COMMODITIES WEEKLY

COMMODITIES RESEARCH 14 January 2011 PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 32 COMMODITIES WEEKLY Commodities posted a strong performance in 2010, with copper, tin, gold and cotton at all-time highs and silver and sugar at 30-year highs. Into the new year, a number of commodity price highs are likely to be tested once again. Demand continues to provide a sound backdrop, while supply concerns have been piqued on adverse weather, with an exceptionally cold Northern Hemisphere winter, La Nina and the Australian floods. We expect oil to become a significant political issue in 2011, the first instance of which has already emerged in the UK, while food inflation is back on policymakers’ agendas. Cross-Commodities 6 The year in numbers; we believe China’s incipient rate hiking cycle will not, on its own, halt the overall upward trend in commodity prices over the next 12 months; Feeding the Dragon: China’s November trade data. Energy 9 More upside for Pacific coal prices in the short term and fundamentals remain extremely constructive next year; devastating floods in Queensland have a significant impact on coal fundamentals and make for further price upside in the near term; can the increase in oil prices derail the economic recovery through demand destruction? We disagree; we have revised our CER price forecasts for H1 11 to 13 €/t; Iraq: Moqtada makes his return; for 2011 the single most important factor for the North American natural gas market is US domestic production; the return of $100 oil; 2011 looks like an important year for the carbon market; Global Gas Explorer: Supply surge downshifts. Metals 23 Global base metals demand is on track to hit a record high in 2010; Is gold’s weak start to 2011 the first step of a downtrend?; Metals Magnifier: Northern lights. Agriculture 26 A set of bullish USDA reports highlights continuing tight global grains supplies and opens the door for prices to push higher. Forecasts and data releases 27 Sudakshina Unnikrishnan+44 (0) 20 7773 3797 sudakshina.unnikrishnan@barcap.com Kerri Maddock +44 (0) 20 3134 2300 kerri.maddock@barcap.com www.barcap.com Barclays Capital | Commodities Weekly 14 January 2011 2 Commodity review Commodity prices posted a strong performance through 2010, with copper, tin, gold and cotton at all-time highs and silver and sugar at 30-year highs. Into the new year, these highs are likely to be tested once again. Demand continues to provide a sound backdrop while supply concerns have been piqued on adverse weather – an exceptionally cold Northern Hemisphere winter, the effect of La Nina and floods in Australia. Agricultural markets were amongst the strongest performing commodities in 2010, and into 2011, these markets continue to be characterised by tight balances. The USDA released a number of key reports this week, and “undeniably bullish” would be an apt way to describe the overall message stemming from them. A series of supply disappointments have marred the global grains supply landscape over the past year due to adverse weather, and lower supplies have been exacerbated by export restrictions and thin inventory levels in a positive demand environment. What does this bode for global markets? One answer is that despite the recent move up in grains prices, higher prices are here to stay for a while, with corn and soybean outperforming. In addition, these markets are likely to be choppy and nervous with the whittling down in inventory and ongoing weather concerns. Current attractive prices should incentivise a large increase in acreage into the Northern Hemisphere planting season and the scramble for US acreage intensifies, but until a supply response comes along, demand will need to be rationed and for policymakers, food inflation is unlikely to fade as a key concern on the agenda. Keeping with theme of commodities becoming a more lively political issue, the symbolic use of oil in political rhetoric that characterised 2008, but was lost