Strategist Commodities Weekly - DWS · The outlook for the next two years is therefore more balanced than our previous assessment, and we have downgraded our forecasts by an average

Deutsche Bank Markets Research

Global

Commodities

Date 6 March 2015

Commodities Weekly

________________________________________________________________________________________________________________

Deutsche Bank AG/London

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

Michael Lewis

Strategist

(+44) 20 754-52166

[email protected]

Michael Hsueh

Strategist

(+44) 20 754-78015

[email protected]

Jayati Mukherjee

Strategist

(+91) 22 6181-2036

[email protected]

Overview: Commodities generally remain under pressure across the board,

with precious metals giving up gains as real interest rates rebound from

January lows. Despite the relative stability in crude oil prices since February,

the extent of fundamental dislocations remains high, not least of which are the

strong additions to US inventories for eight weeks running and unplanned US

refinery outages, keeping WTI-Brent relatively wide. Outside the US, we view

deterioration in security conditions in Libya, negotiations over Iran’s nuclear

programme, and the likelihood of a default in Venezuela as primary event risks.

Energy: We lower our expectations of natural gas pricing over the summer as

supply momentum sustains downside pressures despite deferment of well

completions in the summer. While varying measures of storage sufficiency are

open for debate, we expect lower pricing and the gas discount to coal prices to

forestall extreme inventory surpluses. In crude oil, a rise in the Saudi official

selling price differentials signaled strengthening conditions, along with a

narrowing Brent contango since the start of the year.

Precious Metals: We retain our bearish view on gold, with the metal coming

under pressure from a strong USD. We continue to forecast a further

strengthening of the USD which will keep gold under pressure. We expect the

performance of precious metal returns will also be closely tied to US payroll

employment growth and Fed rate expectations.

Industrial Metals & Bulks: Over the past few weeks, supply side disruptions in

copper have been the catalyst for a price recovery. Whilst we think the

recovery may have some momentum, we still forecast a surplus for this year

and lower prices on average for 2015. Although our outlook for aluminium

remains generally positive, we lower our price expectations on slower global

demand growth forecasts and a deflationary cost environment.

Agriculture: We expect agricultural prices to generally remain weak on higher

global inventory to use ratios. Soybean prices fell this week as easing strike

conditions loosened trucking bottlenecks in Brazil, allowing limited shipments

to reach ports, while crop conditions for US winter wheat remain generally

manageable despite damage due to cold weather in some regions.

Table of Contents

Commodity Performance ....................................Page 2

Global Trends ......................................................Page 3

Asset Class Performance .................................Page 11

Positioning Sentiment Monitor ........................Page 12

Commodity Price Forecasts ..............................Page 14

6 March 2015

Commodities Weekly

Page 2 Deutsche Bank AG/London

Commodity Performance

Energy

week to date year to date View

10.5

5.38

5.34

2.45

0.72

-0.79

-12.10

-21 -16 -11 -6 -1 4 9 14

Gasoline (RBOB)

WTI

US natural gas

Uranium

Brent

Coal (API#4)

Heating oil% returns

week on week

31.5

12.48

5.49

1.66

-1.65

-1.66

-4.71

-25 -15 -5 5 15 25 35 45

Gasoline (RBOB)

Uranium

Brent

Heating oil

Coal (API#4)

US natural gas

WTI % returns year-to-date

Precious Metals


1.85

0.80

-0.88

-2.50

-21 -16 -11 -6 -1 4 9 14

Palladium

Platinum

Gold

Silver% returns

week on week

3.57

3.19

0.95

-2.68

-25 -15 -5 5 15 25 35 45

Palladium

Silver

Gold

Platinum% returns

year-to-date

Industrial Metals


3.41

0.22

-0.22

-0.90

-1.25

-2.46

-21 -16 -11 -6 -1 4 9 14

Lead

Tin

Aluminium

Copper

Nickel

Zinc% returns

week on week

-2.05

-2.73

-6.27

-6.49

-7.25

-7.38

-25 -15 -5 5 15 25 35 45

Lead

Aluminium

Nickel

Tin

Zinc

Copper% returns

year-to-date

Agriculture


0.72

-2.88

-4.37

-4.37

-4.55

-21 -16 -11 -6 -1 4 9 14

Corn

Lumber

Soybeans

Wheat

Sugar% returns

week on week

-3.59

-3.92

-7.44

-13.32

-18.4

-25 -15 -5 5 15 25 35 45

Corn

Soybeans

Sugar

Lumber

Wheat% returns

year-to-date

Sources: Deutsche Bank, Bloomberg Finance LP (Prices as of close of business March 05, 2015. Dials refer to the current quarter)

6 March 2015

Commodities Weekly

Deutsche Bank AG/London Page 3

Global Trends Aluminium: A More Balanced Outlook

We remain positive on the outlook for the aluminium market, with

producer discipline over the past two years resulting in a slight deficit

market in 2014. However the demand outlook, especially in China has

deteriorated and project momentum in China has also been stronger than

anticipated.

The outlook for the next two years is therefore more balanced than our

previous assessment, and we have downgraded our forecasts by an

average of 8% over the next few years. We now expect aluminium to

average USD1,916/t in 2015 and USD2,056/t in 2016.

When factoring in falling premiums, we expect the annual all-in price

appreciation to be in the low single digits. Given the general deflationary

environment in the industry, this should still result in improving margins for

the producers.

Weak China macro, semi’s export and improving profitability

Weak underlying industrial output data (electricity output, rail traffic and

cement production) and some downside risk in the improvement trajectory of

the Chinese property market, has led to a downgrade in our aluminium

demand growth forecasts. The over-supplied Chinese market and the

favourable arbitrage in exporting semi fabricated products have led to a sharp

increase in exports in December and January. Favourable currency tailwinds

and cost cutting measures has led to the sector beating earnings expectations

by a wide margin in the recent financial results. In our view this would make

further curtailments unlikely and may prompt some reactivations. The

favourable currency effect for many producers will have a feedback into the

price of the metal in our view.

Modestly increasing LME prices, but falling premiums

Although the Chinese aluminium market is clearly in a surplus given the

weaker demand environment, flagging domestic price and the sharp increase

in exports, we continue to forecast the overall global market to be in balance

or at worst modestly over-supplied, with a sustained deficit in the world ex-

China. The tight market should support a gradual appreciation of LME prices.

However, the increased flow of metal from China, the tighter time spreads and

the change in warehouse rules should mean that the physical availability of

metal will improve, leading to lower premiums. The net effect is a modestly

increasing all-in price of 1–3% over the next few years. Given the considerable

effort in cost cutting, and the deflationary cost environment, we continue to

forecast producer margins improvements outstripping the underlying price

increase.

Downgrading forecasts due to slower demand growth

We have cut our demand growth expectations by 300 – 600kt per annum over

the medium-term. We now forecast global aluminum demand growth for 2015

at 5.1% growth; this compared to demand growth in 2014 of 6.9%. We had

already expected Chinese growth to slow, but given the weak start to the year,

demand growth is lower than anticipated. We do point out that this is still a

decent rate, with growth in all of the main demand sectors, with the exception

of consumer durables.

6 March 2015

Commodities Weekly


Figure 1: Aluminium demand by market sector in 2014

Transportation24%

Construction24%

Electrical16%

Packaging13%

Engineering10%

Consumer Durables

9%

Others4%

Source: Harbor Aluminium, Deutsche Bank

Growth in China continues to be driven by the power sector, and to a lesser

extent, the packaging industry. Concerns regarding the slowdown in the

property market coupled with a broader deceleration in the economy have led

us to temper the demand outlook for the construction, transport, consumer

goods and machinery & equipments sectors. China’s state Grid will, however,

start constructing 77,000 km of AC and DC power transmission lines of which

46,000 km of AC lines will be operational in 2015. Investment of c.USD68bn

will be spent on grid infrastructure this year including pre-project work for four

power links connecting China with Kazakhstan, Russia, Mongolia and Pakistan

via ultra-high voltage lines. Overhead UHV lines are aluminium intensive and

the commencement of work on the smart grid will boost aluminium demand

over the next couple of years.

Figure 2: China real activity index Figure 3: Li Ke Qiang Index

-10

0

10

20

30

2007 2008 2009 2010 2011 2012 2013 2014

China real activity index (3mma - YoY)China Industrial Prod'n (%)China real activity index* (3mma - YoY)

0

5

10

15

20

25

30

Source: Deutsche Bank, Bloomberg Finance LP, equally weighted between growth rates of Rail Traffic, Cement production, Electricity production and Macau Gaming Receipts

Source: Deutsche Bank, Annual growth rates in outstanding bank loans (40%), Electricity production (40%), Rail freight volume (40%).

Furthermore, the NDRC has cleared USD8.6bn of investment in rail projects

which includes three new subways and rail lines in Shandong and Yunnan. The

increase in rolling stock is particularly supportive for aluminium demand.

However, we believe domestic demand will remain sluggish in the near term

until well after Chinese New Year. Our preferred China macro indices, the Li Ke

Qiang Index and the China real activity index remain weak and show no signs

of a turn-around, suggesting continued weakness in industrial activity over the

6 March 2015

Commodities Weekly


near term.

There is currently subdued demand in both Asia and Europe with end-use

consumers happy to destock inventories built up over the course of 2014.

North American demand remains the outstanding region for growth with much

of the 2014 momentum spilling over into H1 2015 and possibly beyond. The

light-weighting of Auto’s remains a key longer term trend, with the average

vehicle aluminium composition rising from 4% in 2015E to 18% in 2025E.

Figure 4: Aluminium penetration in light vehicle production

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Hoods Fenders Doors Trunk / Gate Roof Complete Bodies

2015E 2020E 2025E

Source: RUSAL presentation February 2015, Deutsche Bank

Brazil and Russian aluminium demand is likely to decline in 2015, as both

countries move into a recession.

Although the JP Morgan Global Manufacturing PMI, has ticked up in January,

the demand weighted aluminium PMI continues to drift lower, weighed down

by a China PMI which came in below 50.

Figure 5: JP Morgan Global Manufacturing PMI Figure 6: Aluminium demand weighted PMI

46

47

48

49

50

51

52

53

54

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

30

35

40

45

50

55

60

May-0

5

Oct-

05

Mar-

06

Aug

-06

Jan-0

7

Jun

-07

No

v-0

7

Ap

r-08

Sep

-08

Feb

-09

Jul-09

Dec-0

9

May-1

0

Oct-

10

Mar-

11

Aug

-11

Jan-1

2

Jun

-12

No

v-1

2

Ap

r-13

Sep

-13

Feb

-14

Jul-14

Dec-1

4

PMI (3-month moving average) - LHS

Real Aluminum Prices (3-month moving average) - rhs

USD/t

Source: Bloomberg Finance LP, Deutsche Bank

Source: Bloomberg Finance LP, Deutsche Bank

6 March 2015

Commodities Weekly


The net result of these demand downgrades and modest production upgrades

is that the aluminium market looks far more balanced over the next few years

that we had previously forecast. The regional imbalances remain, and look very

similar to 2014, with a big surplus in China, a deficit in the world ex-China, and

a modest net surplus.

Figure 7: Aluminium supply – demand balance: China vs the Rest

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0China balance

ROW balance

Global balance

Tonnes (

mill

ion)

Source: Deutsche Bank, Wood Mackenzie

We continue to think that aluminium fundamentals will improve over the

medium term, but with markets being more balanced as opposed to being in a

deficit, the annual price appreciation is likely to be slower than we had

previously forecast. We forecast LME prices to appreciate by 3% in 2015, and

by 7–8% from 2016 onwards. We do however expect premiums to ease over

the medium term. Hence the net appreciation of the all-in price received by the

producers or the price paid by consumers is forecast to be lower; 1% in 2015E,

and between 2–5% over the medium term. This would be a good outcome for

the producers in an industry where cyclical deflation and continuous efficiency

gains will see average cash costs decline.

Figure 8: Deutsche Bank’s aluminium forecasts

USD/t Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 Q1 16 Q2 16 Q3 16 Q4 16 2016 2017 2018 2019 2020

New 1,964 1,867 1,845 1,920 1,950 1,950 1,916 2,000 2,050 2,075 2,100 2,056 2,200 2,379 2,557 2,736

Prior 2,000 1,901 1,950 2,050 2,100 2,150 2,063 2,200 2,250 2,300 2,300 2,263 2,381 2,499 2,618 2,736

% change -2% -2% -5% -6% -7% -9% -7% -9% -9% -10% -9% -9% -8% -5% -2% 0%

US Mid West Premium

455 425 350 250 200 150 150

All-in price 2,322 2,341 2,406 2,450 2,579 2,707 2,886

LME price (annual appreciation)

3% 7% 7% 8% 8% 7%

All-in price appreciation

1% 3% 2% 5% 5% 7%

Source: Deutsche Bank

Grant Sporre, (44) 20 754 58170 [email protected]

mailto:[email protected]

6 March 2015

Commodities Weekly


Figure 9: Aluminium supply-demand model

2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Primary Aluminium

Chinese Production Mt 17.3 19.8 22.4 24.8 27.6 29.8 31.9 33.3 34.4 36.4 37.5 40.4 40.4 40.4 40.4 40.4

growth % 28% 14% 13% 11% 11% 8% 7% 4% 3% 6% 3% 8% 0% 0% 0% 0%

Russia Production Mt 3.9 4.0 4.0 3.7 3.5 3.6 3.8 3.9 4.3 4.7 4.9 5.2 5.2 5.2 5.2 5.2

growth % 4% 1% 1% -7% -7% 4% 6% 1% 11% 9% 4% 7% 0% 0% 0% 0%

Middle East Production Mt 3.1 3.9 4.0 4.3 5.2 5.5 5.6 5.6 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7

growth % 25% 26% 5% 6% 22% 5% 2% 1% 1% 0% 0% 0% 0% 0% 0% 0%

Europe & N. American Production Mt 8.3 8.8 8.4 8.5 8.1 8.3 8.8 9.1 9.2 9.2 9.1 9.9 9.9 9.9 9.9 9.9

growth % 1% 6% -5% 1% -4% 3% 6% 3% 2% 0% -2% 9% 0% 0% 0% 0%

Global Production Mt 42.1 46.0 48.0 50.5 53.3 56.3 59.7 62.3 65.0 67.7 69.9 73.1 74.7 77.0 78.4 79.9

growth % 13.1% 9.2% 4.4% 5.1% 5.6% 5.7% 5.9% 4.3% 4.4% 4.1% 3.3% 4.5% 2.2% 3.1% 1.8% 1.9%

check 42.3 46.2 48.1 50.5 53.4 57.4 61.3 62.1 64.9 67.3 69.8 70.3 71.8 73.8 77.3 79.8

Global Capacity Mt 50.2 52.9 56.2 62.3 66.9 70.1 72.7 74.2 75.2 75.2 75.2 77.7 78.2 78.7 79.2 79.7

utilisation rate % 84% 87% 85% 81% 80% 80% 82% 84% 86% 90% 93% 94% 96% 98% 99% 100%

Primary Aluminium Consumption

China Consumption Mt 16.7 19.5 21.5 23.9 26.1 28.1 30.3 32.3 34.2 36.1 37.5 39.0 40.2 41.4 42.7 43.9

growth % 18.1% 16.4% 10.4% 11.3% 9.0% 7.5% 8.0% 6.5% 6.0% 5.5% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0%

China net imports (exports) Mt -0.4 -0.5 0.0 -0.3 -1.0 -1.7 -1.6 -1.0 -0.2 -0.3 0.0 -1.4 -0.2 1.0 2.2 3.5

Developing economies (ex China) Mt 10.3 11.0 11.3 11.6 12.3 12.6 13.2 13.8 14.4 15.0 15.7 16.3 17.0 17.6 18.3 19.0

growth % 11% 8% 3% 2% 6% 3% 4% 5% 5% 4% 5% 4% 4% 4% 4% 4%

North America Mt 5.3 5.4 5.9 5.9 6.2 6.4 6.8 7.0 7.3 7.5 7.7 7.8 8.0 8.1 8.3 8.4

growth % 9.8% 2.9% 8.8% 0.2% 3.9% 4.5% 5.0% 4.0% 3.5% 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

EU 15 Mt 7.9 8.3 8.3 8.4 8.6 8.8 9.0 9.2 9.4 9.6 9.9 10.0 10.3 10.5 10.7 10.9

growth % 11% 6% 0% 1% 3% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2% 2%

OECD Consumption Mt 13.7 14.0 14.5 14.4 14.9 15.4 15.8 16.1 16.4 16.7 16.9 17.2 17.4 17.6 17.9 18.1

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

Global Consumption Mt 40.7 44.5 47.3 49.9 53.3 56.0 59.2 62.2 65.1 67.9 70.2 72.5 74.6 76.7 78.8 81.0

check 40.7 44.5 47.3 49.9 53.3 56.0 58.9 61.6 64.1 66.4 68.5 70.6 72.7 74.7 76.8 78.9

growth % 14.0% 9.3% 6.3% 5.5% 6.9% 5.1% 5.7% 5.0% 4.6% 4.3% 3.5% 3.3% 2.8% 2.8% 2.8% 2.8%

Production adjustments Mt 0 0 -300 -700 -573 -367 -433 467 634 712 2,996 4,398 5,871

Market balance Mt 1.39 1.50 0.71 0.56 -0.04 0.30 0.44 0.06 -0.09 -0.18 -0.29 0.56 0.16 0.35 -0.40 -1.15

Avg. LME cash price $/t 2,191 2,423 2,052 1,889 1,867 2,063 2,263 2,381 2,499 2,618 2,736 2,818 2,903 2,990 3,079 3,172

Avg. LME cash price c/lb. 99 110 93 86 85 94 103 108 113 119 124 128 132 136 140 144

Source: Deutsche Bank, Wood Mackenzie

6 March 2015

Commodities Weekly


US Natural Gas: Looking For Demand

We lower our price forecast for summer 2015 to USD2.6/mmBtu on the

logic of incentivisation for the electric utility sector as a demand sink. This

scenario assumes a relatively conservative dry gas production outlook,

particularly in comparison to growth observed in Q4-2015.

We also reduce our expectations of 2016 pricing by USD0.40/mmBtu to

USD3.5/mmBtu on the expectation of higher production growth (+2.5

bcf/d) particularly in the Northeast as well as the resumption of associated

gas production growth.

We expect that production growth will be limited over the next two

quarters as producers defer well completions. The consequent increase in

the backlog may potentially add to production growth in later quarters

particularly if completion costs fall in the interim.

While Q4-14 winter weather was very slightly milder than normal, Q1-15

weather has been quite severe although it has not surpassed the extremes

of Q1-14. Yet NYMEX prices have shown limited gains, suggesting that

the balance will remain weak as we move into summer.

Risks to the view include US coal prices with a $5/st move being

equivalent to a delta of $0.30/mmBtu in the gas price equivalent.

Figure 1: US dry gas production (bcf/d) Figure 2: Monthly US HDDs

60

62

64

66

68

70

72

74

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

2013

2014

2015

-50

0

50

100

150

200

250

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

2014

2015

10Y Average

-1 SD

+1 SD

Source: Bentek Energy, Deutsche Bank Source: Bloomberg Finance LP, NOAA, Deutsche Bank

Lowering our forecasts In our note from last week (Production On The Rise, 27 February 2015), we put forth a scenario for the balance of 2015 entailing the incentivisation of incremental utility demand to balance the market, with the assumption of a relatively benign production growth profile. We now adopt this scenario as our base case with the attendant price forecast changes.

As before, we assume lower production growth this year of +3.3 bcf/d which partly reflects the carrying forward of supply momentum from Q4-2014. This implies a slowing of the pace of production increases as producers defer completions from the Q2/Q3 period in anticipation of subdued pricing. In terms of the supply subset shown in Figure 1, this equates to 71.6 bcf/d (and translates to 73.8 bcf/d in the terms used in the supply-demand model, Figure 5).

6 March 2015

Commodities Weekly


Figure 3: Gas-CAPP differential and gas burn Figure 4: Working gas capacity in days of consumption

0

0.5

1

1.5

2

2.5

3

3.5

-5 0 5 10

Gas b

urn

(m

illio

n c

f/m

onth

/MW

)

Gas-coal differential ($/mmBtu)

58

60

62

64

66

68

70

2000 2002 2004 2006 2008 2010 2012 2014

Days of consumption at 100% capacity

62.6 days of consumption

Average = 66.1

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

Using historical demand sensitivities observed in the Eastern US states with respect to the NG-CAPP differential, Figure 3, we expect that the average differential of the past month (USD-1.4/mmBtu) will need to fall to an average of USD-1.8/mmBtu over the summer in order to reduce excess gas injections to the point where storage volumes remain in-line with the 10Y average by percentage of working gas capacity. This assumes that the Central Appalachian coal price remains steady at USD52/short ton, with sensitivity to the coal price being USD0.30/mmBtu in natural gas terms per USD5/st change in the coal price.

In terms of the seasonal levels of storage which might be understood as reflecting a balanced market, we refer to percentage of working gas capacity. By avoiding reference to absolute levels of gas in storage, we believe a more reasonable comparison with history can be made. However, this method incorporates the assumption that working gas capacity has risen roughly in line with demand, when in fact working gas capacity is lower in days of consumption today than the average since 2000, Figure 4.

Therefore, there is room for debate over what level of gas in store can be considered normal or sufficient. If we take days of consumption as the metric, a somewhat higher percentage of working gas capacity should be considered normal after adjusting for the lower capacity of storage today relative to demand. The discrepancy is significant enough that if we were to adjust the end-of-summer “target” to normalize for storage capacity, it would be 4,158 bcf on 6 Nov instead of 3,936 bcf (84.1% of working gas capacity of 4,680 bcf).

Essentially, this would mean that we would not need to see summer gas prices fall at all relative to coal, and that the forecast level of storage in a business-as-usual scenario (without additional coal-gas switching) of 4,103 bcf on 6 Nov would even be slightly short of that required for the winter.

However, we expect that market participants will be more finely attuned to the level of storage as a proportion of working gas capacity and we therefore adhere to the newly adopted scenario which requires incentivisation of additional utility gas demand. This in turn drives our expectation of summer gas pricing.

Michael Hsueh, (44) 20 754 78015 [email protected]

6 March 2015

Commodities Weekly


Figure 5: US natural gas supply and demand

Bcf/day2013 2014E

1Q

2015E

2Q

2015E

3Q

2015E

4Q

2015E 2015E

1Q

2016E

2Q

2016E

3Q

2016E

4Q

2016E 2016E 2017E

CONSUMPTION

Residential 13.5 13.9 25.4 6.9 3.7 16.1 13.0 25.4 6.9 3.8 16.1 13.1 13.1

Commercial 9.0 9.4 14.5 6.0 4.5 10.3 8.8 14.5 6.0 4.5 10.3 8.8 8.8

Industrial 20.3 21.1 23.9 21.3 20.8 23.1 22.3 24.9 22.3 21.8 24.1 23.3 24.3

Electric Power 22.3 22.2 21.3 23.0 29.4 21.8 23.9 22.0 23.7 30.1 22.5 24.6 25.3

Other 6.5 6.8 7.5 6.6 6.6 6.7 6.9 7.6 6.6 6.6 6.8 6.9 7.0

Lease and Plant Fuel 4.0 4.3 4.4 4.4 4.4 4.5 4.4 4.4 4.4 4.4 4.5 4.4 4.4

Pipeline and Distribution 2.4 2.4 3.0 2.1 2.0 2.2 2.3 3.0 2.1 2.0 2.2 2.3 2.3

Total Demand 71.6 73.4 92.7 63.7 65.0 77.9 74.8 94.5 65.5 66.8 79.7 76.6 78.4

YoY % change 2.7% 2.4% -2.6% 4.3% 5.4% 2.9% 1.9% 1.9% 2.8% 2.8% 2.3% 2.4% 2.3%

DOMESTIC SUPPLY

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

Gulf of Mexico 3.6 3.4 3.2 3.2 3.2 3.1 3.2 3.3 3.3 3.3 3.2 3.3 3.4

Other US 65.9 70.2 73.6 74.2 74.3 74.9 74.2 75.4 76.4 76.7 76.4 76.2 78.4

Marketed Production 70.4 74.5 77.8 78.2 78.3 78.9 78.3 79.7 80.5 80.7 80.5 80.4 82.6

Dry Gas Production 66.7 70.5 73.3 73.7 73.8 74.4 73.8 75.6 76.4 76.6 76.4 76.3 78.5

YoY % change 1.4% 5.7% 8.3% 6.5% 3.1% 1.5% 4.8% 3.1% 3.6% 3.9% 2.7% 3.3% 3.0%

Net Storage Withdraws 1.5 -0.9 15.6 -11.1 -10.0 2.0 -0.9 16.3 -10.7 -9.8 3.1 -0.3 0.2

Other & Balance -0.115 0.5 0.5 -1.1 -0.8 -0.4 -0.5 0.5 -1.1 -0.8 -0.4 -0.5 -0.5

Total Domestic Supply 68.1 70.1 89.3 61.5 62.9 76.1 72.5 92.4 64.6 66.0 79.1 75.5 78.3

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

LNG Gross Exports 0.0 0.0 0.0 0.0 0.4 0.6 0.3 1.0 1.0 1.4 1.5 1.2 2.2

Pipeline Gross Imports 7.6 7.2 7.5 6.4 6.7 7.0 6.9 7.5 6.4 6.7 7.0 6.9 6.9

Pipeline Gross Exports 4.3 4.0 4.3 4.4 4.4 4.8 4.5 4.6 4.7 4.7 5.1 4.8 5.1 Source: US EIA, Deutsche Bank

6 March 2015

Commodities Weekly


Asset Class Performance

Benchmark returns suffered again this week although SPGSCI

outperformed BCOM reflecting a recovery in WTI crude oil. As an asset

class, commodities have fallen further on the year-to-date to -2.5% since

the start of the year, versus positive returns for government debt,

emerging market Eurobonds and global equities.

Among the DBLCI family of enhanced beta indexes, DBLCI Mean

Reversion showed the most positive week-on-week gains as its largest

index constituent, WTI (28% share) recovered lost ground. The WTI

recovery came in spite of another larger-than-expected inventory build.

We expect refinery turnarounds and slowing production growth will help

rein in inventory builds into the middle of the year.

The DBLCI Backwardation Long index suffered as a result of weakening

soybean and soybean oil prices as compliance with a trucking strike in

Brazil weakened somewhat. This has partially relieved the transportation

bottleneck for the ongoing harvest and replenished port stocks at

Paranagua. The soybean harvest in Mato Grosso was 35% complete as of

20 Feb and Brazil is the largest producer of soybeans.

Threats to supply in the Middle East, colder-than-normal weather, and

refinery strikes in the US have lifted year-to-date energy sector returns into

positive ground, now in second place. Libya’s declaration of force majeure

on 11 oilfields indicates that security conditions are deteriorating and that

repair and rehabilitation of damaged oil infrastructure are unlikely to be

achieved soon.

We expect the performance of precious metal returns will be closely tied

to US payroll employment growth and Fed rate expectations. Cold weather

across the US threatens to deliver downside risks to job creation levels in

the short term and sustain the positive contribution precious metals

provide to overall index returns. However, we would expect this strength

will prove short-lived and underlying fundamentals in the gold market

remain bearish.

Figure 1: 2015 commodity index scorecard

-2.5

-3.0

-3.7

-3.1-2.8

-3.3 -3.4

-3.0

-0.1

-2.0

-0.4

-5

-3

-1

1

3

BCOM SPGSCI DBLCI-OYBalanced

DBLCI-OYDiversified

DB Booster DBLCI-MeanReversion

DBLCI-MREnhanced

DBLCIBackwardation

Long

DBLCI CCALite

DBBackwardation

Alpha

DB MomentumAlpha

Excess returns ytd (%)

Enhanced Beta AlphaBeta

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 05, 2015)

(USD terms) WTD

MTD

YTD Sharpe

DBLCI-OY Balanced -1.19 -2.24 -3.67 -2.26

DBLCI-OY Diversified -0.86 -2.48 -3.14 -2.15

DB Booster -0.75 -1.83 -2.77 -2.18

DBLCI-Mean Reversion

0.90 -1.23 -3.32 -1.68

DBLCI-MR Enhanced -0.60 -1.53 -3.44 -1.73

DBLCI Backwardation Long

-1.46 -1.79 -2.96 -2.29

Risk factors

DB Commodity Curve Alpha Lite

-0.30 -0.33 -0.14 -0.33

DBLCI Backwardation Alpha

-1.91 -1.34 -1.99 -0.63

DBLCI Momentum Alpha

-0.58 -0.28 -0.44 1.93

SPGSCI sector performance

Energy 1.81 -1.52 -0.22 -1.62

Industrial Metals -0.65 -0.57 -5.56 -0.70

Precious Metals -1.33 -1.51 1.20 -0.82

Agriculture -2.49 -3.33 -8.76 -1.71

Livestock 1.74 0.75 -9.25 -0.48

Performance of other benchmark indices

SPGSCI 0.72 -1.55 -3.05 -1.99

BCOM -0.40 -1.68 -2.52 -2.10

Figure 2: Excess returns in 2015

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 05, 2015. Sharpe ratios are calculated on a YoY basis)

Figure 3: 2015 asset class returns

compared

-2.5

-0.7

0.6

1.9

3.4

-5

-4

-3

-2

-1

0

1

2

3

4

5

Commodities FX Fixed Income EM Equities

Commodities: BCOM IndexFX: DB Currency Returns IndexFixed Income: DBIQ Global IG SovEquity: MSCI Global EM: DBIQ EMLE

Total returns

(% year to date)

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 05, 2015) Fixed Income cob March 04, 2015

6 March 2015

Commodities Weekly


Positioning, Sentiment & Liquidity Monitor

Figure 1: CFTC net non-commercial positioning

-300000

-200000

-100000

0

100000

200000

300000

400000

500000

03-Feb-2015 24-Feb-15

Num

ber

of l

ots

Sources: CFTC, Deutsche Bank (Data refers to the last 5 years)

Figure 2: Relative strength index

Sources: Bloomberg Finance LP, Deutsche Bank (Data refers to the last 2 years)

Figure 3: Aggregate open interest

Sources: Bloomberg Finance LP, Deutsche Bank (Data refers to the last 2 years)

Long positioning stands at extended

highs in WTI, RBOB gasoline and silver,

and at moderate or extreme lows across

the remainder of the commodities

space. Strong short positioning is seen

in natural gas, heating oil, copper and

soybeans.

RBOB gasoline topped the charts this

week in relative strength, with palladium

coming in second place. Gasoline prices

have been boosted by unplanned

refinery outages in the Northeast as a

result of cold weather, during what was

already a period of planned

maintenance.

Open interest is relatively weak in

natural gas despite short positioning,

while open interest is relatively strong in

RBOB gasoline, confirming the positive

positioning bias in that market. Open

interest is also strong in silver and

heating oil, both markets with strong

levels of positioning (long in silver, short

in heating oil).

6 March 2015

Commodities Weekly


Commodity Spot, Forward Curve & Volatility

Figure 1: Spot

Sources: Bloomberg Finance LP, Deutsche Bank Two-year historical range; body represents 25th to 75th percentiles, whiskers represent 5th and 95th percentiles. US NG, Heating Oil and RBOB gasoline prices have been multiplied by 10 and Soybean price divided by 10

Figure 2: Forward curve (1st to 13th month)

Sources: Bloomberg Finance LP, Deutsche Bank Five-year historical range; body represents 25 th to 75th percentiles; whiskers represent 5 th and 95th percentiles.

Figure 3: Volatility: 3M Implied

Sources: Bloomberg Finance LP, Deutsche Bank Two-year historical range; body represents 25th to 75th percentiles, whiskers represent 5th and 95th percentiles.

Spot price levels are historically low across

the commodities sectors with the

exception of palladium. We forecast

persistent market deficits in palladium with

demand driven by Chinese vehicle sales.

Forward curves are predominately in

contango with some markets (Brent, WTI,

silver, corn and sugar) at the extremes of

historical ranges. Copper stands out as

the outlier with a backwardated curve

structure.

Implied volatility has receded from the

peaks for the energy sector apart from

RBOB gasoline, reflecting the

consolidation in prices since February.

Implied volatility in wheat and sugar is also

high by historical standards.

6 March 2015

Commodities Weekly


Commodity Price Forecasts

Energy Commodities Price Forecasts

USD Q3 14 Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 2016 2017

WTI (bbl) 97.25 73.20 93.01 52.5 52.5 55.0 57.5 54.4 65.0 70.0

% Change from previous forecast

Brent (bbl) 103.46 77.07 99.54 57.5 57.5 60.0 62.5 59.4 70.0 75.0


RBOB gasoline (g) 2.75 1.98 2.63 1.56 1.76 1.72 1.58 1.65 1.84 1.88


Heating oil (g) 2.83 2.32 2.78 1.85 1.76 1.77 1.83 1.80 2.03 2.15


IPE gasoil (t) 863.84 678.32 840.56 542.00 531.00 538.00 556.00 541.75 623.00 666.00


Singapore Jet (bbl) 116.54 93.88 112.91 72.00 71.00 72.00 74.00 72.25 82.76 85.00


US Natural Gas (mmBtu) 3.94 3.75 4.25 2.91 2.60 2.60 2.90 2.75 3.50 4.25

% Change from previous forecast 0.0% 0.0% -25.4% -30.7% -28.8% -21.6% -26.6% -10.3% 0.0%

Thermal Coal Japanese Guide

Price (JFY)

82.00 82.00 85.25 82.00 67.00 67.00 67.00 70.75 64.00 60.00


API4 (Richard's Bay) FOB (t) 70.24 66.00 71.91 65.00 63.00 62.00 62.00 63.00 60.00 57.00


Newcastle FOB (t) 67.96 63.00 71.14 62.00 60.00 59.00 59.00 60.00 57.00 55.00


Uranium (U3O8) (lb) [term] 48 52 49 55 56 57 57 56 58 61


Source: Deutsche Bank, Figures are period averages

Precious Metals Price Forecasts

USD/oz Q3 14 Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 2016 2017

Gold 1284 1195 1265 1200 1175 1150 1150 1169 1125 1125


Silver 20 17 19 17 17 17 17 17 17 18


Platinum 1438 1220 1384 1250 1350 1350 1400 1338 1475 1600


Palladium 865 785 803 835 855 845 865 850 900 1000


Rhodium 1288 1220 1172 1200 1300 1300 1200 1250 1400 1700



6 March 2015

Commodities Weekly


Industrial Metals Price Forecasts

Cash price Q3 14 Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 2016 2017

Aluminium

USc/lb 91.2 89.1 85.8 83.7 87.1 88.5 88.5 86.9 93.3 108.0

USD/t 2010 1964 1892 1845 1920 1950 1950 1916 2056 2381

% Change from previous forecast -1.8% -0.5% -5.4% -6.3% -7.1% -9.3% -7.1% -9.1%

Copper

USc/lb 317.0 299.5 310.2 301.7 304.0 301.7 294.9 300.6 289.8 326.7

USD/t 6986 6600 6838 6650 6700 6650 6500 6625 6388 7200


Lead

USc/lb 99.7 91.2 95.9 95.3 97.5 97.5 99.8 97.5 103.2 107.0

USD/t 2197 2010 2113 2100 2150 2150 2200 2150 2275 2358


Nickel

USc/lb 850.2 726.0 770.9 816.7 748.6 907.4 998.2 867.7 1066.2 1179.7

USD/t 18739 16000 16990 18000 16500 20000 22000 19125 23500 26000


Tin

USc/lb 998.2 907.4 994.8 930.1 952.8 952.8 998.2 958.5 1020.9 1015.5

USD/t 22000 20000 21925 20500 21000 21000 22000 21125 22500 22382


Zinc

USc/lb 105.1 101.2 98.1 100.7 102.1 102.1 108.9 103.4 112.3 118.0

USD/t 2316 2230 2162 2220 2250 2250 2400 2280 2475 2600



Bulk Commodities Price Forecasts

USD Q3 14 Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 2016 2017

Iron Ore Spot Landed Fines Price

in China CIF (t) 90.68 75.00 97.19 72.00 65.00 65.00 70.00 68.00 71.25 78.00


Hard Coking Coal JFY (t) 120.00 119.00 125.50 115.00 112.00 110.00 105.00 110.50 116.25 130.66


Low-volatile PCI JFY (t) 100.00 100.00 104.50 95.00 92.00 90.00 85.00 90.50 96.25 106.97


Source: DB Global Markets Research

Minor Metals Price Forecasts

USD Q3 14 Q4 14 2014 Q1 15 Q2 15 Q3 15 Q4 15 2015 2016 2017

Molybdenum (lb) 13.27 9.90 11.64 9.50 10.00 10.50 10.00 10.00 11.00 12.00



6 March 2015

Commodities Weekly


Appendix 1

Important Disclosures

Additional information available upon request

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Michael Lewis

http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

6 March 2015

Commodities Weekly


(a) Regulatory Disclosures

(b) 1. Country-Specific Disclosures

Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the

meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively.

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its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is

indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. In cases where

at least one Brazil based analyst (identified by a phone number starting with +55 country code) has taken part in the

preparation of this research report, the Brazil based analyst whose name appears first assumes primary responsibility for

its content from a Brazilian regulatory perspective and for its compliance with CVM Instruction # 483.

EU countries: Disclosures relating to our obligations under MiFiD can be found at

http://www.globalmarkets.db.com/riskdisclosures.

Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc.

Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau

(Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures

Association of Japan, Japan Investment Advisers Association. This report is not meant to solicit the purchase of specific

financial instruments or related services. We may charge commissions and fees for certain categories of investment

advice, products and services. Recommended investment strategies, products and services carry the risk of losses to

principal and other losses as a result of changes in market and/or economic trends, and/or fluctuations in market value.

Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant

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from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank

may engage in transactions in a manner inconsistent with the views discussed herein.

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Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall

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(c) Risks to Fixed Income Positions

Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise

to pay fixed or variable interest rates. For an investor that is long fixed rate instruments (thus receiving these cash

flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a

loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse

macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation

(including changes in assets holding limits for different types of investors), changes in tax policies, currency

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6 March 2015

Commodities Weekly


convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and

settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed

income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to

FX depreciation, or to specified interest rates - these are common in emerging markets. It is important to note that the

index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended

to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon

rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is

also important to acknowledge that funding in a currency that differs from the currency in which the coupons to be

received are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options

in addition to the risks related to rates movements.

David Folkerts-Landau Group Chief Economist

Member of the Group Executive Committee

Raj Hindocha Global Chief Operating Officer

Research

Marcel Cassard Global Head

FICC Research & Global Macro Economics

Richard Smith and Steve Pollard Co-Global Heads Equity Research

Michael Spencer Regional Head

Asia Pacific Research

Ralf Hoffmann Regional Head

Deutsche Bank Research, Germany

Andreas Neubauer Regional Head

Equity Research, Germany

Steve Pollard Regional Head

Americas Research

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Documents

Strategist Commodities Weekly - DWS · The outlook for the next two years is therefore more balanced than our previous assessment, and we have downgraded our forecasts by an average