Commodities Weekly€¦ · 14 March 2014 Commodities Weekly Page 2 Deutsche Bank AG/London...

Deutsche Bank Markets Research

Global

Commodities

Date 14 March 2014

Commodities Weekly

________________________________________________________________________________________________________________

Deutsche Bank AG/London

DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.

Michael Lewis

Strategist (+44) 20 754-52166 [email protected]

Michael Hsueh


Xiao Fu


Commodities as An Asset Class: Last month marked the first time in over 12 months that US and European commodity ETPs enjoyed fresh inflows. A consistent under-performer over the past decade, the livestock sector is now the strongest performer in terms of index returns so far this year.

Energy: We believe the summer injection season for US natural gas will be a challenging one given only a small improvement in the Gas-CAPP spread, little change to drilling plans in response to higher prices, and warmer-than-normal weather. A plausible scenario implies a sustained storage deficit of 16-18% of working gas capacity versus the 10-year average.

Precious Metals: We would view disappointing US labour market data as the most likely trigger to sustain the rally in the gold price. However, on our forecasts the coming months will see a rebound in US payroll employment growth as winter weather effects fade. We believe this will be the time to reinstate short gold positions.

Industrial Metals: Heightened market volatility in the Chinese renminbi currency market alongside China’s first domestic bond default have sparked market fears that commodity financing deals in China could unravel and result in widespread metals liquidation. This main casualty so far has been the copper price which has fallen by over 8% over the past week.

Agriculture: The best performing commodity in spot price terms this year has been coffee, where prices are up over 80% in response to extreme droughts across Brazil. In the major grain markets prices have been gaining this week on uncertain grain shipments from Ukraine while dryness in the US plains is also adding support to wheat prices.

China copper inventory: exchange vs. bonded

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014

SHFE China bonded warehouse

(kt)

Sources: Deutsche Bank, Bloomberg Finance LP

Table of Contents Commodity Performance...........................................Page 2

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

Asset Class Performance ........................................3

Energy .....................................................................Page 14

Precious Metals .......................................................Page 16

Chartbook Overview ................................................Page 17

Commodity Price Forecasts ....................................Page 20

14 March 2014

Commodities Weekly


Commodity Performance

Energy

Δ week to date Δ year to date View

0.94

-0.29

-0.43

-0.66

-2.13

-3.31

-5.98

-12 -9 -6 -3 0 3 6

Coal (API#4)

Uranium

Gasoline (RBOB)

Brent

Heating oil

WTI

US natural gas % returns w eek on w eek

5.28

3.62

1.45

-0.22

-3.08

-5.12

-11.73

-20 -10 0 10 20

Gasoline (RBOB)

US natural gas

Uranium

WTI

Brent

Heating oil

Coal (API#4) % returns year-to-date

Precious Metals


1.66

-0.48

-0.57

-1.64

-12 -9 -6 -3 0 3 6

Gold

Palladium

Platinum

Silver% returns

w eek on w eek

13.81

8.92

8.24

7.61

-20 -10 0 10 20

Gold

Silver

Palladium

Platinum % returns year-to-date

Industrial Metals


2.00

-1.69

-3.06

-5.71

-6.07

-9.01

-12 -9 -6 -3 0 3 6

Nickel

Tin

Aluminium

Lead

Zinc

Copper % returns w eek on w eek

13.53

2.57

-3.29

-3.55

-8.86

-12.84

-20 -10 0 10 20

Nickel

Tin

Aluminium

Zinc

Lead

Copper% returns

year-to-date

Agriculture


5.85

0.70

-0.31

-2.73

-3.25

-12 -9 -6 -3 0 3 6

Wheat

Lumber

Corn

Sugar

Soybeans% returns

w eek on w eek

14.75

12.19

8.59

5.96

0.06

-20 -10 0 10 20

Corn

Wheat

Sugar

Soybeans

Lumber% returns

year-to-date

Sources: Deutsche Bank, Bloomberg Finance LP (Prices as of close of business Thursday March 13, 2014)

14 March 2014

Commodities Weekly


Global Trends

Copper & Iron Ore: Are Chinese Financing Deal Fears Overdone?

Heightened market volatility in the Chinese renminbi currency market alongside China’s first domestic bond default have sparked market fears that commodity financing deals in China could unravel and result in widespread metals liquidation. In this report, we discuss why some of the market concerns might be overdone as well as current misperceptions concerning China’s commodities financing activity.

In our view, the recent sell-off in copper prices has been primarily driven by speculators trying to anticipate the unwinding of financing deals, rather than actual widespread unwinding itself. According to our channel checks, the scale of actual unwinding has been limited so far. While some metal merchants could be subject to mark to market margin calls due to RMB depreciation, it is possible to meet cash requirements by doing more transit trades (increasing leverage) rather than selling copper outright. Although this may only last for a short period of time.

With the SHFE/LME copper arbitrage window moving deeper into negative territory, the increasing difficulty of obtaining letters of credit (L/C) to import copper and higher costs associated with the two way fluctuations in the RMB, the pace of copper financing is likely to slow, in our view.

Nevertheless, we do not expect a complete end to copper financing. In fact, as long as the returns on unsecured loans in RMB are sufficiently high, such trades would remain profitable.

In the near term, bearish sentiment could persist given an absence of real copper demand and any meaningful pick-up in industrial activity in China. However, a GDP target of 7.5% set out by the government at the recent NPC and CPPCC is broadly supportive for industrial materials demand, in our view, as some public projects could be back-loaded in order to maintain a minimum employment level.

Furthermore, power grid projects investment plans and the State Reserve Bureau's buying target this year could limit excessive downside risks. We believe that value could start to emerge if copper prices move towards USD6,000/tonne.

Although a less attractive financing vehicle (due to high storage costs), the use of iron ore in import financing has gathered momentum since the end of last year. This has been a function of elevated liquidity pressure at steel mills. In contrast to copper, we believe that iron ore financing is more vulnerable to unwind as iron ore positions are typically un-hedged due to a backwardated forward curve.

We believe that iron ore prices could temporarily dip below USD100/tonne given elevated iron ore port inventory, abundant steel inventory and sluggish industrial demand for steel. However, we believe that a sustained decline in iron ore prices could result in lower Chinese iron ore production as prices stay below marginal cost for Chinese producers USD100-110/tonne. This eventually would result in higher iron ore imports once inventory levels normalize.

Figure 1: China copper inventory

(exchange vs bonded)

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014


(kt)

Source: Deutsche Bank

14 March 2014

Commodities Weekly


China Copper Financing Deals

What is rattling markets? Given the rapid growth of the shadow banking sector over recent years and a surge in hot money inflow in January, we believe that recent policy guidance by the PBOC to promote two-way volatility in the yuan and a decline in the interbank lending rate is aimed at preventing excessive growth in the shadow banking sector.

Commodities have become an increasingly important medium in off-balance sheet financing in recent years. More recently, market fears regarding a widespread financing deal unwind have escalated. While we acknowledge the policy markers’ effort to control risks associated with shadow banking sector and expect the pace of copper financing to slow, we believe that market fears are overdone as copper financing could continue as long as the returns on the unsecured loan in CNY are sufficiently high.

Figure 2: New yuan loan vs total

social financing diverged over the

recent years

Figure 3: CNYUSD Figure 4: Shanghai 7 day interbank

rate

Source: Deutsche Bank, Bloomberg Finance Source: Deutsche Bank, Bloomberg Finance Source: Deutsche Bank, Bloomberg Finance

We estimate that China’s bonded warehouse stocks have risen to around 750Kt, roughly 8% China’s copper consumption in 2013. Figure 5 illustrates that China’s short term FX lending has broadly correlated with bonded copper warehouse stocks. However, we note that bonded copper inventory is becoming less indicative for estimating total notional amount of copper financing (as illustrated in Figure 5, a large divergence in 2013) as other trade variations emerge. Our best estimate is that China’s copper financing accounts for 10% of China’s short term FX lending, making various assumptions.

Figure 5: China bonded copper stocks vs China short

term FX loan

Figure 6: China copper financing size relative to China’s

short-term FX loan

0

100

200

300

400

500

0

200

400

600

800

1000

2008 2009 2010 2011 2012 2013

China copper bonded warehouse inventory (Kt)

China short term FX loan (USD bn, rhs)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14

Notional amount of copper financing as % of total China FX short term loanLower bound

Upper bound

Source: CEIC Source: Deutsche Bank

14 March 2014

Commodities Weekly


We believe that there are a few misperceptions towards the copper financing trade unwind logic. We have also presented illustrations of financing deals dynamics on page 8-11. The key misconceptions that we are observing at the moment include:

1. The recent depreciation of the RMB has forced copper financing deals unwind which has propelled selling into the market.

2. Copper financing deals will stop completely.

3. Falling copper prices will trigger financing deals unwind.

4. Credit default in shadow banking sector means that investment in the unsecured loan markets could be lost and copper then has to be sold to repay the L/C.

5. Both copper and iron ore financing demand will fall sharply.

We will outline our understanding for the comments above.

1. While some metals merchants could be subject to mark to market margin calls due to RMB depreciation, they might opt to do more transit trades to meet cash requirements rather than selling copper outright, although this may only last for a short period of time.

We believe that the recent sell-off is a combination of speculators trying to anticipate the unwinding of financing deals and a lack of buying in China due to sluggish real demand.

2. There are three variables affecting copper financing profitability

Simplified example a) Merchants obtain USD L/C with FX position un-hedged (Import)

Profitability = rate differential (return on unsecured loan in CNY –L/C USD rate) + RMB appreciation/depreciation + SHFE/LME arb – copper hedging cost

Example b) Merchants obtain USD L/C with FX position un-hedged (Import)

Profitability = rate differential (return on unsecured loan in CNY –L/C USD rate) + SHFE/LME arb –FX hedging cost – copper hedging cost

Example c) Merchants obtain CNY L/C (Import)

Profitability = rate differential (return on unsecured loan in CNY –L/C CNY rate) + SHFE/LME arb – copper hedging cost

Example d) Transit trade (USD L/C with FX position un-hedged)

Profitability = rate differential (return on unsecured loan in CNY –L/C USD rate) + RMB appreciation/depreciation

With the SHFE/LME arb moving deeper into negative territory (Figure 7) and higher costs associated with RMB, such trades could become less attractive. However, as long as the returns on the unsecured loan in CNY are sufficiently high, such trades could remain profitable.

14 March 2014

Commodities Weekly


3. Copper is hedged in financing deals and is 100% cash backed. (It is rare to get financing deals with copper prices un-hedged these days.) As a result, falling copper prices do not trigger financing deal unwind.

4. Copper is not held as collateral for the L/C. Companies post deposit/asset/credit lines as collaterals for the L/C. The interesting point would be why they engage in copper financing if they have deposit already? This is because copper financing can be effectively used as a leverage tool from multiple rounds of transit trades. In this case, copper is merely a financing medium.

Where is copper used as collateral, the name of ‘China commodities collateral financing deal’ or the so called CCCFD is confusing because only the repo part of the deal is collateralized with copper (see Case 2 page 9). We are not concerned about the repo leg because it is relatively easy to unwind. In addition, not all financing trades engage in repo deals.

Regarding increasing risks of credit events, our China economics team expects only ‘orderly defaults’.

i) Chaori's case, along with two other two trust product defaults, CCT and Jinlin trust, shows that Chinese government’s determination in engineering an “orderly default” process in credit market and shadow banking in general.

ii) By allowing some defaults, it will help gradually correct the mis-pricing of credit risk in different segment of the domestic financial market, and this will improve the efficiency of financial resource allocation.

iii) The muted reaction in the credit markets suggests “orderly defaults” are more feasible than the market perceives.

iv) Over the medium term, we expect more defaults and a gradual reduction in the recovery ratio to help the market discover the credit matrix pricing, which will foster robust growth of the domestic credit market and improve financial stability. One consideration is that a re-pricing of credit risks could mean that costs associated with investing in trust funds/high yielding unsecured RMB loans are higher. Furthermore, a drop in the 7 day interbank lending date suggests that liquidity pressure has eased and returns on unsecured RMB loans could decline.

5. We believe iron ore is more vulnerable to a financing deal unwind as iron ore positions are not hedged due to backwardated forward curve and are subject to high volatility. Copper financing with hedged copper positions, as discussed in point 2 & 3, is dependent on other drivers.

14 March 2014

Commodities Weekly


Copper fundamentals

We estimate that copper inventory in Shanghai bonded warehouse has reached around 750Kt. Shanghai exchange inventory has also increased due to a lack of read demand. In addition to record copper imports, elevated physical premiums in the bonded zone may have attracted copper smelters selling metal to the bonded zone. If the SHFE/LME arb moves further into negative territory we believe this could result in copper moving out of the bonded zone and to the LME. We will, therefore, be closely monitoring China’s copper export in February and LME stocks in the coming months.

Figure 7: China copper inventory

(exchange vs bonded)

Figure 8: SHFE/LME copper arb

(USD/t 4 wks moving average)

Figure 9: China copper bonded

premium (USD/t)

0

200

400

600

800

1,000

1,200

2008 2009 2010 2011 2012 2013 2014


(kt)

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

We are waiting for China’s Jan and Feb copper production data to update our China copper inventory model, but we believe that China’s copper restocking cycle may have peaked in January and the pace of restocking is likely to fall. Preliminary trade data indicate that unwrought copper imports in February have fallen significantly from the record highs reached in January.

Figure 10: China copper inventory model Figure 11: China unwrought copper imports

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, China custom

In the near term, bearish sentiment could persist given an absence of real copper demand and a meaningful pick-up in industrial activity in China. However, a GDP target of 7.5% set out by the government at the recent NPC and CPPCC is broadly supportive for industrial materials demand, in our view, as some of the projects could be back-loaded in order to maintain a minimum growth level.

Furthermore, power grid projects investment plans and the State Reserve Bureau's buying target this year could limit excessive downside risks. We believe that value could start to emerge if copper prices move towards USD6,000/tonne.

14 March 2014

Commodities Weekly


Iron Ore

Although a less attractive financing vehicle, the use of iron ore in import financing has gathered pace since the end of last year. This has been a function of elevated liquidity pressure at steel mills. In contrast to copper, we believe that iron ore financing is more vulnerable to unwind risks as iron ore positions are typically un-hedged thus subject to high volatility. Furthermore, as a low value product with greater difficulty for storage, iron ore financing is not sustainable, in our view.

We believe that iron ore prices could dip temporarily below USD100/tonne given elevated iron ore port inventory, abundant steel inventory, slower steel production and sluggish industrial demand for steel.

Figure 12: China iron ore port

inventory

Figure 13: China steel production is

slowing

Figure 14: Record high steel

inventory at mills

Source: Deutsche Bank, Bloomberg Finance Source: Deutsche Bank, NBS Source: Deutsche Bank, Mysteel

Furthermore, China’s iron ore production has tended to be cyclical. Chinese domestic production typically declines by 30-40% in the winter months and the storm season in Australia and Brazil impacts shipping in the northern hemisphere winter months. While China’s preliminary data show a drop in iron ore imports in February, as we head into March, more iron ore production could come back adding seasonal pressure. This can be shown by elevated levels of iron ore shipments from Australia to China, although the shipment arrival could be delayed due to Chinese New Year.

Figure 15: China iron ore production Figure 16: China iron ore imports

(Mt)

Figure 17: Australia iron ore

shipments

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

14 March 2014

Commodities Weekly


Despite near term bearish sentiment, we are not forecasting a price collapse scenario. In fact, we believe that any sustained decline in iron ore prices could result in lower Chinese iron ore production as prices stay below marginal cost for Chinese producers. Chinese production costs are estimated to average in the USD100-110/ton range, compared to production costs below USD40/ton in both Brazil and Australia. In fact, Brazilian producer Vale (VALE) reported a cash cost of USD23.11/ton (including mine, plant, railroad and port, after royalties) at the port in Q4 2013. This eventually could result in higher iron ore imports once inventory levels normalize.

Figure 18: Global iron ore cost curve

0

20

40

60

80

100

120

140

0 500 1000 1500 2000

90th percentile = US$106/t

US$134/t


14 March 2014

Commodities Weekly


Case studies

We present five case studies to illustrate how copper/iron ore financing works.

Figure 19: Case 1 Metals merchants (with no offshore entity) sells directly to the domestic market

Chinese metals merchant

Chinese bank or western bank registered onshore

Foreign supplier

Trust Fund / other investments

1. Signs a contract to buy copper

3. Delivers copper cathode to bonded warehouse

2. Applies for L/C (USD)

7. Pays back USD and benefits from RMB appreciation

5. Sells copper to the domesticmarket after clearing custom and invests RMB

6. Investment proceeds (RMB)

4. Pays for imported copper


• In order to obtain L/C, importing firm needs to pay a margin, which is typically about 20% of the notional amount.

• The maturity of the letter of credit varies and is often between three to six months.

• In these case studies, an USD L/C is assumed. However, CNY L/C is also used in some financing trades thus with no CNYUSD exposure.

• Case 2: the copper importer decides to complete the financial transaction. They can use the proceeds of investment to pay for the collateralized CNY loan. Sell the copper in bonded warehouse and repay the L/C (USD).

• Case 3: Foreign supplier buys copper in the bonded warehouse from a sale in case 2. The copper financing procedure can be repeated. In this case, the subsequent importing of copper does not involve actual shipment and copper is already in the bonded zone.

14 March 2014

Commodities Weekly


Figure 20: Case 2 & 3 Metals merchant (with no offshore entity) enters a repo deal

Chinese metals merchant


Foreign supplier




2. Applies for L/C (USD)


7. Invests RMB loan 8. Investment proceeds (RMB)


Bank

5. Warehouse receipt

6. RMB loan with a haircut


Figure 21: Case 4 Metals importer with an offshore entity

Chinese metals merchant A

Chinese bank or western bank registered onshore B

C -Offshoresubsidary of A




2. Applies for L/C (USD) the C as beneficiary


6. Sells copper and invests RMB



Foreign supplier

offshore subsidary of bank B

2. Applies for L/C (USD)3. Applies for L/C (USD) the foreign supplier as beneficiary

Offshore

Onshore


14 March 2014

Commodities Weekly


After the PBOC tightened rules last June, small/medium merchants with no real trade activities will not be able to get L/Cs. The scale of USDRMB transactions has also been restricted. As a result, transit trades in copper bonded warehouses have declined.

Figure 22: Case 5 Metals importer with an offshore entity (transit trade with multiple circuits)

Chinese metals merchant A


B -Offshoresubsidary of A

Risk free CNY asset/ wealth management product/trust fund

4. Exports copper (passes on copper warrant)

3. Copper warrant in bonded zone

1. Signs copper contract with foreign supplier and applies for L/C (USD) the foreign supplier as beneficiary

8. Exchange USD for RMB

9. Invests RMB


7. USD cash with a discount to copper

Foreign supplier

Offshore

Onshore

5. USD cash2. USD L/C

6. Copper warrant


Xiao Fu, (44) 20 754 71558 [email protected]

14 March 2014

Commodities Weekly


Asset Class Performance

The DJUBSCI has been among the strongest commodity index performers so far this year with returns up 7.0%. This compares to gains of just 2.5% on the DBLCI-OY Balanced and 1.4% on the SPGSCI.

The reason for the out-performance of the DJUBSCI reflects several one off factors. First, unlike the DBLCI-OY Balanced the DJUBSCI holds exposure to coffee and lean hogs, the world’s two best performing commodities on a spot price basis so far this year.

Second the DJUBSCI holds a significant allocation to US natural gas, which following extreme weather in the US and a sharp drawdown in storage levels, has also contributed positively to overall index returns.

Meanwhile the DBLCI-OY Balanced has, in comparison, a relatively larger allocation to industrial metals and energy which have been the two worst performing sectors on an excess returns basis since the end of last year.

However, it is questionable the extent to which the factors that have benefited the DJUBSCI can be sustained over the medium term. For example, history shows that the duration of positive returns in the livestock sector has been brief.

Indeed since 2001 the livestock sector has posted negative annual returns 70% of the time. Moreover over the same 12 year period, livestock has also been either the worst or second worst performing sector in terms of total returns over 80% of the time. As a result, no other commodity sector has performed as consistently badly as livestock.

In terms of US natural gas, while storage levels are low, we are now past the peak of winter demand and as a result the risk for additional price spikes is reduced. The next event risks will be summer weather conditions, the incentive for switching of utility demand from gas to coal and the production response to higher gas prices.

However, in terms of coffee the magnitude (100%) and duration (four months) of the current rally still falls short of the average price rally since 1970. Indeed price rallies have typically been 200% in magnitude and 16 months in duration. Only once did a powerful rally in coffee end within a four month period, and that occurred in 2005-06.

Figure 1: 2014 commodity index scorecard

7.0

1.4

2.5

1.3

5.5

3.1

4.9

-0.1 -0.3

-2.3 -1.9

-4

-2

0

2

4

6

8

DJUBSCI SPGSCI DBLCI-OY Balanced

DBLCI-OY Diversified

DB Booster DBLCI-Mean Reversion

DBLCI-MR Enhanced

DBLCI-MR Plus

DBLCI CCA Lite

DB Backw ardation

Alpha

DB Momentum Alpha

Excess returns ytd (%)

Enhanced Beta AlphaBeta

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 13, 2014)

(USD terms) WTD

MTD

YTD Sharpe

DBLCI-OY Balanced -1.53 -0.12 2.53 -0.66

DBLCI-OY Diversified -1.55 -0.72 1.30 -0.36

DB Booster -1.21 0.59 5.51 -0.33

DBLCI-Mean Reversion

-1.05 0.79 3.10 -0.20

DBLCI-MR Enhanced -1.19 0.76 4.94 -0.21

DBLCI-MR Plus -0.21 -0.05 -0.07 -0.99

DBLCI Backwardation Long

-3.12 -3.60 -1.74 -0.67

Risk factors

DB Commodity Curve Alpha Lite

-0.04 0.00 -0.27 0.71

DBLCI Backwardation Alpha

-0.42 -1.74 -2.30 -0.50

DBLCI Momentum Alpha

-0.15 -0.13 -1.93 -0.46

Sector performance

Energy -1.86 -2.83 -1.20 0.02

Industrial -5.98 -4.75 -7.66 -0.59

Precious 1.11 3.33 13.48 -0.30

Agriculture 0.22 5.25 13.51 -0.10

Livestock 2.77 3.95 14.83 1.56

Performance of other benchmark indices

SPGSCI -1.48 -1.32 1.43 0.06

DJ-UBSCI -1.60 0.45 7.02 -0.19

Figure 2: Excess returns in 2014

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 13, 2014)

Figure 3: 2014 asset class returns

compared

-0.7-0.4 -0.1

1.9

7.0

-2

0

2

4

6

8

Equity FX EM Bonds Commodities

Commodities: DJUBSCIFX: DB Currency Returns IndexBonds: DBIQ Global IG SovereignEquity: MSCI Global EM: DBIQ EMLE

Total returs year to date (%)

Sources: Deutsche Bank, Bloomberg Finance LP (Figures are cob March 13, 2014 except for Global IG Sovereign & DBIQ EMLE which relates to March 12, 2014)

14 March 2014

Commodities Weekly


Energy

This week’s US natural gas storage report marked another strong withdrawal above the 2013 weather-adjusted forecast, making the end-of-season (28 March) figure likely to be near 870 bcf, or 19% of working gas capacity. With April approaching, expectations for the injection season are now the focus.

The average premium of the forward winter (Nov-Mar) over summer (Apr-Oct) during the month of March (“storage premium”) is at a very low level relative to 2000-2013, but history shows that this should not be too much of a concern. In fact, low end-of-winter storage volumes are associated with low forward storage premiums, Figure 1. Looking at the subsequent summer injections, we find that the storage premium in March is negatively correlated with the amount of gas injected. This suggests that the storage premium is not instrumental in driving the activity of storage operators.

Average storage levels after the first week of November are 81% full (2000 to 2013 period), and 85% full (2006 to 2013 period). In order for storage to reach just 81% full, injections would have to total 62% of working gas capacity. For reference, the largest historical injections since 2000 have been 60% in 2001 and 61% in 2003.

In order to assess the likelihood of achieving another record injection season to bring storage up to a normal range (at least 81% of working gas capacity), we evaluate three key variables. First, the summers of 2001 and 2003 were cooler than normal at 303 and 287 HDDs relative to our 20-yr normal of 336 HDDs. For this year, the National Weather Service’s Climate Prediction Center currently forecasts warmer-than-normal temperatures for the US outside of the Midwest. Second, the fall in the Q2 gas price means that the forward Gas-CAPP spread for Q2 is -$0.23/mmBtu, compared to -$0.77/mmBtu last summer, suggesting that we could have 0.6 bcf/d less utility demand this year, assuming similar weather conditions (2013 was modestly warmer than normal). Third, we believe we are not likely to see strong production surprises to the upside as producers have not raised 2014 capex and drilling plans appreciably. Taking into account the above factors, we can construct a plausible summer scenario which raises storage levels to only 65% (3,056 bcf) by 7 November which would likely result in a tightening of Oct/Jan spreads from the current -5% (2014/15) and -8% (2015/16) levels.

Figure 1: Forward US natural gas storage premium in

March and end-of-winter storage levels (2000-2013)

Figure 2: Forward US natural gas Oct-Jan spreads and

storage deviation from 10Y average

-25%

-20%

-15%

-10%

-5%

0%

5%

-10%-9%-8%-7%-6%-5%-4%-3%-2%-1%0%

Oct Dec Feb Apr Jun Aug

2014 Oct-Jan Spread (lhs, %)2015 Oct-Jan Spread (lhs, %)2014 Storage dev. from 10Y Avg (%)Forecast deviation (rhs, %)

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

[email protected]

(44) 20 754 78015

Figure 3: Brent July’14 probabilities

100

102

104

106

108

110

112

114

0%

5%

10%

15%

20%

25%

30%

Sep-13 Nov-13 Jan-14 Mar-14

Probability above 120Probability below 80Brent (rhs, $/bbl)

Sources: Bloomberg Finance LP, Deutsche Bank

14 March 2014

Commodities Weekly


Figure 3: US Natural Gas Supply & Demand

Bcf/day 2012 20131Q

2014E2Q

2014E3Q

2014E4Q

2014E 2014E1Q

2015E2Q

2015E3Q

2015E4Q

2015E 2015E 2016E 2017ECONSUMPTION Residential 11.3 13.5 28.7 7.1 3.7 15.7 13.8 24.4 7.1 3.7 15.9 12.8 12.8 12.9 Commercial 7.9 9.0 16.0 5.7 4.3 10.2 9.1 13.9 5.8 4.4 10.2 8.6 8.6 8.6 Industrial 19.7 20.4 22.5 19.7 19.4 21.2 20.7 22.7 20.1 19.9 21.6 21.1 21.7 22.4 Electric Power 24.9 22.3 20.1 20.4 27.2 19.9 21.9 19.8 21.8 28.6 20.3 22.6 23.3 24.0 Other 5.9 6.0 6.6 5.8 5.8 6.0 6.0 6.6 5.9 5.8 6.1 6.1 6.2 6.2

Total Demand 69.8 71.3 93.8 58.7 60.4 73.0 71.5 87.3 60.8 62.4 74.1 71.1 72.6 74.1YoY % change 4.0% 2.1% 6.3% -1.7% -0.6% -4.4% 0.3% -6.9% 3.6% 3.3% 1.5% -0.4% 2.0% 2.1%

DOMESTIC SUPPLY Alaska 1.0 0.9 1.0 0.8 0.8 0.9 0.9 1.0 0.8 0.8 0.9 0.9 0.9 0.9 Gulf of Mexico 4.1 3.6 3.8 3.8 3.7 3.5 3.7 3.7 3.7 3.6 3.5 3.6 3.7 3.8 Other US 64.1 65.6 67.1 67.1 67.7 67.9 67.4 67.9 68.0 67.9 68.0 68.0 70.2 72.7

Marketed Production 69.1 70.2 71.9 71.7 72.2 72.3 72.0 72.6 72.5 72.3 72.4 72.5 74.8 77.4 Dry Gas Production 65.7 66.5 68.0 67.8 68.3 68.4 68.1 68.7 68.6 68.4 68.5 68.5 70.7 73.3

YoY % change 4.8% 1.2% 3.8% 2.5% 2.3% 1.0% 2.4% 1.0% 1.0% 0.2% 0.1% 0.6% 3.2% 3.6%

Net Storage Withdraws 0.0 1.5 22.5 -13.0 -10.8 2.0 0.2 15.2 -9.9 -8.3 3.2 0.1 0.1 0.0 Other & Balance -0.1 -0.3 -0.8 0.7 -0.5 -0.7 -0.3 0.5 0.0 -0.5 0.0 0.0 0.2 0.2

Total Domestic Supply 65.6 67.7 89.7 55.6 57.0 69.7 68.0 84.4 58.6 59.7 71.7 68.6 71.0 73.5

Gross Exports 4.4 4.3 4.4 4.5 4.5 4.7 4.5 4.9 4.9 4.8 5.2 5.0 5.9 6.9

GROSS IMPORTS 8.6 7.9 8.5 7.6 8.0 7.8 8.0 7.8 7.1 7.5 7.6 7.5 7.5 7.5 Pipeline 8.1 7.6 8.3 7.4 7.7 7.6 7.8 7.6 6.9 7.3 7.4 7.3 7.3 7.3 LNG 0.5 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

Source: US EIA, Deutsche Bank

14 March 2014

Commodities Weekly


Precious Metals

Since the gold price peaked in September 2011 and began its recent downtrend, it has been common to witness short term rallies. However, the common feature of these rallies is that they do not last for much longer than three months and that the degree of appreciation typically does not exceed 15%. As a result, one could argue that the recovery in the gold price since December last year is in danger of unraveling as we enter the second quarter.

We view the US labour market and the speed with which the Fed exits QE as the key drivers of the gold price during the remainder of this year. Inevitably extreme cold weather across the US has distorted economic data but we expect as weather effects fade the coming weeks and months could see a significant snap back in US real economy data. Indeed following extreme cold weather in January 1996 and weak payroll employment around that time, payroll employment jumped over 700K in the following month as construction activity recovered. While the scale of such a labour market recovery is likely to be elusive this time round, we still view positive growth shocks in the US as a high probability this year and with it downside risks for gold reemerging.

Figure 1: Gold price rallies since 2011 have a habit of

unraveling

Figure 2: Net speculative length in gold

90

95

100

105

110

115

120

0 10 20 30 40 50 60 70 80 90 100

Jun-12

Jun-13

Dec-13

Number of trading days from trough of mid cycle rally

250

450

650

850

1050

1250

1450

1650

1850

-100

-50

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013 2014

Non-commercial net positions (000s, lhs)

Gold price (USD/oz, rhs)

Net Long

Sources: Deutsche Bank, Bloomberg Finance LP Sources: CFTC, Deutsche Bank, Bloomberg Finance LP

Figure 3: Gold July’14 probabilities Figure 4: Gold risk reversal & price

1200122012401260128013001320134013601380

0%

10%

20%

30%

40%

50%

60%

70%

80%


Probability above 1300Probability below 1100Gold (rhs, $/tr.oz)

1200

1250

1300

1350

1400

1450

-4%

-3%

-2%

-1%


Risk reversal (Δ25C-Δ25P)Gold (rhs, $/tr.oz)

Sources: Deutsche Bank, Bloomberg Finance LP Sources: Deutsche Bank, Bloomberg Finance LP

[email protected]

(44) 20 754 52166

14 March 2014

Commodities Weekly


Chartbook Overview

In the following sections, we examine various techniques to assess market positioning and sentiment across commodity markets and assess how these are affecting spot, forward curve and volatility trends across commodity markets.

Like FX, positioning and sentiment can prove to be important determinants of short term movements in commodity prices. For example, sentiment will tend to colour how the market interprets incoming information, while the positioning of traders and investors is important in determining how sensitive commodity prices will be to particular economic and financial developments.

For instance, a commodity price is far less likely to rally in response to positive fundamental news if market participants are already significant long the commodity. In addition, much of the apparent short-run ‘randomness’ in commodity prices, or those movements in prices that seemingly defy fundamental developments, can often be attributed to position adjustment. Positioning information also helps to shed light on whether movements in commodities have been driven by real money, speculative or commercial flows.

By combining sentiment indicators such as the forward curve time spread, risk reversals and the relative strength index we aim to gauge how bullish or bearish market sentiment is towards a particular commodity market. For each sub-indicator we take its 3-month rolling Z-score and then average the Z-scores to yield a combined sentiment indicator. In some sense the bullish-bearish sentiment indicator can be used as a short term indicator for possible turning points when commodities have moved into oversold or overbought territory. Figure 1 examines sentiment for the copper market.

Positioning & Sentiment Monitors IMM Weekly CFTC Commitment of Traders report: To the extent that the activity of non-commercial payers (i.e. traders) on the IMM is consistent with broader speculative activity and positioning in the commodities markets, the weekly commitment report is a useful guide to short-term market positioning. We believe extremes of speculation positions should be regarded with caution as they can often be indicative of a commodity that has become overbought or oversold and that a turning point is near.

Relative Strength Index: The RSI measures the velocity of a security’s price movement to identify overbought and oversold conditions. Typically when the RSI falls below a value of 30 it indicates an oversold position. A buy signal is usually triggered when the indicator crosses 30 from below. Similarly, an RSI value greater than 70 indicates an overbought condition. A sell signal is usually triggered when the indicator crosses 70 from above.

Open Interest: OI measures the total number of option and futures contracts that have not been closed, liquidated or delivered. As a result, open interest can provide important information about the liquidity of a particular market and the potential for gap risk is environments where liquidity is poor.

Commodity Spot, Forward Curve & Volatility Tracker Like the positioning & sentiment monitor section, we also assess movements in spot, curve and volatility. Such movements, at least over the medium term, are typically driven by physical fundamentals and inventory to consumption levels. In markets where inventories are rising and market precariousness is falling, this tends to signal bearish price conditions, forward curves moving into contango and volatility subsiding. Conversely when market scarcity is rising, this typically triggers higher prices, backwardation and rising volatility.

Figure 1: The DB Bullish-Bearish

Sentiment Indicator

-4

-3

-2

-1

0

1

2

3

4

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13

LME 3m copper (USD/t) Copper Bullish/Bearish Sentiment Index


14 March 2014

Commodities Weekly


Positioning, Sentiment & Liquidity Monitor

Figure 1: CFTC net non-commercial positioning

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)

The speculative community currently

holds record high net length in WTI, and

net length in platinum above the 95th

percentile. Overall, the speculative

community is adopting a generally more

constructive view towards commodities

as it builds net length across the

complex.

The most extreme RSI readings

currently exist for copper (oversold)

and wheat (overbought). We also find

that gold, palladium and corn are also

moving higher towards levels that

could soon lie in overbought territory.

Aggregate open interest for the PGM

complex continues to remain at high

levels, above the 95th percentile level.

Aggregate open interest for most of the

commodities is above the median level

except for US natural gas, heating oil,

gold, wheat and sugar. Aggregate OI

for wheat is at low levels below the 5th

percentile level.

14 March 2014

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 25th to 75th percentiles, whiskers represent 5th 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.

Palladium, WTI, US natural gas and

RBOB gasoline are the only commodities

trading above the median of the two-year

range. Palladium is the best performer

trading above the 95th percentile as the

commodity rose to an 11-month high.

Meanwhile, the remaining commodities

are trading at or below the median level.

Copper and aluminium are trading below

the 5th percentile level.

Backwardation is persistent across the

entire energy complex, particularly in

US natural gas where it has rallied to

extreme levels. With the exception of

soybeans, the degree of contango is

moderating across the agricultural

complex.

3 month implied volatility is at low levels

for majority of the commodity complex

with the exception of the agricultural

sector. In agriculture, implied vol has

been moving higher over the past

month and is now above the median

level of the two year period.

Meanwhile, US natural gas and Brent

are the only commodities where implied

vol is below the 5th percentile level.

14 March 2014

Commodities Weekly


Commodity Price Forecasts

Energy Commodities Price Forecasts

USD Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016

WTI (bbl) 97.61 95.00 85.00 85.00 90.00 97.99 88.75 85.00 80.00

% Change from previous forecast -9.5% -15.0% -10.5% -5.3% -10.1% -10.5% -5.9%

Brent (bbl) 109.35 100.00 95.00 95.00 100.00 108.75 97.50 100.00 95.00


RBOB gasoline (g) 2.66 2.60 2.50 2.50 2.60 2.81 2.55 2.60 2.50


Heating oil (g) 2.99 2.70 2.55 2.55 2.70 2.97 2.63 2.70 2.55


IPE gasoil (t) 927.69 835.00 790.00 790.00 835.00 920.18 812.50 845.00 800.00


Singapore Jet (bbl) 123.65 110.00 105.00 105.00 110.00 122.27 107.50 115.00 105.00


US Natural Gas (mmBtu) 3.85 4.30 4.15 4.20 4.35 3.73 4.25 4.50 4.75

% Change from previous forecast 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Thermal Coal - Japanese Guide Price (JFY) 95.00 95.00 87.00 87.00 87.00 100.05 91.25 88.15 90.12

% Change from previous forecast 0.0% -3.3% -3.3% -3.3% 0.0% -5.0% -6.5%

API4 (Richard's Bay) FOB (t) 84.00 76.00 80.00 83.00 87.00 81.11 81.50 81.00 82.90

% Chg from previous forecast 0.0% 0.0% 0.0% 0.0% 0.0% -5.3% -6.7%

Newcastle FOB (t) 83.72 80.00 84.00 87.00 91.00 84.89 85.50 85.00 86.90

% Chg from previous forecast 0.0% 0.0% 0.0% 0.0% 0.0% -5.0% -6.5%

Uranium (U3O8) (lb) [term] 50 50 55 55 55 54 54 52 54


Source: Deutsche Bank, Figures are period averages

Precious Metals Price Forecasts

USD/oz Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016

Gold 1272 1190 1150 1125 1100 1413 1141 1100 1075

% Chg from previous forecast -11.9% -14.8% -15.1% -17.0% -14.7% -17.0% -23.2%

Silver 21 20 19 19 18 24 19 19 18


Platinum 1397 1500 1450 1480 1520 1487 1488 1600 1650


Palladium 724 775 750 760 770 726 764 850 900

% Chg from previous forecast 3.3% 0.0% 1.3% 2.7% 1.8% 0.0% -5.3%

Rhodium 956 1000 950 1000 1050 1067 1000 1400 1400

% Chg from previous forecast -16.7% -20.8% -23.1% -19.2% -20.0% 0.0% -22.2%


14 March 2014

Commodities Weekly


Industrial Metals Price Forecasts

Cash price Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016 Aluminium USc/lb 82.3 79.4 81.7 81.7 86.2 85.7 82.2 88.5 99.8 USD/t 1815 1750 1800 1800 1900 1889 1813 1950 2200 % Chg from previous forecast 2.9% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% Copper USc/lb 325.3 335.8 322.1 317.6 308.5 333.7 321.0 308.5 304.0 USD/t 7169 7400 7100 7000 6800 7354 7075 6800 6700 % Chg from previous forecast 1.4% 0.0% 0.0% 0.0% 0.4% 0.0% -8.2% Lead USc/lb 96.9 99.8 95.3 99.8 102.1 97.8 99.3 104.4 105.5 USD/t 2136 2200 2100 2200 2250 2156 2188 2300 2325 % Chg from previous forecast 0.0% -2.3% 0.0% 0.0% -0.6% 0.0% 0.0% Nickel USc/lb 634.2 703.3 680.6 657.9 680.6 685.2 680.6 691.9 726.0 USD/t 13978 15500 15000 14500 15000 15102 15000 15250 16000 % Chg from previous forecast -13.9% -11.8% -12.1% -6.3% -11.1% -3.5% 0.0% Tin USc/lb 1039.8 1043.6 998.2 998.2 998.2 1012.0 1009.5 1057.2 994.8 USD/t 22918 23000 22000 22000 22000 22305 22250 23300 21925 % Chg from previous forecast 2.2% 0.0% 0.0% 0.0% 0.6% -1.7% -1.7% Zinc USc/lb 87.7 93.0 90.7 93.0 95.3 88.0 93.0 105.3 108.4 USD/t 1932 2050 2000 2050 2100 1940 2050 2320 2390 % Chg from previous forecast 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%


Bulk Commodities Price Forecasts

USD Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016

Iron Ore Spot Landed Fines Price in China CIF (t) 135.00 130.00 120.00 110.00 105.00 129.84 116.25 105.00 102.00

% Chg from previous forecast 8.3% 9.1% 4.8% 0.0% 5.7% 0.0% 0.0%

Hard Coking Coal JFY (t) 152.00 143.00 150.00 145.00 155.00 159.00 148.25 165.00 165.00


Low-volatile PCI JFY (t) 112.98 121.05 127.20 128.31 129.43 124.04 126.50 132.29 136.24

% Chg from previous forecast 0.0% 0.2% 0.2% 0.3% 0.2% -0.2% 0.2% Source: DB Global Markets Research

Minor Metals Price Forecasts

USD Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016

Molybdenum (lb) 9.57 9.70 9.20 9.70 10.00 10.41 9.65 10.50 12.03

% Chg from previous forecast 7.8% 2.2% 7.8% 11.1% 7.2% 0.0% -0.6%


Agriculture Price Forecasts

USD/bushel Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 2013 2014 2015 2016 Corn 4.30 4.35 4.45 4.30 4.10 5.78 4.30 4.40 4.25 % Chg from previous forecast 1.2% -1.1% -5.5% -7.9% -3.4% 1.4% -5.6%

Wheat 6.55 5.95 5.45 6.05 5.65 6.85 5.78 5.61 5.45

% Chg from previous forecast -5.6% -9.2% -4.0% -8.1% -6.7% -3.7% -0.9% Soybeans 13.04 13.50 13.30 13.25 10.60 14.02 12.66 10.24 9.56 % Chg from previous forecast 0.0% 0.0% 0.0% -7.8% -1.7% -0.6% -5.6%

Sugar (USc/lb) 17.69 15.50 14.60 16.35 17.00 17.49 15.86 18.46 21.00

% Chg from previous forecast -17.1% -15.4% -8.7% -11.7% -13.2% -6.6% 10.5% Source: DB Global Markets Research

14 March 2014

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

14 March 2014

Commodities Weekly


Regulatory Disclosures

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. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and 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 disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless "Japan" or "Nippon" is specifically designated in the name of the entity. Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may 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. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

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 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 fixedincome 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

Guy Ashton

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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Global Disclaimer Investing in and/or trading commodities involves significant risk and may not be suitable for everyone. Participants in commodities transactions may incur risks from several factors, including changes in supply and demand of the commodity that can lead to large fluctuations in price. The use of leverage magnifies this risk. Readers must make their own investing and trading decisions using their own independent advisors as they believe necessary and based upon their specific objectives and financial situation. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis. Deutsche Bank makes no representation as to the accuracy or completeness of the information in this report. Target prices are inherently imprecise and a product of the analyst judgement. Deutsche Bank may buy or sell proprietary positions based on information contained in this report. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof. This report is provided for information purposes only. It is not to be construed as an offer to buy or sell any financial instruments or to participate in any particular trading strategy.

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