ANZ RESEARCH

COMMODITY DAILY
May 25, 2012

Contacts: Mark Pervan Natalie Robertson

+613 9273 3716 | mark.pervan@anz.com +613 9273 3415 | natalie.robertson@anz.com

Nick Trevethan

+65 6681 6714 | nicholas.trevethan@anz.com

MARKET HIGHLIGHTS
Oil prices up on rumours of additional ECB liquidity Gold down slightly, on firmer USD. CME cut gold margins Base metals steady, on hopes of China easing moves Newc coal down, on expectations of lower China imports

OVERNIGHT WRAP

OVERNIGHT RANKED PRICE MOVES (%)

2.4 2.1 1 .8 1 .6 1 .0 0.5 0.4 0.2 0.1 0.1 (0.1 ) (0.3) (0.4) (3.8) (5.0) (4.0) (3.0) (2.0) (1 .0) 0.0 1 .0 2.0 3.0 Tin Nickel Silver Lead Co pper Zinc A luminium USD (DXY) WTI Oil S&P 500 Go ld Co al (NEWC) P latinum B altic Freight

Both benchmark crude prices rose 0.4% this morning (WTI: US$91/bbl, Brent: US$107/bbl) extending gains from the previous session. Markets reversed early losses following weak flash PMIs in China, Europe and the US for May, meanwhile, a larger-than-expected decline in Germanys IFO survey added to the risk-off tone. Oil losses were reversed ahead of the US open, as rumours of additional ECB liquidity via a coordinated response buoyed sentiment. Additional support came from a potential break-down in negotiations between Iran and the West, with Iran apparently putting up resistance towards recent economic sanctions. WTI prices could move higher today, as traders cover downside bets ahead of the US long weekend given the ongoing volatility in wider markets. The combination of CME oil margin cuts and prices in oversold territory could also encourage some buying. We see resistance just above the US$93/bbl level, but if Iran talks breakdown, there is potential for prices rise above those levels. Gold traded at US$1,555.7/oz this morning, down from US$1,559.3/oz this time yesterday and nearly US$3.00 lower than late Thursday. After a choppy day where gold showed it could temporarily cut the apron strings attaching it to the dollar, bullion scurried back to its traditional inverse relationship with the greenback. Despite trading in an average US$19/oz range, CME cut initial margins on 100/oz gold futures by 10% to $9,113 per lot, bringing margins down 21% so far this year. Margin reductions tend to have a less immediate impact on prices than margin hikes nevertheless, the reduction is likely to be mildly supportive going forward. Investors continue to eye US$1,550/oz support with some anxiety (gold tested and held those levels overnight), but was equally thwarted in a breakout higher that touched US$1,577.5/oz. More of the same to come. Base metals were steady early Friday, with copper trading US$4.00 down from Thursdays kerb close at US$7,606/t after a 1% rally overnight. Weak data continued to cause stress for investors, in particular the soggy PMI numbers from China, but at the same time, market expectations for more government stimulus are rising. While the crisis in Europe festers, and without any concrete action from China, we think risks in the very near-term are skewed mildly to the downside. However, we still hold a more constructive outlook for the medium and longer term, predicated on tighter market fundamentals developing in the second half of this year. Aluminium ticked up by US$1.00 to US$2,016/t early Friday as reports that smelters in a Chinese province have idled about 700kt of capacity. Newcastle June coal futures slipped to US$91.6/t. Ongoing reports of defaults from China continue to weigh on market sentiment. A potential decline in imported coal volumes to China could occur this month, as Chinas domestic coal prices continued to fall after the recent coal railway maintenance period ended and local coal supplies rose.

WEEK-TO-DATE RANKED PRICE MOVES (%)

2.0 1 .8 1 .6 1 .2 (0.3) (0.6) (0.8) (0.9) (1 .5) (2.1 ) (2.5) (2.5) (4.0) (7.3) (9.0) (7.0) (5.0) (3.0) (1 .0) 1 .0 3.0 S&P 500 Tin Nickel USD (DXY) Lead Co pper Zinc WTI Oil Silver Go ld P latinum A luminium Co al (NEWC) B altic Freight

Note: Coal (NEWC) refers to front month futures Sources: Bloomberg, ANZ Commodity Strategy

COMMODITY DATA
Close 1 Day 1 Wk 1 Mth 3 Mth Close 1 Day 1 Wk 1 Mth 3 Mth

Commodities

% Change
1,977 7,656 17,032 1,878 1,947 19,953 0.4 1.0 2.1 0.5 1.6 2.4 (2.5) (0.6) 1.6 (0.8) (0.3) 1.8 (4.5) (10.6) (5.5) (7.7) (9.0) (11.1) (14.5) (11.2) (12.2) (9.8) (8.6) (15.9)

Inventories

% Change
4,956 224 106 941 353 14 0.1 (0.7) 0.3 (0.2) (0.3) (2.6) (0.4) 1.3 (0.6) (0.3) (1.5) (5.6) (1.6) (11.0) 3.7 3.3 (3.0) (5.4) (2.9) (23.3) 6.5 8.5 (4.7) 28.4

LME BASE METALS (US$/t)

Aluminium Copper Nickel Zinc Lead Tin

LME BASE METALS (kt)

Aluminium Copper Nickel Zinc Lead Tin

PRECIOUS METALS (US$/oz)

Gold Gold (A$/oz) Silver Platinum Palladium 1,559 1,602 28 1,420 588 (0.1) (0.4) 1.8 (0.4) (0.9) (2.1) (1.0) (1.5) (2.5) (2.8) (6.2) 0.9 (9.5) (9.7) (14.0) (9.3) 0.7 (20.2) (16.5) (18.0)

Key Indices
S&P 500 VIX Volatility Index CRB Index LME Metals Index

Close
1,321 22 282 3,294

1 Day
0.1 (3.5) 0.2 1.0

1 Wk
2.0 (14.2) (2.9) (0.7)

1 Mth
(5.9) 32.0 (7.7) (8.2)

3 Mth
(3.9) 24.8 (13.1) (12.2)

% Change

ENERGY (US$/bbl)
WTI Oil* Brent Oil* Sing Gasoil 0.5% Sing Fuel Oil 180cst (US$/t) 91 107 115 118 0.1 0.4 0.0 0.0 (0.9) (0.6) (0.5) (1.7) (13.6) (11.1) (11.0) (10.9) (16.7) (15.6) (14.1) (11.3)

Freight
Baltic Freight Rate Baltic Capesize Baltic Panamax Baltic Handysize

Close
1,058 1,457 1,130 650

1 Day
(3.8) (5.3) (4.7) 0.2

1 Wk
(7.3) (10.8) (11.3) 1.7

1 Mth
(8.5) (2.8) (35.0) 10.4

3 Mth
38.7 (4.6) 34.7 51.5

% Change

OTHER (US$/t)
China HR Coil (RmB/t) Richards Bay Coal API4 Newcastle Coal* Australia Coking Coal** Iron Ore Spot 4,191 89 92 219 130 (0.4) 0.4 (0.3) 0.0 0.3 (0.9) (3.8) (4.0) 0.1 (0.8) (3.5) (10.0) (10.2) 3.9 (10.4) (2.1) (14.1) (17.7) 1.0 (9.0)

Currencies
DXY - USD Index AUD/USD - Aussie NZD/USD - Kiwi

Close
82.3 1.0 0.8

1 Day
0.3 0.3 0.5

1 Wk
1.3 (1.1) (0.8)

1 Mth
4.6 (7.0) (8.8)

3 Mth
4.5 (9.9) (10.6)

% Change

US$ /t 2,700 2,500 2,300 2,1 00 1 ,900 M ay US$ /t 2,600 2,400 2,200 2,000 1 ,800 1 ,600 M ay US$ /bbl 10 1 1 00 90 80 70 M ay Jul Jul Jul

ALUMINIUM

US$ /t 1 0,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500

COPPER

US$ /t 26,000 24,000 22,000 20,000 1 8,000 1 6,000

NICKEL

Sep

No v

Jan

M ar

M ay US$ /o z 1 ,900 1 ,800 1 ,700 1 ,600 1 ,500 1 ,400

Jul

Sep

No v

Jan

M ar

M ay US$ /o z 45.0 40.0 35.0 30.0 25.0

Jul

Sep

No v

Jan

M ar

ZINC

GOLD

SILVER

Sep

No v

Jan

M ar

M ay US$ /t 1 25 1 20 15 1 10 1 1 05 1 00 95

Jul

Sep

No v

Jan

M ar A$ 12 .1 1 .09 1 .06 1 .03 1 .00 0.97 0.94

M ay

Jul

Sep

No v

Jan

M ar

WTI OIL

NEWCASTLE COAL

AUD

Sep

No v

Jan

M ar

M ay

M ay

Jul

Sep

No v

Jan

M ar

M ay

Jul

Sep

No v

Jan

M ar

Notes: *Front-month futures **Weekly prices Sources: Bloomberg, McCloskey, ANZ Commodity Strategy

ANZ FORECASTS
ANZ Forecast Table1
COMMODITY
BASE METALS Aluminium Copper Nickel Zinc Lead Tin PRECIOUS METALS Gold Platinum Palladium Silver ENERGY WTI NYMEX Dated Brent Uranium BULKS Thermal coal2 Premium hard coking Hard coking Semi-soft coking coal Iron ore lump Iron ore fines OTHER METALS Alumina Molybdenum Cobalt EXCHANGE RATES AUD/USD NZD/USD EUR/USD USD/JPY USD/CAD USD/CNY US$ US$ US$ C$ Yuan 1.08 0.82 1.46 81.03 0.96 6.46 1.05 0.83 1.41 76.78 0.99 6.38 1.04 0.79 1.35 77.48 1.01 6.36 1.06 0.83 1.33 80.06 1.00 6.29 1.05 0.84 1.35 78.96 0.99 6.27 1.09 0.86 1.36 75.67 1.00 6.23 1.10 0.88 1.37 73.00 1.02 6.14 1.10 0.90 1.37 70.67 1.04 6.10 1.10 0.90 1.37 70.00 1.06 6.08 1.10 0.90 1.36 70.00 1.08 #/NA 1.10 0.90 1.34 70.00 1.10 #/NA US$/t US$/lb US$/lb 326 16.7 18.3 300 14.6 17.1 262 13.4 15.1 272 14.3 15.2 268 14.8 15.1 280 15.8 16.2 288 16.3 16.8 291 16.5 17.0 288 16.8 17.5 288 16.9 18.0 291 16.7 18.0 US$/t US$/t US$/t US$/t US$/t US$/t 130.0 330.0 300.0 275.0 206.1 171.8 130.0 315.0 290.0 230.0 202.0 168.3 130.0 285.0 265.0 208.0 177.6 148.0 130.0 235.0 225.0 171.0 168.0 140.0 115.0 206.0 196.0 151.0 175.2 146.0 115.0 215.0 195.0 170.0 180.0 150.0 115.0 220.0 200.0 175.0 183.9 152.0 115.0 220.0 200.0 175.0 183.9 152.0 125.0 225.0 200.0 175.0 181.5 150.0 125.0 225.0 200.0 175.0 176.7 146.0 125.0 220.0 195.0 170.0 173.2 142.0 US$/bbl US$/bbl US$/lb 102.5 117.0 56.4 89.5 112.9 51.8 94.1 109.3 52.6 102.9 118.5 51.9 105.5 123.9 54.5 108.5 123.0 60.5 111.0 123.0 65.0 114.5 124.5 68.5 116.5 125.0 71.5 116.0 123.5 74.0 114.5 121.0 76.0 US$/oz US$/oz US$/oz US$/oz 1,508 1,785 760 38.5 1,706 1,771 752 38.9 1,683 1,531 630 31.8 1,691 1,609 683 32.7 1,704 1,665 677 33.4 1,760 1,698 725 35.0 1,800 1,713 775 36.2 1,840 1,765 820 37.4 1,855 1,795 850 37.5 1,825 1,765 850 36.9 1,770 1,725 838 36.3 US$/lb US$/lb US$/lb US$/lb US$/lb US$/lb 1.18 4.16 11.05 1.02 1.16 13.08 1.09 4.07 9.98 1.01 1.11 11.16 0.95 3.41 8.34 0.86 0.90 9.45 0.99 3.77 8.90 0.92 0.95 10.38 0.97 3.87 8.23 0.91 0.93 10.16 1.02 3.98 8.75 0.92 0.96 10.10 1.05 4.08 9.45 0.95 0.99 10.35 1.06 4.08 10.00 0.98 1.02 10.55 1.05 4.13 10.40 1.01 1.05 10.80 1.05 4.15 10.45 1.03 1.06 10.95 1.06 3.95 10.15 1.04 1.07 10.80 Unit Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13

Note 1: Average prices Note 2: Thermal coal prices are for JPY year starting April 1 Note 3: Historical data are actuals Sources: Bloomberg, ANZ Commodity Strategy, ANZ FX Strategy

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