A WORLD HUNGRY FOR COMMODITIES
Content A world hungry for commodities 3 Investor behaviour 18 Industry dynamics 25 That makes us bullish 29 That makes us cautious 59 Gold 66 Oil 84 Uranium 94 Chartbook Base Metals 99 Seite 2
A WORLD HUNGRY FOR COMMODITIES Seite 3
A world hungry for commodities China and India lagging behind Seite 4
A world hungry for commodities China and India lagging behind Oil consumption (per capita) by country 1'500 80 69 1'266 Population in mln 1'000 500 281 44 32 1'027 60 40 20 bbl/day per 1'000 peopl 0 126 83 5 2 USA Japan Germany China India 0 Population (mln) Oil consumption bbl/day per 1000 people Seite 5
A world hungry for commodities China, India: Urbanization drives commodity use Urbanisation drives infrastructure development; increased economic development drives wealth which drives consumption this will be a commodity demand driver for several decades to come Seite 6
A world hungry for commodities China, India: Room to grow Seite 7
A world hungry for commodities Chinese urban middle class is moving up Seite 8
A world hungry for commodities Chinese car sales have outpaced car sales in the US Seite 9
A world hungry for commodities China s share of global demand soars in 2009 In recent months, China has represented 46 49% of world steel demand and 45 46% of world base metal demand compared with 34.4% and 32.8%, respectively, in 2008. Seite 10
A world hungry for commodities Chinese shortfalls in selected commodities China is short resources and consumption per capita still lags the US. China is already the dominant consumer of metals but massive growth potential remains. Seite 11
A world hungry for commodities China s huge long-term demand for resources Seite 12
A world hungry for commodities China s inefficient production of iron ore will drive seaborne trade Seite 13
A world hungry for commodities India s huge long-term demand for resources Seite 14
A world hungry for commodities Chinese and Indian consumption relative to the US Seite 15
A world hungry for commodities Mine Supply Seite 16
A world hungry for commodities Large production losses in 2008 and 2009 Seite 17
INVESTOR BEHAVIOUR Seite 18
Investor behaviour The role of funds Seite 19
Investor behaviour Commodities have a relatively small share of the derivatives market While commodities are one of the oldest and largest physical markets in the world, representing about 10% of global GDP, they constitute only a small share of total futures outstanding and an even smaller share of the mammoth $600 trillion OTC derivatives market. (Source: ML) Seite 20
Investor behaviour A large portion of the futures market is dedicated to rather passive activities But even this relatively small share of commodities in global derivatives markets overestimates the ability of speculators to use commodity derivatives to eliminate inefficiencies. In fact, a large portion of the futures market is dedicated to rather passive activities such as commercial hedging and index tracking. (Source: ML) Seite 21
Investor behaviour Mark-to-market valuation metal & mining stocks still not overpriced! Company Price PER EV/EBITDA (GBP, per 22.3.10) (spot scenario) (spot scenario) BHP Billiton 2206.5 9.8x 6.0x Rio Tinto 3729.5 6.8x 5.0x Anglo American 2733 8.9x 5.6x Xstrata 1170 8.9x 5.6x Source: ML Seite 22
Investors behaviour Sharp decrease in volatility on raw material equity indices DJ STOXX Basic Resource Index - Volatility Seite 23
Investors behaviour Sector CDS spreads are tightening CDS Metals/Mining Sector Graph Seite 24
INDUSTRY DYNAMICS Seite 25
Industry Dynamics Severe production cuts - Future supply will be impacted Capex follow commodity prices with a lag Less supply in future suggests prices could rise dramatically when demand recovers The gross fall in capex may reach $24bn in 2010, this equates to the removal of approx. 3mt of annual copper Industry may well be in an even worse position with regards to supply than it was in 2003 Seite 26
Industry Dynamics Recent capex increases absorbed by inflation Almost half of Rio Tinto s increase in capital expenditure between 2003 and 06 was absorbed by inflation Seite 27
Industry Dynamics Steel inventories in North America at levels of 1983 North American steel product inventories increased by 313k tons sequentially, to 7.8mm tons in February. Inventories were up 261k tons in January. The inventory rebuild has been under way for the past six months. Feb inventories rose 4% on a sequential basis and are down 18% versus last year. The sequential rise is above the average February increase of 25k tons. Inventories are 41% below the 10-year average of 13.1mm tons. While inventory tons have increased, months on hand were flat at 2.5, given the corresponding increase in shipments. MoH are below the 10-year average of 2.8. (Source: ML) Seite 28
THAT MAKES US BULLISH Seite 29
That makes us bullish Crude steel production World crude steel production for January was 108.9mt, up slightly from the 107.0mt total in December. On an annualised basis, the total represents 1,282mtpa, 25.5% above January 2009 s figure. Yet again, we have seen the world ex-china production continue its recovery while China s figure of 573mtpa annualised disappointed. With lead indicators remaining in positive territory, (and unless production is constrained by raw material availability), we expect continued growth in output through the coming quarter. Source: Macquarie Seite 30
That makes us bullish Crude steel production The latest data cements the steel production recovery outside of China, with strong growth in Western Europe in January as positive sentiment builds. Seite 31
That makes us bullish Growth in 2010 will be strong Seite 32
That makes us bullish Global IP has surged off the lows Seite 33
That makes us bullish Commodity prices still (mostly) below the highs Seite 34
That makes us bullish Baltic Dry bottoming out Seite 35
That makes us bullish Vessel deliveries should accelerate in 2H09, scrapping has slowed to almost zero Dry bulk actual and expected deliveries (dwt 000) and historic scrapping, 2004-13E Seite 36
That makes us bullish Long queues at Australian ports Seite 37
That makes us bullish Chinese iron ore stocks low in months imports Seite 38
That makes us bullish Freight rates to China Spot Iron Ore Freight from Brazil to China US$/t (Capesize 150 000 ton) Spot Iron Ore Freight from Australia to China US$/t (Capesize 150 000 ton) Seite 39
That makes us bullish China: Monetary stimulus, no significant inflation so far Seite 40
That makes us bullish China: End-use indicators take off Seite 41
That makes us bullish China: Credit and money supply surging China monthly new loan China M1 yoy Seite 42
That makes us bullish China: PMI above 50, still good FAI growth Strong recovery in China Manufacturing PMI China Fixed Asset Investments growth Seite 43
That makes us bullish China: IP growth still strong, retail sales growth >20% China Industrial Production Growth yoy China Retail Sales yoy Seite 44
That makes us bullish China: Property market recovery Property prices continues to rise, on the back of rising price expectation and limited new supply. Property prices in China Property prices in tier-1 cities Seite 45
That makes us bullish China: Property market recovery, Exports catching up Recovery in the property sector Export growth is catching up Seite 46
That makes us bullish China: Exports are turning around / Strong energy consumption Seite 47
That makes us bullish China: Indian spot iron ore (import) and scrap prices China Import Indian Iron Ore 63% Fe (CFR China) USD/metric tonne Iron & Steel Scrap China Domestic Heavy Scrap Yuan/metric tonne Seite 48
That makes us bullish Scrap prices in Europe moving up? Steel Scrap Shredded Rotterdam Export $/tonne Seite 49
That makes us bullish Starting to factor in revival in steel market conditions in China Steel China domestic Hot rolled coil (2mm and up) Southern China Yuan per tonne China domestic cold rolled coil (052mm) Yuan/tonne Seite 50
That makes us bullish Have US steel prices bottomed? Steel US import Cold rolled coil Euro per short ton Steel US import Hot rolled coil Euro per short ton Seite 51
That makes us bullish European steel prices Steel EU domestic Cold rolled coil Euro per tonne Steel EU domestic Hot rolled coil Euro tonne Seite 52
That makes us bullish China passenger car sales: >1 mio per month! Seite 53
That makes us bullish China raw materials imports up again China Iron Ore Imports in million tons (monthly) China Total Coal Imports in million tons (monthly) Seite 54
That makes us bullish Strong Chinese commodities imports China Refined Nickel Imports in kt (monthly) China Total Copper Imports in kt (monthly) Seite 55
That makes us bullish Platinum 15% of production below spot Quelle: Merrill Lynch Seite 56
That makes us bullish Nickel inventories have bottomed Nickel inventories LME Nickel cancelled warrants Seite 57
That makes us bullish Copper inventories have bottomed Copper inventories LME Cancelled copper warrants Seite 58
THAT MAKES US CAUTIOUS Seite 59
That makes us cautious Central banks balance sheets (in bn $) FED-/ECB-Balance Sheet 3000 2500 2000 1500 1000 500 0 01 02 03 04 05 06 07 08 09 EZB FED Seite 60
That makes us cautious US debts Gesamtverschuldung in den USA in Prozenten des BSP (Quelle: Statistical History of the USA) Seite 61
That makes us cautious Public debts Öffentliche Verschuldung im Verhältnis zum BSP 130 110 90 70 50 30 10-10 Japan Italy U.K. U.S. Germany Quelle: Standard & Poors France Spain Switzerland Sweden 2008 2013 Seite 62
That makes us cautious Liquidity bubble at Chinese stockmarket Seite 63
That makes us cautious China: Steel inventory skyrocketing Steel Inventory Shanghai (10kt) Steel Inventory Guangzhou (10kt) Seite 64
That makes us cautious Copper stockpiles in Shanghai (t) Seite 65
GOLD Seite 66
Gold Gold ETF holdings Seite 67
Gold Gold supply and demand Seite 68
Gold Gold supply and demand Seite 69
Gold Is gold a crowded trade? Seite 70
Gold Gold above-ground stocks by category, 2007 Seite 71
Gold Additions of gold to official reserves have been small relative to world nominal GDP Gold reserves, tonnes, 1948-2008, major official gold holders Seite 72
Gold Central Bank Gold Agreement (CBGA 3) CBGA gold holdings (tonnes) and gold % total reserves, end sep 09 Gold holdings (tonnes) outside CGBA reported end sep 09 Seite 73
Gold Gold selling under CBGA subsided The official sector has become a net gold buyer Gold sales from CBGA signatories have subsided Seite 74
Gold Gold buying from EMMAs and de-hedging Central banks from emerging markets have gradually boosted their gold holdings Gold producers have gradually reduced their hedge books Seite 75
Gold Decline in world gold mine production Seite 76
Gold Sensitivities Scrap supply vs. change In the gold price 1987-2008 Gold price vs. jewellery demand 1987-2008 Seite 77
Gold Sensitivities Seite 78
Gold Gold cash cost curves (BMO Universe and Brook Hunt Universe) Seite 79
Gold Gold price adjusted for inflation Bloomberg Composite Gold Inflation Adjusted Spot Price (Base year 1982-84 = 100) Seite 80
Gold Gold: S&P 500 Ratio Seite 81
Gold Gold price in currencies from producer countries Gold price in USD versus gold price in AUD and ZAR Seite 82
Gold US debt as a percent of GDP In the U.S., public and private debt reached nearly 360% of GDP in the third quarter of 2008 Seite 83
OIL Seite 84
Oil Oil demand and supply (Source: Schlumberger) Seite 85
What about oil? Long-term oil supply cost curve (Source: Schlumberger) Seite 86
Oil OPEC and non-opec production (in mlnb/d) (Source: Bloomberg) Seite 87
Oil World oil demand (in mlnb/d) (Source: Bloomberg) Seite 88
Oil OPEC cuts (in mlnb/d) (Source: ML) Seite 89
Oil US crude oil/gasoline inventory levels (MBbl) Seite 90
Oil Crude oil price 1861-2008 (Source: BP) Seite 91
Oil Reserve to production ratio (Source: BP) Seite 92
Oil Oil from the pre-salt area (Source: Petrobras) Seite 93
URANIUM Seite 94
Uranium Top 10 mines account for 62% of supply (2008) Source: World Nuclear Org Seite 95
Uranium Uranium market supply-demand 2000-2020 est. Source: Thomas Weisel Seite 96
Uranium Anticipated delivery of reactors under construction/planned Source: Thomas Weisel Seite 97
Uranium Anticipated delivery of reactors under construction/planned Source: Thomas Weisel Seite 98
CHARTBOOK BASE METALS Seite 99
Base metals Cash costs copper today s copper price (black line) $3.00 $6'600 $2.50 $5'500 Rio Tinto BHP Freeport Antofagasta Capstone First Quantum Anglo American $2.00 Katanga Inmet Kazakhmys Southern Copper Quadra Norilsk Codelco Equinox Xstrata KGHM $1.50 $1.00 $0.50 $4'400 US$/lb US$/tonne $3'300 $2'200 $1'100 $0.00 0% 20% 40% 60% 80% 100% $0 Cumulative Production Quelle: BMO Seite 100
Base metals Copper incentive price (Macquarie) Quelle: BMO Seite 101
Base metals Cash costs aluminium today s aluminium price (black line) $1.20 $3'080 US$/lb $1.10 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 Alba Dubal Rusal BHP Vale Rio Tinto Chalco Hydro Aluminum Century Aluminum Alcoa Other China $2'640 $2'200 $1'760 $1'320 $880 $440 US$/tonne $0.40 0% 20% 40% 60% 80% 100% $0 Cumulative Production Quelle: BMO Seite 102
Base metals Cash costs nickel today s nickel price (black line) $12.00 $26'400 US$/lb $10.00 $8.00 $6.00 $4.00 $2.00 Jinchuan Union del Niquel Sumitomo Xstrata Vale Norilsk BHP Eramet Pacific Metals Private $0.00 0% 20% 40% 60% 80% 100% Cumulative Production $22'000 $17'600 $13'200 $8'800 $4'400 $0 US$/tonne Seite 103
Base metals Cash costs zinc today s zinc price (black line) $1.40 $3'080 US$/lb $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 Hundustan Teck Glencore Votorantim Anglo American HudBay New Boliden Xstrata OZ Minerals Minera Volcan $2'640 $2'200 $1'760 $1'320 $880 $440 US$/tonne $0.00 0% 20% 40% 60% 80% 100% Cumulative Production $0 26. März Quelle: 2010 BMO Basinvest AG Seite 104
Base metals Cash costs lead today s lead price (black line) $1.00 $2'200 $0.80 $1'760 US$/lb $0.60 $0.40 $1'320 $880 US$/tonne $0.20 $440 $0.00 0% 20% 40% 60% 80% 100% Cumulative Production $0 Quelle: BMO Seite 105
Base metals Long-term copper chart 600 Copper 500 US /lb 400 300 200 Real 100 Nominal 0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Quelle: BMO Seite 106
Base metals Long-term aluminium chart 300 Aluminum 250 Real 200 US /lb 150 100 50 Nominal 0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Quelle: BMO Seite 107
Base metals Long-term nickel chart 25 Nickel 20 US $/lb 15 10 Real 5 Nominal 0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Quelle: BMO Seite 108
Base metals Long-term zinc chart Zinc US /lb 200 175 150 125 100 75 Real 50 25 0 Nominal 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Quelle: BMO Seite 109
Base metals Long-term lead chart 180 Lead 160 140 Real 120 US /lb 100 80 60 40 Nominal 20 0 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Quelle: BMO Seite 110
Base metals Copper Days Supply Seite 111
Base metals Aluminium Days Supply Seite 112
Base metals Nickel Days Supply Seite 113
Base metals Zinc Days Supply Seite 114
Base metals Lead Days Supply Seite 115
Base metals Fundamentals Kupfer Quelle: UBS Seite 116
Base metals Fundamentals Kupfer Outlook (Source: Macquarie) Seite 117
Base metals Fundamentals Aluminium Quelle: UBS Seite 118
Base metals Fundamentals Aluminium Outlook (Source: Macquarie) Seite 119
Base metals Fundamentals Nickel Quelle: UBS Seite 120
Base metals Fundamentals Nickel Outlook (Source: Macquarie) 26. März Quelle: 2010 UBS Basinvest AG Seite 121
Base metals Fundamentals Zink Quelle: UBS Seite 122
Base metals Fundamentals Zink Outlook (Source: Macquarie) Quelle: UBS Seite 123
Base metals Fundamentals Blei Outlook (Source: Macquarie) Quelle: UBS Seite 124
Q&A Seite 125