Commodities and nergy Titel

Macro analysis May 2, 2014

Rising global food prices a reversal in inflation

Swedbanks Total Commodity Price Index, USD

Index

In March S!ed"an#$s %otal Commodity &rice Inde' (ell in

dollar terms "y 0)*+ compared !ith ,e"ruary, dri-en "y lo!er prices (or industrial metals and energy commodities) %he escalating political crisis in .#raine has had limited e((ect on commodity prices to date) /il prices are still in the range o( .S0 1012 1012110 per "arrel, !here they ha-e (luctuated since 2011) Increased oil supplies, not least (rom the .S, and e'pectations o( higher production in /& C countries are limiting price increases despite geopolitical uncertainty) &roduction disruptions and (ears o( lo!er glo"al production ha-e dri-en up (ood prices on a "road "asis) Since ,e"ruary o( this year S!ed"an#$s Commodity &rice Inde' (or (ood products has clim"ed nearly 20+ in dollar terms, the largest gain since summer 2012) 2012) %his means gradually rising price pressure (rom (ood compared !ith last year, !hen declining glo"al prices !ere part o( the reason (or lo! glo"al in(lation) Industrial metals (ell "roadly in March, !ith gro!ing in-entories and uncertainty a"out the Chinese Chinese economy #eeping prices in chec#) %he "iggest decline in March !as in copper) %he e'ception !as nic#el, !hich !ent against the tide and sa! its price rise "y 40+ since the "eginning o( the year) 3dditional price declines !ill (orce more production cut"ac#s) cut"ac#s)
S!ed"an#$s %otal Commodity &rice Inde' (ell in March "y 0)*+ in dollar terms compared !ith ,e"ruary) %he #rona$s

appreciation against the .S dollar reduced the Commodity &rice Inde' "y 1)4+ in S 5) %he "iggest decline !as in industrial commodities, especially metals, !hich (ell "y 2)6+ "et!een months, !hile (ood prices rose) 7eopolitical tension "et!een Russia and the .8 .S, !ith the ris# o( disruptions to energy supplies, and lo!er oil production "y /& C had relati-ely little e((ect on oil prices in March) Instead, it !as reduced glo"al demand that led oil prices 9:rent; lo!er "y 0)*+ in dollar terms) In 3pril, the political crisis in the region escalated) ,ears o( lo!er supplies resulting (rom trade sanctions against Russia ha-e dri-en oil prices slightly higher in recent !ee#s 9.S0 104 at the time o( !riting;, though they remain in the range o( .S0 1012110) In contrast, the .S$s e'panding role as an oil producer, !hich is e'pected to continue to gro!, is holding do!n prices) %he I 3 estimates that production outside /& C is gro!ing "y 1)6 million "arrels at the same time that there is ma<or production potential in se-eral /& C countries, especially Ira=, Iran and Li"ya) /& C has a clear incenti-e to raise production le-els, not least in countries !here political concerns or sanctions ha-e restricted production) In Ira=, production has accelerated and is e'pected to continue to rise going (or!ard, although there is still (ar to go to reach pre-ious le-els) >igher production (rom Iran !ould also "olster glo"al oil supplies) /n the other hand, the !orsening geopolitical situation in .#raine and gro!ing tension "et!een the .S8 . and Russia is raising the li#elihood o( higher crude prices than !e (orecast in 3pril, !hen !e e'pected prices to (all to .S0 101 dollar per "arrel "y the end o( the year)

Strategy and Macro Research Large Corporates & Institutions

1 of 5

Coal prices are continuing to trend lo!er, do!n "y 4)0+ on a monthly "asis, and are no! at the lo!est le-el since 2004) 7ro!ing supplies and lo!er Chinese steel production are contri"uting to the price decline) %he long2term price drop and (alling pro(ita"ility that results are raising pressure to cut production) 3t the same time lo! coal prices and gro!ing uncertainty a"out (uture energy supplies in urope could lead to higher coal consumption, at least temporarily) :rent and ?%I oil in .S0

impulses (rom (oods !ill rise going (or!ard a(ter ha-ing constrained in(lation in the last year) :roadly lo!er metal prices a reco-ery !ill ha-e to !ait Industrial metals (ell "y 1)C+ in March compared !ith ,e"ruary, !hich means that prices !ere 10+ lo!er than t!el-e months ago) Copper accounted (or the "iggest monthly decline 9@)6+;, (ollo!ed "y lead 92)@+; and Ainc 91)0;) Iron ore prices (ell (or the third consecuti-e month as a result o( slo!ing steel production in China) %his year steel production is e'pected to gro! "y C+, hal( the rate o( 201C and a result o( go-ernment attempts to re"alance the economy a(ter an in-estment2led e'pansion) Metal price trend 201C2 201C22014, 1 Eanuary 201CB100

USD/Barrel

Supply disruptions are dri-ing up (ood prices 7lo"al (ood prices turned signi(icantly higher on a "road "asis in March) S!ed"an#$s Commodity &rice Inde' rose in dollar terms "y 4)0+ in March a(ter ha-ing gained 10)@+ in ,e"ruary) %his is the "iggest monthly increase since 2012 in connection !ith the .S drought) :e-erages such as co((ee and <uice ha-e risen "y <ust o-er 21+ in t!o months) Co((ee prices clim"ed o-er 40+, partly due to lo!er supplies (ollo!ing a (rost and dry !eather in :raAil) 7lo"al (ood commodities, commodities, 2010B100

%he sluggish glo"al reco-ery, gro!ing concerns a"out the Chinese economy and high in-entories are contri"uting to lo!er metal prices) &ressure to cut production has continued) %his includes copper, !here production continues to outpace demand in the !a#e o( in-estments to e'pand the mining sector !hen the Chinese economy !as gro!ing "y dou"le digits) 3 (urther price decline is to "e e'pected unless supplies are constrained) Fic#el is the one industrial metal to go against the tide, rising "y 10)C+ in dollar terms in March) %he increase is due to Indonesia$s decision last !inter to restrict e'ports as !ell as concerns o( lo!er Russian e'ports) Indonesia and Russia account (or 40+ o( glo"al production) Metal in-entories, in-entories, milli million lions ons o( tons tons

Index

Ton (metric) (millions)

1 January 2013=100

7rain prices, !hich trended lo!er last year, ha-e risen in total "y 1C+ since the start o( 2014 in dollar terms, "ut are still at a lo!er le-el than last spring) %he increase is "eing dri-en "y (ears o( lo!er .S production and poorer grain =uality a(ter the cold !inter) 3nother (actor is the geopolitical crisis in .#raine8Russia, !hich could hurt supplies, especially o( !heat, in t!o countries that account (or nearly a (i(th o( glo"al !heat e'ports) &rices o( products o( animal origin such as por# ha-e risen signi(icantly, dri-en "y lo!er production caused "y a s!ine -irus out"rea# in the .S) %he rising price trend (or (ood and last yearDs lo! price le-els mean that the annual rate !ill increase signi(icantly this year, especially in the second hal( o( 2014) 3s a result, in(lation
2 (5)

Sluggish glo"al industrial conditions and large metal in-entories ha-e (orced commodity producers to cut production or delay scheduled capacity e'pansions) Metal prices ha-e risen in 3pril, especially nic#el and iron ore, !hile copper continues to "e !eighed do!n "y e'pectations o( rising supplies and

Ton (metric)

!ea#er Chinese gro!th) ?e remain (irm, ho!e-er, in our (orecast that metal prices ha-e "ottomed out a(ter ha-ing (allen "y o-er C0+ since their pea# in 2011 and that they !ill turn higher later in 2014 as production ad<usts to lo!er glo"al demand)

Non-ferrous metals Ferrous ore/scrap Crude oil Coal Total

10.5 3.7 66.3 3.0 100.0

S!ed"an#$s Commodity &rice Inde' is "ased on the composition o( S!edish commodity imports, !ith crude oil carrying the hea-iest !eight in the inde') %he !eights in the Commodity &rice Inde' are sho!n "elo! (or each main group)

Macro Research EGrgen 5ennemar %elH I4@ 6 *00 4604 e2mailH <orgen)#ennemarJs!ed"an#)se

Food

6.9 9.6

Agricultural commodities

3 (5)

Swedbank Commodity Index Basis 2000 = 1oo

1.2014 T otal index Per cent change month ago Per cent change year ago T otal index exclusive energy Per cent change month ago Per cent change year ago Food, tropical beverages Per cent change month ago Per cent change year ago Cereals Per cent change month ago Per cent change year ago T ropical beverages and tobacco Per cent change month ago Per cent change year ago Coffee Per cent change month ago Per cent change year ago Oilseeds and oil Per cent change month ago Per cent change year ago Industrial raw materials Per cent change month ago Per cent change year ago Agricultural raw materials Per cent change month ago Per cent change year ago Cotton Per cent change month ago Per cent change year ago Softwood Per cent change month ago Per cent change year ago W oodpulp Per cent change month ago Per cent change year ago N on-ferrous metals Per cent change month ago Per cent change year ago Copper Per cent change month ago Per cent change year ago Aluminium Per cent change month ago Per cent change year ago Lead Per cent change month ago Per cent change year ago Z inc Per cent change month ago Per cent change year ago Nickel Per cent change month ago Per cent change year ago Iron ore, steel scrap Per cent change month ago Per cent change year ago Energy raw materials Per cent change month ago Per cent change year ago Coking coal Per cent change month ago Per cent change year ago Crude oil Per cent change month ago Per cent change year ago 243,2 -3,4 -4,0 172,4 -2,1 -6,7 147,7 -1,9 -13,5 146,1 -3,5 -34,2 139,0 0,1 -9,7 78,0 3,1 -18,2 167,5 -4,5 -3,4 179,5 -2,2 -4,9 120,8 -2,0 3,7 59,9 2,9 8,9 85,2 2,9 -6,5 641,1 -0,4 11,8 146,4 -0,5 -12,5 5137,7 0,4 -9,4 1215,8 -1,6 -15,4 1513,3 -0,1 -8,2 1435,5 2,3 0,3 9914,7 0,3 -19,4 422,8 -3,8 -2,4 274,7 -3,8 -3,2 223,0 -4,4 -10,0 277,0 -3,8 -2,9 2.2014 248,0 2,0 -2,4 172,6 0,2 -6,4 163,7 10,8 -1,2 152,9 4,7 -28,3 160,4 15,3 9,1 97,2 24,6 6,7 178,0 6,3 1,9 175,2 -2,4 -7,7 119,9 -0,8 3,0 61,3 2,3 8,3 87,1 2,3 -4,6 646,1 0,8 13,6 144,6 -1,2 -12,9 5045,7 -1,8 -9,7 1194,9 -1,7 -16,0 1488,7 -1,6 -9,5 1435,8 0,0 -2,6 10012,7 1,0 -18,5 403,0 -4,7 -9,5 281,5 2,5 -1,3 209,9 -5,8 -14,3 284,8 2,8 -0,8

- SKr - Swedbank Commodity Index 30-04-14 Basis 2000 = 1oo

3.2014 243,3 Total index -1,9 Per cent change month ago -0,9 Per cent change year ago 170,0 Total index exclusive energy -1,6 Per cent change month ago -6,0 Per cent change year ago 176,1 Food, tropical beverages 7,6 Per cent change month ago 5,7 Per cent change year ago 162,9 Cereals 6,5 Per cent change month ago -23,9 Per cent change year ago 177,9 T ropical beverages and tobacco 11,0 Per cent change month ago 20,2 Per cent change year ago 115,0 Coffee 18,2 Per cent change month ago 24,9 Per cent change year ago 180,8 Oilseeds and oil 1,6 Per cent change month ago 3,1 Per cent change year ago 168,2 Industrial raw materials -4,0 Per cent change month ago -9,1 Per cent change year ago 119,6 Agricultural raw materials -0,2 Per cent change month ago 3,6 Per cent change year ago 63,9 Cotton 4,3 Per cent change month ago 3,7 Per cent change year ago 90,9 Softwood 4,3 Per cent change month ago -0,7 Per cent change year ago 641,3 W oodpulp -0,7 Per cent change month ago 9,9 Per cent change year ago 140,9 N on-ferrous metals -2,5 Per cent change month ago -10,4 Per cent change year ago 4645,1 Copper -7,9 Per cent change month ago -13,4 Per cent change year ago 1186,6 Aluminium -0,7 Per cent change month ago -11,4 Per cent change year ago 1432,4 Lead -3,8 Per cent change month ago -6,3 Per cent change year ago 1403,2 Zinc -2,3 Per cent change month ago 3,5 Per cent change year ago 10907,7 Nickel 8,9 Per cent change month ago -6,9 Per cent change year ago 369,2 Iron ore, steel scrap -8,4 Per cent change month ago -16,1 Per cent change year ago 275,8 Energy raw materials Per cent change month ago -2,0 0,6 Per cent change year ago 199,0 Coking coal Per cent change month ago -5,2 Per cent change year ago -17,0 279,3 Crude oil Per cent change month ago -1,9 Per cent change year ago 1,3
1.2014 345,3 -2,6 -4,0 244,7 -1,2 -6,7 209,7 -1,0 -13,6 207,4 -2,7 -34,2 197,4 1,0 -9,8 110,8 4,0 -18,2 237,8 -3,6 -3,4 254,9 -1,3 -4,9 171,5 -1,1 3,7 85,1 3,8 8,9 120,9 3,8 -6,5 910,2 0,5 11,8 207,9 0,4 -12,5 7294,3 1,3 -9,4 1726,2 -0,7 -15,4 2148,5 0,7 -8,2 2038,1 3,3 0,3 14076,4 1,2 -19,4 600,2 -3,0 -2,4 389,9 -2,9 -3,2 316,5 -3,5 -10,1 393,3 -2,9 -2,9 2.2014 351,6 1,8 -4,2 244,7 0,0 -8,1 232,0 10,6 -3,0 216,7 4,5 -29,6 227,3 15,1 7,1 137,8 24,4 4,8 252,3 6,1 0,0 248,4 -2,5 -9,4 169,9 -0,9 1,2 86,9 2,1 6,3 123,5 2,1 -6,3 915,8 0,6 11,5 205,0 -1,4 -14,5 7151,6 -2,0 -11,4 1693,6 -1,9 -17,5 2110,1 -1,8 -11,2 2035,0 -0,2 -4,4 14191,6 0,8 -19,9 571,2 -4,8 -11,2 399,0 2,3 -3,1 297,5 -6,0 -15,8 403,6 2,6 -2,6

- US$ 30-04-14 3.2014 349,2 -0,7 -0,4 244,0 -0,3 -5,5 252,8 9,0 6,3 233,8 7,9 -23,5 255,4 12,4 20,8 165,0 19,7 25,6 259,6 2,9 3,7 241,4 -2,8 -8,6 171,7 1,0 4,1 91,8 5,6 4,2 130,4 5,6 -0,2 920,5 0,5 10,4 202,3 -1,3 -10,0 6667,6 -6,8 -13,0 1703,2 0,6 -11,0 2056,0 -2,6 -5,8 2014,1 -1,0 4,1 15656,8 10,3 -6,4 529,9 -7,2 -15,7 395,9 -0,8 1,1 285,6 -4,0 -16,6 400,9 -0,7 1,9

Source : SW ED BAN K and H W W A-Institute for Economic R esearch H amburg Source : SW EDBANK and HW W A-Institute for Economic Research H amburg

4 (5)

0isclaimer
?hat our research is "ased on S!ed"an# Research a unit !ithin Large Corporates & Institutions "ases the research on a -ariety o( aspects and analysis) ,or e'ampleH 3 (undamental assessment o( the cyclical and structural economic, current or e'pected mar#et sentiment, e'pected or actual changes in credit rating, and internal or e'ternal circumstances a((ecting the pricing o( selected ,K and (i'ed income instruments) :ased on the type o( in-estment recommendation, the time horiAon can range (rom short2 term up to 12 months) Recommendation structure Recommendations in ,K and (i'ed income instruments are done "oth in the cash mar#et and in deri-ati-es) Recommendations can "e e'pressed in a"solute terms, (or e'ample attracti-e price, yield or -olatility le-els) %hey can also "e e'pressed in relati-e terms, (or e'ample long positions -ersus short positions) Regarding the cash mar#et, our recommendations include an entry le-el and our recommendation updates include pro(it and o(ten, "ut not necessarily, e'it le-els) Regarding recommendations in deri-ati-e instruments, our recommendation include suggested entry cost, stri#e le-el and maturity) In ,K, !e !ill only use options as directional "ets and -olatility "ets !ith the restriction that !e !ill not sell options on a net "asis, i)e) !e !ill only recommend positions that ha-e a (i'ed ma'imum loss) 3nalyst$s certi(ication %he analyst9s; responsi"le (or the content o( this report here"y con(irm that not!ithstanding the e'istence o( any such potential con(licts o( interest re(erred to herein, the -ie!s e'pressed in this report accurately re(lect their personal -ie!s a"out the securities co-ered) %he analyst9s; (urther con(irm not to ha-e "een, nor are or !ill "e, recei-ing direct or indirect compensation in e'change (or e'pressing any o( the -ie!s or the speci(ic recommendation contained in the report) Issuer, distri"ution & recipients %his report "y S!ed"an# Research is issued "y the S!ed"an# Large Corporates & Institutions "usiness area !ithin S!ed"an# 3: 9pu"l; 9LS!ed"an#M;) S!ed"an# is under the super-ision o( the S!edish ,inancial Super-isory 3uthority 9,inansinspe#tionen;) In no instance is this report altered "y the distri"utor "e(ore distri"ution) In ,inland this report is distri"uted "y S!ed"an#$s "ranch in >elsin#i, !hich is under the super-ision o( the ,innish ,inancial Super-isory 3uthority 9,inanssi-al-onta;) In For!ay this report is distri"uted "y S!ed"an#$s "ranch in /slo, !hich is under the super-ision o( the ,inancial Super-isory 3uthority o( For!ay 9,inanstilsynet;) In stonia this report is distri"uted "y S!ed"an# 3S, !hich is under the super-ision o( the stonian ,inancial Super-isory 3uthority 9,inantsinspe#tsioon;) In Lithuania this report is distri"uted "y LS!ed"an#M 3:, !hich is under the super-ision o( the Central :an# o( the Repu"lic o( Lithuania 9Lietu-os "an#as;) In Lat-ia this report is distri"uted "y S!ed"an# 3S, !hich is under the super-ision o( %he ,inancial and Capital Mar#et Commission 9,inanNu un #apitala tirgus #omisi<a;) In the .nited States this report is distri"uted "y S!ed"an# ,irst Securities LLC 9DS!ed"an# ,irstD;, !hich accepts responsi"ility (or its contents) %his report is (or distri"ution only to institutional in-estors) 3ny .nited States institutional in-estor recei-ing the report, !ho !ishes to e((ect a transaction in any security discussed in the report, should do so only through S!ed"an# ,irst) S!ed"an# ,irst is a .)S) "ro#er2dealer, registered !ith the Securities and 'change Commission, and is a mem"er o( the ,inancial Industry Regulatory 3uthority) S!ed"an# ,irst is part o( S!ed"an# 7roup) ,or important .)S) disclosures, please re(erenceH httpH88!!!)s!ed"an#(s)com8disclaimer8inde')htm In the .nited 5ingdom this communication is (or distri"ution only to and directed only at Orele-ant personsO) %his communication must not "e acted on or relied on "y persons !ho are not Orele-ant personsO) 3ny in-estment or in-estment acti-ity to !hich this document relates is a-aila"le only to Orele-ant personsO and !ill "e engaged in only !ith Orele-ant personsO) :y Orele-ant personsO !e mean persons !hoH 3ll in(ormation, including statements o( (act, contained in this research report has "een o"tained and compiled in good (aith (rom sources "elie-ed to "e relia"le) >o!e-er, no representation or !arranty, e'press or implied, is made "y S!ed"an# !ith respect to the completeness or accuracy o( its contents, and it is not to "e relied upon as authoritati-e and should not "e ta#en in su"stitution (or the e'ercise o( reasoned, independent <udgment "y you) :e a!are that in-estments in capital mar#ets such as those descri"ed in this document carry economic ris#s and that statements regarding (uture assessments comprise an element o( uncertainty) Pou are responsi"le (or such ris#s alone and !e recommend that you supplement your decision2ma#ing !ith that material !hich is assessed to "e necessary, including 9"ut not limited to; #no!ledge o( the (inancial instruments in =uestion and the pre-ailing re=uirements as regards trading in (inancial instruments) /pinions contained in the report represent the analystDs present opinion only and may "e su"<ect to change) In the e-ent that the analystDs opinion should change or a ne! analyst !ith a di((erent opinion "ecomes responsi"le (or our co-erage o( the company, !e shall endea-our 9"ut do not underta#e; to disseminate any such change, !ithin the constraints o( any regulations, applica"le la!s, internal procedures !ithin S!ed"an#, or other circumstances) I( you are in dou"t as to the meaning o( the recommendation structure used "y S!ed"an# in its research, please re(er to LRecommendation structureM) S!ed"an# is not ad-ising nor soliciting any action "ased upon this report) I( you are not a client o( ours, you are not entitled to this research report) %his report is not, and should not "e construed as, an o((er to sell or as a solicitation o( an o((er to "uy any securities) %o the e'tent permitted "y applica"le la!, no lia"ility !hatsoe-er is accepted "y S!ed"an# (or any direct or conse=uential loss arising (rom the use o( this report) Con(licts o( interest In S!ed"an# LC&I, internal guidelines are implemented in order to ensure the integrity and independence o( the research analysts) ,or e'ampleH

Research reports are independent and "ased solely on pu"licly a-aila"le in(ormation) %he analysts are not permitted, in general, to ha-e any holdings or any positions 9long or short, direct or -ia deri-ati-es; in such ,inancial Instruments that they recommend in their in-estment analysis) %he remuneration o( sta(( !ithin the S!ed"an# Research department may include discretionary a!ards "ased on the (irm$s total earnings, including in-estment "an#ing income) >o!e-er, no such sta(( shall recei-e remuneration "ased upon speci(ic in-estment "an#ing transactions)

&lanned updates 3n in-estment recommendation is normally updated t!ice a month) Reproduction & dissemination %his material may not "e reproduced !ithout permission (rom S!ed"an# Research) %his report is not intended (or physical or legal persons !ho are citiAens o(, or ha-e domicile in, a country in !hich dissemination is not permitted according to applica"le legislation or other decisions) &roduced "y S!ed"an# Research a unit !ithin Large Corporates & Institutions, Stoc#holm) 3ddress S!ed"an# LC&I, S!ed"an# 3: 9pu"l;, S 2101 C4 Stoc#holm) Qisiting addressH Regeringsgatan 1C, Stoc#holm

>a-e pro(essional e'perience in matters relating to in-estments (alling !ithin 3rticle 1491; o( the ,inancial &romotions /rder) 3re persons (alling !ithin 3rticle 4492;9a; to 9d; o( the ,inancial &romotion /rder 9Ohigh net !orth companies, unincorporated associations etcO;) 3re persons to !hom an in-itation or inducement to engage in in-estment acti-ity 9!ithin the meaning o( section 21 o( the ,inancial Ser-ices and Mar#ets 3ct 2000; in connection !ith the issue or sale o( any securities may other!ise la!(ully "e communicated or caused to "e communicated)

Limitation o( lia"ility

5 (5)