wet), monthly, not sa kt, monthly, sa
0
2
4
6
8
10
2008 2009 2010 2011 2012 2013 2014
Philippines Indonesia Other
0
100
200
300
400
500
600
700
800
900
1,000
1,100
2008 2009 2010 2011 2012 2013 2014
Imports
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
22 May 2014
Commodities Advantage: Alive and Kicking 14
Iron Ore They think it's all over …
Bearish China sentiment and poor fundamentals have again put ferrous prices under
pressure, pushing iron ore below $100/t. As we detailed last week – China Metals Outlook
– there are few positives to draw from China's ferrous sector at present but the key
question now is: to what extent are the negatives already reflected in the price?
We think prices could display some stability in the very near term, or even manage
to register modest gains, but H2 should then deliver a new low below 2012's $87/t
trough.
Exhibit 20: Ferrous markets selling off, again
RMB/t (lhs), US$/t (rhs)
80
100
120
140
160
180
200
3000
3250
3500
3750
4000
4250
4500
4750
5000
5250
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14
Spot Rebar Spot Iron Ore (rhs)
Source: Credit Suisse, the BLOOMBERG PROFESSIONAL™ service
Exhibit 21: Mills have already destocked inventory Exhibit 22: And steel production growth has slowed
Average days inventory cover from imported ore (lhs), US$/t (rhs) Mt, monthly, sa, May point estimated from CISA member's 10-day production
70
90
110
130
150
170
190
15
20
25
30
35
40
45
Mar-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Jan-14
Imported Stock Days China CFR 62% Fe (rhs)
35
40
45
50
55
60
65
70
2008 2009 2010 2011 2012 2013 2014
Source: Credit Suisse, MySteel, the BLOOMBERG PROFESSIONAL™ service Source: China NBS, CEIC, Credit Suisse
Mills have already destocked inventory to 25 days cover for imported ore and actual
demand growth has been weak, with crude steel production's brief March's bounce
followed by a 0.6% mom sa drop in April and, on CISA's estimates, May is yet to register a
material improvement in run-rates. This should all be in the price.
22 May 2014
Commodities Advantage: Alive and Kicking 15
Of course, mills' inventories could revisit previous lows below 20 days cover and steel
production could dip well below trend. Nevertheless, the large part of this destocking cycle
has already happened and, after running above trend for much of 2013, steel production
has already fallen back.
The likely catalyst for a further deterioration would be increased fears that the real estate
sector is in the throes of a major correction (Exhibit 23). However, construction starts have
already rolled over and, as long as sales – the complex's leading indicator – do not
completely collapse, starts should begin to stabilize at a low level.
Headlines of local governments loosening purchasing restrictions in order to support sales
appear to be borne out in recent data. With many real estate market controls in China
being a function of required deposit thresholds, a fall in the proportion of property
purchases being made with deposits (conversely, indicating a rise in debt payments) is a
useful proxy for purchasing restrictions having been eased.
As Exhibit 24 demonstrates, construction sales appear to lag this indicator and, as such,
we expect them to stabilize so long as policy remains accommodating. We believe this is
as far as it goes; we are not expecting deeper stimulus on a par with measures taken in
H2 last year. However, a semblance of stability in production run rates should emerge.
Exhibit 23: Construction activity has deteriorated Exhibit 24: But policy is loosening
Million square metres, monthly, sa Share of real estate funding (inverted, lhs), monthly trend change in sales (rhs)
40
50
60
70
80
90
100
110
120
40
60
80
100
120
140
160
180
200
2007 2008 2009 2010 2011 2012 2013 2014
Construction Starts (trend)3MMAConstruction Sales (trend, rhs)3MMA
-5%
0%
5%
10%
15%
20%17%
19%
21%
23%
25%
27%
29%
31%
2007 2008 2009 2010 2011 2012 2013 2014
Share of total real estate construction funding fromdeposits & advanced purchases, trend
Construction Sales, trend change (rhs)
Source: Credit Suisse, China NBS, CEIC Source: Credit Suisse, China NBS, CEIC
If so, this should encourage mills to restock some raw material. A further incentive comes
from the fact that mills' finished steel inventories also now appear to have normalized, after
having shot above trend in Q4 last year (Exhibit 25).
At the same time, the potential for a tug boat strike at Port Hedland (accounting for c.30%
of 2014 seaborne supply) may lead some mills to take advantage of already low raw
material prices and trigger the covering of some near-dated short financial positions.
If this plays out, prices should temporarily arrest their recent declines and stabilize around
$100/t, possibly even a little higher. We doubt though that prices will stage any kind of
more sustained rally:
Absent a prolonged strike at Port Hedland, seaborne cargoes should be abundantly
available.
Port stocks of 115 Mt offer a considerable buffer from which mills can draw down fresh
tonnage.
22 May 2014
Commodities Advantage: Alive and Kicking 16
Exhibit 25: Steel mills' steel inventory normalized Exhibit 26: But fresh material abundantly available
Mt, monthly, sa Mt, weekly
7
8
9
10
11
12
13
14
15
2010 2011 2012 2013 2014
30
40
50
60
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011 2012 2013 2014
Original Survey Expanded Sample
Source: Credit Suisse, MySteel, CISA Source: Credit Suisse, MySteel
In short, policy loosening should help demand to stabilize but is a bounce is unlikely. And
with no organic catalyst likely to improve market conditions, we expect iron ore prices to
resume their softening in H2.
On our estimates, the iron ore market is already in small surplus. As slower underlying
demand growth runs up against an 11% yoy increase in supply, we think any temporary
price uplift would present an opportunity to re-enter short positions.
22 May 2014
Commodities Advantage: Alive and Kicking 17
Macro View: Phew! China Stable Flash PMI shows improvement but momentum is slow
Obsession with monthly indicators continues and reading of China's latest PMI indicators
is no exception. The HSBC Flash PMI came in at 49.7 in May, above the consensus (48.3)
and its prior reading of 48.1. This is the highest reading in the first five months of this year.
The new orders index increased most among the key sub-indices, by 2.8pp to 50.2, while
export orders also went up to 52.7. The employment index was the weakest of the sub
measures, falling 0.6pp to 47.3 in the month.
The print is consistent with our view that the economy is showing tentative signs of
stabilization, helped by strengthening export orders but also by domestic activity, though to
a lesser extent. Some of this improvement represents bringing forward of infrastructure
programmes to compensate weak private investment.
All-in-all, China's economy appears to be stabilizing but upward momentum is missing.
Seasonal pick-ups later than usual have helped, with the auto and consumer electronics
sectors standing out as among the more buoyant. In contrast, construction activity stayed
weak. Our economists believe that the economy is probably growing at around 6.6-6.8%,
qoq annualized for Q2 (compared to 5.7% in Q1 2014). This is a little better than we had
expected but is below the government's target of "about" 7.5%.
The May data point underlines our view that growth is not likely to be a particular worry for
China's leadership and that broader or deeper stimuli are not going to be launched in H2.
Exhibit 27: HSBC Flash PMI indicates stabilization in China's economy but growth momentum is not strong
Annualised percentage change (lhs),Index (rhs)
40
45
50
55
60
65
-5%
0%
5%
10%
15%
20%
25%
30%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
China IP (3mma) Markit PMI NO (rhs)
Source: NBS, Markit Economics, Credit Suisse
22 May 2014
Commodities Advantage: Alive and Kicking 18
Commodity Investment Flows Estimates below are based on last week’s CFTC commitment of traders report and index
investment data up until Tuesday, 13 May 2014. Inflow and outflow estimates are based
on changes in contracts held before accounting for price changes.
Recalibrating our model following the latest CFTC index investment data, we estimate that
commodity indices saw about $0.69 billion of outflows between 6 May and 13 May. Total
assets under management (AUM) decreased from $199.0 billion a week earlier to $198.8
billion (Exhibit 28).
Total contracts held in indices rose by 13.4k (Exhibit 30), with decreases witnessed within
energy.
Exhibit 28: Commodity index assets under management in contracts and dollars
Thousands of contracts (left axis) and US$ billions (right axis)
170
175
180
185
190
195
200
205
210
215
220
2,800
2,900
3,000
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
13-May-1404-Mar-1424-Dec-1315-Oct-1306-Aug-1328-May-1319-Mar-1308-Jan-1330-Oct-1221-Aug-12
Contracts held (left axis) Index AUM (right axis)
Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse
Exhibit 29: Commodity index AUM Exhibit 30: Contracts held in commodity indices
US$ billions Thousands of contracts
170
180
190
200
210
(10)
(5)
0
5
10
13-May-1418-Feb-1426-Nov-1303-Sep-1311-Jun-13
Flows (left axis) Index-linked AUM (right axis)
2,800
2,900
3,000
3,100
3,200
3,300
3,400
3,500
3,600
3,700
3,800
(200)
(150)
(100)
(50)
0
50
100
150
200
250
300
13-May-1418-Feb-1426-Nov-1303-Sep-1311-Jun-13
Change in contracts (left axis) Contracts (right axis)
Source: the BLOOMBERG PROFESSIONAL™ service, CFTC, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
22 May 2014
Commodities Advantage: Alive and Kicking 19
Commodity Exchange Traded Products
Commodity ETP AUM and flows estimates below are based on data up until Friday, 16
May 2014. Flow data presented below are estimated based on changes in shares out
before accounting for changes in price.
Physically backed commodity exchange traded products (ETPs) saw about $4 million of
outflows between 10 May and 16 May. Total assets under management rose to $93.5 billion
from $93.4 billion a week earlier. Flows into non-physical commodity exchange-traded
products (which track indices and futures) saw $50 million of inflows as assets under
management reached $30.5 billion. Total assets under management for commodity
exchange-traded products rose slightly to $124.1 billion from $123.9 billion a week earlier.
Exhibit 34 shows that among non-physical commodity sectors there were net inflows into
broad and energy.
Exhibit 31: Physical commodity ETP AUM Exhibit 32: Non-physical commodity ETP AUM
US$ billions (99.98% of which is held in precious metals) US$ billions (tracking futures and indices)
80
100
120
140
160
180
200
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
1.0
2.0
3.0
07-Oct-11 20-Apr-12 02-Nov-12 17-May-13 29-Nov-13
Flow (lhs) Physical ETP AUM (rhs)
26
28
30
32
34
36
38
40
(1.0)
(0.5)
0.0
0.5
1.0
1.5
07-Oct-11 20-Apr-12 02-Nov-12 17-May-13 29-Nov-13
Flow (lhs) Non-physical ETP AUM (rhs)
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
Exhibit 33: Non-physical commodity ETP AUM breakdown by commodity sector
Exhibit 34: Non-physical commodity ETP flows by sector (estimated based on changes in shares out)
US$ billions, end of quarters, latest point is current month US$ millions (tracking futures and indices)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2008 2009 2010 2011 2012 2013 2014
Broad Energy Precious Base Metals Agriculture Livestock
126
-21
24
77
2713
216
-123
-1
3
-224
-2
7251
-8
-52
-11 -1
(250)
(200)
(150)
(100)
(50)
0
50
100
150
200
250
Broad Energy Precious Base Metals Agriculture Livestock
Three weeks ago
Two weeks ago
Last week
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse
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Exhibit 35: Commodity forecasts (see Commodities Forecasts: Withdrawal Symptoms)
Units as stated
2016 LT
Yr Avg (f) Q1 (a) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Q1 (f) Q2 (f) Q3 (f) Q4 (f) Yr Avg (f) Yr Avg (f) (real)
Energy
Brent (US$/bbl) 108.70 107.87 105.00 110.00 105.00 106.97 100.00 100.00 95.00 95.00 97.50 95.00 90.00
WTI (US$/bbl) 98.05 98.56 98.00 103.00 92.00 97.89 87.00 93.00 88.00 82.00 87.50 85.00 80.00
U.S. Natural Gas (US$/MMBtu) 3.70 4.90 4.90 4.80 4.20 4.70 4.30 4.00 4.20 4.50 4.30 4.40 4.50
U. K. NBP (GBp/Therm) 67.06 61.00 58.00 57.00 65.00 60.25 71.00 59.00 58.00 66.00 63.50 65.50 61.00
Iron Ore
Iron ore fines - 62% (China CFR) US$/t 135 121 115 105 100 110 100 95 95 90 95 95 90.00
Iron ore fines - (China CFR) US¢/dmtu 218 195 185 169 161 178 161 153 153 145 153 153 145
Coking Coal (contract)
Hard coking coal (US$/t) 159 143 120 135 135 133 140 145 145 150 145 155 165
Semi soft coal (US$/t) 112 104 86 97 97 96 98 102 102 105 102 109 115
PCI coal (US$/t) 125 116 95 107 107 106 111 115 115 119 115 122 125
Thermal Coal
Thermal Coal (Newcastle FOB) US$/t 84 78 75 80 85 80 80 80 85 85 83 90 95
Thermal Coal (ARA CIF) US$/t 82 79 75 80 85 80 80 80 85 85 83 90 95
Thermal Coal (RBCT FOB) US$/t 81 79 74 79 84 79 79 79 84 84 82 89 95
Uranium
Uranium spot (US$/t) 39 35 37 40 43 39 45 48 50 54 49 55 70
Base Metals
Copper (US$/t) 7,344 7,018 6,500 6,250 6,450 6,555 6,600 6,750 6,750 7,000 6,775 7,250 6,600
Aluminium (US$/t) 1,890 1,754 1,760 1,780 1,800 1,775 1,850 1,900 1,950 2,000 1,925 2,100 2,250
Alumina spot (US$/t) 330 328 325 335 335 330 345 345 345 345 345 355 400
Nickel (US$/t) 15,143 14,654 15,750 16,250 16,750 15,850 17,000 17,500 17,500 17,500 17,375 18,000 20,000
Lead (US$/t) 2,145 2,128 2,150 2,200 2,300 2,195 2,350 2,350 2,400 2,400 2,375 2,500 2,000
Zinc (US$/t) 1,924 2,027 2,050 2,100 2,250 2,110 2,300 2,350 2,400 2,450 2,375 2,500 1,900
Tin (US$/t) 21,957 22,587 23,000 23,500 24,000 23,275 24,500 25,000 25,000 25,000 24,875 25,000 20,000
Precious Metals
Gold (US$/oz) 1,411 1,290 1,300 1,260 1,200 1,260 1,150 1,100 1,050 1,100 1,100 1,150 1,250
Silver (US$/oz) 23.85 20.45 21.30 21.70 21.10 21.15 20.90 20.40 19.80 21.20 20.58 20.90 20.80
Palladium (US$/oz) 725 743 750 770 790 760 810 830 850 880 840 850 850
Platinum (US$/oz) 1,483 1,430 1,450 1,500 1,520 1,475 1,540 1,560 1,600 1,640 1,590 1,650 1,800
Rhodium (US$/oz) 1,210 900 1,000 1,000 1,200 1,030 1,400 1,500 1,500 1,500 1,480 1,700 2,500
2013 2014 2015
Source: the BLOOMBERG PROFESSIONAL™ service, Credit Suisse Commodities Research estimates
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Trade Recommendations
Exhibit 36: Trade recommendations scorecard
For details of our model portfolio structure and guidelines see Commodities Advantage of 16 January 2014. Prices updated at 11:45 BST 15/05/14
Live options trades
Idea Publication Underlying Open Structure Net premium
paid / rcvd
Max Risk No. of
contracts
Current value of
structure
Mark to market
PnL US$
% return on
the trade
Short gold Trade Recommendation:
Rolled Gold
GCV4 $1,299.00 Short 1360c /
Long 1250p
$4.00 $100,000 75 -$0.40 -$33,000 -110.0%
Net unrealized PnL & return on notional capital: -$33,000 -0.03%
Closed spot/futures trades
Long US nat gas
April/May Spread
Commodities Advantage:
Clearing the Air
NGJ4/NGK4 $0.04 $0.02 $0.11 $50,000 200 / 200 $0.08 $76,000 103.0%
Long US nat gas
Mar/April spread
Commodities Advantage:
China off the boil…
NGH4/NGJ4 $0.29 $0.24 $0.05 $100,000 200 / 200 $0.58 $574,000 99.0%
Long LME 3m lead Trading Recommendations,
Light at the End of the Tunnel
LLH4 $2,096.75 $2,050.00 $1,169 $100,000 86 $2,171.00 $158,824 3.5%
Short US nat gas Trading Recommendations,
Light at the End of the Tunnel
NGZ4 $4.386 $4.550 $1,640 $100,000 61 $4.270 $70,732 2.6%
Closed options trades
Long US nat gas Commodities Advantage:
Political Spin
NGQ4 Short 4.25p /
Long 5.50c
$0.03 $50,000 200 / 200 $0.00 -$50,000 -100.0%
Short copper Trade Recommendation:
Copper on the Edge
LPK4 $7,180.00 Short 7500c /
Long 7000p /
Short 6700p
$25,000 $50,000 200 / 200 /
200
$176 $865,000 3460.0%
Long Plat against short
EUR
Trading Recommendations,
Light at the End of the Tunnel
PLN4 $1,020.00 Long 1100c $100,000 $100,000 57 $162,427 $62,427 62.4%
Short gold Trading Recommendations,
Light at the End of the Tunnel
GCJ4 $1,245.00 Long 1180p/
short 1120p
$100,000 $100,000 225 / 225 $31,500 -$68,500 -68.5%
Short iron ore Trading Recommendations,
Light at the End of the Tunnel
M4 Swap $121.50 Long 120p /
short 130c
$80,000 $100,000 25 / 25 $187,000 $107,000 133.8%
Net realized PnL & return on notional capital: $1,795,482 1.80% Please see the Structured Securities, Derivatives, and Options Disclaimer. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at the original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments may be subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. The P&L results shown do not include relevant costs, such as commissions, interest charges, or other applicable expenses. Figures may be rounded.
Source: Credit Suisse Commodities Research
GLOBAL FIXED INCOME AND ECONOMICS RESEARCH
Ric Deverell
Global Head of Fixed Income and Economics Research
+1 212 538 8964
GLOBAL MACRO PRODUCT STRATEGY
Sean Shepley
Global Head of CS Macro Product Strategy
+44 20 7888 1333
GLOBAL RATES STRATEGY
GLOBAL COMMODITIES RESEARCH
Helen Haworth, CFA Carl Lantz
Tom Kendall
Co-Head of Global Rates Co-Head of Global Rates
Group Head Jan Stuart
+44 20 7888 0757 +1 212 538 5081
+44 20 7883 2432 +1 212 325 1013
[email protected] [email protected] [email protected] [email protected]
EU RATES US RATES Marcus Garvey Johannes Van Der Tuin
Thushka Maharaj Ira Jersey +44 20 7883 4787 +1 212 325 4556
+44 20 7883 0211 +1 212 325 4674 [email protected] [email protected]
[email protected] [email protected]
Bhaveer Shah Andrew Shaw
Marion Pelata Michael Chang +44 20 7883 1449 +65 6212 4244
+44 20 7883 1333 +1 212 325 1962 [email protected] [email protected]
[email protected] [email protected]
GLOBAL FX STRATEGY
Florian Weber Carlos Pro Sean Shepley
+44 20 7888 3779 +1 212 538 1863 Group Head Mark Astley
[email protected] [email protected] +44 20 7888 1333 +44 20 7883 9931
[email protected] [email protected]
William Marshall
+1 212 325 5584 Anezka Christovova Alvise Marino
[email protected] +44 20 7888 6635 +1 212 325 5911
[email protected] [email protected]
JAPAN RATES
Tomohiro Miyasaka Matthew Derr
+81 3 4550 7171 +1 212 538 2163
[email protected] [email protected]
TECHNICAL ANALYSIS MARKET STRATEGIES
David Sneddon Sean Shepley
Group Head Christopher Hine Group Head Bill Papadakis
+44 20 7888 7173 +1 212 538 5727 +44 20 7888 1333 +44 20 7883 4351
[email protected] [email protected] [email protected] [email protected]
James Lim Glenn Russo
+65 6212 3612 +1 212 538 6881
Disclosure Appendix
Analyst Certification The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
Important Disclosures Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail, please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html . Credit Suisse's policy is to publish research reports as it deems appropriate, based on developments with the subject issuer, the sector or the market that may have a material impact on the research views or opinions stated herein. The analyst(s) involved in the preparation of this research report received compensation that is based upon various factors, including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's Investment Banking and Fixed Income Divisions. Credit Suisse may trade as principal in the securities or derivatives of the issuers that are the subject of this report. At any point in time, Credit Suisse is likely to have significant holdings in the securities mentioned in this report. As at the date of this report, Credit Suisse acts as a market maker or liquidity provider in the debt securities of the subject issuer(s) mentioned in this report. For important disclosure information on securities recommended in this report, please visit the website at https://firesearchdisclosure.credit-suisse.com or call +1-212-538-7625. For the history of any relative value trade ideas suggested by the Fixed Income research department as well as fundamental recommendations provided by the Emerging Markets Sovereign Strategy Group over the previous 12 months, please view the document at http://research-and-analytics.csfb.com/docpopup.asp?ctbdocid=330703_1_en . Credit Suisse clients with access to the Locus website may refer to http://www.credit-suisse.com/locus For the history of recommendations provided by Technical Analysis, please visit the website at www.credit-suisse.com/techanalysis . Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Emerging Markets Bond Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will deliver a return higher than the risk-free rate. Sell: Indicates a recommended sell on our expectation that the issue will deliver a return lower than the risk-free rate.
Corporate Bond Fundamental Recommendation Definitions Buy: Indicates a recommended buy on our expectation that the issue will be a top performer in its sector. Outperform: Indicates an above-average total return performer within its sector. Bonds in this category have stable or improving credit profiles and are undervalued, or they may be weaker credits that, we believe, are cheap relative to the sector and are expected to outperform on a total-return basis. These bonds may possess price risk in a volatile environment. Market Perform: Indicates a bond that is expected to return average performance in its sector. Underperform: Indicates a below-average total-return performer within its sector. Bonds in this category have weak or worsening credit trends, or they may be stable credits that, we believe, are overvalued or rich relative to the sector. Sell: Indicates a recommended sell on the expectation that the issue will be among the poor performers in its sector. Restricted: In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated: Credit Suisse Global Credit Research or Global Leveraged Finance Research covers the issuer but currently does not offer an investment view on the subject issue. Not Covered: Neither Credit Suisse Global Credit Research nor Global Leveraged Finance Research covers the issuer or offers an investment view on the issuer or any securities related to it. Any communication from Research on securities or companies that Credit Suisse does not cover is a reasonable, non-material deduction based on an analysis of publicly available information.
Corporate Bond Risk Category Definitions In addition to the recommendation, each issue may have a risk category indicating that it is an appropriate holding for an "average" high yield investor, designated as Market, or that it has a higher or lower risk profile, designated as Speculative, and Conservative, respectively.
Credit Suisse Credit Rating Definitions Credit Suisse may assign rating opinions to investment-grade and crossover issuers. Ratings are based on our assessment of a company's creditworthiness and are not recommendations to buy or sell a security. The ratings scale (AAA, AA, A, BBB, BB, B) is dependent on our assessment of an issuer's ability to meet its financial commitments in a timely manner. Within each category, creditworthiness is further detailed with a scale of High, Mid, or Low − with High being the strongest sub-category rating: High AAA, Mid AAA, Low AAA - obligor's capacity to meet its financial commitments is extremely strong; High AA, Mid AA, Low AA − obligor's capacity to meet its financial commitments is very strong; High A, Mid A, Low A − obligor's capacity to meet its financial commitments is strong; High BBB, Mid BBB, Low BBB − obligor's capacity to meet its financial commitments is adequate, but adverse economic/operating/financial circumstances are more likely to lead to a weakened capacity to meet its obligations; High BB, Mid BB, Low BB − obligations have speculative characteristics and are subject to substantial credit risk; High B, Mid B, Low B − obligor's capacity to meet its financial commitments is very weak and highly vulnerable to adverse economic, operating, and financial circumstances; High CCC, Mid CCC, Low CCC – obligor's capacity to meet its financial commitments is extremely weak and is dependent on favorable economic, operating, and financial circumstances. Credit Suisse's rating opinions do not necessarily correlate with those of the rating agencies.
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