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ASSOCIATION D’INSTITUTS EUROPÉENS DE CONJONCTURE ÉCONOMIQUE - Working Group on Commodity Prices - WORLD COMMODITY PRICES 2010-2011 Report presented to the AIECE Spring Meeting Milano, May 2010 by Klaus-Jürgen Gern Institut für Weltwirtschaft, Kiel Institut für Weltwirtschaft (Kiel Institute) Hindenburgufer 66 20105 Kiel Germany www.ifw-kiel.de

Transcript of WORLD COMMODITY PRICES 2010-2011sites.uclouvain.be/aiece/password/WCP-05-2010.pdf · 2010. 5....

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ASSOCIATION D’INSTITUTS EUROPÉENS DE CONJONCTURE ÉCONOMIQUE

- Working Group on Commodity Prices -

WORLD COMMODITY PRICES 2010-2011

Report presented to the AIECE Spring Meeting Milano, May 2010

by Klaus-Jürgen Gern

Institut für Weltwirtschaft, Kiel Institut für Weltwirtschaft (Kiel Institute) Hindenburgufer 66 20105 Kiel Germany www.ifw-kiel.de

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Members of the Commodity Group: BIPE Bureau d’Information et de Prévisions Économiques, Issy-les-Moulineaux ETLA Research Institute of the Finnish Economy, Helsinki GKI Economic Research Co., Budapest HWWI Hamburg Institute of International Economics, Hamburg IBRKK Institute for Market, Consumption and Business Cycles Research, Warsaw IfW Kiel Institute for the World Economy, Kiel INSEE Institut National de la Statistique et des Études Économiques, Paris NIER National Institute of Economic Research, Stockholm Prometeia Prometeia S.p.A., Bologna SN Statistics Norway, Oslo AIECE – Association d’Instituts Européens de Conjoncture Économique (AIECE) or Association of European Business Cycle Institutes: www.aiece.org

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Contents Abstract................................................................................................................................. 4 1 Recent price developments ........................................................................................ 5 2 Price forecasts until 2010 ........................................................................................... 8

2.1 General economic assumptions ...................................................................................... 8

2.2 Aggregate price developments ...................................................................................... 11

2.3 Energy raw materials .................................................................................................... 16

2.4 Metals and minerals ...................................................................................................... 20

2.5 Agricultural raw materials ........................................................................................... 27

2.6 Food and tropical beverages ......................................................................................... 32

Appendix tables ................................................................................................................ 40

The report and the price forecasts are based on the analysis of and discussion on the individual commodity markets by the members of the Working Group. All possible omissions and mistakes are, however, on the author’s own responsibility. HWWI has made the index calculations and ETLA has produced the graphs. Price index graphs show US dollar prices unless stated otherwise.

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Abstract

Since autumn 2009, world market prices for raw materials have continued to recover from the dramatic fall registered in the wake of the financial crisis. The HWWI index, which had declined by two thirds in US dollar terms between July and late December 2008, has by April 2010 recouped around 60 per cent of the losses incurred during the crisis. The rise in prices is broad based, the only major exception being food commodities. The strength in commodity prices is to some extent surprising given still relatively low (though increasing) economic activity and often extremely well supplied markets.

The commodity price projections presented in this report are based on the assumption of a world economy which continues a two-speed recovery with strong growth in the emerging economies led by China and modest upward momentum in the industrial countries. World GDP growth is expected to reach 4 per cent both in 2010 and 2011. Global industrial production will continue to recover from the severe drop experienced during the crisis. It is projected to rise by 6.5 per cent and 5 per cent in 2010 and 2011, respectively, and should surpass its pre-crisis level in the course of this year. Industrial production growth will be concentrated in the emerging market economies and NIEs, with Chinese production especially brisk, while the recovery of the industrial sector in the developed world is taking longer and will not be complete by the end of next year.

Raw material prices have staged a surprisingly strong recovery so far. In a number of cases, including crude oil and nonferrous metals in particular, the steep increase in prices is, however, hard to explain basing only on market fundamentals, suggesting that additional factors related to the financial markets may play a role. Over the forecast horizon, world raw material prices as measured by the HWWI index in dollar terms are expected to rise further, although at more moderate rates. This further increase will be almost entirely due to a continued strengthening of energy prices, as the index excluding energy is forecast to level off from mid-2010 onwards mainly as a result of supply reactions to the high level of prices. The pattern of change in average annual prices will be similar, however, for both energy and non- energy commodities with a strong rise in 2010 (35 per cent and 29 per cent, respectively) and more moderate increases next year (8 per cent vs. 3 per cent).

In the case of crude oil, despite of a substantial increase in global oil demand, the forecast assumes only a slight further increase of oil prices towards the level of 90 US-$ over the forecast horizon due to diminishing adherence of producers to the OPEC quota and additional production outside OPEC coming on stream. Metal prices are expected to rise somewhat further in the near term, but should start to soften later in the projection period as production should react to the higher level of prices. Agricultural raw materials prices on aggregate have already recouped their losses incurred in the height of the crisis and have increased beyond their recent peak levels registered in mid-2008 reflecting a significant market deficit as well temporary supply bottlenecks. However, the markets are expected to become more balanced and prices should moderate going forward. Food prices on the whole have been relatively slow in recovering from the decline in prices seen during the second half of 2008 and into 2009 and should continue to be sluggish, with an expected decline in the HWWI food index by 3 per cent in 2010 and 4 per cent in 2011.

In real terms, commodity prices should further rise over the forecast horizon, although at a more moderate pace. In the case of industrial raw materials, real prices will eclipse the previous record already this year on an annual average basis supported by the strong decline in export prices of manufactures in 2009 and their moderate price rise after that. This forecast implies that the shift in terms of trade from net commodity consumers to net commodity producers that characterized the years before the crisis will be sustained.

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1 Recent price developments

Since autumn 2009, world market prices for raw materials have continued to recover from the dramatic fall registered in the wake of the financial crisis. The HWWI index, which had declined by two thirds in US dollar terms between July and late December 2008, has by April 2010 recouped around 60 per cent of the losses incurred during the crisis. Prices in euros are even a bit closer to their pre-crisis peaks. The rise in prices is broad-based, the only major exception being food commodities where a significant increase towards the end of 2009 proved to be temporary.

Industrial raw materials prices gained 20 per cent between the beginning of October and the end of April, energy prices rose even by more than 25 per cent. On a quarterly basis, the changes between the first quarter and the third quarter are somewhat lower especially in the case of energy (+13 per cent only). Nevertheless the upward momentum has still been significantly underestimated in our autumn forecast. Back then, we have anticipated a moderation of the Chinese buying spree to dampen the rise in prices and increasing inventories to weigh on prices. To some extent the forecast errors can be explained by the fact that actual markets were tighter than anticipated, for example in the case of some agricultural raw materials or food commodities (e.g. cotton, sugar, cocoa), and in some other commodity markets special factors played a role, such as supply bottlenecks in wood products or nervousness about the impact of the Chilean earthquake in the case of metals.

Generally, however there is a puzzle as to why commodity prices increased so strongly in an environment of still relatively low (though increasing) economic activity and often extremely well supplied markets. One important piece of explanation could be that commodity prices are increasingly tied to economic activity in the emerging economies which are more and more important drivers of global growth, another factor could be an upward shift in production costs which has elevated the level of commodity prices structurally. A third factor at play could be an increasing impact of financial investors, which have more and more used commodity derivatives as assets in which to invest liquidity, given the current ultra-low interest rate environment. The increased activity of financial investors could also be an explanation for the higher volatility that is observed in commodity markets since around 2005. For example in the case of non-ferrous metal prices, volatility, although down from the dramatically increased levels during the crisis, is still elevated. Finally, the most recent pick-up in commodity prices, which followed a period of relatively stagnant prices around the turn of the year, could be an indication of a more buoyant world economy as is (and was) embedded in our forecast.

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Table 1 Autumn 2009 forecasts and realisations

Forecast Actual Forecast Actual Forecast Actual Forecast Actual

All commodities* 5 10 1 4 0 6 1 12 Total excl. energy 3 8 2 5 -2 5 2 12 Food total 2 6 0 -2 -2 2 0 5 Cereals -3 9 3 -3 -7 6 3 3 Tropical beverages, sugar 8 10 -2 1 3 6 -2 8 Oilseeds, vegetable oils -1 -2 -1 -4 -5 -5 -1 2 Industrial raw materials 3 10 3 8 -1 6 3 15 Agricultural raw materials 6 16 0 5 1 12 0 13 Non-ferrous metals 3 11 3 8 -1 8 3 16 Ferrous raw materials 1 0 8 9 -4 -3 8 17 Energy raw materials 5 10 0 4 1 7 0 11

USD/EUR 1,50 1,48 1,50 1,38

* HWWI index, total

EUR terms2009 Q4 2010 Q1

Quarterly percentage changes

2009 Q4 2010 Q1USD terms

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2 Price forecasts until 2010

2.1 General economic assumptions

In spring 2010, economic recovery seems to be established in most parts of the world. The world economy recovery has reached a remarkable momentum in the second half of 2009 and first estimates for GDP growth as well as developments in industrial production and economic sentiment suggest that the upward momentum remained intact in the first months of the year. The upturn in the world economy has been led by rapid growth of production and trade in the emerging economies, especially in Asia, while real GDP in the industrial countries increased less forcefully and, moreover, was driven by temporary factors such as government stimulus programs and inventory adjustment.

The commodity price projections presented in this report are based on the assumption of a world economy which – broadly speaking – continues a two-speed recovery with strong growth in the emerging economies led by China and modest upward momentum in the industrial countries, which are held back by continued adjustment processes as a legacy of unbalanced growth in the past and increasingly also dampening effects from the unwinding of fiscal stimulus. General government budget balances have deteriorated dramatically in most industrial countries as a consequence of the recession, fiscal stimulus programmes and support for the financial sector, and fiscal policy will have to turn restrictive sooner rather than later in order to prevent government finances to get out of control. By contrast, monetary policy in the industrial countries has still room to remain accommodative for longer given low underlying inflationary pressure, and we do not expect any significant increase in short-term interest rates in the major currencies for the time being. That said, the picture in fast growing emerging economies is slightly different. With capacity utilization back to normal and strong growth momentum in the economy inflation risks and concerns about asset price bubbles emerging have already led a number of monetary authorities to start tightening policies. This is expected to continue and should gradually lead to a more moderate growth path outside the industrial countries going forward.

World GDP growth is expected to reach 4 per cent both in 2010 and 2011. This is somewhat above the average growth rate of 3.6 per cent registered between 2004 and 2009, but looks modest given that the global economy is just recovering from the deepest slump since the Great Depression. Growth in the industrial countries is projected to be only 2 per cent this year and accelerate slightly to 2.5 percent next year, which is still hardly above estimates of medium term trend growth. An important aspect for commodity markets is that construction activity in the industrial countries is expected to remain muted as a number of property markets are characterised by oversupply and support from public infrastructure spending is going to decline with government stimulus programmes nearing completion and pressures to reduce government borrowing increasing. The US economy, according to the Group’s projections, will expand at a moderate rate of 3 per cent in both 2010 and 2011 held back mainly by relatively modest growth in consumer spending. The European Union is lagging in this upturn. Growth is expected to remain sluggish, and the projected acceleration of growth from 1 per cent this year to 1.5 per cent next year that is in the forecast probably may depend on the success of the recent efforts to rescue of Greece from government default in stabilising the EU sovereign debt markets. Emerging economies will remain the main engine of the global economy with China expected to register double digit growth rates in 2010 before slowing slightly next year, mainly as a result of credit tightening. Robust growth is expected for India and the Asian NIEs as well as for Latin America, especially Brazil, and (finally) also Russia.

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Global industrial production will continue to recover from the severe drop experienced during the crisis. It is projected to rise by 6.5 per cent and 5 per cent in 2010 and 2011, respectively, and should surpass its pre-crisis level in the course of this year. Industrial production growth will be concentrated in the emerging market economies and NIEs, with Chinese production especially brisk, while the recovery of the industrial sector in the developed world is taking longer and will not be complete by the end of next year.

World trade has staged an impressive rebound during the second half of 2009 and into 2010, although from an extremely low level. Partly due to a high statistical carry-over from 2009, trade volume is expected to record double digit growth in 2010, following a decline of 13.2 per cent last year. For 2011 world trade is projected to rise by 7 per cent, a growth rate which is more in line with normal elasticities of trade to output. The export price of manufactures in US dollars is expected to rise slightly, by 0.5 per cent this year and by 1 per cent next year. The forecast assumes the exchange rate of the dollar against the euro to remain stable at the level of around 1.35.

The risks to this outlook are broadly balanced. Downside risks are associated with the appropriate design and timing of the exit form the extraordinary economic stimulus measures taken around the world. An upward risk is that we underestimate the strength of the current upward momentum in the economy which is witnessed by bullish business climate indicators in the major economies and the impact of ultra-low interest rates on economic activity, at least in the short term.

Table 2a Framework Assumptions 2008 - 2011percent change 2008 2009 2010f 2011f

World GDP, volume 3,2 -0,8 4,0 4,0 Advanced economies GDP, volume 0,5 -3,3 2,0 2,5 World, industrial production 1,6 -6,4 6,5 5,0 OECD, industrial production -1,8 -11,9 4,0 3,0 China, industrial production 12,9 11,7 16,0 13,0 World trade, volume 2,3 -13,2 11,0 7,0 Export price of Manufactures, in US$ 8,9 -6,9 0,5 1,0

Exchange rate (US$/EUR) 1,47 1,39 1,35 1,35 f forecast

Source: AIECE WG on Commodity Prices, IMF, OECD, China Statistical Data, CPB, Prometeia

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Table 2b World GDP growth by regions

percent change Weight**1980?09* 2004?09* 2008 2009* 2010f 2011fAsia 30.4 6.9 6.7 5.9 3.4 7.5 7.5

- Japan 6.5 2.0 0.0 -1.2 -5.2 1.5 2.0 - China 10.8 9.9 10.5 9.0 8.7 10.5 9.5 - India 4.5 6.1 8.2 7.3 5.6 8.0 8.0 - Nic's 3.8 6.0 3.5 1.8 -0.9 5.0 4.5

Sub-Saharan Africa 2.3 3.4 5.5 5.5 2.1 4.5 5.5 EU27 22.4 .. 1.1 1.0 -4.0 1.0 1.5

- Euro area 15 16.0 .. 0.8 0.5 -3.9 1.0 1.5 CIS Countries 4.4 1.4 4.4 5.5 -7.5 4.0 4.0

- Russia 3.2 .. 4.0 5.6 -7.9 3.5 3.5 Middle East and North Africa 4.7 3.6 4.8 5.1 2.4 4.5 5.0 Latin America 8.5 2.6 3.7 4.3 -1.8 4.0 4.0 North America 23.2 2.8 1.2 13.0 -2.4 3.0 3.0

- United States 21.3 2.8 1.2 7.0 -2.4 3.0 3.0 World 95.9 3.2 3.6 3.2 -0.8 4.0 4.0 **) 2007 GDP at Purchasing Power Parity by the IMFSource: AIECE WG on Commodity Prices, IMF, OECD

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2.2 Aggregate price developments

Raw material prices have staged a surprisingly strong recovery so far. Factors behind the upsurge in prices have been noted in the Group’s autumn 2009 report already, including (1) strong Chinese demand thanks to the huge stimulus plan which was focused on public investment and building commodity stocks, (2) steep cuts in production as a reaction to the fall in demand, rising inventories and slumping prices, which were (3) not reversed in a timely fashion when demand started to pick up, and (4) increasing cost of production from rising marginal input prices such as energy or fertilizers. In a number of cases, including crude oil and nonferrous metals in particular, the steep increase in prices is, however, hard to explain based only on market fundamentals, suggesting that additional factors related to the financial markets may play a role. Over the forecast horizon, world raw material prices as measured by the HWWI index in dollar terms are expected to rise further, although at more moderate rates. This further increase will be almost entirely due to a continued strengthening of energy prices, as the index excluding energy is forecast to level off from mid-2010 onwards mainly as a result of supply reactions to the high level of prices. The pattern of change in average annual prices will be similar, however, for both energy and non- energy commodities with a strong rise in 2010 (33 per cent and 29 per cent, respectively) and more moderate increases next year (8 per cent vs. 3 per cent).

In the case of crude oil, the dominant commodity in the raw material import costs of industrialized countries with a weight in the index of 63 per cent alone, the recovery of prices has been supported by production cuts of OPEC amounting to 4.2 million barrels per day, representing almost 5 per cent of global demand. However, despite these efforts of OPEC to curtail supply, there was no sense of physical scarcity in the market as witnessed by high levels of stocks and forward prices being in contango rather than backwardation as used to be the case in the years before the crisis. Despite of a

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substantial increase in global oil demand (+1.8 per cent in 2010 following -1.4 per cent, according to IEA) we project only a slight further increase of oil prices towards the level of 90 US-dollar per barrel over the forecast horizon. At the current level of prices adherence to the OPEC quota can be expected to diminish, and additional production outside OPEC is expected to come on stream. Coal markets gradually firmed through 2009 under the impact of strong demand from non-OECD Asia, and especially from China. Global economic recovery and substantial price rises in just concluded contract negotiations indicate that an upward price trend should be maintained in the forecast period with a possible slowdown next year. According to the Group’s projection, steam coal price will increase by 35 per cent in 2010 and by 11 per cent in 2011, and that of coking coal by 15 per cent and 14 per cent respectively.

In recent weeks, the increase of industrial raw materials prices has resumed; prices are now 60 per cent higher than at their bottom in early 2009 and only 15 per cent below their pre crisis peak. Rising demand for industrial commodities as the recovery was strengthening and broadening has been one factor behind this rise. However, global industrial activity is still significantly below pre crisis levels mainly due to a relatively sluggish rebound of industrial production in the developed world. Another element of explanation of the surprising strength of the rebound in commodity prices is the fact that commodities in general and non-ferrous metals in particular are increasingly built in the portfolios of financial investors. Financial arbitrage therefore has led to a relatively close positive correlation of a number of industrial material prices with the US stock market and a negative correlation with the US dollar exchange rate (see table below).

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Over the forecast horizon non-ferrous metal prices are expected to increase further, although at a diminishing rate. Emerging economies, especially China, will continue to be the main driver behind strong growth of demand even if growth momentum is expected to gradually moderate in some countries in 2011. However, production capacities will also increase, and the comfortable levels of stocks held at the LME should also limit the upward potential of prices. Non-ferrous metals prices are expected to gain 47 per cent compared to the previous year on average in 2010, followed by another 12 per cent rise next year.

The iron ore market is currently characterized by a change of the pricing system from annual contract pricing to a quarterly pricing based on spot prices. In recent negotiations iron ore prices were raised substantially and the price is expected to double by the end of 2010 before retreating somewhat as additional supply meets the market. Scrap prices have risen strongly from the bottom in early 2009, although less vividly than iron ore steel, mirroring the recovery in steel production. The strong rise in price of the raw materials used in steel production will be reflected in significant increases in steel prices which, measured with reinforcing rounds, should grow this year and next by almost 30 per cent and 9 percent, respectively.

Agricultural raw materials prices on aggregate have already recouped their losses incurred in the height of the crisis and have increased beyond their recent peak levels registered in mid-2008. This strong recovery was due to a significant undersupply in cotton, wool and natural rubber markets mainly caused by substantially reduced production in the case of the fibres and drastically higher demand from the car industry in the case of rubber. Timber prices in contrast are still significantly below their peaks, although also on a historically high level. Sawn wood and wood pulp prices have benefited recently from supply bottlenecks which should be temporary and gradual normalisation of the supply situation should lead to a reversal of the price trend in the coming months. Wood product prices are expected to be held back over the forecast horizon by continued weakness in important housing markets, especially in the US. Cotton and rubber prices will also start to decline going forward according to the forecast due to a more balanced market as cotton production is reacting to higher prices and demand for rubber will soften as a result of the end of car buying incentive schemes in more and more countries. In the case of wool, the market should remain tight, but upward pressure

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on prices in the short and medium term will be partially offset by unfavourable substitution effects with respect to competing fibres. All in all, the Group expects agricultural raw material prices to decrease by 6 per cent next year, following a strong rise of 31 per cent in 2010.

Food prices on the whole have been relatively slow in recovering from the decline in prices seen during the second half of 2008 and into 2009. This is mainly due to record harvests of cereals and oilseeds which leads to rising stock-to-use ratios of these commodities and keeps downward pressure on prices. Going forward we expect that production will be more in line with demand partly due to lower output, partly due to a further increase in demand for crops as an energy source giving some support to prices. Markets of tropical beverages and sugar, in contrast, have been undersupplied in the recent past and their prices have been firm and even sharply rising in the case of sugar. However, the market situation in these commodities is expected to change and prices have already started to correct in most recent months in anticipation of higher output. If expectations of higher production are confirmed prices of beverages and sugar should continue to decline in the remainder of this year and next, although given the tight market situation there are significant risks of prices firming again in the event of negative surprises with respect to production. On average, food prices are forecast to decline by 3 per cent in 2010 and 4 per cent in 2011.

Commodity prices in real terms, deflated with export prices of manufactures, declined substantially during the crisis from the new record levels they had reached in 2008, but remained high compared to the levels seen in the 1980s and 1990s. In the course of 2009 real commodity prices started to increase again and the commodity group forecasts a further rise over the forecast horizon, although at a more moderate pace. In the case of industrial raw materials, real prices will eclipse the previous record already this year on an annual average basis. This forecast implies that the shift in terms of trade from net commodity consumers to net commodity producers that characterized the years before the crisis will be sustained.

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Table 3 Aggregate development 2008-2011

Commodity indices in US$ termsIndex values 2000=100 and % change 2008 2009 2010 2011

All commodities 316 210 279 298 33 -34 33 7

Total excl. energy 236 184 237 245 13 -22 29 3

Food total 233 202 197 190 34 -13 -3 -4

Industrial raw materials 237 176 255 269 6 -26 45 6

Agricultural raw materials 151 125 164 154 -3 -17 31 -6

Non-ferrous metals 242 172 252 282 -11 -29 47 12

Ferrous raw materials 482 338 531 578 61 -30 57 9

Energy raw materials* 354 222 299 324 42 -37 35 8

Crude oil 344 218 294 318 37 -37 35 8

MemorandumIndices in euro terms 2008 2009 2010 2011

All commodities 195 137 190 204 23 -30 38 8

Total excl. energy 147 121 161 168 4 -17 33 4

Food total 145 134 134 130 25 -8 0 -3

Industrial raw materials 148 116 173 184 -2 -22 50 6

Agricultural raw materials 94 83 111 106 -10 -12 35 -5

Non-ferrous metals 150 113 171 193 -18 -25 52 13

Ferrous raw materials 301 223 362 395 49 -26 62 9

Energy raw materials* 218 145 203 222 31 -33 40 9

Crude oil 212 143 200 218 27 -33 40 9

* Steam coal and crude oil

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2.3 Energy raw materials

The weekly spot crude oil price, which had declined from around 146 US$ per barrel in the beginning of July 2008 to somewhat over 40 dollars in the beginning of January 2009, increased through most of last year and was 80 dollars in the beginning of 2010. After a couple of month prices having fluctuated within the range of 70 and 80 dollars, prices started to firm again in recent weeks to around $85. While the average oil price in 2009 was slightly lower than 62 dollars, the price has been almost 80 dollars the first four months of this year.

The main reason for the strong decline in the oil price over the last six months in 2008 was the international financial crisis that resulted in a reduction in demand in the OECD, both in the US, Europe and Japan. The financial crises also spread to other parts of the world, leading to a relatively large downward adjustment of the increase in oil demand outside the OECD, not least in China and India. The main reason for the increase in the oil price since the turn of the year 2008/09 is that OPEC has reduced its production. In addition economic growth has recovered in most regions with the rebound of activity in Asia especially strong.

After experiencing a decline in global demand of 1.3 million barrels per day (mb/d) in 2009, IEA (International Energy Agency) now expects global crude oil demand to increase by 1.7 mb/d from 2009 to 2010, which is an upward adjustment of earlier forecasts. The increase in crude demand in 2010 is above all expected in China, the Middle East, India and other Asian countries and to some extent in Latin America. Demand in the OECD area is expected to be fairly flat year-on-year, after having declined for four subsequent years.

IEA expects total crude oil production outside OPEC to increase by 0.7 mb/d from 2009 to 2010. The growth in production is mainly expected in Brasil, Russia and the Caspian region. Minor increases of production are forecast for China and India. Total OECD production, by contrast, is expected to decline for the ninth consecutive year as oil provinces of the North Sea and Mexico are maturing and North American output is expected to be more or less constant.

It is expected that OPEC will increase the production of Natural Gas Liquids to a certain degree from 2009 to 2010, and this production is not included in OPECs quota system. OPEC decided at three meetings in 2008 to reduce crude oil production by 4.2 mb/d per day. While OPEC initially managed to cut production by around 80 per cent of what they had signalled, adherence to the quota gradually declined over time, and the reduction is now around 60 per cent. Nevertheless, current level of OPEC production implies that the global crude oil stocks will decrease a little in the second and third quarter this year in a period when stocks usually increase, primarily with gasoline and diesel for the summer driving season, but also to a certain extent with fuel oil for the winter heating season.

According to the IEA the stocks of crude and products in most regions in OECD are over the five-year average, measured in days of forward demand cover. However, the level of stocks relative to consumption seems to have lost influence on the oil price as rising stocks in most regions over the last months has not prevented the oil price to increase to relatively high levels.

While there is substantial uncertainty around the size of OPEC’s spare crude production capacity, various analysts believe it to be around 5 mb/d, substantially up from the depressed levels seen two or three years ago when global oil production capacities were almost fully used. In addition, a small increase in crude oil production capacity is expected to be achieved over the projection period. This leads to less worries about potential supply bottlenecks as reflected in the forward curve being in contango (in contrast to the years before the financial crisis when the oil market used to be in

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backwardation. Given this market situation, the Group does not expect strong upward pressure on prices to be maintained over an extended period of time, and we therefore project only modest further increases of oil prices over the forecast horizon.

Coal markets gradually firmed through 2009 under the impact of strong demand from non-OECD Asia, and especially from China. Australian steam coal spot price quotations fob Newcastle closed the gap with the reference contract price (US$ 70-72/mt) already in mid-2009, and even climbed seasonally over US$ 100/mt at the beginning of 2010. Spot prices also strengthened at the market of coking coal – from US$ 130/mt at the beginning of 2009 to US$ 210-230/mt twelve months later, against the background of a contract price of US$ 129/mt in deliveries from Australia to the Japanese steel mills in FY 2009/10 (April-March). Under conditions of global economic recovery, an upward price trend should be maintained in the forecast period with a possible slowdown next year if the Chinese economy slows (because of tighter monetary conditions and/or expiration of fiscal stimulus package).

The Chinese imports of steam coal more than doubled in 2009 as compared with the previous year, and the imports of coking coal showed an almost fivefold rise. The surge in coal import demand was attributable to a number of demand and supply factors, including strong recovery of the Chinese economy from the severe export shock, increased price competitiveness of imported coal over domestic coal resulting from the collapse of world steam coal prices in the second half of 2008, a sharp fall in freight rates, and lower production from domestic mines as a consequence of consolidation and restructuring programmes. A substantial increase (by 32 per cent) was also noted in steam coal imports to India, reflecting lower than expected domestic production with additional capacities of coal power plants put into operation at the same time. On the other hand, coal imports sharply declined in the case of the remaining major importing countries and regions, affected by the global crisis. According to the Australian Bureau of Agricultural and Resource Economics (ABARE) estimates, the imports of steam coal to Japan decreased by 10 per cent in 2009 and that of coking coal

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by 19 per cent; the fall in the EU imports of the above coal grades reached 3 per cent and 25 per cent respectively.

Generally firm market conditions are also expected for the forecast period. Though the Chinese coal imports are likely to stabilize around the level reached last year as rising consumption should be covered by higher domestic production (as a result of gradual re-opening of restructured mines and lower competitiveness of imported coal because of a rise in world market prices), the imports to Japan and the EU should rebound with the economic recovery progressing. The ABARE projection shows that the rebound would be especially strong at the market of coking coal – its world imports are to increase by 9 per cent in 2010 and by 8 per cent in 2011 after a fall by 11 per cent in 2009. Compared with coking coal, the growth rates of world steam coal imports would be rather modest and diminishing – from 4 per cent in 2009 to 3 per cent in 2010 and 2 per cent in 2011 as the impact of higher imports to the developed countries would be reduced by practically flat imports to China and a slowdown in import dynamics to India. Increased global import demand would be met by an expected rise in deliveries from all major exporting countries (Indonesia, Australia, Russia, Colombia and South Africa for steam coal, Australia, the US and Canada for coking coal) though with possible short-term undersupply conditions resulting from insufficient infrastructure and often at higher costs from newly enlarged mine and transport capacities, which would constitute another price-supporting factor, especially in a mid-term.

AIECE projects that the price of Australian steam coal will increase by 35 per cent in 2010 and by 10 per cent in 2011, with this year’s average corresponding to the reference contract price of US$ 98/mt; the respective rise in the South African price is expected to reach 35 per cent and 14 per cent.

Coking coal contract negotiations for FY 2010/11 concluded with a major price raise (by 55 per cent, to US$ 200/mt), but also marked a break with a 40-year-old system of annual price deals. The negotiated price is valid only for the 1st quarter of FY 2010/11 (April-June) and then will be reviewed once a quarter, which reflects the exporters’ commitment to achieving a fixation mechanism that will link the contract prices more closely with current spot market conditions (which would enable the exporters to fully benefit from a booming market). Regarding the present and expected market tightness the price will probably follow an upward trend this year with possible deceleration later in the forecast period. According to the AIECE projection it will increase by 15 per cent in the calendar year 2010 and by 14 per cent in 2011.

The Western European monthly average import price of natural gas increased by 23 per cent from September 2009 to January 2010. In the first quarter of 2010 the price remained unchanged. The price rise that took place in January 2010 is explained by the fact that due to the cold winter huge amounts of natural gas were withdrawn from storage facilities for heating purposes pulling inventory levels down by over 8 bcm since the beginning of December 2009. In terms of year-on-year figures apparent or gross consumption (indigenous production plus imports minus exports and changes in stocks) of natural gas was down by 5.4 per cent in 2009 due to the fall of demand in the business sector as a result of the global economic crisis.

The overall picture for European natural gas demand remains weak, particularly from the industrial sector. Total demand is expected to grow by only 1-2 per cent in 2010 to around 544 bcm. (European natural gas demand is not expected to return to 2008 levels before 2012 or 2013). In 2010 indigenous production is expected to drop by 7.5 per cent to about 172 bcm, whereas imports are likely to grow by nearly 7 per cent to 372 bcm. Imports from Russia are projected to go up by 15 per cent, those from other sources (Norway, the Middle East and North Africa through pipeline and LNG from other countries) by 7 per cent.

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The market will be characterised by oversupply in 2010 as a result of an increase in existing pipeline capacity, the installation of the Medgas Pipeline between Algeria and Spain and more production worldwide in countries such as Algeria, Norway and Qatar. LNG imports to Europe are likely to be up by 9 per cent in 2010. New LNG supply volumes are forecast to appear from Qatar destined for the UK and Italian markets. Europe’s LNG regasification capacity would increase by 62 bcm in 2009 and 2010 corresponding to 10 per cent of the region’s total demand. The major reason for this is that the development of liquefied gas has made the resource more transportable and globalised an industry that was once reliant on specific local markets. Nevertheless, Russia did not contribute to the oversupply of natural gas in Europe since its natural gas production fell by some 25 per cent in 2009 compared with 2008, although it will certainly grow in 2010.

As far as price developments are concerned, oversupply depressed unregulated prices particularly in the LNG market. LNG continues to trade at a significant discount to pipeline gas (at under $6MMBtu import levels). With lower prices the supplying countries of LNG are going to increase their market shares in Europe at the expense of less flexible traditional pipe suppliers.

Oversupply tended to strengthen the decoupling of the price of natural gas from that of crude oil. This holds true for spot market prices. In addition, the supply glut of LNG also affected changes in the price policy of Russia’s Gazprom. Gazprom had ruled out any change in the indexation formula for a long time. This formula has underpinned its long-term supply contracts for four decades. Gazprom agreed changes to gas contracts with European energy groups to allow up to 15 per cent of sales to be linked to gas prices on the spot market that are presently about 25 per cent lower than the oil-linked ones specified in long-term contracts. Early 2009 Norway included a spot gas component, reportedly 7 per cent, in its export contracts.

Gazprom envisaged additional temporary measures to respond to its uncompetitive prices including the cutting of spot market sales and boosting forward ones, reducing take-or-pay volumes1 and raising them for later years, introducing a spot gas price link combined with a guaranteed minimum offtake and incentives to buy extra volumes, and finally buying cheap spot gas and delivering it against long-term contracts. The viability of Gazprom’s incremental concessions concerning gas pricing and volumes will depend on whether Europe’s gas supply and demand returns to balance within a few years.

Because of the slow increase in demand, the supply glut, the price competition of LNG, and changes in the price policy of major suppliers, including Russia, the average monthly European import price of natural gas is likely to rise rather slowly in 2010. Nevertheless, with unfolding economic recovery the price dynamics is expected to accelerate somewhat in 2011, although the price predicted for the fourth quarter of 2011 will not reach the pre-crisis level.

1 Take-or-pay is an agreement between a buyer and seller in which the buyer will still pay some amount even if the product or service is not provided. It may be provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount. This is used in some contracts as a method to ensure that the transaction occurs. For example, a natural gas exporter will enter into a take-or-pay contract with a natural gas importer so that the importer will buy all the natural gas from the exporter or pay a provision for not buying them.

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Table 4 Energy raw materials (US$ terms)Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Energy raw 164 212 243 268 278 304 307 308 320 321 327 328 354 222 299 324 materials* -21 29 14 10 4 9 1 0 4 0 2 0 42 -37 35 8

Crude oil 155 209 241 266 272 299 303 303 315 315 321 321 344 218 294 318 -21 35 15 10 2 10 1 0 4 0 2 0 37 -37 35 8

Steam coal 276 249 267 290 355 366 366 378 390 402 411 420 488 271 366 406 -21 -10 7 8 23 3 0 3 3 3 2 2 97 -45 35 11

Coking coal 613 264 264 264 264 409 450 491 491 450 450 450 510 351 403 460

0 -57 0 0 0 55 10 9 0 -8 0 0 144 -31 15 14 Natural gas 309 212 179 202 228 231 236 241 246 256 267 280 347 226 234 262

-24 -31 -16 13 13 1 2 2 2 4 4 5 57 -35 4 12 * Crude oil and steam coal only

2.4 Metals and minerals

As a consequence of the global economic recession, the primary aluminium price recorded significant losses at the LME, from around $3,200/mt in the beginning of July 2008 to below $1,300 in late February last year, the lowest price since November 2001. Afterwards the price has generally been on an increasing trend, reaching $2,300 - 2,400 in the middle of April 2010. The main reason for the price rise was that global demand started to increase, after declining by 14 per cent from the third quarter in 2008 to the first quarter last year. The prices have increased even though the aluminium market is characterized by record-high global inventories. Stockpiles of aluminium in warehouses approved by the LME reached a record high level of around 4.6 million tons at the end of last year. This was around 350 per cent above the levels in October 2008 and was the highest inventory level since the 1990s. However, in the middle of April global LME stocks were slightly lower than in late 2009.

Metal Bulletin Research (MBR) expects global demand to increase by 10.9 per cent this year and another 8.5 per cent in 2011. There are some signs of higher world economic growth and increasing global demand for aluminium goods. While demand in the developed world is expected to recover moderately, demand growth in East Asia is forecasted to be strong. There has been a recession in the North American aluminium market for over two years due to the problems in the residential construction and the automotive sectors. MBR expects aluminium demand in North America to increase by 2 per cent in 2010, and this moderate improvement will be from historically low levels way below the demand levels in 2007 and 2008. Demand growth in Europe is forecasted to be as small as 1.0 per cent this year. The main driver of global aluminium consumption is China. Their aluminium consumption, currently at over 40 per cent of the world total, is by a sizeable margin the largest in the world, having overtaken the USA in 2004. MBR expects Chinese consumption to grow by 25 per cent, which is close to the average annual growth from 2002 to 2007.

MBR expects global production to increase in 2010 and 2011 by 10.0 per cent and 6.6 per cent, respectively. Russia, Canada, the USA, Australia, Brazil, Norway and India are the principal producing countries after China. These countries, together, account for about three quarters of world output of primary aluminium, of which China alone has a market share of around 40 per cent. There

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have been significant production cuts in the US, Canada, China and Europe in 2009. However, in line with increased aluminium prices production is expected to increase in most regions, even if costs of inputs such as alumina and energy also have been rising. MBR expects Chinese supply to increase by almost 28 per cent in 2010.

MBR expects the relative growth in global consumption to be close to production in 2010 and somewhat larger in 2011. Looking at the aluminium stockpiles in warehouses approved by the LME, which cover around 75 per cent of global stocks, there have been signs of slightly falling inventories measured in tons since end 2009. With constant or slightly decreasing future stocks, aluminium prices could remain firm in 2010. In addition, in line with our expected moderate rebound of the world economy for next year, prices should increase somewhat also in 2011.

The copper price maintained an upward momentum, reaching about 8000 US$/t at the beginning of April. The price rally led quotes close to historical peaks, which is undoubtedly surprising in terms both of intensity and quickness of the recovery process. Price gains are driven by Chinese demand, which is currently responsible for about 40 per cent of global copper consumption. The astonishing Chinese hunger for copper has been driven by investment, which is in part a consequence of the impressive fiscal and monetary stimulus implemented by the Chinese administration.

Despite the bullish impact of the Chinese infrastructural package, global fundamentals have not yet reversed oversupply. Many indicators show that the world economic recovery has not filled the gap with “normal” fundamentals: In 2009, the world copper market showed a refined surplus; moreover, the stocks-to-consumption ratio is currently at its historical peak, price volatility is very low and the steep contango of the forward curve witnesses low physical scarcity risks. Interpretations for the apparent decoupling between LME stocks and prices (which are normally negatively correlated) could be the following: first, base metals prices are more and more becoming an indicator of industrial activity in emerging countries; second, an upward shift of production costs might have occurred in recent years, the negative relationship between prices and stocks would still hold, but on higher marginal costs/price levels.

The spike in price volatility in February-March 2010 was due to concerns about potential effects of the earthquakes in Chile, which revealed to be negligible. No Chilean export infrastructure was damaged and global mine demand, in particular from Asia, remained well supplied. Again, the comfortable condition of supply is confirmed by the contango term structure.

Data for 2010 show persistent strong Chinese copper imports; investment in infrastructures and the house market look supportive to prices, although overheating concerns are becoming more intense. Risks of monetary tightening are limited for the moment, therefore any slowdown in Chinese demand might only be a temporary pause in a structurally increasing trend. Moreover, with stocks beginning to decline even at OECD locations, in 2010 the global market could turn into deficit after a two year period of oversupply. The photograph of the market is straightforward: strong Chinese demand with risks of a temporary slowdown vis-à-vis progressive recovery of OECD demand, driven by restocking. Nevertheless, inventories are plentiful and upward price movements will be restrained by persistent overcapacity.

The copper price is then expected to show some further gain in the short term and more stability in 2011; we think risks on the downside are limited. On a quarterly basis, quotes should average about 7200 and 7700 US$ in Q1 and Q2, respectively. We project a 51 per cent price gain in 2010 and a slowdown in 2011 (+8 per cent).

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The rebound of the price of lead, which had declined dramatically from a high of 3,700 US$/t in November 2007 to below 1,000 US$/t in December 2008, has lost momentum since autumn last year. Prices actually declined in the first quarter of 2010, but seem to have stabilised recently at a level of around 2,200 US$/t. At the same time, the LME stock exceeded 170 KT. It was non-ferrous metals that experienced the strongest recovery in prices in 2009. And this is despite the fall of 16 per cent in demand in Europe (to the lowest level in the past 50 years) and 5 per cent in the USA.

However, at the same time China registered a rise in demand (by 25 per cent), which is explained by the expansion in vehicle production in China. Moreover, China has become a net importer of lead whereas it had been self-sufficient and an exporter for several years. This physical factor is not negligible because China accounts for half of global demand for lead. Increasing car ownership of emerging countries is a structural factor behind demand for lead in the medium term. Vehicle fleets in western countries also generate demand for the replacement of ‘old’ batteries. Another important factor influencing the development of prices is that financial intermediaries are very active in this metal: the correlation coefficients with S&P and the dollar are 0.9 and -0.84, respectively.

Supply should also rise sharply in 2010 (+7 per cent according to ILZSG), as was the case in 2008, through new capacities in India and Brazil and increases in production in China. In total, the market should maintain a surplus but only a small one. This tension is complemented by financial factors. All of this leads us to expect rising lead prices in 2010 and 2011.

Excluding two monthly decreases (September and November 2009), nickel prices have been consistently increasing since April 2009. This trend continued in the first quarter 2010 and the price of nickel reached 22,470 US$/t on average in March with stocks approaching 160 KT. Note that stocks recorded in March the first drop since July 2009 (-3.5 per cent m/m).

Production in 2009 was down by 7.2 per cent, whereas demand fell by 5 per cent. The low point was reached in January 2009, with a monthly surplus of nearly 30 KT. Since then, the situation has tightened, with demand up slightly and supply stabilised. Since early 2009, production of stainless steel, representing 66 per cent of demand for nickel, has recovered in Europe (+38 per cent in the first quarter y/y) whereas it has been soaring in Asia after the correction of early 2009 (+65 per cent).

Over the longer term the correlation with the US dollar is -0.66 and with the American stock market +0.51. This commodity therefore does not escape exchange rate and stock market arbitrage, but to a lesser extent than other commodities.

The average growth rate in nickel production is around 4 per cent in the medium term, but producers have already announced plans to raise output by 12 per cent in 2010 as they re-open the large capacities closed in 2009 (Ravensthorpe, Falcondo, etc.).

In 2010 supply should fall short of demand because of the simultaneous growth of US and emerging economies. In 2011, the recovery of all economies should prompt demand to pick up again whereas supply will not necessarily be able to accelerate to cope with this, but it should enable new projects to be launched (Goro, etc.). This outlook implies further tightening of the market and should facilitate further increases in prices over the forecast horizon.

The tin price has risen steadily approaching 18k US$/t. at the beginning of 2010 amid secular supply concerns and growing global demand, after falling to a 10k US$/t. low in the first quarter of 2009. In 2010Q1 the tin price increased by 13 per cent over the previous quarter, outperforming the base metal complex: the LME Base Metals index growth in the same period was 5.6 per cent.

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According to the World Bureau of Metal Statistics, global consumption fell by 4.7 per cent in 2009. The steep increase of Chinese refined consumption (+11 per cent) was insufficient to offset the fall in OECD demand. European refined consumption fell by about 20 per cent, while US consumption posted a slight increase, which can be explained by the ongoing aluminium/steel trade-off in can production. The counterpart of the OECD consumption fall has been a build-up in LME stocks; currently there are about 25k tons of tin stocks in warehouses, although inventories are starting to show a slightly declining path, as confirmed also by rising cancelled warrants (a proxy for physical demand). Moreover the stocks-to-consumption ratio is relatively low if compared with other commodities: even though the market appears well supplied, demand disruption has not been able to completely reverse structural trends.

Indeed, major risks lie on the supply side, given the persistent rigidity of mine output. Global tin production faces in particular two opposite forces: on the one hand, in Indonesia – which covers about 30 per cent of global mine output and 20 per cent of world refined production – output targets are highly at risk, given mining regulatory uncertainty. In some estimates, the new legal framework could lead to a 50 per cent cut in Indonesian output. This factor is already affecting national exports, which were down by 18 per cent y/y in February 2010. On the other hand, Chinese tin production growth is remarkable (+115 per cent in February), but this should not avoid the return of a slight global deficit in 2010.

The recent drop in LME stocks could imply a tighter market in the coming months, but only a sudden decline of Indonesian output would lead to a significant depletion and bring scarcity risks back into the market. We expect prices to strongly increase in the second quarter to over 18.3k US$ and rise more gradually in the following quarters. Annual price rises are forecast to be 36 per cent in 2010 and 9 per cent in 2011.

The price of zinc was listed at 2,277 US$/t on the LME on March, with stocks increasing regularly and exceeding 540,000 tons. In 2009, mining production has fallen by 4 per cent and metal production by 5 per cent, but demand by 9 per cent. Supply exceeded demand by approximately 440 KT in 2009.

Construction and transport account for 75 per cent of the final use of zinc (primarily in the form of galvanised sheeting). The situation in these two sectors in western countries explains the fall in the market: -24 per cent in Europe, -22 per cent in Japan, etc.; a slowdown in the production of galvanised steels has even been observed in China since last September, certainly due to the sharp slump in public investment. This fall in demand and this zinc surplus should have led to a fall in prices, but on the contrary prices have tended to climb consistently for the past 6 months. The correlation with the financial markets appears to explain this situation: the price of zinc shows a correlation with the S&P 500 of 0.94, which is the highest for raw materials, and a correlation of -0.83 against the US dollar.

While demand has gone down sharply in 2009, it seems to rebound also quickly due to growth in the emerging countries and restocking in Europe and in the US. Supply has been reduced, but less than the demand and its recovery is also less strong. As a result, the accumulation of inventories that had characterised the situation in 2009 tends to reverse in 2010.

In Europe, the physical market will not support demand to any significant extent: construction will remain negative in 2010 (in volume), and the automotive industry will also be down in volume following the dissipation of car buying incentives. It will be necessary to wait for 2011 for demand to become positive again. The situation is no more comparable in the United States where the demand should recover more rapidly. In Asia, China especially, demand from the automotive industry should

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remain strong (more cars have been produced in China than in Europe since 2009). However, construction may be slowing as the positive impact of the stimulus package on investment in structures may have peaked.

In sum, 2010 should experience a deficit of metal, reducing inventories. Anticipation of the financial markets should therefore keep long positions, sustaining prices.

Iron ore markets are on a big change. The price is going to double to a record level by the end of 2010 and an accompanying change in the pricing system from annual contracts to quarterly ones implies quite large variability of the price. This originates from a strong consolidation of supply as well as the rise of China to become the dominant steel producer.

The industry has consolidated strongly in recent years and the three largest producers (Vale, Rio Tinto and BHP Billington) currently make up close to 70 percent of sea borne iron ore markets. Freight costs divide the global markets into two segments. The Brazilian Vale has a dominant role in supply to the US and Europe, while the two other Australian companies dominate supply in Asia. Shipping ore from Brazil to China, which takes close to 2/3 of global iron ore exports according to International Mining, is nearly three times more expensive than shipping from Australia to China,.

The consolidation of the iron ore mining industry may still continue. Two Australian mining companies are planning to merge their Western Australian mining activities. Steel producers are concerned about the recent steep iron ore price rise and think that iron ore producers may use their increased monopoly power. The World Steel Association and Eurofer, the European steel producer Association, has called for an examination of the iron ore market behaviour.

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These concerns relate to the abandonment of an annual price negotiation system under long-term supply contracts. This system was created in 1960s to support mining companies to secure the profitability of expensive and time-consuming investments.

Box: Iron ore pricing system is changing

Under the 40 year old annual price contract system, prices were negotiated for a calendar year in trade between Europe and America. In Asian trade, the prices were set for fiscal years (April-March). New prices were found in several bilateral simultaneous price negotiations. Usually the first agreement was taken as a benchmark and followed by the others. Now, the system is changing into quarterly prices, which are settled on the basis of daily benchmark prices. One open question is how the change of the system will affect the price level. For example, under annual contract prices, the European prices changed in the beginning of the calendar year, though it took sometimes a delay of even half a year to strike the agreement. This year last year’s (constant) prices are maintained in the first quarter so far. However, it is still unknown what are the excact time of change and the price formula of the system.

Iron ore fines 62% Fe / CFR China Port $/t

0

20

40

60

80

100

120

140

160

180

200

1.10.2008 1.1.2009 1.4.2009 1.7.2009 1.10.2009 1.1.2010 1.4.2010

Fines 62% 3 month moving average "Contract price, cif, in China*"USD/tonne

* =Annual contract price (64.5%) plus freight rate from Brazil to China (quarterly )

SBB, ETLA

In the forecast, we assume that the new quarterly pricing system starts from the beginning of 2010 reflecting the adjustment of prices to the “short-term market preferences and price changes on a quarterly basis”, as Vale expresses it in its newsletter. After the price level change, the (calendar) quarterly contract prices (FOB) are assumed to be determined by a change of the daily Chinese import prices (cif) in the previous quarter. Thus in addition, the freight rates also play a role in pricing.

The Group expects iron ore prices to rise by close to 2/3 in 2010. In the third quarter, the (fob) price of ore to Europe would, however, be almost 100 per cent higher than a year ago. The high price is expected to turn downwards during 2011 reflecting improved supply, but the average price wills till stay 9 per cent higher than in 2010.

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Steel scrap prices, as measured by the US heavy melting no1, have risen strongly since the beginning of 2009 with the exception of the last quarter of 2009. In March 2010, the price was nearly 40 per cent higher than a year ago. The US steel scrap prices suffered from the steep decline in steel production in the fall 2008 and early 2009. The price peak before the crisis was reached in May 2008 with an all-time high of 516 dollars per tonne. After the peak, the price declined by about 55 dollars by August following the general decline in raw material prices. In the panic in autumn 2008 after the collapse of Lehman Brothers, the price dived to around 200 dollar by March 2009.

In spring 2009 scrap prices reacted immediately to the rebound of steel production and started to get more momentum. The price was pulled by some increase in demand and also by the rise of the iron ore price. Price of scrap, however, has benefitted from the strongly rising steel production less than iron ore price as the main producer of steel (China) uses mainly ore intensive production techniques. Scrap is used also in blast furnaces, but only to fine-tune the process. Scrap demand is mostly coming from mature economies like the EU and the US which are recovering from the crisis more slowly.

Assuming a continuing but sluggish recovery in the industrial countries in the remainder of 2010 and in 2011, the price of scrap is expected to increase moderately. The rise will be restricted by the more intensive scrap collection activated by higher prices and the intensified use of substitutes.

Steel prices, measured with reinforcing rounds, have risen rather steadily from the crisis-led bottom in March 2009 to last winter. The global financial and economic crisis hit steel markets very strongly. Demand collapsed and producers slashed production between the fall 2008 and the summer 2009. World steel production declined by 9 per cent in the second half of 2008 and by over 20 per cent in the first half of 2009 as steel mills reacted to collapsing demand. Nevertheless, inventories rose initially strongly and steel prices generally collapsed.

The average world price of reinforcing rounds declined from the record achieved in July 2008 by around half to find bottom in March 2009. In historical perspective, the US dollar price was still relatively high, somewhat above the level which prevailed in 2005-2006 (before the spike in prices at the height of the commodity price boom) and roughly 2.5 times higher than in the 1990’s, when steel industry faced large overcapacity problems.

The strong global policy responses of central banks and governments began to improve the situation in Asian developing nations (led by China) already in early 2009, industrialised countries followed in the summer last year. The drastic output cuts by major producers like Mittal of up to 50 per cent and the improving demand due to a slowdown in destocking finally turned the price trend in April 2009. Production started to rise in the late spring as well supported by the strengthening demand.

Steel raw materials, scrap for electric arc furnaces and coking coal and iron ore for blast furnaces, started to rise as well after strong after-crisis declines. The rises of raw materials prices will be substantial in 2010 thanks to strongly risen steel production especially in China (the dominant steel producer by its 47 percent share of world production in 2009 registered an impressive 25 per cent growth rate of production in January-February 2010). Iron ore prices will double. Steel scrap prices will rise less than iron ore prices, however, as demand from scrap intensive steel production is growing more moderately than still dominant ore-using blast furnace demand. The strong raw material cost pressure due to very large price rises of iron ore and coking coal will raise the indicator price of rebar by a quarter in dollar terms this year and by nearly 10 per cent in 2011.

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Table 5 Metals and minerals (US$ terms)Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Non-ferrous metals 125 154 192 214 232 251 258 267 273 281 285 288 242 172 252 282 -16 24 25 11 8 8 3 3 2 3 1 1 -11 -29 47 12

Aluminium GB 88 96 117 129 139 146 151 158 165 171 171 171 167 108 149 170 -25 9 22 11 8 5 3 5 4 4 0 0 -2 -35 38 14

Copper GB 189 257 323 366 398 428 441 450 457 461 466 468 385 284 429 463

-12 36 26 13 9 8 3 2 1 1 1 1 -2 -26 51 8 Lead GB 255 330 425 504 490 514 527 537 543 581 610 640 461 380 517 593

-7 29 29 19 -3 5 2 2 1 7 5 5 -18 36 15 8 Nickel GB 121 150 205 203 231 288 294 309 318 334 344 351 244 170 280 337

-3 24 37 -1 14 25 2 5 3 5 3 2 -43 -30 65 20

Tin GB 203 249 268 279 316 334 347 357 365 368 370 372 342 250 339 369 -16 23 8 4 13 6 4 3 2 1 0 1 28 -27 36 9

Zinc GB 104 131 156 196 203 211 219 224 226 240 252 262 166 147 214 245 -1 26 20 26 4 4 4 2 1 6 5 4 -42 -12 46 14

Ferrous raw materials 325 331 347 347 379 499 619 627 627 571 571 543 482 338 531 578 -20 2 5 0 9 31 24 1 0 -9 0 -5 61 -30 57 9

Iron ore BRA 351 351 351 351 389 529 684 684 684 615 615 584 488 351 571 625 -28 0 0 0 11 36 29 0 0 -10 0 -5 66 -28 63 9

Steel scrap US 216 232 274 274 288 346 381 400 400 380 380 361 371 249 354 380 29 8 18 0 5 20 10 5 0 -5 0 -5 40 -33 42 7

Steel scrap EU 314 339 402 402 424 509 560 588 588 559 559 531 564 365 521 559 23 8 18 0 6 20 10 5 0 -5 0 -5 57 -35 43 7

Steel 232 219 234 234 245 282 310 326 326 326 310 310 332 230 291 318

-12 -6 7 0 5 15 10 5 0 0 -5 0 19 -31 27 9 .

2.5 Agricultural raw materials

Cotton has experienced sky rocketing prices since the second quarter of 2009. In March 2010, prices were almost double the level one year before (+89 per cent). This surge comes from an undersupplied world market due both to decreasing supply and increasing demand. In 2010 and 2011, prices will return gradually to a lower level as production is forecasted to increase.

One factor behind the unexpectedly strong upsurge in prices was a substantial downward revision in production expectations. This season, unlike our last forecasts, world cotton production is expected to decrease by around 4.4 per cent to 22.37 mill. tons, according to Abare (the Australian Bureau of Agriculture and Resource Economics). It results both from a decrease in the cotton area (-1 per cent) and a drop in yields (-4 per cent). The fall in production will be particularly pronounced in China where supply is forecast to decline by 14 per cent to 6.9 mill. tons, worse than previously forecasted. With the exception of India, all other major producers (African Franc Zone, Brazil, and Uzbekistan)

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are also expected to suffer from a decreasing area. The yields’ gains expected from the widening use of GM variety should weaken as a large part of the crop is already genetically modified. New varieties with better return are still in development but won’t be widely available before 2011.

However, in 2010/11, world production is forecasted to rebound strongly to 25.1 mill. tons (+12 per cent). The cotton area is expected to expand by 8 per cent, and the world average yield is forecasted to increase by 4 per cent according to the ICAC (International Cotton Advisory Committee). The United States would mainly drive this rise. In fact, since the price surge of this year, the profitability of cotton has strongly increased and is higher than the profitability of other crops such as corn and soybeans. Therefore, we expect that American farmers will devote more land to cotton. In the 2011/12 season, production should continue to expand but at a slower rate, concentrated in the Asian republics and Brazil.

Unlike production, world cotton demand is expected to increase (+3 per cent) to 24.7 mill. tons this season. This is higher than our previous forecast. Stronger growth in the emerging countries led to higher cloth consumption reflecting relatively high elasticity of consumption to income. An especially important driver for demand in the world market has been where imports of cotton are currently more than twice higher than last year. However, this increase should be interpreted with caution as China has suffered from domestic transport problems between the main producer district, Xinjinag (in the northwest of China) to the textile mills areas, in the South and the East of the country. Moreover, due to the lack of reliable data it is still hard to distinguish in the huge consumption – China represents about 40 per cent of the world market – which part is for the domestic market and which part is for exports,. If the upsurge in imports results from a buoyant domestic consumption, it could be long lasting. This is a serious upside risk to our forecast. To conclude, Chinese consumption is expected to increase by 8 per cent to 10 mill. tons but there is substantial uncertainty around this forecast.India and Pakistan are also expected to increase their consumption by 7 per cent and 2 per cent, respectively. The US demand, by contrast, should decline further in line with its secular downward trend.In the next seasons, 2010/11 and 2011/12, demand is projected to increase at the same pace that has been observed on average over the past ten years (around 2.3 per cent a year).

World cotton stocks this year are expected to decrease for the third consecutive season by more than 2 mill. tons. Therefore, the ratio between ending stocks and mill use will decline to about 45.3 per cent this season, which is below its 10 year average of 55 per cent. Next season, as the market should be close to equilibrium, the stocks will remain at their historical low level. Therefore, the increased volatility, which is observed currently, may remain in 2011.

To conclude, in the short-run, the price is expected to slightly increase because the market is undersupplied. Next season, as a result of a rebound in production, the market is expected to be at equilibrium and the price is forecasted to drop. A dynamic Chinese domestic consumption is an upward risk to this forecast.

Wool prices surged towards the end of 2009 (+17.3 per cent q/q in the fourth quarter) and increased further in the first quarter of 2010 although at a more moderate rate (+5.3 per cent). Buoyant demand, especially in China, led to an undersupplied market and to the sharp rise in prices. In the short run, the situation is not expected to improve as production should continue to fall and consumption should remain firm.

Contrary to our last forecast, the world wool production is now projected to decrease by 0.7 per cent to 1.109Mt in 2009/2010. Chinese production is not increasing as fast as we thought. Moreover,

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Australia, the first producer, has suffered from an 11 per cent decline in its production to 362kt. The main reason is a 10 per cent drop in the flock of sheep shorn to 77 millions heads. This decline is consistent with the last 20 years downward trend. Wool cut per head is expected to increase very slightly (+0.2 per cent) this season, as the drought of the last three years has ended.

Next season, Australian production is expected to continue to decline but at a much smaller rate (-3 per cent). In fact, the flock of shorn sheep will decrease slower than in previous years (only by 3 per cent, according to ABARE). Assuming normal weather conditions, wool cut per head should remain stable. In 2011/2012, the flock is forecasted to expand and therefore wool production would increase slightly. However, as lamb activities will remain more profitable than wool production, farmers will breed sheep more for the purpose of meat rather than wool.

On a downward trend for 20 years, the world wool consumption has been particularly hard hit by the world recession. In 2009/2010, it dropped by 14 per cent, compared to a 3 per cent growth in cotton demand. People shifted to cheaper fibre clothes. However, the economic recovery should lead to an improving outlook: wool demand is expected to rebound by around 5 per cent, this year and next. This growth will be mainly driven by China, which represents one fifth of the world wool consumption. Despite difficulties in transport that have recently boosted prices, Chinese demand is expected to be dynamic. In fact, the Chinese domestic consumption, which uses half of the imported wool, is expected to strengthen. The other half of the Chinese imported wool is processed into textile for exports and this outlet would be less dynamic. The main clothing markets excluding China, that are Japan, the United States, euro area and South Korea, are expected to recover only slowly. For example, the March wool imports to the United States were still one third below the 2008 average.

All in all, the market is expected to remain tight and stocks are already at a low level. Therefore, upward pressure on prices should go on. However, wool demand is influenced by the relative price of wool to other fibres. In textile manufacturing, there is a high degree of substitutability between various fibres, including wool, cotton and synthetic fibres, such as polyester and acrylic. Cotton and synthetic fibre prices should be considered as exogenous because wool represents only 2 per cent of the fibre market, whereas cotton accounts for 37 per cent and man-made fibre for 57 per cent, according to IWTO (International Wool Textile Organization). The wool-to-cotton price ratio goes away from it long run mean (from 1990 to 2007) and no favourable substitution effect is expected. The Commodity Group expects that the gap will widen gradually. On the opposite, wool-to-polyester fibre prices ratio used to be very favourable for the use of wool last year, but this beneficial factor has almost disappeared and should reduce the scope for further price rises (see the graph below).

Natural rubber prices have more than doubled (+127 per cent) since their recent troughs reached in February 2009 and have even surpassed the peak registered in July 2008 before the crisis kicked in. This bullish trend results from a buoyant demand and a constrained supply. On the demand side, car scrappage subsidies have brought about a stronger demand in rubber and on the supply side, the main producers have suffered from difficult weather conditions. However, prices are forecasted to fall back in the coming month as both of these factors are expected diminish: car demand will ease since the state support weakens and supply will improve, assuming normal weather.

This winter, production in Asia suffered from bad weather conditions partially due to the “el Niño” phenomenon in the pacific. It affected the four main producers of natural rubber in the world. For instance, after resuming in the beginning of 2009, the Thai supply has dropped back since autumn. In January and February 2010, Thai production reached hardly the same low level as last year during the recession. In Malaysia, the production has resumed slowly this autumn and rebounded in January to its

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2008 level. In contrast, Indonesia, the second world producer, that has recorded a strong growth of rubber production during the last few years (+2,5 per cent per year), has grown earlier and stronger than the others producers. For instance, according to the latest data available, in November 2009, it increased by a fifth, year on year. However, heavy tropical rains should have dramatically slowed the current production. As a whole, the world rubber production suffered from bad weather conditions and has resumed slowly. The next season, assuming normal weather condition, supply would increase firmly.

On the demand side, in 2009, the world rubber consumption rebounded strongly mainly due to the car industry. Car production increased firmly thanks to the car scrappage subsidies after a sharp fall last year. Year-on-year growth has been as high as almost 80 per cent in January 2010. This is equivalent to an increase by 214,292 tons of the monthly natural rubber consumption, which represents about 26 % of the world production. However, this demand shock should be temporary and car production is expected to fall back, as the car support schemes will gradually end all over the world. In February, the production has already weakened by -5.6 % (compared to January).

In the coming months demand will ease and the price is forecasted to decline to a level more in line with the oil price. Since synthetic rubber, made from oil, is also used to satisfy global rubber demand (actually synthetic rubber has a market share of close to 60 per cent), there is historically a close correlation between natural rubber and oil prices. Variation of oil prices is directly reported on the synthetic rubber price, and the latter is then linked to natural rubber prices. The recent massive increase in natural rubber prices has been excessive when compared to oil price movements (see accompanying graph) and the large deviation from the historical relationship should be gradually reversed. Considering AIECE’s forecasts for oil prices, the rubber price should decrease markedly but remain at a historically high level.

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The price of woodpulp recovered dramatically since mid-2009. This followed the collapse of prices from a peak of close to $900 per tonne in the third quarter 2008 to $590 in the second quarter 2009 due to the global economic recession which, as in most other commodities, led to a world wide fall in demand. Global demand has turned direction with the global recovery kicking in but is expected to grow only moderately due to continued weakness in Europe, North America and Japan. The main increase in demand comes from China and other fast growing emerging economies.

The modest recovery in demand can in principle easily be met by idle supply. In response to the drop in demand, steep production cuts have been made that arrested the fall in prices and supported the recovery of prices in the second half of 2009. Low profitability has led to a number of pulp mills shutting down particularly in North America.

While the upturn of woodpulp prices in the second half of 2009 was more or less in line with developments in other commodity prices, the sharp rise in the beginning of 2010 is due special factors on the supply side. Strikes in Finland and continuous problems of Finish mills to get access of Russian wood have led to supply bottlenecks. In addition the earth quake in Chile shut down the majority of both pulp and saw mills in Chile. Combined Chile and Finland stand for more than 10 per cent of global supply. Adding to this was supply shortage of wood fibre in North America due to wet weather and a low level of stocks.

The short run problems on the supply side will end with the re-opening of pulp mills. This will put downward pressure on the price of woodpulp given fairly modest (though rising) demand. Forward contracts are trading down to $820 in the end of 2012. In the short run the peak in prices is expected to be in the second quarter 2010. Although diminishing short-term supply side problems and spare capacities from earlier production cuts will lead to a significant downward correction of prices in the second half of 2010 and in 2011, the level of prices is expected to remain fairly high.

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The price on sawn soft wood also bottomed around mid 2009 and rebounded quite strongly in the second half of 2009 to reach a fourth quarter price of $293 per m3. While this level is substantially higher than the trough of $230 seen in the second quarter 2009 it is still way below the recent peak reached in the third quarter 2007 at $352.

The sharp downward adjustment of prices was the result of diminishing demand. Sawn wood is mainly used in construction, and construction activity has been drastically reduced in the course of the crisis. Demand in North America and Europe has been especially weak and is expected to remain sluggish as a number of countries (including the US) still have problems with over capacity in the housing market and will probably register low construction activity for an extended period of time ahead. Any significant increase in demand is again expected to come from emerging market economies, especially China.

As in the case of woodpulp, the market has recently been affected by supplv problems in Finland and Chile which have contributed to the upsurge in prices. With supply bottlenecks gradually diminishing the poor demand situation will exert downward pressure on the price of sawn wood going forward, although producers are expected to adjust production in a way that keeps prices at comfortable levels.

Table 6 Agricultural raw materials (US$ terms)Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Agricultural raw 107 112 131 152 161 171 165 159 157 155 153 152 151 125 164 154 materials -11 5 17 16 5 6 -4 -3 -1 -1 -1 -1 -3 -17 31 -6

Cotton US 76 89 98 116 126 137 124 115 109 104 102 100 106 95 125 104 0 17 11 17 9 9 -10 -7 -5 -5 -2 -2 11 -11 32 -17

Wool AUS 122 148 166 195 205 203 211 218 222 224 224 224 189 158 209 224 -6 22 12 17 5 -1 4 3 2 1 0 0 -4 -16 32 7

Natural rubber THAI 204 233 275 362 443 483 459 436 423 415 411 411 365 268 456 415 -12 14 18 32 23 9 -5 -5 -3 -2 -1 0 17 -26 70 -9

Softwood S 131 136 158 176 168 174 168 162 161 160 159 158 162 150 168 160 -3 4 17 11 -5 4 -3 -3 -1 -1 -1 -1 -16 -7 12 -5

Woodpulp FIN 88 87 99 113 124 136 132 129 127 126 124 123 126 97 130 125 -20 -1 14 15 10 10 -3 -3 -1 -1 -1 -1 8 -23 35 -4

2.6 Food and tropical beverages

World cereals prices have been firming in autumn despite ample supply and high and rising stock levels, although this has been largely temporary reflecting higher short-term demand in the world market and macroeconomic factors such as a lower dollar which has recently been partly reversed. The outlook is for lower production as plantings are reduced in response to the modest level of prices. At the same time demand growth should accelerate amid a recovery in feedstock and further increases in the production of bio-fuels. As a result, the market is expected to become more balanced supporting a modest rise in cereals prices in 2011.

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International wheat prices have continued a modest downward trend since last autumn, and prices are expected to remain under pressure for the time being due to abundant supplies and increasing stocks. Although production in the market year 2009/10 is estimated to be down from last year’s bumper crop, output is still above consumption and stocks will rise to around 30 per cent of current year’s utilisation. Given moderate levels of prices and problems with winter wheat plantings in some areas of the US, global wheat production in 2010 – available in the market year 2010/11 – is expected to fall more significantly. With robust growth in demand as a result of economic recovery and industrial usage increasing, 2011 could see a moderate deficit in the wheat market leading to some recovery of prices, although probably with little momentum given ample stocks and the prospect of continuously limited import demand.

Global production of wheat in 2009 is estimated at almost 2 per cent below the previous year’s record level of more than 680 mill. tons. While Europe and North America registered declines in output of around 10 per cent, Asian and Australian production increased substantially (+ 4 per cent). In the current year, production is expected to be slightly increasing in the EU and remain broadly stable in Australia while some decline from last year’s exceptionally high level is foreseen for Asia. More significant reductions of output, partly due to reduced area and partly due to lower yields, are projected for the US and Russia, which will result in another fall in global wheat production forecast at around –3 percent.

Wheat consumption growth is expected to be modest this year but pick up in 2011. In recent years human consumption of wheat has been rising at a moderate rate of around 1 per cent per year with some negative impact last year from lower income due to the economic crisis. Rising demand for wheat in the past five years has been driven predominantly by increased demand for livestock feed. However, reported livestock numbers have been reduced in many countries in the context of falling meat consumption in response to the global economic crisis, and wheat consumption for feed use is therefore likely to show little growth for the time being. However, with the economic recovery unfolding, the upward trend in demand for feed wheat is expected to be restored and support global wheat demand in 2011. In addition industrial use of wheat, especially for ethanol (mainly EU) and starch, is growing rapidly, although the share in total usage is still small at around 3 percent.

Corse grain prices have been more robust than expected, with maize prices rising by almost 15 per cent between September last and March 2010 instead of 7.5 per cent as was in the Commodity Group’s autumn forecast. The difference has been even more pronounced in the case of barley where a downward revision of production prospects, to a large extent due to lower area planted, led to a surge in prices towards the end of last year. For the second half of 2010 and 2011 we expect corn prices to continue to firm on the back of strong demand growth primarily due to continued use in the production of bio-fuels.

Global maize production is now estimated to rise beyond 800 mill. tons in 2009/10 (July-June) setting a new record. This is largely due to fact that despite the slowest and wettest harvest in 30 years the US is estimated to have produced a record corn crop. At the same time, output in Asia and Europe has declined by 5-10 per cent compared with the previous year’s bumper crops. For 2010/11 a further significant increase of world production can be expected given that area planted to maize is expanding.

This rise in output is, however, not enough to keep the corn market in surplus given another substantial growth of consumption (1.5 per cent, following 3 per cent in 2009). Most of the additional demand will continue to come from greater utilization of corn for ethanol production (mainly in the US), while demand for feed grains is expected to remain muted for the time being due to the

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downward adjustment in the number of live stock which is concentrated on the industrialized countries. Production of ethanol the main biofuel in the US, has been the driving force of global coarse grains consumption in recent years. The Renewable Fuel Standard, which is part of the Energy Independence and Security Act 2007, has mandated ethanol production to rise to 13 billion gallons in 2010 and 14 billion gallons in 2011. As a result, the amount of corn used to produce ethanol is expected to increase by 14 per cent to 107 mill. tons in 2010 and rise further by close to 10 per cent next year. This year, ethanol will already account for almost 40 per cent of US maize usage, compared with 24 per cent five years ago. Apart from industrial usage, another important source of global maize demand growth in the medium term is the secular trend of increasing meat consumption in populous countries such as China, India, Brazil or Indonesia, although the increase in maize feeding is not increasing in a one-to-one relationship with meat production as producers have become more efficient and tend to increase usage of more protein-rich soybean meal.

After international rice prices had been fluctuating around a slightly declining trend over most of 2009, quotations picked up unexpectedly in late 2009 when the Philippines announced that they would increase imports and rumours spread that India, which is normally self-sufficient in rice, would also need to enter the market. In the first months of the current year, however, prices retreated, partly in response to large export availabilities in Thailand. From a market perspective the outlook is for a further gradual easing of world market prices, which are still on a historically relatively high level. Production should recover from the setback which is likely to be experienced in 2009/10. In the current market year, not only unfavourable monsoon rains have hampered production, but also a series of natural disasters impaired rice crops in several regions. Despite the resulting contraction of world paddy production by 2.5 per cent, this is still the second highest level of output on record, and the world market will barely slip into deficit. With consumption projected to continue on a moderate upward trend and production conditions assumed to be normal, world markets for rice should be in a modest surplus next year.

World market prices of oilseeds and vegetable oils decreased from their summer 2009 peaks in response to prospects of much larger crops in the 2009/10 season. After large losses in 2008/09, USDA expects the biggest-ever harvests of rapeseed in the European Union and of soybeans in the United States. Soybean prices already bottomed in September of last year. After a rise in the fourth quarter 2009, prices softened again in the first quarter of this year, but in April prices started to rise again on the back of prospects of larger Chinese soybean imports.

The crops of the three biggest soybean suppliers, the United States, Brazil and Argentina, are expected to grow strongly in the current season, driven by yield improvements but also by a new record in planted area. Soybeans is the major crop with a share of more than one half among the seven major oilseeds. In April, USDA forecast that the US soybean crop will achieve an all time high in the 2009/10 season, rising by 13.2 per cent from 80.7 million tons to 91.4 million tons. Soybean production will also grow in South America. Last year dry weather reduced the soybean yields in several regions of Brazil, but this year growing conditions were excellent all-around, which should result in an estimated soybean production in 2009/10 of 67.5 million tons (after 57.8 million tons in 2008/09). The Argentine soybean output will be at a record high, too. After a drastic reduction last year, Argentina’s soybean output is likely to reach 54 million tonnes. With record crops in the main countries global soybean output will increase by an exceptional 21.3 per cent to 255.9 million tons. In 2010/11, however, we expect soybean production to be reduced – especially in Brazil and Argentina – in response to a lower level of oilseed prices.

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World soybean consumption is estimated by USDA to increase by 6 percent in the 2009/10 season, after a 3.3 per cent fall in the last season. The main reason for the rise is strong import demand of Asian countries and especially of China. Worldwide exports of soybeans, having decreased by 3.3 per cent in the last season, are expected to rise by 7 per cent in the current season. Soybean imports by China, the world’s biggest consumer, may climb to the highest level for a single month in May according to the China National Grains and Oils Information Center. The surge in bean imports follows a trade dispute with Argentina on anti-dumping measures. China recently stopped approving permits for soybean oil imports from Argentina and switched to importing more soybeans for crushing at home. Measures of the Chinese government to support hog prices could increase the number of pigs and raise China’s soybean meal demand. In India, monsoon-related smaller harvests of rapeseed, sunflower seed and peanuts will raise soybean oil import demand.

The current rather comfortable soybean supply situation is mirrored in stockpiles. World wide ending stocks will rise from 43 million tons in the last season to an estimated 63 million tons in the current season. But with the continuing recovery of the world economy the demand for soybeans will outpace the increase in production and stocks will decline. The prospects for animal producers who suffered from financial problems during the crisis are improving. Rising incomes in China will lift consumption of meat and cooking oils. Nevertheless, there is a high probability that soybean supplies will continue to be ample for the time being. As a result soybean prices as well as meal and oil should be under pressure in the coming months. This will change when producers adjust to the lower level of prices and reduce the area planted to soybeans.

The future soybean demand also depends on the use of vegetable oils in energy production. According to the World Bank around 9 per cent of vegetable oils are used for the production of biodiesel globally. The implementation of biodiesel mandates in various countries will therefore influence soybean oil prices. Vice versa, energy price developments will have effects on the profitability of the biodiesel producers.

The bull market in sugar proved to be somewhat more pronounced and longer-lasting than forecast by the Commodity Group last autumn. However, the direction of prices has finally changed as expected, and a quite substantial downward correction has materialized. Our benchmark price (world contract No.11, New York) continued to climb steeply until early this year, peaking in the last days of January at just above 30 ct/lb, the highest level in almost 30 years. Afterwards quotations declined rapidly to just over 16 ct/lb in early April, but seem to have stabilized at this level for the time being.

The main reason behind the surge of sugar prices was a sweeping change in the market situation from substantial surplus to deficit due mainly to a massive decline of production in Asia. 2008/09 sugar output in India, the world’s second largest producer after Brazil, fell steeply, by some 40 per cent from 28.7 mill. tons to 15.8 mill. tons. With global sugar consumption rising steadily at a rate of around 2 per cent, depletion of stocks was substantial bringing the stock-to-use ratio to the lowest level in more than 10 years. In the current market year 2009/10 (October/September) the market deficit is expected to remain large. A meaningful recovery of Indian sugar production cannot be expected due to insufficient monsoon – current estimates are running at around 17 mill. tons raw sugar. Late last year, upward pressure of prices increased when expectations for output in Brazil had to be scaled down due to adverse effects of too much rain on cane and sugar yields.

The rapid rise in world sugar prices has led to a number of policy responses in key sugar producing countries. In early 2010, Brazil temporarily reduced its mandatory blend of ethanol, which is produced

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from sugar cane) in vehicle fuel from 25 percent to 20 percent. The European Union plans to increase its limit sugar exports to the export subsidy limit given by its WTO commitments.

These measures have contributed to lower sugar prices as has the partial reversal of the dollar devaluation which had put additional upward pressure on prices in the months before. Observers have also reported a significant element of speculative activities which may have added to the volatility of prices. Therefore, it may be the case that the downward correction has overshot in recent weeks. That said, the main factor behind the decline in prices in recent weeks is probably anticipation in the market of a return to significantly larger world production in 2010/11 and beyond, partly as a result of the high prices seen in 2009. Substantial increases are likely in supply from regularly expanding producers such as Brazil, as well as countries where producers had been struggling with low prices prior to the price rally. Most importantly, India is expected to return to a production level of around 25 mill. tons in the next market year. According to medium-term projections from ABARE in Australia, this will lead to a gradual replenishment of stocks in the next couple of years. If the optimistic outlook for production is confirmed by incoming information on development of crops and area planted, this will lead to downward pressure on prices in 2011. There should, however, be a floor to prices given still moderate levels of stocks relative to consumption and the prospect of rising demand from non-sugar use of cane, particularly conversion into bio-fuels.

Coffee prices remained relatively firm in recent months. In early April the composite indicator for Arabica and Robusta beans of the International Coffee Organization (ICO) had risen above 130 US cents per pound, only 10 cents below the mid-2008 peak level, but receded to 125 cents later in the month. This price compares to a recent trough level of 100 US cents in the beginning of last year. The main reason for the upward movement were reduced supplies due to an off-year in Brazil’s biennial crop cycle, a smaller crop in Colombia – the second largest producer of Arabica beans – and unfavourable weather in several other exporting countries.

In the current 2009/2010 season ICO estimates a total coffee bean production of 123.1 million bags, a decrease of 3.9 per cent compared to the last season. Brazil’s 2009/10 supply is expected to be about 39 million bags, down from about 46 million bags. In Brazil there are concerns that for the first time in ten years frost could kill coffee trees in the major producing areas. Colombia’s coffee crop that this season will decline for the second year in a row cannot be expected to recover to its normal level soon, according to the World Bank. In the 2008/09 season Colombia’s supplies were at their lowest level since 1973/74. Coffee production in Colombia is curbed by replanting of new trees.

World coffee demand was not significantly influenced by the recent global economic downturn, because income changes seem to have a limited impact on coffee consumption. That is especially the case for high income countries. ICO estimates global coffee consumption at 132 million bags in calendar year 2009, up from 130 million. Assuming a stable growth, consumption will be 134 million in the current season.

The balance between supply and demand was achieved by drawing on coffee inventories. For the current season 2009/10 ICO anticipates a further reduction of coffee stocks to about 32 per cent of annual use. The coffee stocks have fallen to their lowest level since the 1960s. Against this background we expect that the rise in demand will support coffee prices in the current season. Later this year, with a supposedly better outlook for the 2010/2011 coffee harvest mainly due to a more productive stage in Brazil’s biennial cycle of Arabica production, coffee prices should start to recede.

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Cocoa prices peaked in January at a 30-year-record level of more than 3500 US dollar, up from 2600 dollar/ton 12 month before. But then the market turned, and prices fell to 3200 dollar in mid-April. The main reason for easing cocoa prices has been improving prospects for cocoa supplies. As a result, expectations shifted from anticipating a significant supply deficit in the cocoa market to only a small one or even a surplus.

Tightening supplies due to bad weather and the spread of plant diseases could, however, cause another upturn up of cocoa prices in the next several months. Growers in Ivory Coast, the largest producer – about 35 per cent of global output, followed by Ghana (18 per cent) and Indonesia (13 per cent) –, stated that insufficient rainfall has hurt crops. Swollen shoot disease also has cut production, according to the state-run Bourse de Café et du Cacao. Nevertheless, global cocoa production is estimated by the International Cocoa Organization (ICCO) to increase slightly (by 1 per cent) in the current October 2009 to September 2010 season, following a 3.3 percent decrease in the last season.

Cocoa consumption (grindings), having decreased by 6.6 per cent, will rise by 2.5 per cent in the 2009/2010 season according to ICCO. This will result in a small global deficit in the current season of 18 000 tonnes, after a surplus of 32 000 tons in the preceding year. The stocks/grindings ratio at the end of the season will fall from 46.1 per cent to 44.5 per cent. With an improving world economic outlook, global cocoa demand is bound to rise due to increased buying activity from chocolate manufacturing and the cocoa processing industry. Cocoa crops will grow as well with weather conditions returning to normal in producing areas. The decision of Ghana to widen fertilizer use to boost cocoa yields should support global supplies further. For the 2010/11 season, ICCO forecasts a global supply surplus of 80 000 to 90 000 tons.

There are risks that global cocoa production could be lower than expected, but the probability is high that the global supply/demand balance will be positive. Therefore cocoa prices are expected to recede in the course of the year as well as in 2011. As in the past, the cocoa market will be influenced by the (deteriorating) health condition of cocoa trees, the political stability and the infrastructure investments in Ivory Coast – and also by the ability of competing countries to compensate for possible production shortfalls in Ivory Coast.

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Tea prices continued their strong rise until November 2009 when they peaked at a 25-year high amid concerns that bad weather would hurt production in key producing countries. The turning point came earlier than expected last autumn; the 3-auctions price decreased by 20 per cent from late 2009 to April 2010.

Last year’s tea price rebound had been, above all, the result of tightening supplies following simultaneous droughts in the major black tea producing areas in Kenya, Sri Lanka and India. Tea demand had remained robust in spite of the global recession, supporting the view that tea consumption is rather price inelastic. Sentiment in the tea market changed when heavy rains finally arrived in Kenya, the world’s largest exporter, triggering the expectation of larger crops. The drop in tea prices came after in December the FAO projected an easing of the supply situation in 2010 with weather patterns normalising in the main tea producing regions of Africa and Asia. The FAO warned that tea producers might overreact to the high prices and increase plantings too much, thus creating an oversupply in the market.

Tea production in Kenya in January rose by almost 50 per cent year-on-year due to wet weather in the first half of that month. The amount was just 9 per cent below the January 2007 record level, according to the Tea Board of Kenya. Output in Uganda, Africa’s third-largest producer, is expected by Uganda’s Tea Association to increase by 8 per cent due to more planting and better farm management. In India, the world’s largest grower, output strongly increased in January after post-monsoon rains boosted the crop in the major growing regions according to the state-run Tea Board. The Sri Lanka Tea Board estimated that the national tea production might exceed 300 000 tons this year, compared to 290 000 tons last year.

The global demand for tea will remain buoyant. Nevertheless, in view of the production estimates the risk of a widening global tea shortage and rising tea prices expected by some growers seems to be low. Tea prices are expected to ease this year and start rising again not before next year.

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Table 7 Food and tropical beverages (US$ terms)Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Food total 188 208 201 213 209 196 192 191 189 189 190 192 233 202 197 190 4 11 -3 6 -2 -6 -2 -1 -1 0 0 1 34 -13 -3 -4

Cereals 201 209 180 197 190 176 179 185 189 192 194 197 276 196 183 193 0 4 -14 9 -3 -7 2 4 2 1 1 1 44 -29 -7 6

Barley CAN 149 167 156 177 183 197 204 204 210 210 216 216 259 162 197 213 -11 12 -7 14 3 8 3 0 3 0 3 0 19 -37 21 8

Maize US 182 195 157 186 179 168 178 187 192 197 199 202 255 179 178 197 -1 8 -20 19 -4 -6 6 5 3 2 1 1 42 -30 -1 11

Wheat US 201 210 176 179 171 155 153 160 167 170 173 177 286 191 160 172 2 4 -16 2 -4 -10 -1 4 4 2 2 2 31 -33 -16 8

Rice THAI 278 265 270 275 271 243 233 231 223 218 218 218 326 272 244 220 0 -5 2 2 -1 -11 -4 -1 -3 -2 0 0 102 -16 -10 -10

Tropical beverages, sugar 183 198 218 239 242 219 216 212 207 204 202 204 198 210 222 204 6 8 10 10 1 -9 -2 -2 -2 -2 -1 1 20 6 6 -8

Coffee US,D,F 167 183 179 189 194 194 190 185 181 179 181 185 193 179 191 182 1 10 -2 5 3 0 -2 -3 -2 -1 1 2 16 -7 6 -5

Cocoa US 292 290 334 385 371 360 342 332 322 319 316 316 291 326 351 318 15 -1 15 15 -4 -3 -5 -3 -3 -1 -1 0 33 12 8 -10

Tea (avg) ALL 113 129 157 175 153 132 124 120 120 122 125 129 123 144 132 124 -2 15 21 12 -13 -14 -6 -3 0 2 2 3 14 17 -8 -6

Sugar US 156 180 252 282 303 194 208 221 214 202 190 184 149 218 231 198 10 15 40 12 8 -36 8 6 -3 -6 -6 -3 22 47 6 -15

Oil seeds, vegetable oils 182 219 198 195 187 184 177 172 169 170 172 175 238 198 180 171 6 20 -10 -2 -4 -1 -4 -3 -2 1 1 2 41 -17 -9 -5

Soybeans US 190 226 205 202 192 197 189 183 180 182 183 187 249 205 191 183 6 19 -9 -1 -5 2 -4 -3 -2 1 1 2 44 -18 -7 -4

Soybean meal US 173 213 191 179 164 151 143 139 135 135 136 137 197 189 149 136 12 23 -10 -7 -8 -8 -5 -3 -3 0 1 1 40 -4 -21 -9

Soybean oil US 205 234 220 240 243 243 238 235 233 238 242 247 325 224 239 240 -2 14 -6 9 1 0 -2 -1 -1 2 2 2 43 -31 7 0

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Appendix tables

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Table A1 Actual and forecast commodity price indices (index in US$ terms, 2000=100, percentage change on previous period)

Commodity Weight 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

All commodities¹ 100 162 200 226 249 258 281 288 289 297 296 300 300 316 210 279 298 -17 23 13 10 4 9 2 0 3 0 1 0 33 -34 33 7

Total excl. energy 32,6 159 176 192 208 218 235 247 248 248 244 245 243 236 184 237 245 -10 11 9 8 5 8 5 0 0 -2 0 -1 13 -22 29 3

Food total 9,9 188 208 201 213 209 196 192 191 189 189 190 192 233 202 197 190 4 11 -3 6 -2 -6 -2 -1 -1 0 0 1 34 -13 -3 -4

Cereals 2,7 201 209 180 197 190 176 179 185 189 192 194 197 276 196 183 193 0 4 -14 9 -3 -7 2 4 2 1 1 1 44 -29 -7 6

Tropical beverages, sugar 3,8 183 198 218 239 242 219 216 212 207 204 202 204 198 210 222 204 6 8 10 10 1 -9 -2 -2 -2 -2 -1 1 20 6 6 -8

Oilseeds, vegetable oils 3,4 182 219 198 195 187 184 177 172 169 170 172 175 238 198 180 171 6 20 -10 -2 -4 -1 -4 -3 -2 1 1 2 41 -17 -9 -5

Industrial raw materials 22,6 147 162 188 207 222 252 271 273 274 268 269 265 237 176 255 269 -16 10 16 10 8 13 7 1 1 -2 0 -1 6 -26 45 6

Agricultural raw materials 10,1 107 112 131 152 161 171 165 159 157 155 153 152 151 125 164 154 -11 5 17 16 5 6 -4 -3 -1 -1 -1 -1 -3 -17 31 -6

Non-ferrous metals 9,1 125 154 192 214 232 251 258 267 273 281 285 288 242 172 252 282 -16 24 25 11 8 8 3 3 2 3 1 1 -11 -29 47 12

Ferrous raw materials² 3,4 325 331 347 347 379 499 619 627 627 571 571 543 482 338 531 578 -20 2 5 0 9 31 24 1 0 -9 0 -5 61 -30 57 9

Energy raw materials 67,4 164 212 243 268 278 304 307 308 320 321 327 328 354 222 299 324 -21 29 14 10 4 9 1 0 4 0 2 0 42 -37 35 8

Coal³ 4,8 276 249 267 290 355 366 366 378 390 402 411 420 488 271 366 406 -21 -10 7 8 23 3 0 3 3 3 2 2 97 -45 35 11

Crude oil 62,7 155 209 241 266 272 299 303 303 315 315 321 321 344 218 294 318 -21 35 15 10 2 10 1 0 4 0 2 0 37 -37 35 8

¹ HWWI index, total ² iron ore, steel scrap ³ steam coal

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Table A2 Actual and forecast commodity price indices (index in euro terms, 2000=100, percentage change on previous period)

Commodity Weight 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

All commodities¹ 100 115 135 145 154 173 192 197 197 203 203 206 205 195 137 190 204 -17 18 8 6 12 12 2 0 3 0 1 0 23 -30 38 8

Total excl. energy 32,6 113 119 124 130 146 161 169 170 170 167 168 166 147 121 161 168 -9 6 4 5 12 10 5 0 0 -2 0 -1 4 -17 33 4

Food total 9,9 133 141 130 133 139 134 132 131 129 129 130 131 145 134 134 130 5 6 -8 2 5 -4 -2 -1 -1 0 0 1 25 -8 0 -3

Cereals 2,7 142 142 116 123 127 120 122 127 129 131 133 134 172 130 124 132 1 0 -18 6 3 -5 2 4 2 1 1 1 33 -24 -5 6

Tropical beverages, sugar 3,8 130 134 140 149 161 150 147 145 142 139 138 139 124 138 151 140 7 3 5 6 8 -7 -2 -2 -2 -2 -1 1 12 12 9 -7

Oilseeds, vegetable oils 3,4 129 148 128 121 124 126 121 118 115 116 118 120 148 131 122 117 7 15 -14 -5 2 1 -4 -3 -2 1 1 2 31 -11 -7 -4

Industrial raw materials 22,6 104 110 121 129 148 173 185 187 188 184 184 182 148 116 173 184 -15 6 10 6 15 16 7 1 1 -2 0 -1 -2 -22 50 6

Agricultural raw materials 10,1 75 76 84 95 107 117 113 109 107 106 105 104 94 83 111 106 -10 1 11 12 13 9 -4 -3 -1 -1 -1 -1 -10 -12 35 -5

Non-ferrous metals 9,1 88 104 124 134 155 172 177 183 187 192 195 197 150 113 171 193 -16 18 19 8 16 11 3 3 2 3 1 1 -18 -25 52 13

Ferrous raw materials² 3,4 230 224 223 216 253 341 424 429 429 391 391 371 301 223 362 395 -19 -3 0 -3 17 35 24 1 0 -9 0 -5 49 -26 62 9

Energy raw materials 67,4 115 143 156 166 184 208 210 211 219 220 224 224 218 145 203 222 -20 24 9 7 11 13 1 0 4 0 2 0 31 -33 40 9

Coal³ 4,8 195 168 172 180 236 250 250 258 267 275 281 288 303 179 249 278 -21 -14 2 5 31 6 0 3 3 3 2 2 83 -41 39 12

Crude oil 62,7 109 141 155 165 180 205 207 207 216 216 219 219 212 143 200 218 -20 29 10 7 9 14 1 0 4 0 2 0 27 -33 40 9

¹ HWWI index, total ² iron ore, steel scrap ³ steam coal

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Table A3 Actual and forecast prices of individual commoditiesIndex in US$ terms, 2000=100, percentage change on previous period

Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Barley CAN 149 167 156 177 183 197 204 204 210 210 216 216 259 162 197 213 -11 12 -7 14 3 8 3 0 3 0 3 0 19 -37 21 8

Maize USA 182 195 157 186 179 168 178 187 192 197 199 202 255 179 178 197 -1 8 -20 19 -4 -6 6 5 3 2 1 1 42 -30 -1 11

Rice THAI 278 265 270 275 271 243 233 231 223 218 218 218 326 272 244 220 0 -5 2 2 -1 -11 -4 -1 -3 -2 0 0 102 -16 -10 -10

Wheat US 201 210 176 179 171 155 153 160 167 170 173 177 286 191 160 172 2 4 -16 2 -4 -10 -1 4 4 2 2 2 31 -33 -16 8

Coffee US,D,F 167 183 179 189 194 194 190 185 181 179 181 185 193 179 191 182 1 10 -2 5 3 0 -2 -3 -2 -1 1 2 16 -7 6 -5

Cocoa US 292 290 334 385 371 360 342 332 322 319 316 316 291 326 351 318 15 -1 15 15 -4 -3 -5 -3 -3 -1 -1 0 33 12 8 -10

Tea avg 113 129 157 175 153 132 124 120 120 122 125 129 123 144 132 124 -2 15 21 12 -13 -14 -6 -3 0 2 2 3 14 17 -8 -6

Sugar US 156 180 252 282 303 194 208 221 214 202 190 184 149 218 231 198 10 15 40 12 8 -36 8 6 -3 -6 -6 -3 22 47 6 -15

Soybeans US 190 226 205 202 192 197 189 183 180 182 183 187 249 205 191 183 6 19 -9 -1 -5 2 -4 -3 -2 1 1 2 44 -18 -7 -4

Soybean meal US 173 213 191 179 164 151 143 139 135 135 136 137 197 189 149 136 12 23 -10 -7 -8 -8 -5 -3 -3 0 1 1 40 -4 -21 -9

Soybean oil US 205 234 220 240 243 243 238 235 233 238 242 247 325 224 239 240 -2 14 -6 9 1 0 -2 -1 -1 2 2 2 43 -31 7 0

Cotton US 76 89 98 116 126 137 124 115 109 104 102 100 106 95 125 104 0 17 11 17 9 9 -10 -7 -5 -5 -2 -2 11 -11 32 -17

Wool AUS 122 148 166 195 205 203 211 218 222 224 224 224 189 158 209 224 -6 22 12 17 5 -1 4 3 2 1 0 0 -4 -16 32 7

Natural rubber THAI 204 233 275 362 443 483 459 436 423 415 411 411 365 268 456 415 -12 14 18 32 23 9 -5 -5 -3 -2 -1 0 17 -26 70 -9

Softwood S 131 136 158 176 168 174 168 162 161 160 159 158 162 150 168 160 -3 4 17 11 -5 4 -3 -3 -1 -1 -1 -1 -16 -7 12 -5

Woodpulp FIN 88 87 99 113 124 136 132 129 127 126 124 123 126 97 130 125 -20 -1 14 15 10 10 -3 -3 -1 -1 -1 -1 8 -23 35 -4

Aluminium GB 88 96 117 129 139 146 151 158 165 171 171 171 167 108 149 170 -25 9 22 11 8 5 3 5 4 4 0 0 -2 -35 38 14

Copper GB 189 257 323 366 398 428 441 450 457 461 466 468 385 284 429 463 -12 36 26 13 9 8 3 2 1 1 1 1 -2 -26 51 8

Lead GB 255 330 425 504 490 514 527 537 543 581 610 640 461 380 517 593 -7 29 29 19 -3 5 2 2 1 7 5 5 -19 36 36 8

Nickel GB 121 150 205 203 231 288 294 309 318 334 344 351 244 170 280 337 -3 24 37 -1 14 25 2 5 3 5 3 2 -43 -30 65 20

Tin GB 203 249 268 279 316 334 347 357 365 368 370 372 342 250 339 369 -16 23 8 4 13 6 4 3 2 1 0 1 28 -27 36 9

Zinc GB 104 131 156 196 203 211 219 224 226 240 252 262 166 147 214 245 -1 26 20 26 4 4 4 2 1 6 5 4 -42 -12 46 14

Iron ore BRA 351 351 351 351 389 529 684 684 684 615 615 584 488 351 571 625 -28 0 0 0 11 36 29 0 0 -10 0 -5 66 -28 63 9

Steel scrap US 216 232 274 274 288 346 381 400 400 380 380 361 371 249 354 380 29 8 18 0 5 20 10 5 0 -5 0 -5 40 -33 42 7

Steel scrap EU 314 339 402 402 424 509 560 588 588 559 559 531 564 365 521 559 23 8 18 0 6 20 10 5 0 -5 0 -5 57 -35 43 7

Steam coal AUS 284 258 280 302 369 380 380 392 403 415 424 432 500 281 380 419 -20 -9 9 8 22 3 0 3 3 3 2 2 98 -44 35 10

Steam coal SA 254 223 230 255 313 323 323 336 349 363 374 385 450 240 324 368 -26 -12 3 11 23 3 0 4 4 4 3 3 94 -47 35 14

Crude oil avg 155 209 241 266 272 299 303 303 315 315 321 321 344 218 294 318 -21 35 15 10 2 10 1 0 4 0 2 0 37 -37 35 8

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Table A4 Actual and forecast prices of individual commoditiesIndex in euro terms, 2000=100, percentage change on previous period

Commodity 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Barley CAN 105 113 100 110 122 124 128 128 132 132 136 136 160 107 126 134 -11 7 -11 10 10 2 3 0 3 0 3 0 9 -33 17 7

Maize USA 129 132 101 116 119 106 112 118 121 124 126 127 159 119 114 125 0 3 -24 15 2 -11 6 5 3 2 1 1 31 -25 -4 9

Rice THAI 198 180 175 172 181 154 147 146 141 138 138 138 204 181 157 139 1 -9 -3 -1 5 -15 -4 -1 -3 -2 0 0 87 -11 -13 -11

Wheat US 142 141 113 112 114 97 96 101 105 107 109 111 177 127 102 108 3 0 -20 -2 2 -14 -1 4 4 2 2 2 22 -29 -19 6

Coffee US,D,F 119 124 116 119 130 123 121 117 115 114 115 117 122 119 123 115 2 5 -7 2 10 -5 -2 -3 -2 -1 1 2 8 -2 3 -6

Cocoa US 207 197 215 240 247 227 216 209 203 201 199 199 182 215 225 201 17 -5 9 12 3 -8 -5 -3 -3 -1 -1 0 23 18 5 -11

Tea avg 80 87 101 109 102 83 78 76 76 77 79 81 77 94 85 78 -1 9 16 8 -7 -19 -6 -3 0 2 2 3 6 22 -10 -8

Sugar US 109 121 160 174 199 121 130 138 134 126 118 115 92 141 147 123 11 10 33 8 15 -39 8 6 -3 -6 -6 -3 14 53 4 -16

Soybeans US 134 153 132 126 128 124 119 116 113 115 116 118 155 136 122 115 7 14 -14 -5 2 -3 -4 -3 -2 1 1 2 33 -12 -10 -5

Soybean meal US 122 143 123 111 109 95 90 87 85 85 86 86 123 125 95 85 12 17 -14 -10 -2 -13 -5 -3 -3 0 1 1 30 2 -24 -10

Soybean oil US 145 159 142 150 162 153 150 148 147 150 153 156 202 148 153 151 -2 9 -11 6 8 -5 -2 -1 -1 2 2 2 32 -26 3 -1

Cotton US 54 60 63 72 84 86 78 72 69 65 64 63 66 62 80 65 1 12 5 14 17 3 -10 -7 -5 -5 -2 -2 3 -6 29 -19

Wool AUS 86 100 107 122 137 128 133 137 140 141 141 141 117 104 134 141 -6 17 7 14 13 -6 4 3 2 1 0 0 -11 -12 29 5

Natural rubber THAI 144 158 177 225 295 305 289 275 267 261 259 259 226 176 291 261 -11 10 12 28 31 3 -5 -5 -3 -2 -1 0 8 -22 65 -10

Softwood S 93 92 102 110 112 110 106 103 102 101 101 100 102 99 108 101 -2 -1 11 8 2 -2 -3 -3 -1 -1 -1 -1 -22 -2 9 -6

Woodpulp FIN 62 59 63 70 82 86 83 81 80 79 78 77 78 63 83 79 -20 -5 8 11 17 4 -3 -3 -1 -1 -1 -1 0 -19 31 -5

Aluminium GB 62 65 75 81 93 92 95 100 104 108 108 108 104 71 95 107 -25 5 16 7 15 -1 3 5 4 4 0 0 -10 -32 34 13

Copper GB 133 174 208 228 265 270 278 283 287 290 293 295 238 186 274 291 -11 30 20 10 16 2 3 2 1 1 1 1 -10 -22 47 6

Lead GB 180 223 273 314 325 323 332 338 342 366 384 403 285 248 330 373 -6 24 23 15 4 -1 3 2 1 7 5 5 -25 -13 33 13

Nickel GB 86 101 132 127 154 182 186 195 201 211 217 222 151 112 179 213 -2 18 31 -4 22 18 2 5 3 5 3 2 -48 -26 60 19

Tin GB 144 168 173 174 211 211 219 226 230 232 233 235 212 165 216 233 -15 17 3 1 21 0 4 3 2 1 0 0 18 -23 31 7

Zinc GB 73 88 100 122 135 133 138 141 142 151 159 165 103 96 137 154 0 20 14 22 10 -1 4 2 1 6 5 4 -47 -7 42 13

Iron ore BRA 248 237 226 218 259 333 431 431 431 388 388 368 307 232 363 393 -28 -4 -5 -3 19 29 29 0 0 -10 0 -5 55 -24 57 8

Steel scrap US 154 158 178 172 193 219 241 253 253 240 240 228 229 165 227 241 32 3 12 -3 13 14 10 5 0 -5 0 -5 27 -28 37 6

Steel scrap EU 223 230 259 251 283 321 353 371 371 352 352 335 346 241 332 353 24 3 13 -3 13 14 10 5 0 -5 0 -5 43 -30 38 6

Steam coal AUS 200 174 180 188 245 239 239 246 254 261 267 272 311 185 243 263 -19 -13 4 4 31 -2 0 3 3 3 2 2 84 -40 31 9

Steam coal SA 178 150 147 158 208 203 203 211 219 228 235 242 279 158 206 231 -25 -16 -2 7 31 -2 0 4 4 4 3 3 81 -43 30 12

Crude oil avg 109 141 155 165 180 205 207 207 216 216 219 219 212 143 200 218 -20 29 10 7 9 14 1 0 4 0 2 0 27 -33 40 9

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Table A5 Commodities not included in the HWWI index2000=100, percentage change on previous period

in US$ terms 09/1 09/2 09/3 09/4 10/1 10/2 10/3 10/4 11/1 11/2 11/3 11/4 2008 2009 2010 2011

Coking coal 613 264 264 264 264 409 450 491 491 450 450 450 510 351 403 460 0 -57 0 0 0 55 10 9 0 -8 0 0 144 -31 15 14

Natural gas 309 212 179 202 228 231 236 241 246 256 267 280 347 226 234 262 -24 -31 -16 13 13 1 2 2 2 4 4 5 57 -35 4 12

Steel reinforcing rounds 232 219 234 234 245 282 310 326 326 326 310 310 332 230 291 318 -12 -6 7 0 5 15 10 5 0 0 -5 0 19 -31 27 9

in euro terms

Coking coal 435 179 170 165 176 280 308 336 336 308 308 308 323 237 275 315 1 -59 -5 -3 7 59 10 9 0 -8 0 0 129 -27 16 15

Natural gas 219 144 116 127 152 158 161 165 168 176 183 192 221 151 159 180 -23 -35 -19 9 20 4 2 2 2 4 4 5 48 -31 5 13

Steel reinforcing rounds 164 148 151 147 164 193 212 223 223 223 212 212 208 152 198 218 -11 -10 2 -3 12 18 10 5 0 0 -5 0 10 -27 30 10

Table A6 Weights of commodities and commodity groups¹

per cent share in: total excl. energy total excl.

energy

HWWI index, total 100 Industrial raw materials 22,6 69,5

Total excl. energy 32,6 100 Agricultural raw materials 10,1 31,1 - Cotton 0,9 2,8

Food total 9,9 30,5 - Wool 0,3 1,0 - Hides 0,7 2,1

Cereals 2,7 8,4 - Natural rubber 0,8 2,3 - Barley 0,1 0,4 - Wood 4,5 13,7 - Maize 1,3 3,9 - Woodpulp 3,0 9,1 - Wheat 0,9 2,8 - Rice 0,4 1,2 Non-ferrous metals 9,1 27,9

- Aluminium 4,8 14,8 Oilseeds, vegetable oils 3,4 10,3 - Copper 2,4 7,3 - Soybeans 1,7 5,2 - Lead 0,2 0,6 - Soybean meal 1,2 3,7 - Nickel 0,9 2,8 - Soybean oil 0,1 0,2 - Tin 0,2 0,7 - Coconut oil 0,2 0,5 - Zinc 0,6 1,7 - Palm oil 0,1 0,4 - Sunflower oil 0,1 0,3 Iron ore, steel scrap 3,4 10,5

- Iron ore 2,4 7,3 Tropical beverages, sugar 3,8 11,8 - Steel scrap 1,0 3,1 - Coffee 2,2 6,7 - Cocoa 0,7 2,2 Energy raw materials 67,4 - Tea 2,3 1,0 - Coal 4,8 - Sugar 0,6 2,0 - Crude oil 62,7

¹ Based on world imports of OECD countries minus Intra-EU trade, 1999-2001

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Table A7 Price quotations included in the HWWI Commodity Price IndexVariety Market/

originCurrency / units of quotation

Barley Canadian No. 1 Western, nearest month Winnipeg CAD/t

Maize US No. 2 yellow , nearest month Chicago US¢ / 56lb bushel

Rice White Thai Long Grain, 100% B Grade, fob Bangkok US$/t

Wheat US hard red winter, nearest month Kansas City US¢ / 60lb bushel

Soybeans US No. 2 yellow, in bulk, nearest month Chicago US¢ / 60lb bushel

Soybean meal 48 percent protein, fob railroad cars at shipping plants, nearest month Chicago US$/sht

Soybean oil Raw, ex warehouse, nearest month Chicago US¢/lb

Coconut oil Philippines, bulk, cif Rotterdam London US$/t

Palm oil Malaysian, 5 % , cif England, nearest month London US$/t

Sunflower seed oil All origins, ex tank Rotterdam, nearest month London US$/t

Coffee ICO composite average indicator price NY,F,D US¢/lb

Cocoa ICCO price, average daily London/NY US$/t

Tea Average price of Calcutta, Colombo and Kenia auctions US¢/kg

Sugar Raw, CSCE, contract No 11, nearest month New York US¢/lb

Cotton Middling upland, 1 1/16 inches, contract No 2, nearest month New York US¢/lb

Wool Australian, Eastern market indicator price Austral.¢/kg

Hides US, heavy domestic steers, ex warehouse Chicago US$/pc

Wood Sawnwood, Swedish pine, 63 x 175 mm Sweden EUR/m³

Rubber Natural rubber, RSS 1, nearest month Kuala Lumpur Malays.¢/kg

Woodpulp NBSK pulp benchmark index Helsinki US$/t

Aluminium Primary High Grade, ex warehouse, cash London US$/t

Lead Standard, ex warehouse, cash London US$/t

Copper Grade A, ex warehouse, cash London US$/t

Nickel Primary High Grade, ex warehouse, cash London US$/t

Zinc Special High Grade, ex warehouse, cash London US$/t

Tin Ex warehouse, cash London US$/t

Iron ore Brazilian, Carajás fines, contract price to Europe, fob P da Madeira US¢/dmtu

Steel scrap 1 No. 1 Steel (HMS1) NE USA US$/long ton

Steel scrap 2 No. 1 Steel Europe EUR/t

Coal 1 Australian steam coal, average spot price, fob Newcastle US$/t

Coal 2 South African steam coal, average spot price, fob Richards Bay US$/t

Crude oil 1 Dubai, 32% API, spot price, fob London US$/barrel

Crude oil 2 Brent, 38% API, spot price, fob London US$/barrel

Crude oil 3 West Texas Intermediate, 40% API, spot price, fob USA US$/barrel