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Presentation

October 6, 2014

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

Commodity Themes Into 2015 Michael Lewis | (+44) 20 754-52166 | [email protected] Michael Hsueh | (+44) 20 754-78015 | [email protected]

Deutsche Bank

Markets Research

Markets Research

Deutsche Bank Michael Lewis | (+44) 20 754-52166 | [email protected]

October 6, 2014 1

Commodity Themes

#1 How to play an OPEC quota reduction

Long Feb’15 vs. short May’15 Brent time spread

#2 Pipeline expansions into Cushing, Oklahoma

Long Brent vs. short WTI

#3 Commodities and divergent central bank policy

Short gold

#4 Winners & losers from a Chinese property market slowdown

Long nickel vs. short copper

#5 West Africa & Ebola event risk

Long cocoa

#6 Valuation in the agricultural sector

Long SPGSCI agricultural sub-index

#7 Tightening fundamentals in the PGM sector

Long palladium vs. short gold

#8 Commodity volatility risk premium

Short DB Brent crude oil vol index

#9 Positioning for a cold northern hemisphere winter

Long Mar’15 vs. short Apr’15 US natural gas time spread

Executive Summary

Markets Research


October 6, 2014 2

#1 How To Play OPEC Production Cuts

Saudi Production & Brent Spread

Heading Into Winter: Long Feb’15 vs. Short May’15 Brent Spread

Brent oil physical fundamentals are weak and further price declines are probable.

However, we expect the appearance of contango in the Brent oil market will eventually be met with OPEC

production cuts to tighten fundamentals and restore backwardation.

Falling Brent crude oil prices are already impacting budgetary positions among the major oil producers.

History shows that when OPEC takes action and cuts production, their efforts to stabilise and push oil prices

are successful. However, this is contingent on world GDP growth in excess of 2.5%.

Oil &OPEC Production Cuts

50

60

70

80

90

100

110

120

130

140

150

-14 -7 0 7 14 21 28 35 42 49 56 63 70WT

I oil p

rice=

10

0 in the d

ay b

efo

re q

uota

reduction

Mar-93 Apr-98 Jul-98

Apr-99 Feb-01 Apr-01

Sep-01 Jan-02 Nov-03

Apr-04 Nov-06 Feb-07

Oct-08

Number of trading days before and after first OPEC quota reduction

1998

2001

20086.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

-20

-15

-10

-5

0

5

10

15

1995 2000 2005 2010

1M-12M Brent time spread (USD, lhs)

Saudi oil production (mmb/d, rhs)

Contango typicallytriggers Saudi production cuts

Budget Breakeven s (Brent)

0

2

4

6

8

10

12

60

70

80

90

100

110

120

130

140OPEC member breakeven price ($/bbl, lhs)

Non-OPEC breakeven price ($/bbl, lhs)

Aug-14 production (mmb/d, rhs)

Brent Nov-14

Sources: Deutsche Bank, IEA, Bloomberg Finance LP Sources: DB EM Research, Reuters, IEA Sources: Deutsche Bank, OPEC, Bloomberg Finance LP

Markets Research


October 6, 2014 3

#2 Pipeline Expansions Into Cushing Oklahoma

Inventories & The WTI-Brent Spread 2015 US Tight Oil Production By Incentive Price

Long Brent vs. Short WTI

The supply sources for new pipelines or pipeline expansion projects will be the Canadian oil sands in

Alberta, the Bakken formation of the Williston Basin in Montana and North Dakota, and the Denver-

Julesburg Basin straddling Colorado, Nebraska and Wyoming.

The incoming flows should help to rebuild inventories at Cushing as upstream feeder pipelines come online

over the coming year and thereby relieve upside pressure on WTI and widen its discount to Brent.

Close to 200 kb/d (or 9%) of 2015 expected tight oil production would not attract new investment below

USD90/bbl, and a further 650 kb/d would become unattractive between USD80-USD90/bbl.

-30

-25

-20

-15

-10

-5

0

5

100

10

20

30

40

50

60

Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14

Cushing inventory (million barrels, lhs)

WTI-Brent ($/bbl, rhs inverted scale)

0

500

1000

1500

2000

2500

<$50 $50-$60 $60-$70 $70-$80 $80-$90 >$90

650 kb/d

Sources: EIA, Bloomberg Finance LP, Deutsche Bank Sources: Wood Mackenzie, Deutsche Bank

Markets Research


October 6, 2014 4

#3 Commodities & Divergent Central Bank Policies

SP500 vs. SPGSCI & USD TWI Removing The Gold Premium Gold:Silver & The ISM Index

Short Gold

Typically bull runs in the US last for six years, and the trough to peak is around 40% in magnitude. Since

the current upswing began in July 2011 and the US dollar TWI has rallied by around 18%, this would

suggest we are only half way through the current cycle.

A rising US dollar environment will typically mean commodity returns will underperform equity returns,

with precious metals and energy most sensitive to a rising US dollar.

A more hawkish Fed would also imply further gains in US real interest rates and the possible elimination

of gold’s premium versus physical and financial assets.

30

40

50

60

70

80

90

100

11030

35

40

45

50

55

60

65

1990 1996 2002 2008 2014

US ISM business confidence (lhs)

Gold to silver price ratio (rhs, inverted)

0

2

4

6

8

10

65

75

85

95

105

115

1992 1996 2000 2004 2008 2012

USD TWI (lhs)

S&P500/SPGSCI ratio (rhs)

In real terms (PPI) 725

In real terms (CPI) 770

Relative to per capita incomex 800

Relative to the S&P500 900

Versus copper 1050

Versus crude oil 1400

Average 941

Sources: DB Asset Allocation Research, Bloomberg Finance LP Sources: Deutsche Bank, IMF, Bloomberg Finance LP

Sources: Deutsche Bank, Bloomberg Finance LP

Markets Research


October 6, 2014 5

#4 Winners & Losers Of A China Property Slowdown

Metal Prices & The US Dollar Chinese Zinc Consumption Chinese Property & Steel

Long Nickel vs. Short Copper

Industrial metal prices have been resilient to the strengthening in the US dollar. This may be hard to

justify in the event of any negative growth surprises in China.

We retain our relatively bullish view on the base metals, especially nickel, zinc and lead given the more

limited exposure to the Chinese property sector.

Not surprisingly, the steel-making materials such as iron ore are the most exposed to this sector since

the Chinese property sector comprises 30% of steel demand. Given the already large declines in iron

ore, we would highlight copper as the next market to be exposed from further distress in the Chinese

property sector.

70

72

74

76

78

80300

320

340

360

380

400

420

440

Jan-12 Aug-12 Mar-13 Oct-13 May-14

Spot returns of the SGSCI industrial metals index (lhs)

USD trade-weighted index (rhs, inverted)

Consumer Goods, 30%

Industrial Goods, 6%

Infrastructure, 22%

Non-residential construction,

19%

Residential construction,

13%

Transport, 10%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-40%

-20%

0%

20%

40%

60%

80%

Oct-

07

Fe

b-0

8

Ju

n-0

8

Oct-

08

Fe

b-0

9

Ju

n-0

9

Oct-

09

Fe

b-1

0

Ju

n-1

0

Oct-

10

Fe

b-1

1

Ju

n-1

1

Oct-

11

Fe

b-1

2

Ju

n-1

2

Oct-

12

Fe

b-1

3

Ju

n-1

3

Oct-

13

Fe

b-1

4

Ju

n-1

4

Oct-

14

Monthly floor space sold YoY - 6MMA (Property sales)

Monthly crude steel production YoY - 6MMA (RHS)

22 months 20months

Last two property cycles were about 20 months long

Floor space sold leading crude steel production YoY by about 2-3 months

A potential disconnect?

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

Source: NBS, WIND, Deutsche Bank

Markets Research


October 6, 2014 6

#5 West Africa & Ebola Event Risk

Weekly Incidence Of Ebola Major Cocoa Producers Rising Cocoa Prices

Share of

Rank Country world exports (%)

#1 Cote d'Ivoire 37.8

#2 Ghana 21.2

#3 Indonesia 10.0

#4 Nigeria 5.4

#5 Ecuador 5.1

#6 Cameroon 5.1

#7 Brazil 4.9

#8 Papua NG 1.0

#21 Liberia 0.2

Others 9.4

0

100

200

300

400

500

600

700

800

Jan '5 Feb'16 Mar'30 May'11 Jun'22 Aug'3 Sep'14

Sierra Leone

Liberia

Guinea

Weekly incidence of confirmed, probable andsuspected Ebola cases by country

Nu

mb

er

of

ca

se

s

Long Cocoa

So far the impact on commodities has been relatively limited since Liberia, Sierra Leone and Guinea

combined represent less than 2% of global production/exports of iron ore, cocoa, coffee, cotton, rubber

and palm oil. However, risks exist in the form of contagion into Ivory Coast since one of the most

important cocoa growing regions in Liberia, Nima county, borders Ivory Coast.

Meanwhile Ghana (#10 gold producer globally) and Mali (#15) account for 5.1% of global gold output,

and 2.5% of world exports of iron ore come from Sierra Leone, Mauritania and Liberia combined. DRC

(#6 copper producer globally) and Zambia (#7) supplied 9.4% of the world’s copper in 2013.

40

60

80

100

120

140

160

2012 2013 2014

Cocoa

Cotton

Coffee

3-Jan-12=100

Source: WHO Source: USDA

Source: Bloomberg Finance LP

Markets Research


October 6, 2014 7

#6 Valuation In The Agricultural Sector

Commodities In Real Terms SPGSCI Agricultural Index

Long SPGSCI Agricultural Index

We have seen significant upgrades to global grain and soybean production over recent months.

While there is an absence of obvious catalysts to drive agricultural prices higher currently, we believe

the strong rebound in agricultural production this year has pushed prices in grains and soybeans into

territory that is starting to look cheap.

El Niño risk has been downgraded over the past few months. However, heading into the next crop

year, we believe the sector is starting to under-price event risk.

400

600

800

1000

1200

1400

1600

1980 1984 1988 1992 1996 2000 2004 2008 2012

Index level of the total returns SPGSCI agricultural index

5-Jan-70=100

-43 -41

-30 -28-23

-19

-80

10 1015

2027 30

44 44

66 67

83

-60

-40

-20

0

20

40

60

80

100

Suga

r

US

natu

ral gas

Corn

Alu

min

ium

Wheat

Soybeans

Pla

tinu

m

Cotton

Nic

kel

Zin

c

Tin

Silv

er

Coffee

Cocoa

Le

ad

Copp

er

Go

ld

Palla

diu

m

Cru

de o

il

How far prices in real terms are currentlytrading versus their 2002-2013 average (%)

Expensive

Cheap

Upgrades To US Corn Harvest

10.0

11.0

12.0

13.0

14.0

15.0

M J J A S O N D J F M M J J

Bushels

(bill

ions)

USDA corn production estimate by month

US corn production projections by year

2011-12

2012-13

2013-142014-15

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

Markets Research


October 6, 2014

#7 Tightening Fundamentals In The PGMs

Given the risks of a more permanent reduction in South African productive capacity, in part driven by an

increase in loss-making sections of the mines, we not only expect PGM production in South Africa will be

unable to reach pre-strike levels but that it will help to sustain market deficits across the complex over the

next five years.

Pollution issues in China should sustain the drive to improve emissions. This will likely mean China is the

largest source of palladium demand growth globally over the next five years.

We would also expect rhodium to be another beneficiary, not least since investment participation in this

market is low compared to platinum and palladium.

Long Palladium vs. Short Gold

8

Palladium Is Our Top Pick

0

150

300

450

600

750

900

1050

1200

-2,500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2005 2007 2009 2011 2013 2015F 2017F

US

$/o

zkoz

Market balance

Annual average priceForecast

PGM ETFs vs. Market & Stocks

0%

5%

10%

15%

20%

25%

30%

35%

Rhodium Palladium Platinum

% of market size

% of above ground stocks

Palladium Demand Growth (2013

To 2020E)

0 200 400 600 800 1000

Rest of World

Japan

Europe

North America

China

Ounces (000s)

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

Markets Research


October 6, 2014 9

#8 Commodity Volatility Risk Premium Strategies

Risk Premium Performance

Brent Short Vol Index

Volatility risk premium strategies are focused on the difference between the realised and implied volatility

across asset classes and the routes to isolate and capture this risk premium.

The existence and persistence of a volatility risk premium exist because of a lack of natural sellers of

options. Since hedging activity in commodities is most prevalent in the energy sector, this might help to

explain why the premium is particularly rich in this sector.

Drawdown events occur when there is a spike in realised vol. However, due to the memory of such shocks

in the implied vol market, the recovery period after a drawdown event is typically rapid.

-8.8

2.32.5

3.3

6.9 7.6

12.1

-10

-5

0

5

10

15

NatGas Nickel WTI Basket Brent Copper Gold

Excess returns year to date (%)

Measuring The 3M Implied VRP

Implied vs.

realised premium

(long-term)*

Implied vs.

realised premium

(since 2010)

Brent crude

oil 5.52% 6.67%

WTI crude oil 3.30% 4.84%

Natural Gas 3.19% 1.23%

Aluminium 1.32% 1.65%

Copper 0.93% 4.02%

Nickel 1.40% 2.72%

Gold 1.10% 0.84%

Silver -0.55% -0.98%

Brent Implied vs. Realised Vol

-50.00%

-45.00%

-40.00%

-35.00%

-30.00%

-25.00%

-20.00%

-15.00%

-10.00%

-5.00%

0.00%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Period from trough to previous peak Brent Short Vol strategy

Source for all charts: Deutsche Bank

Markets Research


October 6, 2014 10

#9 Positioning For A Cold Northern Hemisphere Winter

US Natural Gas Storage Volume

Long Mar’15 vs. Short Apr’15 US Natural Gas Time Spread

US natural gas provides the most focused play on a colder-than-normal northern hemisphere winter,

particularly because storage levels remain below normal .

Indeed on our estimates, inventories in the first week of November will be at their lowest levels as a

percentage of working gas capacity since 2002.

The March-April spread is historically the most sensitive to colder-than-normal winter weather as falling

gas inventories create the possibility of lower storage deliverability, and thus rapidly raise expectations for

a tight March supply-demand balance in comparison to April.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

10Y Range (%)

10Y Avg (%)

2014

2014 Forecast

2015 Forecast

3543

1519 bcf

bcf

% o

f w

ork

ing

ga

s

US Natural Gas Mar-Apr Spread & Storage

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Mar May Jul Sep Nov Jan

2015 Mar-Apr Spread (%)

Projection

2015 Storage dev. from 10Y Avg (%)

Cold winter should see

backwardation rally

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

Markets Research


October 6, 2014 11

Commodity Themes

#1 How to play an OPEC quota reduction

Long Feb’15 vs. short May’15 Brent time spread

#2 Pipeline expansions into Cushing, Oklahoma

Long Brent vs. short WTI

#3 Commodities and divergent central bank policy

Short gold

#4 Winners & losers from a Chinese property market slowdown

Long nickel vs. short copper

#5 West Africa & Ebola event risk

Long cocoa

#6 Valuation in the agricultural sector

Long SPGSCI agricultural sub-index

#7 Tightening fundamentals in the PGM sector

Long palladium vs. short gold

#8 Commodity volatility risk premium

Short DB Brent crude oil vol index

#9 Positioning for a cold northern hemisphere winter

Long Mar’15 vs. short Apr’15 US natural gas time spread

Executive Summary

Markets Research


October 6, 2014

06/10/2014 21:30:32 2010 DB Blue template

Appendix 1 Important Disclosures Additional Information Available upon Request

For disclosures pertaining to recommendations or estimates made on securities discussed in 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.

12

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Michael Lewis/ Michael Hsueh

http://gm.db.com/

Markets Research


October 6, 2014 13

Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the “Disclosures Lookup” and “Legal” tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank’s existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. 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. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. 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. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower - 17th Floor, 11372 Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority.

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 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.

Markets Research


October 6, 2014 14

Global Disclaimer

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information. 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. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. 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