commodities weekly

8/6/2019 Commodities Weekly

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COMMODITIES RESEARCH 1 July 20

PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 25

COMMODITIES WEEKLY

Commodity prices have rebounded slightly this week, helped by the Greek parliaments

approval of the austerity measures. Oil prices have rebounded to pre-SPR levels after theinitial knee-jerk reaction lower following IEA's collective action. On the other hand, the

combination of bearish USDA Acreage and Quarterly Stocks reports on Thursday sent corn

prices reeling, sweeping wheat and soybeans with it.

Cross-commodities 7

The year-to-date return of a dynamic spread trade strategy is 11.4%. The roller-coaster ride

experience so far this year calls for a more-active approach; The past few weeks have been

marked by a huge increase in financial market uncertainty: de-risking in commodities

illustrates the extent of current concerns.

Energy 9

UK day-ahead NBP gas prices have remained range bound over the past month: calm before

the storm?; IEAs use of SPR sets an untenable precedent in the market for the use of SPR as

a means of lowering prices; Nigeria: Abuja bombing may demonstrate depth of discontent in

the north; It was a wild ride the past week as EUAs fell and then fell some more ending the

week some 22% lower w/w, having closed Friday at 12.26 /t; Bullish signs for US natural

gas seen at the end of a long tunnel; Four months after the Libyan oil industry was first

thrown into turmoil, the IEA has released oil from strategic reserves, intending it to be a

partial response to the Libyan crisis; The mood of the oil market can often be quite fickle.

Monthly Carbon Standard: Risk on, Risk off .

Metals 17

Base metals demand data so far from Japan show the initial negative impact of the Japanese

earthquake was both shorter and less severe than expected and the spectre exists of a firm

recovery in H2.

Agriculture 18

While near-term strength characterises cotton and sugar prices, we still see downside

risk to front-month prices in H2.

Forecasts and data releases 19

Sudakshina Unnikrishnan

+44 (0) 20 7773 3797

[email protected]

Kerri Maddock

+44 (0) 20 3134 2300

[email protected]

www.barcap.com


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Barclays Capital | Commodities Weekly

1 July 2011 2

Commodity review

After a sharp sell-off last week across most of the commodities complex, prices have

rebounded slightly this week, helped by the Greek parliaments approval of the austerity

measures. Oil prices have rebounded to pre-SPR levels after the initial knee-jerk reaction

lower following IEA's collective action. On the other hand, the combination of bearish USDA

Acreage and Quarterly Stocks reports on Thursday sent corn prices reeling, sweeping wheat andsoybeans with it. Across precious metals, gold prices continue to find support from a broader

positive external environment, and have sidelined seasonal weakness in demand, while

silver prices have struggled to gain upward momentum owning to weak underlying supply

and demand dynamics coupled with hefty ETP outflows. Base metals prices found some

support from developments in Greece, however the outlook remains diverse.

The past few weeks have been marked by a huge increase in financial market uncertainty.

De-risking in commodities illustrates the extent of current concerns: almost $7bn was

withdrawn from commodity investments in May, a level of outflow not seen since the

financial crisis. Total commodity AUM experienced a large m/m decline of $26bn in May,

the first decline since August 2010 and the largest since the $55bn fall in October 2008.

However, we do not think this is the time to be lightening up on commodity exposure. Quitethe opposite. The current combination of slowing global growth and rising CPI pressures

are conditions which in previous cycles have seen commodities outperform most other

assets. Moreover, a number of individual markets are exhibiting signs of increasing supply-

side tightness. In the current environment, active strategies have been outperforming. In

addition, as discussed in detail in our latest Commodity Investor, the already-wide range of

uncertainties faced by commodity investors in 2011, can now add the condition of margin

anxiety. The past few months have seen some of the biggest ever increases in margins for

trading commodities and we address the subject in this month's focus.

The oil market continues to look at the effects of the IEAs use of SPR. Four months after the

Libyan oil industry was first thrown into turmoil, the IEA has released oil from strategic

reserves, intending it to be a partial response to the Libyan crisis. The cumulative loss ofLibyan output now stands at 182 mb, primarily diesel-rich light crude bound for Europe. The

first IEA release is one-third of that amount, split across regions and between crude and

products. After an initial fall, prices have rallied this week. The back of the curve has risen,

given that the release is primarily a way of borrowing oil from the future into the present

because the strategic reserves will ultimately be replaced. Overall, we see the IEA action as

being well motivated, but a shot in the dark; in our view, the impact on oil politics and on

market perceptions raises the danger of some significant distortions.

Looking to some broader topics in the oil market, discussed in this monthsOil Sketches, the

global oil demand picture continues to evolve positively and, contrary to expectations in the

current price environment, it is rather robust. Surprisingly, much of the scrutiny is on

countries where demand is performing best, in particular the US and China. The US is

showing no material weakness in price-sensitive gasoline demand and China continues to

post robust y/y growth, outpacing expectations. While on the supply side, compared with

the steady growth seen in 2010, non-OPEC supply growth has been more erratic and most

definitely softer than initial consensus expectations. Most notably, the key issue currently

plaguing non-OPEC supply growth has been the momentous decline in North Sea

production since the start of the year, with both Norway and the UK currently vying with

each other for the worst performer.
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1 July 2011 3

Another topic in the oil market highlighted this week was the political situation continuing

to unfold in Nigeria. The recent string of bombings in Northern Nigeria is raising new

concerns about stability in the volatile oil-producing country. Boko Haram, a radical Islamist

group which took responsibility for recent bombings and threatening further attacks, may

be tapping into the general unhappiness with the outcome of the April elections in the north

and the growing sense of political alienation in the region. Seasoned Nigeria analysts are

warning that if discontent continues to fester in the north, Boko Haram could become aserious security threat to the government. While violence has been rife in the northern part

of Nigeria, the oil-producing states have been relatively spared despite the regions four oil-

producing states being home to scores of armed militia groups that allegedly steal crude

from pipelines, sabotage the petroleum infrastructure, and kidnap oil workers in an attempt

to secure a greater share of the economic and political resources. In our view, the likelihood

of further sabotage to oil infrastructure remains elevated. Indeed with the level of violence in

the north steady and rising, current and future performance of the Nigerian oil sector

remains ultimately and intimately linked to the evolution of the structural problems

affecting Nigerias oil-producing region. Any disruption to oil production will have a

negative effect on federal government revenues (as oil revenues account for 80% of

government revenues) and could hamper Jonathans development plans.

In the latest Weekly Natural Gas Kaleidoscope, our US gas analysts presented a more bullish

view on gas prices in the long run. They expect a turn lower in the gas-directed rig count,

not because of gas prices, but because more lucrative oil opportunities are expected to

siphon away enough rigs to alter the gas supply trajectory by H2 12. Until then, rising coal

prices are expected to push the gas price floor higher. The worst of the North American gas

oversupply is behind us, in our view. But bullish sentiment for 2011 is premature. Still-

growing gas supply this year will continue to narrow the storage deficit, while continuing to

displace coal in size, keeping price upside in check. US supply growth is expected to plateau

and fall slightly in H2 12, when the rig count falls sufficiently next year. While far from a

balanced market, lower supply dampens the need to displace coal, allowing prices to tick

moderately higher. By Q4 12, we believe the market will begin pricing in a turn lower in

supply. As a result, we have revised our gas price outlook for the remainder of 2011 and for

2012. For H2 11, we expect gas prices to average $4.40 per MMBtu (compared to the earlier

view of $3.88). Our 2012 outlook has been revised up slightly from $4.50 to $4.55.

The carbon market spent the week coming to terms with a massive sell-off towards the end

of the previous week. It was a wild ride as EUAs fell and then fell some more ending the

week some 22% lower w/w, having closed last Friday at 12.26 /t. By now, the root causes

of the collapse have been discussed and our imaginatively tit led carbon flash piece from last

Thursday (Carbon Flash: EUAs falling off a cliff) set out our views. Without revisiting all of

these arguments, the core one is that the great sell-off has happened against the

background of the expected Q2 acceleration in trade and hedging by utilities not occurring.

In light of the drastic market reactions, as presented in our latest Monthly Carbon Standard,

we have updated our prices outlook. We have revised our EUA price forecasts across theboard downwards by: 22% in H2 11; 29% in 2012; 23% in 2013; and 25% across phase 3.

Our CER price forecasts have been revised downwards across the board by: 21% in H2 11;

25% in 2012; and 29% in 2013, narrowing our forecast EUA-CER spreads across the years.

Our long-term outlooks have been written down on energy efficiency gains in Europe,

which reduce the level of short-term abatement required and extend the date at which the

CER import limit will need to be exhausted.
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1 July 2011 4

Turning to the metals markets, the potential negative demand effects from the earthquake and

tsunami in Japan on 11 March has been a concern for the base metal markets (Commodity Daily

Briefing 29th March 2011). In fact, Japanese lead demand was the only metal in positive y/y

growth territory during March-April (+7% y/y) according to preliminary ILZG data, likely

supported by the need for stationary batteries for back-up power supplies as well as SLI batteries

for generators. The second related point is that the average size of demand decline across the

base metals in Japan (excluding lead) was 6.7% y/y March-April, which is less severe than the10% y/y reduction we originally discounted in our forecasts. The third conclusion is that within

the headline figures, there is a clear differentiation between end-demand sectors in consumption

trends. Looking ahead however, statements on both a corporate and sovereign level suggest that

H2 11 should see a boost to demand growth across the base metals, although potential summer

power shortages are a risk. Crucially, the Japanese auto sector supply chain has made faster-than-

anticipated progress in restoring operations as well as resolving parts shortages, supporting a

normalization in activity by Q3 from its current weakness, while reconstruction efforts from a fiscal

perspective are also likely to be significantly stepped up in H2.

At the start of Q2 (Commodity Daily Briefing, 12 April) we had highlighted our positive view

across the agricultural complex, but had noted that we saw marked downside risk from the

years highs in sugar and cotton. While cotton prices are well below the years high of $2.27/lband sugar prices pulled back from their 2011 highs of 36.1 cents/lb to a low of 20.4 cents/lb

by early May --- of late both these markets have exhibited relative strength compared with the

rest of the complex. Will that endure? We continue to expect front-month prices for both to

ease through H2. For cotton, we had expected production to increase in the largest producers

(China, India, the US and Pakistan) but anticipated that inventories were unlikely to increase,

keeping the market precariously balanced. However, dry weather in Texas is likely to result in

production levels being revised down but increased rain in India bodes will for production

prospects. In addition, India increased its export quota. For sugar, prices have gained on

logistical bottlenecks at Thai ports and a slow start to the Brazilian crop. However, Indian

acreage has expanded y/y, with farmers getting more attractive prices. With India moving

further into the export side of the equation and the global market moving further into a

surplus, we expect significant gains in sugar prices through H2 to be capped. Therefore,

despite the recent move up, we still estimate front-month prices for both cotton and sugar to

ease through H2 this year on higher supply prospects.
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1 July 2011 5

COMMODITY SECTOR VIEWS

Energy

OilOil markets have rebounded to pre-SPR levels after the initial knee-jerk reaction lower

following IEA's collective action. Across the five trading days following the IEA intervention,

the back of the curve has risen by more than it has depressed the front. We believe the

market is now factoring in the IEA stock release with a fair degree of scepticism, with

worries about the possible signals it sends beyond the immediate future now starting to

affect mainstream sentiment. Especially if in the long-term the oil needs to be replaced in

the SPR, therefore the release is essentially borrowing oil from the future, it has done little to

alleviate market tightness for the future. Moreover, if this is viewed either as OPEC being

unable to meet current demand through its capacity, or worse still, leads to reduced output

from them as the consumer governments take on the role of the marginal supplier, the

negative impact on prices is unlikely to have lasted for very long. Ultimately, oil market

fundamentals, which remain fairly robust, will likely once again return to the forefront to

buoy prices.

US natural gas

US natural gas markets were fairly steady on the week as temperature forecasts supported the

market. The latest set of EIA-914 data showed growth in production of 0.7 Bcf/d from March-

April, which should continue to keep balances relatively loose and pressure prices downward.

Coal

European coal markets traded in a narrow range over the week, with lacklustre demand and

plenty of supplies supporting API2 prices at the $122/t mark. Stocks at ARA remain at

elevated levels and German Rhine river levels have declined again after rising for the last two

weeks; with the water levels for barging coal well below the seasonal average it is unlikely

that there will be a strong pull of stocks from the ports in ARA. API4 prices settled below

$120/t this week with prices set to further decline to the $115/t level, as prompt physical

cargo is being offered to the Pacific Basin at discounted rates. There are indications that

coal stocks in China are ample at the moment, which would see Chinese buyers showing

greater resistance to higher prices. Given ample supplies and lacklustre demand in both

basins, coal prices are likely to trade in a narrow range over the next two months.

Carbon

After a free fall in prices over the previous week, which saw EURs close at 12.26 /t last

Friday, prices gained back some value this week, closing on Thursday at 13.53 /t, howeverthey remain well below the 16.65 /t level seen just three weeks ago. With the key reason

for the sell-off being the expected buoyant buy-side failing to materialise, it will be a big ask

of prices to revert to the price levels seen in the past three months. With the market

remaining structurally long, prices are likely to stand, for some time, at the bottom of the

recent cliff wondering how to climb back up.


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1 July 2011 6

Base metals

Macro concerns continue to predominate price action across the complex, although

apparent progress in tackling the Greek debt crisis has offered the basis for at least a short-

term relief rally. Looking through this volatility, the supply side is shaping a more diverse

fundamental picture across the base metals, and we expect this to lead to increasingly

divergent price performances in H2 11. In this respect, we believe that the copper supply

side is tighter than the market currently perceives, alongside signs of strengthening inChinese demand. In our view, the Chinese market has hit a pivot point for copper: with the

supply-chain inventory fully destocked, participants are turning to the SHFE and bonded

warehouses. We view price dips as buying opportunities, with apparent resolutions to key

macro uncertainties likely to provide traction points for such moves higher. Aluminium

prices are expected to continue taking support from strong global demand growth and

energy-led cost inflation and from expectations of tightening long-term energy availability.

In our view, the risk/reward of being long far-dated aluminium is attractive given its

relatively limited loss profile. Zinc remains our least favoured metal, with continued

deterioration in the fundamentals with big stock builds, a growing market surplus and

sustained production growth. We expect zinc to be the underperformer of the base metals.

Finally, while the nickel supply outlook appears set to improve in H2, ongoing production

disruptions and associated sustained declines in LME stock levels create the possibility of

short-term upside from recent lows.

Precious metals

Prices have edged higher following the Greek parliaments approval of the austerity

measures, but gold continues to find support from a broader positive external environment,

and has sidelined the seasonal weakness in demand. If investor interest wanes, prices could

be subject to a temporary correction before finding support from physical demand. Silver

prices have struggled to gain upward momentum as weak underlying supply and demand

dynamics coupled with hefty ETP outflows have trumped healthy coins demand from the

retail sector. The PGMs are caught between potentially weaker supply and weaker demand.

The biennial wage negotiations in South Africa highlight the potential for disruptions to

mine supply over the forthcoming weeks and, in turn, pose an upside risk to prices;however, this is likely to be tempered by concerns over a slowdown in demand following

the events in Japan and auto sales weakening in China.

Agriculture

The bearish USDA Acreage and Quarterly Stocks reports on Thursday sent corn prices reeling,

along with wheat and soybeans. Both reports reflected bearish influences on corn - the

Acreage report showed a rise in US 2011 corn plantings to 92.3mn acres, up from 92.2mn

acres in March's Prospective Planting report and above market expectations. The data

suggest wet weather that led to lagged plantings and delayed spring fieldwork has not

shrunk US corn acreage. Soybean acres were pegged at 75.2mn acres - below both the

76.6mn acres in the Prospective Plantings report and market expectations. Spring wheatplantings at 13.6mn acres were below the 14.4mn acres in the Prospective Plantings report.

So, the Acreage report was primarily bearish for corn prices, reflecting higher plantings. In

contrast, the Quarterly Stocks report showed US grain stocks as of 1 June above market

expectations. Corn stocks were pegged at 3.67bn bushels; soybeans at 619mn bushels and

wheat at 861mn bushels. The corn figure significantly surpassed market expectations, and

coupled with higher acreage, is allaying concerns of critically tight supplies and hence is

likely to drive prices lower, while being positive for soybeans for 2011-12. Weather

conditions in the US will be keenly watched to see whether this additional supply

materialises but for now, the corn market is likely to come under further pressure after

Thursday's bearish reports.


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1 July 2011 7

Who said get out of commodities? The year-to-datereturn of a dynamic spread trade strategy is 11.4%.The roller-coaster ride experience so far this yearcalls for a more-active approach

This article is an excerpt from the Commodity Daily Briefing, 30 June 2011.

It has been a difficult few weeks for commodity players, with macroeconomic uncertainty

settling over the markets and driving the pulse of investors. Amid this uncertainty we

thought we would highlight one figure to cheer up the mood of commodity market

participants: 11.4%. This is the year-to-date return of a dynamic spread-trade strategy that

captures the outperformance from going long an alpha strategy based on holding and

rolling forward futures contracts selected according to momentum of historical

outperformance, and going short the corresponding nearby contract (see table below). This

strategy is based on seeking outperformance through a dynamic commodity curve

positioning process by gaining exposure to the point on the commodity term structure with

the highest alpha (for more details on these dynamic strategies see Commodity Cross

Currents: The Commodification of Alpha, 25 May 2011). Moreover, in these times of high

price volatility, an average 0.2% standard deviation year-to-date looks quite impressive, and

more so a Sharpe ratio of 3.07. Directionally neutral spread strategies have also

outperformed this year, in an environment of diverging returns by commodity sector,

reflecting the relevance of a dynamic approach by shifting exposure to different points on

the curve according to each individual commoditys own fundamental picture.

The first generation of passive long-only commodity indices were created in the 1990s, when

commodities first became investible. But over the past decade, the growth in investment flows

into commodities has gone hand in hand with an increasing demand from investors for new,

more-active approaches to obtaining exposure to the asset class. The traditional argument for

passive long-only index investors has been that they provide investors with inexpensive long

exposure to a range of commodities. However, this comes at the cost of a high volatility and afixed weighting in the portfolio. In contrast, alpha, defined as actively managed exposure to

commodities with the flexibility to take long, short, neutral or spread positions, enables investors

to take advantage of opportunities on both the long and short side, as well as the ability to

deploy relative value or niche strategies. Increasingly, experienced and would-be commodity

investors are seeking to know how best to capture alpha in the context of highly volatile

commodity markets. The roller-coaster ride experienced over the past decade calls for the design

of new-generation dynamic trading strategies that perform well in both up and down markets.

Figure 1: Time for dynamic commodity strategies

Year-to-date statisticsAnnualized

returns

Standard

DeviationSharpe Ratio

Correlation with

S&P500

Commodities

Dynamic spread trade 11.4% 0.2% 3.07 6%

Dynamic long-only 2.8% 1.1% 0.24 47%

Dynamic long-short 0.0% 0.7% 0.03 46%

S&PGSCI -3.4% 1.4% -0.01 32%

DJ-UBS -9.6% 1.1% -0.49 41%

Equities

S&P500 3.3% 0.8% 0.50 100%

Note: The strategies in this table are a weighted average of baskets of indices that can be categorized in this distinct way.Source: Ecowin, Barclays Capital

CROSS COMMODITIES
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1 July 2011 8

High anxiety

This article is an excerpt from theCommodity Investor, 30 June 2011.

The past few weeks have been marked by a huge increase in financial marketuncertainty. De-risking in commodities illustrates the extent of current concerns:

almost $7bn was withdrawn from commodity investments in May, a level of outflow notseen since the financial crisis. Total commodity AUM experienced a large m/m decline

of $26bn in May, the first decline since August 2010 and the largest since the $55bn fall

in October 2008.

However, we do not think this is the time to be lightening up on commodity exposure.Quite the opposite. The current combination of slowing global growth and rising CPI

pressures are conditions which in previous cycles have seen commodities outperform

most other assets. Moreover, a number of individual markets are exhibiting signs of

increasing supply-side tightness. In the current environment, active strategies have

been outperforming.

Spread trading index strategies appear to be particularly well suited to the currentenvironment, with returns in the 11% region in the year-to-date, compared with a

negative 3% for the S&PGSCI. Active long-only strategies are also performing well, up by

around 3% so far this year.

To the already wide range of uncertainties faced by commodity investors in 2011, wecan now add the condition of margin anxiety. The past few months have seen some of

the biggest ever increases in margins for trading commodities and we address the

subject in this month's focus.

Figure 2: May saw the first outflow from commodity investments since August last year

-10

-5

0

5

10

15

20

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11

Monthly inflows into commodities

(Indices, ETP, MTNs, $bn)

Source: Bloomberg, MTN-i, ETP issuer data, Barclays Capital

CROSS COMMODITIES
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1 July 2011 9

UK day-ahead NBP gas prices have remained rangebound over the past month: calm before the storm?


Despite a drastic fall off across much of the European energy complex in recent days, UK

gas prices have remained remarkably range bound for the past month, almost to the point

of boredom. Prompt prices have traded in a range of just 3p over the past 20 days,

compared with 10p over this same period last year. Is this the status quo for the rest of the

summer or just the calm before the storm? We see the lack of volatility in the gas market as

a short-term reality. As the global gas glut continues to come to an end, UK gas prices will

need to not only increase but will become much more sensitive to changes in flows. While

we expect LNG intakes throughout the summer to be higher than last year (with daily flows

averaging 87 mcm/d so far this summer compared with 44 mcm/d last summer), we

expect the global LNG market to become significantly tighter come Q4 11 with the

possibility of cargos starting to be diverted out of Europe. By 2012 Europe will need to lose

about 9 bcm of LNG cargos compared with 2011 to keep the global market balanced. With

LNG cargos heading east, UK production declining and Norwegian flows remaining extremelyvolatile, UK gas prices will need to increase. Before the affects of a tighter LNG market takes its

hold on the UK gas prices, however, we need to get through the rest of the summer, where we

expect prices to first drift downwards. Strong LNG intakes and record high storage levels

should add downward pressure. In addition, already low demand for gas from power

generators will be increasingly hampered by the latest dive in carbon prices. With carbon

prices losing 20% in value in the past 7 trading days, this will help push coal-fired plants

further into the money. So far this year, gas generators have demanded an average of 62

mcm/d of gas from the grid for power generation, compared with 84 mcm/d over the same

period last year. Last year, for the remainder of the summer, demand was 72 mcm/d and,

given coal and carbon prices, it is likely to be lower this year. In Q3 this should help to limit

upside pressure if any LNG tankers are diverted out of the UK. Overall, the downward

pressures in the near term, coupled with the upward pressures in the longer term, shouldincrease volatility in the UK gas market throughout the rest of the year.

Figure 3: A very subdued prompt NBP over the past month

-20

-15

-10

-5

0

5

10

15

20 May 30 May 09 Jun 19 Jun

2011 2010 2009 2008

Source: Ecowin, Barclays Capital

ENERGY


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1 July 2011 10

IEAs use of SPR is likely to provide very littleincentive to change consumer behaviour throughhigher prices in the long run, while it sets anuntenable precedent in the market for the use ofSPR as a means of lowering prices


Just as the fundamentals were set to take centre stage in Q3 with large stock draws the only way

to balance the market, the IEA took on the role of the marginal supplier, unleashing the

equivalent of QE2 in the oil market through 60 mb of light sweet crude from its SPR, but without

any definitive end date for its programme. That sent the whole market clamouring to adjust

inventory estimates for the balance of 2011, the key metric that had signalled a tightening

market in H2 11. No doubt the availability of crude should improve materially at least in parts of

Q3, thereby covering for a large part of the stock draws implied in our and consensus balances,

and this will clearly have (and is already having) a significant negative short-term impact on

prices and curve shapes. But beyond Q3, and perhaps even the rest of this year, IEAs actions

may ultimately have severe unintended consequences. The reality remains that the current

market is still grappling with a structural change that has effectively resulted in the gain of some

five years of oil demand in one year. Indeed, just two years ago, the IEA provided two scenarios

for demand developments a high-GDP case when the next time a new annual record was

expected was 2012, and a low-GDP scenario when the 2007 level was not regained till 2014. Not

only did we surpass 2007 peaks in 2010, we added a further 1.7 mb/d, equivalent to a years

annual growth level. Such a uniformly strong demand backdrop pitted against a non-OPEC

supply picture, which is still struggling beyond a few pockets of strength, requires a constructive

consumer-producer relationship at the very least to address the long-term issues of this growing

mismatch and its impact on prices. Latent threats in statements, public retaliation through the

media, encroaching on each others duties and roles in the market simply does not bode well forthe long-term prospects for stability in the oil market. The IEA has done exactly what it did not

want to do its actions could ultimately dry up OPEC volumes, warranting even larger stock

draws once the SPR release stops.

The IEAs rationale to lower oil prices in order to support economic growth is flawed at several

levels, we believe, not least due to the fact that stronger macroeconomic growth is perhaps

the biggest catalyst for higher oil demand growth and hence higher oil prices. A form of

economic intervention, IEAs actions are likely to be fraught with the laws of unintended

consequences. Indeed, in a world where both supply and demand responses are becoming

more inelastic in nature, prices have to play a large role in helping to allocate resources

efficiently. This involves not just incentivising new (costlier) supplies to come onstream but

also to ration a level of demand. Given the limited opportunities for substitution out of oil in

transportation in the near term, the importance of sending the correct price signal to

encourage long-term substitutability through R&D and market incentives is paramount. The

IEAs intervention is likely to provide very little incentive, we believe, if any at all, to change

consumer behaviour or encourage alternatives. In our view, it sets an untenable precedent in

the market for the use of SPR as a means of lowering prices (irrespective of supply outages).

Worse still, emerging market economies are often criticised for not allowing their consumers

to face the true price of oil through heavy subsidies, thereby keeping demand inflated. We fear

the IEA has done exactly the same in the OECD now.

ENERGY


11/27


1 July 2011 11

Nigeria: Abuja bombing may demonstrate depth ofdiscontent in the north

This article is an excerpt from the Geopolitical Update, 24 June 2011.

The recent string of bombings in Northern Nigeria is raising new concerns aboutstability in the volatile oil-producing country. Eight people were killed last week in a carbomb attack outside the national police headquarters in the capital Abuja.

The radical Islamist group Boko Haram claimed responsibility for the Abuja bombingand warned that it will carry out more attacks in the coming weeks. Boko Haram, which

campaigns against western education and has called for the adoption of Sharia law in all

of Nigerias 36 states, rose to prominence in the summer of 2009. Clashes between its

followers and security officials in 2009 left more than 700 people dead.

Boko Haram may be now tapping into the general unhappiness with the outcome of theApril elections in the north and the growing sense of political alienation in the region.

Seasoned Nigeria analysts are warning that if discontent continues to fester in the north,

Boko Haram could become a serious security threat to the government.

While violence has been rife in the northern part of Nigeria, the oil-producing stateshave been relatively spared despite the regions four oil-producing states being home to

scores of armed militia groups that steal crude from pipelines, sabotage the petroleum

infrastructure, and kidnap oil workers in an attempt to secure a greater share of the

economic and political resources.

In our view, the likelihood of further sabotage to oil infrastructure remains elevated.Indeed with the level of violence in the north steady and rising, current and future

performance of the Nigerian oil sector remains ultimately and intimately linked to the

evolution of the structural problems affecting Nigerias oil-producing region.

Any disruption to oil production will have a negative effect on federal governmentrevenues (as oil revenues account for 80% of government revenues) and could hamper

Jonathans development plans.

Although the worst of the post-election violence has dissipated and markets have calmed,

the risk of violence spilling over to the fragile Niger Delta remains. Any disruption to oil

production will have a negative effect on federal government revenues (as oil revenues

account for 80% of government revenues) and could hamper Jonathans development

plans. Moreover, following Central Bank of Nigeria Governor Sanusis announcement of the

planned lifting on July 1 of the one-year holding requirement that foreign investors were

subjected to when holding domestic bonds, it means that financial markets will be more

open and hence more susceptible to outflows in case of any threat to the economy. That

said, the lifting of the limit will only pertain for new inflows after July 1, suggesting that at

least over the medium term, this risk is limited. Nonetheless, any evidence of violence may

increase investor uncertainty and put downward pressure on financial markets and

particularly the currency (as was evidenced by the rapid weakening of the NGN ahead of the

April elections). The good news is that if Jonathan succeeds in maintaining stability in the

Niger Delta (and in the north), the economic benefits in terms of achieving sustainable

growth may be substantial.

ENERGY


12/27


1 July 2011 12

Avalanche

This article is an excerpt from the Weekly Carbon and Energy Matters, 27 June 2011.

It was a wild ride this last week as EUAs fell and then fell some more ending the week

some 22% lower w/w, having closed Friday at 12.26 /t. By now, the root causes of the

collapse have been discussed and our imaginatively titled carbon flash piece from lastThursday (Carbon Flash: EUAs falling off a cliff) set out our views. Without revisiting all of

these arguments, the core one is that the great sell-off has happened against the

background of the expected Q2 acceleration in trade and hedging by utilities not occurring.

This does not mean the utilities have not been on the buy-side, indeed it is difficult to

imagine who else has been buying carbon on its way down. Rather, it is that length was

built up on the anticipation that the surge in hedging activity and pricing was coming, and

this just did not materialise. So, with the utilities not ramping up hedging, the prospects for

EUA price upside this year looked off and with some triggers for selling all going off

together, the market started to fall and went straight through key levels 16, 15, 14, 13 and

then briefly 12 /t. One question is just how important were fears over the Greek debt crisis

in this sell-off? Well, the idea that industrial length was first into the market on what

remains a very uncertain and complex outcome seems unlikely. Rather, for this to be atrigger, there would have to be: significant length held by non-compliance participants; a

concentrated intent to de-risk the holdings of this asset given an overarching desire to

remove all exposure to Europe; and selling done with complete disregard for the impact on

prices. Oddly enough, this scenario cannot be discounted as it would at least help explain

the sudden and unexpected drop through so many levels. On the way down, of course, stop

losses would be triggered and other participants with length (including the industrials) will

see that fall and may jump on that bandwagon and try quickly to monetise their length. The

result is a price avalanche, which tells us that even flat peaks can be dangerous (it also tells

us there are no free floors, to mix metaphors). Now do the fundamentals still support higher

prices? A good question but the short-term fundamentals are one of a market with too

much length. The only upside to prices was going to be the impact of accelerated utility

buying. Without that, prices will find it a long, long, long way up.

Figure 4: EUA and CER prices (/t)

-1

1

3

5

7

9

11

13

15

17

19

Feb-11 Mar-11 Apr-11 May-11 Jun-11

EUA Front year (/t) sCER Front Year (/t) EUA-CER spread

Source: Barclays Capital

ENERGY
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13/27


1 July 2011 13

Bullish signs at the end of a long tunnel

This article is an excerpt from the Natural Gas Weekly Kaleidoscope, 28 June 2011.

The good news for those waiting for higher U.S. natural gas prices is that we believethere is a supportive factor emerging. The bad news is they are going to have to wait.

We expect a turn lower in the gas-directed rig count, not because of gas prices, butbecause more lucrative oil opportunities are expected to siphon away enough rigs to

alter the gas supply trajectory by H2 12. Until then, rising coal prices are expected to

push the gas price floor higher.

The worst of the North American gas oversupply is behind us, in our view. But bullishsentiments for 2011 are premature. Still-growing gas supply this year will continue to

narrow the storage deficit, while continuing to displace coal in size, keeping price upside

in check. U.S. supply growth is expected to plateau and fall slightly in H2 12 when the rig

count falls sufficiently next year. While far from a balanced market, lower supply

dampens the need to displace coal, allowing price to tick moderately higher. By Q4 12,

we believe the market will begin pricing in a turn lower in supply.

As a result, we revise our gas price outlook for the remainder of 2011 and for 2012. ForH2 11, we expect gas prices to average $4.40 per MMBtu (compared to our earlier view

of $3.88). We revise our 2012 outlook up slightly from $4.50 to $4.55.

Figure 5: New Barclays Capital U.S. gas price outlook, $/MMBtu

Previous forecast New forecast/actual

2011 3.94 4.35

Q1 4.25 4.20

Q2 3.75 4.38*

Q3 3.75 4.30

Q4 4.00 4.50

2012 4.50 4.55

Q1 4.50

Q2 4.40

Q3 4.40

Q4 4.90

2015 5.25 5.25

* Actual to date. Source: Platts, Barclays Capital

We revisit our U.S. natural gas price outlook after just completing a ground-up readjustment

of our balances. We introduce 2012 balances in this Kaleidoscope and also reveal some

lessons learned from a recent back-casting exercise. The aggregate changes are not

individually large, but together point to a tightening of the market big enough to prompt an

upwards revision to our price outlook, with price momentum appearing at the end of 2012.

ENERGY


14/27


1 July 2011 14

IEA: A shot in the dark

This article is an excerpt from the Weekly Oil Data Review, 29 June 2011.

Four months after the Libyan oil industry was first thrown into turmoil, the IEA hasreleased oil from strategic reserves intending it to be a partial response to the Libyan

crisis. The cumulative loss of Libyan output now stands at 182 mb, primarily diesel-richlight crude bound for Europe. The first IEA release is one-third of that amount, split

across regions and between crude and products.

After an initial fall, prices have rallied. The back of the curve has risen, given that therelease is primarily a way of borrowing oil from the future into the present because the

strategic reserves will ultimately be replaced. Overall, we see the IEA action as being well

motivated, but a shot in the dark; in our view, the impact on oil politics and on market

perceptions raises the danger of some significant distortions.

The long and sustained whittling away of surplus commercial inventory has continued.The overhang of US crude oil and oil product inventories above their five-year average

has fallen by a further 4.1 mb in the latest US weekly data release, and now stands only

1.3 mb above a 30-month low.

Figure 6: US Department of Energy weekly data summary (mb)

24 Jun 2011 inventories1 wee k

change

4 week

change

1 yea r

change

difference

from 5 -year

average

Crude oil 359.47 -4.38 -14.34 -3.6 16.8

Gasoline 213.17 -1.43 0.89 -4.9 3.0

Total distillate 142.25 0.26 2.14 -17.1 6.7

Heating oil 33.50 -0.15 1.57 -13.2 -5.6

Diesel 108.76 0.41 0.57 -4.0 12.4

Jet kerosene 43.88 1.15 3.77 -2.7 2.2Residual fuel oil 38.37 0.73 0.39 -5.0 -1.3

Unfinished oils 86.78 0.03 1.02 7.3 -0.3

Other oils 181.15 3.31 9.77 -9.9 -10.7

Total commercial inventories 1065.08 -0.32 3.63 -36.1 16.4 Source: US Department of Energy

So it happened. The idea that strategic oil reserves might get released at some point has

been an overt theme throughout 2011. The US government was fairly overt at an early

stage that there were some red lines when it came to price response, particularly in retail

gasoline, that would likely occasion some action. Likewise, the not-completely-temperate

press release from the International Energy Agency (IEA) before the last OPEC meeting was

only a slightly veiled threat about the use of strategic reserves. That press release of 19 May

said The Governing Board urges action from producers that will help avoid the negative

global economic consequences which a further sharp market tightening could cause, and

welcomes commitments to increase supply. We stand ready to work with producers as well

as non-member consumers; in this constructive spirit, we are prepared to consider using all

tools that are at the disposal of IEA member countries. Given that background, the

appearance of strategic reserves is not a surprise in itself. However, in terms of its timing

and its motivation, the market did appear surprised by the initial reality of the release, and

then surprised again as it became clear that the release was not in itself a universal panacea

to the ills of the world.

ENERGY


15/27


1 July 2011 15

Registering efficiency

This article is an excerpt from Oil Sketches, 27 June 2011.

The mood of the oil market can often be quite fickle. Just when it had started to get

uninteresting steady growth, tightening oil market fundamentals, widespread entrenched

geopolitical risks sovereign debt contagion fears grabbed its attention. The Greek crisis onits own could not make a significant difference to oil market balances, but the issues look

scary enough for the oil market to play along for a while. Then, as the fundamentals were

set to take centre stage in Q3 with large stock draws, the only way to balance the market,

the IEA took on the role of the marginal supplier, unleashing the equivalent of QE2 in the oil

market through 60 mb of light, sweet crude from its SPR, but without any definitive end

date for its programme. That sent the whole market clamouring to adjust inventory

estimates for the balance of 2011, the key metric that had signalled a tightening market in

H2 11. No doubt, the availability of crude should improve materially at least in parts of Q3,

thereby covering for a large part of the stock draws implied in our and consensus balances,

and this will clearly have (and is already having) a significant negative short-term impact on

prices and curve shapes. But beyond Q3, and perhaps even the rest of this year, these issues

(be it sovereign debt risk or IEAs SPR release) bear little meaning for the long-termfundamentals of the market. The reality remains that the current market is still grappling

with a structural change that has effectively resulted in the gain of some five years of oil

demand in one year. Indeed, just two years ago, the IEA (used here as a barometer for

consensus expectations) provided two scenarios for demand developments a high-GDP

case when the next time a new annual record was expected was 2012, and a low-GDP

scenario when the 2007 level was not regained till 2014. Not only did we surpass 2007

peaks in 2010, we added a further 1.7 mb/d, equivalent to a years annual growth level.

Such a uniformly strong demand backdrop pitted against a non-OPEC supply picture, which

is still struggling at large beyond a few pockets of strength, requires a constructive

consumer-producer relationship at the very least to address the long-term issues of this

growing mismatch and its impact on prices. Latent threats in statements, public retaliation

through the media, encroaching on each others duties and roles in the market simply does

not bode well for the long-term prospects of stability in the oil market. The IEA has done

exactly what it did not want to do its actions could ultimately dry up OPEC volumes,

warranting even larger stock draws once the SPR release stops. Rather than letting the

market decide on long-term resource allocation (eg higher oil price eventually encouraging

the switch away to cheaper fuels), the IEAs intervention is likely to do little to address the

long-term issues of the market, instead keeping oil demand high and discouraging

substitution as a result.

ENERGY


16/27


1 July 2011 16

Risk on, Risk off

This article is an excerpt from the Monthly Carbon Standard, 20 June 2011.

After the price events (realignment, correction, catastrophe) of the past couple of weeks

have left EUA prices languishing around the 13 /t level, the question is: where to from

here? The answer is likely to be not too far from where we are now. The realignment in ourviews that started last month continues for the same reason: the acceleration of carbon

trading due to the bigger buying requirements of utilities in 2013 has failed to materialise in

2011. We believe there are a number of good incentives for utilities to delay more significant

hedging of the 2013 positions to next year, including greater EUA supply (from the NER

300) and the potential for power spreads to increase further after the last free allocation to

heat and power in February 2012. Utilities potentially holding higher open positions into

2013 and only closing these closer to the period of generation push price upside further into

the future. How far? Well, we expect the answer to be 2013 for a number of reasons. First, if

spark and dark spreads do improve further in 2012, then by 2013 the pressure from

shareholders on utilities to lock in better spreads will be greater and the utilities will be back

hedging out more power at Y+1 and Y+2. Second, the supply of EUAs will contract from

2012 as the caps will be lower, industrials will likely be short, and the cap could be reducedby a further 60 Mt if the EC sells 120 Mt of early volumes in 2012. If the set aside is

functioning, this reduction in cap could be even more pronounced. Third, the supply of

CERs in the market will contract as the qualitative restrictions on industrial gas CERs are

imposed. So, the price upside originally expected for 2011 has definitely been delayed, but

not indefinitely. The main risk to this is the unknown effect of the Greek debt crisis. Our

macroeconomists remain confident that it will not be a full-scale credit crisis and have

maintained their prospects for European GDP at 2.1% y/y. While this is one outcome, there

are many potential paths this event may take, and it certainly poses risks. The energy

efficiency directive that now is in the co-decision process has caused us to alter our phase 3

supply demand balance as the obligation on energy suppliers to reduce energy supplied by

1.5% will likely start to take effect from 2014. This reduces our long term phase 3 price

outlook because it makes the period 2013-20 likely to be net long allowances, yet it is likely

to have little effect on current prices. We have revised our EUA and CER price forecasts

down across the board.

Figure 7: Phase 2 (front year) (/t CO2) ups and downs

0

5

10

15

20

25

30

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

EUA front year

sCER front year

EUA-CER spread

Source: ECX, Barclays Capital

ENERGY


17/27


1 July 2011 17

Base metals demand data so far from Japan showsthe initial negative impact was both shorter andless severe than expected and the spectre of a firmrecovery in H2 is in place


The potential negative demand effects from the earthquake and tsunami in Japan on 11 March

has been a concern for the base metal markets (Commodity Daily Briefing 29th March 2011). This

morning saw the release of demand data for aluminium for May, which together with other data

spanning the April/May period for the metals makes it possible to provide some early

observations on the short-term domestic demand effects versus initial expectations. First, initial

expectations on the directional impact on demand performance were correct. Japanese lead

demand was the only metal in positive y/y growth territory during March-April (+7% y/y)

according to preliminary ILZG data, likely supported by the need for stationary batteries for back-

up power supplies as well as SLI batteries for generators. The second related point is that the

average size of demand decline across the base metals in Japan (excluding lead) was 6.7% y/yMarch-April, which is less severe than the 10% y/y reduction we originally discounted in our

forecasts. The third conclusion is that within the headline figures, there is a clear differentiation

between end-demand sectors in consumption trends. We can see this in the breakdown offered in

the Japanese copper and wire cable data, which in May showed shipments rising by 18% y/y to

the construction sector, versus a 21% y/y decline to the auto sector. This correlates well with data

from end-use sectors. The Japan Automobile Manufacturers Association stated that production of

cars, trucks and buses in Japan fell by 60% y/y in April, while conversely, Japanese government

data showed construction orders rising 31% y/y during them same month, boosted by the on-

going build-out of 70k temporary housing units in the most devastated prefectures. The final

point is that forward-looking statements on both a corporate and sovereign level suggest that H2

2011 should see a boost to demand growth across the base metals, though potential summer

power shortages are a risk. Crucially, the Japanese auto sector supply chain has made faster-than-anticipated progress in restoring operations as well as resolving parts shortages, supporting a

normalization in activity by Q3 from its current weakness, while reconstruction efforts from a fiscal

perspective are also likely to be significantly stepped up in H2.

Figure 8: Only lead demand did not fall in the immediate aftermath of the Japan earthquake

-12%

-8%

-4%

0%

4%

8%

Zinc Nickel Aluminium Copper Lead

y/y

Year-on-year change in Japan base metals demand indicators

(March to April 2011 for lead, nickel and zinc and March to May for copper and aluminium)

-12%

-8%

-4%

0%

4%

8%

Zinc Nickel Aluminium Copper Lead

y/y

Year-on-year change in Japan base metals demand indicators

(March to April 2011 for lead, nickel and zinc and March to May for copper and aluminium)

Source: ILZSG, INSG, JWCMA, JAA, Barclays Capital

METALS
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18/27


1 July 2011 18

While near-term strength characterises cotton andsugar prices, we continue to view front-monthprices with downside risk through H2


As Q2 draws to a close, price moves across the agricultural complex have been volatile and

choppy, declining from the years highs so far, with the current environment characterised

by macro-economic concerns, a firmer dollar, widespread risk reduction and more benign

weather conditions. At the start of Q2 (Commodity Daily Briefing, 12 April) we had

highlighted our positive view across the agricultural complex but had noted that we saw

marked downside risk from the years highs in sugar and cotton. While this did turn out to

be the case --- cotton prices are well below the years high of $2.27/lb and sugar prices

pulled back from their 2011 highs of 36.1 cents/lb to a low of 20.4 cents/lb by early May ---

of late both these markets have exhibited relative strength compared to the rest of the

complex. Will that endure? We continue to expect front-month prices for both to ease

through H2. For cotton, we had expected increased production across the worlds four

largest producers --- China, India, the US and Pakistan although noting that inventories were

unlikely to increase despite higher production, which would keep the market precariously

balanced. The big change here has been the US where, despite higher plantings, dry

weather in the largest producing state --- Texas ---is likely to be revised lower further.

However, the recent pick-up in Indias Monsoon rains, coupled with a surge in plantings,

bodes well for production prospects from the worlds second largest producer. Earlier this

month, India increased its 5.5mn bale cotton export quota for 2010-11 by another million

bales, while for the 2011-12 crop, the countrys agriculture ministry data showed farmers

having a strong preference for planting cotton. For sugar, prices have gained on logistical

bottlenecks at Thai ports and a slow start to the Brazilian crop. However, again here Indian

acreage has expanded y/y with farmers getting more attractive prices while the

government last week gave the go-ahead for another 500Kt of OGL sugar exports. With

India moving further into the export side of the equation and the global market moving

further into a surplus, we see significant gains in sugar prices through H2 as being capped.

Therefore, despite the recent move up, we continue to expect front-month prices for both

cotton and sugar to ease through H2 this year on higher supply prospects.

Figure 9: In contrast to the rest of the complex, sugar and cotton prices move higher

60

70

80

90

100

110

120

130

140

150

160

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11

Corn Wheat Soybeans CocoaCoffee Sugar Cotton

Prices are indexed to Jan 2011

Source: Ecowin, Barclays Capital

AGRICULTURE


19/27


1 July 2011 19

FORECASTS AND DATA RELEASES

Commodity price comparisons

Price Change Week Price Change Month Ago rice Change Year Ago

Commodity (%, Thurs/Thurs) 30-Jun-11 Ago Price (%, M/M) Price (%, Y/Y) PriceCoffee ICE $/lb 7.1% 2.65 2.48 0.3% 2.65 61.6% 1.64

Gasoline NYMEX $/gallon 6.9% 3.04 2.84 -2.9% 3.13 46.9% 2.07

Cocoa ICE $/tonne 6.2% 3,170 2,986 5.7% 2,999 9.5% 2,894

Nickel LME $/tonne 5.9% 23,427 22,128 -0.7% 23,596 18.7% 19,739

Heating Oil NYMEX $/gallon 5.5% 2.94 2.78 -3.9% 3.06 48.2% 1.98

Lead LME $/tonne 5.4% 2,688 2,551 6.5% 2,524 53.9% 1,747

Copper LME $/tonne 5.2% 9,430 8,960 2.3% 9,215 44.7% 6,515

Carbon CER ECX Euro/tonne 5.1% 11.0 10.45 -15.0% 12.9 -15.6% 13.0

Crude Oil NYMEX $/barrel 4.8% 95.46 91.08 -7.0% 102.68 26.3% 75.60

Gas Oil ICE $/tonne 4.8% 926.3 883.8 -3.5% 959.7 44.1% 642.6

Lumber CME $/1000 ft 4.7% 244.9 234.00 0.6% 243.5 25.6% 195.0

Zinc LME $/tonne 4.6% 2,365 2,260 4.4% 2,266 31.9% 1,793

Crude Oil ICE $/barrel 4.6% 112.40 107.43 -3.7% 116.73 49.9% 75.00

US Natural Gas NYMEX $/mmbtu 4.2% 4.37 4.20 -6.1% 4.66 -5.2% 4.61

Freight Capesize C4 OTC $/tonne 4.0% 10.3 9.90 4.6% 9.9 -20.8% 13.0

Tin LME $/tonne 3.4% 26,050 25,200 -6.8% 27,940 49.5% 17,425

Aluminium Alloy LME $/tonne 2.9% 2,394 2,325 0.2% 2,389 26.2% 1,896

Sugar ICE $/lb 2.8% 0.28 0.28 22.3% 0.23 57.3% 0.18

Palladium NYMEX $/oz 2.3% 760.1 742.8 -2.8% 782.0 71.2% 443.9

Coal API2 ICE $/tonne 2.0% 123.2 120.75 0.1% 123.1 29.3% 95.3

Platinum NYMEX $/oz 1.8% 1,723 1,693 -5.9% 1,832 12.4% 1,533

Rough Rice CBOT $/bushel 1.4% 13.9 13.70 -7.8% 15.1 47.2% 9.4

Carbon EUA ECX Euro/tonne 1.2% 13.5 13.37 -20.4% 17.0 -11.3% 15.3

Barley WCE C$/tonne 1.0% 207.0 205.00 1.0% 205.0 24.7% 166.0

Coal API4 ICE $/tonne 0.9% 119.8 118.75 -0.3% 120.2 30.6% 91.8Aluminium LME $/tonne 0.9% 2,531 2,509 -5.3% 2,673 28.2% 1,974

Live Cattle CME $/lb 0.4% 1.13 1.12 26.6% 0.89 24% 0.91

Feeder Cattle CME $/lb 0.2% 1.38 1.38 11.0% 1.24 22.1% 1.13

Carbon ICE $/tonne -0.5% 23.71 23.83 11.0% 21.36 32.0% 17.97

Silver OTC $/oz -0.5% 34.82 35.01 -9.2% 38.33 86.4% 18.68

UK Power APX Euro/MWh -0.8% 49.7 50.10 -2.6% 51.1 14.5% 43.4

Soybeans CBOT $/bushel -0.9% 13.06 13.18 -5.1% 13.76 37.7% 9.49

UK Natural Gas ICE /therm -0.9% 0.6 0.64 -4.9% 0.7 13.6% 0.6

Gold OTC $/oz -1.1% 1,502.4 1,519.7 -2.2% 1,535.9 20.7% 1,245.2

Rubber Tocom Y/kg -1.5% 372.4 377.90 -11.6% 421.4 8.6% 343.0

Azuki Beans TGE JPY/30kg -1.7% 12,040 12,250 -2.0% 12,290 8.0% 11,150

Lean Hogs CME $/lb -2.7% 0.94 0.97 4.7% 0.90 19.2% 0.79

Cotton ICE $/lb -2.9% 1.60 1.65 0.7% 1.59 93.5% 0.83

Oats CBOT $/bushel -4.2% 3.3 3.49 -13.5% 3.9 31.0% 2.6

German Power EEX Euro/MWh -6.8% 50.0 53.65 -8.9% 54.9 1.5% 49.3

Corn CBOT $/bushel -7.6% 6.29 6.81 -15.9% 7.48 77.6% 3.54

Wheat KBOT $/bushel -9.4% 6.89 7.60 -24.1% 9.08 41.7% 4.86

Wheat CBOT $/bushel -9.9% 5.85 6.49 -25.2% 7.82 25.8% 4.65Source: Barclays Capital


20/27


1 July 2011 20

Commodity price forecastsBarclays Capital quarterly average commodity price forecasts

Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11F Q3 11F Q4 11F

Base Metals (LME cash)

Aluminium US$/t 2,165 2,092 2,088 2,343 2,503 2,626 2,650 2,700Copper US$/t 7,243 7,013 7,243 8,634 9,646 9,500 10,500 12,000

Lead US$/t 2,219 1,944 2,031 2,390 2,605 2,628 2,750 3,000Nickel US$/t 20,078 22,382 21,178 23,598 26,899 28,496 25,000 27,000Tin US$/t 17,225 17,844 20,559 26,001 29,950 31,989 33,000 34,300Zinc US$/t 2,288 2,018 2,013 2,315 2,393 2,350 2,400 2,500Base Metal Index^ 199 199 203 238 266 272 280 306Precious metal s

Gold US$/oz 1110 1196 1227 1370 1387 1490 1560 1520Silver US$/oz 16.9 18.3 18.9 26.5 31.9 36.7 40.2 28.3Platinum US$/oz 1562 1630 1550 1697 1789 1790 1840 1880Palladium US$/oz 440 492 493 678 788 810 825 870Energy

WTI US$/bbl 78.9 78.1 76.2 85 95 113 106 112Brent US$/bbl 77.4 79.4 77.0 87 106 120 110 112US Natural Gas US$/mmbtu 5.0 4.4 4.2 4.0 4.2 4.4 4.3 4.5UK Natural Gas p/therm 35.6 37.9 43.0 52.5 57 53 50 70

AgricultureCocoa US$/t 3070 2987 2863 2856 3303 2920 2800 2900Coffee Usc/lb 134 140 174 205 256 265 225 195Sugar Usc/lb 24.4 16.0 20.0 29.0 30.5 25.5 23.5 21.5Cotton Usc/lb 76 81 88 130 180 200 160 138Wheat Usc/bushel 496 467 653 707 786 785 770 715Corn Usc/bushel 370 355 422 562 670 760 730 660Soybeans Usc/bushel 955 957 1035 1245 1379 1400 1430 1455

Barclays Capital annual average commodity price forecasts

2006 2007 2008 2009 2010 2011F 2012F Long Term

Base MetalsAluminium US$/t 2,568 2,640 2,573 1,664 2,172 2,620 2,750 3,200Copper US$/t 6,731 7,129 6,961 5,148 7,533 10,412 12,000 6,000Lead US$/t 1,286 2,592 2,093 1,721 2,146 2,746 2,800 1,700

Nickel US$/t 24,271 37,276 21,115 14,604 21,809 26,849 30,000 17,500Tin US$/t 8,761 14,542 18,500 13,579 20,407 32,310 37,000 18,000Zinc US$/t 3,274 3,251 1,876 1,654 2,158 2,411 2,800 2,000Base Metal Index^ 197.6 237.2 204.3 146.2 210 281 317Precious Me talsGold US$/oz 604 697 872 972 1,226 1,489 1,300 850Silver US$/oz 11.6 13.4 15.0 14.6 20.2 34.3 19.8 11.4Platinum US$/oz 1,139 1,304 1,569 1,205 1,610 1,825 1,835 1,500Palladium US$/oz 319 354 348 262 526 823 850 400EnergyWTI US$/bbl 66.2 72.3 99.7 62 80 106 106 137.0Brent US$/bbl 66.1 72.7 98.4 63 80 112 105 135.0US Natural Gas US$/mmbtu 6.98 7.12 8.90 4.16 4.39 4.35 4.55 5.25UK Natural Gas p/therm 41.7 30.0 58.2 31.1 42.2 57.5 67.5 -

Coal API2 US$/t 63 87 144 71 93 123 - -

Coal API4 US$/t 50 62 120 66 92 122 - -

Coal Newcastle US$/t 49 66 128 72 99 131 - -

Carbon (EUA) /t 18 20 23 13 15 19 28 40Carbon (CER) /t na 16 17 12 12 14 20 25AgricultureCocoa US$/t 1503 1882 2555 2794 2944 2981 3050 naCoffee Usc/lb 108 117 132 125 163 235 190 naSugar Usc/lb 14.7 9.9 12.1 17.7 22.3 25.3 23.0 naCotton Usc/lb 52 57 64 57 94 170 105 naWheat Usc/bushel 402 636 798 530 581 764 650 naCorn Usc/bushel 260 373 527 374 427 705 570 naSoybeans Usc/bushel 592 861 1234 1031 1048 1416 1290 na

Note: ^Economist Intelligence Unit weight. Base metals prices are LME cash. Precious metals spot prices. WTI: front month NYMEX close. Brent: front-month IPE close. US naturalgas: NYMEX front-month close. UK natural gas: NBP day ahead close. Cocoa, Coffee, Sugar, Cotton: front month ICE close. Wheat, Corn, Soybeans: front month CBOT close.Source: Barclays Capital


21/27


1 July 2011 21

Trade recommendationsFigure 10: Key recommendations

Unit $ %Open trades

Long Comex gold Dec-11 26/11/2010 1376 1502 $/oz 264 20.4%

Natural gas spread widening 15/12/2010 0.63 0.41 $/mmbtu -0.22 n.a.Short forward Henry Hub Oct-11 4.49 4.41 $/mmbtu 0.07 n.a.Long forward Henry Hub Jan-12 5.12 4.82 $/mmbtu -0.30 n.a.

Long KBOT wheat Dec-11 20/04/2011 964 789 c/Bsh -175.0 -20.6%

Long Brent crude oil Dec-15 27/01/2011 98.2 102.0 $/bbl 3.9 3.9%

Long Carbon EUA Dec-11 24/02/2011 15.4 13.5 /t -1.9 -12.4%

Long LME aluminium Dec-15 29/03/2011 2884 2735 $/t -148.8 -5.2%

Long CBOT corn Dec-11 20/04/2011 656 653 c/Bsh -2.5 -0.4%

Long LME copper Dec-11 26/05/2011 9035 9076 $/t 41.0 0.5%

Rationale: Stocks are declining and physical indicators point to a pick up in buying, especially in China. The picture for raw materials is further tightening, with a

narrowing in scrap discounts and worse than expected mine output in Q1.

Rationale: Whilst we are wary of tighter US liquidity eventually bringing and end to the gold price rally we continue to see further price upside in the short-term.

Gain/Loss

Contract Entry Date Entry price

Current price

(June-28-2011)

Rationale: We expect further corn price gains supported by weather concerns which have seen lagging US corn plantings compared to five year averages and concerns

on acreage and yields; elevated US ethanol production, strong US export sales and extremely low US inventory levels.

Rationale: Recent warmer weather has reduced end-of-season storage estimates. We are closing this position as per closing prices on the day of publication.

Rarionale: Prices have weakened against our expectations due to the absence of the usual seasonal upswing in producer hedging volumes. We are closing this position

as per closing prices on the day of publication.

Rationale: Better weather in the US and Europe, plus Russia's return to the export market are putting downward pressure on prices. We are closing this position as per

closing prices on the day of publication.

Rationale: The market is in the process of pricing in a much tighter medium-term outlook for crude and with our 2015 forecast for Brent pegged at $135/bbl we expect

this trend to continue.

Rationale: The reassessment of long-term energy market dynamics as a result of Japan's nuclear crisis supports a period of concerted strength at the back end of the

aluminium curve. Moreover, China's rising capital and enegy costs suggest a production slowdown ahead.

Note: The long position on COMEX gold was originally opened on 11/05/2010 and includes losses/gains from the previous trade (Dec-2010)The long position in KBOT wheat was originally opened on 27/01/2011 and includes losses/gains from the previous trade (May-2011)Source: Reuters, Barclays Capital

Figure 11: Closed trades

Exit Date Unit $ %Directional tradesLong UK natural gas Q3-11 29/03/2011 26/05/2011 63.9 58.5 p/therm -5.4 -8.5%

Long LME nickel Jun-11 24/02/2011 26/05/2011 27501 22821 $/t -4680 -17.0%Long European delivered coal (API2) ** Apr-11 27/01/2011 29/03/2011 114.5 125.7 $/t 16 14.4%Short Comex silver Dec-11 27/01/2011 24/02/2011 27.1 33.1 $/oz -6 -22.4%Long LME copper Jun-11 22/09/2010 24/02/2011 7833.0 9505 $/t 1672 21.3%Long CBOT corn ** Mar-11 26/11/2010 24/02/2011 553.0 685.8 c/Bsh 245 55.1%Short UK natural gas Summer 2011 19/10/2010 27/01/2011 47.2 52.5 p/therm -5 -11.3%Long NYMEX crude oil ** Dec-11 19/10/2010 27/01/2011 84.8 99.3 c/bbl 12.1 14.2%Short US natural gas Dec-11 13/08/2010 26/11/2010 5.54 5.12 $/mmbtu 0.43 7.7%Long ICE cotton Dec-10 14/04/2010 19/10/2010 75.7 110.3 c/lb 35 45.7%Long LME lead Dec-10 21/06/2010 13/08/2010 1851 2065 $/t 214 11.6%Long LME copper ** Sep-10 10/12/2009 13/08/2010 7062 7143 $/t 345 5.0%Long NYMEX palladium Jun-10 22/02/2010 11/05/2010 444 532 $/oz 88 19.8%Long ICE sugar Jul-10 18/03/2010 14/04/2010 22.6 17.7 c/lb -5 -21.6%Long LME Nickel Jun-10 10/12/2009 18/03/2010 16331 22760 $/t 6429 39.4%Long NYMEX crude oil May-10 10/12/2009 18/02/2010 75.4 79.1 $/b 3.7 4.9%

Long ICE sugar Mar-10 10/12/2009 18/02/2010 23.3 26.5 c/lb 0.03 13.8%Spread tradesCrude oil spread tightening ** 20/04/2011 26/05/2011 -0.36 -0.37 $/b 0.34 -

Long forward Brent crude Jul-11 123.5 115.1 $/b -8.45 -Short forward Brent crude Aug-11 123.1 114.7 $/b 8.46 -Gasoil spread tightening 22/09/2010 19/10/2010 -16.8 -15.3 $/t 1.50 -Long nearby ICE gasoil Dec-10 669.75 705.50 $/t 5.75 -Short further forward ICE gasoil Jun-11 686.50 720.75 $/t -34.25 -

US Henry Hub natgas 21/06/2010 13/08/2010 0.66 0.65 $/mmbtu 0.01 -Short position Oct-10 5.01 4.35 $/mmbtu -0.66 -Long position Jan-11 5.67 5.00 $/mmbtu 0.67 -US Henry Hub natgas curve flattener - 10/12/2009 18/02/2010 1.47 1.20 $/mmbtu 0.27 -Long position Mar-10 5.38 5.17 $/mmbtu -0.21 -Short position Jan-11 6.9 6.375 $/mmbtu -0.48 -

Gain/Loss

Exit priceClosed Trades Entry DateContract Entry price

Note: Entry and exit pr ices reference closing prices on the day of publication.** These trades include gains/losses from previous t rades. Source: Reuters, Barclays Capital


22/27


1 July 2011 22

Global economic forecasts

1Q11 2Q11 3Q11 4Q11 1Q12 2010 2011 2012 1Q11 2Q11 3Q11 4Q11 2010 2011 2012

Global 4.2 3.3 4.0 4.3 4.3 4.9 4.0 4.3 3.4 4.0 4.0 3.7 2.6 3.8 3.0

Developed 1.6 1.3 2.7 3.0 2.8 2.5 1.9 2.8 2.1 2.8 3.0 2.8 1.4 2.7 1.9

Emerging 7.3 5.7 5.7 5.9 6.2 7.9 6.6 6.2 6.3 6.4 6.4 5.7 5.3 6.2 5.3

BRIC 7.6 6.8 7.1 6.8 7.5 8.9 7.6 7.4 6.6 6.9 6.7 5.4 5.0 6.4 5.1

America 2.9 2.8 3.1 3.6 3.7 3.7 3.0 3.6 3.4 4.3 4.5 4.4 2.8 4.2 3.5

United States 1.9 2.0 3.0 3.5 3.5 2.9 2.5 3.4 2.1 3.4 3.6 3.5 1.6 3.2 2.5

Canada 3.9 2.5 2.5 2.5 2.5 3.2 2.9 2.5 2.6 3.3 3.2 3.1 1.8 3.1 2.2

Latin America 5.4 4.8 3.3 4.3 4.4 6.2 4.6 4.1 8.3 7.9 8.2 8.2 7.5 8.1 7.9

Argentina 9.1 5.8 2.0 5.5 4.3 9.2 7.0 4.3 25.3 23.3 22.6 22.9 21.5 23.5 26.1

Brazil 5.4 2.9 3.4 4.5 4.5 7.5 3.8 4.2 6.1 6.6 7.1 6.6 5.0 6.6 5.7

Chile 5.4 5.0 5.0 5.0 4.5 5.2 6.4 4.5 2.9 3.2 3.5 4.0 1.4 3.4 3.0

Colombia 9.8 5.5 3.0 4.5 5.0 4.3 5.7 4.6 3.2 3.0 3.2 3.2 2.3 3.2 3.3

Mexico 2.1 6.5 3.0 3.0 4.0 5.4 3.9 3.7 3.5 3.3 3.7 3.6 4.2 3.5 4.0

Peru 6.6 5.7 4.6 5.4 4.0 8.8 6.4 5.2 2.3 2.9 3.0 3.6 1.5 2.9 3.1

Venezuela 6.9 4.4 5.0 4.6 5.6 -1.4 4.3 3.5 28.2 22.8 23.0 24.3 28.2 24.5 21.9

Asia/Pacific 6.3 4.7 6.5 6.8 6.7 8.1 6.0 6.5 3.4 3.8 3.6 2.8 2.3 3.4 2.7

Japan -3.5 -2.3 3.7 5.0 4.4 4.0 -0.5 3.2 -0.2 0.5 0.5 0.0 -1.0 0.2 0.1

Australia -4.7 4.7 5.1 2.3 1.1 2.7 1.4 3.0 3.3 3.8 4.1 3.8 2.8 3.8 2.7

Emerging Asia 9.3 6.5 7.2 7.5 7.6 9.3 7.8 7.4 5.4 5.7 5.3 4.2 4.1 5.1 4.1

China 9.4 7.8 8.0 9.5 8.7 10.4 9.3 8.7 5.1 5.6 5.2 3.4 3.3 4.8 4.0

Hong Kong 11.9 -1.2 4.1 4.7 5.1 7.0 5.5 4.5 4.0 5.2 6.1 5.4 2.4 5.2 4.7

India 8.4 7.6 9.1 5.0 8.8 9.0 7.7 7.9 9.5 9.3 9.2 8.3 9.6 9.1 6.7

Indonesia 4.0 6.0 5.8 9.6 4.4 6.1 6.5 6.4 6.8 5.9 5.0 6.0 5.1 5.9 6.0

South Korea 5.4 4.5 6.2 6.3 3.6 6.2 4.4 4.1 4.5 3.9 3.3 2.8 3.0 3.6 2.1

Malaysia 7.0 4.9 2.5 4.1 5.8 7.3 5.0 5.5 2.8 3.5 3.7 3.9 1.7 3.5 2.2

Philippines 15.0 4.8 4.0 -0.1 10.3 7.6 5.0 5.3 4.0 4.6 5.1 5.0 3.8 4.7 3.8

Singapore 22.5 0.3 3.0 4.9 4.3 14.5 6.0 4.5 5.2 4.5 3.4 2.8 2.8 4.0 1.8

Taiwan 19.0 0.4 1.9 4.5 4.8 10.9 5.9 4.0 1.3 1.6 1.7 1.8 1.0 1.6 1.9

Thailand 8.4 0.8 2.0 5.1 5.0 7.8 3.6 4.7 3.0 3.6 4.1 4.5 3.3 3.8 2.7

Europe and Africa 3.0 2.1 2.1 1.9 2.2 2.4 2.6 2.5 3.3 3.7 3.8 3.8 2.6 3.6 2.6

Euro area 3.4 1.2 1.7 1.9 1.6 1.7 2.0 1.8 2.5 2.8 2.8 2.9 1.6 2.7 1.8Belgium 4.3 2.1 1.8 2.3 1.8 2.1 2.7 2.0 3.5 3.3 3.7 3.4 2.3 3.5 2.6

France 3.8 0.8 1.8 1.9 2.0 1.4 2.0 2.1 2.0 2.2 2.5 2.7 1.7 2.3 1.7

Germany 6.1 1.6 2.1 2.2 1.6 3.5 3.4 2.0 2.2 2.5 2.6 2.7 1.2 2.5 1.7

Greece 0.6 -0.4 -2.7 -0.5 0.4 -4.4 -3.5 0.1 4.5 3.2 2.8 3.5 4.7 3.5 2.5

Ireland 5.1 -1.4 2.4 1.1 1.8 -0.4 0.4 1.8 0.8 1.4 1.5 1.8 -1.6 1.4 1.4

Italy 0.5 1.3 2.0 2.3 0.7 1.2 1.1 1.3 2.3 2.9 2.7 2.9 1.6 2.7 1.7

Netherlands 3.6 2.6 2.0 1.9 1.8 1.6 2.4 2.0 2.0 2.4 2.8 2.9 0.9 2.5 2.6

Portugal -2.4 -2.6 -2.3 -1.7 -1.1 1.3 -1.7 -1.3 3.7 3.7 3.3 3.6 1.4 3.6 2.4

Spain 1.2 0.3 1.0 1.2 1.9 -0.1 0.8 1.7 3.2 3.3 3.3 3.1 2.0 3.2 2.0

United Kingdom 1.9 2.2 2.1 2.3 2.4 1.3 1.6 2.2 4.1 4.5 4.8 4.9 3.3 4.6 2.8

Switzerland 1.0 1.6 1.6 1.2 1.6 2.6 2.0 1.4 0.2 0.2 0.7 0.8 0.7 0.5 1.1

EM Europe & Africa 2.8 3.9 3.0 1.9 3.4 4.6 4.4 4.2 6.3 6.9 7.3 6.8 5.8 6.8 5.9

Czech Repub. 3.6 2.6 2.4 2.4 3.8 2.2 2.8 3.3 2.0 1.9 2.2 2.3 1.4 2.1 2.3

Hungary 6.2 1.7 1.4 1.2 2.9 1.1 2.6 3.2 4.1 4.3 4.0 3.9 4.9 4.1 3.6Poland 4.1 3.6 3.7 3.7 3.7 3.8 3.9 3.7 3.8 4.6 4.8 4.6 2.7 4.6 3.5

Russia 0.9 5.0 3.3 0.9 3.3 4.0 4.3 4.6 9.6 9.7 9.1 8.2 6.9 9.1 7.1

Turkey 3.7 2.3 1.7 1.2 2.9 9.0 5.8 4.1 4.3 6.5 9.0 8.5 8.6 7.1 7.1

Israel 4.7 4.0 4.0 4.0 4.8 4.9 5.0 4.2 3.9 3.8 3.8 3.7 2.6 3.9 3.2

South Africa 4.8 3.5 3.7 3.9 4.1 2.8 3.9 4.1 3.8 4.5 5.7 6.0 4.3 5.0 6.0

Consumer prices

% annual chg

Real GDP

% over previous period, saar

Consumer prices

% over a year ago

Real GDP

% annual chg

Note: Weights used for real GDP are based on IMF PPP-based GDP (2008-2010 average). Weights used for consumer prices are based on IMF nominal GDP (2008-2010 average).Source: Barclays Capital


23/27


1 July 2011 23

FX forecasts

FX forecasts Forecast vs outright forward

Spot 1m 3m 6m 1y 1m 3m 6m 1y

G7 countries

EUR 1.45 1.48 1.50 1.48 1.44 2.1% 3.6% 2.5% 0.4%JPY 80.7 80 82 83 85 -0.8% 1.7% 3.1% 5.9%

GBP 1.61 1.66 1.72 1.74 1.76 3.4% 7.2% 8.6% 10.1%

CHF 0.84 0.91 0.90 0.95 0.98 8.2% 7.1% 13.1% 16.9%

CAD 0.96 0.93 0.93 0.93 0.97 -3.6% -3.7% -3.9% -0.3%

AUD 1.07 1.07 1.04 1.00 0.95 0.1% -1.9% -4.6% -7.3%

NZD 0.83 0.78 0.76 0.74 0.72 -5.6% -7.7% -9.5% -10.8%

Emerging Asia

CNY 6.46 6.42 6.36 6.28 6.11 -0.7% -1.4% -2.3% -4.3%

HKD 7.78 7.77 7.77 7.77 7.77 -0.1% -0.1% 0.0% 0.1%

INR 44.70 44.75 45.25 44.50 44.00 -0.2% 0.0% -3.0% -6.4%

IDR 8579 8500 8600 8700 8500 -1.1% -0.6% -0.5% -5.1%KRW 1068 1075 1050 1025 1025 0.4% -2.3% -5.1% -5.7%

LKR 109.5 109.5 109.0 108.5 107.8 -0.2% -1.0% -2.1% -2.8%

MYR 3.02 3.00 2.94 2.90 2.84 -0.8% -3.1% -4.7% -7.3%

PHP 43.39 43.50 42.80 42.00 41.50 0.2% -1.7% -3.7% -5.2%

SGD 1.23 1.220 1.210 1.190 1.190 -0.7% -1.5% -3.1% -3.0%

THB 30.71 30.35 30.00 30.00 29.50 -1.6% -3.1% -3.7% -6.0%

TWD 28.72 28.85 28.20 27.75 27.00 0.7% -1.1% -2.1% -3.4%

VND 20585 20600 20500 20500 20000 -0.2% -3.1% -6.2% -13.2%

Latin America

ARS 4.11 4.1 4.15 4.15 4.65 -0.7% -1.1% -3.9% 0.6%

BRL 1.56 1.54 1.5 1.55 1.55 -3.9% -7.7% -6.5% -10.3%CLP 468 460 450 450 450 -3.5% -6.3% -7.2% -9.1%

MXN 11.72 11.65 11.5 11.6 11.8 -2.1% -4.0% -4.0% -4.2%

COP 1,771 1,763 1,750 1,750 1,750 -1.6% -2.5% -2.8% -3.7%

PEN 2.76 2.75 2.75 2.76 2.78 -0.5% -0.8% -0.8% -0.9%

EEMEA

EUR/CZK 24.32 23.95 23.50 23.75 23.60 -1.4% -3.1% -1.9% -2.2%

EUR/HUF 266 265 265 265 265 -0.5% -1.0% -1.7% -2.7%

EUR/PLN 3.98 3.90 3.85 3.85 3.80 -2.2% -3.8% -4.4% -6.5%

EUR/RON 4.23 4.25 4.20 4.15 4.10 0.3% -1.2% -3.1% -5.8%

USD/RUB 27.85 28.0 27.9 28.5 28.5 0.2% -0.8% 0.3% -1.7%

BSK/RUB 33.53 34.0 34.2 34.7 34.1 1.2% 0.8% 1.4% -1.5%USD/TRY 1.62 1.60 1.60 1.60 1.60 -2.0% -3.1% -4.8% -8.2%

USD/ZAR 6.76 6.74 7.03 7.13 7.23 -0.7% 2.7% 2.7% 1.2%

USD/ILS 3.40 3.36 3.36 3.35 3.35 -1.2% -1.5% -2.3% -3.1%

USD/EGP 5.96 5.96 5.98 6.00 6.15 -0.6% -1.4% -2.9% -5.5%

USD/UAH 7.98 7.97 7.98 7.97 8.09 -0.6% -2.1% -4.2% -6.7%

Source: Barclays Capital


24/27


1 July 2011 24

This weeks key data releases

US durable goods orders rose 1.9% in May, above the consensus expectation, with April also being revised higher, with astrong rebound in core durable goods giving encouraging signs. Q1 GDP was revised up to 1.9% from 1.8% in the third

estimate, as expected; our economists continue to expect a similar pace in Q2. US consumer confidence in June edged

slightly lower (to 58.5 from 60.8 in May) while home prices trended lower, but with less intensity (falling 0.09% m/m in

April). US pending home sales rose 8.2% in May, likely reflecting a reversal of adverse weather conditions. The Chicago PMIsurprised to the upside in June, increasing to 61.1 from 56.6.

The German IFO business climate index rose unexpectedly to 114.5 from 114.2 in May, with an improvement in the currentassessments. With the approval of the Greek Medium-Term Fiscal Strategy (MTFS) secured, the focus is turning back

towards the next steps in the process, and in particular the private sector involvement. This will be discussed on Sunday at

the Eurogroup meeting: some details and commitments are likely to be made public, and the EU will likely commit to a

second bailout package for Greece (probably with details on total size and length), which should be credible enough to allow

the disbursement of the next tranche of the first package. However, our strategist suspect it will be too early at that time to

have final terms on the form and the size of the PSI, and therefore the exact split of contributions between the private sector,

the EU and the IMF is likely to be left somewhat open.

Japanese IP increased 5.7% m/m in May, in line with expectations. The Chinese NBS manufacturing PMI posted a greater-than-expected decline in June, falling to 28-month-low at 50.9. Overall, the June leading indicators show continued

moderation in economic activity, but the near-term inflation risks remain significant, in our econimists view. They maintain a

call for one more rate hike in 2011, likely in early to mid-July, around the release of June CPI and Q2 GDP data (15 July).

Monday Tuesday Wednesday Thursday Friday

27 Jun 28 Jun 29 Jun 30 Jun 01 Jul

Detailed (May) China

commodity data out this

week (National Bureau of

Statistics)

EIA Monthly Energy

Review (published this

week)

US Consumer Confidence

EIA Monthly Energy

Review

Dept of Energy Weekly Oil

Data

US Pending Home Sales

EIA Weekly Natural Gas

Storage

USDA NASS Acreage

Report

USDA NASS Quarterly

Stocks Report

Euro area Flash HICP

US Chicago PMI

CFTC Data

SHFE Aluminium, Copper

and Zinc Inventory Data

US Motor Vehicle Sales

Euro area Manuf. PMI

Euro area Unemployment

US Construction Spending

US ISM Mfg Index

04 Jul 05 Jul 06 Jul 07 Jul 08 JulUS Public Holiday

euro area PPI

euro area retail sales US ISM Services Index

euro area GDP

German manuf. orders


Storage


Data

German IP

ECB Rate Announcement

CFTC Data



US employment report

11 Jul 12 Jul 13 Jul 14 Jul 15 Jul

Preliminary (June) China

commodity data out this

week (National Bureau of

Statistics)

OECD Main Economic

Indicators

USDA WASDE Report

OPEC Monthly Oil Report

EIA Short-Term Energy

Outlook

US Trade


Data

IEA Oil Market Report

USDA Oil Crops Outlook

USDA Cotton and Wool

Outlookeuro area IP


Storage

USDA Feed Outlook

USDA Wheat Outlook

OECD Leading Economic

Indicatoreuro area HICP

US retail sales

CFTC Data



euro area trade

US CPI

US IPUS consumer sentiment

18 Jul 19 Jul 20 Jul 21 Jul 22 Jul

US housing market index US Housing Starts

German ZEW Survey

US housing starts


Data

US Existing Home Sales


Storage

US FHFA housing price

index

US leading indicators

US Philly Fed Index

CFTC Data




25/27


1 July 2011 25

COMMODITIES RESEARCH ANALYSTS

Barclays Capital5 The North ColonnadeLondon E14 4BB

Gayle BerryCommodities Research+44 (0)20 3134 [email protected]

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