CIMB Commodities Strategy 20130204 - Calmer Waters Ahead

February 4, 2013
ASIA PACIFIC
COMMODITIES STRATEGY
Notes from the Field
Calmer waters ahead

After a year in which commodity markets struggled for direction, a
gradual improvement in the macro environment should result in a
clearer path ahead. This path looks increasingly positive for
commodities, driven by market concerns over tail risks subsiding, a
continuation of commodity-intensive growth in China, and growing
supply side risks. As such, we remain broadly positive across the sector.
Daniel Hynes
T +61 2 9694 6092
E daniel.hynes@cimb.com
Figure 1: Short-term commodity outlook
Warren Edney
T +61 3 9612 1557
E warren.edney@cimb.com
Energy
Daniel Blake
Base Metals
T +61 2 9694 6053

E daniel.blake@cimb.com
Precious Metals
Steel Making Raw
Materials
Tough times helped many

commodities producers
become lean and mean
through consolidation,
mergers and cost-cutting.
All that excess supply has
been sopped up.
Jim Rogers
Overall
Bullish
Neutral
Oil
Slightly Bullish
Lead, Tin
Bullish
Gold, PGM
Neutral
Neutral
Natural
Gas,
Uranium, Thermal
Coal
Copper, Zinc,
Aluminium
Bearish
Nickel
Iron Ore, Met Coal

SOURCE: CIMB
In our view, this stability is a

significant positive and should lead to
an end of the destocking phase and
stronger growth in 2013. For
commodity markets, the pick-up in
Chinas economy has already resulted
in an improvement in demand, and
with it a rally in key commodities
(such as iron ore). Even a modest
recovery in Europe and North
America will be viewed as a positive
in commodity markets, and we
believe presents good opportunities
in 2013.
Chinas economy picking up
Real activity indicators in China

marked
a
trough
in
August-September and have been
quickly gathering momentum since
then. We believe the pick-up was
driven by easier credit and fiscal
policy from mid-2012, an alleviation
of the inventory-destocking cycle and
improved corporate/SOE confidence
through, and subsequent to, a
successful leadership transition. We
believe momentum will continue to
gather into 1H13, although the
government appears reluctant to let
growth materially exceed its 7.5%
target given the threat of inflation,
social/environmental
necessary reform.
hurdles
and
Commodity prices
In the near term, we expect
commodity prices to continue their
improvement; some have already
gained more than 5%. However,
intra-commodity divergence should
be
significant
as
underlying
fundamentals have more sway in the
direction of prices. We believe crude
oil, thermal coal, lead, tin and PGMs
should be the best performers over
the year.
On the flip side, we remain bearish on
aluminium and zinc. Both are
fundamentally oversupplied markets,
only helped by inventory financing
deals that continue to artificially
tighten their markets.
Iron ore and copper should be wellsupported in 1H13 as a China-led
recovery
boosts
infrastructure
spending. However, both look likely
to face headwinds later in the year as
supply increasingly overtakes demand
growth.
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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COMMODITIES STRATEGY Asia Pacific

February 4, 2013
KEY CHARTS
Chinas IP and electricity generation growth
marked a trough in Aug/Sep 2012
% yoy
IP growth edged up to 10.3% yoy in December 2012 from

its trough of 8.9% yoy in August. The slowdown in
electricity generation turned negative (-0.9% yoy) briefly
in June, but remained weak through 3Q12 (+2% yoy)
before picking up in 4Q12 (7.4% yoy).
% yoy
20%
30%
16%
20%
12%
10%
8%
0%
4%
2000
-10%
2002
2004
2006
2008
Chinese IP growth (lhs)
GDP growth to hold c8% yoy in 2013
2010
2012
Electricity generation growth (rhs)
% yoy
% yoy
Chinas GDP growth finished the year at 7.9% yoy,

although the quarterly growth rate was a little firmer, at
8.2% annualised. The resilience in headline growth was a
little surprising given the slowdown in the
manufacturing and export sector (with an inventory
destocking cycle contributing), and the extent of
weakness in the industrial activity indicators.
15%
40%
13%
32%
11%
24%
9%
16%
7%
8%
5%
1997
0%
1999
2001
2003
2005
Real GDP growth (lhs)
Strong pick-up in Chinas steel output has

supported good iron ore import volumes
2007
2009
2011
Lending growth (rhs)
Mt, monthly
12m rolling total, m
The strong relationship between Chinas crude steel

output and iron ore import volumes remains in place,
given a stable-to-rising import dependency. We also
show the related trend in steel production versus
construction activity (floor space started, in grey).
Acknowledging timing differences of starts vis-a-vis steel
usage, we note that steel production has increased well
in advance of lead indicators of construction activity,
with our forecast for a pick-up in developer activity a key
condition to support current steel output levels.
2013
2,400
70
2,000
60
50
1,600
40
1,200
30
800
20
400
0
2000
10
0
2002
2004
2006
Floor space started (lhs)
2008
2010
2012
Crude steel production s.a. (rhs)
Iron ore imports (rhs)
Real monetary policy eased from mid-2012,

supporting recovery into 1H13
% yoy
Our real monetary policy gauge shows the extent of

growth stimulus coming from the credit channel
(financial deepening). Total bank loan growth of
Rmb8.2trn came in at the middle of the unofficial
Rmb8trn-8.5trn guidance (15% yoy). Easing inflation
boosted the effect of this increase in the nominal credit
stock on the real economy. However, we note early signs
that this process is reversing, with a weak run rate of
credit growth into year-end (11% 3m-annualised) and a
slight pick-up in inflation.
% yoy
14%
30%
12%
20%
10%
10%
8%
0%
6%
-10%
4%
1998
-20%
2000
2002
2004
Real GDP growth (lhs)
2006
2008
2010
2012
Real credit less IP growth (12m lead, rhs)
SOURCES: CIMB FORECASTS, COMPANY REPORTS
COMMODITIES - OVERALL
November 14, 2012
Calmer waters
1. THE OUTLOOK
Table of Contents
1. THE OUTLOOK
p.3
2. STRATEGY OUTLOOK SUMMARY
p.10
3. BASE METALS
p.12
4. PRECOUS METALS
p.24
5.STEEL MAKING RAW MATERIIALS
p.25
6.ENERGY
p.28
1.1 Commodity markets to relish the end of the acute phase

of the cycle
After a bruising year that saw the global economy lurch from one crisis to
another, it is no wonder that commodity markets struggled for direction. The
normal saviour, China, also suffered what seemed an endless period of
weakening growth, shaking the confidence of even the most bullish commodity
analysts.
However, recent data suggest that after suffering weakness in the latter part of
2012, both global industrial production and trade have troughed and are now
showing signs of upward momentum. Indeed, Chinas recent trade data showed
a strong pick-up in exports (+14.1% yoy to US$199.23bn), driven by intra-Asian
demand (exports to ASEAN +27.8% yoy). More pleasing was the improvement
in demand from developed economies, with both North America (+10% yoy,
strongest in six months), and the euro area (+2.3%, strongest in seven months)
showing strong growth.
In our view, this stability is a significant positive, and should lead to an end of
the destocking phase and stronger growth rates in 2013. For commodity
markets, the pickup in Chinas economy has already resulted in an improvement
in demand, and with it a rally in key commodities (such as iron ore). Even a
modest recovery in Europe and North America will be viewed as a positive in
commodity markets, and presents good opportunities in 2013.
Outside of an improvement in economic growth, there are several other factors
that will support commodities in 2013. These include:
Monetary policy is likely to remain accommodative, supported by very low

yields. This should keep money flowing into hard assets such as
commodities.
Supply-side constraints remain. While hard to forecast, the likelihood of

them occurring remains high.
The destocking phase most commodities suffered through in 2012 has

ended and most markets should undergo a distinct restocking phase, which
will keep apparent demand relatively high.
A more stable period ahead

With financial instability the key theme of markets in 2012, commodity market
fundamentals took a back seat to the risk-on, risk-off phases. As such,
risk-taking appetite appeared to hit a record low level late in 2012.
However, the extreme limits to which commodity risk aversion has been pushed
is the main reason we have seen such a strong bounce back in prices so far in
2013. This has been exacerbated by the positioning in the market, with most
investors keeping underweight positions.
The rally at the start of the calendar year has been a hallmark of commodity
markets in recent years. Both 2011 and 2012 saw strong rallies, before petering
out in the face of weakening economic conditions. This year, we expect the
stabilisation of financial markets to allow some solid fundamentals to shine
through to the surface. This in turn should result in generally positive price
trends for most commodities, although tail risks should not be ignored.
November 14, 2012
We see three key trends under way that underpin this positive short-term
outlook:
1.
Chinas growth risks are subsiding.
2.
Market concerns over tail risks are subsiding.
3.
Supply side risks appear to be on the rise. The days of bringing on supply at
any cost are behind us.
In terms of Chinas growth, key drivers of commodity demand such as

construction activity and fixed asset investment have all picked up recently and
business confidence is rising. This has no doubt had a hand in stopping the
destocking cycle and in fact given confidence to many consumers to start
restocking.
The successful mitigation of the US fiscal cliff (at least for now) has also helped
ease the general threat of tail risks in the market. While the risks are far from
totally averted (Europe still faces many significant hurdles), the market has
started to look much brighter than it has for some time.
Supply side risks such as capital efficiency (ie, projects being delayed due to
poor returns), labour issues in mining, resource nationalism and bad weather
are likely to persist or even deteriorate in 2013. However, it is the more
measured approach by major resource companies that should keep supply
growth in check. As we highlighted in our last Commodity Strategy report, lower
commodity prices and a realization that Chinas economic growth will not
return to the historical +10%, has resulted in many resource companies
refocusing on quality rather than quantity. In other words, the days of supply at
any cost are likely over. As BHP Billitons management stated at a market
briefing late last year, our focus has shifted from the marginal tonne to the
capital efficient tonne.
This is likely to have a wide-ranging effect on commodity markets over the short
to medium term. While projects that are currently under construction are
unlikely to be suspended, it will push out the expected surplus that many
markets were facing after project pipelines ballooned under record high
commodity prices.
but ignore the tail risks at your peril

Geopolitical risks
Front and centre of geopolitical risks in 2013 remains Irans nuclear ambitions.
International pressure continues to end, or sharply reduce its nuclear
enrichment program and that pressure will continue in 2013, if not escalate, as
Iran believes it has a right to enrich uranium for non-military uses.
The US, under the Obama administration, appears reluctant to use military
confrontation and continually stresses the need to continue with the diplomatic
course. At the very end of November, the US Senate passed another set of
sanctions against Irans trade in energy and shipping, aiming to restrict trade
with Iran in other commodities such as precious metals, metallurgical coal,
aluminium, steel and sales of software for industrial processes.
With both sides still poles apart, we expect important inflection point to be
reached this year. The US and other Western counterparts will be faced with the
difficult choice of allowing Iran to reach the point of nuclear capability, or
taking military action. Obviously, either situation represents a significant risk to
oil and other commodity markets.
November 14, 2012
Resource nationalism
We see continued risk of resource nationalism affecting the supply of key
commodities over the next 12 months.
In Indonesia, the government is taking a multi-pronged approach to bolstering
the national income in the short and long term. The government is reviewing
and modifying foreign ownership limits, export levies and mandated
beneficiation to see more value-added production domestically. We note that
political risk will remain elevated in Indonesia heading into the crucial 2014
elections.
Indonesias introduction of export levies has already cut bauxite and nickel
laterite exports to China. The 20% tax on exports of 14 unprocessed minerals
announced in May 2012 (including gold, copper, silver, tin, chromium, lead,
molybdenum, bauxite, platinum, iron ore, nickel, iron sand, antimony and
manganese) was expanded to 65 mineral categories consisting of 21 metal ores,
10 non-metal ores and 34 rock sediment ores. Indonesia was the source of more
than 60% of Chinas nickel laterite imports in 2011 and 2012; this has now fallen
to 25-30%. While almost 90% of Chinas bauxite imports came from Indonesia,
this fell to 15% in July 2012 and has recovered to 37% in December 2012.
1.2 Commodity outlook

In the near term, we expect commodity prices to continue their improvement,
which has already seen gains of more than 5% in some cases following the fiscal
cliff settlement on 1 January 2013. But intra-commodity divergence should be
significant as underlying fundamentals have a bigger say in the direction of
prices. We believe crude oil, thermal coal, lead, tin and PGMs should be the
best performers over the course of the year.
On the flip side, we remain bearish on aluminium and zinc. Both are
fundamentally oversupplied markets, further aided by inventory financing deals
that continue to artificially tighten the markets.
Iron ore and copper should be well supported in 1H13 as a China-led recovery
boosts infrastructure spending, but both are likely to face headwinds later in the
year as supply increasingly overtakes demand growth. In the case of iron ore,
the phenomenal performance since collapsing below $90/t in September last
year exposes it to some downside risk. Activity after Chinese New Year will have
a big say in whether current price levels will be maintained.
Figure 2: Performance of commodities in 2012
-25.0% -20.0% -15.0% -10.0% -5.0%
0.0%
5.0%
Figure 3: YTD performance of commodities in 2013
10.0% 15.0% 20.0% 25.0% 30.0%
-6.0%
-4.0%
Tin
Corn
Platinum
Iron Ore
Lead
Soy
Zinc
Nat Gas
Gold
Copper
Silver
Wheat
-2.0%
0.0%
Title:
Source:
2.0%
4.0%
6.0%
8.0%
10.0%
Iron Ore
Platinum
Tin
Nickel above to have them entered in your rep

Please fill in the values
Copper
Aluminium
WTI
Silver
Lead
Brent
Corn
Cotton
Gold
Thermal
Zinc
Aluminium
Brent
Nickel
WTI
Soy
Sugar
Thermal
Cotton
Sugar
Wheat
Nat Gas
SOURCE: BLOOMBERG
SOURCE: BLOOMBERG
From a fundamental perspective, with growth rates in demand returning to

more modest levels (compared with the double digit rates seen over 2005-09),
commodity markets will tend to be driven more by supply side issues.
November 14, 2012
Figure 4: Commodity price forecast changes

2012
2013
2014
2015
2016
2017
Base Metals
Copper
Aluminium
Lead
Nickel
$/lb
3.61
3.73
3.67
3.38
3.24
2.99
$/t
7,970
8,225
8,100
7,450
7,150
6,600
% change
0.0%
0.0%
-0.3%
0.0%
0.0%
0.0%
$/lb
0.92
0.96
1.01
1.03
1.05
1.15
$/t
2,034
2,125
2,225
2,275
2,325
2,535
% change
0.0%
0.0%
-1.2%
0.0%
0.0%
0.0%
$/lb
0.92
1.02
1.02
1.05
0.99
0.95
$/t
2,032
2,250
2,250
2,313
2,175
2,100
% change
0.0%
2.9%
0.0%
0.0%
0.0%
0.0%
8.02
8.90
10.21
10.49
9.64
8.48
17,673
19,625
22,500
23,125
21,250
18,700
0.0%
$/lb
$/t
% change
Zinc
0.0%
-0.6%
0.0%
0.0%
0.0%
$/lb
0.89
1.00
1.09
1.09
1.06
1.00
$/t
1,954
2,200
2,413
2,413
2,338
2,200
% change
0.0%
-2.2%
0.0%
0.0%
0.0%
0.0%
$/oz
1,669
1,688
1,425
1,250
1,138
1,100
% change
0.0%
-0.7%
0.0%
0.0%
0.0%
0.0%
$/oz
31.17
30.00
26.00
22.00
19.13
18.00
Precious Metals
Gold
Silver
Platinum
Palladium
% change
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$/oz
1,551
1,800
1,725
1,675
1,775
1,850
% change
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
644
800
925
1,000
813
700
% change
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$/bbl
94.19
94.00
91.00
89.00
89.15
90.00
% change
0.0%
1.1%
0.0%
0.0%
0.0%
0.0%
3.02
4.00
4.50
5.00
5.00
5.00
% change
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
$/t
96.96
103.50
115.00
125.00
117.50
100.00
% change
0.0%
1.0%
0.0%
0.0%
0.0%
0.0%
$/t
48.89
52.50
55.00
57.50
65.00
65.00
% change
0.0%
-4.5%
0.0%
0.0%
0.0%
0.0%
$/oz
Energy
Oil Brent
Henry Hub Gas
$/mcf
Thermal Coal
Uranium
Steel Making Raw Materials

Iron Ore
$/t CFR China

change (%)
Hard Coking Coal
$/t FOB Aus

change (%)
128
138
134
128
121
100
0.0%
5.8%
0.0%
0.0%
0.0%
0.0%
206
186
230
233
223
180
0.0%
-0.7%
0.0%
0.0%
0.0%
0.0%
SOURCE: CIMB FORECASTS
Crude oil
We expect Brent to trade in a US$100-120 per barrel range in 2013. Political
tensions around uncertainty in the Middle East and the Iran issue will remain a
factor in 2013, and in fact represent potential upside to prices.
We believe the market can absorb the expected 2013 gain in non-OPEC supply
of 1.4 million b/d, without a significant fall in oil prices. Clearly, large scale risk
to oil demand growth remains, and prices could be at risk to fall below US$100
per barrel into the US$90 to US$95 per barrel range for Brent, barring further
disruptions in the Middle East.
We also expect total OPEC crude oil production to show a small year-on-year
(yoy) increase, which should help push prices lower. Political risks also exist and
the price outlook could be influenced strongly upward by political turmoil in the
Middle East such as the ongoing war in Syria, the threat of regional conflict and
pressure against Irans nuclear enrichment program.
November 14, 2012
Thermal coal
Over the next 12 months, it increasingly appears that demand-side issues will
gradually drive a market recovery in the thermal coal market.
Demand for thermal coal will increase substantially in China and India in 2013,
slowly and steadily lifting prices from their current low levels. We forecast
China and India to increase imports by a combined 35 Mt in 2013, in part due to
recovering external economies in the Atlantic basin. In Europe, coal demand
will grow in Germany and some parts of Eastern Europe but fall elsewhere,
resulting in an overall fall in demand.
We expect delivered European (ARA) coal prices to hover around US$90/t for
most of the year. Newcastle coal prices, which increased from US$81/t to
US$90/t in November before falling slightly, should perform a little better.
These remain well supported at US$90-95/t, but should start steadily rising
during the first quarter of 2013 before hitting US$100/t by early 2Q13. The low
price of domestic thermal coal in China will continue to impact the
competitiveness of Pacific basin seaborne coal.
Lower quality thermal coal prices are still relatively weak, although cutbacks in
production in Indonesia will support the current price floor.
Base metals
Base metal prices rallied into the New Year on the back of encouraging
economic data from China, and a positive resolution of the US fiscal cliff
negotiations. This has been stronger-than-expected and as a result, we have
revised up our 1Q12 price forecasts.
The market still looks exposed to bouts of selling as demand for many base
metals remains linked to a recovery in developed economies. But going forward,
we expect an increasing divergence in price movements.
We have seen a broad increase in inventory across the market - in copper in
particular, but also in aluminium and zinc. In the case of the latter two metals,
we continue to hear they are being held in financing deals and unavailable to the
market. In the year so far, LME zinc inventories have risen a whopping 407kt,
much larger than our estimate of this years surplus of 195kt.
The increase in copper inventories is more worrying. LME inventories have
risen almost every day since the beginning of December and are up 54kt so far
this year. SHFE inventories are up 8.3kt in December, and we believe that
Chinese bonded inventories have also continued to rise in excess of 750kt.
We maintain our bearish view on aluminium, with the assumption that the
run-up in prices was positioning-related and would be short lived. Lead, by
contrast, has outperformed the rest of the complex and is the only metal to still
hold on to its recent highs. Leads fundamental outlook for 2013 is positive, and
we think that it should show strong price performance relative to the complex.
Tins performance is also likely to be positive in our view, with expectations of a
continued deficit over the next 18 months. LME-cancelled warrants remain
elevated (representing close to 60% of stocks), refined imports into China are
well-supported by the arbitrage, and the mine supply side is fettered with
underperformance.
We remain positive towards nickel, with an imminent restocking phase coupled
with more unplanned disruptions likely to support prices in 2013. The typical
cycle of an early-year restocking phase followed by demand moderation appears
to be playing out again in 2013. Contributing factors include the upside of
steady economic improvement and a stronger China than seen in the past,
boosting demand to a greater level than currently projected. However, it is the
continued supply disruptions that could really change this market quickly. We
have reduced our 2013 supply forecasts by 85kt (or 5%) compared with previous
estimates due to delays or technical issues at new large projects, notably
Ona-Puma, Barro Alto and VNC. As a result, we do not anticipate the market to
7
November 14, 2012
be over-supplied in the near-term, thereby increasing the likelihood of future

prices remaining above the marginal cost level.
Overall, we see base metals largely benefiting from the expected pick-up in
economic activity in China. This improvement in sentiment and the expected
increase in liquidity in the market should see base metals well supported.
Steel-making raw materials

A steady improvement in Chinas demand and continued supply side issues
have been conducive in creating conditions that have driven iron ore prices up
over 80% since falling below US$90/t for the first time since 2009. With prices
edging towards US$160/t, the likelihood of further gains appears to be
diminishing by the day. Despite this, fundamentals remain supportive and thus
we do not see any substantial fall in prices, rather, a gradual price fade.
Prices have recovered more quickly than we (and the market) had expected. An
improving steel production profile from China in 4Q12, as well as an end to the
destocking of steel at the consumer level has underpinned this recovery. But it
has been the supply-side issues that have pushed prices to where they are today.
These factors include:
Sharper-than-expected fall in exports from India (as we highlighted last

month in our Commodities Update: Indian iron ore exports grind to a halt,
5 December 2012).
Colder-than-expected winter in northern China has constrained the ability

of domestic mines to respond to higher prices. As China moves into spring,
production should stabilise and begin to edge up in response to higher
prices. This is likely to fuel a retreat in prices in 2Q13 as supply once again
catches up with demand.
Iron ore inventories remain at historically low levels; in particular, mills are
believed to be carrying below normal working levels, which has resulted in
buyers looking to the international market during the current short squeeze.
Therefore, our expectation for iron ore prices in the short term is that prices will
remain relatively well supported in 1Q13, and even early in 2Q13 before they
begin retreating on the back of slowing demand and increasing supply.
We continue to view the iron ore market favourably over the longer term. The
price-induced decline in iron ore prices late last year was a positive for the
long-term iron ore price as it led to the deferral and potentially permanent
cancellation of mine developments.
The industry and CIMB had been forecasting an oversupply of iron from
2015-17 onwards due to the expansion of iron ore mines in Australia, and the
development of new mines in Brazil and Guinea. The surplus now looks like it
will be substantially less with junior Australian miners finding it difficult to
obtain finance, and the likes of RIO and Vale have slowed or postponed
developments like Simandou and Sierra Sul. Our view is that the delays should
lead to a market where developments are based on underlying demand, and
prices reflect realistic returns rather than what BHP has termed scarcity
pricing.
The downside for met coal prices looks limited, with demand for high quality
coking coal remaining robust and a small number of supply cutbacks in 2012
due to rising costs suggesting that any further weakness would see a rapid
market response. Despite steel production improving across Asia, prices may
struggle to match the gains seen in iron ore.
Supply disruptions are unlikely to be a factor during the current wet season in
Australia as it appears that a normal summer should result in few
weather-related disruptions in 2013.
However, mitigating this gain is the disruption to Canadian supply. The collapse
of Berth 1 at Canadas Westshore Terminal in Vancouver following a capsized
8
November 14, 2012
vessel ploughing through the trestle structure could result in a three months
loss of capacity of up to 4.5Mtpa. While the accident has failed to move prices
significantly, it should support prices in 1Q13.
Rising costs have taken their toll with Australian and US operations curtailed.
While the tonnage involved is small, it suggests that we have hit a floor in prices.
There have been some promising signs of a pick-up in the Asian steel markets,
but levels remain subdued. The expected reconstruction-led rebound in steel
output in 2013 should see Japanese demand for met coal. In China,
international prices remain at a discount which should continue to support
imports, but Asian demand remains subjected to significant tail risks, namely
weak export markets.
Precious metals
Last year was frustrating for gold investors, with the yellow metal rallying
strongly on two occasions, only to give back those gains quite quickly. The
combination of diminished demand for defensive assets (in particular, a
re-allocation from gold into equities) and less negative real rates has been
weighing on the gold price over the past month. But the end-of-year sell-off
looks overdone, based primarily on the rising risk that FOMC would end QE
before the end of 2013 (given the mixed views of FOMC participants as revealed
in the minutes of the December meeting).
In early 2013, with the risks to industrial demand still persisting, we believe
gold has the greatest potential across the complex to regain its upward
momentum given the number of macro catalysts that still exist, as well as the
firming physical demand. As such, we are looking for a modest appreciation in
the first half of this year as investment demand remains positive, and the
physical market improves upon its fragile state.
November 14, 2012
2. COMMODITY STRATEGY OUTLOOK SUMMARY

Figure 5: Commodity strategy outlook summary
Units
2013
2014
ST LT Fundamental Issues
Risks
$/t
2,125
2,225
Metal flows slow
$/lb
0.96
1.01
$/t
8,225
8,100
$/lb
3.73
3.67
$/t
19,625
22,500
$/lb
8.90
10.21
$/t
2,200
2,413
$/lb
1.00
1.09
$/t
2,250
2,250
$/lb
1.02
1.02
Gold
$/oz
1,688
1,425
Iron Ore
$/t CFR China
138
134
Aluminium
Copper
Nickel
Zinc
Lead
Met Coal
Thermal Coal
$/t FOB Aus
$/t FOB Aus
186
104
230
115
The spot market remains artificially tight, as financing deals remain economic.
Non-Chinese supply is being cut but this has been in the form of involuntary cutbacks. Aluminium smelters affordability has improved (due to
lower coal prics) to a point where most are now back into the black on a cash basis.
Demand remains robust; particularly packing and transport in EM. Longer term theme of increasing energy efficiency should see the demand for
aluminum remain strong.
Macro environment supportive. Sentiment improving
China has built excess stocks, which could soften demand for imports if underlying demand recovers. Whilst we anticipate increased mine
supply, a glut is unlikely.
Supply side issues in the short term are starting to balance out the effect of weak demand growth. There have been continued disruptions Onca
Puma and Talvivaara mines

Chinese NPI also remains beholden to changes in Indonesia mining laws. The outright ban on nickel ore exports from Indonesia will significantly
constrain the industry from increasing supply if expectations are not meet from other parts of the industry
Growth in refined production is falling, primarily due to weaker production in China as smaller smelters react to the low prices
Smelters show constraint and production

disruptions continue
China destocks or re-exports some metal

With LME stocks low, a short squeeze is
possible
Indonesia reppeals ore export ban
Production ramp up from HPAL projects is
delayed
Inventory financing has grown in size but
remains a threat if unwound.
Fundamentally the zinc market remains oversupplied. We remain skeptical that mine closures will occur as the market expects and thus should
keep the market relatively well supplied. Therefore, we would look forward to an improvement in demand to push the market back into deficit
before prices would react
Scrap availability in the US as weakened in recent times (due to falling prices and a mild winter) has fallen. This combined supply disruptions (in Destocking in China
particular, a fire at the Herculaneum smelter) and strong auto sector growth has seen the market tighten considerably.
In impending closure of Doe Runs Herculaneum smelter (130Ktpy) by the end of 2013 will further tighten the lead market in the US. This should Because lead output is correlated with zinc,
result in increasing imports of refined metal in US
any increase in that market could see lead
supply jump
A new round of quantitive easing measures, as well as fear of a fiscal cliff, should bring in new investment demand for gold.
Waning in investor demand, driven by a risk
on change in sentiment
Jewellery demand is picking up after prices stablise and festival season hits full stength.
Weak physical demand due to high prices
Despite growth in steel production in China of sub-5% and weak steel prices, iron ore prices have rebounded strongly in 2H12. Market may
question sustainability of rally.
Any likely stimulus measure by Chinese government are likely to be less-steel intensive than in the past.
With the risk of supply disruptions diminishing and Chinese steel production likely to rollover in coming months, the tight met coal market is
expected to ease in 4Q12
Demand for high quality coking coal remains robust and a small number of supply cutbacks in 1H12 due to rising costs suggest any further
weakness would see a rapid market response
US exports expected to abate as domestic surplus diminished on the back of stronger demand and production cuts
Indian and Chinese demand has been strong, with both recording record growth in 2012
Inventories in China remain high and could dampen the normal restocking effort this quarter.
Destocking in Chinese market

Stronger than expected steel production in
China; driven by stimulus measures
Chinese steel mills cut production
Stronger HCC exports from Mongolia
Higher US exports
China destocking imported coal
India raise electricity tariffs and increases
use of imported coal
SOURCE: CIMB
10

February 4, 2013
Figure 6: Commodity prices actuals and forecasts

Units
2009
2010
2011
2012
2013
2014
2015
2016
2017
$/t
5,155
7,537
8,816
7,970
8,225
8,100
7,450
7,150
6,900
$/lb
2.34
3.42
4.00
3.61
3.73
3.67
3.38
3.24
3.13
$/t
1,667
2,172
2,330
2,034
2,125
2,225
2,275
2,325
2,400
1.09
Base Metals
Copper
Aluminium
$/lb
0.76
0.99
1.06
0.92
0.96
1.01
1.03
1.05
Alumina
$/t
217
295
362
319
320
331
344
356
376
Lead
$/t
1,718
2,146
2,398
2,032
2,250
2,250
2,313
2,175
2,125
$/lb
Nickel
Zinc
$/t
0.97
1.09
0.92
1.02
1.02
1.05
0.99
0.96
21,813
22,866
17,673
19,625
22,500
23,125
21,250
18,250
$/lb
6.64
9.89
10.37
8.02
8.90
10.21
10.49
9.64
8.28
$/t
1,658
2,158
2,193
1,954
2,200
2,413
2,413
2,338
2,175
$/lb
Tin
0.78
14,643
$/t
$/lb
0.75
0.98
0.99
0.89
1.00
1.09
1.09
1.06
0.99
13,588
20,365
26,000
20,991
24,000
25,000
25,125
21,250
17,500
6.16
9.24
11.79
9.52
10.89
11.34
11.40
9.64
7.94
Precious metals
Gold
$/oz
973
1,226
1,571
1,669
1,688
1,425
1,250
1,138
1,100
Silver
$/oz
14.68
20.21
35.30
31.17
30.00
26.00
22.00
19.13
18.00
Platinum
$/oz
1,204
1,610
1,720
1,551
1,800
1,725
1,675
1,775
1,850
Palladium
$/oz
264
525
733
644
800
925
1,000
813
700
Bulk Commodities
Iron Ore
$/t CFR China
88
146
168
128
138
134
128
121
100
Coal - Hard coking
$/t FOB
172
191
259
206
186
230
233
223
200
Coal - Semi soft coking
$/t FOB
119
139
194
119
126
165
163
158
140
Coal - LV PCI
$/t FOB
126
147
188
139
136
180
185
180
160
Coal - Thermal
$/t FOB Newc
83
90
118
97
104
115
125
118
105
Energy
Oil WTI (US $/bbl)
$/bbl
Henry Hub Gas Price (US$/mcf)
$/mcf
Uranium (US$/lb)
$/lb
64
82
111
112
115
108
100
100
100
4.16
4.39
4.04
3.02
4.00
4.50
5.00
5.00
5.00
47
46
56
49
53
55
58
65
65
SOURCES: BLOOMBERG, CIMB
11

February 4, 2013
3. BASE METALS
3.1 Aluminium just too much supply
We expect prices to remain range-bound as the market contends with
overcapacity, a large inventory overhang and a high cost structure that can
quickly re-balance the market.
The aluminium price reached the highest level in three months in December 12,
propelled by a technical squeeze in the LME that also shifted the market to
backwardation. Meanwhile, the markets are coming to terms with short-term
pricing; premia are still at record highs in Europe and the US, rising in China
and only weakening slightly in Japan.
Fundamentals have improved modestly, driven by on-going delays to capacity
ramp-ups in Chinas smelting capacity in the northwest of the country.
There has also been better-than-expected demand in Asia. In China, semis
production remains strong while in the ASEAN region shipments are down, but
better than previously anticipated. Elsewhere, for example, in the US we project
a moderate improvement in demand from construction and another strong year
for transport.
Short-term outlook: Neutral

Long-term outlook: Bearish
But the market remains mired by a structural surplus of material. We are

forecasting a market surplus of 1,200Mt in 2013, expanding to 1,700Mt in 2014.
Strong Chinese alumina buying in 4Q12 and ongoing bauxite shortages in India
and China are likely to keep buyers nervous. Adding to market anxiety, Rio
Tinto is expected to announce its decision this month to shut down or continue
operating its 2.7Mt/a Gove refinery. Against this background, spot alumina
prices are trending higher, now US$395/t, and unlikely to retreat significantly
until there is a decision on Goves future. A decision to temporarily close the
high-cost refinery would send the alumina price sharply higher.
Figure 7: Aluminium supply/demand balance

Thousand Tonnes
Europe
Asia (ex China)
2010
2011
2012E
2013E
2014E
2015E
2016E
2017E
8,420
8,629
8,010
8,989
9,163
9,542
9,927
10,223
2,804
2,897
2,736
3,400
3,889
4,174
4,383
4,432
17,083
19,200
21,216
22,913
24,975
27,223
29,129
31,168
North America
4,689
4,970
4,657
5,204
5,165
5,238
5,393
5,418
Others
Production adjustment
9,103
0
9,842
0
8,089
-1,863
7,234
-3,047
7,254
-3,220
7,491
-3,426
7,374
-3,588
7,267
-3,735
Total Supply
42,100
45,539
44,707
47,742
50,448
53,668
56,206
58,507
% chg yoy
12.8%
8.2%
-1.8%
6.8%
5.7%
6.4%
4.7%
4.1%
Europe
7,651
7,972
7,938
8,049
8,175
8,457
8,435
7,952
Asia (minus China)
6,719
6,825
7,094
7,371
7,747
8,147
8,574
9,029
16,472
19,167
20,700
22,149
23,589
25,004
26,504
28,095
North America
5,231
5,534
5,619
5,706
5,858
6,005
6,155
6,310
Latin America
1,830
2,010
2,086
2,165
2,247
2,333
2,422
2,514
469
456
465
473
487
502
517
532
38,904
42,508
44,460
46,485
48,689
50,952
53,087
54,866
15.4%
9.3%
4.6%
4.6%
4.7%
4.6%
4.2%
3.4%
3,196
3,030
248
1,257
1,759
2,716
3,119
3,641
16,300
19,330
19,578
20,835
22,593
25,309
28,428
32,069
China
China
Oceania
Total Demand
% chg yoy
MARKET BALANCE
Total Reported Inventories
Total Weeks Supply
22
24
23
23
24
26
28
30
Price ($/t)
2,172
2,330
2,034
2,125
2,225
2,275
2,325
2,400
Price ($/lb)
0.99
1.06
0.92
0.96
1.01
1.03
1.05
1.09
SOURCES: WOOD MACKENZIE, WBMS, CIMB
12

February 4, 2013
1000
Figure 9: A positive arb has supported imports

300
400
200
350
800
100,000
Title:
Source:
Arb
90,000
Imports
250
400
200
200
150
0
LME-SHFE spread $/t
600
Please fill in the values above to have them entered in your rep
70,000
-100
60,000
-200
50,000
-300
40,000
-400
30,000
-500
20,000
-600
10,000
-700
0
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
SOURCES: Bloomberg, China Customs, CIMB
Figure 11: as domestic production remains strong

1.8
600
70%
1.7
Title:
Source:
1.6
Production
% chg yoy
60%
10%
1.2
0%
Figure 12: Premims have been soaring around the world due to
physical tightness
Nov-12
Sep-12
Jul-12
Mar-12
SOURCES: SHFE, BLOOMBERG, CIMB
May-12
Jan-12
Nov-11
Sep-11
Jul-11
Mar-11
May-11
-20%
Jan-11
1.0
Nov-10
-10%
Jul-10
1.1
Dec-12
Oct-12
Aug-12
Apr-12
Jun-12
Oct-11
Dec-11
Feb-12
Aug-11
Apr-11
Jun-11
Dec-10
Feb-11
Oct-10
Aug-10
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Dec-08
Feb-09
Apr-09
Jun-09
100
20%
1.3
Sep-10
200
30%
1.4
May-10
300
40%
1.5
Jan-10
SOURCES: NBS, IAI, CIMB
Figure 13: Aluminium LME inventories
350
6.0
Japan
US Midwest
America
EU
300
Title:Europe
Asia
Source:
5.0
LME inventory, Mt
250
200
150
100
50
4.0
3.0
2.0
SOURCES: METAL BULLETIN, CIMB
13
Oct-12
Jun-12
Feb-12
Oct-11
Jun-11
Oct-10
Jun-10
Feb-10
Oct-09
Jun-09
Feb-09
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Feb-05
0.0
Jun-05
Dec-12
Jun-12
Sep-12
Mar-12
Dec-11
Jun-11
Sep-11
Dec-10
Mar-11
Sep-10
Jun-10
Dec-09
Mar-10
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
Dec-07
Sep-07
Dec-06
Mar-07
Jun-07
1.0
Feb-11
Inventory, kt
400
50%
Mar-10
ALuminium Production, Mt
500
% chg yoy
Figure 10: Aluminium inventory continues to build on the SHFE
Jan-11
Jul-10
SOURCES: Bloomberg, China Customs, CIMB
Oct-10
Apr-10
Jan-10
Jul-09
Oct-09
Apr-09
Jan-09
Jul-08
Jan-08
Jan-13
Jul-12
Oct-12
Apr-12
Exports
Jan-12
Jul-11
Oct-11
Apr-11
Jan-11
Jul-10
Oct-10
Apr-10
Jan-10
Jul-09
Oct-09
Apr-09
Jan-09
Jul-08
Oct-08
Apr-08
Jan-08
Arb
Apr-08
50
Oct-08
100
-200
-400
80,000
300
Aluminun Exports, kt
SHFE-LME spread $/t
100
Aluminium Imports, kt
Figure 8: Despite an unfavourable arb, Aluminium exports have

remained strong
SOURCES: LME, CIMB

February 4, 2013
3.2 Copper
We have moved to a neutral outlook for the copper market, and slightly lowered
our price forecasts for 2013. An improvement in fundamentals remains patchy;
there are clear signs of an upturn in Chinas demand although it has come later
than expected and with less vigour. The market also must battle with a period
of improving mine supply, coupled with an overhang of Chinese inventory. But
with the macro environment improving markedly over the next couple of
months, we suspect copper will be well supported.
Global production of mined copper is forecast to rise sharply in 2013. Output in
2013 is currently forecast to be 17.8Mt, or 1.1Mt (6.6%) higher than the
anticipated 2012 total. The rise is expected to come from a combination of
improved performance at some existing mines and the start-up and ramp-up of
new operations, including Oyu Tolgoi in Mongolia, Antapaccay in Peru and Los
Bronces and Escondida in Chile (Figure 17).
While China is already the worlds biggest refined copper producer and is
forecast to grow at 10% in 2013, there is a further downside risk to prices if
China becomes a more regular exporter of copper. Last year, China removed the
export tax on tolled metal, which could make any Chinese surplus more visible
to the LME market.

Long-term outlook: Bullish
That said, with upcoming labour negotiations in Chile, rapidly declining ore
grades and power issues, there remains a real risk that supply disruptions will
be higher than expected. We have assumed a 4% disruption allowance in 2013,
which is relatively conservative given the large disruptions over the past few
years. If that were to come out closer to 6%, the market would move back into
deficit.
Figure 14: Copper global supply and demand balance
2010
2011
2012
2013
2014
2015
2016
2017
China
4,575
5,197
5,824
6,412
6,937
7,973
8,525
8,575
Chile
3,237
3,092
3,057
3,116
3,190
3,048
2,966
2,867
India
647
697
703
1,037
1,144
1,156
1,156
1,156
1,428
1,317
1,384
1,436
1,473
1,473
1,467
1,507
(412)
(880)
(911)
(477)
(485)
North America
Disruption Allowance
Adjusted Supply
% change yoy
19,064
19,689
19,900
21,110
21,875
22,908
23,501
(481)
23,568
3.9%
3.3%
1.1%
6.1%
3.6%
4.7%
2.6%
0.3%
Europe
3,901
4,031
3,859
3,845
3,951
4,046
4,137
4,254
China
7,204
7,780
8,225
8,779
9,243
9,793
10,450
11,154
Japan
1,060
1,007
987
1,016
1,037
1,068
1,089
1,111
North America
1,902
1,902
1,930
1,961
2,011
2,062
2,112
2,163
Total Demand
% change yoy
19,122
19,733
20,139
20,938
21,779
22,727
23,796
24,992
11.4%
3.2%
2.1%
4.0%
4.0%
4.4%
4.7%
5.0%
(58)
(44)
(239)
172
95
181
(296)
(1,424)
Market Balance
Total Reported Inventories
2,331
2,287
2,048
2,220
2,315
2,496
2,200
6.4
6.0
5.2
5.2
5.3
5.4
4.7
1.7
Price ($/lb)
7,537
8,816
7,970
8,225
8,100
7,450
7,150
6,900
Price ($/mt)
3.42
4.00
3.61
3.73
3.67
3.38
3.24
3.13
Total Weeks Supply
776
SOURCES: WBMS, WOOD MACKENZIE, CIMB
14

February 4, 2013
Figure 15: Chinese mine concentrate output is increasing

strongly
180
Figure 16: Growth in Chilean copper production has returned

550
60%
Production
25%
ProductionTitle:
% chg yoy
160
% chg yoy
20%
Source:
50%
500
140
15%
40%
10%
30%
Production, kt
Production, kt
120
100
20%
80
10%
450
5%
0%
400
60
-5%
0%
40
-10%
350
SOURCES: CIMB, WBMS, WOOD MACKENZIE
Nov-12
Jul-12
-20%
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Jan-10
Mar-10
Sep-10
300
May-10
-15%
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Sep-11
Jul-11
May-11
Jan-11
Mar-11
Nov-10
Mar-10
Jul-10
-20%
Sep-10
May-10
-10%
Jan-10
20
Figure 17: Increased mine production capability in 2013

Mine production capability
Comment
(kt)
Operation
2012 (E) 2013(F) Increase

Grasberg
350
535
185 Improved head grade. Productivity returned to normal levels.
Kamoto / KOV*
120
285
165 Power supply secured. Continued ramp up of refurbishment project. New SxEw plant.
Collahuasi
280
428
148 Higher mill throughput. Improved head grade. Management changes to address operational problems.
150
145 Start up during Q4 2012
Candelaria
132
219
Oyu Tolgoi
70
171
235
Caserones
62
Escondida
1065
1120
Antamina
450
500
50 Continued ramp up of expansion project. Recent reports of SAG mill failure are not accurate.
Los Bronces
343
392
49 Continued ramp up of expansion project. Improved head grade. Better understanding of ore mineralogy
Antapaccay
Bingham Canyon
87 Improved head grade

70 Start up expected Q1 2013
64 Improved head grade.
62 Start up expected mid 2013.
55 Improved head grade.
SOURCES: CIMB, WOOD MACKENZIE
Figure 18: SHFE_LME Arb
Figure 19: China's Copper Exports
800
550
600
500
120
400
450
200
Title:
Source:
100
400
80
350
Exports, kt
-200
300
-400
250
-600
40
200
-800
-1000
150
-1200
100
60
15
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Sep-11
Jul-11
May-11
Jan-11
Mar-11
Nov-10
Sep-10
Jul-10
Jan-10
Mar-10
Nov-09
Jul-09
Sep-09
Jan-09
May-10
Imports
Mar-09
Jan-13
Sep-12
Jan-12
May-12
Sep-11
May-11
Jan-11
Sep-10
Jan-10
May-10
Sep-09
May-09
May-09
Arb
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
Jan-06
May-06
Sep-05
Jan-05
May-05
20
SOURCES: CHINA CUSTOMS, BLOOMBERG, CIMB

February 4, 2013
Figure 20: Copper semis production, 2012
Figure 21: China's copper imports

500
25
China
Japan
USA
Title:
Source:
450
South Korea
20
400
350
15
Imports, kt
% change yoy
300
10
5
250
200
150
100
-5
50
-10
0
Jan
Q1
Q2
Q3
July
Aug
Sep
Feb
Mar
Apr
2003
2008
2011
-15
Oct
SOURCE: WOOD MACKENZIE
16
May
Jun
Jul
2004
2009
2012
Aug
Sep
Oct
Nov
Dec
2005
2010

February 4, 2013
3.3 Nickel
We remain positive towards nickel, with an imminent re-stocking phase
coupled with more unplanned disruptions likely to support prices in 2013. The
typical cycle of an early year re-stocking phase followed by demand moderation
appears to playing out again in 2013, with the upside of steady economic
improvement and a stronger China than seen in the past boosting demand to a
greater level than currently projected.
But it is the continued supply disruptions that could really change this market
quickly. We have reduced our 2013 supply forecasts by 85kt (or 5%) compared
with previous estimates due to delays or technical issues at the new large
projects, notably Ona-Puma, Barro Alto and VNC. As a result, we do not
anticipate the market to be over-supplied in the near-term, thereby increasing
the likelihood of future prices remaining above the marginal cost level.
For 2013, we are forecasting a market surplus of 22kt. With a restocking phase
on the horizon and concerns about Indonesias nickel ore export ban, however,
we believe the market will look through this and into a much tighter market in
2014. Coupled with our long-term view that the market is giving too much
credence to the success of HPAL projects, the supply side does not look as bad
as before.
In the short term, aggressive CTA short-covering in 4Q12 supported by
additional long positions does open up the market for a sell-off. While the
outlook is improving, there has been little fundamental foundation over the
past few months for the strong performance of the nickel price.
Short-term outlook: Bearish

Figure 22: World nickel supply/demand forecasts

Thousand tonnes
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
Europe
500.3
526.4
531.8
533.5
526.4
528.3
527.3
531.2
Japan
166.4
172.9
169.0
173.4
183.9
194.1
194.1
194.1
China
303.6
369.7
393.6
374.6
352.4
340.4
344.2
351.3
84.7
140.5
138.3
145.6
142.8
157.7
175.9
180.7
Other America
124.7
145.0
176.8
240.0
276.8
306.8
321.3
329.5
Australiasia
Disruption allowance
149.2
172.7
175.5
216.4
257.9
272.6
285.3
286.3
110.1
114.7
120.5
123.3
124.9
1,725.1
1,797.5
1,887.3
1,931.2
1,956.9
Canada
TOTAL Supply
% change y-o-y
1,404.0
1,620.4
1,651.4
5.3%
15.4%
1.9%
4.5%
4.2%
5.0%
2.3%
1.3%
Europe
401.2
367.1
359.8
363.4
374.3
385.5
397.1
409.0
Japan
170.5
153.4
161.1
164.3
167.6
170.9
174.4
177.9
Korea
85.2
87.0
90.5
93.0
95.5
98.1
100.8
103.6
China
500.9
676.3
716.8
781.3
843.9
911.4
966.0
1,024.0
U.S.
145.5
123.7
123.7
125.5
127.4
129.3
131.3
133.2
Others
204.5
166.9
169.0
175.5
182.3
189.3
196.5
204.0
1,507.8
1,574.4
1,620.8
1,703.1
1,791.0
1,884.6
1,966.1
2,051.7
Total Consumption
% change y-o-y
MARKET BALANCE
13.9%
(104)
Total Inventories (Reported)
235.0
191.0
221.6
243.6
250.1
252.8
217.9
8.1
6.3
7.1
7.4
7.3
7.0
5.8
Total
LME cash price ($/t)
LME cash price ($/lb)
4.4%
46
3.0%
31
5.1%
22
5.2%
7
21,813
22,866
17,673
19,625
22,500
9.89
10.37
8.02
8.90
10.21
5.2%
3
4.3%
(35)
4.4%
(95)
123.2
3.1
23,125
21,250
18,250
10.49
9.64
8.28
SOURCES: WBMS, WOOD MACKENZIE, CIMB
17

February 4, 2013
Figure 23: World stainless steel production has been weak

outside of China
Figure 24: Nickel consumption and industrial production is

highly correlated
20
World
Title:
Source:
15
China
% change yoy
10
Asia (ex China)
Americas
-5
USA
Western Europe/Africa
China
-10
-10%
-5%
0%
5%
10%
15%
Global
20%
Consumption
-15
1Q12
4Q12
2000
2002
2004
2006
2008
2010
2012
2014
SOURCES: ISSF, CIMB
SOURCES: BLOOMBERG, WOOD MACKENZIE
Figure 25: Growth in China's nickel ore imports have moderated

in recent months
Figure 26: Inventories have been creeping up in recent quarters
8
190%
Ni Conc Imports
390
7
% chg yoy
370
Title:
Source:
Stocks (kt)
90
Stocks (Days of Consumption)
Please fill in the values above to have them entered in your report
85
330
kt
90%
80
% change yoy
75
310
70
290
40%
Nov-12
Jul-12
-10%
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Sep-10
May-10
Jan-10
65
270
Mar-10
million tonnes
350
Doys of consumption
140%
250
60
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
18
SOURCES: WOOD MACKENZIE

February 4, 2013
3.4 Zinc
Fundamentally, the zinc market remains oversupplied. We remain sceptical
that mine closures will occur as expected, and thus the market should remain
relatively well supplied. Therefore, we would need to see an improvement in
demand to push the market back into deficit before prices would react.
The concentrate market outside of China was in structural surplus over 2005-11.
However, the market has relied on huge import volumes by China to keep the
market tight. China, however, has now ceased to act as a safety valve due to
falling utilisation rates as a result of poor profitability of Chinese smelters, and
thus excess concentrate is now accumulating in the rest of the world. With TCs
picking up, there is the risk that Chinese smelter output will increase (as
profitability improves), and thus increase the risk of additional metal hitting
the market.

Long-term outlook: Neutral
With front-end spreads trading in contango, inventory financing is very

attractive. In fact, we believe a large component of the zinc in LME warehouses
is now held in financing. Given the time spread structure, this could rise even
further.
Figure 27: Global zinc supply/demand balance

2010
2011
2012
2013
2014
2015
China
5,022
5,278
4,981
5,323
5,619
5,862
Europe
2,186
2,179
2,230
2,370
2,364
2,345
America
1,728
1,940
1,942
1,952
1,962
1,962
Other
3,446
1,301
1,303
1,313
1,323
1,323
Production
12,383
13,178
12,793
13,300
13,668
13,906
% chg yoy
Thousand Tonnes
16.2%
6.4%
-3.4%
2.4%
2.8%
3.8%
China
4,705
5,176
5,434
5,760
6,164
6,595
Europe
2,061
2,082
1,921
1,901
1,925
1,949
America
1,670
1,707
1,736
1,795
1,855
1,922
Other
2,948
3,113
3,186
3,306
3,478
3,602
Consumption
11,385
12,078
12,277
12,762
13,421
14,067
% chg yoy
9.9%
6.1%
1.7%
3.9%
5.2%
4.8%
998
1,101
452
273
-27
-161
1,441
1,798
2,250
2,523
2,497
2,336
Market Balance
Total Reported Stocks
Stocks-to-Consumption Ratio (wks)
LME Cash Price ($/t)
LME Cash Price ($/lb)
6.6
7.7
9.5
10.3
9.7
8.6
2,158
2,193
1,954
2,200
2,413
2,413
0.98
0.99
0.89
1.00
1.09
1.09
SOURCES: WOOD MACKENZIE, WBMS, NBS, CIMB
19

February 4, 2013
Figure 28: Chinese zinc production has started to pick up after

a soft spot in 2012
500
Figure 29: China's consumption of zinc has remained been

weak
70%
550
450
50%
500
Title:
Source:
450
30%
Please fill in the values above to have them entered
in your rep
60%
40%
30%
350
20%
300
10%
0%
250
400
20%
350
10%
300
0%
250
-10%
% chg yoy
40%
% chg yoy
Zinc Production kt
400
Zinc Slab Consumption, kt
50%
-10%
200
-20%
Zinc Slab Consumption
-30%
150
% chg yoy
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
SOURCES: WMBS, CIMB
Figure 30: Zinc LME inventories have risen dramatically, but on

warrant material has fallen recently as financing deals pick up
SOURCES: CIMB, COMPANY REPORTS
Figure 31: Chinese zinc imports have been strong
1.4
Imports (RefinedTitle:
Zinc)
70
Asia
Europe
1.0
% change yoy
60
Imports, kt
Total LME On Warrant Zinc

0.8
0.6
Source:
150%
Middle East
100%
50
50%
40
30
0%
0.4
20
0.2
-50%
SOURCES: LME, BLOOMBERG, CIMB
20
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Sep-10
May-10
Jan-10
Mar-10
Jan-13
Nov-12
Jul-12
Sep-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Sep-10
May-10
Jan-10
Mar-10
Nov-09
Jul-09
Sep-09
0.0
May-09
10
Jan-09
Mar-09
LME Inventories, Mt
200%
80
America
1.2
-30%
% change yoy
150
200
-20%
% chg yoy
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
China Zinc produdction
-100%
SOURCE: CHINA CUSTOMS

February 4, 2013
3.5 Lead
The rebound in the lead price has been driven by a complex-wide improvement
in investor sentiment, and therefore a renewed appetite for risk. Lead again
performed better than the other base metals, supported by a strong
fundamental outlook for the upcoming replacement battery season.
Higher forecast demand for next year, coupled with a small downward revision
to our mine/refined forecast has reduced next years refined market deficit by
over 150kt, with prices expected to react accordingly.
Scrap availability in the US has weakened recently (due to falling prices and a
mild winter). This, combined with supply disruptions (in particular, a fire at the
Herculaneum smelter) and strong auto sector growth has seen the market
tighten considerably.
Inventories have plummeted nearly 50% from the April peak. Of the remaining
inventory, a large portion is held by major traders. This has resulted in large
queues at warehouses and forced premiums up.
The closure of Doe Runs Herculaneum smelter (130Ktpy) by the end of 2013
will further tighten the lead market in the US. This should result in increasing
imports of refined metal in the US.
Short-term outlook: Bullish

Global demand growth is picking up, with our forecast raised to 4.8% due to
better-than-expected demand in China. This has been partly off set by
downward revisions to Europe and Latin America demand. After a weak 3Q12,
Chinese battery exports have started to improve. US demand is likely to remain
strong but below last years elevated levels. In Europe, economic conditions are
not expected to improve significantly before 2014, and as such lead demand
growth in the region will be minimal.
Figure 32: Global lead supply/demand balance
2009
2010
2011
2012
2013
2014
2015
Europe
1,739
1,774
1,836
1,854
1,882
1,920
1,977
Asia (ex China)
1,112
1,245
1,432
1,504
1,549
1,595
1,643
China
3,720
4,056
4,395
4,615
4,892
5,136
5,444
Americas
2,107
2,152
2,173
2,190
2,204
2,212
2,217
456
458
461
464
417
421
422
Total Supply
y-o-y
9,134
7.5%
9,685
6.0%
10,296
6.3%
10,627
3.2%
10,943
3.0%
11,284
3.1%
11,704
3.7%
Europe
1,537
1,637
1,629
1,612
1,644
1,694
1,745
Asia (ex China)
1,434
1,570
1,656
1,739
1,847
1,944
2,028
China
3,662
4,032
4,314
4,616
4,901
5,195
5,481
North America
1,927
1,996
2,170
2,239
2,311
2,368
2,337
139
138
141
143
145
147
150
8,699
4.4%
9,373
7.7%
9,911
5.7%
10,350
4.4%
10,848
4.8%
11,347
4.6%
11,741
3.5%
Thousand Tonnes
Others
Others
Total Demand
y-o-y
MARKET BALANCE
Global Inventory
Weeks of consumption
LME cash price ($/t)
LME cash price ($/lb)
435
885
312
385
277
1,197
1,583
1,860
95
1,955
-63
-37
1,892
1,855
5.3
6.6
8.3
9.3
9.4
8.7
8.2
1,718
2,146
2,398
2,032
2,250
2,250
2,313
0.78
0.97
1.09
0.92
1.02
1.02
1.05
SOURCES: ILZSG, WOOD MACKENZIE, CIMB
21

February 4, 2013
Figure 33: Lead has the highest growth rate of any base metal
Figure 34: Lead demand correlates strongly with Industrial

Production
5.0%
12.0
Title:
Source:
10.0
4.5%
6.0
4.0%
4.0
3.5%
2.0
0.0
3.0%
-2.0
-4.0
2.5%
1.5%
Al
Cu
Ni
Zn
Pb
Sn
GLOBAL IP
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
DEVELOPING ECONOMIES
MATURE ECONOMIES
SOURCES: IMF, BLOOMBERG, CIMB
Figure 36: China auto production and sales

160%
120%
140%
100%
120%
80%
100%
% chg y-o-y
140%
60%
40%
20%
Title:
Source:
80%
60%
40%
20%
-20%
0%
-40%
-20%
-60%
-40%
China
Europe
US
Japan
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
0%
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
% chg y-o-y
2001
World Lead Demand (% growth)
SOURCES: WOOD MACKENZIE, CIMB
Figure 35: Auto sales by major region
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
2.0%
1989
-6.0
1988
World Consumption Grwoth
8.0
Production
22
Sales
SOURCES: CIMB, COMPANY REPORTS

February 4, 2013
3.6 Tin
We envisage the market remaining in deficit for the foreseeable future. The only
way we believe this could change is if higher prices induce more projects into
construction. In the short term though, an improving demand environment
coupled with supply constraints is likely to keep upward pressure on prices.
After peaking around 34kt per month in 3Q11, global refined tin production has
fallen to around 27kt in recent months (according to WBMS). In fact, recent
months have recorded yoy falls of between 13% and 16%. This has been the
result of weak growth in production in China. Refined tin production is down
nearly 20% yoy in recent months, but there have been notable declines in Peru
and Thailand as well. This coincides with prices dropping to approximately
US$17,000/t in late July, while spending a large part of the northern
hemisphere summer below US$20,000/t.
Strong tin demand remains beholden to a recovery in the electronics sector,
where solder consumes over 45% of all tin. When combined with demand from
industrial applications, the solder industry consumes over 54% of all tin. For
the first time this year, we are seeing signs that Chinas electronics and home
appliance sectors are coming to life, thus supporting solder and tin demand.
Production of appliances in China such as televisions rose 19% yoy, air
conditioners 31% and personal computers 31% in October. A view across all
tin-related sectors shows a broad recovery in recent months.

Inventories have been on a steady decline for the past three years. Since hitting
27kt in early 2010, they are down nearly 60% to 11.3kt. The market is even
tighter when you consider that LME warrant availability is at record low levels.
In recent weeks, cancelled warrants jumped to as high as 7,900t, although they
currently sit at just under 3,200t. Thus, the market appears significantly tighter
than even its strong fundamentals suggest.
Figure 37: Tin supply/demand balance
(Last updated 15-Jan-13)
2009
2010
2011
2012F
2013F
2014F
2015F
2016F
2017F
SUPPLY ('000t)
China
140.4
149.4
156.1
143.6
152.2
162.4
173.8
184.2
193.5
Indonesia
65.0
64.2
73.0
71.7
72.0
73.0
73.0
75.0
80.0
Malaysia
36.4
38.7
40.3
37.0
41.0
41.4
41.8
42.2
42.7
Others
93.9
104.4
98.5
99.2
100.7
101.2
101.7
102.3
102.8
World Total
% change YoY
335.7
356.7
367.9
351.5
365.9
378.1
390.4
403.7
418.9
-2.3%
6.3%
3.1%
-4.5%
4.1%
3.3%
3.3%
3.4%
3.8%
DEMAND ('000t)
Europe
52.4
59.4
65.9
55.4
56.2
57.1
57.9
58.8
59.7
230.9
255.7
266.9
267.9
275.5
283.3
291.4
299.6
308.2
North America
31.5
39.1
38.7
37.2
37.9
38.7
39.5
40.3
41.1
Others
11.1
14.4
12.5
11.7
11.9
12.1
12.3
12.6
12.8
Total
% change YoY
325.9
368.6
384.0
372.1
381.5
391.2
401.1
411.3
421.7
-7.9%
9.8
13.1%
-11.9
4.2%
-16.1
-3.1%
-20.6
2.5%
-15.6
2.5%
-13.1
2.5%
-10.7
2.5%
-7.5
2.5%
-2.8
Total
73
52
42
31
26
18
16
10.4
12.9
Day of Consumption
PRICES
20
13
10
2.3
2.8
Tin Spot Price US$/t
13,588
20,365
26,000
20,991
24,000
25,000
25,125
21,250
17,500
6.16
9.24
11.79
9.52
10.89
11.34
11.40
9.64
7.94
Asia
MARKET BALANCE
INVENTORY
Tin Spot Price US$/lb
SOURCES: WBMS, ITRI, CIMB
23

February 4, 2013
4. PRECIOUS METALS
4.1 Gold
We maintain a bullish view on the gold price on the back of further monetary
easing in the coming 18 months. The end-of-year sell-off appears to be
overdone, based primarily on the rising risk that FOMC would end QE before
the end of 2013 (given the mixed views of FOMC participants as revealed in the
minutes of the December meeting).
In early 2013, with the risks to industrial demand still persisting, we believe
gold has the greatest potential across the complex to regain its upward
momentum given the number of macro catalysts that still exist, as well as the
firming physical demand. As such, we are looking for a modest appreciation in
the first half of this year as investment demand remains positive and the
physical market improves upon its fragile state.
We believe there is a hard limit to which inflation expectations will be allowed
to rise before monetary policy is forced to tighten. The middle ground, between
now and that point (which we estimate at 2015), is where extraordinary
monetary policies (including outright QE purchases) and tightening bank
regulation (Basel III) create an environment of modest financial repression.
This should keep nominal and real interest rates very low, supporting
long-duration and inflation-hedged assets including equities, property and gold
in 2013.

Central bank demand continues to support the market. We expect purchasing

by emerging market countries to remain strong. In recent weeks we have seen
announcements from Japan (Japanese pension funds to double their gold
holding over the next two years), Vietnam (looking to increase government
reserves) as well as Germany (repatriating bullion stored in France and US).
Physical demand was weak towards the end of 2012, but in recent weeks has
started to improve, in particular from dealers in both India and China.
Premiums in India have been resigning strongly as buyers scrambled to place
orders for small bars as domestic prices fell and concerns emerge over another
possible increase in import duties.
Figure 38: Gold supply/demand model

Tonnes
2008
2009
2010
2011
2012
2013
2014
2,453
0.1%
2,611
2,583
2,619
2,650
2,664
2,670
6.4%
-1.1%
1.4%
1.2%
0.5%
0.2%
232
41
1,000
1,695
1,719
1,661
1,671
1,640
1,635
YoY % Change
0.0%
69.5%
1.4%
-3.4%
0.6%
-1.9%
-0.3%
TOTAL SUPPLY
3,685
4,347
4,308
4,280
4,321
4,304
4,305
18.0%
-0.9%
-0.6%
1.0%
-0.4%
0.0%
2,304
1,814
2,017
1,974
2,033
2,104
2,188
715
695
761
790
758
751
758
Total Fabrication
3,019
2,509
2,778
2,764
2,792
2,855
2,947
YoY % Change
7.1%
-16.9%
10.7%
-0.5%
1.0%
2.3%
3.2%
321
623
382
185
220
395
395
112
84
84
84
84
84
TOTAL DEMAND
3,340
3,244
3,244
3,033
3,096
3,334
3,426
YoY % Change
2.5%
SUPPLY
Total Mine Production
YoY % Change
Central Bank Sales
Gold Scrap
YoY % Change
DEMAND
Jewellery
Other
ETF's
Net Producer De-Hedging
8.8%
20.4%
10.5%
2.1%
-26.0%
7.1%
Implied Net Investment
345
1,103
1,064
1,247
1,226
969
879
Gold Price (US$/oz)
872
973
1,226
1,571
1,677
1,700
1,425
SOURCES: WGC, IMF, CIMB
24

February 4, 2013
5. STEEL MAKING RAW MATERIALS

5.1 Iron ore
Prices have recovered more quickly than we (and the market) had expected. An
improving steel production profile from China in 4Q12, as well as an end to
destocking of steel at the consumer level has underpinned this recovery. But it
has been the supply side issues which have pushed prices to where they are
today. These issues include:
1.
Greater-than-expected fall in exports from India (as we highlighted last

month in our Commodities Update: Indian iron ore exports grind to a
halt, 5 December 2012).
2.
Colder-than-expected winter in northern China has constrained domestic

mines to respond to higher prices. As China moves into spring, production
should stabilise and begin to edge up in response to higher prices. This is
likely to fuel a retreat in prices in 2Q13 as supply once again catches up
with demand.
3.
Iron ore inventories remain at historically low levels; in particular, mills

are believed to be carrying below normal working levels, which has
resulted in buyers looking to the international market during the current
short squeeze.
Long-term outlook: Slightly

Bullish
Our expectation for iron ore prices in the short term is that prices will remain
relatively well supported in 1Q13, and even early in 2Q13 before they begin
retreating on the back of weak demand and increasing supply. But there are
risks that could bring prices down in the short term which include:
Chinese domestic production. As mentioned above, Chinese domestic

production has been constrained by a deep freeze in the northern part of
the country. While this has tightened the domestic market, it could equally
push the market back into surplus if temperatures start rising and
production can resume. We would expect to see that occur after Chinese
New Year in any case, but the kick back could be more severe with prices
back above US$150/t.
Indian Exports. While we expect Indian exports to remain low, there

remains a risk that a resolution to the Goa ban could come earlier than
expected.
Normal cyclone season in Australia. Supply disruptions have been higher

than normal over the past couple of years after a couple of severe summers.
The Bureau of Meteorology is predicting a more normal cyclone season
this year, thus the risk of a strong yoy increase in Australian iron ore
exports is a distinct possibility.
Overcapacity in Chinas steel market could pressure steel prices. The

Chinese steel market continues to suffer from a capacity overhang. This is
likely to result in weak margins and steel prices, particularly considering
where iron ore prices are now. This matters as the correlation between
steel profit margins and iron ore prices is relatively strong.
A steady improvement in Chinese demand and continued supply-side issues

have been conducive in creating conditions that have driven iron ore prices up
over 80% since falling below US$90/t for the first time since 2009. While we
see them remaining supportive in the short term, the risks mentioned above
have the potential to quickly push prices lower.
25

February 4, 2013
Figure 39: Iron ore supply/demand balance

Mt
2009
2010
2011e
2012e
2013e
2014e
2015e
2016e
2017e
Japan
115
134
128
127
133
132
135
137
139
Korea
42
58
70
68
70
73
76
79
83
Taiwan
12
19
21
19
19
20
20
21
23
China
628
619
687
699
711
806
841
863
883
EEC
81
98
94
106
116
119
123
126
130
USA
11
11
11
12
12
13
Others
20
20
39
41
43
45
47
52
62
902
954
1,044
1,070
1,104
1,207
1,253
1,290
1,332
Australia
362
402
438
485
539
614
697
715
740
Brazil
266
311
331
314
339
364
386
444
492
India
115
102
77
60
45
35
25
11
Canada
28
28
30
30
30
25
25
25
25
Africa
55
59
59
70
83
100
107
111
126
Other
55
85
86
81
51
48
50
45
45
Total Seaborne Exports
871
966
1,020
1,040
1,086
1,186
1,289
1,351
1,427
Implied Surplus/Deficit
-31.5
11.6
-24.0
-29.8
-17.3
-21.3
36.0
61.1
94.7
88.2
145.8
167.8
127.1
130.0
133.8
127.5
121.3
100.0
Seaborne Imports
Total Seaborne Import

Seaborne Exports
Price Forecast ($/t CFR China)
SOURCES: GTIS, CHINA CUSTOMS, WOOD MACKENZIE, CIMB
26

February 4, 2013
5.2 Metallurgical Coal

Key issues
The benchmark settlement price for premium hard coking coal for delivery in
the Jan-Mar 2013 quarter was signed between BMA and newly merged Nippon
Steel-Sumitomo at a US$5/t discount to the prevailing quarterly price, at
US$165/t. This was not unexpected, although we had been forecasting a
rollover. Japanese and Korean steel mills had not been prepared for any
substantial price rises in 1Q13 and held firm as the wider market was still soft.
The pricing power by Nippon Steel and Sumitomo settling as a combined
company rather than as a wider consortium of Japanese steel mills may also
have influenced this settlement.

Long-term outlook: Neutral
The removal of a 40% tariff on met coke exports from China could result in
additional coking coal demand from the worlds biggest consumer. After recent
years of weakness, ramping up to its coke export quota would mean 11 Mt of
additional coking coal demand required in China. The key issue will be if
domestic mines and/or Mongolia cannot meet the shortfall in coking coal. If so,
then additional seaborne imports will be required in China.
Weather in Australia is unlikely to produce the supply disruptions seen over the
past couple of years, as it appears that weather patterns are returning to normal.
In saying that, although the latest floods in Queensland have caused some
minor disruptions. With plentiful inventories and the ability of producers to
release excess water into nearby rivers, however, the disruption is likely to be
short lived and the loss of supply minimal. Mitigating this gain will be the
disruption to the Canadian supply. The collapse of Berth 1 at Canadas
Westshore Terminal in Vancouver following a capsized vessel ploughing
through the trestle structure could result in a three months loss of capacity of
up to 4.5Mtpa. While the accident has failed to move prices significantly, it
should support prices in 1Q13.
These two major events will act to keep metallurgical coal prices balanced, but
at low levels into the early part of this year. Look for renewed pressure on
lower-quality coals in spite of the recent firm 1Q13 contraction for ultra low-vol
PCI coal signed at US$124/t. The potential fallout from Chinas export duty will
likely affect lower-quality coking coals more than premium hard coking coal,
with a reduced need for low quality coking coals following an upsurge in
cheaper coke to meet strong demand markets on Chinas doorstep.
Figure 40: Metallurgical coal supply/demand balance

IMPORTS (Mt)
2011e
2012e
2013e
2014e
2015e
2016e
2017e
Japan
54.0
57.7
59.9
61.6
61.0
62.2
63.5
South Korea
30.9
32.0
31.4
34.6
35.2
37.7
40.3
India
32.7
34.5
46.1
57.2
63.6
69.5
75.5
Europe
53.5
57.9
58.8
66.0
66.6
68.6
68.5
China (excl Mongolia)
24.6
37.8
39.9
43.9
34.1
23.7
18.0
Brazil
15.8
18.1
20.6
24.1
25.6
27.7
29.9
Other
20.4
25.4
28.1
30.1
32.8
33.3
35.8
Total
231.9
263.5
284.8
317.4
318.9
322.7
331.4
EXPORTS (Mt)
Australia
132.7
147.9
170.5
188.7
197.3
206.3
217.6
US
59.3
76.9
65.0
56.0
56.0
55.0
55.0
Canada
26.1
24.0
24.5
27.0
25.0
25.0
25.0
China
0.6
0.6
0.6
0.6
0.6
0.6
0.6
Russia
14.0
12.0
12.0
15.0
15.0
15.0
15.0
Mozambique
4.4
6.0
9.6
12.2
12.2
17.2
20.2
Other
6.5
7.9
11.5
9.7
11.2
13.1
17.9
Total
243.6
275.3
293.7
309.2
317.3
332.2
351.3
11.9
8.9
-8.2
-1.7
9.6
19.9
IMPLIED MARKET BALANCE

Hard Coking Coal ($/t FOB Aus)
Semi-Soft ($/t FOB Aus)
LV PCI ($/t FOB Aus)
259
194
188
206
119
139
188
126
136
230
165
180
233
163
185
223
158
180
180
126
144
SOURCES: WOOD MACKENZIE, PLATTS, GTIS, CIMB\
27

February 4, 2013
6. ENERGY
6.1 Thermal coal
Coal markets came under extreme pressure in 2012, with most benchmarks
down over 30%, driven by strong increases of supply from not only traditional
sources but also non-traditional, such as US coal into Asia. This was
compounded by a relatively warm winter in Europe which pushed inventory
levels high, and then exacerbated by lower economic growth as the Euro crisis
intensified. Over the course of the next 12 months, we believe it will be
demand-side issues that will gradually drive a market recovery in the thermal
coal market.

Demand for thermal coal will increase substantially in China and India in 2013,
slowly and steadily lifting prices from their current low levels. We forecast
China and India to increase imports by a combined 35 Mt in 2013, in part due
to recovering external economies in the Atlantic basin. In Europe, coal demand
will grow in Germany and some parts of Eastern Europe but fall elsewhere,
resulting in an overall fall in demand.
We see downside to US exports due to port constraints, supply cuts and
improving demand for coal-fired electricity (due to higher gas prices).
We believe that Indonesias 2012 production was 20-25 Mt below expectations,
indicating the supply cuts. Cutbacks in production in Indonesia also suggest a
bottoming out of sub-bituminous and lignite coal demand, even though the
arbitrage window is open to Indonesia. Going into 2013, we expect exports to
remain relatively flat; as the government seems intent on curbing future growth
in coal exports (as illustrated by announcements last year that it is considering
implementing a 25% tax on coal exports).
We expect Newcastle coal prices to remain well supported at around
US$90-95/t, but should start steadily rising during the first quarter of 2013
before hitting US$100/t by early 2Q13. The low price of domestic thermal coal
in China will continue to impact the competitiveness of Pacific Basin seaborne
coal.
Figure 41: Thermal coal supply/demand balance

IMPORTS (Mt)
2011
2012e
2013e
2014e
2015e
2016e
2017e
115.8
123.8
129.6
127.3
128.4
132.8
133.0
S.Korea
94.4
97.0
103.7
112.8
122.5
135.8
144.6
Taiwan
62.4
62.4
62.4
62.4
62.4
61.9
61.5
India
92.5
108.8
127.9
164.1
179.6
215.9
230.4
110.7
Japan
EC
124.7
137.7
123.8
118.7
116.6
118.5
Turkey
12.3
13.2
16.5
24.7
33.2
34.4
35.2
China
137.7
151.9
157.1
168.3
164.7
169.1
169.1
Malaysia
20.1
21.5
23.4
25.2
27.2
29.5
32.0
Thailand
16.0
18.2
21.7
16.3
20.0
23.7
27.9
Vietnam
0.0
0.0
0.0
1.3
3.8
5.0
6.9
Others
80.1
84.1
90.6
94.7
105.3
108.5
112.6
Total
756.2
818.6
856.6
915.8
963.6
1035.1
1064.0
226.8
EXPORTS (Mt)
Australia
152.9
159.0
177.6
200.7
211.2
217.7
South Africa
70.2
75.0
77.0
80.0
82.3
82.0
79.4
Russia
88.1
96.4
96.4
102.6
117.2
118.4
119.7
410.7
Indonesia
323.6
342.0
345.0
365.3
379.8
393.6
China
17.9
8.9
2.6
2.9
3.0
6.1
6.5
Columbia
64.0
69.1
69.1
69.1
75.2
79.2
85.3
US
25.5
41.1
35.0
27.0
28.0
35.0
40.0
Vietnam
20.0
25.8
22.0
23.0
20.7
19.4
17.7
Other
31.9
29.9
26.9
31.9
31.9
31.9
31.9
Total
794.1
847.2
851.6
902.5
949.4
983.4
1017.9
-5.0
-13.3
-14.2
-51.8
-46.1
102.5
115.0
125.0
117.5
100.0
IMPLIED MARKET BALANCE

Thermal Coal ($/t FOB Newc)
28.6
118.2
96.9
SOURCES: WOOD MACKENZIE, GTIS, CIMB
28

February 4, 2013
Figure 42: US thermal coal exports
Figure 43: Breakdown of US fossil fuel consumption
Monthly Exports
Yearly Rate
55%
65
50%
60
Title:
Source:
45%
55
50
3
45
40
40%
Million Tonnes
35%
30%
35
25%
30
20%
SOURCES: CIMB, GTIS, Platts
Figure 44: US gas prices have rebound as a forecast normal

winter boosts demand
140
5.5
85
130
80
120
75
US$/t
70
4.0
65
Jul-12
Sep-12
May-12
API4 (Richards Bay)

API2 (Rotterdam)
29
Jan-13
Nov-12
Sep-12
Jul-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
NYMEX
Jan-10
Newc
60
Mar-10
Oct-12
Nov-12
Sep-12
Jul-12
Aug-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
70
Jun-11
50
May-11
2.5
Apr-11
80
Mar-11
55
Jan-11
Jan-12
100
3.0
CSX
90
60
Henry Hub Nat Gas
Title:
Source:
110
4.5
3.5
Mar-12
Figure 45: Thermal coal prices around the world have been
picking up lately
90
Feb-11
Gas, $/mmbtu
SOURCES: EIA, CIMB
6.0
5.0
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Petroleum
Sep-10
May-10
Jan-10
Mar-10
Gas
Nov-09
Jul-09
May-09
Jan-09
Nov-12
Jul-12
Sep-12
Mar-09
Coal
15%
20
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
Nov-10
Jul-10
Sep-10
May-10
Jan-10
Mar-10
Nov-09
Jul-09
Sep-09
May-09
Jan-09
Mar-09
25
Sep-09
Million Tonnes
70
SOURCE: BLOOMBERG

February 4, 2013
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recipient therein are unaffected. CIMB has no obligation to update its opinion or the information in this research report.
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in whole or in part, for any purpose without the prior written consent of CIMB.
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As of February 3, 2013, CIMBR does not have a proprietary position in the recommended securities in this report.
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owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.
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Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
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to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on
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not confirm nor certify the accuracy of such survey result.
Score Range
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70 79
Below 70 or No Survey Result
Description
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Very Good
Good
N/A
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31

February 4, 2013
is not a recommendation to effect any transactions in the securities discussed herein, or an endorsement of any opinion expressed herein. CIMB Securities (USA) Inc, is a FINRA/SIPC
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Distribution of stock ratings and investment banking clients for quarter ended on 31 December 2012
820 companies under coverage
Rating Distribution (%)
Investment Banking clients (%)
Outperform/Buy/Trading Buy
54.5%
9.0%
Neutral
34.0%
3.4%
Underperform/Sell/Trading Sell
11.5%
8.6%
Recommendation Framework #1 *
Stock
Sector
OUTPERFORM: The stock's total return is expected to exceed a

benchmark's total return by 5% or more over the next 12 months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a
benchmark's total return.
UNDERPERFORM: The stock's total return is expected to be below a
TRADING BUY: The stock's total return is expected to exceed a
TRADING SELL: The stock's total return is expected to be below a
relevant
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is

expected to outperform the relevant primary market index over the next 12 months.
NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected
to perform in line with the relevant primary market index over the next 12 months.
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is
expected to underperform the relevant primary market index over the next 12 months.
TRADING BUY: The industry, as defined by the analyst's coverage universe, is
expected to outperform the relevant primary market index over the next 3 months.
TRADING SELL: The industry, as defined by the analyst's coverage universe, is
expected to underperform the relevant primary market index over the next 3 months.
relevant
relevant
relevant
relevant
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities Exchange, Korea Exchange, Taiwan
Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market
volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
Recommendation Framework #2 **
Stock
Sector
OUTPERFORM: Expected positive total returns of 10% or more over the next 12
months.
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a

high number of stocks that are expected to have total returns of +10% or better over
the next 12 months.
NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i)
an equal number of stocks that are expected to have total returns of +10% (or better)
or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns
that will range from +10% to -10%; both over the next 12 months.
UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a
high number of stocks that are expected to have total returns of -10% or worse over
the next 12 months.
TRADING BUY: The industry, as defined by the analyst's coverage universe, has a
high number of stocks that are expected to have total returns of +10% or better over
the next 3 months.
TRADING SELL: The industry, as defined by the analyst's coverage universe, has a
high number of stocks that are expected to have total returns of -10% or worse over
the next 3 months.
NEUTRAL: Expected total returns of between -10% and +10% over the next 12
months.
UNDERPERFORM: Expected negative total returns of 10% or more over the next 12
months.
TRADING BUY: Expected positive total returns of 10% or more over the next 3
months.
TRADING SELL: Expected negative total returns of 10% or more over the next 3
months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
AAV not available, ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH - Good, BEC - Very
Good, BECL - Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN Excellent, DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, GRAMMY Excellent, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very
Good, INTUCH Very Good, ITD - Good, IVL - Very Good, JAS Very Good, KAMART not available, KBANK - Excellent, KK Excellent, KTB - Excellent, LH - Very Good, LPN
- Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent,
RATCH - Excellent, ROBINS - Excellent, RS Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very Good, SPALI - Very Good, STA - Very
Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, THCOM Very Good, TICON Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good,
TUF - Very Good, WORK Good.
32

CIMB Commodities Strategy 20130204 - Calmer Waters Ahead

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CIMB Commodities Strategy 20130204 - Calmer Waters Ahead

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February 4, 2013

Notes from the Field

Calmer waters ahead

Figure 1: Short-term commodity outlook

T +61 2 9694 6053

Tough times helped many

Iron Ore, Met Coal

In our view, this stability is a

Chinas economy picking up

Real activity indicators in China

COMMODITIES STRATEGY Asia Pacific

IP growth edged up to 10.3% yoy in December 2012 from

Chinese IP growth (lhs)

GDP growth to hold c8% yoy in 2013

Electricity generation growth (rhs)

Chinas GDP growth finished the year at 7.9% yoy,

Real GDP growth (lhs)

Strong pick-up in Chinas steel output has

Lending growth (rhs)

12m rolling total, m

The strong relationship between Chinas crude steel

Floor space started (lhs)

Crude steel production s.a. (rhs)

Iron ore imports (rhs)

Real monetary policy eased from mid-2012,

Our real monetary policy gauge shows the extent of

Real GDP growth (lhs)

Real credit less IP growth (12m lead, rhs)

SOURCES: CIMB FORECASTS, COMPANY REPORTS

2. STRATEGY OUTLOOK SUMMARY

5.STEEL MAKING RAW MATERIIALS

1.1 Commodity markets to relish the end of the acute phase

Monetary policy is likely to remain accommodative, supported by very low

Supply-side constraints remain. While hard to forecast, the likelihood of

The destocking phase most commodities suffered through in 2012 has

A more stable period ahead

Chinas growth risks are subsiding.

Market concerns over tail risks are subsiding.

In terms of Chinas growth, key drivers of commodity demand such as

but ignore the tail risks at your peril

1.2 Commodity outlook

Figure 3: YTD performance of commodities in 2013

10.0% 15.0% 20.0% 25.0% 30.0%

Nickel above to have them entered in your rep

From a fundamental perspective, with growth rates in demand returning to

Figure 4: Commodity price forecast changes

Steel Making Raw Materials

$/t CFR China

Hard Coking Coal

$/t FOB Aus

SOURCE: CIMB FORECASTS

be over-supplied in the near-term, thereby increasing the likelihood of future

Steel-making raw materials

Sharper-than-expected fall in exports from India (as we highlighted last

Colder-than-expected winter in northern China has constrained the ability

2. COMMODITY STRATEGY OUTLOOK SUMMARY

Metal flows slow

$/t CFR China

$/t FOB Aus

$/t FOB Aus

Puma and Talvivaara mines

Smelters show constraint and production

China destocks or re-exports some metal

Destocking in Chinese market