SOFTS & HARDS

Commodities • 29 June 2010

Softs & Hards – July 2010

CONTENTS

1 Prices
Publisher: See price charts for a number of relevant commodities.
Jyske Markets -
Commodities 2 The past month in review…
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DK - 8600 Silkeborg
Get a quick overview of the events of the past month.

Commodities Team, 3-8 Research and expectations

Dealers: Our research includes comments on and illustrations of the supply and
Hans Chr. Haugaard demand situation. The expectations of the coming quarters are also
Jeppe Tokkesdal Jensen
Søren Kræn Pedersen
available here.
Peter Peschardt
+45 87 57 82 65 3 Oil
Commodities We maintain our anticipations of the oil price from last month and still see
@jyskebank.dk rising prices for the long term.

Commodities Team,
Analysts: 5 Copper
Casper Andersen We maintain our expectation of a higher copper price at twelve months’
+45 89 89 71 74 term, but we revise down the levels since we assess that part of the price
Candersen@jyskebank.dk increases will come later than expected.
Charlotte Rahlf
+45 89 89 71 75 7 Aluminium
crahlf@jyskebank.dk
We maintain our estimates of the aluminium price from last month’s
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SOFTS & HARDS
Commodities • 29 June 2010

Prices
Price data

BASE METALS
LME (USD/t) 28-06-2010 Change (M/M) 29-05-2010 Change (Y/Y) 28-06-2009
Aluminium 3M 2.029 -14 2.043 389 1.640
Cash 2.003 -10 2.013 396 1.607
15M 2.029 -14 2.043 389 1.640
27M 2.196 -21 2.217 344 1.853
63M 2.346 -30 2.376 221 2.126

Coppe r 3M 6.869 -70 6.939 1.770 5.099

Cash 6.840 -71 6.911 1.758 5.083
15M 6.906 -61 6.967 1.794 5.112
27M 6.769 -32 6.801 1.664 5.105
63M 6.124 -81 6.205 1.056 5.069

Nicke l 3M 20.650 -700 21.350 4.850 15.800

Cash 20.581 -696 21.277 4.868 15.713
15M 20.650 -700 21.350 4.850 15.800
27M 20.650 -700 21.350 4.850 15.800
63M NA NA NA NA NA

ENERGY
Crude Oil (USD/b ) 28-06-2010 Change (M/M) 29-05-2010 Change (Y/Y) 28-06-2009
NYMEX WTI 1M 78,25 4,28 73,97 6,76 71,49
6M 80,93 2,69 78,24 6,42 74,51
12M 82,78 2,34 80,44 6,40 76,38
24M 84,14 1,72 82,42 4,72 79,42

ICE Bre nt 1M 77,59 3,57 74,02 6,60 70,99

6M 80,02 2,46 77,56 6,00 74,02
12M 82,31 1,95 80,36 5,98 76,33
24M 84,67 1,71 82,96 4,92 79,75

PRECIOUS METALS
COMEX (USD/oz) 28-06-2010 Change (M/M) 29-05-2010 Change (Y/Y) 28-06-2009
Gold Spot 1.238,95 24,57 1.214,38 301,00 937,95
6M 1.238,60 23,60 1.215,00 289,60 949,00
12M 1.246,50 22,90 1.223,60 299,20 947,30
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets
The past month in review
By Charlotte Rahlf & Casper Andersen
The US
 The past month’s key figures from the US have
generally developed slightly better than market
expectations.
 The trend indicator, ISM industry, declined to 59.7
from 60.6, while a decline to 59 was expected. The
figures are, however, still very high meaning that
the advance in the industry continues.
 Unemployment in May declined to 9.7% from 9.9%
in April. This was to a higher degree due to the fact
that people were leaving the labour market rather
than a fall in employment.
 Retail sales disappointed considerably in May. They
declined by 1.2% m/m; a rise of 0.2% was expected.
 We have also seen disappointing figures for the
housing market in recent weeks, which contribute
to the greater uncertainty for the US economy.
China
 China continues showing solid growth figures.
However, the most important key figures have been
affected by the country’s tightening initiatives and
lower exports to Europe due to the debt crisis.
Growth in the economy is more moderate but still
solid.
 The industrial production rose by 16.5% in May –
slightly lower than the expected 17%.
 The PMI indicator declined in May to 52.7 from 55.2
and is now at its lowest level in 11 months. The
level is still above 50, which signals advance in the
industry.
Energy
 The crude-oil price is largely unchanged over the
past month. China’s tightening initiatives and the
debt crisis in Europe are still expected to have a
major impact on the oil price over the coming
months.
 The Chinese crude-oil imports declined in May by
16% from April when imports were record-high. Year
on year, imports rose by 4%.
 The OPEC countries increased their production from
April to May by 141,000 barrels per day – i.e.
another marginal increase.
 Generally, the oil stocks in the US accumulated a bit
more than expected from week to week. Oil stocks
are 3% higher than a year ago and they are almost
9% higher compared to the 5-year average.
The latest month (28/5: index = 100)
120
100
80
Crude oil, NYMEX
Copper, LME
Aluminium, LME
60
 The recent monthly oil-market reports (from OPEC,
the International Energy Agency and the US
Department of Energy) show no considerable
changes to the demand anticipations in 2010. The
2010 expectations are still solid.
Metals
 The copper and aluminium prices are largely
unchanged compared to the levels a month ago.
 The more moderate economic development in China
has affected the investment interest but the
uncertainty about the US economy is also currently
in focus due to disappointing housing market
figures.
 The Chinese imports of aluminium in May were
more or less in line with the level in April.
 China’s imports of copper declined in May by
almost 10% m/m but are still at a high level.
 Aluminium inventories declined by almost 3%
relative to last month, while cancelled warrants
rose by almost 10%. Inventories are still at very
high levels.
 Copper inventories were unchanged compared to a
month ago while cancelled warrants rose by 12%
Cancelled warrants for both metals (and for copper
in particular) were, however, much higher than at
the beginning of the year.
The dollar
 The dollar is more or less at the same level as a
month ago. The recent months’ dollar increase
against the euro has temporarily stopped.
 The reasons behind the stabilisation of the dollar
are that the panic about the European debt crisis
has declined slightly and the uncertainty about the
US economy has increased slightly.
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

Oil
By Casper Andersen

We maintain our anticipations of the oil price from

JB forecast, WTI crude
last month and still see rising prices in the long
Period Estimate Futures
term. The risk for a setback in the short term is,
Q3 10 75 78
however, still great, meaning that the road to higher
prices is far from expected to be straight. Particularly Q4 10 80 80
the uncertainty about the debt problems in Europe Q1 11 85 81
and relatively high crude-oil inventories in the US Q2 11 88 82
will have an adverse effect in Q3. It is, however, the 2010 78 -
prospects of a continuing improvement of the global 2011 90 -
economy and, thus, higher demand for oil that are Note: Estimate shows average prices
expected to support a higher price level in 2011.

WTI crude oil price including JB forecast & forward curve

160 $/brl.
140
120
100
80
60
40
20
0
okt 06 apr 07 okt 07 apr 08 okt 08 apr 09 okt 09 apr 10 okt 10 apr 11
WTI Crude Oil JB forecast Forward curve
So urce: Blo omberg/Jyske Bank

Fundamental assessment – demand Investment case and price triggers

• Global growth indicators still indicate fair economic • We expect that the crude oil price will be higher
growth. Still strong growth in China.
• The demand in the OECD countries increases and
takes over from slightly lower growth in e.g. China.
The demand growth in Europe is still lagging behind
the other regions.
Fundamental assessment – supply
• OPEC has once again increased its production
slightly in May (0.17m barrels per day). The cartel
has much excess capacity but will probably not
increase the quotas considerably until prices at up
to USD 100 per barrel are reported.
• Over the past month, US stocks rose more than
they usually do at this time of the season and are at
a high level for crude oil (now 5.5% above the 5-year
average vs. 2.2% in early June).
than today at 12 months’ term. Some of the
potential is already reflected in futures prices.
• In the short term, uncertainty remains high, and
focus is mainly on potential risk scenarios. Hence,
we also see prices in the bottom of the USD 70-80
range in the short term, but this should be used to
buy. In our view, fundamentals will improve
gradually, and the market will gradually move focus
to fundamentals.
Risk factors
• China tightens its monetary policy faster or more
than we expect. The expected moderate slowdown
in China may also be greater than expected.
• Growth in the developed countries, incl. Europe, will
be slower than expected – due to the current debt
crisis.
• The dollar strengthens more than expected.
• The inflow into US stocks continues to be higher
than normal for the season.
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

WTI Crude Oil & equities (world index) WTI Crude Oil & dollar index (scale upside
down)
3000 87,5 77,5 150
85,0 80,0
2900 130
82,5
82,5
2800 80,0 110
85,0
77,5

USD/Barrel
Index

Index
$/Brl.
2700 87,5 90
75,0
2600 72,5
90,0
70
70,0 92,5
2500 50
67,5 95,0
2400 65,0 97,5 30
aug okt nov dec jan feb mar apr maj jun 06 07 08 09 10
MSCI, World, Net, THE WORLD INDEX United States, Bank of England, Effective Exchange Rate Index
World, Energy, Oil, Light Crude Futures 1-Pos, Nymex, Close World, Energy, Oil, Light Crude Futures 1-Pos, Nymex, Close
Source: Reuters EcoWin Source: Reuters EcoWin

Forward prices, WTI Crude Oil Expectations of demand for 2010

120 89
$/brl. Million Brl./day
Current prices 1 month ago
110 3 months ago 6 months ago 88
One year ago
87
100
86
90
85
80
84
OPEC
70 83 International Energy Agency
US Department of Energy
60 82

1M 12M 24M 36M 48M Jan-09 Apr-09 Jul-09 Oct-09 Feb-10 May-10 Aug-10

Crude oil stocks, the US OPEC’s production and prices

390 31 160
Million. brl./day $/brl.
30 140
350 120
29
100
28
310 80
27
60
26
270 40
5-year range 5-year average 25 20
2010 2009 Week #
230 24 0
1 7 12 18 24 30 35 41 47 52 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
Source: Jyske Bank and Bloomberg OPEC-11 Production (LHS) WTI Crude Oil, 1st pos. (RHS)
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

Copper
By Charlotte Rahlf & Casper Andersen
We maintain our expectation of a higher copper price
at twelve months’ term, but we revise down the Table 1: JB copper forecast
levels since we assess that part of the price Period Estimate Futures
increases will come later than expected. We still find
Q3/10 6,800 6,858
the fundamentals to be supportive of the copper
price, but for the short term the uncertainty in the Q4/10 7,200 6,880
financial markets dominates the price development. Q1/11 7,300 6,898
For the slightly longer term, we find that the
fundamentals will again gain importance, but Q2/11 7,700 6,910
declining growth momentum in the global economy, Note: Estimate shows average prices
including China, towards the end of the year will
limit the upside.

LME Copper including JB forecast & forward curve

10.000
$/t
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
sep-08

sep-11
jul-09
jun-08

okt-09

jun-11
nov-07

nov-10
apr-07

feb-08

feb-11
mar-09
aug-07

aug-10
jan-07

dec-08

jan-10

maj-10

Kobber JB Prognose Forward kurve

Fundamental assessment – demand Investment case and price triggers

• Continued robust demand from China – the average • We expect the copper price to be higher at 12
monthly import (YTD) is on level with the high months’ term – mainly due to continued
levels in 2009. Continued strong growth in China improvement of the economy
(including the manufacturing industry) will support • At the shorter term (up to 3M), the potential is
the continued need. But the demand will be lower – limited and the volatility high – as long as the
due to monetary and fiscal tightening uncertainty related to Southern Europe prevails.
• ICSG has revised up estimate for consumption in Prices below USD 6,500 a tonne should be
2009 considered as a reasonable long-term buy/hedge
• Likelihood of small deficit on the supply/demand level
balance • The copper price has a close correlation with the
development of the equity market
Fundamental assessment – supply Risk factors
• LME inventories have fallen steadily by 18% since • China tightens its monetary policy faster or more
the latest top in March (but 75% above low in 2009) than we expect. The expected slowdown in China
• Copper is still the base metal, for which it is most may also be more extensive than expected
difficult to raise production – expensive to expand • The Chinese housing market is hit harder than we
mining capacity expect
• Mining sector still dominated by strikes • Growth in the developed countries, including
• The production of copper only changes slightly in Europe, will be weaker than expected – due to the
step with changes in the copper price current debt crisis
• ICSG expects the copper production to exceed • The dollar strengthens more than we expect
demand in 2010
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

Development in official inventories Open interest

'000 t '000 t $/t
600 LME Shanghai COMEX 300 9.000
290 8.000
500
280 7.000
400 270
6.000
300 260
5.000
250
200 4.000
240
100 230 3.000

0 220 2.000
Sep-04 Jan-06 May-07 Sep-08 Jan-10 Sep-08 Mar-09 Sep-09 Mar-10
Open Interest Copper Price

China: import of refined copper Forward price curve

'000 t $/t '000 t Current prices 1 month ago
400 9000 8500 3 months ago 6 months ago
350 8000
8000
300 7000
250 7500
6000
200
5000 7000
150
100 4000 6500
50 3000
6000
0 2000
5500
Jun-08 Jan-09 Aug-09 Mar-10
spot 3M 15M 27M 63M
Chinese copper import LME Copper 3M

Inventories & cancelled warrants PMI

PMI
'000 t 65 65
600 25%
60 60
500 20%
55 55
400
15% 50 50
300
Indeks

45 45
10%
200
40 40

100 5%
35 35

0 0% 30 30

Jan-09 May-09 Sep-09 Jan-10 May-10

25 25
LME inventory 04 05 06 07 08 09 10

Cancelled warrants as a % of total stocks Kina Euroland USA Japan

SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

Aluminium
By Charlotte Rahlf
We maintain our estimates of the aluminium price
from last month’s Softs & Hards. For the short term, Table 1: JB forecast for aluminium
the uncertainty in the financial markets dominates Period Estimate Futures
the price development and there is a risk of further
Q3/10 2,100 2,025
setbacks. For the slightly longer term, a large supply
will limit the possibility of price increases. On the Q4/10 2,000 2,056
other hand, the aluminium price is now so low that Q1/11 2,000 2,071
many smelters are assessed to be loss-making, and
this will support the price. Our main scenario is Q2/11 2,000 2,088
therefore that the aluminium price will neither fall Note: Estimate shows average prices
nor rise markedly.

LME Aluminium including JB forecast & forward curve

3500 Aluminium, $/t

3000

2500

2000

1500

1000
sep-08

sep-11
jul-09
jun-08

jun-11
nov-07

nov-10
feb-08

feb-11
mar-09
aug-07

aug-10
dec-08

jan-10

maj-10
okt-09

Aluminium JB Prognose Forward kurve

Fundamental assessment – demand Investment case and price triggers

• The world economy is still recovering
• Signs of growing physical demand - cancelled
warrants have increased by approx. 147 % since
early December but are almost unchanged over the
past month
• Continued contango in the curve means that
financing contracts remain profitable if the physical
aluminium can be stored. Jyske Bank has postponed
hikes in the US until Q1 2011 – this supports this
• As ordinary investors, we do not see a major
potential of neither price increases nor price falls –
but the risk is mainly to the downside

Fundamental assessment – supply Risk factors

• LME inventories are still record high but a large
part of the physical aluminium (up to ¾) is tied up
in financing contracts, which are/have been
profitable due to the rising price structure
(contango), low interest rates and low inventory
costs
• The price is close to or below the marginal cost
(approx. USD 2000 a tonne). It is assessed that up
to 40% of the production is loss-making – mainly in
China. Reduction of supply is likely
• China tightens its monetary policy faster or more
than we expect. The expected slowdown in China
may also be more extensive than expected
• Growth in the developed countries, including
Europe, will be weaker than expected – due to the
current debt crisis
• The dollar strengthens more than expected
• Financing contracts will be less attractive faster
than we expect, for instance because the interest-
rate hikes in the US will come earlier than we
expect
SOFTS & HARDS
Commodities • 29 June 2010 • Jyske Markets

Forward price curve Open interest

$/t '000 t $/t
Current prices 1 month ago 800 3000
3200
3 months ago One year ago
2500
750
2700 2000
700 1500
2200
1000
650
1700 500
600 0
1200 Oct-08 Apr-09 Oct-09 Apr-10
spot 3M 15M 27M 63M Open interest Aluminium price

China: import of refined aluminium Official inventories

'000 t $/t '000 t
400 2600 5000
350 2400
300 2200 4000
250 2000 3000
200 1800
150 1600 2000
100 1400
1000
50 1200
0 1000 0
Feb-08 Aug-08 Feb-09 Aug-09 May-03 May-05 May-07 May-09
Chinese Aluminium Import LME Aluminium
LME COMEX Shanghai

Inventories & cancelled warrants PMI

PMI
'000 t
5.000 8% 65 65

60 60
4.000
6%
55 55
3.000
4% 50 50
2.000
Indeks

45 45

1.000 2%
40 40

0 0% 35 35

Oct-08 Apr-09 Oct-09 Apr-10 30 30

LME Aluminium Stocks
Cancelled warrants as a % of total stocks 25 25
04 05 06 07 08 09 10

Kina Euroland USA Japan

SOFTS & HARDS
Commodities • 29 June 2010

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