q4 2013 quarterly commodity outlook

Quarterly Commodity Outlook

Group Economics [email protected] 31 October 2013

Energy: As supply is rising only modestly, the risk premium is brought down, and the Fed tapering is postponed into 2014, oil markets are expected to trade within a neutral range during the coming months. Market uncertainty will keep volatility elevated though. In the course of 2014, pressure on oi l prices should be building as the oversupply will continue to weigh and the effects of the Fed tapering will be felt. US natural gas could find support due t o the rise of seasonal demand. But also thereafter, the economic recovery in the US will keep the comfortable rising trend intact. Nevertheless, the ample supply capacity will prevent an acceleration.

Precious metals: We continue to expect weakness in precious metals for the remainder of 2013, but the moves will likely be m ore modest. The main reasons for this is that we have delayed the Fed tapering to March and w e see a less substantial recovery of the USD over this period. In addition a downward adjustment in expectations about the US economy could be felt in demand expectations. We expect weakness in the precious metals to continue into the first half of 2014 and t he recovery in silver, platinum and palladium prices to start in the second half of 2014. We remain bearish on gold for the entire forecast period.

Base metals: Over the last couple of months, geo-political tensions (Syria) and macro-economic indicators (such as the stronger US dollar, ‘mini-stimulus’ in China, worries over prospects for demand and the first signs of economic recovery in China) have given base metal price its direction. Aluminium smelters worldwide have to battle high energy costs (especially the small producers), which already made some victims. Currently the copper market is in deficit and for the rest of this year fundamentals in the copper market will remain positive. Nickel and zinc markets will be oversupplied, while demand remain sound. Demand growth will however be relatively low.

Ferrous metals: Conditions in the steel sector have turned for the better. Demand in most regions is relative better and pr ospects are positive for now. However, the steel markets in China en Europe are well-oversupplied and are in desperate need of rebalancing and restructuring. Up till now, we have witnessed some producer discipline in Europe, with production cuts and plant closures, but steel output in China continued to increase strongly. China will continue to source high volumes of iron ore going forward and will remain the biggest iron ore consumer. In coking coal we expect that future supply growth from pipeline projects will outpace the demand growth.

Agriculture: Weather related news is the main driver for agriculture supply. Crop expectations are crucial for price directions in the short term and therefore have a much bigger impact than demand expectations. Wheat prices picked up recently, while corn and soybean prices continued on a downward trend. The stronger decline in corn prices could result in some substitution from corn to soybean production, but given the outlook of an bumper harvest in the US, still an increase in corn production is expected next year. With production in all three commodities forecasted to exceed consumption we expect prices to weaken further for both wheat, corn and soybeans. With oversupply being reported for sugar and coffee, the upside seems to very limited as well.

- Short term: our three month outlook versus spot rate on October 29th. - Long term: 2015 average forecast price versus 2013 forecast price.

decrease by 11% or more

decrease betw een 5% and 10%

price movement betw een -4% and + 4%

increase betw een 5% and 10%

increase by 11% or more

WTI

Brent

Natural gas

Gold

Silver

Platinum

Palladium

Aluminium

Copper

Nickel

Zinc

Steel (HRC)

Iron ore

Coking coal

Wheat

Corn

Soybeans

Sugar

Coffee

Cocoa

3-months viewlong term view

(until 2015)

ABN AMRO Price Outlook Q4-2013

2 | Quarterly Commodity Outlook 31 October 2013 ABN AMRO Group Economics

Spot rate 29th Oct

Average price Q3-2013

3-months (Q4 exit) 2013 2014 2015

Energy: - Brent (USD/barrel) 108 110 105 105 95 90 - WTI (USD/barrel) 98 106 100 100 90 85 - Natural gas (USD/mmBtu) 3.56 3.55 4.00 3.75 4.25 5.00 Precious metals: - Gold (USD/oz) 1,346 1,328 1,300 1,425 1,150 900 - Silver (USD/oz) 22.31 21.35 20 24 18 20 - Platinum (USD/oz) 1,466 1,451 1,350 1,480 1,325 1,550 - Palladium (USD/oz) 744 723 675 720 650 725 Base metals: - Aluminium (USD/t) 1,838 1,783 1,800 1,900 2,150 2,200

Aluminium (USD/lb) 0.83 0.81 0.82 0.86 0.98 0.99

- Copper (USD/t) 7,202 7,082 7,250 7,400 7,500 7,700 Copper (USD/lb) 3.27 3.21 3.29 3.36 3.40 3.49

- Nickel (USD/t) 14,542 13,955 14,000 15,250 16,500 17,000 Nickel (USD/lb) 6.60 6.33 6.35 6.92 7.48 7.71

- Zinc (USD/t) 1,933 1,861 1,900 1,950 2,200 2,250 Zinc (USD/lb) 0.88 0.84 0.86 0.88 0.99 1.02

Ferrous metals: - Steel (global, HRC; USD/t) 569 573 567 579 560 540 - Iron ore (fines, USD/t) 134 133 125 132 119 115 - Hard coking coal (USD/t) (2) 150 139 140 146 135 130 Agricultural: - Wheat (USDc/bu) 693 610 700 700 650 - - Corn (USDc/bu) 444 584 450 550 430 - - Soybean (USDc/bu) 1,260 1,441 1,250 1,350 1,250 - - Sugar (USDc/lb) 18.73 17.07 19.00 18.00 19.00 - - Coffee (USDc/lb) 105 116 115 130 125 - - Cocoa (USD/t) 2,715 2,465 2,750 2,450 2,900 -

(1) The 3-months forecasts is a Q4 2013 exit price. Forecasts for 2013, 2014 and 2015 are average year prices.

(2) Prime coking coal Australia,CIF

FORECASTS Q4-2013 (1)


CONTENTS Macro economic developments • Macro ------------------------------------------------------------------------------------------------------------------------------------ 4 • Commodity Top Down -------------------------------------------------------------------------------------------------------------- 5

Energy • Brent ------------------------------------------------------------------------------------------------------------------------------------- 6 • WTI --------------------------------------------------------------------------------------------------------------------------------------- 7 • Natural Gas ---------------------------------------------------------------------------------------------------------------------------- 8

Precious metals • Gold -------------------------------------------------------------------------------------------------------------------------------------- 9 • Silver ------------------------------------------------------------------------------------------------------------------------------------- 10 • Platinum --------------------------------------------------------------------------------------------------------------------------------- 11 • Palladium -------------------------------------------------------------------------------------------------------------------------------- 12

Base metals • Aluminium ----------------------------------------------------------------------------------------------------------------------------- 13 • Copper ---------------------------------------------------------------------------------------------------------------------------------- 14 • Nickel ----------------------------------------------------------------------------------------------------------------------------------- 15 • Zinc -------------------------------------------------------------------------------------------------------------------------------------- 16

Ferrous metals • Steel (HRC) --------------------------------------------------------------------------------------------------------------------------- 17 • Iron ore --------------------------------------------------------------------------------------------------------------------------------- 18 • Coking coal --------------------------------------------------------------------------------------------------------------------------- 19

Agriculturals • Wheat ----------------------------------------------------------------------------------------------------------------------------------- 20 • Corn ------------------------------------------------------------------------------------------------------------------------------------- 21 • Soybeans ------------------------------------------------------------------------------------------------------------------------------ 22 • Sugar ------------------------------------------------------------------------------------------------------------------------------------ 23 • Coffee ----------------------------------------------------------------------------------------------------------------------------------- 24 • Cocoa ----------------------------------------------------------------------------------------------------------------------------------- 25

Macro-economic indicators • Facts & Figures ----------------------------------------------------------------------------------------------------------------------- 26

Contributors • Analysts and economists ---------------------------------------------------------------------------------------------------------- 27 • Disclaimer ----------------------------------------------------------------------------------------------------------------------------- 28


Nick Kounis (+31 20 343 56 16)

Macro • The US fiscal mess is likely to have a temporary impact on the economy • Fundamentals point to stronger global growth next year • The Fed is likely to continue large-scale asset purchases until next year

Consumer confidence during last shutdown Source: Thomson Reuters Datastream China GDP growth Source: Thomson Reuters Datastream Group Economics GDP forecasts

2011 2012 2013e 2014e

China 9.3 7.8 7.5 8.0

US 1.8 2.8 1.6 3.2

Eurozone 1.5 -0.6 -0.5 1.3

World 3.9 3.0 2.8 3.8

trade 6.1 1.8 3.5 6.5

Source: ABN AMRO

US fiscal mess likely to have temporary impact After a few weeks of wrangles, Congress finally reached an 11th hour agreement to lift the debt ceiling, thereby avoiding a potential default, while simultaneously re-opening the federal government. Under the deal, the US borrowing authority will be extended through February 7, while the government will be funded through to January 15. It is easy to be negative on the deal that was struck, because it kicks the can down the road. However, we see a couple of positives. One is that there is a deadline before that for the parties to make progress on fundamental fiscal issues. The second is that this episode has proven to be bad news in terms of the polls for the Republican party, which may make it more constructive going forward, as long as Democrats do not try to push too hard because of their apparent advantage. More generally, the history of past shutdowns (for instance, 1995-1996) and wrangles over the debt ceiling (2011) suggest the impact on t he economy will be relatively moderate and short-lived.

Stronger global growth ahead We expect advanced economy demand to accelerate, lifting exports and production around the world. Private sector balance sheets have been nursed back to health, especially in the US. At the same time, in both the US and the eurozone fiscal consolidation – which has been a major break on demand growth – is set to ease noticeably over the coming months. Meanwhile, the eurozone should also benefit from the ebbing of financial stress and uncertainty following the announcement of the ECB’s conditional sovereign safety net last year. Overall we expect US economic growth to accelerate to above-trend growth rates next year, while the eurozone is set for a s low economic recovery. Emerging markets should get a lift from a strengthening of advanced economy demand, as well as infrastructure spending in some countries. China’s economy accelerated in to 7.8% in Q3 from 7.5% in Q2, helped by stronger exports, rising credit growth and the mini-stimulus package of the authorities. Having said that, a strong rebound is not to be expec ted. The Chinese authorities remain determined to engineer slower but better quality economic growth, which involves a curbing of excesses in the property and shadow banking sectors.

Fed taper delayed to next year The fiscal mess will muddy the waters in terms of US economic data and the Federal Reserve wants to be abs olutely convinced that the economy has embarked on strong sustained growth path before tapering its asset purchases. Given this, it seems likely that the central bank will not move to taper before March of next year and will not cease QE altogether until the autumn. This means that large-scale asset purchases will continue for a while longer.

Upside to the forecast: Downside to the forecast:

- Stronger return of confidence - Financial market instability related to eventual Fed exit

- Pent-up demand larger than expected - Abrupt investment slowdown in China

- Accommodative monetary conditions - Sovereign debt worries return to markets in eurozone


Georgette Boele (+31 20 629 7789)

Commodity top-down • The CRB recovered in Q3…followed by weakness • …we expect the weakness to continue in Q4 • …but are more neutral for 2014 and 2015

CRB Index

Source: Thomson Reuters Datastream Import commodities into China Source: Thomson Reuters Datastream

The CRB recovered in Q3… followed by weakness In the third quarter of this year – mainly in July and August - the CRB Index had a positive performance of close to 4%. The main reasons for this are: Brent oil prices rallied on uncertainty in the Middle East, due to an increase in the risk premium; copper prices bounced higher because of an improvement in outlook for the Chinese economy; gold and silver prices recovered further on safe-haven demand because of fears of escalation of the Syria conflict; and, finally, the prospect of a c ontinuation of an ea sy monetary policy in the US and a weaker US dollar. During September, sentiment in commodity markets started to turn, driven by lower risk of an escalation in the Middle East and fears of the impact of a US fiscal impasse on the US economy.

…we expect the weakness to continue in Q4 The market could come to believe that a delay in Fed tapering is a sign that the US economy may be weaker than expected. Moreover, political uncertainty, i.e. the fiscal debate, will return at the end of the year and the start of 2014. This will prolong uncertainty in financial markets, depressing sentiment. Moreover, it could result in a further adjustment in expectations for the US economy, and t hereby hurt commodity prices. The market uncertainty will keep oil prices neutral but volatile, within a relatively narrow range during the coming months. For precious metals, we remain negative for this quarter. However, we expect weakness to be more modest for the remainder of this year, but to continue into the first half of next year. We are neutral to positive on base metals for the next three months. What bodes well for base metals are the further improvements in the global economic environment (and demand for industrial metals), but market conditions for all base metals will not be without challenges. Regarding agricultural commodities, prices for coffee, cacao and sugar are expected to stabilise. Prices for wheat, soybeans and corn are expected to ease further, as supply outpaces demand.

…but are more neutral for 2014 and 2015 Our longer-term commodity outlook is neutral. The higher growth we expect in 2014 will not be strong enough to overcome the excess supply of most commodities. In China, there is a shift underway from investment-based growth towards more private consumption. There will be winners and losers in this transformation, and it should not immediately be assumed that rebalancing means less consumption. Commodities linked to rising income and changing consumption patterns will fare better than those used for construction and infrastructure growth (see our Macro Focus, “China’s commodity demand”). The easing of monetary stimulus in the US and the dampening of credit growth in China are headwinds for commodities with a substantial sensitivity to interest rates, such as precious metals. In 2014, oil prices could fall under further pressure, as market attention turns to oil oversupply (both OPEC and non-OPEC) and a further decline of the risk premium.


- Large supply disruptions - Ample commodity supply

- Stronger-than-expected global growth, including in China

- Stronger US dollar

- Later Fed tapering - Earlier Fed tapering

-34%

-30%

-12%

-11%

-10%

-10%

-7%

-6%

-2%

0%

3%

6%

9%

10%

15%

23%

24%

34%

50%

60%

65%

-70% -35% 0% 35% 70%

Aluminium oxides (alumina)

Unwrought aluminium

Scrap steel*

Wheat

Copper scrap

Unwrought copper

Aluminium scrap

Fruit

Sugar

Steel products

Soybean

Crude oil

Iron ore

Nickel ore*

Wood

Liq. NatGas

Manganese ore*

Copper ore

Coking coal

Bauxite*

Semi-finished steel

* = % growth until august

% growth of total imported volumes until September 2013 (yoy)

https://insights.abnamro.nl/en/macro-focus-chinas-commodity-demand/


Hans van Cleef (+31 20 343 46 79)

Energy | Brent • Although arguments for easing fell in place, oil prices stayed put • Production data and US budget issues will maintain high price volatility within a neutral range • The effects of the Fed’s tapering and oversupply should be more evident in 2014 and 2015

Historical price Brent Source: Thomson Reuters Datastream Global oil supply and demand (x 1mln bbl)

Source: IEA Group Economics price forecast (USD/barrel) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Brent 105 105 95 90 Source: ABN AMRO

Unexpectedly neutral The third quarter was characterised by t wo main drivers: the geopolitical tensions in the Middle East and the uncertainty about US fiscal impasse. As a result, the pressure on oil prices, which we expected, did not materialized. In fact, on average, Brent oil traded around USD 110/barrel, which is similar to the first half of the year. Middle East tensions were concentrated mainly in Egypt and Syria. Furthermore, lower output in Iraq and Li bya, due to production disruptions, and the ongoing US and EU sanctions against Iran resulted in a total supply disruption of approximately three million barrels per day. According to the International Energy Agency, OPEC production dropped below 30 million barrels per day in September for the first time in two years. However, the increased production by Saudi Arabia and by non-OPEC countries, such as the US and Canada, kept the oversupply in place and resulted in narrow range trading for Brent oil. Uncertainty about the US budget, the shutdown and the Fed’s tapering resulted in increased volatility, but failed to give direction to Brent oil prices.

Q4: High volatility and neutral ranges We expect that the actual announcement that the Fed will start to taper its monetary stimulus measures will come in March 2014. Although the market already anticipated some of the effects of the tapering, we believe that the actual announcement will result in higher yields and a stronger US dollar. As a result, oil prices could fall under pressure. Other drivers for the coming quarter will be the continuation of the Iran talks and signs of higher production. Especially production increases in Libya and Iraq could lead to lower output by Saudi Arabia, which will bring the reserve capacity to more comfortable levels. The impact of all these factors, however, can be somewhat balanced out by signs of (mainly US) economic recovery, possible new tensions in the Middle East and other supply disruptions. Furthermore, although the signs from Syria and Iran give reason for hope, they must still be followed by action. For the moment, volatility will remain high, limiting the downside potential for oil prices. We have a neutral outlook for the fourth quarter, but with a negative bias.

Current drivers to have more effect in 2014/2015 If Iran and the western negotiation partners come to an agreement regarding the Iranian nuclear program, it will not automatically mean that sanctions will be lifted and Iran will immediately increase its oil exports again. It is more likely that Iran must first prove its good i ntentions before the EU and U S sanctions will be reduced. Furthermore, we expect the actual impact of the Fed tapering of its stimulus measures to become more visible in the course of 2014 and 2015. We expect a significant appreciation of the US dollar and higher yields. This will lead to lower oil prices. We expect the oversupply to remain. This oversupply will not only be driven by Non-Opec production, but also within the OPEC, the production capacity is set to rise significantly.


- Escalation of Middle-East conflicts - A higher-than-expected rise in global oil production

- A larger-than-expected pick-up in economic growth/risk appetite - A breakthrough in negotiations with Iran

- Unexpected supply disruptions - A steeper-than-expected rise of the US dollar


Hans van Cleef (+31 20 343 46 79)

Energy | WTI (West Texas Intermediate) • Supplies returning to more normal levels and the US shutdown resulted in sideways trading • Quality differences should keep the spread between WTI and Brent alive • With the OPEC supply in balance, the increase in global demand will be met by US production

Historical price WTI

Source: Thomson Reuters Datastream Oil price spread Brent-WTI

Source: Thomson Reuters Datastream Group Economics price forecast (USD/barrel) 3-m price end of quarter and year averages

3-month 2013 2014 2015

WTI 100 95 90 85 Source: ABN AMRO

Local US drivers resulted in a return of a spread During the second quarter, the Brent/WTI spread narrowed until it completely disappeared. During the third quarter, however, the different dynamics driving Brent and WTI resulted in the spread widening again. The two main drivers, Middle East geopolitical tensions and unc ertainty about US financials, had an impact on both the Brent and WTI benchmarks. Middle East tensions, however, were slightly more reflected in Brent, while the uncertainty about the US economic condition, the Fed tapering and the demand worries triggered by the US shutdown were more reflected in WTI. In addition, WTI found some support on the news that the excessive supplies at Cushing, Oklahoma were returning to more normal levels. As a result, the Brent/WTI spread stayed mainly between USD 5-10/barrel.

Cushing oversupply to evolve into global oversupply The US government shutdown did not lead only to demand worries, it also affected the granting of oil and gas permits across the nation. Nevertheless, the overall impact of the shutdown remains limited. Again, the major oil organisations, such as the International Energy Agency (IEA), the Energy Information Administration (EIA) and O PEC, all lowered their demand expectations for 2013 an d 2014. This indicates that the global economic recovery we expect will probably lead to only a very moderate increase of oil demand. With oil production in the US and Canada expected to increase further in the coming years, this should result in continued overcapacity. This is especially true when we also take into account the expected increase in OPEC production (or production capacity). With the US energy infrastructure becoming more aligned to transport oil from Cushing towards the refiners, the period of excessive supplies should be over. Therefore, WTI should be trading more in line with Brent oil. However, we believe that the discount of circa USD 5 s hould remain in place to justify quality differences and t o provide an incentive for US refineries to choose for the higher-quality WTI.

US oil production will help to maintain oversupply Pressure is building on US President Obama to approve the finishing of the Keystone XL pipeline. If this final stage is approved and finalised, it would make oil transport from Canada to the US Gulf Coast refineries much easier and, even more important, less costly. More availability of oil supplies on the continent would reduce the need for oil imports from other regions. As a result, the expected rise in production in the Middle East can be us ed to meet the rising need for oil in emerging Asia without leading to substantially higher oil prices. We believe that the moderate increase in demand will be balanced by the rise in global supply, especially if US shale production continues to expand in the coming years. With more supply coming available in the few next years, combined with a s tronger US dollar, oil prices will continue to ease in 2014 and 2015. Furthermore, we expect WTI to remain trading at a +/- USD 5 discount to Brent.


- Stronger-than-expected global/US economic growth - Increased production of unconventional/shale oil in the US/Canada

- Possible escalation of geopolitical conflicts (Middle East) - Pricing-in of the unwinding/discontinuation of US stimulus measures

- Disappointing US economic growth


Hans van Cleef (+31 20 343 46 79)

Energy | Natural gas

• Both supply and demand are driven by changes in expectations triggered by weather-related news

• Seasonal demand will trigger some upside

• Rising demand and increased production will result in a moderate rising trend in US gas prices

Historical price natural gas

Source: Thomson Reuters Datastream

Natural gas prices


Group Economics price forecast (USD/mmBtu)3-m price end of quarter and year averages

3-month 2013 2014 2015

Natural gas 4.00 3.75 4.25 5.00

Source: ABN AMRO

Weather-related issues remain a crucial driverWeather-related news can have a big impact on natural gas prices, both

from a supply and a demand side. Since the low set on 9 August (USD

3.13/mmBtu), natural gas prices have rallied to levels above USD 3.80,

based on warmer-than-average temperatures which stirred demand. At

the end of September, natural gas prices dropped again, as weather

conditions became milder. Nevertheless, in October, prices started to

rally again as winter demand was expected to build and worries

increased that storms could threaten output from the Gulf of Mexico.

Rising near-term demand provides some upsideNatural gas prices have already started to appreciate on expectations of

colder weather. Historically, seasonal demand for natural gas increases

during the fourth quarter, and natural gas prices are skewed to rise in

the coming weeks. Inventory building is below average, as demand was

strong during the relatively hot summer period. Therefore, the level of

inventories is at the lowest level in five years. This will set the tone when

demand picks up during the coming heating season. We expect that

Henry Hub first contract prices could reach USD 4.00/mmBtu before the

end of the year. However, if natural gas prices would rally much further,

electricity producers would switch back from gas to coal, as carbon

prices are still very low. Finally, if prices rally, it will become more

profitable to produce more natural gas, which ultimately will lead to

higher stocks, and therefore put a cap on natural gas prices. We expect

that the average natural-gas price for 2013 will be USD 3.75/mmBtu. In

Europe, natural gas prices are less volatile. This is partly because of the

longer-term contracts which are oil-linked and cannot be adjusted that

often. Furthermore, higher carbon prices recently triggered some

softening of coal demand, benefitting gas use for electricity generation.

This also put a floor under short-term European gas prices.

Differences between US and European driversFor 2014 and 2015, we expect US natural-gas prices to appreciate, or

normalize, further. From the demand side, US economic growth and the

closure of older coal plants should lead to a rise in gas consumption.

From a supply side, there will be a cap on natural gas prices, as higher

prices will lead to increased production. This is especially true given that

there is significant production capacity that is ready to be ‘switched on’,

but which is currently offline due to low revenues. However, this will not

prevent US production from expanding, as it will be part of the US’

carbon reduction plan, helpful in becoming energy independent and be

instrumental in meeting the rising demand for natural gas for LNG

exports. In our view, the rise of demand will have a bigger impact since

prices were too low. Please note that despite a 10% rally, prices remain

at historically low levels. We believe European gas prices will ease in

the coming years, due to a more diversified energy mix.


- Switch to additional gas-fired power generation - Continued and accelerating unconventional gas output

- Extreme weather conditions (longer periods of cold or heat) - Disappointing economic recovery



Precious metals | Gold • Gold recovered in the third quarter • …but we expect modest weakness for end of 2013… • …and more weakness in 2014 and 2015

Gold price

Source: Thomson Reuters Datastream Gold ETF positions Ounces, Source: Bloomberg, ABN AMRO Group Economics Commodity Research price forecast (USD/oz), end of the month and year average

3-month 2013 2014 2015

Gold 1,300 1,425 1,150 900 Source: ABN AMRO

Recovery continued Gold prices had a very weak first half of the year, but, so far, the second half has been better. Prices moved higher because of a weaker US dollar, strong physical demand and investors reducing their outstanding short gold positions. Gold, however, failed to rally strongly on the US fiscal impasse. For some time now, gold has failed to live up t o its safe-haven appeal. There were three main reasons for this: investors continued to liquidate positions and this weighed heavily on gold prices; some investors probably still remember that gold prices moved lower instead of higher during the liquidity crisis in 2008; and, finally, expectations for strong demand from India have been adjusted downwards. But prices took off after US politicians reached a deal on the debt ceiling. This is because the focus has shifted to the damage that the shutdown caused and whether this will be large enough to prompt the Fed to keep monetary stimulus in place for longer. While this has hurt the US dollar, it supported gold prices.

…but we expect modest weakness for end of 2013… We remain negative on gold for the remainder of this year. The move may, however, be l ess substantial than we had originally foreseen. For a s tart, there are signs of increased tightness in the gold market with the spot price being higher than the forward price up t o 3 m onths. Furthermore, a l ess substantial recovery of the USD will also help gold prices. Indeed, we have changed our outlook on t he Fed. We now expect a t apering of bond purchases in March instead of in December. This is in line with market consensus. What is interesting to note though is that a dovish Fed is not changing the overall outlook for gold prices. This is because the tapering is only delayed. Sooner or later it will get back on the agenda and influence financial markets again. Moreover, gold prices have only received limited support from the delay in tapering, which is a reflection that the underlying sentiment is still very negative, because gold rallies quickly fade out as investors use the opportunity to liquidate their positions.

…and more weakness in 2014 and 2015 We expect lower gold prices for the following reasons. For a start, we expect a reduction in the Fed monetary stimulus and higher interest rates for 2014. This will reduce the attractiveness of gold as a zero-income asset. In addition, inflation pressures in the developed world should remain subdued, reducing demand for gold as an inflation hedge. Moreover, we expect the US recovery to accelerate, reducing the attractiveness of gold as a safe-haven asset. A subsequent improvement in investor sentiment will also reduce demand for gold as a safe-haven asset. Furthermore, a higher US dollar will automatically make gold less attractive. Investors use every rally in gold prices as an opportunity to sell, that’s why gold prices failed to reach the important resistance layered at USD 1,525 per pounce. Physical demand from India should be discouraged by the increases in gold import duty and other measures that aim to reduce the country’s current-account deficit.


- Monetary policy to remain accommodative longer than expected - Central banks running for the exit

- US dollar debasement - Strong global growth makes equities & base metals more attractive

- Distrust in paper money and inflation fears - Position liquidation

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Precious metals | Platinum • Is there also safe-haven demand for platinum? • Less aggressive weakness for the remainder of 2013… • …but more weakness in the first half of 2014 and a recovery thereafter

Spot price platinum Source: Thomson Reuters Datastream ETF positions Source: Bloomberg Commodity Research price forecast (USD/oz)

3-month 2013 2014 2015

Platinum 1,350 1,480 1,325 1,550 Source: ABN AMRO

Is there also safe-haven demand for platinum? Platinum is a cyclical precious metal, meaning that it responds to the global cycle. It does not have safe-haven appeal, which is manifested in a negative sensitivity to US equity volatility. What is surprising though, is that platinum moved in line with gold and silver in the risk-aversion period of July and August, which signals safe-haven attributes. We believe that the overall sentiment in gold markets has had an important impact on platinum prices. So a recovery in gold prices also eased the pressure on platinum prices. In addition, economic data have started to improve in developed markets, including the eurozone and Japan. These regions are crucially important for platinum demand, as they are the most important markets for platinum auto catalysts for diesel cars. The sentiment in the gold market and the economic outlook for the developed markets have driven platinum prices.

Less aggressive weakness in the remainder of 2013… Our view of lower platinum prices for the remainder of this year has not changed. But with only a f ew months left until the end of the year, the aggressive price forecasts are no longer reasonable. Investor positions in platinum ETFs are still extremely large and reflect a pos itive view of the eurozone and global economies as well as tight supply and a stabilisation in gold prices. Expectations of tight supply are already reflected in platinum prices. For example, news of labour unrest and strikes in South Africa have had limited impact on prices. Moreover, platinum has a sensitivity to the gold market. This is because it is a direct competitor to white gold and also because of gold directly influencing the overall sentiment for precious metals. We expect lower gold prices this year and in the coming two years. This will also hurt the outlook of platinum until the moment when investors have substantially reduced their positions. We are not there yet. We expect platinum prices to move lower and for this to continue in the first half of 2014.

…but more weakness in H1 2014, a recovery thereafter We have ad justed our forecasts in line with our expectations for continued weakness in H1 of 2014. Investor liquidations will be a likely source of extra supply. This will dampen the overall supply shortage, which is the result of the current rationalisation/efficiency wave in the South African platinum-mining industry. We expect industrial demand to pick up, as the outlook for auto catalyst demand for diesel cars is improving. But we believe that such improvement is already reflected in the price. The pick-up in eurozone car sales signalled that the trough is behind us. We expect, however, modest growth going forward, especially in the coming years. In Japan, we expect strong vehicle sales ahead of the introduction of the VAT increase in April next year, followed by dem and weakness for the remainder of 2014. Our conclusion from all of this is that the overall supply/demand balance will likely be less tight in the first half of 2014. But the outlook will improve in the second half of 2014 and 2015, reflecting higher prices.


- Stronger-than-expected economic recovery in the eurozone - Global recession

- Supply disruptions - Investors liquidating positions

- Greater risk appetite and/or USD debasement - Chinese consumers preferring white gold to platinum



Precious metals | Palladium • The recovery of the most cyclical precious metal… • …but upside is limited and downside risks are increasing • …with a recovery coming later in 2014

Spot price palladium (in USD)

Source: Thomson Reuters Datastream, Total palladium ETF positions In ounces Source: Bloomberg Commodity Research price forecast (USD/oz)

3-month 2013 2014 2015

Palladium 675 720 650 725 Source: ABN AMRO

The recovery of the most cyclical precious metal… Palladium is the most cyclical of precious metals and has behaved as such. In April, palladium prices temporarily moved sharply lower, as the sell-off in gold prices also hurt palladium sentiment. Ever since the pressure eased on gold prices, palladium prices sharply recovered. Opposite to the move in platinum, which had more similarities to gold and silver, palladium prices rallied on an improvement in the global economic outlook, and, in particular, the improvement in US and Chinese data. Palladium has a high sensitivity to the US market. In September, however, palladium gave back most of its gains, because investors had become concerned about the state of the US economy. Since the start of October, palladium prices have moved higher again on positive sentiment on US equity markets and a lower USD.

…but upside is limited; downside risks are increasing We continue to expect weakness in palladium prices in the near-term, but the weakness will be m ore moderate, as our expectations for when the Federal Reserve will begin to taper its asset purchases is delayed, and we see a less aggressive recovery of the US dollar for the remainder of 2013. Investors may view the necessity of longer monetary stimulus by the Fed as a sign of weakness of the US economy and adjust their demand expectations accordingly. What is interesting to mention is that investor liquidation will play out, but for a different reason than aggressive gold liquidation. Investor positioning in ETFs remains at a very high level, and this continues to be a major risk to the near-term outlook. We believe that there are two possible triggers that can cause aggressive liquidation of positions. One is an aggressive gold sell-off spilling over to other precious metals. The second trigger would be a sharp downward adjustment of expectations for the US and emerging-markets economies. We believe that the first risk has a higher probability of materialising. We cannot, however, ignore the second risk, especially if the Fed continues to delay tapering.

…with a recovery coming later in 2014 Demand for palladium for auto-catalyst gasoline cars is mainly centred in the US and emerging markets. The markets for palladium show a mixed picture. The Chinese government continues to take measures to fight pollution, including tougher vehicle emission standards. These tougher standards will result, on the one hand, in a higher palladium content in gasoline cars. On the other hand, it will dampen the growth potential of vehicle sales. In Brazil, we expect vehicle sales to grow at around 4% per annum. The demand outlook from Russia and India is less optimistic. We expect Russian private consumption to cool and for vehicle sales in India to stabilise. Vehicle sales in the US have been very strong. We expect the trend to continue to be positive, albeit not as strong as we have experienced so far this year. Undersupply is widely anticipated by t he market, and i ndirect supply from investor selling could ease the balance somewhat at the start of 2014. Overall, we expect a recovery in palladium prices in 2014. However, it may come later due to investor liquidation and economic uncertainty.


- Stronger global economy - Global recession

- Supply disruptions - Larger-than-expected Russian stock sales

- Risk-seeking environment and/or US dollar debasement - Larger-than-expected supply


Casper Burgering (+31 20 383 26 93)

Base metals | Aluminium • Stocks, in terms of weeks of consumption, are slowly decreasing, indicating solid demand growth • It is difficult for small smelters to stay profitable given low aluminium prices and high energy costs • We expect aluminium prices to increase slowly but steadily until 2015, based on solid demand

Historical price Aluminium


Supply, demand & stocks

Source: Metal Bulletin Group Economics price forecast 3-m price (Q3 exit) and year averages

3-month 2013 2014 2015 Aluminium (USD/t) 1,800 1,900 2,150 2,200 Aluminium (USD/lb) 0.82 0.86 0.98 0.99

Source: ABN AMRO

Stocks high, but decreasing steadily Since the release of our previous Quarterly Commodity Outlook (25 July), aluminium prices gained 1%, while aluminium stocks at London Metal Exchange (LME) warehouses decreased by 1%. By volume, aluminium is by far the most stocked metal in LME warehouses. Total stocks currently represent 11-12 weeks of consumption. However, stocks in terms of weeks of consumption have been slowly but steadily decreasing since the peak seen in 2009, indicating solid demand growth. Stock levels at LME warehouses increased by 3% since the start of the second quarter, while inventories at the Shanghai Futures Exchange decreased by 58%.

Energy costs weigh heavily Aluminium smelters worldwide are battling high energy costs, especially the small producers. High energy costs – which are a l arge proportion of the total cost structure for aluminium smelters – has already produced many victims worldwide. In particular, the smaller smelters have di fficulty remaining profitable with relatively low aluminium prices and high energy costs. These smaller smelters produce relatively low tonnages in order to absorb the increasing costs. Moreover, small players have limited power to negotiate better power deals or to secure power supply at more economical rates. In the Netherlands, the aluminium smelter Aldel was almost shut down last month, due to high energy expenses, but managed to find sufficient funding to cover costs. We expect that for the next three months, market conditions for aluminium producers will be challenging. Overcapacity, weak demand, high stocks and l ow margins weigh on the aluminium sector, which depresses prices.

Long term positive outlook for demand Fortunately, the prospects for aluminium demand over the longer term look solid. Leading indicators across regions show promising results, including the increase in the purchasing manufacturing indexes, increases in car sales & production and gains in industrial production in general. And because of this positive demand outlook from existing (but also new) end-using sectors, we expect that aluminium prices will increase slowly but steadily in the future. China – the world’s biggest aluminium producer – has ambitious plans to restructure its aluminium sector by el iminating obsolete aluminium plants. China must lower its capacity in order to rebalance its oversupplied market and r estore prices. The pace of restructuring is slow, however. At this stage, only plans for the sector have been announced. These plans include investments in energy-efficient facilities and i mprovements in technology for lower energy consumption. The closure of small facilities will be inevitable. The proposal for changes in warehousing policies (to force the reduction of queues) could become effective by April 2014. This could dampen aluminium prices.


- Sentiment towards the eurozone improves, resulting in risk appetite - Adoption of new LME warehousing rule by April 2014

- Significant Chinese smelter output cutbacks - Further stagnation EU and Chinese economy

- Increased demand from substitution (for copper and steel) - New capacity entering the market (India, Middle East)

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Base metals | Copper • Fortunately for copper: tapering was postponed, the shutdown ended and the debt ceiling was lifted • Copper stocks decreased by 17% during September and October • Long-term demand will remain strong, bolstered by demand from new end-user growth areas

Historical price Copper

Source: Thomson Reuters Datastream Supply, demand & stocks


3-month 2013 2014 2015 Copper (USD/t) 7,250 7,400 7,500 7,600 Copper (USD/lb) 3.29 3.36 3.40 3.45

Source: ABN AMRO

Tapering, the shutdown and the debt ceiling Over the last couple of months, geo-political tensions (Syria) and macro-economic indicators (such as the stronger US dollar, mini-stimulus in China, worries over demand prospects and the first signs of a Chinese economic recovery) directed copper prices. But over the last couple of weeks, all eyes turned to the US, and copper prices became volatile. The volatility was subject to increasing uncertainty over three major issues: the Fed’s tapering discussion, the US shutdown and the US debt-ceiling talks. After it became clear that the tapering decision was postponed, the shutdown was ended and the debt ceiling was lifted, copper prices rose and sentiment turned. But the boosted sentiment was short-lived, as stakeholders immediately turned their attention to China and awaited the release of Chinese economic data (growth and fixed-asset investments). The numbers were positive and in line with market expectations, which again boosted confidence. Copper prices remained relatively strong. Since the release of our previous quarterly (25 July), copper prices have risen by 5%.

Solid demand this year Fundamentals in the copper industry will remain positive for the rest of this year. Currently, the copper market is in deficit, which is visible in the data of reported stocks at London Metals Exchange (LME) warehouses. Copper stocks continuously decreased during September and October, losing 17% in volume during these months. Demand from China – the world’s biggest metal consumer – is expected to remain buoyant this year. Refined copper imports into China increased in September by 18% on a yearly basis. And up until now, Chinese import demand for copper concentrates was up by 34% (yoy). ABN AMRO expects that the US will continue to provide monetary stimulus, given the current state of its economy. In general, the mild performance of the US economy so far, including the lacklustre US labour market report in October and worries about consumption prospects, are indicators that the tapering of US stimulus measures will be delayed. ABN AMRO expects that the tapering will start in March 2014. Going forward, the global economic environment will continue to dictate price directions. In particular, the drivers will be the strength of China’s economy, the pace of recovery in the US and the vitality of the eurozone economy.

Period of oversupply from 2014 The general consensus is that from next year onward, the copper market will enter a period of surplus. A fundamentally oversupplied copper market in 2014 and 2015 will limit any significant gains in market conditions and copper prices. What will keep prices afloat are the prospects for demand. Long-term demand for copper will remain relatively strong, bolstered by new end-user growth areas, and we expect that this will prevent copper prices from deteriorating. We forecast an increase in copper prices through 2015, albeit a slow increase. However, given the foreseen structural oversupply in 2014 and 2015, we have lowered our long-term forecast in comparison with our previous Quarterly Commodity Outlook.


- Recovery in construction (US, EU, China) - Risk aversion and need for liquidity increases

- Stronger-than-forecasted Chinese economic performance - Further stagnation EU and Chinese economy

- Rising Chinese copper import requirements - Funds scaling back their interest in copper as an asset class

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Base metals | Nickel • The decrease in nickel prices has left more companies (mines, smelters/refiners) unprofitable • Too many producers are delivering too much output at persistently low demand levels • In the future, nickel demand growth will outpace supply growth, resulting in stronger prices

Historical price Nickel



3-month 2013 2014 2015 Nickel (USD/t) 14,000 15,250 16,500 17,000 Nickel (USD/lb) 6.35 6.92 7.48 7.71

Source: ABN AMRO

Output increases in China Nickel prices touched USD 29,281/t on 21 February 2011, and, ever since, prices have been in a downtrend, losing 52% until now. The production of nickel pig iron, as a substitute for higher-grade nickel used in the stainless steel industry, is one of the reasons why nickel prices are currently at these relatively low levels. From Q2 2011 until Q3 2013, production has increased by 10% yoy on average per quarter. Meanwhile, consumption has increased by only 7% yoy on average per quarter. As a r esult, nickel prices have slowly but steadily decreased to the current low levels. This has left an increasing number of companies in the sector (mines, smelters/refiners) unprofitable. Asia (especially China) will continue to set the tone in nickel demand. Imports of refined nickel into China decreased in September by 13% yoy, and imports of nickel ore have increased by more than 10% yoy until September. Output of nickel products has surged by 34% yoy.

Too much output and persistent low demand There is an upward trend in London Metals Exchange (LME) nickel inventories. Inventories at LME warehouses have more than doubled since late 2011, increasing non-stop until now. Too many producers are delivering too much nickel output at persistently low demand levels. As a result, the market is strongly oversupplied. Fundamentals will deteriorate further this year, with increasing use of nickel pig iron, instead of higher-grade nickel in the stainless steel industry, and an i ncreasing surplus in the nickel market. What keeps prices afloat is demand prospects and t he pickup in leading indicators across regions, such as the increase in the purchasing manufacturing indexes, the increase in consumer durables and the gains in industrial production in general. At this stage, however, we do not see any major improvements this year that could lift market conditions and pr ices significantly. ABN AMRO expects tension in nickel prices for the remainder of the year.

Long-term confidence Indonesia is planning to impose a ba n on nickel ore exports in order to stimulate domestic investments in the industry next year. Currently, Indonesia is a top exporter of (laterite) nickel ore and delivers approximately 50% of its nickel ore volumes to China. China, in turn, produces nickel pig iron from the imported ores from Indonesia. Once the restrictions are introduced by Indonesia (in whatever form), it seems most likely that nickel prices will increase. The prospect for nickel demand are improving. During the forecast period, we expect that some supply and capacity will be cut or shutdown. Therefore, we remain confident regarding long-term nickel market developments, despite the increase in LME stocks. Fundamentally, the nickel market will be oversupplied in the forecast period, and this will prevent any significant price rally. However, we consider the uptick in demand as a positive sign for the sector and expect a slow but steady strengthening in prices through 2015. In this process, the gap between supply and demand will slowly narrow, leading to a more balanced market.


- Stainless steel output increases on strong demand - Funds scale back their interest in nickel

- Supply disruptions and delays in pipeline projects - Further stagnation EU and Chinese economy

- Government stimulus spending - Substitution by stainless steel industry with lower nickel content

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Base metals | Zinc • In all major regions, many zinc-consuming sectors have shown promising signs of recovery • Leading indicators have exhibited signs of improvement, especially in China and the US • Until 2015, zinc supply is expected to increase by 8%, while zinc demand will increase by 9%

Historical price Zinc



3-month 2013 2014 2015 Zinc (USD/t) 1,900 1,950 2,200 2,250 Zinc (USD/lb) 0.86 0.88 0.99 1.02

Source: ABN AMRO

Fundamentally improving Since the start of 2013, zinc prices have lost 8%, while stocks at London Metal Exchange (LME) warehouses have decreased by 13%. With the decline in LME stocks, conditions in the zinc market are fundamentally improving. On 19 February 2013, the zinc price reached USD 2,130/t, its peak level so far this year. Since then it has decreased, touching a 2013 low of USD 1,785 in early May. The average zinc price until October stands between USD 1,905-1,910/t. Developments in construction & infrastructure spending and in the car industry are important indicators for zinc demand. And across all regions, these sectors have s hown promising signs of recovery. Although austerity measures have put a c ap on construction & infrastructure spending in most parts of the world, which dampened zinc demand, conditions have improved slowly over the past months. But the improvements in market conditions did not result in price increases. During the last quarter, zinc prices have drifted sideways because of geopolitical tensions (such as in Syria) and higher uncertainty related to economic policies in many countries.

Signs of strengthening Recently, galvanisers have w itnessed improving business activity in comparison to 2012 levels. Galvanised steel – steel with a coating of zinc – represents approximately 50% of total zinc usage, and it is widely used in infrastructure, construction and car manufacturing. Leading indicators in these sectors have been showing signs of further improvement, especially in China and the US. This bodes well for zinc end-user demand. In the US, the September American Institute of Architects’ Architecture Billings Index pointed to more activity in building construction for the remainder of this year. And although car sales shifted into lower gear in September, the US car market is expected to remain strong. In China, project start-ups in real estate development, in both the commercial (3.5%) and r esidential (4%) segments, increased further in August. Despite the rebalancing of the Chinese economy, the level of investments in these sectors is expected to remain elevated. In Chinese car manufacturing, output grew by 13.6% yoy in September, and car sales increased by 21.1%. On the other hand, in Europe, conditions in the construction and car sectors remain weak.

Stocks remain elevated Zinc demand is expected to increase further in the forecast period, but the pace of demand growth will be relatively slow. The macro-economic outlook in all major zinc end-user countries (US, China and Europe) is positive for 2014 and 2015. In Europe, a swift recovery is unlikely, but indicators show that the economy is likely to remain on course. Prospects for zinc demand look sound, but LME stocks are expected to stay at an elevated level in the forecast period, which is preventing significant price gains. Through 2015, zinc production is expected to increase by 8%, while zinc consumption is expected to increase by 9%, indicating that the surplus will slowly decline over the coming years.


- Demand recovery in major zinc-consuming countries - Sharper weakening of Chinese housing/construction sector

- Rising galvanised sheet use in China - Substitution of zinc with aluminium in e.g. automotive die-casting

- Fed’s monetary stimulus continues - Fed tapering

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Ferrous metals | Steel (global HRC)

• Strong steel demand in China is coming from the real estate and car manufacturing segments

• Economic conditions in many international steel markets continue to be driven by uncertainty

• China’s rebalancing strategy and restructuring will lead to lower GDP growth and steel demand

Historical price steel (USD/t)


Steel production & world trade(y-o-y % change)

Source: IISI, Thomson Reuters Datastream

Group Economics price forecast (USD/t), 3-m price (Q3 exit) and year averages

3-month 2013 2014 2015

Steel (HRC, global)

567 579 560 540

Source: ABN AMRO

Higher crude steel output in ChinaSince the beginning of 2011, global steel prices are in a downward trend, as

a result of overcapacity and weak steel demand. Globally, steel mills have

produced 1,049,708,000 tonnes so far this year – up by 2% yoy – at an

average capacity utilisation rate of 75.4%. The increase in global output was

mostly driven by the strong crude steel output in China. Chinese steel

production surged in August, with an increase of 13% yoy. The strong

increase was caused by strong demand from steel-consuming industries,

such as real estate and car manufacturing. In real estate development,

project start-ups in both commercial (3.5%) and residential (4%) building

segments increased further in August. In the car manufacturing sector,

output grew by 15% yoy in August. In other parts of the world, steel market

conditions are relatively weak. In Europe, conditions remain especially

worrisome. European construction activity is very weak and growth in car

sales, despite an uptick in September, is still far below the long-term

average.

Not without challengesMarket conditions in steel have turned for the better. Demand in most

regions is relatively improved, and prospects are positive for now. In China,

third-quarter GDP rose by 7.7% yoy and investments in urban areas

increased by 20.2% yoy in the first nine months of the year. This bodes well

for steel demand. In the US, steel market prospects are also sound. The

September American Institute of Architects’ Architecture Billings Index

pointed to more activity in building construction for the remainder of the

year. And although car sales shifted into lower gear in September, the US

car market is expected to remain strong. Economic conditions in many

international steel markets continue to be driven by uncertainty, not only

caused by relatively weak demand, but also triggered by oversupplied

markets. We therefore think that supply issues will continue to put pressure

on international steel markets and prices this year, especially in Europe and

China. The steel markets in these two regions are well-oversupplied and are

in desperate need of rebalancing and restructuring. Up until now, we have

witnessed some producer discipline in Europe, with production cuts and

plant closures, but steel output in China has continued to increase strongly.

Restructuring and rebalancingLong-term developments in international steel markets face challenges, and

we continue to expect headwinds. Overcapacity will persist, which will keep

international steel markets from a strong recovery in 2014 and 2015. This

will also prevent prices from strengthening significantly in the forecast

period in some regions where overcapacity is most severe. In China, there

are ambitious plans, but up until now we have not seen any significant steps

towards restructuring. The rebalancing strategy in China – towards

consumption instead of investment – will lead to lower GDP growth. A

slowdown in economic growth and in government spending on

infrastructure and construction will soften demand for steel, but the level of

demand will remain relatively high.


- Meaningful stimulus packages by governments worldwide - Strong decline in steel demand activity in China

- Strong pick-up in steel demand from key sectors in EU - Further stagnation EU and Chinese economy

- Permanent shut-down of Chinese capacity (small mills) - Continued oversupply of steel and limited producer discipline

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Ferrous metals | Iron ore (fines) • Imported volumes of iron ore into China surged by 15% yoy in September, to set a new record high • Steel demand in the US and China is relatively better, and leading indicator s are pointing upwards • The future of the iron ore market – just as for the steel sector – is not without challenges

Historical price iron ore (fines)

Source: Thomson Reuters Datastream Iron ore trade (y-o-y % change)

Source: Thomson Reuters Datastream, Clarksons SIN Group Economics price forecast (USD/t), 3-m price (Q3 exit) and year averages

3-month 2013 2014 2015 Iron ore (fines) 125 132 119 115

Source: ABN AMRO

China sets a new record Since the release of our previous Quarterly Commodity Outlook (25 July), iron ore prices have drifted around USD134/t and showed relatively little volatility. On 28 February, China iron ore prices for fines reached USD 157/t, the highest point so far this year. Since then, prices started to decrease, settling at USD 112.5/t on 6 June. After that, iron ore prices recovered slowly but not convincingly. The rebound in prices was the result of improved sentiment among stakeholders rather than any changes in fundamentals. Buying activity has been generally weak on a global scale over the last couple of months, barring some restocking activity in some regions. In September, however, imported iron ore into China surged by 15% yoy, to set a new record high of 74.6 million tonnes. In the first nine months of 2013, China’s imported volumes of iron ore increased by 9% yoy. As a result, exports of iron ore by China’s two top suppliers – Australia and Brazil – increased also. China continues to produce high volumes of steel on a monthly basis, despite the overcapacity the market is currently facing.

Sufficient supply Market conditions in the steel sector have r ecently turned for the better. Steel demand in some regions is relatively improved and leading indicators – such as real estate developments, car output and industrial activity – are pointing upwards, especially in the US and China. At first sight, this bodes well for the iron ore market, demand and prices. However, currently there is sufficient iron ore supply in the market to meet any i ncrease in iron ore demand. Supply pressures are therefore expected to weigh on prices in the short term. Moreover, the steel sectors in China and Europe still have t o battle overcapacity while supply/demand fundamentals remain weak. In China, monetary policy is aimed for tighter credit availability. If this succeeds, it will prevent any significant increases in buying activity. Given these market conditions, we expect that prices will soften. Our forecast calls for a price of USD 125/t in three months.

Solid demand, but pressures on supply-side Despite the rebalancing strategy in China – from investment towards consumption-led growth – China will continue to source high volumes of iron ore and will remain the biggest iron ore consumer in the forecast period. But the pace of demand growth will be relatively weak. Given the low quality of domestic iron ore grades, large Chinese steelmakers will continue to source high-quality imported ore. However, the future of the iron ore market – just as for the steel sector – is not without challenges. We believe supply-side pressure will persist during the forecast period, which will have a softening effect on international iron ore prices. According to UNCTAD, the volume of iron ore which will enter the international iron ore market between 2013 and 2015 is 360 Mt, which falls in the category ‘certain’. It is estimated, however, that an additional 230 Mt is actually needed through 2015. Even given that some of these projects can be m othballed swiftly or cancelled at the eleventh hour, the chances are significant that the international iron ore market will be oversupplied in the forecast period.


- Infrastructural problems, unfavourable weather conditions - Shut-down of steel capacity (small mills in China)

- Expansion of government policies limiting total exports - Further stagnation EU and Chinese economy

- Government coal stockpiling strategies - New mining capacity entering the market

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Ferrous metals | Coking coal • Chinese volumes of imported coking coal increased by 211% yoy in September • Supply is currently sufficient to meet demand, even given China’s strong demand-growth rate • Until 2015, we expect coking coal supply to be sufficient; this will increase pricing pressure

Historical price coking coal

Source: Metal Bulletin, Thomson Reuters Datastream Coking coal international trade (y-o-y % change)

Source: Thomson Reuters Datastream, Clarksons SIN Group Economics price forecast (USD/t), 3-m price (Q3 exit) and year averages

3-month 2013 2014 2015 Hard coking coal

143 146 135 130

Source: ABN AMRO

Volatile China imports Although Australian hard-coking coal prices have declined steadily since May 2011, there have also been some periods of price strengthening. We recently witnessed such a period, after coking coal prices reached the 2013 ultimate low of USD128/t in July. Since the release of our previous Quarterly Commodity Outlook (on 25 July), coking coal prices have gained 15%. This increase in price is, of course, very much welcomed by coking-coal miners. The gains in price were the result of increasing production costs at mines and solid import demand from major coal-consuming countries, such as China. China's coking coal imports have been volatile, with strong monthly swings in a bandwidth of -45% (in May 2011) to +211% yoy (in September 2013). Until September, China’s imports of coking coal increased by 39% yoy, while Japan, the top importing country, increased its imported volume by only 11% yoy until August. Imported volumes into China were able to increase so strongly due to the prices of imported coking coal being more favourable compared to the price of domestic coking coal.

Supply is sufficient Despite the recent gains in coking-coal prices and the strong import demand from China, market conditions in the coking-coal sector are not without challenges. Supplies from Australia’s main coal areas have already increased by 15% yoy in the first eight months of 2013. This was also the result of improved mining conditions in Australia and infrastructure problems in other coal areas of the world. Globally, however, supply is currently sufficient to meet demand, even given China’s strong demand-growth rate and improving demand from Japan. We therefore expect coking-coal prices to soften in the next three months and for the current price rally to be temporary. At the current (relatively high) level of import prices from Australia, Chinese steelmakers are more willing to increasingly source material domestically. This will dampen the Australian hard-coking spot price, and we expect a price of USD143/t over the next three months.

Pressure on price We expect pressure on hard-coking coal prices through 2015. Although the market is not significantly oversupplied (compared to the steel and i ron-ore sectors), we expect that future supply growth from pipeline projects will outpace the demand growth in the forecast period. Asian countries (especially China) will drive international coking-coal demand and will continue to drive market developments. The outlook for import demand from Asian countries until 2015 is expected to remain firm. However, considering the rebalancing strategy of the Chinese government, commodities demand growth (including coking coal) will soften. Certainly, for high-quality coking coal, China continues to depend on i mports, notably from Mongolia and Australia. In any c ase, supply will be s ufficient and t his will increase pressure on prices. In addition, the popularity of direct reduced iron, a technique that uses gas instead of coking coal, could add increasing pressure on future coking-coal market developments.


- Supply problems (weather-related) in major supplying countries - Stronger decrease in steel demand

- Other coal supply difficulties (strikes, export limits, regulations, etc.) - Further stagnation EU and Chinese economy

- Government coal stockpiling strategies - Steel mills switching to (cheaper) alternatives (PCI or gas)

-100%

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Japan import (l.axis)Australia export (l.axis)China import (r.axis)


Marijke Zewuster (+31 20 383 05 18)

Agriculturals | Wheat

• No new data available, due to the shutdown of the US federal government

• Premium of wheat over corn has widened

• Wheat production will surpass consumption in 2013/2014, leading to lower, but still high, prices

Historical price wheat


Wheat production and consumption

Source: IGC

Group Economics price forecast (Cts/bu)3-m price end of quarter and year averages

3-month 2013 2014 2015

Wheat 700 700 650 -

Source: ABN AMRO

Higher Production deficit in 2012/2013Due to the shutdown of the US federal government, the monthly report on

grain and soya production, expected to be published in mid-October, was

postponed until November. The October report of the International Grains

Council (IGC) estimated global wheat consumption for 2012/2013 at 673

million tonnes and production at 655 million tonnes, leading to a reduction in

stocks. In 2012/2013, global ending-stocks are projected to total 175.1

million tonnes. This is slightly lower than the forecast published in our

previous Quarterly Commodity Outlook of 179.4 million tonnes and a

decline of 18.6 million tonnes compared with the previous season. In Q2

2013, wheat prices weakened, due to expectations for a rebound in global

production, despite slow crop developments in the EU, but in contrast to

other grain prices. Statistics Canada has increased its forecast for wheat

production in 2013 from a July forecast of 30.6 million metric tonnes to 33

million metric tonnes. This is an increase of more than 20% from the 27.1

million metric tonnes in 2012, and a record high. Wheat prices have picked

up, however, since mid-September. This is due to expectations of stronger

imports from China, an expected decline in Argentine exports (due to

potential crop-damaging frost and drought) and uncertainty regarding both

the quantity and the quality of the Australian harvest.

Wheat prices will ease, but remain relatively highWet weather hit plantings in Russia, which has raised concerns regarding

overall grain output for 2014 and the potential impact on export availability in

the region. Still, In their October publication, IGC raised its forecast for

global wheat production in 2013/2014 to 693 million tonnes in October, up

from 683 million tonnes a quarter earlier. This is a 6% increase compared to

2012/2013. Total consumption is expected to increase by 2.1% to 686

million tonnes. The forecast for trade was left unchanged at 141 million

tonnes. The increase in production is due to larger crops in the EU,

Kazakhstan, Morocco and the Ukraine, while projections for Argentina,

Brazil and Russia were lowered. With respect to consumption, IGC expects

that the impact of more available alternative feed grains (especially corn) is

offset by stronger demand for feed grains from China. In China, due to a

low-quality harvest this year, more wheat will be needed for feed use. Food

use is, with a share of 70%, however, more important and exhibits a more

predictable growth pattern. The main drivers of food use are population

growth and rising sales of flour-based convenience foods across emerging

markets, which will remain an important source of wheat demand. With

production now expected to outpace consumption, a modest recovery of

stocks is likely. Assuming normal weather conditions, wheat prices are

therefore expected to decline slightly over the course of 2013/2014, but will

remain at historically high levels.


- Production risks, due to adverse weather in production areas - Slower growth than expected

- Less availability of alternative feed grains than expected - Better weather conditions leading to adjustment in crop outlook



Agriculturals | Corn • Production will rise in the US, EU and Ukraine and fall in Latin America • Lower corn prices will increase the use of corn for feed use • Corn prices will be pressured, but volatile

Historical price corn

Source: Thomson Reuters Datastream Corn production and consumption Source: IGC Group Economics price forecast (Cts/bu) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Corn 450 550 430 - Source: ABN AMRO

China becomes a more important export destination For 2012/2013, global corn production is expected to have declined by 1.3% to 863 million tonnes (mt), while consumption is expected to decline by 5.7% to 872 mt (source: International Grains Council (IGC)). This results in closing stocks declining from 131 to 121 mt. While the total amount of corn exports remained almost unchanged in 2012/2013, at an estimated 96.1 mt (96.9 in 2011/2012), there was a significant shift in the main sources of exports. Exports from Brazil surged from a low 8.5 mt in 2011/2012 to 26.4 mt in 2012/2013, making it the number one exporter of corn. The US fell to second place, with a decline from 42.7 to 20 mt in its corn exports in the same period. Exports from Argentina rose, albeit less spectacularly, than in Brazil, increasing from 15.4 to 18.9 mt. Around 40% of all corn exports are to Far East Asia. Japan imports most of its corn and is still by far the most important corn importer. Japan had a 15% share of the corn trade in 2012/2013. It was followed by Korea with 8% and China with 4%. Total corn exports are expected to rise by almost 4% in 2013/2014 to 99.6 mt. Most of the 3.5 mt increase is due to a strong surge in demand from China, where imports are expected to almost double from 3.7 mt to 7.0 mt, resulting also in China’s share of total trade rising to 7%. Contrary to Japan, China produces most of its corn requirement domestically. In 2012/2013, however, production fell just short of consumption. This is expected to be the case in 2013/2014 as well. Also, over the long term, exports will continue to increase, given that the expected increase in meat consumption in China will result in a increase in demand for corn for feed use. This will contribute to a more prominent role of China as an export destination for corn.

Lower, but still high, production in 2013/2014 IGC lowered its corn production forecast for 2013/2014 by 2 mt to 943 mt, but this is still a 9% yoy increase and a new record. IGC expects consumption to increase by 5% to 917 mt. As production outpaces consumption, stocks will increase, resulting in further downward pressure on prices. The strongest production increases are expected in the US, the EU and Ukraine. Bumper crops are still expected in the US, with production rising by almost 30%. In the Ukraine, after a slight dip in 2012/2013, corn production is expected to increase by almost 20% to a record level of 28 mt. In contrast, in Latin America, unfavourable corn prices compared with soybean prices will probably stimulate producers to plant more soybeans instead of corn. This will contribute to a f all in production from 123 m t in 2012/2013 to 108 mt in 2013/2014. Corn consumption will rise as a more favourable corn price will induce a shift in demand for feed from soybeans to corn and will also stimulate the use of corn for ethanol. In the US, corn consumption is expected to increase by 8.7% yoy in 2013/2014, after a fall of 4.1% yoy in 2012/2013. In China, consumption is expected to increase by 5.8% yoy in 2013/2014, after increasing by 7.8% in 2012/2013.


- Weather-related problems in the main corn-producing countries - Larger-than-expected production in Latin America

- Stronger increase in the use for biofuels -



Agriculturals | Soybeans • Brazil will strengthen its position as the number-one soybean exporter • China’s imports will rise after a weak 2012/2013 • Supply will continue to outpace demand

Historical price soybeans

Source: Thomson Reuters Datastream Soybeans production and consumption Source: USDA Group Economics price forecast (Cts/bushel) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Soy 1250 1350 1250 - Source: ABN AMRO

Production expected to rise strongly After an estimated slight decline in soybeans consumption in 2011/2012 to 254 million tonnes (mt), as reported in an end-September report from the International Grain Council (IGC), a strong increase of 4.7% is now expected. In 2012/2013 soybeans consumption is expected to increase to 266 mt. Production is expected to rise by even more, growing by almost 12% to 269 mt. This reverses the situation of 2011/2012, when demand exceeded production. Closing stocks will therefore rise from 23 t o 26 m t. The increase in production is due to strong growth in output in Brazil and Argentina. After having moved downwards from a peak of around 1,750 mt in September 2012, soybeans prices rebounded from a t emporary low of around 1,200 mt in August to almost 1,400 mt in September, but have since fallen back to a l evel of around 1,300 mt, which is still a hi storically high level. With production exceeding consumption, prices are expected to continue to gradually decline.

Strong exports from Brazil Planting in Brazil was delayed by hot, dry weather, but recently the onset of rain has kick-started sowings, making up for the delay. The planting season in Brazil starts in October and harvesting starts normally three months later. In Brazil, the planting of new soybean varieties could significantly increase yields, with more hectares in plantings leading to an increase in production as well. Production in Brazil might even increase further, as according to some sources, farmers are considering a second crop of soybeans instead of corn, due to the low price of corn. The drought in the US and Argentina could still hit soybean production there. In September, the US Department of Agriculture (USDA) cut soybean yield forecasts for 13 states. The national average yield was forecast to decline from 42.6 to 41.2 bushels per acre, which is still better than last year’s yield of 39.6 bushels. Overall, IGC expects production in 2013/2014 to increase by 4%. Global soybean consumption is also expected to increase by 4% to 277 mt. This is mostly due to a rise in total soybean use in China, while total demand in the US is expected to decline to a three-year low of 48.1 mt. Soybean imports in China account for around 80% of total consumption. Stronger demand from China will therefore also result in an increase in soybean trade. IGC expects an increase to 106 m t in the 2013/2014 period (Oct/Sep). This is an increase of 9% compared to a year earlier, when imports of soybeans slowed in China, due to the outbreak of avian influenza. Brazil will strengthen its position as the number-one soybeans exporter, which it took over from the US in 2011/2012. The USDA’s Brasilia bureau estimates record exports of 45 mt. Exports up until August totalled 37 mt, which was larger than expected. The US is expected to export 37 mt and Argentina 12 mt.


- Weather-related problems in the main soybean-producing countries, threatening harvests

- Much larger crops than expected

- Feed demand in Asia increases sharply

300

600

900

1,200

1,500

1,800

03 05 07 09 11 13

Soyabeans, No.1 Yellow C/Bushel


Hans van Cleef (+31 20 343 46 79)

Agriculturals | Sugar • Due to the US shutdown, the market faced a lack of information • US government intervened in an attempt to reduce the sugar surplus and to support prices • ABN AMRO expects sugar prices to trade around USDc 19/lb on average in Q4 2013

Historical price sugar Source: Thomson Reuters Datastream Sugar production and consumption Source: ISO Group Economics price forecast (Cts/lb) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Sugar 19.00 18.00 19.00 - Source: ABN AMRO

Interventions and lack of information lead to support With the shutdown of the US government, the market was not able to see the overall positioning in commodity trading – including sugar positions – due to the absence of US Commodity Futures Trading Commission (CFTC) data. The first report was released on 25 October, or one month after the previous report of 24 September. This one month without accurate market information coincided with strong support for sugar prices. Another factor supporting sugar prices was the US government intervening several times in the sugar market. In an attempt to reduce the huge sugar surplus and to support sugar prices, the US government wants to avoid the highest sugar subsidy costs in 13 years. The US Department of Agriculture (USDA) is obliged by law to offer a minimum price for sugar. Therefore, the USDA offered to swap government-owned sugar for credits held by refiners. The lack of data and the interventions in the sugar market resulted in funds and speculators entering long positions. The first release of the CFTC data on 25 October triggered a set-back. Moreover, in mid-October, a fire at two Brazilian sugar warehouses resulted in a huge, but short-lived, spike to USDc 19.67.

Oversupply versus weather conditions The global oversupply in raw sugar is expected to continue. However, it is not clear how much is available for futures or stocks. With large (pension) funds and speculators taking extensive long positions, volatility is expected to remain high. Nevertheless, the (white) sugar market could even be in a deficit if it were not for Indian sugar. After the premium on white sugar narrowed, due to lower refining demand, Indian sugar became an alternative. This could be a major driver in 2014. Furthermore, the fact that the Brazilian real appreciated significantly against the US dollar is a great benefit for Indian producers. After all, Brazilian crops became more expensive, not only because of a di sappointing crop, but also due t o a currency effect. An important factor to watch, however, is the development of India’s export policy. Exports are only allowed if there is a domestic surplus. Also indicators regarding the Thai crop have improved recently. Market expectations are for a harvest of 11 to 12 million tonnes, versus expectations of 9 million tonnes earlier this year. In Mexico, a big crop (6 to 6.5 million tonnes) is expected. Since Mexico is a member of NAFTA, it has access to the US market and can balance a US deficit. These indicators suggest that the oversupply will remain in the coming crop year. As a result, the upside for sugar prices seems to be l imited. One extra element to watch is the impact of the hurricane season. For Q4, we expect sugar prices to trade within a r elatively wide but neutral trading range of USDc 18 to 21, as support factors are offset by global oversupply. As a result, the average 2013 sugar price is expected to be approximately USDc 18.00.


- Weather-related production risks in big production areas - Economic recovery takes longer

- Unexpected rise in Chinese imports

- Increase of ethanol production is even bigger than expected


Hans van Cleef (+31 20 343 46 79)

Agriculturals | Coffee • Oversupply kept prices under pressure in Q3 • Record crops in Vietnam are well managed, leading to limited downside pressure • Arabica/Robusta spread will narrow before blenders again adopt bigger proportion of Arabica

Historical price coffee Source: Thomson Reuters Datastream Coffee: production and consumption Source: USDA Group Economics price forecast (Cts/lb) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Arabica 115 130 125 - Source: ABN AMRO

Large supplies and disease were the main drivers Over the past few months, coffee prices have been mainly driven by supply issues. On one hand, the big crop in Brazil and the expected record crop in Vietnam continue to weigh on prices. On the other hand, the impact of coffee leaf rust (la Roya disease) continues to harm the harvest in Central America. According to the International Coffee Organisation (ICO), Central America may have lost nearly 20% of its crop to the fungus, while more than half of the crop is infected. Nevertheless, the oversupply is dominating markets, and, as a result, the price trend for Arabica coffee is still downward. The neutral range for Robusta also broke on the downside at the end of Q2. After Arabica prices declined by more than 30% to a 4.5-year low in just 12 months’ time, the lacklustre price movements during the last two months resulted in a narrow trading range of approximately USDc 115-120/lb. At the end of October, this range broke and prices dropped below USDc 110/lb on technical trading. Speculative market positions are still mainly short, but the Arabica market seems to be balanced for the moment, due to the widespread disinterest of big coffee blenders. Despite the fact that Arabica coffee prices dropped significantly since the peak in 2011, big coffee blenders continue to blend a larger share of Robusta coffee, even despite some signs of the blend shifting towards Arabica. For Robusta, significant stock withdrawals were noted. In fact, the Liffe-certified coffee stocks dropped from levels above 400,000 tonnes in 2011, to just above 56,000 tonnes in mid-October.

Downside limited despite record crops As the crop year 2012/2013 has now finished, the main driver for the coming months will be t he Vietnamese crop. An increase of at least 10% is expected. The main sales can be expected between mid-November and January. In previous years, Vietnamese farmers have proved very disciplined in selling at the right price. These farmers are better financed and can hold onto stocks in expectation of higher prices. Therefore, the record Vietnamese crop is not expected to lead to a further big decline in prices. Furthermore, the first signals for next year’s Brazilian crop also look promising, which suggests that the oversupply situation could continue for at least one m ore year. For the next few months, the focus will be on stock levels. With no f resh Robusta coffee coming in, more downside in stocks could be possible. In addition, if Robusta prices remain under pressure, big roasters could, in the end, decide to again blend a bigger share of the better-quality Arabica, requiring a narrowing of the Arabica/Robusta spread. With Arabica already trading below cost price, the downside seems to be l imited though. Moreover, our expectation for a r ecovery of the US dollar to start after the now delayed beginning of tapering of the Federal Reserve’s asset purchases, does not support our US-dollar-denominated commodities outlook.


- Coffee production’s sensitivity to weather conditions - Downturn in the global economy

- Long term: switching from a world surplus to a deficit as stocks dwindle

- Anticipation of another year of large harvests


Hans van Cleef (+31 20 343 46 79)

Agriculturals | Cocoa • West Africa crop worries pushed cocoa prices higher • Revised ICCO data suggest the deficit to remain in the coming years • More support for cocoa prices is expected: USD 2,750/t in Q4

Historical price cocoa

Source: Thomson Reuters Datastream Cocoa beans production and grinding Source: ICCO Group Economics price forecast (USD/t) 3-m price end of quarter and year averages

3-month 2013 2014 2015

Cocoa 2,750 2,450 2,900 - Source: ABN AMRO

West Africa crop worries proved supportive After ICE cocoa prices touched the low of USD 2,046/t in early March, an impressive recovery started in mid-August, continuing into October when cocoa prices touched a high of USD 2,766/t. The bullish rally was driven by several reasons: the price recovery attracted new speculative buying which, especially in combination with the weak US dollar, lifted the futures market; deteriorating weather conditions in West Africa, which could hurt the new season’s crop also drove the rally. The dry period in Ivory Coast and Ghana started much earlier than normal, while farmers in Nigeria were worried about too much rain. As a r esult, the Ministry of Finance of Ivory Coast lowered its estimates for cocoa production to 1.4 million tonnes in 2013/2014 from 1.5 million tonnes in 2012/2013. Backwardation, which is when the price of a forward or futures contract is trading below the current spot price, remained in place, as the market continued to speculate on more disappointing news to come regarding the crop in West Africa. Finally, there was the news that Ivory Coast had forward-sold a large portion of its 2013/2014 crop earlier than expected. This increased market worries that there could be a shortage of cocoa later in the year for spot trading. Ivory Coast set a farm-gate price of CFT 750/kg for 2013/2014, after farmers were holding back sales while waiting for the new benchmark. Another signal which had an i mpact was North American cocoa grindings, which rose by 8.25% to their highest level since 2009, according to the National Confectioners Association. Furthermore, the International Cocoa Organisation (ICCO) revised its world 2012/2013 deficit to 86,000 tonnes. In 2011/2012, there was an 87,000 tonnes surplus. Global cocoa production for 2012/2013 will therefore decline by 2.4% to 3.986 million tonnes.

Deficit will remain in the coming years According to the ICCO, the global cocoa market will be i n deficit for the coming years. The main reasons are supply problems and the rising consumption in Asia (see our report ”China demand for commodities” published on 25 October 2013). This appears contrary to our last update, in which we stated that production will rise in the coming years. The deficit, however, can be explained by the continuous trend of rising demand in Asia, especially from the middle class. Grinding and harvest data for the 2013/2014 crop year will continue to drive cocoa prices. Dry conditions, in particular, will be cl osely watched. The first new crop position offering (2014/2015) has already started. Therefore, there seems to be little selling pressure from speculators. Finally, there is the fundamental pressure of stressed, or old, trees. Since the use of fertilisers has been reduced, the risk for poor quality and possible diseases has increased. As a result of these factors, more support could be seen in the coming months. Our three-month forecast is for a cocoa price of USD 2,750/t, which will bring the 2013 average to USD 2,450/t. With the deficit as the main driver, higher prices could lead to an average price of USD 2,900/t in 2014.


- Cocoa production’s sensitivity to weather conditions - Downturn in the global economy

- High vulnerability of the cocoa crop to diseases


GDP growth (% y-o-y) Inflation (CPI, % y-o-y avg) GDP per cap USD

2011 2012e 2013e 2014e 2011 2012 2013e 2014e 2012 US 1.8% 2.8% 1.7% 3.2% 3.4% 2.1% 1.5% 1.9% 49,876 China 9.3% 7.8% 7.5% 8.0% 5.5% 2.6% 3.0% 3.6% 5,931 Japan -0.6% 2.0% 1.7% 1.8% -0.3% 0.0% 0.4% 2.6% 46,685 EU 1.5% -0.5% -0.5% 1.3% 2.7% 2.5% 1.4% 1.1% 34,500e UK 1.1% 0.2% 1.4% 2.8% 4.5% 2.8% 2.8% 2.1% 36,700e Germany 3.4% 0.9% 0.5% 2.0% 2.1% 2.0% 1.5% 1.7% 41,643 World 3.9% 3.0% 2.8% 3.8% 4.9% 4.0% 3.9% 3.9% 12,500e

GDP Forecast Developed and Developing Countries

World Trade (volume index) and y-o-y % change

Regional Manufacturing PMIs (index) Consumer Prices per Region (change in CPI, % y-o-y)

Business & Consumer Confidence Euro Area

Macro-economic Forecasts ABN AMRO Group Economics

Consulted sources for this publication: Economic forecasts, insights and publications from ABN AMRO | Group Economics, Metal Bulletin, Commodities Now, Mining Journal, Coaltrans, Bloomberg, IGC, IISI, ISSB, NBS, IGC, IEA, Baker Hughes, ICCO, ICO, USDA, China Mining, Clarkson Research Services, ABARE, AME, Thomson Reuters Datastream, World bank, ECB, Eurostat, IMF

Macro-economic data | Leading indicators supporting commodity price forecasts

Forecasts from 17th of October 2013 by ABN AMRO Group Economics (except GDP per cap 2012 estimates)

Australia Brazil

China

Denmark

France Germany

India Indonesia

Italy Japan

Mexico

Netherlands Portugal

Russia

South Africa South Korea

Spain Switzerland

Turkey UAE

UK US

Vietnam

Ireland

Greece

Eurozone

Emerging Asia

Emerging Europe

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

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

GD

P g

row

th (y

-o-y

) 201

4

GDP growth (y-o-y) 2013

world GDP growth (2014): 3.8% (yoy)

world GDP growth (2013): 2.8% (yoy)

40

44

48

52

56

60Germany

UK

Europe

World

France

Italy

SpainBrazil

China

India

Japan

Russia

US

August 2013 September 2013 Neutral level

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140

-25%-20%-15%-10%-5%0%5%

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2007 2008 2009 2010 2011 2012 2013World trade (l.axis, y-o-y % change)

World trade balance (r.axis, volume index)

-40-35-30-25-20-15-10-505

10

Consumer confidence indicator Euro Area Business confidence indicator Euro Area

-3-2-101234567

2009 2010 2011 2012 2013

% c

hang

e y-

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EU27 US Japan China


E-mailbox of Group Economics: [email protected] Group Economics:

Contact information ABN AMRO | Group Economics (in order of appearance): Primary area of expertise: Phone: E-mail:

- Marijke Zewuster Head Emerging Markets & Commodities, Soft commodities

+31 20 383 05 18 [email protected]

- Nick Kounis Head Macro Research +31 20 343 56 16 [email protected] - Georgette Boele Precious Metals, top down +31 20 629 77 89 [email protected] - Casper Burgering Ferrous and Non-ferrous metals +31 20 383 26 93 [email protected] - Hans van Cleef Energy, Soft commodities +31 20 343 46 79 [email protected] - Theo de Kort Information specialist +31 20 628 04 89 [email protected]

More information:

Websites Group Economics - Internet Group Economics (Macro Research and theme

reports, including commodities): English: insights.abnamro.nl/en/www.abnamro.nl/economischbureau Dutch: insights.abnamro.nl/

Contributors

All publications of ABN AMRO on macro-economics and sector developments can be found on: insights.abnamro.nl/en. You can also download our Market Insights App on abnamro.nl/marketinsights or directly in de App Store. Follow Group Economics on Twitter: https://twitter.com/sectoreconomen


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Company disclosures ABN AMRO may beneficially hold a m ajor shareholding or a s ignificant financial interest of the debt of this company. ABN AMRO currently maintains a market in the security of this company and otherwise purchases and sells securities of this company as principal. ABN AMRO has received compensation for investment banking services from this company, its subsidiaries or affiliates during the previous 12 months.

Personal disclosures The information in this opinion is not intended as individual investment advice or as a recommendation to invest in certain investments products. The opinion is based on investment research of ABN AMRO Group Economics Sector Research and ABN AMRO Private Banking International. The analysts have no personal interest in the companies included in this publication'. Their remuneration for this work is not, was not and will not be related directly or indirectly to the specific recommendations or views expressed in this opinion.

q4 2013 quarterly commodity outlook

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