commodities 2012

8/3/2019 Commodities 2012

1/23

New York, 6 December 2011

Commodity Research

Investment horizon: 612+ months

Important disclosures are found in the Disclosure appendix

Commodities offer value but when to buy?

The year 2011 has been challenging for commodities. After astrong rally in the first quarter, commodity prices came under

selling pressure starting in the second. Late in the third andinto the fourth quarter, downward pressure intensified as fund-ing stress amid escalating European debt problems, economicslowdown and erratic trading prompted market participants toreduce their exposure to the sector.

In this environment, momentum-based strategies thatquickly switch between individual sectors performed best.Given sluggish growth, persistent funding stress and delever-

aging pressure, the environment looks set to remain challeng-ing. However, after the correction of the last few months,some commodity markets are now starting to offer value. Ourfair value model suggests that metals in particular both in-

dustrial and precious are starting to look cheap at currentlevels. If a global recession can be averted, this situation pre-

sents an opportunity for strategically oriented investors. Valuestrategies that overweight cheap and underweight expensivemarkets should perform well in 2012. We believe the crucialquestion is when to buy.

In our view, commodity markets are torn between two op-posing factors. Commodity-specific fundamentals are oftenstill very supportive. For instance global oil demand hasreached new highs despite the economic slowdown. Invento-ries are falling. The same is true for most other markets par-

ticularly for metals. Valuation also indicates that many pricesshould trade higher. Such support contrasts with an increas-ingly grim financial environment. In the wake of the Europeandebt crisis interbank funding is drying up. Banks are delever-

aging and access to credit is limited. With liquidity drying up,market participants who receive margin calls are liquidatingtheir assets including commodities to raise the much-

needed cash, which we believe is the main reason that pricesare so sensitive to deteriorating credit and liquidity conditions.As a result of the price declines of the past few months, tech-nical indicators such as trend and momentum have also dete-riorated. At the moment, funding problems and negative tech-nicals dominate over value and fundamentals. As a result, we

believe a defensive stance with a focus on precious metals iswarranted for now. In our view an improvement in liquidity con-ditions would be the best signal for a sustained recovery incommodity prices and an outperformance of value strategies.

Research Monthly US

CommoditiesThe year 2012 is likely to be challenging but there are stillopportunities

Private Banking

Highlights

Strategy: Cautious outlook for now, butvalue strategies likely to become attractive

once liquidity conditions improve.

Precious metals: Still the strongest sector.Substantial investment interest should help

to push prices higher.

Industrial metals: Technical trends aremostly negative, but many markets are on

the brink of becoming cheaply valued. This

should provide long-term support.

Energy: Accelerating demand is positive. Oilprices could increase in the near term.

Agriculture: Technical trends are negative,and prices are not cheap yet.

Figure 1

Commodity volatility remains elevated

-120

-90

-60

-30

0

30

60

90

120

USNa

tura

lgas

Nicke

l

Gaso

line

Alum

inum

Copper

Lea

d

Sugar

Pa

lladium

Zinc

Platinum

Soybean

Co

tton

Cocoa

Go

ld

Whea

tTin

Bren

tCru

deo

il

WTICru

deo

il

Co

ffee

Corn

Silver

5-Dec-11 -1 S tdev +1 S tdev

Deviation from fair value in %

Overvalued

Undervalued

Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse / IDC


2/23


Research Monthly US 2

Table 1 summarizes our views, based on a weighted blend of

technical and fundamental inputs:

Precious metals: Deteriorating liquidity conditions haverecently triggered a pull-back, but precious metals are stillthe strongest sector. Low interest rates should help to

keep investment demand high. Technicals are supportiveor neutral. The 12-month outlook is positive. For silver wehave upgraded our fundamental rating to positive, as pricesnow seem less stretched relative to gold.

Energy: Oil has outperformed recently. We have upgradedour fundamental rating to positive given accelerating de-mand. However, oil already looks somewhat expensive atcurrent levels. We think oil could trade higher near termand sustain current levels longer term. Meanwhile short-term prospects for natural gas have worsened, as the mar-

ket has moved back into oversupply. Looking forward 12months, we continue to expect higher prices due to under-valuation.

Industrial metals: Metals markets are in a difficult situa-tion. Waning liquidity has triggered sharp corrections, andin many markets long-term technical trends have turnednegative, affecting the overall outlook as well. However,

most markets are now very close to becoming cheap,which should provide support for the longer term. Thus acautious stance is warranted near term, but longer termthe situation is probably better than current ratings sug-gest, as value will likely become supportive soon.

Agriculture: The outlook for agriculture has deteriorated.Harvests have come in better than expected, and long-term technical trends have turned negative in many mar-kets. In terms of value, markets are not cheap yet. Wethus have a negative outlook for most prices. Sugar shouldbe more stable than other agricultural markets given neu-tral trend and valuation.

Forecasts and strategy

Table 1: Medium- and long-term commodity views

Hi/Low Last 30 days 05/12/11 Hi/Low Last 30 days 05/12/11 Cycle Value Mom. Trend 1-6M 6-12M+ 3M 12M

1795.10 27.5%

1677.32 23.9%

34.98 47.6%

31.26 44.0%

1661.00 28.5%

1530.50 27.3%

672.00 38.3%

568.00 36.8%

WTI 102.59 41.3%

Crude Oil 95.52 32.1%

US 3.75 49.3%

Natural Gas 3.32 32.6%

2165 26.4%

1992 25.4%

7890 41.7%

7230 37.3%

18700 40.5%

16750 39.1%

2071 38.9%

1888 37.6%

2110 39.3%

1943 38.2%

22205 39.1%

19995 38.2%

660.50 36.8%

582.50 21.6%657.00 43.6%

574.50 30.8%

1200.25 25.2%

1106.50 19.3%

25.91 36.0%

22.90 32.2%

103.50 45.4%

89.95 30.1%

239.50 41.9%

224.70 31.2%

2728 31.2%

2030 27.3%

2200 2000

230 200

85 80

570 540

1100 1050

23 23

19000 18000

560 530

1750 1600

1900 1700

7500 8300

17500 20000

100

3.00 4.25

1750 1850

27.00

1650 2000

660 800

Market

101.45

Current price* 3M implied volatility*

24.4%

Gold

32.69

1746.06

Silver

Palladium 643.75

Platinum 1545.25

Aluminum

3.55

Copper

Nickel

Zinc

Lead

Tin

Wheat

Corn

Soybeans

Sugar

Cocoa

Coffee

Cotton

1900

32.00

1750

105

38.8%

38.0%

26.4%

34.6%

7890

2130

91.35

230.00

23.93

1143.75

613.75

19995

2110

585.50

17740

37.7%

39.1%

31.7%

31.2%

32.2%

2052

2030

27.4%

19.8%

33.3%

38.6%

30.7%

38.3%

44.0%

32.8%

27.8%

Forecasts***Views**TechnicalFundamental

Source: Credit Suisse/IDC, the BLOOMBERG PROFESSIONAL service* Data as of London close. Spot prices for precious metals, 3M forwards for industrial metals, front month futures for all other markets with band representing +/- 1 standard deviation from 30-day average.** Views are a weighted combination of technical and fundamental inputs.*** Forecasts as published in the latest Research Monthly - Commodities


3/23



Gold (XAU) Outlook (612+ months) Figure 2

Value: Well within the fair value range

0200400600800

1'0001'2001'4001'6001'800

2'000

76 80 84 88 92 96 00 04 08

05.12.2011 +1 Stdev -1 Stdev Fair value Gold

USD/oz.

Source: the BLOOMBERG PROFESSIONAL service,Credit Suisse / IDC

We consider pull-backs as buying opportunities

Gold was under downward pressure in November but eventu-ally managed to recover back above USD 1700. We attribute

this pull-back to the prevailing stress in the money markets.During such times of increasing stress, market participantsliquidate their assets including gold to raise the much-

needed cash. In our view such pull-backs are good buyingopportunities, as conditions for rising gold prices are still inplace.

On the fundamental side, the prevailing environment of

negative real interest rates should attract additional investmentdemand. Gold generates no interest. As such it is mainly at-tractive for investors when yields on other assets are low aswell. This is the case right now, and with central banks cutting

rather than raising rates, this situation looks set to prevail fo rquite some time. The upbeat fundamental assessment is con-

firmed by a robust technical picture. Even after the pull-back inNovember the long-term uptrend has not been challenged. Infact with gold back above USD 1700, even momentum re-mains positive.

Cross-checking these positive factors against our fair

value model, we find that gold prices are not stretched at cur-rent levels but are well within the fair value range. Interest-ingly, fair value itself is also rising, underscoring the positive

long-term fundamental environment for gold. All in all, we ex-pect further price gains for gold. Occasional pull-backs shouldremain temporary and can be used as entry opportunities.

Figure 3

Cycle: Back in line with real interest rates

400

600

800

1'000

1'200

1'400

1'600

1'800

2'000

Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

-2.0

-1.0

0

1.0

2.0

3.0

Gold spot price 5Y real yield from TIPS (rhs; inverted)

USD/oz. in %


Forecasts

USD/oz. 5 Dec 2011 3-month forecast 12-month forecast

Gold 1746.06 1750 1900

Facts on gold:

Gold is a dense, soft, yellow and corrosion-resistant metal. It is a goodthermal and electrical conductor, occurring in veins and alluvial deposits.

Gold is resistant to air and most reagents. Because of this, it has beenused as a store of value and currency since ancient times. Until thebreakdown of the gold standard, gold was used as the collateral formost currencies. Today gold is mostly used for jewelry and dental appli-cations but also for investment purposes.

China and South Africa are the most important gold producers. Globalannual consumption of gold amounts to roughly 3,500 tons, of whichabout one-third is investment demand.

Figure 4

Technicals: Gold is in a stable uptrend

Source: Thomson Reuters DataStream, Credit Suisse / IDC


4/23



Silver (XAG) Outlook (612+ months) Figure 5

Value: Despite the correction silver remains overvalued

05

1015202530354045

50

76 80 84 88 92 96 00 04 08

05.12.2011 +1 Stdev -1 Stdev Fair value Silver

USD/oz.


Still somewhat cautious over the longer term

Silver prices continued to trade erratically in November, butthe important technical support in the USD 30/31 area held.

Looking at fundamentals we would argue that the situa-tion has improved for silver. After the weakness of the last fewmonths, silver looks less overvalued relative to gold. The gold

/ silver ratio has risen considerably. It also seems that riskappetite has finally found a bottom. The physical silver marketremains in surplus, and this surplus has to be taken up byinvestors. As a result, silver prices react very sensitively to

changes in risk sentiment. In this context, the bottoming ofrisk appetite is an important development for silver.

But while medium-term fundamentals have improved, thetechnical picture is still rather cautious. After the corrections

over the last few months, the long-term technical trend is onlyneutral. Recent erratic trading has left its mark on technicalmomentum, which is also neutral. The assessment becomeseven more sobering when we look at valuation. Prices have

come off their highs, but they still look stretched. Fair valueitself is rising, so there is a long-term case for silver. However,at current levels there are still risks.

Overall, we think silver prices may trade sideways abovethe critical support at USD 30/31 or even increase over thenext few months, given improved fundamentals and neutral

technicals. Over the one-year time horizon we are a bit morecautious given the prevailing overvaluation.

Figure 6

Cycle: Risk appetite suggests caution

25

35

45

55

65

75

85

Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11

-12

-8

-4

0

4

8

12

Gold/silver ratio Risk Appetite (rhs)

Ratio Inverted scale

Source: the BLOOMBERG PROFESSIONAL service, CS Global Strategy, Credit Suisse

/ IDC

Forecasts


Silver 32.69 32.00 27.00

Facts on silver:

Silver is slightly harder than gold but yet a very ductile and malleablemetal that can take a high degree of polish. It offers the highest thermal

and electrical conductivity of all metals. Like gold, silver was often used as a store of value and as collateral for

currencies before the arrival of fiat money regimes. Today silver is usedin jewelry, electrical contacts and conductors but also increasingly forinvestment purposes. Global annual silver consumption amounts toroughly 28,000 tons.

The most important silver producers are Peru, Mexico, China and Aus-tralia.

Figure 7

Technicals: Deteriorating picture



5/23



Platinum (XPT) Outlook (612+ months) Figure 8

Value: Platinum not yet expensive

0

500

1'000

1'500

2'000

2'500

Mar 94 Mar 98 Mar 02 Mar 06 Mar 10

05.12.2011 +1 Stdev -1 Stdev Fair value Platinum

USD/oz.


The market still lacks technical impetus

November was a difficult month for platinum investors. Beinga cyclical metal, prices were under selling pressure and even

fell below USD 1550 at times. However, it is important to notethat prices continue to hold above key technical support levels.

Looking at cycle and value we would argue that platinum

is in an even better position than gold to achieve renewedprice gains. The market is likely to end the full-year 2011 in aslight supply surplus, but there are still production problems inSouth Africa the world's largest platinum producer. As a

result the market is likely to be tightly supplied in 2012. Thepositive cyclical assessment is confirmed by value analysis.Relative to gold, platinum appears cheap at current prices. Theplatinum / gold ratio is below one, which in the past has

been a good indication that platinum is oversold. On an abso-lute basis, platinum is trading below fair value. Fair value itselfis rising, indicating strong demand conditions.

Despite the positive fundamental and value case for plati-

num, there are also challenges particularly on the technicalside. After the long period of underperformance, long-termtrend and momentum are neutral, and it would require signifi-cant price increases for the situation to improve. Overall, wethink the fundamentals for a price increase over the longer-term are in place. However, the market currently lacks techni-

cal impetus. As a result, it will probably take some time beforeplatinum prices will realize their upward potential.

Figure 9

Cycle: Platinum / gold ratio suggests that platinum is oversold

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

Dec 91 Dec 95 Dec 99 Dec 03 Dec 07 Dec 11Platinum/Gold ratio

Ratio

Source: Johnson Matthey, Credit Suisse / IDC

Forecasts


Platinum 1545.25 1650 2000

Facts on platinum:

Platinum is a heavy, malleable and ductile metal. It is resistant to corro-sion and occurs in some nickel and copper ores along with some native

deposits. It is usually more expensive than gold, as it is thirty times rarerin the earth's crust.

Platinum is mainly used for catalytic converters, jewelry, fuel cells,electrodes for use in electrolysis and electrochemical measurements,and photography. However, it is also stored for investment purposes.

In 2008 by far the most important platinum producer was South Africa,followed by Russia, Canada, Zimbabwe, the USA and Colombia. Globalannual platinum consumption amounts to roughly 220 tons.

Figure 10

Technicals: Trend lines are now flat; momentum is neutral



6/23



Palladium (XPD) Outlook (612+ months) Figure 11

Value: Palladium is below fair value

0

200

400

600

800

1'000

1'200

Mar 94 Mar 98 Mar 02 Mar 06 Mar 10

02.12.2011 +1 Stdev -1 Stdev Fair value Palladium

USD/oz.


Considerable upside potential but also considerable

risks

Over the last few weeks, palladium has lived up to its reputa-

tion of being the riskiest of all precious metals. Prices fellsharply in November and traded below USD 600 for most ofthe month. Implied volatility rose above 40% at times, and

further sizeable price swings are likely.Looking at fundamentals and valuation, palladium is in a

situation similar to platinum, although in terms of supply anddemand the situation is even more supportive. The latest datashow that the market is expected to end the year almost ex-

actly balanced. However, Russian sales are falling, and thatdecrease might push the market into deficit next year. In termsof valuation, the recent drop has dragged prices somewhat

below fair value. As is true for platinum, fair value itself is ris-ing, illustrating the positive long-term fundamentals.

On the negative side, the recent sell-off has damaged thetechnical picture. Prices have fallen below the trend line, and

the trend lines themselves are flattening. Momentum has alsoweakened. Overall, our analysis paints a picture of a marketthat has good fundamentals and the potential for sizeable pricegains. At the same time, however, it is volatile and lacks tech-nical impetus. Erratic trading should continue for some time.Over the 12-month time horizon we expect higher prices, but

it will likely take some time before the upside potential can berealized.

Figure 12

Cycle: Palladium is considerably more volatile than platinum

0

10

20

30

40

50

60

Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11Palladium 30D price volatility Platinum 30D price volatility

Volatility in %


Forecasts


Palladium 643.75 660 800

Facts on palladium:

Palladium is a rare metal that was only discovered in 1803. It is one ofthe platinum group metals (PGM), of which it has the lowest meltingpoint and is the least dense. It is electrically stable, tarnish resistant, as

well as resistant to chemical erosion and intense heat.

Palladium is an efficient chemical catalyst and mainly used in the pro-duction of autocatalysts. Over the last few years palladium has also be-come more popular as a financial investment.

The most important producers of palladium are Russia, followed bySouth Africa, the USA and Canada. Global annual consumption of pal-ladium amounts to roughly 210 tons.

Figure 13

Technicals: Sell-off has damaged the technical picture



7/23



Aluminum (XAL) Outlook (612+ months) Figure 14

Value: Starting to look cheap

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

Sep 87 Sep 91 Sep 95 Sep 99 Sep 03 Sep 07 Sep 11

05.12.2011 +1 Stdev

-1 Stdev Fair value Aluminum

USD/MT


Technicals turn negative but value is developing

Aluminum prices faced renewed downside pressure in No-vember, as the negative spillover effects from the sovereign

debt crisis in Europe intensified. Prices failed to hold aboveimportant support levels, which triggered a downgrade oftechnical ratings. Both momentum and trend indicators have

turned negative and hint at further weakness ahead.Fundamentally, recent dynamics also point to looser condi-

tions, at least in the near term. Specifically, exchange invento-ries at the London Metal Exchange (LME) have stopped regis-

tering outflows, and the Shanghai Futures Exchange (SHFE)has recorded a build-up recently (+75 kilotons [kt] in Novem-ber). The demand picture has also shown some divergencerecently, with European aluminum consumption softening and

even China showing some moderation. Limited credit availabil-ity in response to the still-elevated (even after the latest inter-vention by global central banks) funding stress is reducingend-user restocking appetite, with a dampening effect on

physical demand.Thus, persisting deleveraging pressures and deteriorating

technicals may lead the market to undershoot our estimatedfundamental fair value further, if prices drop further from here.As a consequence, the longer-term outlook could brighten upagain before too long, as aluminum may soon offer value. The

latest few trading sessions have provided initial signs of thispossibility.

Figure 15

Cycle: Inventories have registered fresh inflows

0

1'000

2'000

3'000

4'000

5'000

6'000

Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11

1'000

1'500

2'000

2'500

3'000

3'500

LME alum inum inventor ies Comex al um inum inventor ies

SHFE a luminum inventories LME 3-month a luminum price ( rhs)

in kt USD/ton


Forecasts

USD/MT. 5 Dec 2011 3-month forecast 12-month forecast

Aluminum 2130 1750 1850

Facts on aluminum:

Aluminum is a very common element, yet it is a relatively new industrialmetal. Since aluminum production requires large quantities of electricity

the metal has only been produced for just over 100 years.Aluminum is lighter than other metals (one-third of copper's weight). It

is malleable, ductile, easily machined, and highly corrosion resistant. Itis mainly used in transportation (cars, planes, etc.), packaging (cans),consumer goods, and construction. Electrical transmission lines areother important applications.

Aluminum is an important metal, ranking second in consumption onlyafter iron. Global annual consumption stands at almost 40 million tons.

Figure 16

Technicals: The trend has turned negative

-50

0

50

100

Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11

MT-MOM LT-MOM

1'600

1'800

2'000

2'200

2'400

2'600

2'800

ALUMINIUM LME 3M forwa rd MT-MAV LT-MAV



8/23



Copper (XCU) Outlook (612+ months) Figure 17

Value: Copper may soon offer value

0

2'000

4'000

6'000

8'000

10'000

12'000

14'000

16'000

Jun 86 Jun 90 Jun 94 Jun 98 Jun 02 Jun 06 Jun 10

05.12.2011 +1 Stdev -1 Stdev Fair value Copper

USD/MT


Supply risks suggest higher prices in 2012

For most of November, copper prices were under downsidepressure. Only when policy makers attempted to ease funding

stress did prices manage to rebound from their drop into thelow USD 7000s. While the technical picture looks fragile,copper prices have so far managed to hold above the longer-

term trend line unlike most other metals.This relative resilience is also reflected in copper's funda-

mental backdrop, which looks stronger than the rest of thebloc. First, mine supply has remained constrained due to on-

going labor action at major mines, with falling ore grades ex-acerbating the slowdown in output growth. Second, Chinesedemand has remained resilient, with imports rising further inOctober. As a result, the physical market balance continues to

tighten considerably. While the expected slowdown in Europemay ease some of the pressure on inventories, the market isstill likely to remain in deficit moving into 2012.

Going forward, we see recovery potential for copper prices

once the acute phase of the European debt crisis starts toease. Even more so, as our fair value estimation suggests thatcurrent prices are on the verge of becoming cheap. However,given the macroeconomic and systemic uncertainty, near-termrisks remain elevated. We retain a cautious stance for now butexpect higher prices over the medium term.

Figure 18

Cycle: Investor sentiment is negative

-10

-5

0

5

10

15

20

25

30

35

Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11

6'000

6'500

7'000

7'500

8'000

8'500

9'000

9'500

10'000

10'500

Speculative net long position LME 3M copper forward price (rhs)

in '000 contracts in USD/ton


Forecasts


Copper 7890 7500 8300

Facts on copper:

Copper is one of the oldest metals ever used. It has a metallic bronzecolor, is very ductile, corrosion resistant and has excellent electrical

conductivity properties.

Copper is mainly used in electrical applications such as power transmis-sion, building wiring, telecommunications and electronic products.

Building construction is the most important single application. Copper isone of the most important industrial metals, ranking third after iron andaluminum in consumption. In 2010, global copper consumption stood atroughly 19 million tons.

Figure 19

Technicals: Picture is fragile, but trend has held so far

-50

0

50

100

150

200


MT-MOM LT-MOM

4'000

5'000

6'000

7'000

8'000

9'000

10'000

11'000

COPP ER LM E 3M f orwa rd M T- MAV LT- MAV



9/23



Nickel (XNI) Outlook (612+ months) Figure 20

Value: Nickel is trading well below fair value

0

10'000

20'000

30'000

40'000

50'000

60'000

70'000

80'000

Mar 87 Mar 91 Mar 95 Mar 99 Mar 03 Mar 07 Mar 11

05.12.2011 +1 Stdev -1 Stdev Fair value Nickel

USD/MT


Recovery potential only later in 2012

Nickel has resumed its downward trajectory following a short-lived rebound in October, with prices testing USD 17,000

before rebounding. The latest bout of weakness has triggereda technical downgrade of both momentum and trend, darken-ing the outlook further.

The fundamental tightness has also started to ease re-cently, which is visible in a small build-up in exchange invento-ries over the last few weeks. A slowdown in stainless steelactivity, mainly in Europe, has started to dampen physical de-

mand, and, given uncertain macro prospects, activity isunlikely to accelerate for the time being. Supply-wise, there

has been news of some mine additions recently (e.g. Vale'sGoro project), which hint at continued mine output growth.Overall, fundamental dynamics point to looser conditions in thephysical market.

However, we would note that prices have dropped well be-low fair value, according to our model. One reason for thesignificant dislocation of prices versus fundamentals can be

found in nickel's relatively low sensitivity to economic growth(which also helps explain the very wide fair value band in Fig-ure 20). Going forward, we think there is recovery potential fornickel prices over the 612+ month time horizon given theattractive valuation. However, such a recovery will likely takequite some time as the technical picture needs to be repaired

first.

Figure 21

Cycle: Inventories have stopped falling as demand softens

16'000

18'000

20'000

22'000

24'000

26'000

28'000

30'000

Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11

0

20

40

60

80

100

120

140

160

180

On warrant inventories (free inventories, rhs)

Cancelled warrants (inventories already earmarked for delivery, rhs)

Nickel price

USD/ ton in kt


Forecasts


Nickel 17740 17500 20000

Facts on nickel:

Nickel is a very old metal and has been used by humans for at least2000 years. Nickel is a silvery-white metal that takes on a high polish. It

is hard, ductile and magnetic. Today nickel is mainly used in the production of austenitic stainless steel

(accounting for 65% of total use). Other uses for nickel are superalloysand nonferrous alloys, which are used in jet engines, combustion tur-bines and power generation stations. Nickel is also used in the produc-tion of rechargeable batteries, catalysts and coinage.

The nickel market is rather small with global consumption amounting toroughly 1.5 million tons in 2010.

Figure 22

Technicals: Trend indicator has turned negative

-50

0

50

100

150

200


MT-MOM LT-MOM

10'00012'000

14'000

16'000

18'000

20'000

22'000

24'000

26'000

28'000

30'000

N IC KEL LM E 3M f orwar d M T- MAV LT- MAV



10/23



Zinc (XZN) Outlook (612+ months) Figure 23

Value: Below fair value but still not cheap

0500

1'0001'5002'0002'5003'0003'5004'0004'500

5'000

Mar 89 Mar 93 Mar 97 Mar 01 Mar 05 Mar 09

05.12.2011 +1 Stdev -1 Stdev Fair value Zinc

USD/MT

Source: GFMS,Credit Suisse / IDC

Prospects remain negative

Following a period of relative underperformance earlier in theyear, zinc held up surprisingly well in November, with prices

finding support at the USD 1900 level. At the time of writing,prices are attempting to defend their latest spike above USD2000.

While the recent inventory drawdowns at the LME andSHFE provide some backing for zinc's latest resilience, thereare a few reasons to believe that the oversupply could startgrowing again before too long. A grim outlook for European

industrial activity and cooling Chinese construction point toweakening demand conditions for galvanized steel, which is

zinc's primary source of demand. On a separate note, persist-ing funding stress is likely to translate into tighter credit condi-tions, which would limit the end-users ability to restock andcould force some producers to cut back production. For now,

the bias is towards a loosening balance, which suggests pricerisks are skewed to the downside.

This negative fundamental assessment coincides with a

cautious technical picture. While the trend reading was down-graded a while ago, the currently neutral momentum indicator

is also at risk of turning negative, which could add to thedownside pressure in the current environment.

Given that zinc has managed to hold up slightly betterthan the rest, prices have not yet slipped far below fair value to

the extent that a clear value case could be identified. Overall,our outlook on zinc prices remains negative.

Figure 24

Cycle: Slowing steel production bodes negatively for zinc

-30

-20

-10

0

10

20

30

40

Oct 07 Oct 08 Oct 09 Oct 10 Oct 11

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

Global Steel Production LME 3M zinc forward price (rhs)

% YoY USD/ ton


Forecasts


Zinc 2052 1750 1600

Facts on zinc:

Zinc ores were used for making brass in China and India before zincitself was recognized as a separate metal in Europe in the sixteenth

century. Today, zinc is mainly used to galvanize steel and other metals, account-

ing for roughly half of total zinc demand. Consequently, the key end useis in the construction sector. Other applications for zinc are in the auto-motive, electrical and machinery industries.

Zinc is the fourth largest industrial metals market in terms of annualproduction volumes. Zinc is traded on the London Metal Exchange(LME) and the Shanghai Futures Exchange (SHFE).

Figure 25

Technicals: Trend points lower

-50

0

50

100

150

200


MT-MOM LT-MOM

1'400

1'600

1'800

2'000

2'200

2'400

2'600

Z INC LME 3M f orwar d M T- MAV LT- MAV



11/23



Lead (XPB) Outlook (612+ months) Figure 26

Value: Still within fair value range

0

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

Mar 87 Mar 91 Mar 95 Mar 99 Mar 03 Mar 07 Mar 11

05.12.2011 +1 Stdev -1 Stdev Fair value Lead

USD/MT


Surplus unlikely to disappear

Following significant selling pressure in September, lead hasproven more resilient recently to the current unwinding across

markets. Prices hovered above USD 2000 for most of No-vember amid neutral technical momentum.

Fundamentally, the Chinese market has offered signs of

resilience lately, as we have moved into a seasonally strongerperiod. Specifically, SHFE stocks have registered some out-flows, and trends in LME-SHFE price differentials favor im-ports into China. In mine-related news, the large AustralianMagellan mine, which was closed earlier in the year for envi-

ronmental reasons, is set to remain shut for longer. However,global supply is unlikely to fall short of demand going forward,as mine output growth elsewhere has remained strong. Ac-cordingly, the current surplus does not look likely to disappearany time soon.

While our cycle analysis appears to suggest a neutralstance, the negative technical trend continues to point to lowerprices over the medium term. We would place the downsidepotential at around USD 1700, as this marks the price level at

which lead would start to look more attractively valued again,according to our fair value estimation.

Figure 27

Cycle: Supply should continue to outpace demand

-60

-40

-20

0

20

40

May 06 May 07 May 08 May 09 May 10 May 11

400

500

600

700

800

900

Global market surplus/deficit Global refined lead prod. (rhs)Global refined lead cons. (rhs)

in kt in kt


Forecasts


Lead 2110 1900 1700

Facts on lead:

Lead is a very old metal and has been used by humans for at least 5000years. Initially lead was used as a building material and for transporting

water. With the industrial revolution the use of lead changed dramati-cally. Today the most important use for lead is in batteries.

Lead is a dense, very corrosion-resistant, ductile and malleable blue-gray metal. It is a potent neurotoxin that accumulates in soft tissues andbone over time. As a result, the use of lead outside of batteries is todayrather limited, and there is legislation regulating the use of lead.

The lead market is rather small. Global lead consumption stood atroughly 9.2 million tons in 2010.

Figure 28

Technicals: Momentum remains neutral, but trend is down

-50

0

50

100

150

200


MT-MOM LT-MOM

1'600

1'800

2'000

2'200

2'400

2'600

2'800

3'000

LEAD LME 3M f orwa rd MT -M AV LT- MAV



12/23



Tin (XSN) Outlook (612+ months) Figure 29

Value: Still above fair value

0

5'000

10'000

15'000

20'000

25'000

30'000

35'000

Sep 89 Sep 93 Sep 97 Sep 01 Sep 05 Sep 09

05.12.2011 +1 Stdev -1 Stdev Fair value Tin

USD/MT


More headwinds ahead

Tin has remained on its downward trajectory, which started in June, with prices drifting towards the USD 20,000 mark.

Even after losing more than 20% year-to-date, prices are stilltrading above their fair value according to our model. Thus,downside risk has not disappeared yet, particularly as the

technical trend is negative too.On the fundamental side, the situation looks less dire.

Physical demand has held up so far despite the uncertain en-vironment. At the same time, China has used the recent

weakness in LME prices to step up imports significantly, asdomestic prices have continued to trade at a premium. Importvolumes in September and October rose to around 4 kt close to record highs seen in 2009. Given firm demand, LME

inventories have started to fall considerably.However, these developments have failed to support

prices, as tightening pressure could ease before too long.Specifically, the self imposed export ban by the Indonesia Tin

Association (ITA), which was aimed at supporting prices, maybe dropped again. Some members of the ITA have begun toignore the export moratorium and started shipping again, andother smelters may follow. Thus, fundamental dynamics maysoon not look as favorable anymore. Overall, we retain a nega-tive outlook on prices but expect the pace of decline to slowgoing forward, targeting USD 18,000 over the coming year.

Figure 30

Cycle: Surge in Chinese imports fails to lift prices

-6

-4

-2

0

2

4

6

May 06 May 07 May 08 May 09 May 10 May 11

China tin exports China tin imports China net t in imports

in kt


Forecasts


Tin 19995 19000 18000

Facts on tin:

Tin is a metallic element that is soft, pliable, silvery-white and lustrousgrey. It has been found in bronze tools dating to as early as 3,500 BC

due to its hardening effect on copper. Tin is used in tinplating and soldering for electrical applications. Addi-

tional end-use applications for tin include glass manufacturing, chemi-cals, cans and containers, construction and transportation.

The benchmark contract for tin is traded on the LME and is quoted inUSD per metric ton. In the industrial metals complex, tin is by far thesmallest market, accounting for a low single-digit share of total LMEturnover.

Figure 31

Technicals: Long-term trend has remained negative

-50

0

50

100

150


MT-MOM LT-MOM

10'000

15'000

20'000

25'000

30'000

35'000

T IN LME 3M f orwa rd M T- MAV LT- MAV



13/23



Crude oil Outlook (612+ months) Figure 32

Value: Oil prices on the brink of becoming expensive

0

20

40

60

80

100

120

140

160

Dec 90 Dec 94 Dec 98 Dec 02 Dec 06 Dec 10

05.12.2011 +1 Stdev

-1 Stdev Fair value WTI crude oil

USD/bbl.


A relatively stable market with improving fundamentals

Over the last few weeks, crude oil prices have stood out fortheir relative stability in trading, while other markets have seen

large losses. WTI oil prices have done better than Europeanbenchmark oil Brent and have even registered significant pricegains. We think crude oil is likely to continue to be more stable

in terms of trading than other commodity markets.The fundamental case for oil is improving. Global oil de-

mand growth has recently accelerated, driven by non-OCEDcountries. Demand is now growing faster than supply. As a

result, inventories of oil and oil products have fallen acrossregions and are even below average in several countries, asituation that is supportive. Technical analysis points in thesame direction. After the stable performance of the last fewweeks and price gains for WTI, technical momentum is posi-tive. The long-term trend is still neutral but is more likely to be

upgraded rather than downgraded.On the negative side, our fair value models indicate that

both Brent and WTI are somewhat overvalued at current lev-els. In our view this overvaluation is mainly the result of geopo-

litical risks, such as the tension surrounding the nuclear pro-gram in Iran. It is important to say that this overvaluation isonly moderate and that fair value itself is rising. Nevertheless,the overvaluation is likely to limit the upward potential over the

12-month time horizon. Overall, we think oil prices could risesomewhat in the near term given positive momentum andgood fundamentals. Longer-term prices are likely to maintaincurrent price levels with value capping the upward potentialsomewhat.

Figure 33

Cycle: Oil demand is growing faster than supply

-4

-2

0

2

4

6

8

Aug 03 Aug 05 Aug 07 Aug 09 Aug 11

Global oil supply growth Global oil demand growth

% YoY (3M rolling average)


Forecasts

USD/bbl. 5 Dec 2011 3-month forecast 12-month forecast

WTI 101.45 105 100

Brent 109.81 110 110

Facts on WTI:

West Texas Intermediate (WTI) crude oil is traded on the New YorkMercantile Exchange (NYMEX). North Sea oil, Brent, is traded on the

Intercontinental Exchange (ICE).

WTI is physically delivered in Cushing, Oklahoma, which is a major crudeoil marketing hub in the USA. Brent is settled based on Exchange of Fu-tures for Physical (EFP). It has thus no specified delivery location. ForBrent, cash settlement is also possible.

Crude oil is generally used in transportation, power generation, heatingor to produce other chemicals.

Figure 34

Technicals: Neutral trend, neutral momentum

-40-20

0204060


MT-MOM LT-MOM

50

60

70

80

90

100

110

120

WTI OIL MT-MAV LT-MAV



14/23



US natural gas Outlook (612+ months) Figure 35

Value: Current gas prices look undervalued

0

2

4

6

8

10

12

14

16

Jun 90 Jun 94 Jun 98 Jun 02 Jun 06 Jun 10

05.12.2011 +1 Stdev

-1 Stdev Fair value Natural gas

USD/MMBtu.


Oversupply remains a problem

Natural gas prices continue trading at depressed levels. Aftera brief spike above USD 3.80 in October, prices quickly re-

treated again. Technical support at USD 3.28 is holding butmarket sentiment is rather depressed.

Looking at fundamentals, the situation for US natural gas

prices has deteriorated. Until September 2011, natural gasinventories were below the seasonal norm, providing somesupport to prices. However, due to continued supply growthfrom shale gas production, this situation has now changed.

The market has clearly moved into oversupply. The productionprofile for shale gas is pointing higher, meaning that the over-supply situation could persist for quite some time.

The negative cyclical assessment is at least partly re-

flected in technical analysis. Technical momentum for gas isnegative, which points clearly towards more downside risk.The long-term trend is neutral but is at risk of being down-graded if prices break through the USD 3.28 support.

The only bright spot for US natural gas is valuation. Givenrising demand for gas and the long period during which inven-tories were below average, the fair value model suggests thatgas prices should trade higher. Overall, we think downside riskwill likely prevail in the near term. Over a 12-month horizongas prices could trade slightly higher due to undervaluation.

However, we would note that most if not all of this anticipatedrecovery is already priced into the futures market.

Figure 36

Cycle: Inventories are considerably higher than average

1'500

2'000

2'500

3'000

3'500

4'000

Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11

US natural gas inventories US 5Y-average natural gas inventories

in bcf


Forecasts

USD/mmbtu 5 Dec 2011 3-month forecast 12-month forecast

US natural gas 3.55 3.00 4.25

Facts on US natural gas:

US natural gas futures are traded on the NYMEX in units of 10,000 million Britishthermal units (mmbtu). The price is based on delivery at the Henry Hub in Louisi-ana.

Natural gas is a fossil fuel consisting of a mixture of hydrocarbons. Burning gasproduces about 30% less carbon dioxide than petroleum and 45% less than coal.

Gas is classified according to its hydrogen sulphide content and is extracted fromconventional and unconventional sources (e.g. shale gas). Gas can be condensedto a liquid to be transported and stored.

Sectors using natural gas: Electricity industrial (27%), residential (21%), commer-cial (14%), and others (38%). End uses include heating, cooling, cooking, fertiliz-ers, paints, household and medical appliances.

Figure 37

Technicals: Momentum has turned negative

-100

-50

0

50

100

150


MT-MOM LT-MOM

3.0

3.5

4.0

4.5

5.0

5.5

6.0

US NA TUR AL GAS MT-MA V LT-M AV



15/23



Corn Outlook (612+ months) Figure 38

Value: Corn is still trading at expensive levels

0

100

200

300

400

500

600

700

800

70 74 78 82 86 90 94 98 02 06 10

05.12.2011 +1 Stdev -1 Stdev Fair value Corn

USd/bu.


Overvaluation is the key risk

In recent weeks Chicago Board of Trade (CBOT) corn futureshave dipped close to USD 5.80. While short-term fundamen-

tals are still positive, corn's strong overvaluation and neutraltechnicals continue to point to lower prices.

Corn remains a tightly-supplied market, and the recent in-ventory revisions of the US Department of Agriculture (USDA)

suggest further tightening this year. Both US and global cornstock-to-use ratios should end the 2011/2012 crop year atcritically low levels. While this situation on its own is suppor-tive, recent price action in the sector has mainly reflected the

lack of competitiveness of US corn prices against corn fromother countries of origin, namely, Brazil, France and Ukraine.This poorer showing is most visible in US corn export volumes,which have been lagging compared to their five-year average.In our view, as we move into the first quarter of 2012, thiscost disadvantage of US corn versus corn originating in other

countries is likely to abate, specifically, as the USA tends todominate global corn export markets during this period of theyear. In the next few months, we expect US export volumes toaccelerate, which should ultimately provide some impetus toCBOT corn futures contracts. Beyond first quarter 2012,however, the size of the upcoming Brazilian and Argentinean

crops combined with the new acreage allocation of US farm-ers for the 2012/2013 season and the expiration of theVolumetric Ethanol Excise Tax Credit (VEETC) are clear risksto our positive assessment.

At the same time, both technical momentum and trendhave turned neutral. In this context, valuation takes a moreprominent role in determining the long-term view. Here, our

model suggests that corn prices need to fall below USD 5.00to start trading at fair levels. Our forecasts are slightly higherthan that given still-positive cyclical support.

Figure 39

Cycle: Lackluster US corn exports

-500

0

500

1'000

1'500

2'000

2'500

3'000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52

5Y range 5Y average 2011

US weekly corn exports, in '000 MT


Forecasts

US cents/bushel 5 Dec 2011 3-month forecast 12-month forecast

Corn 585.50 570 540

Facts on corn:

Corn is also known as maize and is the most widely grown crop in theAmericas. It is part of the coarse grain family, which also includes bar-ley, sorghum, oats and rye.

Corn is the world's largest cereal crop measured by global productionlevels. Corn is used for human and livestock consumption, and the pro-duction of biofuels, mainly ethanol.

The two most important commodity exchanges for corn futures are theChicago Board of Trade (CBOT) and the Dalian Commodity Exchange(DCE). The CBOT contract size is 5,000 bushels while it is 400 bush-els at the DCE.

Figure 40

Technicals: Neutral technical trend and momentum



16/23



Wheat Outlook (612+ months) Figure 41

Value: Valuation looks in line with fundamentals

0

200

400

600

800

1'000

1'200

1'400

70 74 78 82 86 90 94 98 02 06 10

05.12.2011 +1 Stdev -1 Stdev Fair value Wheat

USd/bu.


Technical trend has turned bearish

CBOT wheat futures showed renewed weakness in Novem-ber, causing the long-term technical trend to turn negative.

With now-bearish technicals, neutral fundamentals and anundemanding valuation, our outlook for wheat has becomenegative on all time horizons.

The return of Russia to the wheat export trade in the sec-

ond half of 2011 has been a major game-changer for themarket. Since the lift of the country's export ban last July,global markets have been awash in sizable quantities ofcheaply-valued Russian wheat, which has priced out wheat

from other origins, notably Europe and the USA. Looking atsupply and demand dynamics, the global wheat market re-mains comfortably supplied. This season's wheat production inthe Black Sea Region as well as in Australia should more than

offset output losses in the USA. On the demand front, while ashift from corn to wheat in feed use has started to materialize,

global wheat consumption seems unlikely to absorb this year'snew supplies fully. In 2011/2012 global wheat availabilityshould thus increase. In reference specifically to the US mar-

ket, we think that thecountry's uncompetitive prices on inter-national markets may persist given the 2011/2012 marketdeficit in the USA and the expected surplus elsewhere. Overallwe see little impetus from here.

In terms of valuation, wheat prices below USD 6.30 aretrading in line with the fundamental backdrop. While this situa-

tion on its own is constructive, technical indicators are bearish.Momentum is weak. Since February, wheat prices have failedto reach new highs, and the long-term trend is now downward

sloping. The recent selling wave has also triggered another

violation of the last Fibonacci retracement of the 2010 up-move. Accordingly, our trend rating has turned negative.

Combining our three factors of analysis cycle, value andtechnicals the one-year outlook for wheat appears negative.

Figure 42

Cycle: Black Sea exports are surging

0

5

10

15

20

25

30

35

40

95/96 99/00 03/04 07/08 11/12

Russia Ukraine Kazakhstan

Wheat exports, in mn MT

Source: USDA,Credit Suisse / IDC

Forecasts


Wheat 613.75 560 530

Facts on wheat:

Wheat is a principal food grain and classified according to season,gluten content and color. The five major wheat classes are hard redwinter, hard red spring, soft red winter, white wheat and durum wheat.

Wheat flour is used to make bread, pasta, and cakes, while wheat isalso used for fermentation to make alcohol.

The main exchanges are the CBOT, the Kansas City Board of Trade(KCBT), the Minneapolis Grain Exchange (MGE) and the ZhengzhouCommodity Exchange (ZCE) in China. Prices are quoted in US centsper bushel.

Figure 43

Technicals: Trend has turned negative



17/23



Soybeans Outlook (612+ months) Figure 44

Value: Current soy prices are in line with fundamentals

0200400600800

1'0001'2001'4001'600

1'800

70 74 78 82 86 90 94 98 02 06 10

05.12.2011 +1 Stdev -1 Stdev Fair value Soybeans

USd/bu.


The long-term trend points downward

Similar to grains, CBOT soy futures moved lower in Novem-ber. After reaching a year-to-date low at around USD 11.00,

prices have stabilized above USD 11.30, at the time of writ-ing.

In our view soybean's fundamental support has weakened,

and we have downgraded our cyclical rating to neutral. Highcarryout stocks in South America specifically in Brazil havekept South American soybeans below price levels suggestedby seasonality while extending their usual export window by

several months. Combined with a soft demand environment,this situation has resulted in US soybean exports being pricedout of the international market, as illustrated by low US exportvolumes since the beginning of the season. Recently, US and

South American soy prices have converged, and we wouldexpect a reacceleration of US exports. However, any im-provement in US soy export flows will likely be short-livedgiven that favorable weather conditions in Brazil have acceler-

ated soy plantings and increased crop yields. We think Brazil'ssoy crop is likely to hit the global market earlier than usual thisseason, leaving the US market with higher soy stockpiles. Thisscenario is also reflected in the latest USDA estimates for thesoy market. The USDA has cut its US soy export estimates by1 million metric tons (MMT) causing US ending stocks to rise

by the same amount. At the same time, Brazilian exports havebeen revised 1.5 MMT higher.

With fundamentals now neutral and valuation still fair,technicals are under the spotlight. Here the situation has dete-riorated. Since the correction in September, the market has

not managed to regain the previous top pattern range, causing

the long-term moving averages to turn downward. We havedowngraded our trend rating to negative and consequentlyhave turned bearish on the sector over 12 months.

Figure 45

Cycle: US and Brazilian soy prices have converged

-2.5

-2.0

-1.5

-1.0

-0.5

0

0.5

1.0

1.5

Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

US Gulf/Brazil Paranagua Soybean spread

USD/bu.


Forecasts


Soy 1143.75 1100 1050

Facts on soy:

Soybeans are part of the larger oilseed sector, which includes rapeseed,sunflower seed, canola and peanuts, originating from China, Japan andKorea.

Processed soybeans are the world's largest source of protein feed andthe second largest source of vegetable oil globally. Soy meal is alsoused as animal feed, while soy milk is used in dairy substitute products.Its industrial uses are soap, solvents, cosmetics, inks, crayons, resins,plastics and bio-diesel.

The DCE is the largest exchange for soy in terms of volume, followed bythe CBOT and the Tokyo Grain Exchange (TGE). Prices are quoted inUS cents per bushel.

Figure 46

Technicals: Trend readings have turned negative



18/23



Sugar Outlook (612+ months) Figure 47

Value: Valuation remains undemanding

0

10

20

30

40

50

60

70

70 74 78 82 86 90 94 98 02 06 10

05.12.2011 +1 Stdev -1 Stdev Fair value Sugar

USd/lb.


Overall neutral

Recent weeks have seen volatile trading in the sugar market.Price action in the sector has mainly reflected current negative

sentiment in financial markets and the easing risk premiumassociated with the impact of the Thai floods on global sugarsupply.

Looking at fundamentals first, Brazil is now certain to dis-appoint this season, with the Brazilian Sugarcane Industry Association (UNICA) pegging the 2011/2012 crop at 30.8MMT or 8% lower compared to last season. Bumper pro-duction in India, Russia and Europe should, however, largely

offset these production losses. In terms of Thai production,the country's major sugarcane areas have been largely unaf-fected by the flooding that began in late July. Hence, the2011/2012 season should see another record Thai sugar-

cane output that could reach 10 MMT. Overall the globalsugar market is still heading towards a large surplus this yearthat should cap any upside from current levels. We would alsoargue, however, that such a surplus is much-needed, as in-ventories are at multi-year lows. Even accounting for a build-

up in stocks, availability looks set to remain constrained. Wethus view the fundamental backdrop for sugar as neutral.Nonetheless China, which is opportunistically importing sugarto replenish parts of its state reserves sold to fight high do-mestic prices, maintains the risk of short-lived rallies.

Technicals also confirm our neutral fundamental assess-ment of the market. After breaking the US 24.50 cents mark,sugar prices rapidly found support at the US 22.71 centsmark and a counter-move to regain US 24.50 cents is alreadyin the making. However, given the lack of momentum, a break

above this mark looks unlikely. With sugar neither cheap norexpensive; we think prices are likely to remain within the US2125 cents price range.

Figure 48

Cycle: Reduced Brazilian supply should be offset by higherproduction in other major sugar-exporting regions

-15

-10

-5

0

5

10

15

71/72 79/80 87/88 95/96 03/04 11/12E

60

80

100

120

140

160

180

Global market surplus/deficit Global sugar prod. (rhs)

Global sugar cons. (rhs)

in mn MT in mn MT


Forecasts

US cents/lb. 5 Dec 2011 3-month forecast 12-month forecast

Sugar 23.93 23.00 23.00

Facts on sugar:

Historically, sugar cane originates from South East Asia, with India thefirst country to process it. Sugar is made from sugar cane and sugarbeets. The former is grown in regions with warm climates, while the lat-ter is typically produced in colder climates.

Sugar cane is the largest source of processed sugar, accounting for80% of total sugar output. Besides its use as a sweetener, sugar ac-counts for roughly 50% of world ethanol production. Producing ethanolfrom sugar cane is more efficient than from grains.

Sugar futures are traded on the New York Board of Trade (NYBOT).The most actively traded contract is the futures No. 11 world sugarcontract. Prices are quoted in US cents per pound.

Figure 49

Technicals: Technical support is neutral



19/23



Cotton (CT) Outlook (612+ months) Figure 50

Value: Overvaluation has disappeared

0

50

100

150

200

250

70 74 78 82 86 90 94 98 02 06 10

05.12.2011 +1 Stdev -1 Stdev Fair value Cotton

USd/lb.


Momentum and trend are now negative

November saw cotton prices fail to hold above US 95 cents, alevel that had proven to be of solid support since cotton's

sharp correction in July. As a consequence, both technicaltrend and momentum are now negative and point to furtherprice weakness.

Looking at cotton's fundamental backdrop, we find fewelements able to mitigate renewed price weakness. TheUSDA's latest estimates for 2011/2012 global cotton supplyand demand continue to point to a large market surplus thisseason. In the USA, while the agency has reduced its fore-

casts for US cotton output to account for the ongoing excep-tional drought in Texas and the Southeast, export demand hasbeen reduced by a quasi-equal amount, resulting in a largelyunchanged US market balance. On a global scale, the USDAhas maintained its expectation of a 10 million bale market

surplus this season, which would cause the global stock-to-use ratio to increase to its highest level since 2008. We note,however, that China has been using the current price dip tostep up its state reserves purchasing program, as suggested

by the strong pick-up in US export sales in recent weeks.China may continue to buy US cotton, provided prices remainat depressed levels, but we see little chance for this activity toreverse the price downtrend.

In terms of valuation, our model suggests that cotton istrading at fair value. Our forecasts are slightly lower given thebearish technical signals.

Figure 51

Cycle: The global cotton market is likely to shift into surplus

-20

-15

-10

-5

0

5

10

15

20

71/72 79/80 87/88 95/96 03/04 11/12E

50

60

70

80

90

100

110

120

130

Global market surplus/deficit Global cotton prod. (rhs)Global cotton cons. (rhs)

in mn bales in mn bales

Source: USDA,Credit Suisse

Forecasts


Cotton 91.35 85 80

Facts on cotton:

Cotton is the most important textile fiber today, accounting for roughly40% of world fiber production. China is the largest consumer and im-porter due to its large textile industry.

Cotton is classified according to the grade, staple which refers tofiber length and character of each bale. The fibers are used to pro-duce textiles, furnishings and in industrial applications.

Cotton futures and options are traded on the NYBOT and the ZCE. Thebenchmark contract is the NYBOT cotton No. 2 contract specifying de-livery of approx. 100 bales of cotton (50,000 lb. net weight). Prices arequoted in US cents.

Figure 52

Technicals: The technical picture is negative



20/23



Coffee C (KC) Outlook (612+ months) Figure 53

Value: Valuation remains challenging

0

50

100

150

200

250

300

350

73 77 81 85 89 93 97 01 05 09

05.12.2011 +1 Stdev -1 Stdev Fair value Coffee

USd/lb.


Overvaluation is the biggest risk

Coffee prices were volatile in November. After finding supportaround the US 220-cent mark, prices rebounded to almost

US 240 cents only to retreat again somewhat. Nevertheless,the rebound triggered an upgrade of technical momentum topositive. Despite this change, however, there are still substan-

tial downside risks in this market.On the fundamental side, we would note that the market

remains tightly supplied, despite fairly strong production inBrazil and Colombia. Production growth has helped to replen-

ish inventories somewhat, but a closer look at the data revealsthat availability is still close to previous all-time lows. On theother hand, coffee is probably one of the most cyclical of allagricultural commodities. As such it is particularly vulnerable to

the economic slowdown in Europe which is the world's larg-est coffee consumer. The combination of demand concernsfrom Europe but still-tight availability leaves us with a neutralfundamental rating.

Looking at technicals, momentum is positive but trendlines have flattened over the last few months and prices haveeven fallen below important moving averages. As a result, thelong-term trend is flat. With cycle and trend neutral, the focusis on value, and here is where the risk comes in. Due to dete-riorating availability, coffee prices have risen sharply over the

last two years. However, our fair value model indicates thatprices have overshot reasonable levels. With economic growthin Europe slowing and coffee being significantly overvalued,we think value is the dominating factor. Accordingly our one-year outlook is negative.

Figure 54

Cycle: Inventories remain at historically low levels

0

10

20

30

40

50

60

81/82 86/87 91/92 96/97 01/02 06/07 11/12E

0

10

20

30

40

50

60

Global coffee ending stocks Global coffee stock-to-use ratio (rhs)

in mn bags in %


Forecasts


Coffee 230.00 230 200

Facts on coffee:

Coffee originates from Ethiopia and was discovered more than 2,000years ago. Arabica and Robusta are the two main types of beans, with

Arabica accounting for about 60% of world production. Arabica trades ata quality-based premium.

Brazil and Vietnam are the most important coffee producers, while theUSA and the euro zone are the largest consumers.

Coffee is traded on the NYBOT, TGE, EURONEXT and on the BrazilianMercantile & Futures Exchange (BM&F). The ICE-NYBOT 'C' contractspecifies the delivery of 37,500 pounds of Arabica coffee. The equiva-lent Robusta contract has the same specifications.

Figure 55

Technicals: Deteriorating picture



21/23



Cocoa (CC) Outlook (612+ months) Figure 56

Value: Overvaluation has disappeared

0

500

1'000

1'500

2'000

2'500

3'000

3'500

4'000

81 85 89 93 97 01 05 09

05.12.2011 +1 Stdev -1 Stdev Fair value Cocoa

USD/MT


Technicals are now very negative

Cocoa saw substantial price moves in November. In October,cocoa prices were still overvalued, but by the end of Novem-

ber, cocoa prices have threatened to fall below the USD 2000threshold, where they would start to appear slightly underval-ued.

On the fundamental side, the latest data from top IvoryCoast and Ghana growers indicate that production is strong.News that Ivory Coast is considering selling some of its cropforward to raise cash for cocoa infrastructure upgrades hasweighed on prices. Concerns that Ghana could follow IvoryCoast in this forward-selling program have additionally soured

sentiment. It is true that cocoa is entering the new season withsubstantial carryout stocks from the last marketing year. How-ever, since demand is reportedly also growing strongly and

since production last year can be considered exceptionallygood, we think the fundamental situation is not outright nega-tive. Taking these forward-looking factors into account we ratethe cyclical situation as neutral.

With valuation and fundamentals neutral, the focus is ontechnical analysis. Here the bias was already slightly negativebefore the November correction. Now the trend has definitelybroken to the downside, and momentum is also deeply nega-tive, leaving us with an overall still-negative outlook for cocoa.

After such a sharp move it will take some time of consolidatingprices before the technical situation starts to improve again.And as of now, there are very few signs to this effect.

Figure 57

Cycle: Substantial carryout stocks from last year

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

80/81 85/86 90/91 95/96 00/01 05/06 10/11E

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Global market surplus/deficit Global cocoa production (rhs)Global cocoa consumption (rhs)

in mn MT in mn MT

Source: ICCO, the BLOOMBERG PROFESSIONAL service, Credit Suisse / IDC

Forecasts


Cocoa 2030 2200 2000

Facts on cocoa:

Cocoa is derived from fruit (pods) which grow on the cacao tree. Each podholds about 30 to 40 cocoa beans, with 400 beans needed to produce onepound of chocolate. The preferred conditions for cacao trees are a tropical

and humid climate. Hence, cocoa is typically grown around the equator.

The main harvesting season starts in September and lasts a few months, butfruits ripen throughout the year. Cocoa beans are fermented and sundriedbefore being roasted for further use.

The benchmark contract is traded on the NYBOT and specifies the physicaldelivery of 10 metric tons (mt), quoted in USD/mt. EURONEXT/LIFFE alsooffers cocoa contracts.

Figure 58

Technicals: Breaking lower



22/23



Imprint

This publication has been authored by Private

Banking Global Research

US Contact Information

Investment Strategy and Advisory:

Barbara M. Reinhard, Chief Investment Strategist

Managing DirectorTel. +1 212 538 7604

E-mail [email protected]

Philipp E. Lisibach, Director

Tel. +1 212 538 0311E-mail: [email protected]

Jimmy James, Vice PresidentTel. +1 212 538 5944

E-mail:[email protected]

Ryan Sullivan

Tel. +1 212 538 2194

E-mail: [email protected]

Samuel Baumann, Assistant Vice-PresidentTel. +1 212 538 5194E-mail: [email protected]

Scott Rosenblatt, Assistant Vice-PresidentTel. +1 212 325 4458

E-mail: [email protected]


23/23


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