Commodity Research

Commodities Daily 17 October 2016

Most pronounced position reduction in gold for 10 years Energy: Brent appears to be stabilising at $52 per barrel, while WTI is hovering around the $50 per barrel mark. The 20% price increase since the end of September was driven largely by speculation. According to the CFTC’s statistics that were published on Friday, speculative net long positions in WTI climbed by an additional 31,500 to 254,400 contracts in the week to 11 October. This was the third pronounced weekly rise in a row, during that time net long positions increased by 126,000 contracts. At the same time, they find themselves at their highest level since May 2015. The data for Brent are likely to paint a similar picture at lunchtime today, though they already find themselves at a higher level and in the last reporting week were only a good 40,000 contracts below the record level achieved in the spring. Whether investors will stick to their guns will depend primarily on whether OPEC maintains the credibility of its announced production cuts. If there are growing doubts and investors jettison their long positions, this would generate significant selling pressure on oil prices. The higher oil prices are already having one visible side effect: drilling for (shale) oil in the US is worthwhile again. According to Baker Hughes, drilling activity climbed last week for the 15th time in the past 16 weeks. The oil rig count has increased by a good 100 since the end of June, thereby negating half of the decline since the beginning of the year again. This points to a trend reversal in US oil production – which could also prompt investors to sell their long positions. Precious metals: Gold is also trading at only a good $1,250 per troy ounce as the new week of trading gets underway. Admittedly, gold is finding support from moderate but continual ETF inflows: since the beginning of the month, holdings have been increased by 19 tons, which is more than in the whole of last month. However, gold is facing headwind on the one hand from the firm US dollar, which appreciated for a time to a 2½-month high against the euro this morning. On the other hand, rising stock markets and higher bond yields are keeping the gold price in check. The yields on ten-year US Treasuries have climbed to a 4½-month high, which makes gold less attractive as an alternative investment. As the CFTC’s statistics on the positioning of speculative market participants show, the slide in the gold price in early October, which saw it fall below several technically important thresholds, was driven by speculation to a major extent. In the week to 11 October, for instance, net long positions were slashed by a further 26%. At 148,800 contracts, they find themselves at their lowest level since the end of May. In the last two reporting weeks, net long positions were decimated by around 42% or 106,000 contracts – the most pronounced position reduction within the space of two weeks since the data series began ten years ago. We believe that this will ease the selling pressure from this side, however. What is more, because we assume that gold demand will pick up in Asia in the coming months, we expect the gold price to stabilise and then recover.

Speculative market positioning (net) 11-Oct

‘000 contracts

WTI

254.375

31.544

Henry Hub

139.175

21.465

Gasoline

36.632

5.815

Gold

148.793

-51.323

Silver

45.546

-18.961

Platinum

11.316

-6.031

Palladium

13.425

-0.894

Copper

12.893

5.805

Wheat

-137.243

17.953

Corn

-121.914

31.182

Soybeans

68.789

6.798

Cotton

53.195

-12.772

Coffee

36.849

-2.269

Cocoa

23.563

0.752

Sugar

250.826

-17.475

Source: CFTC, Bloomberg

Number of active US oil and gas rigs 14-Oct

Rig count weekly change

USA total

539

Oil

432

4

Gas

105

11

Horizontal

431

18

57

-4

Directional

51

1

Source: Baker Hughes, Bloomberg

280

1400

240

1350

Eugen Weinberg

200

1300

+49 69 136 43417 [email protected]

160

1250

Analyst

120

1200

Carsten Fritsch

80

1150

+49 69 136 21006 [email protected]

40

1100

Analyst

0

1050

Barbara Lambrecht

1000 Apr-15

Jul-15

Oct-15

Jan-16

Apr-16

Net long positions of money managers ('000 contracts), ls

Jul-16

Oct-16

Gold (US$ per troy ounce), rs

Head of Commodity Research

+49 69 136 22295 [email protected]

Analyst Michaela Kuhl +49 69 136 29363 [email protected]

Source: CFTC, Bloomberg, Commerzbank Research

For important disclosure information please see page 6. research.commerzbank.com / Bloomberg: CBKR / Research APP available

15

Vertical

CHART OF THE DAY: Latest gold price fall driven largely by speculation

-40 Jan-15

Weekly change

Analyst Daniel Briesemann +49 69 136 29158 [email protected]

Commodity Research | Commodities Daily

Base metals: Metal prices are going in different directions as the week begins, and remain largely unchanged. Copper is trading at around the $4,700 per ton mark, aluminium costs $1,650 per ton and nickel is priced at a good $10,400 per ton. As the National Bureau of Statistics reported last Friday, producer prices in China climbed again in September for the first time since early 2012 (by +0.1% year-on-year). This is attributable first and foremost to the higher steel and coal prices sparked by the recovering real estate market. Our economists assume that the inflation dynamism will increase on both the producer side and the consumer side, which could limit the Chinese central bank’s scope for monetary policy action. Market participants will be focusing their attention this week on further economic data from China, such as the figure for third-quarter GDP. If this turns out to be positive, as Prime Minister Li Keqiang has already hinted, it will likely lend buoyancy to metal prices. According to the CFTC’s statistics, speculative market participants have displayed continued optimism towards copper of late, expanding their net long positions on the Comex in New York in the week to 11 October, too. At 12,900 contracts, net longs now find themselves at their highest level since the beginning of August, though this has done virtually nothing to boost the copper price. What is more, the price slide at the end of last week suggests that some net long positions have been reduced again in the meantime. Agriculturals: For the first time since the end of September, a pound of cotton costs more than 70 US cents again. What is more, cotton has increased by 5% in price since the middle of last week. The price rise was sparked by new US Department of Agriculture estimates of stocks in the US and worldwide. Cotton stocks in the US look set to rise to only 936,000 tons at the end of 2016/17 because of a lower than expected crop and higher exports. That’s 131,000 tons less than previously assumed. On a global level, the USDA downwardly revised ending stocks by a good 500,000 to 19 million tons. The lion’s share of this is attributable to China, where the stock estimate was lowered from a good 11 million to less than 10.5 million tons as compared to the previous month. The higher than anticipated sales from state reserves are making themselves felt here: this summer alone, China sold 2.5 million tons of cotton from its state reserves to domestic manufacturers. The government expects sales on a similar scale in the coming year, too. This is intended to plug the production deficit in China, which the USDA estimates at approx. 3 million tons in the 2016/17 crop year. Imports will not be nearly enough to fill the gap. As China’s National Development and Reform Commission announced last week, only imports of 894,000 tons of cotton will allowed at the low import tariff of 1% in 2017, too. A prohibitively high import tax is levied on imports above and beyond this level. Prices Energy 1) Brent Blend WTI Gasoline Gasoil Diesel Jet fuel Natural gas ($/mmBtu) Base metals 2) Aluminum Copper Lead Nickel Tin Zinc Precious metals 3) Gold Gold (€/oz) Silver Platinum Palladium Agriculturals 1) Wheat (LIFFE, €/t) Wheat CBOT Corn Soybeans Cotton Sugar Coffee Arabica Cocoa (LIFFE, £/t) Currencies 3) EUR/USD

2

Inventories current 52.0 50.4 500.0 461.3 461.3 468.8 3.29

1 day -0.2% -0.2% -0.2% -1.0% 0.1% -0.2% -1.7%

1 week -2.9% -2.6% -3.3% -3.4% -0.9% -0.1% -1.2%

1 month 12.8% 16.2% 7.1% 11.9% 14.6% 14.6% 9.8%

ytd 38% 35% 26% 38% 45% 32% 38%

Energy * Crude oil Gasoline Distillates Ethanol Crude oil Cushing Natural gas Gasoil (ARA) Gasoline (ARA)

1675 4675 1998 10485 19450 2258

-1.0% -0.8% 0.1% 0.5% -0.2% 0.8%

-2.3% -3.4% -4.9% -0.7% -3.2% -2.9%

4.8% -2.1% 3.1% 7.4% 1.9% 2.0%

10% 0% 11% 18% 34% 40%

1251.4 1140.4 17.4 935.0 646.5

-0.5% 0.2% -0.3% -0.2% 1.1%

-0.6% 0.9% -1.4% -2.7% -3.3%

-4.5% -2.9% -7.4% -7.8% -3.9%

18% 17% 25% 5% 15%

Base metals ** Aluminum LME Shanghai Copper LME COMEX Shanghai Lead LME Nickel LME Tin LME Zinc LME Shanghai

163.8 421.0 354.3 962.5 70.6 22.91 155.4 2268

1.6% 1.2% 1.4% 0.7% 1.8% 0.5% 1.8% 0.8%

4.3% 3.7% 3.0% 1.9% 5.4% -1.1% 3.1% -2.2%

2.8% 4.8% 5.6% 0.6% 4.6% 2.5% 4.4% 1.4%

-6% -14% -6% 8% 10% 61% 23% 0%

1.0972

-0.8%

-1.5%

-1.8%

1%

Precious metals *** Gold Silver Platinum Palladium

current 473958 225498 156972 19393 61334 3759 3039 651

1 day

-

1 week 1.0% -0.8% -2.3% -3.9% -2.1% 2.2% 0.6% 4.7%

1 month -1.4% -1.0% -0.7% -6.1% -3.3% 9.4% -11.7% -32.1%

1 year 9% 2% 6% 2% 13% 1% -19% -24%

2083250 84655 345800 71094 121439 189800 362478 3250 455650 165614

-0.3% -0.9% 0.1% 0.0% 0.5% -2.1% -0.1% -

-1.7% 1.1% -1.4% 0.7% 13.4% -0.5% 0.5% -5.0% -0.4% 4.6%

-3.9% -32.8% -0.9% 1.5% -15.5% 1.0% -1.2% -15.3% 2.5% -11.1%

-33% -71% 18% 66% -21% 25% -17% -27% -23% 0%

65952 671653 2280 2019

0.1% 0.0% 0.5% -0.3%

0.2% 0.0% 0.5% -1.1%

1.6% 0.3% 1.1% -2.4%

33% 10% -15% -30%

-

Source: DOE, PJK, LME, COMEX, SHFE, Bloomberg, Commerzbank Research Percentage change on previous period 1) 2) 3) 1 month forward, 3 months forward, spot Crude oil in USD per barrel, oil products and base metals in USD per ton, Precious metals in USD per troy ounce, grains and soybeans in US cents per bushel, Cotton, sugar and coffee Arabica in US cents per pound * US inventories of crude oil, oil products and ethanol in ‘000 barrel, US natural gas inventories in billion cubic feet, ARA stocks in ‘000 tons ** tons, *** ETF holdings in ‘000 ounces

17 October 2016

Commodity Research | Commodities Daily

Net long positions of money managers vs. price GRAPH1: Crude oil (WTI)

GRAPH 2: Natural gas (Henry Hub; futures and swaps)

'000 contracts

350 300

120

300

100

200

6.0

100

5.0

0

4.0

-100

3.0

-200

2.0

250 200

80

150

60

100 40

50 0 Jan-14

20 Jul-14

Jan-15

Jul-15

Jan-16

spec. net long positions, lS

Jul-16

7.0

'000 contracts

-300 Jan-14

WTI ($/barrel), rS

1.0 Jul-14

Jan-15

Jul-15

spec. net long posit., lS

Jan-16

HenryHub ($/MMBtu), r S

Source: CFTC; Bloomberg, Commerzbank Research

Source: CFTC; Bloomberg, Commerzbank Research

GRAPH 3: Crude oil (Brent)

GRAPH 4: Gold

in '000 contracts

500

120

Jul-16

'000 contracts

300

1400

250

400

100

300

80

150

200

60

100

100

40

1300

200

1200

50

0 Jan. 14

20 Jul. 14

Jan. 15

Jul. 15

Jan. 16

Spec. Net long positions, lS

Jul. 16

1100

0 -50 Jan-14

1000 Jul-14

Jan-15

Jul-15

spec. net long posit., left

Brent, $/barrel, rS

Jan-16

Gold ($ per troy ounce), right

Source: ICE; Bloomberg, Commerzbank Research

Source: CFTC; Bloomberg, Commerzbank Research

GRAPH 5: Silver

GRAPH 6: Copper

100

24

'000 contracts

80

22

60

20

40

18

20

16

0

14

-20 Jan-14

12 Jul-14

Jan-15

Jul-15

spec. net long posit., lS

Jan-16

Jul-16

Silver ( USD per troy ounce), rS

6500 6000 5500 5000 4500 4000 Jul-15

Jan-16

Jul-16

Copper (USD per ton), r S

GRAPH 8: Wheat

'000 contracts

550

200

500

60

800

'000 contracts

30

700

0

100

450

-30

600

400

-60

500

0 -100

-90

350

-200

300 Jul-14

Jan-15

spec. net long posit., lS

Jul-15

Jan-16

Jul-16

Corn (USd per bushel), rS

Source: CFTC; Bloomberg, Commerzbank Research

17 October 2016

7000

Source: CFTC; Bloomberg, Commerzbank Research

GRAPH 7: Corn

-300 Jan-14

7500

spec. net long positions, lS

Source: CFTC; Bloomberg, Commerzbank Research

300

'000 contracts 50 40 30 20 10 0 -10 -20 -30 -40 -50 Jan-14 Jul-14 Jan-15

Jul-16

400

-120 -150 Jan-14

300 Jul-14

Jan-15

spec. net long posit., lS

Jul-15

Jan-16

Jul-16

Wheat (USd per bushel), rS

Source: CFTC; Bloomberg, Commerzbank Research

3

Commodity Research | Commodities Daily

GRAPH 9: Forward curve oil market (WTI)

GRAPH 10: Forward curve oil market (Brent)

59

62

56

59

53

56

50

53

47

50

44

47

41 1M

8M

15M

22M

actual

29M

3Y

one week ago

43M

44 1M

7M

one month ago

13M

19M

actual

25M

31M

37M

one week ago

Source: NYMEX; Bloomberg, Commerzbank Research

Source: ICE; Bloomberg, Commerzbank Research

GRAPH 11: Forward curve gas market (Henry Hub)

GRAPH 12: Forward curve gasoil (ICE)

3.75

520

3.50

500

43M

one month ago

480

3.25

460

3.00

440

2.75 420

2.50 1M

8M

15M

22M

actual

29M

3Y

one week ago

43M

400 1M

3M

5M

7M

actual

one month ago

9M

Source: NYMEX; Bloomberg, Commerzbank Research

Source: ICE; Bloomberg, Commerzbank Research

GRAPH 13: Forward curve aluminium (LME)

GRAPH 14: Forward curve copper (LME)

1900

5000

1800

4900

1700

4800

1600

4700

1500 1M

8M actual

15M

22M

29M

one week ago

3Y

43M

13M

15M

one month ago

4600 1M

one month ago

8M actual

15M

22M

29M

one week ago

Source: LME; Bloomberg, Commerzbank Research

Source: LME; Bloomberg, Commerzbank Research

GRAPH 15: Forward curve Nickel (LME)

GRAPH 16: Forward curve zinc (LME)

11500

11M

one week ago

3Y

43M

one month ago

2400 2350

11000

2300

10500 2250

10000

2200 2150

9500 1M

8M actual

15M

22M

29M

one week ago

Source: LME; Bloomberg, Commerzbank Research

4

3Y

43M

one month ago

1M

5M actual

9M

13M

one week ago

17M

21M

one month ago

Source: LME; Bloomberg, Commerzbank Research

17 October 2016

Commodity Research | Commodities Daily

GRAPH 17: Forward curve lead (LME)

GRAPH 18: Forward curve tin (LME)

2200

20500

2100

20000

2000

19500

1900

19000 18500

1800 1M

8M actual

15M

1M

22M

one week ago

one month ago

4M actual

7M

10M

one week ago

13M one month ago

Source: LME; Bloomberg, Commerzbank Research

Source: LME, Bloomberg, Commerzbank Research

GRAPH 19: Forward curve wheat (CBOT)

GRAPH 20: Forward curve wheat (MATIF) 190

530 500

180

470

170 440

160

410 380

150 2M

7M actual

12M

18M

22M

one week ago

2M

one month ago

5M

7M

actual

11M

14M

18M

one week ago

Source: CBOT; Bloomberg, Commerzbank Research

Source: MATIF; Bloomberg, Commerzbank Research

GRAPH 17: Forward curve corn (CBOT)

GRAPH 22: Forward curve soybeans (CBOT)

440

1020

420

1000

400

19M

24M

one month ago

980

380 960

360

940

340 320

920

2M

7M actual

12M

18M

22M

one week ago

27M

1M

7M actual

one month ago

12M

18M

one week ago

Source: CBOT; Bloomberg, Commerzbank Research

Source: CBOT; Bloomberg, Commerzbank Research

GRAPH 23: Forward curve cotton (NYBOT)

GRAPH 24: Forward curve sugar (NYBOT)

72

23M one month ago

24.0

71 22.0

70 20.0

69 68

18.0

67 16.0

66 2M

7M actual

12M

17M

one week ago

Source: NYBOT; Bloomberg, Commerzbank Research

17 October 2016

21M

26M

one month ago

5M

9M actual

17M

21M

one week ago

29M

33M

one month ago

Source: NYBOT; Bloomberg, Commerzbank Research

5

Commodity Research | Commodities Daily

In accordance with ESMA MAR requirements this report was completed 17/10/2016 11:00 CEST and disseminated 17/10/2016 11:01 CEST. This document has been created and published by the Corporates & Markets division of Commerzbank AG, Frankfurt/Main or Commerzbank’s branch offices mentioned in the document. Commerzbank Corporates & Markets is the investment banking division of Commerzbank, integrating research, debt, equities, interest rates and foreign exchange. If this report includes an analysis of one or more equity securities, please note that the author(s) certify that (a) the views expressed in this report accurately reflect their personal views; and (b) no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or views expressed by them contained in this document. The research analyst(s) named on this report are not registered / qualified as research analysts with FINRA. 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Commodities Daily

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