The Commodity Investor S 102885050

COMMODITIES RESEARCH
16 April 2012
THE COMMODITY INVESTOR Short-term set backs: a chance to buy

The re-emergence of China and US growth concerns, plus worries over Spanish sovereign debt are undermining commodity prices but we recommend being alert to buying opportunities in the weeks ahead, especially in base and precious metals where fundamentals in some markets look particularly strong. We expect to see a bottoming in Chinese growth momentum before long and this, alongside steady US growth should more than offset the negatives of a weak Europe. While it may be tempting to short markets like oil and copper at present, we would advise against it. Although weaker compared with Q1, fundamentals in both markets still look positive and downside is limited unless there is a major negative macro shock in the form of a deterioration in Europe or evidence of a hard landing in China, neither of which we think likely. Rather, we would wait for buying opportunities in the markets we favour most at present, namely palladium and gold in precious metals, copper and lead in base metals. For index investors, we expect the YTD outperformance of value risk premia strategies, in particular those that focus investment on the most backwardated commodities to continue. When macro concerns ease as we expect, a period is likely where fundamentals in individual markets once more become a key differentiating factor in performance. Following a long period of weakness, commodity investment flows appear to have turned the corner in Q1 with a net inflow of $6.9bn, the strongest since Q1 2011. However, a poor March (outflows of $2.2bn) and persistent weakness in index swap flows, which saw a fourth consecutive quarterly outflow in Q1 (-$0.5bn), suggest that the recovery is fragile. Figure 1: March saw a $2.2bn outflow from commodities
15 10 5 0 -5 -10 Jul-09 Monthly inflows into commodities (Indices, ETP, MTNs, $bn)
Suki Cooper +1 212 526 7896 suki.cooper@barcap.com Roxana Mohammadian Molina +44 (0)20 7773 2117 roxana.mohammadian-molina@barcap.com Kevin Norrish +44 (0)20 7773 0369 kevin.norrish@barcap.com Amrita Sen +44 (0)20 3134 2266 amrita.sen@barcap.com www.barcap.com
Mar-10
Nov-10
Jul-11
Mar-12
Source: Bloomberg, MTN-i, ETP issuer data, Barclays Research
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 30
Barclays | The Commodity Investor
TABLE OF CONTENTS
COMMODITY STRATEGY 3
Short-term set backs: a chance to buy.................................................................................................. 3 COMMODITY INVESTMENT PERFORMANCE 8
Time to be selective ................................................................................................................................... 8 INVESTOR ACTIVITY 11
Q1 12 investor activity review: fragile rebound.................................................................................11 Flows by sector .........................................................................................................................................12 Index Swaps...............................................................................................................................................13 Exchange-traded products.....................................................................................................................14 Medium-term notes.................................................................................................................................15 CHARTS AND DATA 17
Commodity assets under management..............................................................................................18 Commodity investment flows ...............................................................................................................19 Investor trends ..........................................................................................................................................20 CFTC data: positions by market ............................................................................................................22 Commodity returns by index and sector ............................................................................................24 Commodity returns by strategy ............................................................................................................25 PRICE TRENDS 26
Price changes ............................................................................................................................................26 Price and return forecast ........................................................................................................................27 CALENDAR OF KEY COMMODITY DATA RELEASES 29
16 April 2012
COMMODITY STRATEGY
Short-term set backs: a chance to buy

Current price weakness represents a buying opportunity in some base and precious metals markets
The phase of stability in commodity prices that lasted through March into early April has started to break down. We still think that gradual improvements in the global growth picture are likely to be the most important theme in commodities over the next month or so and that this will prove positive for commodity assets overall. However, for now, the macroeconomic environment is less supportive. In the short term, we see the potential for further limited weakness in commodity prices though we recommend being alert to buying opportunities, especially in the base and precious metals sectors as we expect to see a more constructive environment for these commodities to materialise before long, while fundamentals in a number of individual markets look very positive. Disappointing US data, deteriorating business confidence and a resurgence of inflation in China, plus worries that Spain is set to bring European sovereign debt issues to the forefront of market concerns once again are combining to undermine the commodity demand outlook. However, Chinas March activity indicators were promising and we believe that active policy support will be forthcoming if evidence emerges that the slowdown is sharper than considered desirable. Meanwhile, US data is still pointing to a steady growth picture (+2.7% according to our economists latest tracking estimate), but if things continue to deteriorate, we expect further monetary loosening to be forthcoming. The disappointing performance of base and precious metals markets has not changed our view that markets in these sectors will be the ones that perform best over the rest of this year. For base metals, that view depends very much on a recovery in Chinese growth momentum, an improvement in its key metals indicators and the continuation of strong import levels for key metals like copper. For precious metals, especially gold, there needs to be a pick-up in physical demand with both ETP buying and demand from Asian physical markets looking a little slack at present. For both these sectors, the continuation of low interest rates in the US and Europe will be beneficial as this should help sustain a more positive growth environment, while also making gold cheap to hold, maintaining its low opportunity cost compared with other assets and contributing to the desire to hedge nascent inflationary trends. Figure 2: The outlook for index returns by sector
Total returns S&P GSCI S&P GSCI
TM
Renewed global growth concerns look a touch overdone
We still expect base and precious metals to outperform over the rest of 2012
Sub-Indices ER Composite Index
Q1 12 3M to end-Q2 '12 (F) 6M to end 2012 (F) 12M to end 2012 (F) 5.9% 7.3% 6.3% 7.7% 1.9% 0.1% -0.8% -1.2% 6.9% 12.3% 0.4% 0.7% 1.5% 3.1% 6.1% 5.1% -10.7% -1.5% 6.6% 9.2% 19.3% 25.1% -8.5% -0.7%
TM
S&P GSCI TM Energy S&P GSCI TM Industrial Metals S&P GSCI TM Precious Metals S&P GSCI TM Grains & oilseeds S&P GSCI TM Softs & fibres
Source: Barclays Research
16 April 2012
Softer energy and food price inflation trends support this outlook
Our expectations of lower energy and food prices are also a part of our positive view on base and precious metals prospects, as this will help curb concerns that energy and food price inflation are constraining the ability of governments to cut interest rates in emerging markets and diverting consumer spending in the industrialised world. Both sectors have proved resilient recently however, and though we do not expect to see significantly higher oil and food prices in the months ahead, fundamentals in both sectors now look stronger than they did a relatively short while ago and upside risks have grown. Oil prices have eased a little in the past week, but the potential price downside is not very big, nor is it likely to last long. Although market fundamentals still look slightly bearish in Q2, this is owing mainly to seasonally weak demand and the potential for small gains in OPEC output. However, this will allow for only a very modest rebuilding of oil inventories after a long period of decline. Moreover, any respite will not last long as global oil balances look set to tighten once again in the second half of the year. Speculative positioning is potentially a big downside risk for oil prices since it is close to alltime highs according to CFTC data, and there have been some signs recently of a willingness to close out long positions on the part of money managers. However, some sort of catalyst that eases fears about a potential oil price spike is needed in order to spark a phase of heavy long liquidation. Figure 3: Commodities ranked by potential price change
Commodity Palladium US Natural Gas Gold Silver Lead Aluminium Tin Nickel Zinc Cocoa Platinum Copper WTI Corn Coffee Brent Wheat Soybeans UK Natural Gas Sugar Cotton Unit US$/oz US$/mmbtu US$/oz US$/oz US$/t US$/t US$/t US$/t US$/t US$/t US$/oz US$/t US$/bbl Usc/bushel Usc/lb US$/bbl Usc/bushel Usc/bushel p/therm Usc/lb Usc/lb Q3 Forecast/ current 4wk average 31% 27% 23% 19% 16% 11% 10% 10% 9% 8% 8% 7% 2% -1% -1% -2% -2% -3% -4% -5% -6% Current 4wk Q2 Avge Forecast 655 2.2 1,657 32.1 2,034 2,111 22,753 18,210 2,009 2,217 1,623 8,402 105 644 182 124 641 1,396 59.6 24.7 90.7 745 2.55 1,850 34.5 2,200 2,250 23,000 20,500 2,100 2,325 1,640 8,600 104 660 210 118 650 1,345 55.0 23.8 89.0 Q3 Forecast 860 2.75 2,030 38.0 2,350 2,350 25,000 20,000 2,200 2,400 1,755 9,000 107 640 180 121 628 1,355 57.0 23.5 85.0 Q4 Forecast 895 3.25 1,920 27.5 2,500 2,500 28,000 19,750 2,300 2,500 1,815 9,300 107 580 170 121 595 1,325 70.0 23.7 80.0
though oil price risks are still skewed to the upside
Notes: On March 20, we revised down our Q2 US natgas forecast from $3.05/mmbtu to $2.55/mmbtu and Q3 from $3.05 to $2.75/mmbtu. On April 11we revised down our Q2 WTI forecast from $112/barrel to $104/barrel and our Q4 forecast from $118/barrel to $107/barrel. On April 11, we revised up our Q3 Brent forecast from $112/barrel to $121/barrel. On April 12, we revised down our Q2 copper price forecast from $9,000/t to $8,600/t and Q3 from $9,700/t to $9,000/t. Source: Barclays Research
Geopolitical risks have eased a little
Geopolitics have eased a little, but probably not enough to encourage this. Although the noise around the potential closure of the Straits of Hormuz by Iran has died down somewhat and an imminent strike on its nuclear facilities is ruled out by most geopolitical
4
16 April 2012
analysts, the lack of any progress in settling Irans nuclear issue is likely to keep its external relations tense and the oil market on edge for some time to come.
An SPR release is increasingly likely
Even the release of oil from strategic reserves something that is looking increasingly likely will probably not result in much downward price pressure if past experience is anything to go by. If it does happen, it will take place against the backdrop of a market that is highly vulnerable to supply losses owing to a lack of spare crude oil capacity, which we estimate to be equivalent to less than 2% of global demand at present. From a fundamental perspective, the risk of an oil price spike has diminished very little in the past month or so, in our view. The recent strength in agricultural commodity prices stems from a combination of reductions to end 2011/2012 US corn inventory levels forecast by the USDA, alongside a pick-up in Chinese imports and surveys of US planting intentions, which show that farmers intend to raise corn plantings to their highest levels in 75 years at the expense of soybeans and wheat. Tightness in corn markets is expected to be short lived therefore and focused on old-crop contracts, with those further ahead from September 2012 onward remaining depressed as a result of the big increase in future supplies. Strength in soybeans could prove more persistent, however, and we continue to see some upside to this market. However, we have not altered our overall view that global agriculture commodity prices will ease in H2 on better harvests as the La Nina effect that created such bad conditions for most of the past 18 months fades. In terms of trading recommendations, we advise a period of caution in the month ahead. While it may be tempting to short markets like oil and copper, we would advise against doing so. Although weaker compared with Q1, fundamentals in both markets look positive at present and downside limited unless there is a major negative macro shock in the form of a deterioration in Europe or evidence of a hard landing in China, neither of which we think likely. Rather we would wait for buying opportunities in the markets we favour most at present, namely palladium and gold in precious metals, copper and lead in base metals. Palladium has been the weakest-performing precious metal this year, weighed down by concerns over Chinas demand for autocatalysts, though we continue to forecast a sizeable deficit and there are a number of promising signs. A modest recovery in Chinas vehicle sales in March and the implementation later this year of tighter emission standards suggest that there is upside potential to Chinas import levels, which have been very weak in the YTD. Swiss trade data shows Russian exports are subdued, while demand for palladium from ETP investors has been very strong so far this year. For gold, the macro-environment has turned more positive again as Spanish government bond yields are rising and the government has its work cut out to regain credibility with investors. Nonetheless, ETP flows are a little weaker in April as is physical demand with India and China a little soft at present. A pick-up in these areas of demand is necessary if gold prices are to regain their upward momentum as we expect. Copper remains our favoured base metal exposure, especially after the recent sharp price decline to around $8,000/t. We expect Chinese imports to ease over the next few months and for exports to boost LME stock levels in Asia. Although this is bearish for prices, the strength of US demand, plus accumulating evidence that supply is underperforming significantly relative to expectations once again should limit the potential downside to the mid-$7,000 level, in our view. This would represent an attractive level to establish some length with a potential recovery likely to be driven by improving sentiment on China as the sequential rate of growth improves over the second half of the year.
5
Some tightness likely in corn and soybeans, but it will not last
We advise against shorting markets like oil and copper
Wait for buying opportunities instead Palladium fundamentals still look strong
The macro-environment is getting better for gold
Copper still our favoured base metals exposure along with lead
16 April 2012
We also see an opportunity for short-term gains in lead prices as the Chinese market is looking exceptionally tight with stocks falling fast, SHFE nearby spreads moving into backwardation and the import arbitrage window opening up.
After recent weakness we still see upside in US gasoline
In energy markets, we our maintaining our bullish US gasoline spread trade. The AugustSeptember spread has eased in the past few weeks and the front end of the gasoline price curve looks weak with CFTC net long money manager positions at 25% of open interest still close to recent highs. However, weekly US gasoline demand readings are improving and with the US northeast in particular looking short of gasoline, prices will need to rise higher in order to encourage imports. Consequently, we are sticking with our gasoline spread trade for now. The only major change to our established trading positions this month are in coffee where we are closing our short position, which is currently showing a gain of almost 12%.
Closing time for short coffee
Figure 4: Key recommendations

Current price (April-13-2012) Gain/Loss Unit $ %
Contract Open trades
Entry Date
Entry price
Rationale: We see the medium-term crude oil price risks, as being to the upside mainly due to strong EM demand growth, lack of spare capacity and constraints on non-OPEC supply. We expect far-forward prices to benefit, with our long-term price forecast for Brent pegged at $135/bbl. Long Brent crude oil Dec-15 27/01/2011 98.2 97.8 $/bbl -0.4 -0.4%
Rationale: China's rising costs for aluminium suggest a production slowdown ahead. Meanwhile, demand continues to grow very strongly and incentive prices for producers are rising. This should support steady appreciation in prices over the medium-term with the back end of the curve expected to outperform. Long LME aluminium Dec-15 29/03/2011 2884 2410 $/t -474.5 -16.5% Rationale: LME copper stocks are declining and Chinese imports have remained firm. The picture for raw materials is tight, with a narrowing in scrap discounts and recent supply problems at Grasberg, plus some other mines. Long LME copper Jun-12 21/11/2011 7328 7997 $/t -1070 -10.1%
Rationale: Our expectation of stable crude oil prices should support US gasoline demand at reasonable levels in 2012, but a substantial loss in refining capacity is set to squeeze supplies. As a result, summer gasoline prices should increase. US gasoline (RBOB) spread tightening Long position Short position Aug-12 Sep-12 20/12/2011 3.0 265 263 5.1 314 309 cents/g cents/g 2.18 48.95 -46.77 -
Rationale:Palladium has potentially the weakest supply outlook in 2012 of any commodity we forecast. We expect the market to swing from surplus in 2011 to a small deficit in 2012, helped by a strong growth in autocatalyst demand. We also expect a rebound in net investment buying of palladium in 2012. Long NYMEX palladium Dec-12 29/02/2012 710 650 $/oz -59.9 -8.4% Rationale: The long-running push to reconfigure refineries globally to maximise the production of light products is coming at the expense of fuel oil output. Meanwhile expansion in bulk carrier and tanker fleets, plus strong demand from Japanese electricity generators is underpinning demand. Fuel oil versus gasoil differentials Long Rotterdam fuel oil Short ICE gasoil Q4 2013 Q4 2013 29/02/2012 -30.54 97.74 128.28 -29.28 98.68 127.96 $/bbl $/bbl 1.27 0.94 0.32 -
Rationale: After a strong increase in global supply in the 2010-11 marketing year, we expect further production growth in the current marketing year. Coffee demand is more leveraged to trends in mature economies than is the case for most other commodities; we expect sluggish consumption growth in 2011-12. Short ICE coffee Dec-12 29/02/2012 212 187 25.1 11.8%
Note: The long position in LME copper was originally opened on 26/05/2011 and includes losses from the previous trade (Dec-2011). Source: Reuters, Barclays Research
16 April 2012
Figure 5: Recent trade history

Closed Trades Directional trades Long CBOT soybeans Long CBOT corn Short US nat gas Henry Hub Long COMEX gold** Long Carbon EUA Long KBOT wheat ** Long UK natural gas Long LME nickel Long European delivered coal (API2) ** Short Comex silver Long LME copper Long CBOT corn ** Short UK natural gas Long NYMEX crude oil ** Short US natural gas Long ICE cotton Long LME lead Long LME copper ** Long NYMEX palladium Long ICE sugar Long LME Nickel Long NYMEX crude oil Long ICE sugar Spread trades Copper spreads tightening Long position Short position WTI contango widening Short position Long position Natural gas spread widening Short forward Henry Hub Long forward Henry Hub Crude oil spread tightening ** Long forward Brent crude Short forward Brent crude Gasoil spread tightening Long nearby ICE gasoil Short further forward ICE gasoil US Henry Hub natgas Short position Long position Contract Mar-12 Mar-12 Oct-13 Dec-12 Dec-11 Dec-11 Q3-11 Jun-11 Apr-11 Dec-11 Jun-11 Mar-11 Summer 2011 Dec-11 Dec-11 Dec-10 Dec-10 Sep-10 Jun-10 Jul-10 Jun-10 May-10 Mar-10 Entry Date 20/12/2011 21/11/2011 21/11/2011 21/11/2011 24/02/2011 20/04/2011 29/03/2011 24/02/2011 27/01/2011 27/01/2011 22/09/2010 26/11/2010 19/10/2010 19/10/2010 13/08/2010 14/04/2010 21/06/2010 10/12/2009 22/02/2010 18/03/2010 10/12/2009 10/12/2009 10/12/2009 21/11/2011 Mar-12 Sep-12 19/07/2011 Mar-12 Apr-12 15/12/2010 Oct-11 Jan-12 20/04/2011 26/05/2011 Jul-11 Aug-11 22/09/2010 19/10/2010 Dec-10 Jun-11 21/06/2010 13/08/2010 Oct-10 Jan-11 30/06/2011 29/02/2012 Exit Date 14/03/2012 14/03/2012 20/12/2011 20/12/2011 30/06/2011 30/06/2011 26/05/2011 26/05/2011 29/03/2011 24/02/2011 24/02/2011 24/02/2011 27/01/2011 27/01/2011 26/11/2010 19/10/2010 13/08/2010 13/08/2010 11/05/2010 14/04/2010 18/03/2010 18/02/2010 18/02/2010 21/03/2012 Entry price 1155 605 4.4 1694 15.4 964 63.9 27501 114.5 27.1 7833.0 553.0 47.2 84.8 5.54 75.7 1851 7062 444 22.6 16331 75.4 23.3 -17.3 7317 7334 0.38 100.40 100.78 0.63 4.49 5.12 -0.36 123.5 123.1 -16.8 669.75 686.50 0.66 5.01 5.67 Exit price 1356 670 4.1 1628 13.5 733 58.5 22821 125.7 33.1 9505 685.8 52.5 99.3 5.12 110.3 2065 7143 532 17.7 22760 79.1 26.5 14.5 8471 8456 0.41 105.84 106.25 0.41 4.43 4.84 -0.37 115.1 114.7 -15.3 705.50 720.75 0.65 4.35 5.00 Unit c/Bsh c/Bsh $/mmbtu $/oz /t c/Bsh p/therm $/t $/t $/oz $/t c/Bsh p/therm c/bbl $/mmbtu c/lb $/t $/t $/oz c/lb $/t $/b c/lb Gain/Loss $ % -57.8 6.8 0.3 -66 -1.9 -231 -5.4 -4680 16 -6 1672 245 -5 12.1 0.43 35 214 345 88 -5 6429 3.7 0.03 14.0 1154 -1122 0.03 -5.44 5.47 -0.22 0.05 -0.27 0.34 -8.45 8.46 1.50 35.75 -34.25 0.01 -0.66 0.67 -1.0% 1.9% 6.6% 29.3% -12.1% -26.4% -8.5% -17.0% 14.4% -22.4% 21.3% 55.1% -11.3% 14.2% 7.7% 45.7% 11.6% 5.0% 19.8% -21.6% 39.4% 4.9% 13.8% -
$/t $/t $/b $/b $/mmbtu $/mmbtu $/mmbtu $/b $/b $/b $/t $/t $/t $/mmbtu $/mmbtu $/mmbtu
Note: Entry and exit prices reference closing prices on the day of publication. **These trades include gains/losses from previous trades. Source: Reuters, Barclays Research
16 April 2012
COMMODITY INVESTMENT PERFORMANCE
Time to be selective
Q1 12 was positive for commodities but the performance range was wide
Commodities overall closed a positive quarter in March, but benchmark returns differed widely with the S&PGSCI up by almost 6% while the DJ-UBS only gained a modest 1%. Gains were lead by precious metals (S&PGSCI 7.7%, DJ-UBS 8.5%) and in the case of the S&PGSCI also energy (7.3%). DJ-UBSs large weight in US natural gas (the weakest commodity overall in Q1 12, down by 28.8%) meant that the DJ-UBS energy index ended Q1 down by 6.1%. Meanwhile, S&PGSCIs larger weight in gasoline and Brent crude oil (two of the strongest commodities in Q1, up by 27.2% and 14.5%, respectively) meant that the S&PGSCI energy index was up by 7.3% in Q1. The year started strongly for commodities, particularly base and precious metals, which saw a rally following last years sharp liquidation. The S&PGSCI base metals gained 10.1%, its strongest performance since December 2010, while the S&PGSCI precious metals was up by 12%, its largest increase since November 2009. But returns lost momentum as the quarter progressed, and March closed on a negative note the first since December 2011. Negative roll yields have continued to shrink and for soft commodities turned positive in Q1 12. Since June 2011, the S&PGSCI excess return has underperformed the spot return by 1.1% owing to negative roll yields. But over the previous three years, the excess return underperformed the spot return by 30% owing to the negative roll yield drag on overall returns. Our previous analysis shows that there is a very strong relationship between changes in inventory levels and roll yields. Between 2000-10, the correlation between base metals inventories and roll yields is around 70%, and for crude oil around 85%. As Figure 7 suggests, there is no evidence of a structural change in these relationships. This, if married with our view of overall tight inventories in 2012, suggests negative roll yields may continue to shrink. Which sources of return have driven commodities performance in the year-to-date? So far this year, three of the four sources of risk premia strategies identified by Barclays Research have outperformed the DJ-UBS index, by between 0.5% and 5.8%. Value risk premia strategies are the best performers so far this year. In particular, the backwardation alpha strategy, which reflects the outperformance of a long investment in a portfolio of the most Figure 7: Strong relationship between roll yields and stocks
1.5% 1.0% 7 0.5% 0.0% -0.5% -1.0% Industrial metals roll yield - LHS Copper stocks to consumption ratio - RHS 6 5 4 3 2 1 Roll yields versus fundamentals 9 8
The year started strongly but lost momentum in March
Negative roll yields continue to shrink
Value and trend risk premia have outperformed so far this year
Figure 6: Negative roll yields continue to shrink

1% 0% -1% -2% -3% -4% -5% -6% -7% Jan-08 Roll yield S&PGSCI
Jan-09
Jan-10
Jan-11
Jan-12
-1.5% 0 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12

Source: Ecowin, Barclays Research
Source: Ecowin, Barclays Research
16 April 2012
backwardated commodities versus a short position in the nearby indices, is up by 5% yearto-date, outperforming the DJ-UBS by 5.8%. So far this year, the strategy has outperformed by going long the following commodities while shorting the DJ-UBS nearby index: Brent crude, copper, corn, cotton, heating oil, gas oil, lean hogs, soybeans, sugar, gasoline and WTI crude. In March, the short natural gas position contributed the largest gain as a result of the price of the short-dated future contracts decreasing more than that of the long-dated contracts. Natural gas prices decreased, especially at the front of the curve as the market received larger-than-expected storage injection. Meanwhile, sugar produced the largest loss as a result of long-dated future prices decreasing more than front-end prices. Sugar prices decreased further at the back-end with India giving the widely anticipated go-ahead for another 1 million tonnes of sugar exports. Trend risk premia strategies are up by 3.1% year-to-date, outperforming the DJ-UBS by 3.9% over the same period. This strategy reflects the performance of a strategy designed to take advantage of upward or downward trends observed in the commodity markets. The strategy is applied to an underlying benchmark and the directional signal assess whether the exposure should be long, short or neutral and is measured as the change in price over two different historical rolling windows. The performance of the index in the year-to-date was derived from being long Brent crude, CBOT wheat, corn, gas oil, gold, soybean meal, soybeans, gasoline and WTI crude. Meanwhile, the following commodities were shorted: aluminium; coffee; KBOT wheat; lean hogs; live cattle; natural gas; and nickel.
Liquidity timing risk premia picked up q/q but remains weak
Liquidity risk premia strategies based on positions at the front end of the curve have so far lagged behind other sources of risk premia due to a combination of still relatively weak inflows into commodities markets and a large number of market participants now positioning themselves to try and extract this premium. That said, the liquidity risk premia strategy still managed to outperform the DJ-UBS by a non-negligible 0.5% YTD and has clearly picked up q/q as shown in Figure 7. Going forward, we believe that the traditional pre- or post rolling way of harvesting the liquidity timing risk premia will be less successful than in the past simply because so many investors are now targeting it. That said we do believe that this year investor will benefit from avoiding those points on the curve that are most heavily populated by other investors.
Figure 8: An improvement in investor flow has coincided with a slight improvement in liquidity timing returns
50 40 30 20 10 0 -10 Total inflows into commodities ($bn) Liquidity timing q/q% Investment flows into commodities and liquidity timing risk premia return 2.0% 1.6% 1.2% 0.8% 0.4%
Figure 9: Value and trend strategies lead investor returns in Q1

Selected commodity strategy returns Value
Trend
Liquidity 0.0% -0.4% Curve -2% 0% 2% YTD 2012 Q4 11 4% 6%
-20 Mar-05 May-06 Jul-07
-0.8% Sep-08 Nov-09 Jan-11 Mar-12
Source: Bloomberg, MTN-I, ETP issuer data, Barclays Research
Note: see Figure 48 for a fuller explanation of risk premia strategies. Source: Barclays Research
16 April 2012
This could be achieved through strategies designed to pre- or post-roll around different points on the commodities forward curve. For example, the three months point on the curve, which is where an increasing amount of investor positions are concentrated, or by employing a strategy aimed at dynamically selecting points on the curve where investors are most likely to get paid for providing liquidity. The HFRX index suggests hedge funds have returned an average of -0.1% year-to-date, still outperforming the DJ-UBS by 0.7% but underperforming the S&PGSCI by almost 5%. Market volatility and lack of conviction in the sustainability of the recovery has made these investors wary of further price corrections.
Value strategies should continue to outperform over the next few months
Going forward, expect value strategies to continue to outperform, partly because they tend to be the most robust of all the strategies under a variety of different market conditions. In addition, we expect that the recent resurgence of macro concerns will ease before long and this will give way once again to a period where value in individual markets once more becomes a key differentiating factor in performance. For trend, we see momentum stabilising over the next few months until fears of a China hard landing dissipate and growth picks up later in H2 12. Indeed, renewed global growth concerns are again weighing on base metals prices the strongest sector earlier this year when negative views of another global recession failed to materialise and likely to keep a lid on prices until later on in the year. Similarly, in energy, we expect a calmer Q2 12 as geopolitical risks have eased a little and a SPR release is looking increasingly likely. Regarding curve risk premia strategies, we expect performance to be mixed with outperformance in some sectors, such as agriculture and energy, offset by underperformance in some other sectors, such as base metals. In natural gas, the largerthan-anticipated oversupply along with mild winter weather suggests the front end of the curve will likely continue to underperform in the next few months. In crude oil, WTI moved from contango to backwardation last year and back into contango this year. Brent is in backwardation, but given the relatively larger weight of WTI, crude oil might still have a positive contribution to curve strategies. Furthermore, a warm winter and a series of extremely weak OECD demand indications have paved the way for further downgrades to short-term demand and demand expectations. With regards to agriculture, we remain relatively bearish on price trends for this year more so for softs than for grains. As a result, we recommend investors shift their exposure further down along the curve to protect themselves from nearby price declines.
We expect momentum in trend strategies to stabilise
16 April 2012
10
INVESTOR ACTIVITY
Q1 12 investor activity review: fragile rebound

Investment flows into commodities picked up in Q1 12
Following three quarters of extremely weak investor activity last year, investment flows into commodities rebounded in Q1 12 with $6.9bn fresh inflows into the asset class (Figure 11). Q1 12 was the strongest quarter for flows in a year, though still a long way below Q1 11 ($19bn) and the average quarterly inflow over the past five years ($11bn). As a result, total assets under management bounced back to $435bn, an all-time high (Figure 10). That said the monthly profile of flows in Q1 was uneven. January and February were relatively strong with $2.9bn and $6.2bn, respectively, but March saw a marked weakness with $2.2bn net outflows, driven mainly by the weakness in index swaps (-$4.2bn). In terms of flows by products, the strength of the quarterly inflows masks a very large bias towards commodity ETPs ($7bn) and structured notes ($1.4bn). In contrast, index swaps saw $1.5bn outflow over the quarter, the fourth consecutive quarter of outflow. Since Q1 11, index swaps have had cumulative outflows of $15.9bn, but the pace of outflows moderated in Q1 12. This is the first time in our history of commodity investment flow data to see such a long period of weakness in any form of investment product. As a result, the rebound seen in commodity investment flows in Q1 12 remains fragile, in our view. During Q3 and Q4 08, outflows from commodity index swaps amounted to $13bn but this trend reversed quickly, and during the following eight quarters they saw an average inflow of $7bn per quarter. However, this time around the weakness appears to be driven not only by cyclical factors, but also by some structural factors that may turn out to be stickier and have longer-lasting effects. First, the relative strength of ETPs suggests that a number of institutional investors, who previously used index swaps, may now be getting exposure to commodities through commodity-linked ETPs. Second, we have observed a trend away from passive long-only indices to more sophisticated approaches and active management, including long/short strategies and those that enable focus on individual markets. This move is in line with the change observed in investors attitudes towards commodities as the asset class has matured and investors have become more sophisticated. But it also reflects the widespread evidence of an increased dispersion in commodity price outcomes.
Index swaps were weak, ETPs and MTNs relatively strong
We have seen a trend towards more active management
Figure 10: Total commodity AUM ended Q1 12 at $412bn

450 400 350 300 250 200 150 100 50 0 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Institutional and retail commodity AUM ($bn) Medium term notes Exchange traded products Commodity index swaps
Figure 11: Flows into commodities rebounded in Q1 12

35 30 25 20 15 10 5 0 -5 -10 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Quarterly flows into commodities ($bn) Inflows into ETPs and MTNs Estimated inflows into commodity indices Net flows
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Figure 31 shows our estimated breakdown of index swap AUM by strategy type. We estimate that long-short AUM has increased ten-fold in the last five years.
Q1 12 was volatile in terms of monthly flows
In terms of the monthly breakdown of quarterly flows, the $6.9bn inflow in Q1 12 masks a high degree of monthly flow volatility. March saw a $2.2bn outflow from commodities, the first outflow since December 2011, owing mainly to the weakness of index swaps. In contrast, January and February were relatively strong with $2.9bn and $6.2bn, respectively, driven by the relative strength of inflows into ETPs. The volatility of flows in Q1 was a reflection of jittery market sentiment, investors rather fickle mood and the lack of any strong conviction among a number of institutional investors and hedge funds around price direction. However, volatility was not broad-based across the different forms of investment; it was most present among index swaps. Indeed, inflows into index swaps took the form of a roller coaster with $0.5bn in January, $2.2bn in February and a large $4.2bn outflow in March. In contrast, inflows into commodity ETPs and MTNs remained relatively more stable and these products saw fresh inflows during every month in Q1 12.
and volatility was most present in index swaps
Flows by sector
Precious metals and energy received the bulk of Q1 flows
In contrast to the trend witnessed in H2 11, when the focus of the market was on a repeat of the 2008 financial meltdown, signs of stabilisation emerged in early 2012. Activity and employment data in the US pointed towards a solid economic recovery, the euro area saw an improvement in business confidence suggesting that the recession is likely to be a mild one, and Q4 GDP in China surprised to the upside. As a result, growth-sensitive commodity sectors and those sectors which fell most as a result of the macro headwinds in 2011 witnessed a sharp rally. Nonetheless, precious metals and energy received the bulk of total flows through the quarter, partly offsetting outflow from agriculture (Figure 13). The strength was concentrated towards the middle of the quarter in all sectors, and all sectors except precious metals saw an outflow in March. Given energys relative large share in index swaps, energy-linked indices saw a $1.3bn outflow in March. Precious metals received $5.3bn, almost 80% of total flows in Q1 12 and 4x more than in Q1 11 ($1.2bn). Most of these flows came in through ETPs ($5.1bn). Q1 12 started on a
Figure 12: Index swaps were the only product sector to see an outflow in Q1
30 25 20 15 10 5 0 -5 -10 ETP Q1 09 Indices Q1 10 MTN Q1 11 Q1 12 Inflows into commodity by product ($bn)
Figure 13: and all commodity sectors except Ags saw inflows
30 25 20 15 10 5 0 -5 -10 Precious Q1 09 Energy Q1 10 Base Ags Q1 11 Q1 12 Monthly inflows into commodity by sector ($bn)
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strong note with $1.5bn in January, gathered momentum in February with a further $3.3bn inflow, and slowed down sharply in March with $0.5bn, the weakest inflow since August 2011.
Energy received $1.9bn in Q1 the first quarterly inflow in a year
Within the energy sector, geopolitical tensions ratcheted up in Q1 and probably boosted investor interest in the sector. Energy received $1.9bn in Q1, the first inflow following three consecutive quarters of outflows. Energy-linked ETPs accounted for the bulk of fresh inflows ($1.7bn) and structured notes contributed a further $0.8bn. In terms of the monthly profile of flows into energy, strength was largely focused in February ($2.2bn) while March saw a $1.3bn outflow driven by the weakness of index swaps. Base metals received positive flows for the first time in a year, although the magnitude of inflows was very small on a historical perspective. Indeed, at a mere $0.2bn, Q1 12 was the weakest quarter for flows since we started compiling our data in 2009. For instance, in 2009-10, base metals received an average of $1.9bn per quarter. Finally, agriculture was the only commodity sector to see an outflow in Q 12. The $0.5bn outflow marked the fourth consecutive quarter of outflows from agriculture products. The cumulative outflow from agriculture since Q2 11 amounts to $7.7bn.
this was also the case of base metals
Index Swaps
Outflows from index swaps since Q1 11 amounts to $15.9bn
Index swaps closed another quarter of outflows in Q1, the forth consecutive quarter to see net liquidations. Q1 12 outflows amounted to $1.5bn, taking total outflows since Q1 11 to $15.9bn. This is the first time in the history of our data on commodity investment flows to see such a long period of weakness in any form of investment product. Nevertheless, commodity index AUM increased by $4.6bn q/q to $141bn, owing mainly to price increases. Total index AUM is still over $40bn short of its peak reached in April 2011. Q1 tends to be a seasonally strong quarter for commodity investment flows, and Q1 12 is the weakest quarter for index swap flows since Q1 07. Indeed, even during the post-2008 financial crisis, Q1 09 saw $3bn fresh inflows into commodity index swaps. This has not been the case this time around, when flows have remained weak despite a brighter macroeconomic picture.
Figure 14: Estimated total inflows to commodity indices
Figure 15: Inflows to major US commodity index-linked mutual funds, derived from reported data
8 7 6 5 4 3 2 1 0 -1 -2 5 0 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 -3 Q1 06 30 25 20 15 10 Derived real flows ($bn) - LHS AUM ($bn) - RHS 40 35
10 8 6 4 2 0 -2 -4 -6 -8 -10 Jul-09
Monthly inflows into commodity index swaps ($bn)
Mar-10
Nov-10
Jul-11
Mar-12
Source: Bloomberg, Barclays Research
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Exchange-traded products
ETP received the largest share of Q1 inflows into commodities
At $7bn, Q1 12 was the strongest quarter for flows into commodity-linked ETPs since Q2 10. It was also the first time since early 2011 to see three consecutive months of relatively strong inflows. That said, inflows through the quarter were highly biased towards precious metals ($5.1bn) and energy ($1.7bn), which combined received almost all inflows into ETPs. The strength of flows into ETPs in Q1 12 took total ETP AUM up by $30bn q/q to $217bn, an all-time high. This marks the largest ever q/q increase in ETP AUM. In terms of the monthly profile of ETP flows, strength was broad-based with $2bn inflows in January, $3.6bn in February and $1.4bn in March. March saw a clear slowdown, with only $0.8bn inflows into precious metal ETPs, the weakest number since September 2011. Flows across the physically backed precious metals ETPs were mixed in March, with the PGMs recording three months of net inflows, silver suffering net redemptions and gold mostly unchanged, but all four precious metals recorded net inflows for the quarter, Q1 12. This was perhaps most notable for palladium, which marked its strongest quarter in terms of flows since Q4 10, both in ounces and in dollar value. Palladium net inflows of $177mn were partially offset by weaker prices; however, positive ETP interest failed to support prices as concerns over China and the global economy weighed upon the metal. Platinum drew net inflows of $224mn supported by its tightening fundamental picture on the back of supply disruptions in South Africa. Silver on the other hand suffered modest net redemptions of $57mn but net inflows in January and February meant flows were up by $111mn for Q1 12. Although gold flows for March were lacklustre it does show ETP holdings have been resilient despite the price volatility reflecting the long term nature of this exposure. Our preliminary estimate for March shows a modest increase of $125mn for the full month and a regional deviation where net inflows in Europe offset net redemptions in the US. Q1 12 recorded net inflows of $3.7bn, compared with net redemptions of $2.1bn in Q1 11 and net inflows of $4.5bn in Q4 11. Should the longer-term sticky investor interest turn vastly negative, gold prices would be susceptible to deeper corrections. AUM across the precious metals closed the quarter at $150bn up from $136bn at the end of the year.
The strength of ETP flows in Q1 was broad-based
Figure 16: AUM and flows into commodity-linked ETPs

12 10 8 6 4 2 0 -2 -4 -6 Mar-08 Monthly Flows (LHS) AUM (RHS) Mar-09 Mar-10 Mar-11 0 Mar-12 50 150 100 200 Commodity ETPs: monthly inflows and AUM ($bn) 250
Figure 17: Flows into commodity-linked ETPs by sector

10 8 6 4 2 0 -2 -4 Agriculture Base metals -6 Total Sep-10 Dec-10 Mar-11 Energy Precious metals Jun-11 Sep-11 Dec-11 Mar-12 Monthly inflows into commodity ETPs by sector ($bn)
Source: Bloomberg, ETP issuer data, Barclays Research
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Regarding physically-backed base metal ETPs, the main change over the past two months was a 4,910 tonne increase in copper held under LME warrants in mid-February the largest increase since these products were launched in December 2010. This took total copper held to 6,883 tonnes (2.7% of total LME stocks), an all-time high. In addition, aluminium held decreased by 1,631 tonnes to 348 tonnes, down from a peak of 1,980 tonnes earlier in the year. All in all, total AUM for the six base metals amounts to $65mn, out of which $58mn alone is copper and $3.7mn is tin.
Medium-term notes
The issuance of fresh commodity notes came in relative weak in Q1 11. At $1.4bn it was the weakest quarterly issuance since Q3 05. However, given the delayed nature of reporting in this category, we would expect the issuance number to be revised higher. Q1 12 issuance took the cumulative issuance of MTNs since 2003 to $77bn. Within the product category, notes linked to agriculture and base metals were particularly weak. The former saw zero issuance over the quarter and the latter received a mere $11mn. On the other hand, we saw the issuance of $0.5bn notes linked to energy and a similar amount of notes linked to broad-based commodity indices. The monthly profile of notes issuance was fairly constant in every category. The relative weakness of structured notes in Q1 12 is somehow surprising given that this category held up pretty well throughout last year despite broad-based weakness of flows in other categories.
Figure 18: Commodity medium term notes issuance

2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Commodity medium-term note monthly issuance: notional value ($bn)
Figure 19: Commodity MTN issuance by sector

1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Commodity MTN issuance ($bn, notional value) Index Energy Basket Precious Base Agriculture
Source: MTN-I, Barclays Research
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CHARTS AND DATA
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COMMODITY ASSETS UNDER MANAGEMENT

Figure 20: Total commodity AUM
(US $bn) AUM Total Commodity AUM of which Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Q1 12 435 206 19.9 94 115 Q4 11 Quarterly data 399 179 17.8 88 114 Q3 11 402 183 18.0 92 109 2011 399 179 17.8 88 114 2010 380 153 18.3 96 113 2009 Annual data 270 92 14.4 66 97 2008 160 51 6.1 45 58 2007 196 41 8.8 61 84 Monthly data 435 454 206 19.9 94 115 217 20.4 98 118
Figure 21: Estimate of index AUM

(US $bn) AUM Barcap estimates of indices of which Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Monthly data 141 150 19 9.2 52 61 20 9.8 56 64 Q1 12 141 19 9.2 52 61 Q4 11 Q3 11 Quarterly data 137 134 20 7.7 47 62 20 7.7 50 57 2011 137 20 7.7 47 62 2010 155 18 9.8 60 67 2009 Annual data 111 10 7.7 37 56 2008 65 7 2.4 25 31 2007 125 10 5.6 45 65
Figure 22: Exchange-traded products (ETP) AUM

(US $bn) AUM Barcap estimates of ETPs of which Broad-based Indices Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Monthly data 217 227 31 174 1.6 4.0 6.6 31 184 1.5 4.2 6.9 Q1 12 217 31 174 1.6 4.0 6.6 Q4 11 Q3 11 Quarterly data 187 195 30 147 1.2 4.1 5.7 32 151 1.3 5.2 6.3 2011 187 30 147 1.2 4.1 5.7 2010 160 20 124 1.6 5.2 9.0 2009 Annual data 104 13 73 1.3 4.3 12 2008 48 4.0 37 0.1 1.8 4.7 2007 37 6.1 26 0.1 2.0 1.9
Figure 23: Medium-term notes (MTN) AUM

(US $bn) Cummulative Issuance Barcap estimates of MTNs Mar-12 76.7 Feb-12 76.2 Q1 12 76.7 Q4 11 Quarterly data 75.3 73.2 75.3 65.4 Q3 11 2011 2010 2009 Annual data 55.3 46.8 33.8 2008 2007 Monthly data
Note: Breakdown not available across MTN AUM. Source: MTN-i, Barclays Research
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COMMODITY INVESTMENT FLOWS

Figure 24: Total commodity flows
(US $bn) Flows Total Flows of which Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Q1 12 6.9 5.3 0.2 -0.5 1.9 Q4 11 Quarterly data -1.4 4.7 -0.7 -2.7 -2.7 Q3 11 1.1 6.9 -0.9 -2.3 -2.6 2011 15.0 13.3 0.9 0.8 -0.1 2010 66.8 27.3 3.9 15.4 20.2 2009 Annual data 77.1 25.8 5.7 16.4 29.2 2008 19.5 12.5 1.0 0.5 5.4 2007 17.0 8.2 1.7 3.4 3.7 Monthly data -2.2 6.2 0.5 -0.4 -1.1 -1.2 3.3 0.4 0.3 2.2
Figure 25: Estimate of index flows

(US $bn) Flows Barcap estimates of indices of which Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Monthly data -4.2 2.2 -0.6 -0.3 -1.5 -1.8 0.3 0.1 0.8 0.9 Q1 12 -0.5 -0.1 0.0 -0.2 -0.2 Q4 11 Q3 11 Quarterly data -4.4 -5.0 -0.7 -0.3 -1.4 -2.1 -0.8 -0.3 -1.9 -2.0 2011 -4.6 -1.0 -0.2 -1.4 -1.9 2010 33 3.6 2.1 12.0 15.3 2009 Annual data 26 2.5 1.4 9.0 12.9 2008 -11 -0.9 -0.5 -3.9 -5.7 2007 -7.7 -0.6 -0.3 -2.7 -4.0
Figure 26: Exchange-traded products (ETP) flows

(US $bn) Flows Barcap estimates of ETPs of which Broad-based Indices Precious Metals Base Metals Agriculture Energy Mar-12 Feb-12 Monthly data 1.4 3.6 0.5 0.7 0.1 -0.1 0.1 -0.5 3.2 0.1 0.0 0.8 Q1 12 7.0 0.5 5.1 0.3 -0.1 1.2 Q4 11 Q3 11 Quarterly data 0.9 4.3 -2.1 4.9 -0.1 -0.8 -1.0 -1.4 7.0 -0.3 -0.5 -0.5 2011 9.7 -0.2 12.4 -0.2 -0.1 -2.4 2010 24 3.3 21 0.2 -0.1 -0.8 2009 Annual data 43 10.5 20 2.1 2.1 7.6 2008 19 0.4 12 0.1 0.7 6.2 2007 11 2.0 7.3 0.2 1.6 0.4
Figure 27: Medium term notes (MTN) flows

(US $bn) Monthly Issuance Barcap estimates of MTNs of which Broad-based Indices Commodity Basket Precious Metals Base Metals Agriculture Energy
Source: MTN-i, Barclays Research
Mar-12 0.6 0.23 0.01 0.09 0.00 0.00 0.26
Feb-12 0.4 0.14 0.02 0.10 0.00 0.00 0.15
Q4 11 1.4 0.51 0.06 0.30 0.01 0.00 0.53
Q3 11 Quarterly data 2.1 1.06 0.47 0.36 0.00 0.02 0.22
Q2 11 1.8 0.84 0.46 0.27 0.03 0.01 0.18
2011 9.8 4.8 1.9 1.3 0.4 0.2 1.1
2010 10.1 6.1 1.2 1.7 0.3 0.1 0.7
2009 Annual data 8.4 4.5 0.8 1.4 0.1 0.2 1.3
2008 11.1 5.1 2.1 0.7 0.4 1.3 1.4
2007 13.2 6.4 3.2 0.5 0.3 0.9 1.9
Monthly data
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INVESTOR TRENDS
Figure 28: Total commodity assets under management
500 450 400 350 300 250 200 150 100 50 0 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 -15 Mar-10 -5 -10 Medium term notes Exchange traded products Commodity index swaps Total Sep-10 Mar-11 Sep-11 Mar-12 0 Institutional and retail commodity AUM ($bn) Medium term notes Exchange traded products Commodity index swaps
Figure 29: Total commodity investment inflows

15 10 5 Monthly inflows into commodities ($bn)
Figure 30: Breakdown of index swap AUM by index type

160 140 120 100 80 60 40 20 0 2000 2002 2004 2006 2008 2010 2012 TD Index swap AUM split of S&PGSCI and DJ-UBS ($bn) DJ AIG SP GSCI
Figure 31: Breakdown of index swap AUM by strategy type

120 100 80 60 40 20 0 2005 2006 2007 2008 2009 2010 2011 $bn Barclays capital AUM estimates of Passive long only index Enhanced beta Long-short
Figure 32: Commodity index swaps AUM

200 Commodity index swap AUM by sector ($bn) Energy 150 Agriculture Base metals Precious Metals 100
Figure 33: All index-linked AUM (swaps, ETPs and MTNs)

300 250 200 150 100 Barclays capital CFTC CFTC and Barclays Capital estimates of indexlinked AUM ($bn)
50
50
0 Nov-04
Sep-06
Jul-08
May-10
Mar-12
0 Nov-04
Sep-06
Jul-08
May-10
Mar-12
Source: Bloomberg, CFTC, Barclays Research
Source: Bloomberg, CFTC, Barclays Research
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Figure 34: ETP assets under management

250 200 Energy 150 100 50 0 Mar-08 Others Precious Commodity-linked ETP AUM by sectors ($bn)
Figure 35: US and Europe ETP flows

12 10 8 6 4 2 0 -2 -4 US Mar-09 Europe Mar-10 Mar-11 Mar-12 Monthly flows into US and Europe ETPs ($bn)
Mar-09
Mar-10
Mar-11
Mar-12
-6 Mar-08
Figure 36: Physically-backed base metal ETPs

80 70 60 50 40 30 20 Base metal Physically-backed ETPs AUM ($mn) Copper Lead Tin Zinc Nickel Aluminium
Figure 37: Monthly change in physically backed gold ETPs

225 175 125 75 25 -25 Monthly flows in gold ETPs (tonnes)
10 Jan-11 Mar-11 Jun-11 Aug-11 Nov-11 Jan-12 Apr-12

Source: ETF Securities, Barclays Research
-75 Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Source: Various ETP Issuer websites, Barclays Research
Figure 38: Issuance of medium term notes

0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 -1.0 Mar-10 y/y change in issuance (notional value, US$bn)
Figure 39: Monthly change in physically backed silver ETPs

1,000 500 Monthly flows to silver ETPs (tonnes)
0 -500
-1,000 -1,500
Sep-10
Mar-11
Sep-11
Mar-12
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Source: iShares, ETF Securities, ZKB, JB, Bloomberg, Barclays Research
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CFTC DATA: POSITIONS BY MARKET

In this section, we present a breakdown by market of managed money and swap dealer positioning data, reported weekly by the US Commodities Futures Trading Commission. Figure 40: Commitments of traders managed money overview
Futures Net Long Futures and Options as % of Open Interest Total Futures Open Interest Futures Net Long Net Long All-time High/Low Current 1 mth ch Current 1 mth ch Current 1 mth ch Current 10 Apr 12 Nymex 36% 62% 39.8 -3.5 14.2 -3.1 13.1 -6.5 Platinum CBOT 33% 33% 260.6 38.1 86.4 93.1 88.5 26.3 Soybean Meal CBOT 28% 28% 787.0 183.7 216.7 181.1 242.7 66.6 Soybeans CME 27% 43% 40.6 -13.0 11.0 -6.4 11.3 -7.8 Feeder Cattle Comex 26% 45% 404.0 -38.3 104.2 -39.7 109.5 -29.0 Gold Nymex 25% 27% 350.7 -35.9 88.7 4.5 87.4 -5.2 Gasoline 24% 58% 19.9 -2.8 4.7 -9.6 4.5 -4.3 ICE Orange Juice MGEX 22% 30% 38.5 2.0 8.5 -0.6 8.5 0.4 Wheat Nymex 21% 60% 20.8 -0.3 4.4 -2.3 5.0 -5.7 Palladium ICE 16% 26% 726.6 20.5 116.4 22.6 107.2 2.9 Sugar CBOT 15% 26% 1349.6 27.3 207.8 13.4 193.8 -51.5 Corn CBOT 14% 37% 11.1 -0.3 1.5 2.7 1.5 2.9 Oats CME 13% 36% 345.6 -5.9 45.0 -30.9 50.3 -35.0 Live Cattle Nymex 12% 17% 279.4 -6.4 34.7 0.9 34.1 -12.8 Heating Oil Comex 12% 35% 114.5 2.7 13.6 -3.7 14.9 -7.8 Silver CBOT 12% 27% 389.3 49.6 46.0 71.4 54.3 29.6 Soybean Oil CME 11% 46% 10.5 0.4 1.2 2.5 1.2 -0.9 Lumber Nymex 10% 17% 1563.1 -15.9 159.0 -14.0 191.8 -66.6 WTI ICE 2% 9% 425.0 20.9 8.9 -15.4 9.2 -13.9 WTI Comex 2% 23% 148.5 -2.5 3.0 -4.7 3.0 -11.3 Copper CME 1% 27% 249.4 -6.9 2.4 -21.5 2.8 -22.2 Lean Hogs KBOT 0% 31% 146.5 15.1 0.7 -12.1 0.7 -8.7 Wheat NYBOT -1% -20% 186.8 4.2 -2.4 -21.3 -2.6 7.1 Cotton ICE -5% -22% 158.1 10.7 -8.4 -15.5 -9.1 -0.7 Coffee Nymex -8% -25% 1252.2 20.3 -101.6 -24.9 -100.3 1.5 Natural Gas CBOT -9% -12% 471.7 30.2 -41.1 -10.4 -42.5 -2.6 Wheat CBOT -9% -18% 16.5 1.7 -1.5 1.0 -1.5 0.9 Rough Rice ICE -10% -15% 181.1 9.0 -17.3 -13.1 -16.2 -12.3 Cocoa 10% 9987.2 304.8 1006.7 144.0 1063.2 -166.5 Total Note: This table ranks key commodities markets by the percentage of total open interest accounted for by managed money in the weekly US Commodities Futures Trading Commission Commitments of Traders report. First column total reflects a weighted average. All-time high/low is based on data since mid-2006 and since 8 December 2009 for platinum, palladium and MGEX wheat. Source: CFTC (000 lots unless otherwise stated) Managed Money
Figure 41: CFTC managed money positions in major US commodity futures markets (000 lots)
2500 2000 1500 1000 500 0 -500 -1000 Apr-08 Long Short Net
Figure 42: CFTC managed money positions as a percentage of total open interest in major US commodity futures markets
11000 10000 9000 8000 9% 7000 6000 5000 4000 Apr-08 6% 3% 0% Apr-12 Open interest ('000 lots) Percentage of open interest 18% 15% 12%
Apr-09
Apr-10
Apr-11
Apr-12
Apr-09
Apr-10
Apr-11
Source: CFTC, Barclays Research
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A swap dealer is an entity that deals primarily in swaps for a commodity and uses the futures markets to manage or hedge the risk associated with those swaps transactions. The swap dealers counterparties may be speculative traders, such as hedge funds or traditional commercial clients who are managing risk arising from their dealings in the physical commodity. Figure 43: Commitments of traders swap dealer overview
Swap Dealers 10 Apr 12 Wheat Lean Hogs Copper Palladium Cotton Live Cattle Soybean Oil Wheat Corn Lumber Oats Coffee Sugar Soybeans Rough Rice Orange Juice Silver Wheat Heating Oil Natural Gas Feeder Cattle Soybean Meal Gasoline Cocoa WTI Gold WTI Platinum Total Futures Net Long as % of Open Interest Total Futures Open Interest All-time Current High/Low Current 1 mth ch 36% 45% 471.7 30.2 28% 45% 249.4 -6.9 26% 47% 148.5 -2.5 26% 26% 20.8 -0.3 25% 47% 186.8 4.2 25% 43% 345.6 -5.9 24% 37% 389.3 49.6 22% 26% 146.5 15.1 21% 35% 1349.6 27.3 19% 37% 10.5 0.4 17% 24% 11.1 -0.3 15% 41% 158.1 10.7 15% 30% 726.6 20.5 13% 34% 787.0 183.7 13% 23% 16.5 1.7 12% 16% 19.9 -2.8 11% 18% 114.5 2.7 11% 11% 38.5 2.0 11% 30% 279.4 -6.4 9% 27% 1252.2 20.3 9% 24% 40.6 -13.0 5% 11% 260.6 38.1 4% 27% 350.7 -35.9 2% 14% 181.1 9.0 -5% -13% 425.0 20.9 -7% -23% 404.0 -38.3 -11% -14% 1563.1 -15.9 -12% -39% 39.8 -3.5 10% 9987.2 304.8 Futures Net Long Current 170.4 70.9 39.1 5.4 47.4 85.3 94.6 31.9 288.6 1.9 1.8 23.3 106.8 100.8 2.1 2.4 12.9 4.2 30.0 111.6 3.4 14.2 14.2 3.4 -20.3 -28.5 -165.4 -4.7 1047.8 1 mth ch 8.2 2.4 0.4 3.4 1.7 -4.4 -2.1 0.9 11.5 0.0 -0.4 1.5 -3.6 -17.1 0.1 0.1 3.8 0.5 -2.0 -22.9 -1.7 -0.1 -2.1 -4.2 8.6 -3.4 37.8 3.2 20.1 Futures and Options Net Long Current 171.0 72.5 39.1 4.4 49.6 85.4 93.2 32.2 289.8 1.9 1.8 22.4 105.1 101.3 2.1 2.4 9.7 4.2 31.6 110.6 3.5 13.7 14.1 3.1 -19.7 -41.0 -234.9 -3.7 965.5 1 mth ch 5.6 2.0 0.4 3.5 3.0 -4.8 -1.9 1.1 9.9 0.0 -0.4 1.1 -0.4 -16.9 0.1 0.1 5.4 0.4 -1.8 -22.7 -1.5 0.3 -3.6 -4.2 10.6 0.2 41.4 4.5 31.3
CBOT CME Comex Nymex ICE CME CBOT KBOT CBOT CME CBOT ICE ICE CBOT CBOT ICE Comex MGEX Nymex Nymex CME CBOT Nymex ICE ICE Comex Nymex Nymex
Note: This table ranks key commodities markets by the percentage of total open interest accounted for by swap dealers in the weekly US Commodities Futures Trading Commission Commitments of Traders report. First column total reflects a weighted average. All-time high/low is based on data since mid-2006 and since 8 December 2009 for platinum, palladium and MGEX wheat. Source: CFTC (000 lots unless otherwise stated)
Figure 44: CFTC swap dealer positions in major US commodity futures markets (000 lots)
2500 2000 1500 1000 Long Short Net
Figure 45: CFTC swap dealer positions as a percentage of total open interest in major US commodity futures markets
10000 9000 8000 7000 Open Interest ('000 lots) Percentage of open interest 22% 20% 18% 16% 14% 12% 10% Apr-12
500 0 -500 -1000 Apr-08 6000 5000 4000 Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Apr-09
Apr-10
Apr-11
16 April 2012
23
COMMODITY RETURNS BY INDEX AND SECTOR

Figure 46: Benchmark indices for selected asset classes
Monthly and quarterly returns Mar-12 Commodity Indices Q1 12 Q4 11 Q3 11 YTD '12 Returns (annualised) 2011 Last 5 years Start of data
S&P GSCI Composite Index TR DJ-UBS Composite Index TR Rogers International Index (RICI) TR
Other asset classes
-2.4% -4.1% -2.6% 3.3% -5.9% -0.7% -0.6% -4.6% 2.6% -7.8% -8.4% -1.0% n/a
5.9% 0.9% 5.2% 12.6% 13.0% 0.0% 1.4% -1.1% 4.2% 5.5% 4.6% -0.1% n/a
9.0% 0.3% 4.7% 11.8% 6.0% -1.6% -0.3% 20.6% 8.7% 12.5% 12.7% -3.4% 1.3%
-11.7% -11.3% -11.8% -13.9% -24.7% 5.8% -5.7% -9.8% -3.3% -30.1% -27.1% -3.9% -3.1%
4.9% -0.8% 3.4% 9.6% 12.6% 0.5% 1.2% -4.9% 1.2% 3.7% 5.1% -0.1% 1.6%
4.6% -12.6% -2.1% 15.0% -6.8% 5.4% -4.0% 8.4% 10.9% -24.6% -22.3% -9.8% -3.6%
-2.8% -3.3% 1.1% 1.0% 4.7% 4.0% 2.2% 0.2% 6.2% -3.5% 0.5% 1.6% 4.7%
9.4% 5.0% 9.7% 8.8% 15.0% 6.5% 10.7% 9.3% 9.6% 10.5% 13.6% 6.4% 9.5%
S&P 500 Composite Index TR S&P BRIC 40 Index TR JPM Govt Bond Index TR JPM Emerging Markets Bond Index TR Europe STOXX Oil & Gas Index TR Europe STOXX Food Producers Index TR Europe STOXX Basic Resources Index TR Europe STOXX Mining Index TR HFRX Commodity HF Index New Edge Commodity HF Index
Source: EcoWin, Barclays Research
Figure 47: Commodity sub-indices

Monthly and quarterly returns Mar-12 S&P GSCI
TM
Returns (annualised) YTD '12 2011 Last 5 years Start of data
Q1 12
Q4 11
Q3 11
Sub-Indices TR Composite Index TR -2.4% -2.1% -4.6% -3.0% -0.4% -1.9% -8.0% -0.3% -0.2% -0.2% -0.1% 0.0% 0.0% -1.6% -4.1% -7.2% -5.4% -3.4% 0.3% -2.7% -8.1%
S&P GSCI
TM
5.9% 7.3% 6.3% 7.7% 1.9% 0.1% -4.9% -0.9% -0.8% -0.7% -0.4% -0.4%
0.9%
9.0% 13.4% 1.7% -4.1% 0.5% -7.5% -3.3% -0.2% 0.4% -0.5% -0.1% -1.7%
-0.3%
-11.7% -13.0% -22.5% 4.3% -8.4% -8.6% 5.5% -0.1% 0.2% -0.5% -0.1% -1.0%
1.6%
4.9% 6.9% 2.9% 6.5% -0.8% -3.2% -4.8% -0.9% -0.9% -0.9% -0.4% 0.3%
2.7%
4.6% 12.5% -17.4% 14.8% -14.3% -15.5% -6.0% -4.4% -5.1% -2.1% -1.0% -1.3%
11.9%
-2.8% -4.0% -6.3% 17.2% 2.4% n/a -10.3% -10.8% -12.9% -2.4% -2.2% -8.4%
n/a
9.4% 8.4% 7.8% 7.8% 4.5% 1.4% 7.2% -0.7% -0.4% -1.5% -5.8% -4.3%
-4.2%
S&P GSCITM Energy TR S&P GSCITM Industrial Metals TR S&P GSCITM Precious Metals TR S&P GSCITM Agriculture TR S&P GSCITM Softs TR S&P GSCITM Livestock TR
S&P GSCITM Sub-Indices roll yield
S&P GSCITM Composite Index roll yield S&P GSCITM Energy roll yield S&P GSCITM Industrial Metals roll yield S&P GSCITM Precious Metals roll yield S&P GSCITM Agriculture roll yield S&P GSCITM Softs roll yield S&P GSCITM Livestock roll yield
DJ-UBS Sub-Indices TR
-4.7% 0.9% -6.1% 5.8% 8.5% 3.2% -2.2% -5.2%
-1.9% 0.3% 2.1% 1.5% -4.4% 1.4% -5.9% -3.8%
0.7% -11.3% -16.3% -22.7% 2.3% -9.0% -9.0% 5.9%
-4.9% -0.8% -6.8% 3.9% 7.2% 1.8% -3.8% -5.3%
-16.6% -12.6% -21.1% -19.9% 13.5% -11.6% -15.9% -7.4%
-15.4% -3.3% -17.0% -6.9% 18.3% 5.9% 8.7% -11.5%
-0.8% 5.0% 3.5% 5.8% 8.1% 2.1% 2.3% -1.8%
DJ-UBSTM Composite Index TR DJ-UBSTM Energy TR DJ-UBSTM Industrial Metals TR DJ-UBSTM Precious Metals TR DJ-UBSTM Agriculture TR DJ-UBSTM Softs TR DJ-UBSTM Livestock TR
Source: EcoWin, Barclays Research
16 April 2012
24
COMMODITY RETURNS BY STRATEGY

Figure 48: Commodity index strategies
Quarterly change Mar-12 Static deferred Q1 '12 Q4 '11 Q3 '11 YTD '12 2011 Returns (annualised) Last 5 years Start of data
S&PGSCI 1M S&PGSCI 2M S&PGSCI 3M S&PGSCI 4M DJ-UBS 1M DJ-UBS 2M DJ-UBS 3M DJ-UBS 4M

Dynamic
-2.3% -2.1% -2.5% -2.3% -4.0% -3.8% -4.2% -3.9% -2.4% -2.3% -4.0% -2.3% -3.7% -2.0% -2.0% 1.0% -2.5%
5.9% 6.4% 5.8% 6.1% 1.4% 1.5% 1.3% 1.4% 5.8% 5.8% 0.6% 6.7% 2.1% 6.3% 6.4% 1.4% 6.5%
8.9% 9.7% 9.1% 9.3% 0.5% 0.5% 0.9% 1.1% 3.8% 9.0% 0.3% 9.2% 1.1% 9.3% 9.3% 0.3% 4.5%
-12.2% -13.3% -12.9% -12.9% -10.8% -10.9% -10.9% -10.8% -9.8% -12.7% -10.7% -11.9% -10.5% -12.0% -12.0% -0.2% -12.5%
1.4% 1.8% 1.5% 1.9% -3.0% -3.0% -2.9% -2.7% 1.6% 1.7% -3.5% 2.5% -1.8% 2.3% 2.4% 1.9% 1.9%
-1.2% -0.1% 0.4% 1.4% -11.3% -10.6% -9.4% -8.1% -3.8% -0.1% -9.9% 2.9% -7.2% 1.9% 2.7% 5.6% n/a
-1.0% 0.1% 1.8% 2.8% -0.7% -0.2% 1.1% 2.2% 5.3% 1.1% 0.6% 2.6% 2.1% 3.6% 3.8% 8.5% n/a
10.6% 13.3% 14.6% 15.6% 10.5% 12.6% 13.1% 14.2% 16.1% 13.8% 12.7% 15.1% 13.7% 15.7% 15.9% 12.2% 8.2%
Pure beta BCI Pure beta S&PGSCI Pure beta DJ-UBS Momentum alpha S&PGSCI Momentum alpha DJ-UBS Roll yield S&PGSCI Multistrategy ComBATS BCRI
Note: Pure Beta aims to replicate the average price of the front-year futures strip of any commodity market while avoiding parts of the forward curve that are subject to market distortions. Momentum Alpha dynamically positions exposure across the commodity curve based on historical outperformance. Roll yield strategy dynamically positions exposure across the commodity curve based on implied roll yields. Multi-Strategy index employs a mixture of different enhanced beta strategies applied to existing benchmarks. It uses Momentum Alpha for agriculture and live stock, Roll Yield for base metals and energy commodities and nearby for precious metals. The Barclays ComBATS index is designed to reflect the performance of a balanced market neutral commodity alpha strategy involving long/short futures positions in the following ten commodities: crude oil, natural gas, heating oil, aluminium, copper, nickel, zinc, wheat, sugar, and lean hogs. The Barclays Commodities Research Index (BCRI) uses fundamental rankings published by the Barclays Commodities Research Team to over/underweight individual commodities and sectors relative to the weights of a benchmark commodities portfolio. BCRI includes the commodities for which Barclays Commodities Research provide a fundamental ranking. Source: EcoWin, Barclays Research
Figure 49: Commodity risk premia strategies

Quarterly change Mar-12 Q1 '12 Q4 '11 Q3 '11 YTD '12 2011 Returns (annualised) Last 5 years Start of data
Curve risk premia strategy
Long 3-mth, short front month Trend risk premia strategy Backwardation alpha index Alpha Modified Roll GSCI LE
-0.6% 0.1% 2.4% 0.0%
-0.8% 3.8% 5.0% -0.1%
0.1% -0.4% 3.3% -0.1%
-0.5% -3.9% -0.6% -0.3%
-0.8% 3.1% 5.0% -0.3%
3.4% 1.2% 6.9% 0.1%
4.3% 15.3% 18.5% 1.1%
6.6% 13.1% 22.8% 2.8%
Trend risk premia strategy Value risk premia strategy Liquidity timing risk premia strategy
Note: This table classifies commodity returns according to the approach described in Commodity Markets Investment Insight: Structural Sources of Excess Return, in which four risk premia (curve, trend, value and liquidity/timing) were identified as providing separate, low correlation sources of commodity risk and return. The performance of these risk premia over time is represented by sets of different Barclays Capital Indices. Source: EcoWin, Barclays Research
16 April 2012
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PRICE TRENDS
Price changes
Figure 50: Commodity price comparisons
Commodity 13-Apr-2012 Price change (%, M/M) Month-ago price Price change (%, Y/Y) Year-ago Price
Rough Rice Barley Soybean Meal Soybeans Freight Capesize C4 Carbon CER Cotton UK Natural Gas UK Power Azuki Beans Coal API2 Gasoline Oats Coal API4 Lumber Gold Gas Oil Heating Oil Sugar Feeder Cattle Coffee Crude Oil Crude Oil Lead German Power Wheat Lean Hogs Nickel Zinc Cocoa Wheat Silver Copper Corn Platinum Carbon EUA Rubber Aluminium Aluminium Alloy Tin Palladium US Natural Gas
Source: Barclays Research
CBOT WCE CBOT CBOT OTC ECX ICE ICE APX TGE ICE NYMEX CBOT ICE CME OTC ICE NYMEX ICE CME ICE ICE NYMEX LME EEX CBOT CME LME LME ICE KBOT OTC LME CBOT NYMEX ECX TOCOM LME LME LME NYMEX NYMEX
$/56 lb bu C$/tonne $/bushel $/bushel $/tonne /tonne $/lb /therm /MWh JPY/30 Kg $/tonne $/gallon $/bushel $/tonne $/1000 ft $/oz $/tonne $/gallon $/lb $/lb $/lb $/barrel $/barrel $/tonne /MWh $/bushel $/lb $/tonne $/tonne $/tonne $/bushel $/oz $/tonne $/bushel $/oz /tonne Y/kg $/tonne $/tonne $/tonne $/oz $/mmbtu
15.3 235.0 290.1 14.37 9.5 4.0 0.92 0.7 46.5 12,440 99.4 3.35 3.3 102.3 266.7 1,659.2 1,011.0 3.17 0.23 1.51 1.79 121.72 102.84 2,065 41.4 6.24 0.83 18,292 1,984 2,248 6.43 31.41 7,990 6.29 1,585 7.3 295.1 2,059 1,981 22,205 646.6 1.98
8.4% 7.8% 7.0% 6.5% 5.6% 4.9% 4.6% 2.7% 2.1% 0.7% 0.2% -0.3% -1.1% -1.2% -1.8% -2.0% -2.3% -3.0% -3.1% -3.2% -3.3% -3.5% -3.6% -3.7% -4.3% -4.3% -5.6% -5.9% -6.0% -6.0% -6.1% -6.4% -6.6% -6.6% -6.8% -7.1% -8.1% -8.3% -8.4% -8.4% -8.5% -13.9%
14.1 218.0 271.1 13.49 9.0 3.9 0.88 0.7 45.5 12,350 99.2 3.35 3.3 103.5 271.5 1,693.8 1,034.4 3.27 0.24 1.56 1.85 126.20 106.70 2,145 43.3 6.52 0.88 19,429 2,110 2,392 6.85 33.57 8,558 6.74 1,700 7.8 321.0 2,247 2,162 24,250 707.1 2.30
12.0% 17.5% -26.1% 7.9% -4.0% -68.8% -53.0% 8.5% -10.3% -0.1% -22.1% 3.6% -14.2% -17.0% 10.2% 12.8% -0.1% -0.4% -4.4% 13.1% -36.5% -0.5% -4.8% -21.0% -27.0% -15.8% -11.9% -29.1% -17.3% -28.1% -25.6% -24.6% -15.1% -16.6% -11.6% -56.8% -36.9% -21.8% -16.8% -31.1% -16.4% -53.0%
13.7 200.0 392.5 13.31 9.9 13.0 1.96 0.7 51.8 12,450 127.6 3.23 3.8 123.2 242.0 1,471.5 1,011.7 3.19 0.24 1.33 2.82 122.35 108.08 2,615 56.7 7.41 0.94 25,797 2,399 3,125 8.64 41.66 9,410 7.54 1,793 16.8 468.0 2,634 2,380 32,225 773.7 4.21
16 April 2012
26
Price and return forecasts

Figure 51: Quarterly returns by sector
Total returns S&P GSCITM Sub-Indices ER S&P GSCITM Composite Index S&P GSCI TM Energy S&P GSCI TM Industrial Metals S&P GSCI TM Precious Metals S&P GSCI TM Grains & oilseeds S&P GSCI TM Softs & fibres Q1 12 5.9% 7.3% 6.3% 7.7% 1.9% 0.1% 3M to end-Q2 '12 (F) -0.8% -1.2% 6.9% 12.3% 0.4% 0.7% 6M to end 2012 (F) 1.5% 3.1% 6.1% 5.1% -10.7% -1.5% 12M to end 2012 (F) 6.6% 9.2% 19.3% 25.1% -8.5% -0.7%
Figure 52: Quarterly price forecasts

Q1 11 Base Metals (LME cash) Aluminium US$/t Copper US$/t Lead US$/t Nickel US$/t Tin US$/t Zinc US$/t Base Metal Index^ Precious metals Gold US$/oz Silver US$/oz Platinum US$/oz Palladium US$/oz Energy WTI US$/bbl Brent US$/bbl US Natural Gas US$/mmbtu UK Natural Gas p/therm Agriculture Cocoa US$/t Coffee Usc/lb Sugar Usc/lb Cotton Usc/lb Wheat Usc/bushel Corn Usc/bushel Soybeans Usc/bushel 2,503 9,646 2,605 26,899 29,950 2,393 266 1387 31.9 1789 788 95 106 4.2 57 3303 256 30.5 180 786 670 1379 Q2 11 2,600 9,137 2,550 24,165 28,694 2,250 254 1508 38.4 1781 756 102 117 4.4 58 3043 271 24.5 168 745 731 1361 Q3 11 2,399 8,982 2,459 22,043 24,757 2,224 239 1705 38.8 1766 747 90 112 4.1 54 2962 256 28.7 107 690 696 1356 Q4 11 2,090 7,489 1,983 18,303 20,853 1,897 201 1682 31.8 1527 626 94 109 3.5 57 2383 229 24.7 95 615 620 1175 Q1 12 2,177 8,310 2,093 19,651 22,941 2,025 219 1690 32.6 1604 680 103 118 2.5 59 2308 205 24.6 93 643 641 1272 Q2 12F 2,250 8,600 2,200 20,500 23,000 2,100 225 1850 34.5 1640 745 104 118 2.6 55 2325 210 23.8 89 650 660 1345 Q3 12F 2,350 9,000 2,350 20,000 25,000 2,200 235 2030 38.0 1755 860 107 121 2.8 57 2400 180 23.5 85 628 640 1355 Q4 12F 2,500 9,300 2,500 19,750 28,000 2,300 245 1920 27.5 1815 895 107 121 3.3 70 2500 170 23.7 80 595 580 1325
16 April 2012
27
Figure 53: Annual price forecasts

2007 2008 2009 2010 2011 2012F 2015F Cycle average Base Metals 2,750 Aluminium US$/t 2,640 2,573 1,664 2,172 2,398 2,319 3,000 Copper US$/t 7,129 6,961 5,148 7,533 8,813 8,803 9,500 6,200 Lead US$/t 2,592 2,093 1,721 2,146 2,399 2,286 3,650 2,700 Nickel US$/t 37,276 21,115 14,604 21,809 22,853 19,975 25,000 19,000 Tin US$/t 14,542 18,500 13,579 20,407 26,063 24,735 30,000 18,000 Zinc US$/t 3,251 1,876 1,654 2,158 2,191 2,156 3,500 2,600 Base Metal Index^ 237.2 204.3 146.2 210 240 231 274 N/A Precious Metals Gold US$/oz 697 872 972 1,226 1,571 1,873 1,400 1,125 Silver US$/oz 13.4 15.0 14.6 20.2 35.2 33.2 21 16 Platinum US$/oz 1,304 1,569 1,205 1,610 1,716 1,704 2,200 1,850 Palladium US$/oz 354 348 262 526 729 795 1,200 650 Energy WTI US$/bbl 72.3 99.7 62 80 95 105 125 95 Brent US$/bbl 72.7 98.4 63 80 111 120 135 95 US Natural Gas US$/mmbtu 7.12 8.90 4.16 4.39 4.03 2.75 4.00 4.0 UK Natural Gas p/therm 30.0 58.2 31.1 42.2 56.4 60.3 85.0 N/A Coal API2 US$/t 87 144 71 93 123 102 114 92 Coal API4 US$/t 62 120 66 92 119 102 115 95 Coal Newcastle US$/t 66 128 72 99 120 112 120 97 Carbon (EUA) /t 20 23 13 15 13 9 15 16 Carbon (CER) /t 16 17 12 12 10 4 7 7 Agriculture Cocoa US$/t 1882 2555 2794 2944 2923 2383 3200 N/A Coffee Usc/lb 117 132 125 163 253 191 180 N/A Sugar Usc/lb 9.9 12.1 17.7 22.3 27.1 23.9 26 N/A Cotton Usc/lb 57 64 57 94 138 87 88 N/A Wheat Usc/bushel 636 798 530 581 709 629 650 N/A Corn Usc/bushel 373 527 374 427 680 630 620 N/A Soybeans Usc/bushel 861 1234 1031 1048 1318 1324 1350 N/A Note: ^Economist Intelligence Unit weight. Base metals prices are LME cash. Precious metals spot prices. WTI: front month NYMEX close. Brent: front month IPE close. US natural gas: NYMEX front month close. Cocoa, Coffee, Sugar, Cotton: front month ICE close. Wheat, Corn, Soybeans: front month CBOT close. Cycle Average: denote cost driven estimates of the minimum sustainable price over a business cycle. Source: Barclays Research
16 April 2012
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CALENDAR OF KEY COMMODITY DATA RELEASES

Monday 16 Apr US Empire State Mfg Survey Tuesday 17 Apr US IP German ZEW Survey Euro Area HICP Wednesday 18 Apr Dept of Energy Weekly Oil Data Thursday 19 Apr EIA Weekly Natural Gas Storage US Philly Fed Survey GFMS World Silver Survey 2012 Friday 20 Apr CFTC Data SHFE Aluminium, Copper and Zinc Inventory Data IEA Oil Market Report
23 Apr Detailed (March) China Commodity Data out this week (National Bureau of Statistics)
24 Apr US FOMC Meeting Begins US New Home Sales
25 Apr Dept of Energy Weekly Oil Data US Durable Goods Orders FOMC Meeting Announcement
26 Apr EIA Weekly Natural Gas Storage EIA Monthly Energy Review
27 Apr CFTC Data SHFE Aluminium, Copper and Zinc Inventory Data US GDP US Consumer Sentiment
30 Apr US Chicago PMI Euro Area HICP Flash
01 May US Auto Sales US Construction Spending US ISM Mfg Index
02 May Dept of Energy Weekly Oil Data US Factory Orders
03 May EIA Weekly Natural Gas Storage US ISM Non-Mfg Index Euro Area PPI ECB Announcement GFMS Platinum & Palladium Survey 2012 10 May EIA Weekly Natural Gas Storage OPEC Monthly Oil Market Report OECD Main Economic Indicators USDA WASDE Report
04 May CFTC Data SHFE Aluminium, Copper and Zinc Inventory Data
07 May Preliminary (April) China Commodity Data out this week (National Bureau of Statistics) LME Holiday
08 May EIA Short-Term Energy Outlook
09 May Dept of Energy Weekly Oil Data
11 May CFTC Data SHFE Aluminium, Copper and Zinc Inventory Data IEA Oil Market Report US PPI US Consumer Sentiment
16 April 2012
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COMMODITIES RESEARCH ANALYSTS

Barclays Capital 5 The North Colonnade London E14 4BB Gayle Berry Commodities Research +44 (0)20 3134 1596 gayle.berry@barcap.com Miswin Mahesh Commodities Research +44 (0)20 77734291 miswin.mahesh@barcap.com Trevor Sikorski Commodities Research +44 (0)20 3134 0160 trevor.sikorski@barcap.com Shiyang Wang Commodities Research +1 212 526 7464 shiyang.wang@barcap.com Commodities Sales Craig Shapiro Head of Commodities Sales +1 212 412 3845 craig.shapiro@barcap.com Martin Woodhams Commodity Structuring +44 (0)20 7773 8638 martin.woodhams@barcap.com Suki Cooper Commodities Research +1 212 526 7896 suki.cooper@barcap.com Roxana Mohammadian-Molina Commodities Research +44 (0)20 7773 2117 roxana.mohammadian-molina@barcap.com Nicholas Snowdon Commodities Research +1 212 526 7279 nicholas.snowdon@barcap.com Michael Zenker Commodities Research +1 212 526 2081 michael.zenker@barcap.com Helima Croft Commodities Research +1 212 526 0764 helima.croft@barcap.com Kevin Norrish Commodities Research +44 (0)20 7773 0369 kevin.norrish@barcap.com Kate Tang Commodities Research +44 (0)20 7773 0930 kate.tang@barcap.com Paul Horsnell Commodities Research +44 (0)20 7773 1145 paul.horsnell@barcap.com Amrita Sen Commodities Research +44 (0)20 3134 2266 amrita.sen@barcap.com Sudakshina Unnikrishnan Commodities Research +44 (0)20 7773 3797 sudakshina.unnikrishnan@barcap.com
16 April 2012
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The Commodity Investor S 102885050

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COMMODITIES RESEARCH

THE COMMODITY INVESTOR Short-term set backs: a chance to buy

Source: Bloomberg, MTN-i, ETP issuer data, Barclays Research

Barclays | The Commodity Investor

Short-term set backs: a chance to buy.................................................................................................. 3 COMMODITY INVESTMENT PERFORMANCE 8

Time to be selective ................................................................................................................................... 8 INVESTOR ACTIVITY 11

Barclays | The Commodity Investor

Short-term set backs: a chance to buy

Renewed global growth concerns look a touch overdone

Sub-Indices ER Composite Index

Barclays | The Commodity Investor

though oil price risks are still skewed to the upside

Geopolitical risks have eased a little

Barclays | The Commodity Investor

We advise against shorting markets like oil and copper

The macro-environment is getting better for gold

Barclays | The Commodity Investor

Closing time for short coffee

Figure 4: Key recommendations

Contract Open trades

Barclays | The Commodity Investor

Figure 5: Recent trade history

Barclays | The Commodity Investor

COMMODITY INVESTMENT PERFORMANCE

The year started strongly but lost momentum in March

Negative roll yields continue to shrink

Figure 6: Negative roll yields continue to shrink

-1.5% 0 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12

Source: Ecowin, Barclays Research

Barclays | The Commodity Investor

Figure 9: Value and trend strategies lead investor returns in Q1

Liquidity 0.0% -0.4% Curve -2% 0% 2% YTD 2012 Q4 11 4% 6%

-20 Mar-05 May-06 Jul-07

-0.8% Sep-08 Nov-09 Jan-11 Mar-12

Source: Bloomberg, MTN-I, ETP issuer data, Barclays Research

Barclays | The Commodity Investor

We expect momentum in trend strategies to stabilise

Barclays | The Commodity Investor

Q1 12 investor activity review: fragile rebound

Index swaps were weak, ETPs and MTNs relatively strong

We have seen a trend towards more active management

Figure 10: Total commodity AUM ended Q1 12 at $412bn

Figure 11: Flows into commodities rebounded in Q1 12

Source: Bloomberg, MTN-I, ETP issuer data, Barclays Research

Source: Bloomberg, MTN-I, ETP issuer data, Barclays Research

Barclays | The Commodity Investor

and volatility was most present in index swaps

Source: Bloomberg, MTN-I, ETP issuer data, Barclays Research

Source: Bloomberg, MTN-i, ETP issuer data, Barclays Research

Barclays | The Commodity Investor

this was also the case of base metals

Figure 14: Estimated total inflows to commodity indices

Monthly inflows into commodity index swaps ($bn)

Source: Bloomberg, Barclays Research

Source: Bloomberg, Barclays Research

Barclays | The Commodity Investor

The strength of ETP flows in Q1 was broad-based

Figure 16: AUM and flows into commodity-linked ETPs

Figure 17: Flows into commodity-linked ETPs by sector

Source: Bloomberg, ETP issuer data, Barclays Research

Source: Bloomberg, ETP issuer data, Barclays Research

Barclays | The Commodity Investor