Commodities
Global Markets Research
May 2011
A User Guide To Commodities
Table of Contents
Introduction..................4
Energy..........................5
Precious Metals ......... 46
Industrial Metals......... 57
Minor Metals.............. 77
Mineral Sands ............ 93
Rare Earth Metals ...... 95
Agriculture.................. 97
Livestock.................. 120
Exchanges................ 125
Conversion Factors .. 128
London
Michael Lewis
44 20 7545 2166
Daniel Brebner, CFA
44 20 7547 3843
Michael Hsueh
44 20 7547 8015
Xiao Fu
44 20 7547 1558
Washington
Adam Sieminski, CFA
1 202 662 1624
Singapore
Soozhana Choi
65 6423 5261
Paris
Mark-C Lewis
33 1 4495 6761
Isabelle Curien
33 1 4495 6616
David Folkerts-Landau
Managing Director
Global Head of Research
Deutsche Bank AG/London
All prices are those current at the end of the previous trading session unless otherwise
indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other
vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank
does and seeks to do business with companies covered in its research reports. Thus,
investors should be aware that the firm may have a conflict of interest that could affect
the objectivity of this report. Investors should consider this report as only a single factor
in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS
ARE LOCATED IN APPENDIX 1. MICA(P) MICA (P) 146/04/2011
May 2011
A User Guide to Commodities
Table of Contents
Introduction ...........................................................................................................................................4
Energy ....................................................................................................................................................5
Crude Oil .................................................................................................................................................7
Brent v. WTI ..........................................................................................................................................10
Oil Products...........................................................................................................................................11
Refined Products By Use ..................................................................................................................... 13
Refining .................................................................................................................................................14
Coal-to-Liquids & Gas-to-Liquids ...........................................................................................................17
Oil Sands ...............................................................................................................................................18
Oil Transportation..................................................................................................................................20
Global Natural Gas.................................................................................................................................22
Shale Gas ..............................................................................................................................................24
European Natural Gas ...........................................................................................................................26
Liquefied Natural Gas............................................................................................................................28
US Power ..............................................................................................................................................30
European Power....................................................................................................................................32
Thermal Coal .........................................................................................................................................34
Uranium.................................................................................................................................................36
Ethanol ..................................................................................................................................................38
CO2 Emissions......................................................................................................................................40
Renewable Energy ................................................................................................................................44
Precious Metals ...................................................................................................................................46
Gold.......................................................................................................................................................47
Silver......................................................................................................................................................49
Platinum ................................................................................................................................................51
Palladium...............................................................................................................................................53
Rhodium ................................................................................................................................................55
Other Platinum Group Metals: Ruthenium, Iridium & Osmium ............................................................56
Industrial Metals & Bulk Commodities.............................................................................................57
Aluminium .............................................................................................................................................58
Copper...................................................................................................................................................61
Nickel.....................................................................................................................................................63
Zinc........................................................................................................................................................65
Lead ......................................................................................................................................................67
Tin..........................................................................................................................................................69
Iron Ore .................................................................................................................................................71
Ferro-Chrome ........................................................................................................................................73
Coking Coal ...........................................................................................................................................74
Steel ......................................................................................................................................................75
Page 2
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Minor Metals .......................................................................................................................................77
Cobalt ....................................................................................................................................................78
Gallium ..................................................................................................................................................80
Lithium ..................................................................................................................................................81
Magnesium ...........................................................................................................................................82
Manganese ...........................................................................................................................................83
Molybdenum .........................................................................................................................................85
Rhenium ................................................................................................................................................87
Tantalum................................................................................................................................................88
Thorium .................................................................................................................................................89
Titanium.................................................................................................................................................90
Tungsten ...............................................................................................................................................91
Vanadium...............................................................................................................................................92
Mineral Sands......................................................................................................................................93
Rare Earth Metals................................................................................................................................95
Agriculture ...........................................................................................................................................97
Cocoa ....................................................................................................................................................99
Coffee..................................................................................................................................................101
Corn.....................................................................................................................................................103
Cotton .................................................................................................................................................105
Palm Oil ...............................................................................................................................................107
Rapeseed ............................................................................................................................................109
Rice .....................................................................................................................................................110
Rubber.................................................................................................................................................112
Soybeans.............................................................................................................................................114
Sugar ...................................................................................................................................................115
Wheat..................................................................................................................................................118
Livestock ............................................................................................................................................120
Feeder & Live Cattle............................................................................................................................121
Lean Hogs & Pork Bellies....................................................................................................................123
Commodity Exchanges & Turnover ................................................................................................125
Conversion Factors ...........................................................................................................................128
Deutsche Bank AG/London
Page 3
May 2011
A User Guide to Commodities
Introduction
May 11, 2011
To Deutsche Bank’s Clients
This report marks the third edition of the Deutsche Bank User Guide To Commodities, which
was first published in July 2006.
The report is divided into eight broad sections covering the energy, precious metals,
industrial metals & bulk commodities, minor metals, mineral sands, rare earth metals,
agriculture and livestock sectors.
It covers over 70 commodity markets and identifies, among other things, the key producing
and consumer nations, the commodity's major uses and where applicable the commodity
exchange on where they are traded.
I hope you, our clients, find this guide instructive.
Michael Lewis
Global Head of Commodities Research
[email protected]
Figure 1: 2010-2011 commodity scorecard
Baltic dry freight
Figure 2: Top 20 commodity futures by turnover*
% returns
31-Dec-09 to 05-May-11
US natural gas
Sugar
White Sugar (ZCE)
Rebar (SFE)
WTI Crude Oil (NYMEX)
Zinc
Lead
Rubber (SFE)
Lumber
Aluminium
Zinc (SFE)
Soy Meal (DCE)
Copper
Platinum
Brent Crude Oil (ICE)
Uranium
WTI
Cotton (ZCE)
Corn (CBOT)
Soybeans
Natural Gas (NYMEX)
EU Emissions Cal 2012
Nickel
WTI (ICE)
Wheat
Gold
Gas Oil (ICE)
`
Copper (SFE)
Heating oil
Steel
Aluminium (LME)
Brent
Gasoline (RBOB)
Gold (COMEX)
No. 1 Soybeans (DCE)
Iron ore
Coal (API#4)
Soybeans (CBOT)
Corn
Tin
Corn (DCE)
Copper (LME)
Palladium
Silver
Sugar #11 (ICE)
-75
-50
-25
Source: Deutsche Bank, Bloomberg Finance LP
0
25
50
75
100
125
0
50
100
150
200
250
300
Turnover (million lots, 2010)
Note the contract size of futures listed on Chinese exchange is typically one-fifth the size of equivalent futures
contracts listed on US exchanges
Source: NYMEX, ICE, DCE, LME, SHFE, CBOT, ZCE
Page 4
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Energy
Global energy consumption has increased by nearly 60% over the last 25 years and is likely
to rise another 35-40% in the next 25. Oil provides approximately 35% of total primary
energy consumption that is primary fuels that are commercially-traded. Despite the
implications for global warming and the environment, coal accounts for 26% of total energy
use followed by natural gas, which meets 23% of energy demand. Nuclear energy currently
provides 6% of the total and renewable, including hydro-power, account for approximately
10%.
The combination of surging oil prices and government support for the development of
alternative energy sources is promoting rapid growth in modern bio-fuels and renewable
energies such as wind, solar, geothermal and tidal power. However, altogether these
represent less than 2% of global energy demand. Fuels such as wood, peat and animal
waste are still important in many economies. ExxonMobil estimates that biomass and waste
constitute about 9% of the world total energy consumption. However, these are sometimes
not counted in global energy statistics.
Looking ahead, we expect it will require the development and expansion of all economic
energy sources to meet rapid population growth, economic expansion, urbanization, and the
improvement in living standards underway in many parts of the developing world. Even
allowing for rapid growth in alternative energy, we believe the world economy will remain
heavily dependent on fossil fuels, including coal, oil and natural gas, over the next two to
three decades.
The current split in total energy use between the Organization for Economic Cooperation &
Development (OECD) and the non-OECD nations is about 47% and 53%, respectively, Figure
2. By the year 2030, however, with the OECD growing by less than 1% per year and the nonOECD region rising by 2-2.5% annually, the split will be 40% to 60% in favor of the emerging
market countries. The main driver of this shift is the forecast for stronger economic growth
outside of the OECD. For example, the US DOE/EIA assumes that non-OECD growth will
average 4.4% per year compared with a PPP rate of only 2.0% annually in the OECD.
Figure 1: Global energy use by region in 2009
90
80
mmb/d oil equivalent
70
Figure 2: Global energy use outlook by region
Hydro electricity
Nuclear energy
Coal
Natural gas
Oil
400
mmb/d oil equivalent
350
OECD
300
Non-OECD
60
250
50
200
40
30
150
20
100
10
50
0
Africa
S. & Cent.
America
Middle East
Source: BP Statistical Review, Deutsche Bank
Deutsche Bank AG/London
North
America
Europe &
Eurasia
Asia Pacific
0
1990
2000
2010
2020
2030
Source: US DOE/EIA, Deutsche Bank
Page 5
May 2011
A User Guide to Commodities
Figure 3 illustrates the growth in global energy use by fuel estimated by the US DOE/EIA in
their International Energy Outlook (IEO) 2010 publication. Although liquid fuels remain the
largest source of energy (35% in 2010, 30% in 2035), the high price of oil is assumed to
cause many energy users to switch away from oil toward renewables and coal. In the 2010
IEO, the EIA assumed that the market share held by natural gas would fall slightly from 23%
in 2010 to 22% in 2035. Recently, the EIA has concluded that the technically recoverable
reserves of US shale gas resources are now twice the level assumed in IEO 2010. In addition,
the EIA initial assessments of 48 shale gas basins in 32 countries suggest that shale gas
resources are also available in other world regions.
We expect that the gas resource findings are likely to lead to an upward revision in growth
for natural gas demand when the EIA publishes the IEO 2011. In view of the nuclear accident
at Fukushima, it is possible that some of increase in gas use may come at the expense of
nuclear power rather than coal.
Another feature of the EIA forecast observable in Figure 3 is that there is no assumed peak in
oil demand (liquids production) forecast out to 2035. The “peak oil” hypothesis has been
argued extensively over the past decade, and in our view, most of the evidence points to the
ability of the petroleum industry to continue to grow output. ExxonMobil, with a conservative
reputation in assessing energy resources, believes global oil production will slightly exceed
100mmb/d by the year 2030.
Energy markets, and specifically crude oil, are the deepest and most liquid of all the five
broad commodity sectors, Figure 4. The Nymex WTI crude oil futures contract is the most
actively traded commodity future anywhere in the world, with annual turnover in 2010 of
nearly 170 million lots. Recently, however, the growth in trading of the NYMEX WTI futures
has been slower than its nearest rival, the ICE Brent futures contract. Brent crude futures are
increasingly seen as being more representative of global conditions due to the regional
storage and transportation issues that have resulted in lower prices for WTI futures in 2011.
One of the fastest growing energy trading vehicles over the past few years has been the ICE
gas oil contract. Turnover in gas oil futures has surpassed both NYMEX RBOB and NYMEX
heating oil.
Figure 3: Global energy use by fuel (1990-2035)
Figure 4: Energy futures turnover
mmb/d oil equivalent
120
100
80
60
40
20
0
1990
1995
Oil & Liquids
2000
2005
Natural Gas
Source: US DOE/EIA, Deutsche Bank
Page 6
2010
2015
Coal
2020
2025
Nuclear
2030
2035
Contract
Exchange
2009
2010
WTI Crude Oil
NYMEX
137.4
168.7
% change
23%
Brent Crude Oil
ICE
74.1
100.0
35%
US Natural Gas
NYMEX
48.0
64.3
34%
WTI Crude Oil
ICE
46.4
52.6
13%
Gas Oil
ICE
36.0
52.3
45%
RBOB Gasoline
NYMEX
21.2
27.9
32%
Heating Oil No. 2
NYMEX
21.4
27.0
26%
Fuel Oil
Shanghai Futures Exchange
45.8
10.7
-77%
Gasoline
Tokyo Commodity Exchange
2.7
2.5
-8%
Kerosene
Tokyo Commodity Exchange
1.0
1.2
17%
Crude Oil
Tokyo Commodity Exchange
0.6
0.9
51%
Renewables
Source: NYMEX, ICE, TOCOM, SFE (turnover in million lots)
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Crude Oil
History & properties
Petroleum, or crude oil, is a complex mixture of various hydrocarbons found in the upper
layers of the Earth’s crust. The word petroleum derives from the Greek petra meaning rock
and elaion meaning oil. In ancient Mesopotamia around 4000BC, viscous crude oil was used
to make ships watertight. It was also useful as an adhesive. Crude oil was used in the
construction of the pyramids, embalming by the Egyptians and as body paint by Native
Americans. Oil was believed to have medicinal benefits in ancient Persia and Sumatra. The
first oil wells were drilled in 4th Century China using bits attached to bamboo poles. However,
the commercial drilling of oil began in Titusville, Pennsylvania by Edwin Drake in 1859. Drake
and his contemporaries referred to their find as “rock oil” to distinguish it from “whale oil”
that was commonly in use as fuel for lamps.
Although petroleum is used as a generic term, the characteristics of oil vary considerably
from field to field. There are hundreds of different grades of crude oil around the world. Two
of the most important measures of quality are sulphur content and gravity. The most valuable
crudes are those with low sulphur content and a high specific gravity. Specific gravity
measures the weight of the oil relative to water. The higher the API gravity (measured in
degrees, º), the lighter the compound. Figure 2 identifies the main benchmark crude oils
according to specific gravity and sulphur content. On this basis West Texas Intermediate
(WTI) and Brent crude oil are considered high quality crudes. The heavier, sour crudes from
the United Arab Emirates and Mexico are of a poorer quality and consequently trade at a
discount to lighter grades.
Sweet crudes are defined as those with 0.5% sulphur content or less while sour crudes have
a sulphur content of 1.5% or more. The area between 0.5-1.5% is sometimes referred to as
intermediate sweet or intermediate sour. The reference to sweet and sour relates to the early
days of crude oil production as one of the easiest ways to judge the sulphur content of crude
oil and products was by taste and smell.
Major producers
Russia is the world’s largest producer as well as exporter of crude oil. Saudi Arabia is in
second place in both categories. Although the US is the world’s third-largest oil producing
nation, it is also the world’s largest importer of oil, representing over 20% of cross-border
trade in oil. Amongst the world’s top ten producers, five are members of the Organization of
Petroleum Exporting Countries (OPEC). OPEC's share of global output declined from about
50% in the early 1970s to 32% in mid-80s, and has averaged approximately 40% over the
last five years. This share is expected to rise going forward since the 12 OPEC member
countries hold about 77% of the world’s proved crude oil reserves.
Figure 1: The world’s top 10 oil producers, consumers, exporters and importers in 2010
% of
% of
% of
% of
Producers
mmb/d
world
Consumers
mmb/d
world
Exporters
mmb/d
world
Importers
mmb/d
world
Russia
10.45
12.0%
US
19.53
22.2%
FSU
9.27
17.2%
US
11.72
21.7%
Saudi Arabia
9.76
11.2%
China
9.38
10.7%
Saudi Arabia
7.10
13.2%
China
5.27
9.8%
US
7.80
8.9%
Japan
4.42
5.0%
Iran
2.45
4.5%
Japan
4.40
8.2%
Iran
4.26
4.9%
India
3.34
3.8%
UAE
2.25
4.2%
India
2.47
4.6%
China
4.10
4.7%
Brazil
2.72
3.1%
Nigeria
2.15
4.0%
Germany
2.41
4.5%
Canada
3.37
3.9%
Saudi Arabia
2.66
3.0%
Norway
1.95
3.6%
Korea
2.23
4.1%
Mexico
2.95
3.4%
Germany
2.49
2.8%
Kuwait
1.87
3.5%
France
1.78
3.3%
UAE
2.87
3.3%
Korea
2.25
2.6%
Venezuela
1.73
3.2%
Spain
1.44
2.7%
Venezuela
2.44
2.8%
Canada
2.23
2.5%
Iraq
1.65
3.1%
Italy
1.40
2.6%
Nigeria
2.44
2.8%
Mexico
2.14
2.4%
Qatar
1.56
2.9%
Taiwan
1.12
2.1%
World
87.32
World
84.08
World
53.93
World
53.93
Source: International Energy Agency, Deutsche Bank Estimate
Deutsche Bank AG/London
Page 7
May 2011
A User Guide to Commodities
Figure 2: Crude oil price since 1970
Figure 3: Different crude oil grades compared
4
140
Cheap
SOUR
Maya (Mexico)
100
SULPHUR CONTENT (%)
80
60
40
20
SWEET
Real Brent Price ($2010)
120
0
Jan-70
Jan-75
Jan-80
Brent (nominal)
Jan-85
Jan-90
Jan-95
Jan-00
Brent (PPI)
Jan-05
Jan-10
3
Arab Heavy (Saudi)
BCF-17 (Venezuela)
Kuwait (Kuwait)
Bow River (Canada)
2
Basrah (Iraq)
Saudi Lt (Saudi)
Expensive
Urals (Russia)
1
ANS (US)
Oman (Oman)
Brent (UK)
Bonny Lt (Nigeria)
Daqing (China)
0
15
Brent (CPI)
20
25
HEAVY
Source: Bloomberg Finance LP, US DOE/EIA, BLS, Deutsche Bank (monthly data as of April 2011)
Dubai (UAE)
Mars (US)
30
°API GRAVITY
35
WTI (US)
Tapis (Malaysia)
40
45
50
LIGHT
Source: EIA
Major consumers
The United States remains the largest consumer of oil, accounting for 22% of world
consumption in 2009. In 2005, China overtook Japan to become the world’s second largest
oil consumer. Since 1995 India has moved from being the 13th largest oil consuming nation to
the world’s 4th. Brazil has also moved up the league table of oil consuming nations from 12th
to 8th place over the same period. In terms of oil demand growth over the past ten years,
China has posted the largest incremental increase of any single country.
In addition to rising GDP, the role of oil subsidies at the consumer level remains an important
factor in driving oil demand in the Asia Pacific and Middle East regions. Policies aimed at
dismantling fuel subsidies are being adopted in a number of Asian nations, but this has not
been as prevalent in other regions such as the Middle East or OPEC countries or in Africa and
South America.
Figure 4: Oil demand growth in key consuming nations
Region
Avg. annual growth
Avg. annual growth
Total demand 2010
1999-2009 kb/d
1999-2009 (%)
mmb/d
Asia Pacific
548
2.4
Middle East
246
4.3
27.5
7.2
North America
-46
-0.2
23.4
S. & C. America
75
1.4
6.0
Europe & Eurasia
-39
-0.2
20.2
Africa
59
2.2
3.2
World
843
1.1
88.1
China
415
6.8
9.6
USA
-83
-0.4
19.3
Source: BP Statistical Review, IEA, Deutsche Bank
Page 8
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 5: Crude oil reserves by country
Estimated world oil reserves 1333 billion barrel at end of 2009
1%
2%
10%
1%
20%
2%
2%
3%
3%
3%
13%
6%
7%
10%
8%
Source: BP Statistical Review
9%
Figure 6: Global oil demand by region
4.0
Saudi Arabia
Venezuela
Iran
Iraq
Kuwait
UAE
Russia
Libya
Kazakhstan
Nigeria
Canada
US
Qatar
China
Angola
Others
mmb/d
World
3.0
2.0
China
1.0
MiddleEast
Other
NonOECD
OECD
Rest of
World
0.0
-1.0
-2.0
2008
2009
2010
2011E
2012E
-3.0
Source: IEA, Deutsche Bank
Reserve holders
The largest oil reserves exist in Saudi Arabia, Venezuela, Iran, Iraq, Kuwait, the UAE, and
Russia, Figure 5. Amongst these, all are OPEC members except Russia.
Major uses
Fuel products constitute the vast majority of demand for petroleum. Gasoline is used to
power automobiles, light trucks, boats, recreational vehicles and farm equipment. Kerosene
is used for commercial aircraft, while distillate fuel oils such as diesel and heating oil are used
to power buses, trucks, trains and machinery, heat buildings and fire industrial boilers.
Liquefied petroleum gases (LPGs) such as ethane, propane, and butane are used for
petrochemical feedstocks, domestic heating and cooking, farming and as a gasoline
alternative. Petroleum is also used to create solvents, lubricating oils, waxes, asphalt,
fertilizers, pesticides, synthetic rubber and plastics.
Exchange traded
Crude oil futures and options are traded primarily on the New York Mercantile Exchange
(Nymex) and the Intercontinental Exchange (ICE). In the US, the West Texas Intermediate
(WTI) crude oil is the benchmark. Brent crude is now generally accepted to be the world
benchmark as it is used to price a significant proportion of the world’s internationally traded
crude oil supplies.
Price conventions & codes
Crude oil is priced in US dollars per barrel. The Bloomberg tickers for the WTI and Brent
crude oil generic one month futures contracts are CL1 <Comdty> and CO1 <Comdty>
respectively.
The Bloomberg ticker for the DB Crude Oil total returns and excess returns indices are
DBRCLTR <Index> and DBRCL <Index> respectively. The Bloomberg ticker for the DB Crude
Oil-Optimum Yield total returns and excess returns indices are DBLCOCLT <Index> and
DBLCOCLE <Index> respectively.
Deutsche Bank AG/London
Page 9
May 2011
A User Guide to Commodities
Brent v. WTI
History
For many years, the US was the marginal demand market (with gasoline dominant). WTI
would thus set the marginal oil price and Brent would be priced to compete - with a discount
to reflect quality, Figure 2, and transportation from the North Sea to the US. Currently,
however, Asia is the marginal demand market (with middle distillates dominant). Brent is now
the marginal barrel and WTI has to be discounted to compete.
Current Developments
Cushing, Oklahoma (the oil trading hub that is the delivery point for the Nymex WTI contract,
seems to be one of the few places left in the world outside of China where crude oil
inventories are building, Figure 3. During 2010, WTI crude oil prices traded at about a
60USc/bbl discount to equivalent month Brent prices. During 2011 so far, the differential has
plummeted to a discount averaging more than USD10/bbl. With the US no longer acting as
the marginal buyer of Brent crude, the steep WTI discount could continue for some time,
perhaps awaiting the completion of the Keystone pipeline extension from Cushing to the US
Gulf Coast in 2013-14.
Figure 1: WTI – Brent spread
5
U SD/bbl
0
-5
-10
-15
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Source: Bloomberg Finance LP, Deutsche Bank
Physical flows of Brent blend (Brent, Forties, Oseberg, Ekofisk (BFOE) are on a long-term
downtrend due to field depletion issues that are unlikely to reverse. Brent and equivalents are
in demand to replace Libyan crude oil and for the SPR in China. Thus we do not expect WTI’s
discount to disappear quickly.
Figure 2: A barrel of US and European crude oil: the
petroleum products spectrum
100%
L ig h t
45
P ro p a n e /L P G s
Yields in % volume on crude intake
G a s o lin e /N a p h th a
million barrels
40
K e ro s e n e /J e t F u e l
80%
Figure 3: Crude oil inventories at the Cushing, OK
delivery point for the NYMEX crude oil contract
D ie s e l/H e a tin g O il
35
R e s id u a l F u e l O il
O th e r O ils
60%
30
25
40%
20
20%
15
H eavy
0%
10
U S (W T I)
Source: NYMEX, ICE
Page 10
E u ro p e (B re n t)
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: US DOE/EIA, Deutsche Bank
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Oil Products
History & properties
The commercial drilling of crude oil by Edwin Drake in 1859 was first seen as an opportunity
for kerosene, refined from rock oil, to compete with whale oil in the illumination market.
Technical progress in petroleum refining, from simple distillation (boiling the crude oil in a
vacuum), to more sophisticated extraction of gasoline and other light products via thermal
and catalytic cracking and reforming, led to rapid demand growth for crude oil. For more
details see the Refining section that follows this article.
The different types of oil products contained in a barrel of crude oil each have their own
boiling temperature. Oil products are lumped into groups, called fractions, which are
determined according to that product’s boiling point, Figure 1.
Figure 1: Refined products by type
Boiling Point (ºF)
Fraction
Less than 90ºF
Liquefied Petroleum Gases: Butanes, Propanes & Lighter
90-220ºF
Gasoline
220-315ºF
Naphtha
315-450ºF
Kerosene, Jet Fuel
450-800ºF
Diesel, Gas, Fuel & Heating Oils
800ºF and higher
Residue
Source: Petroleum Refining, William Leffler, DB Global Markets Research
Since there are many different crude oil grades, refineries can be optimised to produce
“cuts” or fractions that are best suited to the characteristics of the crude oil being run and
the type of products that are most in demand in local markets. Figure 2 shows the current
sectoral demand for oil products while Figure 3 illustrates the growth pattern expected by the
US DOE/EIA. The dominant market, transportation, is forecast to have the fastest growth,
rising from 48mmb/d in 2010 to over 67mmb/d by 2035. Since transportation fuels (mainly
gasoline and diesel fuel) are light products, most new refineries are being built to be capable
of upgrading heavy crude oil into these light and low sulphur products.
Figure 2: Global oil use by sector in 2011E
Figure 3: Global oil use by sector 2010-2035E
120
mmb/d
100
6%
80
55%
8%
Transportation
Industrial
Res / Commercial
60
40
Electric Power
20
31%
0
2010
Transportation
Source: US DOE/EIA, Deutsche Bank
Deutsche Bank AG/London
2015
Industrial
2020
2025
Residential/ Commercial
2030
2035
Electric Power
Source: US DOE/EIA, Deutsche Bank
Page 11
May 2011
A User Guide to Commodities
The stream of oil products
Page 12
„
Petroleum gases are the lightest hydrocarbon chains, commonly known by the names
methane, ethane, propane and butane. They are often liquefied under modest pressure
to create liquefied petroleum gas (LPG) which is transported by pipeline, filled tanks or
large bottles. LPGs are easily vaporised and used for heating and cooking. These gasses
are often extracted from natural gas streams, and so the name “natural gas liquids”
(NGLs) is also used to describe the gasses. In addition to uses for fuel, NGLs can be
processed into plastics.
„
Naphtha is a light, easily vaporised, clear liquid used for further processing into
petrochemicals, most notably in Western Europe and Asia, as well as being used in dry
cleaning fluids, paints and other quick-drying products. It is also an intermediate product
that can be further processed to make gasoline.
„
Gasoline is a motor fuel that vaporises at temperatures below the boiling point of water.
It evaporates quickly. Gasoline is rated by octane number, an index of quality that reflects
the ability of the fuel to resist detonation and burn evenly when subjected to high
pressures and temperatures inside an engine. Premature detonation produces
“knocking”, wastes fuel and may cause engine damage. Previously a form of lead was
added to cheaper grades of gasoline to raise the octane rating, but, with the
environmental crackdown on exhaust emissions, this is no longer permitted in most
countries. New formulations of gasoline designed to raise the octane number contain
increasing amounts of aromatics and oxygen-containing compounds, or oxygenates.
Cars are now also equipped with catalytic converters that oxidise un-reacted gasoline.
„
Kerosene is a liquid fuel used for jet engines or as a starting material for making other
products.
„
Gasoil or diesel distillate is a liquid used for automotive diesel fuel and home heating oil,
as well as a starting material for making other products.
„
Lubricating oil is a liquid used to make motor oil, grease and other lubricants. It does
not vaporise at room temperature and varies from the very light through various
thicknesses of motor oil, gear oils, semi-solid greases, and petroleum jellies.
„
Heavy gasoil or fuel oil is a liquid fuel used in industry for heat or power generation and
as feedstock for making other products. Heavy grades of fuel oil are also used as ‘bunker
oil’ to fuel ships. Most of the contaminants of oil (sulphur, metals, etc.) tend to
concentrate in the heavy end of the barrel. Taken together with a heavy fuel oil’s low
hydrogen to carbon ratio, this makes it the most potentially polluting fraction of the oil
barrel.
„
Residual fuel (or resid) is a very viscous industrial fuel.
„
Coke, asphalt, tar and waxes are generally the lowest value products in the barrel, but,
can also be used as starting materials for making other products.
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Refined Products By Use
Not surprisingly, different parts of the crude oil barrel have different uses. The US tends to
favour crudes with a high gasoline cut and favours complex refineries that can produce clean,
light products. Also, the US emphasises liquefied petroleum gas (LPG).
Propane is a liquid under low pressure, is easy to burn and is typically used in locations
where natural gas is not available. It is also used as a chemical feedstock for making ethylene
and propylene. Butane is used predominantly as a motor gasoline blending component as it
is good for starting cold engines. Normal butane is also used as a chemical feedstock.
Terminology for oil products can vary around the world. For example, heating oil in the US is
referred to as “gas oil” in Europe. Jet fuel in the US and Europe is referred to as kerosene in
Asia. The term gasoline is used globally in spark-ignited combustion engines although
“petrol” is a more common term for gasoline in the UK. In the US, gasoline is often referred
to as “gas” but should not be confused with natural gas. The term distillate normally refers to
middle distillate fuels which incorporate the middle cuts of the refined barrel: jet fuel, diesel,
gas oil, fuel oil and heating oil.
Trading activity
Among the most active trading platforms for oil products are ICE in London, NYMEX in New
York, Tokyo Commodity Exchange (TOCOM), and the Shanghai Futures Exchange (SFE).
Figure 4: Refined product futures turnover by contract
60
Annual Turnover (Futures only, million lots 2010)
50
40
30
20
10
0
Gas Oil
(ICE)
RBOB
Gasoline
(NYMEX)
Heating Oil
No. 2
(NYMEX)
Fuel Oil
(SFE)
Gasoline
(TOCOM)
Kerosene
(TOCOM)
Crude Oil
(TOCOM)
Source: TOCOM, Nymex, ICE, SFE
Prices
The Bloomberg tickers for the one month generic heating oil and gasoline futures contract
are HO1 <Comdty> and XB1 <Comdty> respectively.
The Bloomberg codes for the DB Heating Oil total returns and excess returns indices are
DBRHOTR <Index> and DBRHO <Index> respectively. The Bloomberg codes for the DB
Heating Oil-Optimum Yield total returns and excess returns indices are DBLCOHOT <Index>
and DBLCOHOE <Index> respectively.
Deutsche Bank AG/London
Page 13
May 2011
A User Guide to Commodities
Refining
Description
Refining is the process of converting crude oil into usable products. Crude oil is a mixture of
hundreds of different types of hydrocarbons with carbon chains of different lengths. These
can be separated through refining. “Cracking” reduces the length of long chains.
“Reforming” produces longer chains from the short lengths. The shortest chain
hydrocarbons are gases (under five carbon atoms); chains containing five to 18 carbon atoms
are liquids; and chains of 19 or more carbon atoms generally form solids at room
temperature.
Oil refining produces a wide variety of products that are prevalent in many every day uses:
gasoline for motor vehicles; kerosene; jet fuel; diesel and heating oil to name just a few.
Petroleum products are also used in the manufacture of rubber, nylon and plastics.
A typical product yield or a refinery product slate (the proportion of refined products obtained
by refining one barrel of crude) obtained from a complex refinery in Western Europe is shown
in Figure 1. This yield reflects both the refineries configuration and the type of crude oil that is
processed.
Figure 1: Typical Western European product yield
Product
Western Europe (%)
Petroleum Gas
3
Naphtha
6
Gasoline
22
Kerosene
6
Gasoil/ Diesel (aka middle distillates)
34
Fuel Oil
20
Others (residuals, lubricants)
9
Source: Deutsche Bank
The initial product yield can be improved by further processing the oil products using more
sophisticated refining units to crack, unify and/or alter the hydrocarbons.
Refinery yields also tend to vary slightly over the year as refiners respond to both the regular
seasonal swings in product demand (more heating oil in the winter, more gasoline in the
summer) and irregular movements in product prices (the best and most flexible refineries can
quickly alter their output to produce the highest priced mix).
How a refinery works
The function of a refiner is to convert crude oil into finished products required by the market
in the most efficient, and therefore profitable, manner. How this is done varies widely from
refinery to refinery, depending upon the location of the site, the configuration of the refinery,
crude oil processed and many other factors.
In general, there are four major refining steps taken to separate crude oil into useful
substances:
Page 14
„
Physical separation through crude distillation
„
Conversion or upgrading of the basic distillation streams
„
Product treatment to purify and remove contaminants and pollutants
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
„
Product blending to create products that comply with market specifications
Figure 2: The oil refinery crude distillation process – fractionation through blending
200C
Gases
700C
Light
Distillates
Reforming
Gases (C1 to C4)
Naphtha (C5 to C9)
Hydrotreating
Gasoline (C5 to C10)
1200C
Alkylation
1700C
Kerosene (C10 to C16)
Middle
Distillates
Diesel (C14 to C20)
Cracking
2700C
Heavy
Distillates
Lubricating oil (C20 to C50)
Coking
Fuel Oil (C20 to C70)
6000C
Residue (> C70)
Distillation
Conversion
Treatment
Blending
Final Products
Source: Deutsche Bank
Crude distillation, also known as ‘Topping’ or ‘Skimming’
Distillation or fractionation is a process by which crude oil is separated into groups of
hydrocarbon compounds of differing boiling point ranges called “fractions” or “cuts”. It uses
the property of differing boiling points of different sizes of carbon chains in the crude oil,
such that the longer the chain, the higher the boiling point. Two types of distillation can be
performed:
„
Atmospheric distillation: This takes place at atmospheric pressure, when the crude is
heated to 350-4000C. The liquid falls to the bottom and the vapour rises, passing through
a series of perforated trays (sieves). The lighter products, liquid petroleum gases (LPG),
naphtha, and so-called "straight run" gasoline, are recovered at the lowest temperatures.
Middle distillates such as jet fuel, kerosene, home heating oil and diesel fuel) come next.
Finally, the heaviest products, such as, residuum or residual fuel oil (resid) are recovered.
„
Vacuum distillation: To recover additional heavy distillates from this residue, it may be
piped to a second distillation column where the process is repeated in vacuum
conditions. Vacuum distillation allows heavy hydrocarbons with boiling points of 450°C
and higher to be separated without the feedstock partially cracking (breaking down) into
unwanted products such as coke and gas.
Conversion (or upgrading)
Unlike distillation, which maintains the chemical structure of the hydrocarbons, conversion
alters their size and/or structure. Using several processes to improve the natural yield of
products achieved through simple distillation, upgrading enables refiners to more closely
match their output with the requirements of the market. For example, the typical output from
a light crude oil might include around 25% gasoline but 40% resid, after further processing in
a sophisticated refinery the product slate can be altered to something nearer 60% gasoline,
and 5% resid, far more in line with the demand from end markets.
Deutsche Bank AG/London
Page 15
May 2011
A User Guide to Commodities
The following are the major types of conversion processes:
„
Cracking: Cracking processes break down heavier hydrocarbon molecules (high boiling
point oils) into lighter products such as petrol and diesel, using heat (thermal) or catalysts
(catalytic).
Thermal cracking involves heating the hydrocarbons, sometimes under high pressure,
resulting in decomposition of heavier hydrocarbons. Thermal cracking may use steam
cracking, coking (severe form of cracking - uses the heaviest output of distillation to
produce lighter products and petroleum coke), visbreaking (mild form of cracking quenched with cool gasoil to prevent over-cracking, used for reducing viscosity without
affecting the boiling point range).
Catalytic cracking describes the chemical breakdown of the feedstock under controlled
heat (450-500°C) and pressure in the presence of a catalyst, a substance which
promotes the reaction without itself being chemically changed, such as silica. Fluid
catalytic cracking uses a catalyst in the form of a very fine powder, which is maintained
in an aerated or fluidized state by oil vapours. Feedstock entering the process
immediately meets a stream of very hot catalyst and vaporizes. Hydrocracking uses
hydrogen as a catalyst.
„
Unification/Alteration: These processes combine lighter hydrocarbons to create
heavier hydrocarbons of the desired characteristics. Alkylation is one such process and
uses a catalyst such as sulphuric acid to convert lighter hydrocarbons into alkylates, a
mixture of high-octane hydrocarbons used to blend with gasoline. Processes such as
isomerization and catalytic reforming for “re-arranging” the chemical structure of
hydrocarbons also fall into this category. Catalytic reforming uses a catalyst to produce
higher-octane components under controlled temperatures and pressure. The process
also produces hydrogen, a valuable by-product.
Treatment
A number of contaminants are found in crude oil. As the fractions travel through the refinery
processing units, these impurities can damage the equipment, the catalysts and the quality of
the products. There are also regulatory limits on the contents of some impurities, such as
sulphur, in products. Treatment includes processes such as dissolution, absorption, or
precipitation to remove/separate these undesirable substances. Desalting (dehydration) is
used to remove impurities such as inorganic salts from crude oil. Catalytic hydro-treating is a
hydrogenation process used to remove about 90% of contaminants such as nitrogen,
sulphur, oxygen, and metals from liquid petroleum fractions.
Formulating and Blending
Blending involves the mixing and combining of hydrocarbon fractions, additives, and other
components to produce finished products with specific performance properties. Additives
including octane enhancers, metal deactivators, anti-oxidants, anti-knock agents, gum and
rust inhibitors, detergents, etc., are added during and/or after blending to provide specific
properties not inherent in hydrocarbons.
Page 16
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Coal-To-Liquids & Gas-To-Liquids
History & properties
Gas-to-liquids (GTL) and coal-to-liquids (CTL) refer to the technologies that convert natural gas
or coal into synthetic petroleum products in the form of clean-burning liquid fuels. There are
two leading technologies for converting coal into liquid fuels. The first one is direct
liquefaction: a highly efficient process in which coal is dissolved in a solvent at high
temperature and pressure. The liquid produced is further refined to achieve high grade fuel
characteristics. Indirect liquefaction is the second method. Coal is gasified to form a mixture
of hydrogen and carbon monoxide (syngas) which are condensed using a catalyst. Ultraclean, high quality products can then be produced by the Fischer-Tropsch process.
The history of Fischer-Tropsch process dates back to two German scientists Franz Fischer
and Hans Tropsch, who were searching for an alternative source of liquid fuels in petroleumpoor, but, coal-rich Germany in the 1920s. They discovered that in the presence of either an
iron or cobalt catalyst at high pressures and temperatures, they could produce liquid, long
chain, carbon molecules (synthetic petroleum) by combining carbon monoxide with
hydrogen. The synthetic petroleum could be used as fuel which contained no sulphur or
other impurities and so it enhanced engine performance. It became an important source of
energy supply for countries in need of transport fuels but have problems securing reliable
crude oil supply.
Major GTL producers
Despite the fact that the Fischer-Tropsch process has been used for nearly a century,
commercial GTL plants are still rare. Today, there are only a handful of plants operating
commercially: Petro SA (producing 22.5kb/d in South Africa), Shell (producing 14.7kb/d in
Malaysia), Sasol and Qatar Petroleum (producing 34kb/d in Qatar) and the newest project is
Shell's 140kbd Pearl GTL, which is expected to reach full production in 2012. Limiting factors
in development have been high capital costs, poor energy efficiency of the chemical process
and problems associated with the technology.
Major CTL producers
South Africa and China have the only commercial coal-to-liquids facility in operation today.
South Africa has been producing coal-derived fuels since 1955 and currently about 30% of
the gasoline and diesel in the country is produced from domestic coal. We estimate that
160kb/d of total capacity exists in South African CTL operations. China's Shenhua Group
started the country's first CTL project in 2010 in Inner Mongolia with an initial capacity 1 mln
tonnes/year. The company has said it aims to increase capacity to 11 mln tonnes/year by
2010 and is planning for additional CTL projects. Countries with large domestic reserves of
coal but limited resources of oil and gas such as the US, China and India are potential
candidates for using CTL in our view. There are a number of CTL projects which are at
various stages of development in the world.
Figure 1: The GTL process
Air
Remove impurities and
longer chain gases
Natural Gas
Gas
Gas
Air
Separation
Processing
+
Pre-Treat
-
H2S, CO2, H2O, other
C5+, LPG & (Ethane)
Hydrogen
CH 4
O2
Syngas
CO
Generation
H
2
Fischer
Tropsch
(cobalt
catalyst)
Mix syngas with liquid wax
slurry such that it diffuses
into it and creates more wax
Product
Upgrade
LPG
Naphtha
Kero/Diesel
(plus specialties)
Use of hydro-cracking to
crack wax and create
desired chain length
No sulphur, no aromatics,
high performance fuels
Source: Deutsche Bank
Deutsche Bank AG/London
Page 17
May 2011
A User Guide to Commodities
Oil Sands
History & properties
Oil sands is a generic term used to describe a heavy, viscous form of crude oil that is found
mixed with sand, clay and water. Deposits are known to exist in many parts of the world, but
the largest proved oil sands resources are in Alberta, Canada, and in the Orinoco area of
Venezuela. Some of the earliest records of commercial oil sands activity are associated with
the Pechelbronn oil-field in France where oil sands mining began as early as 1735.
In Canada, the first large-scale production of oil from the Athabasca oil sands was launched
by Suncor in 1967, followed by Syncrude in 1972. During the mid-1980s, oil prices declined
to very low levels, resulting in considerable retrenchment in the oil industry in general and oil
sands specifically. With the general upward trend in oil prices this past decade, numerous oil
sands projects are under development. The bitumen contained in oil sands in Canada is
extracted and processed using two main methods:
Mining: According to the Canadian Association of Petroleum Producers (CAPP), about 20%
of the oil sands in Alberta (or 35 billion barrels of recoverable reserves) is less than 50 meters
deep and can be surface -mined using large trucks and shovels. After processing in
separators and upgrading in special-purpose refineries, a synthetic crude oil results that can
then be sent on to standard refineries for conversion into petroleum products.
In-situ: This method of extraction relies on the injection of steam (or more recently,
chemicals) to extract the petroleum without the need for mining. According to CAPP,
approximately 80% of the oils sands resources in Alberta are more than 50 meters deep
(recoverable reserves of 140 billion barrels). The two most common forms of in-situ recovery
are Steam Assisted Gravity Drainage (SAGD) and the Cyclic Steam (CS) process. After
extraction, the bitumen is upgraded in the same way that mining bitumen is processed.
According to our colleagues at Wood Mackenzie, as the sector has developed, and more ionsitu projects have been completed, the proportion of bitumen produced by mining has fallen
to around 55%. By 2020, Wood Mackenzie forecasts the ratio to be equal and that total
bitumen production will approach some four million barrels per day.
Upgrading
There are currently five operational upgraders in Alberta, two of which commenced
commercial operation in 2009 - Horizon and Long Lake. Wood Mackenzie estimates that
approximately 60% of the region's bitumen production was upgraded into synthetic crude oil
(SCO) during 2010, with all of the bitumen produced by mining upgraded. Infrastructure
remains key in Alberta and additional export pipeline capacity is anticipated to accommodate
a projected increase in production. TransCanada Pipelines has pro0pose the Keysotne XL
extension that would move about 1mmb/d of crude oil from Alberta to Texas, and Enbridge
Inc. has proposed the Gateway Pipeline to deliver bitumen to Kitimat in British Columbia for
export to Asia.
Major producers
By company, Canada's oil sands sector is dominated by just a few key companies. Canadian
firms Suncor Energy, CNRL and Imperial Oil (70% owned by ExxonMobil) are the four key
leading oil sands producers and reserve holders at the present time. Except for notable
absentees, Eni and Petrobras, the supermajors are also very active. According to Wood
Mackenzie, National Oil Companies (NOCs) have also been increasingly active participants in
the sector. Recent deals of significance include ConocoPhillips' sale of its 9% stake in
Syncrude to Sinopec and Athabasca Oil Sands Corp.'s (AOSC) agreement with PetroChina, in
which PetroChina acquired a 60% interest in two of AOSC's proposed oil sands projects:
MacKay River and Dover.
Page 18
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 1: Canadian oil sands resource breakdown by
development status
Total = 170 bn bbls
Figure 2: Canadian oil sands production outlook
4500
36%
thousand b/d
4000
Sub-commercial named
(in-situ)
10%
Undesignated
3500
3000
2500
Commercial (mining)
2000
25%
Sub-commercial named
(mining)
1500
Commercial
1000
14%
(in-situ)
500
15%
0
2000
2005
2010
2015
2020
Source: Wood Mackenzie, Deutsche Bank
Source: Wood Mackenzie, Deutsche Bank
Figure 3: Diagrammatic representation of Cyclic
Figure 4: Diagrammatic representation of Steam Assisted
Steam Simulation (CSS)
Gravity Drainage (SAGD)
Source: Courtesy of Shell
Source: Courtesy of Shell
Major uses
The bitumen extracted from the oil sands is very heavy and viscous. Once extracted, lighter
hydrocarbons can be added to the bitumen by the oil sands producer in order to be further
processed or upgraded into a form of synthetic crude oil (SCO) that is less viscous. After that,
it can be sold to a traditional oil refinery, though some bitumen is also sold in raw form for
the production of heavy products like tar and asphalt.
Deutsche Bank AG/London
Page 19
May 2011
A User Guide to Commodities
Oil Transportation
History & properties
Energy resources such as oil and natural gas are often found in distant locations far away
from where they are consumed. Tankers and pipelines are the main transportation methods
used to move these products to major population and manufacturing centres. According to
the US EIA/DOE, in 2009 about one-half of the world’s oil production of 84mmb/d was
moved by tankers on fixed maritime routes. The remainder goes predominantly by pipeline,
but sometimes by rail, and then via trucks for retail product delivery.
Oil pipelines
Pipelines are the only feasible way to transport large volumes of oil by land over long
distances. Oil pipelines are tubes typically made from high-strength steel with inner
diameters usually ranging from 4 to 48 inches. Most pipelines are buried to a depth of at
least 3 to 6 feet and are powered by pump stations that keep the oil in motion at a speed of
flow of about 1 to 6 metres per second.
Oil pipelines date back to the 1860s when a six-mile long, two-inch diameter wrought iron
pipeline was built to connect an oil field to a rail road station in Oil Creek, Pennsylvania.
Currently, the Druzhba pipeline and the Baku-Tbilisi-Ceyhan pipeline (BTC pipeline) are two of
the longest oil pipelines in the world. The Druzhba pipeline is the longest oil pipeline and it
transports oil from southeast Russia to terminals in Ukraine, Hungary, Poland and Germany. It
is therefore the principal channel for the transportation of Russian oil across Europe. The BTC
pipeline is the world’s second largest oil pipeline, carrying oil from fields in the Caspian Sea
to the Mediterranean, connecting Baku (the capital of Azerbaijan); Tbilisi (the capital of
Georgia); and Ceyhan (a port on the south-eastern Mediterranean coast of Turkey).
Figure 1: Baku-Tbilisi crude pipeline map
Figure 2: Gathering / distribution pipelines
Source: BP
Source: Shell
Oil Tankers
Crude tankers are designed to carry unrefined crude oil from the extraction points to
refineries while product tankers (often referred to as “clean” tankers) transport refined
products to consuming markets that do not have sufficient refining capacity.
The first commercially recorded oil tanker was Nobel’s Zoroaster, designed in Sweden and
first run from Baku to Astrahan in 1878. Today, the Jahre Viking, which was built in 1979 at
Oppama Shipyard in Japan, is the world’s largest oil tanker. It has a length of 1504 feet,
making it the largest ship ever constructed.
Page 20
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Natural gas
In 2009, according to the BP Statistical Review, 633.8 billion cubic metres of natural gas
flowed in international trade via pipeline and an additional 242.8 billion cubic meters moved
by LNG tanker. For more details see the following section on LNG.
Disruption risks
According to EIA estimates, global seaborne oil trade was approximately 42 million barrels
per day in 2009. Of that 16 million barrels per day, or about 40% of all the seaborne traded oil
in the world, moves through the Strait of Hormuz. An average of 13 to 18 tankers transit the
Straits of Hormuz every day. The Strait of Malacca, close to Singapore, is the second most
important oil trading channel with around 14 mmb/d of oil using this trading route. The next
five are Babel Mandab in the Gulf of Aden (3-4 mmb/d), the Turkish Straits (3 mmb/d), the
Danish Straits (3 mmb/d), the Suez Canal (2 mmb/d), and the Panama Canal (1 mmb/d).
Recent events in Egypt highlight the vulnerability of transit points, with markets showing
volatility about the potential for labor and social strife to hinder transit through the Suez Canal
in along the Sumed pipeline system.
Figure 3: Strait of Hormuz
Source: DOE/EIA
Deutsche Bank AG/London
Page 21
May 2011
A User Guide to Commodities
Global Natural Gas
History & properties
Natural gas is a colourless, odourless, highly flammable gaseous hydrocarbon which gives off
a great deal of energy when burned. Although it consists primarily of methane, it can also
contain ethane, propane, butane and pentane. These co-products, once removed from the
gas stream, are called natural gas liquids (NGLs). Natural gas is relatively clean burning,
emitting relatively low levels of harmful combustion by-products. Although there is some
evidence for the abiogenic existence of methane in the earth’s mantle, most geologists
favour the view that gas, like coal and oil, was formed via the compression and
decomposition of organic material over long periods of time. It is typically found in the same
geologic formations below the earth’s surface that trap oil, that is, in permeable mineral
layers that are capped by non-porous sedimentary rock.
Natural gas seeps were first discovered in Iran between 6000BC and 2000BC. These naturally
occurring surface leaks could sometimes be ignited by lightning strikes. A similar ‘burning
spring’ was found in Greece around 1000BC and became the site of the Temple of Oracle in
Delphi. Around 500BC, the Chinese used natural gas to boil sea water to produce fresh
water. The first gas well in the US was drilled in 1825, and connected by pipeline to users in
Fredonia, New York.
Like oil, natural gas is described as sweet or sour depending on, in the case of gas, its
hydrogen sulphide content. Hydrogen sulphide is highly poisonous and is removed during
processing. Because methane is odourless, natural gas distribution companies add a
harmless, but, stinky chemical (mercaptans) to the gas prior to distribution to end-users so
that consumers can more easily detect leaks. Gas is also described as wet or dry depending
on the presence of natural gas liquids (NGLs) and other energy gases. If natural gas is greater
than 90% methane then it is referred to as dry. Wet gas can be “stripped” of the NGLs (or
LPGs) at facilities called gas processing plants. Finally, natural gas is described as associated
or non-associated depending upon whether or not it is associated with significant oil
production.
Major producers
The US and the countries of the former Soviet Union are the largest producers of natural gas.
The Russian natural gas industry is dominated by Gazprom, which controls 95% of
production. In the US, Texas, Louisiana, Oklahoma and Wyoming hold nearly half of the
country’s reserves. Other major global producers include Canada, Iran, Norway, Qatar, China,
Algeria, Saudi Arabia, and Indonesia. World natural gas reserves are estimated at 6,618 trillion
cubic feet (tcf). The Middle East holds 41% of world reserves, while an additional 31% is
located in the former Soviet Union, with only 9% held in the OECD countries.
Figure 1: The world’s top 10 natural gas producers, consumers, exporters and importers in 2009
% of
% of
% of
% of
Producers
bcf/d
world
Consumers
bcf/d
world
Exporters
bcf/d
world
Importers
bcf/d
world
US
57.41
20.1%
US
62.56
22.2%
Russia
13.34
15.7%
Germany
6.37
7.5%
Russia
51.04
17.6%
Russia
37.70
13.2%
Norway
9.61
11.3%
Italy
6.21
7.3%
Canada
15.61
5.4%
Iran
12.74
4.5%
Qatar
6.60
7.8%
US
5.15
6.1%
Iran
12.69
4.4%
Canada
9.16
3.2%
Canada
6.45
7.6%
Ukraine
2.68
3.2%
Norway
10.01
3.2%
China
8.58
3.0%
Algeria
5.30
6.2%
UK
2.60
3.1%
Qatar
8.64
2.8%
Japan
8.46
3.0%
Indonesia
3.41
4.0%
India
1.22
1.4%
China
8.24
2.5%
UK
8.37
2.9%
Malaysia
3.02
3.6%
Mexico
1.11
1.3%
Algeria
7.88
2.5%
Germany
7.55
2.6%
Netherlands
2.30
2.7%
UAE
0.99
1.2%
Egypt
1.95
2.3%
Poland
0.92
1.1%
Australia
1.61
1.9%
Brazil
0.82
1.0%
World
84.81
World
84.81
Saudi
Arabia
7.49
2.5%
Saudi Arabia
7.49
2.6%
Indonesia
6.96
2.3%
Italy
6.93
2.4%
World
289.00
World
284.49
Source: BP Statistical Review, DB Global Markets Research
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Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: World natural gas reserves by country
Figure 3: US natural gas price since 1976
16
Russia
23%
24%
Iran
Qatar
Turkmenistan
Saudi Arabia
US
2%
UAE
3%
Venezuela
3%
16%
3%
Nigeria
Algeria
4%
Others
4%
4%
Source: BP Statistical Review
14%
Natural Gas Price (USD/mmBtu)
__
Estimated world gas reserves 6621
trillion cubic feet at end of 2009
14
12
10
8
6
4
2
0
1976
1981
1986
1991
US NatGas Nominal
1996
2001
2006
2011
US NatGas Real (CPI)
Source: Nymex, US DOE/EIA, DB Global Markets Research (as of April 2011)
Major uses
Burning natural gas is relatively clean, producing 30% less carbon dioxide than petroleum and
45% less than coal. The major use for gas is in homes, businesses and factories for heating,
cooking and cooling. Natural gas is increasingly used as a source of energy for electricity
generation via gas turbines and steam turbines. Compressed natural gas is used as a vehicle
fuel for public transport buses. In addition, natural gas is used as a base ingredient in the
manufacture of ammonia, anti-freeze, fabrics, glass, steel, plastics and paint.
Regulatory matters
Natural gas was originally considered an undesirable by-product of oil production. As a gas, it
is more difficult to transport than oil and it was often flared-off, or burned at the wellhead as a
disposal method. Gas flares are still common in Africa, the Middle East and parts of the
Former Soviet Union that do not yet have the infrastructure for the utilisation of gas. Rules
that prohibit flaring are now becoming increasingly common. Around 1950, the development
of high-strength steel pipelines made it possible to transport natural gas over much longer
distances and this, combined with the development of offshore drilling, has resulted in a
significant increase in the use of natural gas. The emergence of LNG has supported the
development of a global gas market. In many countries, natural gas tends to be much more
highly regulated than oil because of the tendency for natural gas transportation and
distribution to be concentrated in the hands of fewer suppliers.
Exchanges & prices
Natural gas futures are traded on the New York Mercantile Exchange (Nymex) in units of
10,000 million British thermal units (mmBtu), for delivery via the Sabine Pipe Line Co. Henry
Hub in Louisiana. There is also a natural gas futures contract listed on the ICE, but turnover in
2010 was 2.1 mn lots when compared to 64.3 mn lots on Nymex. The Bloomberg ticker for
the one month generic US natural gas futures contract is NG1 <Comdty>.
The Bloomberg tickers for the total returns and excess returns of the Deutsche Bank US
Natural Gas-Optimum Yield index are DBLCYTNG <Index> and DBLCYENG <Index>
respectively.
Deutsche Bank AG/London
Page 23
May 2011
A User Guide to Commodities
Shale Gas
History
The US EIA/DOE has recently published at study providing an assessment of 48 shale gas
basins in 32 countries. Based on a report prepared by Advanced Resources International
(ARI), the EIA concludes that shale gas resources, which have recently provided a major
boost to US natural gas production, are also available in other world regions.
According to the EIA/ARI report: The use of horizontal drilling in conjunction with hydraulic
fracturing has greatly expanded the ability of producers to profitably produce natural gas from
low permeability geologic formations, particularly shale formations. Application of fracturing
techniques to stimulate oil and gas production began to grow rapidly in the 1950s, although
experimentation dates back to the 19th century. Starting in the mid-1970s, a governmentprivate partnership helped foster technologies that eventually became crucial to producing
natural gas from shale rock, including horizontal wells, multi-stage fracturing, and slick-water
fracturing. Practical application of horizontal drilling to oil production began in the early 1980s,
by which time the advent of improved downhole drilling motors and the invention of other
necessary supporting equipment, materials, and technologies, particularly downhole
telemetry equipment, had brought some applications within the realm of commercial viability.
The EIA writes that the advent of large-scale shale gas production did not occur until Mitchell
Energy and Development Corporation experimented during the 1980s and 1990s to make
deep shale gas production a commercial reality in the Barnett Shale near Dallas, Texas.
Following Mitchell’s success, other companies aggressively entered the business. As natural
gas producers gained confidence in the ability to profitably produce natural gas in the Barnett
Shale and confirmation of this ability was provided by the results from the Fayetteville Shale
in North Arkansas, they began pursuing other shale formations, including the Haynesville,
Marcellus, Woodford, Eagle Ford and other shales.
Figure 1: Map of 48 major shale gas basins in 32 countries
Source: DOE/EIA
Outlook
The EIA/ARI report finds that the international shale gas resource base is vast. The initial
estimate of technically recoverable shale gas resources in the 32 countries examined is 5,760
trillion cubic feet. Adding the US estimate of the shale gas technically recoverable resources
of 862 trillion cubic feet results in a total shale resource base estimate of 6,622 trillion cubic
feet for the US and the other 32 countries assessed. Adding the identified shale gas
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Deutsche Bank AG/London
May 2011
A User Guide to Commodities
resources to other gas resources increases total world technically recoverable gas resources
by over 40% to 22,600 trillion cubic feet.
Our colleagues at Wood Mackenzie have also reviewed the global potential for
unconventional gas- defined to include shale gas, coal bed methane, and tight gas. According
to Wood Mackenzie, the successful exploitation of unconventional resources in North
America has changed the local gas market significantly. They estimate that unconventional
gas in North America will satisfy nearly 50% of demand in 2010, increasing to 70% by 2030.
In Australia, Queensland Curtis LNG and GLNG, liquefaction projects to be supplied by coal
bed methane, have both achieved project sanction in the last six months. Wood Mackenzie
forecasts that volumes of unconventional LNG exports from Australia will reach over 45 bcm
(30 mmtpa) by 2030. Outside North America and Australia they estimate that there is in
excess of c.11 tcm (400 tcf) of unconventional resource potential, but for the rest of the
world the progress to exploit and commercialise this resource is at an embryonic stage.
The Wood Mackenzie analysis suggests that the range of total unconventional gas production
from China, India and Europe could be between 36 and 55 bcm per year (3.5-5.3 bcf/d) by
2020 and 142 and 288 bcm per year (13.7-27.9 bcf/d) by 2030. It also suggests that China
offers the greatest unconventional production potential, of between 127 to 197 bcm per year
(12.3-19.1 bcf/d) in 2030. The large range variation associated with India and Europe is due to
a much more aggressive drilling and production profile for shale gas production in our high
case from both areas.
Figure 2: Wood Mackenzie base case vs high case unconventional production profile
for China, India and Europe
Source: Wood Mackenzie
Factors influencing the pace of development of these resources
Resource Potential: the prospectivity and production potential of the area; including the lead
times that are likely in commercialisation;
Supply Chain: the maturity of the supply chain in place to support unconventional
development;
Land Access: the ability to access the play, taking into account stakeholder issues;
Regulation and the Environment: the extent to which regulatory framework and
environmental legislation is a barrier or incentive to development
Deutsche Bank AG/London
Page 25
May 2011
A User Guide to Commodities
European Natural Gas
History & properties
The beginnings of the European gas market can be traced to the discovery of the Groningen
gas field in the Netherlands in 1959. The discovery suggested the possibility of additional
deposits further offshore, which was proven with subsequent exploration in the North Sea.
The West Sole field was discovered off the British coast in 1965, Ekofisk was discovered off
Norway in 1969, and Troll in 1979.
With the discovery of abundant supplies of a cheap new fuel, gas distribution networks were
constructed and domestic appliances were converted from town gas, a gaseous fuel
manufactured from coal. In the UK, this process took ten years from 1967 to 1977, during
which demand grew rapidly in the residential, commercial, and industrial sectors.
Demand for power generation was held back, however, by a 1975 EU Council Directive
which placed restrictions on the use of natural gas in power generation in the interest of
maintaining security of supply. This led to a relatively flat period of demand growth during the
1980s until 1991, when the restriction on gas use in power generation was lifted. This gave
rise to the “dash for gas” over the course of the following ten years, during which gas
consumed for power generation in the UK increased from 0.6bcm in 1990 to 30bcm in 2000,
according to the Department of Energy and Climate Change.
Major producers and users
The largest suppliers to Europe in 2010 were Norway and Russia, with domestic production
from the Netherlands and the United Kingdom also representing significant shares (Figure 1).
However, with UK production set to halve and Norwegian supplies expected to decline by
the end of the decade, Europe will become ever more dependent on Russia, Central Asia, the
Middle East and North Africa in the long term. Increasing dependence on LNG as a method
of delivery is another part of this equation, as Qatar has emerged as a major supplier over the
last several years.
Figure 1: EU-15 supply by country in 2010
2%
4%
1%
Figure 2: EU-15 demand by country in 2010
6%
Germany
4%
21%
8%
UK
3%
Italy
6%
4%
Norway
21%
2%
Russia
Netherlands
United Kingdom
Netherlands
Algeria
France
10%
Spain
20%
11%
Qatar
20%
Belgium
Other
Source: Eurogas, Gazprom, National Grid, Tullett Prebon, Gas Transport Services, E.ON Gas Transport,
Fluxys, GRTGaz, Deutsche Bank
Nigeria
Germany
Austria
Ireland
19%
10%
Other imports
13%
15%
Other prod.
Source: Eurogas, BMWI, National Grid, Snam Rete, Gas Transport Services, GRTGaz, Enagas, Fluxys, Deutsche
Bank
The largest demand centers are Germany, the UK and Italy (Figure 2), with the largest portion
of demand attributable to residential and commercial demand (49% in 2010, and 40% in
2009). The remainder of demand is evenly split between power generation and industrial
production. Since residential and commercial demand varies considerably with temperature,
overall demand levels are much higher in the winter than the summer. As a result,
underground storage in the form of depleted fields, salt caverns, and aquifers is used to
buffer and manage seasonal gas supply.
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Deutsche Bank AG/London
May 2011
A User Guide to Commodities
On a structural basis, gas for power generation represents the most promising source of
demand growth in the medium term, as its low carbon intensity, short construction time, low
capital cost and rapid ramping rates are key advantages in the context of emissions
constraints and an increasing proportion of renewable power generation.
Spot-market gas hubs
Regional gas hubs function as centers of liquidity where gas can be bought and sold on
standardized contracts, and where prices are quoted. The most liquid of these hubs is the
National Balancing Point (NBP), located in the United Kingdom. Other regional European gas
hubs include the Title Transfer Facility (TTF) in the Netherlands, and Zeebrugge in Belgium.
Recent efforts at gas market liberalisation in the European Union have included the bundling
of transit capacity across networks from one hub to another, which should enhance liquidity
and the ability to flow gas according to price among Belgium, France and Germany.
Measured using the day-ahead gas contract, liquidity is greatest at the NBP, followed by the
TTF in second place, with just under half the volume of the NBP in March 2011, Figure 3.
Trading at spot-market gas hubs is governed by standard contract terms in order to
concentrate liquidity. The “gas day” begins at 06:00 in the morning each day, and the “gas
year” begins on 01 October of each year. Commonly traded contracts include Within-Day,
Day-Ahead, Balance-of-Week, Weekend, Weekdays-Next-Week, Balance-of-Month, calendar
months, quarters, seasons (Winter is defined as 01 October through 31 March, and Summer
is the balance of the year), and calendar years. Seasons are more commonly traded in the UK
market, and calendar years in the European markets.
Gas contracting
The majority of gas purchasing is achieved through long-term contracts which are typically
arranged over a period of 20-30 years, with prices indexed to oil products and annual buyer
volume flexibility in the range of 85-110% of a notional annual quantity. The typical
Norwegian or Russian oil-indexation model prices gas at approximately 70% of the price of
oil, on a calorific-value basis. If a buyer’s annual requirement in any given year falls short of
the minimum contractual quantity, the buyer must prepay for 75-80% of the cost of the gas
at the current oil-indexed price, and then take delivery of the prepaid gas at some point over
the following 3 to 5 years. At the time of delivery, the difference between the prepaid
amount and the new oil-indexed price will be collected from or returned to the buyer. In
recent years, a fall in overall demand levels in the wake of the recession resulted in buyers
failing to meet minimum purchasing obligations in 2009 and 2010. The excess of contracted
gas supply resulted in spot-market gas prices falling much below their oil-indexed
counterpart. Major gas buyers called for renegotiations of contractual pricing principles, and
successfully introduced spot-market pricing for 10-15% of contractual volumes.
Figure 3: Day-ahead liquidity at European gas hubs,
March 2011 (million therms)
900
800
Figure 4: UK spot-market prices and oil-indexed prices
(pence/therm)
70
UK NBP premium (discount) to oil-indexed price
60
UK NBP average gas price
Oil-indexed price
50
700
40
600
30
500
20
400
10
300
0
200
-10
100
-20
-30
0
NBP
TTF
NCG
Source: ICIS Heren
*GP = GasPool, PEG-N = PEG Nord
Deutsche Bank AG/London
ZEE
GP*
PEG-N*
CEGH
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: ICIS Heren, Deutsche Bank
Page 27
May 2011
A User Guide to Commodities
Liquefied Natural Gas (LNG)
History & properties
The liquid formed when natural gas is cooled to -162°C is called liquefied natural gas, or LNG.
It is clear, odourless, non-toxic and non-corrosive. Liquefaction takes place when natural gas
is cooled under high pressure, condensed, and then reduced in pressure for storage. The
resulting liquid is 1/600th of the volume of natural gas, and about half as dense as water.
Purified LNG is usually composed of 90% methane and small amounts of ethane, propane,
butane and heavier alkanes.
The history of natural gas liquefaction dates back to the 19th Century. Commercial LNG plants
were built in West Virginia in 1912 and Ohio in 1941. The first LNG tanker, the Methane
Pioneer, transported LNG from Louisiana to the UK in 1959, demonstrating the viability of
long-range transport. In 1964, Algeria became the first continuous large-scale exporter.
Gas processing for LNG
Feedgas must be processed through four stages before entering the liquefaction process. It
must be (1) compressed by steam turbines, (2) purified to remove carbon dioxide and
hydrogen sulphide, (3) dehydrated to reduce water content, and (4) fractionated to separate
liquefied petroleum gases (LPG). Finally, the resulting hydrocarbons (mainly methane and
ethane) are liquefied via cryogenic heat exchangers.
Seaborne transportation
LNG’s primary benefit is its ease of transportation and density of storage. It can be
transported efficiently over long distances where pipelines are not an option. Specially
designed seagoing vessels incorporate double hulls and insulated storage tanks, in which the
LNG is carried at standard atmospheric pressure. LNG is not generally considered explosive,
but is flammable in air concentrations of 5-15%. Older LNG vessels utilise Moss spherical
containment vessels, which can be identified by dome-shaped protrusions above the deck.
Later designs utilize membrane containment systems, which allow greater capacity for a
given ship size, but are more susceptible to sloshing loads when partially filled.
A key transportation issue is boil-off, which is the loss of cargo due to evaporation as the
cargo warms. The loss rate is typically in the region of 0.15% per day. Most vessels allow
this evaporation to take place in order to keep the remaining cargo cool. This boiled-off gas
can then be used as fuel in onboard steam turbine powerplants. Alternatively, some vessels
now carry on-board reliquefaction facilities, allowing nearly 100% of the cargo to be
delivered.
After unloading, a small amount of LNG cargo (“heel”) must be retained in the vessel in order
to keep the tanks cool. Otherwise, a cooling down period of 12-24 hours would be required
before loading another cargo, incurring additional boil-off losses.
The cargo capacity of a standard vessel is 126,000-155,000 cubic meters, although the Qatari
shipping fleet operated by Nakilat was designed with larger capacities to achieve economies
of scale. These “Q-Class” vessels carry 210,000 cubic meters (“Q-Flex”) and 266,000 cubic
meters (“Q-Max”) but can only be accepted at a limited number of ports. LNG can also be
transported by small-scale tankers (7,500 cubic meters) and trucks.
At the receiving terminal, LNG is typically stored in tanks and later reheated into gaseous
form and distributed via pipeline. Since nitrogen is lost during the seagoing voyage, regasified
LNG is often too rich in calorific value to meet network transmission gas quality
requirements. LNG terminals therefore incorporate nitrogen ballasting facilities to blend gas
down to meet quality standards. Vessels are available on time charter at rates currently near
USD85,000/day, up from lows of USD25,000-USD50,000/day seen in 2009 and 2010.
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May 2011
A User Guide to Commodities
Major producers and users
The world’s largest LNG producers and exporters are Qatar, Malaysia, Indonesia and
Australia while the largest importers are Japan, South Korea, Spain and the United Kingdom
(Figure 1). Asian imports are split fairly evenly among Qatar, Malaysia, Indonesia and
Australia. In contrast, European imports are dominated by Qatar, which holds the world’s
third largest proved gas reserves (25.4tcm). Qatar provides almost twice as much LNG as
Europe’s next largest LNG supplier, Algeria. US supplies come largely from Trinidad.
With the completion of Qatar’s production expansion to 77mtpa and a moratorium on further
development of the North Field, the largest future increases in LNG production capacity will
be from Australia. Sanctioned projects total 31mtpa (Gorgon, QCLNG, GLNG) and are
expected onstream over 2014-15, while a further 41mtpa (APLNG, Wheatstone, Ichthys,
Prelude FLNG, Browse) is in planning. A number of Australian projects will be sourced from
coal-seam gas near Curtis Island (GLNG, QCLNG, APLNG) rather than conventional gas fields.
Russia, which holds the world’s largest proved gas reserves (44.4tcm), became an LNG
exporter in 2009 with the Sakhalin-2 plant (9.6mtpa). Iran, with the world’s second-largest
proved gas reserves (29.6tcm), has expressed the intention to export to China and India
beginning in 2012 and expects to produce 8-10mtpa.
The demand for LNG has risen significantly in recent years, owing to increases in imports by
the UK, Taiwan, India and China. In the future, counter-seasonal demand in Chile and
Argentina is likely to rise, while new demand centers including Kuwait and Singapore will
increase competition for LNG supplies. Finally, losses of nuclear capacity in Japan promise to
add to baseline consumption over the next several years.
Contracts
The trade in LNG is primarily conducted via long-term sale and purchase agreements (SPA)
for periods from 15 to 25 years. Asian long-term contract pricing terms are usually linked to
the Japan Crude Cocktail (JCC), an average of delivered crude-oil prices, which lags spot
pricing by approximately 1 month. Buyers are typically required to take delivery of at least 9095% of the annual contract quantity.
More recently, short-term deals have been arranged, such as Centrica’s three-year purchase
of 2.4mtpa from Qatar. The reported contract value of £2bn equates to 56.5p/th, which
suggests that pricing has been agreed on the basis of the UK’s National Balancing Point
(NBP) spot-market gas price rather than an oil index.
Figure 1: Major exporters & importers of LNG, 2010
m illion % of
m illion % of
tonnes World
Exporters tonnes World Im porters
Qatar
55.6
26% Japan
70.4
33%
Malaysia
23.1
11% South Korea
34.1
16%
Indonesia
22.1
10% Spain
20.5
10%
Australia
19.1
9% United Kingdom
14.2
7%
Nigeria
15.7
7% Taiw an
11.5
5%
Algeria
14.1
7% France
10.5
5%
Trinidad
11.1
5% China
9.4
4%
Russia
10.5
5% USA
9.4
4%
Oman
8.7
4% India
9.3
4%
Egypt
6.7
3% Italy
6.7
3%
Other
25.1
12% Other
15.9
7%
World
211.8
100% World
211.8 100%
Source: Waterborne Energy, Deutsche Bank
Deutsche Bank AG/London
Figure 2: Global LNG supply/demand balance (mtpa)
300
250
Under Construction
Operational
Demand
200
150
100
50
0
2005
2008
2011
2014
Source: Wood Mackenzie, Deutsche Bank
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May 2011
A User Guide to Commodities
US Power
History & properties
The origins of the commercial US power industry date back to 1882 and the establishment of
the Pearl Street electricity generating station in New York City. Electricity is measured in
watts and watt-hours and unlike other commodities is difficult to store economically,
although advances in capacitor and battery technology are improving this characteristic in
many applications.
The market for electricity involves three activities: production, transmission and distribution.
The US operates approximately 10,000 power plants with an average thermal efficiency of
33%. Efficiency has not changed much since 1960 due to the long life of a power plant. The
average age of a power plant in the US is 30 years. In terms of transmission, the US operates
275,000 miles of high voltage power lines arranged in three networks. The average loss in
transmission is around 5-7%.
Distribution involves the handoff from high voltage lines to low voltage distribution networks
to deliver power to the consumer. The US power markets are fragmented along state and
regional lines. The move towards deregulation of the US power sector began in the 1970s.
Moreover the 1970 Clean Air Act as well as the subsequent two oil price shocks encouraged
the more efficient use of fossil fuels as well as the development of alternative energy
sources. Trust in the nuclear power was damaged by the Three Mile Island accident in 1979
and public sentiment has also been soured by the recent Fukushima disaster in Japan.
According to the US DOE/EIA, coal is likely to remain the dominant energy source for
electricity generation because of continued reliance on existing coal-fired plants. I the EIA
models, the generation share from renewable resources increases from 11% in 2009 to 14%
in 2035 in response to Federal tax credits in the near term and State requirements in the long
term. Natural gas also plays a growing role due to lower natural gas prices and relatively low
capital construction costs that make it more attractive than coal. .
Figure 1: The US power market: electricity flow in 2009 (quadrillion Btu)
Source: US DOE/EIA, Annual Energy Review 2009
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May 2011
A User Guide to Commodities
Figure 2: US power generation by fuel source 2010
Figure 3: power generation by fuel source 2035
10%
14%
19%
19%
1%
1%
4.2 trillion kwh
Coal
Coal
Natural Gas
Natural Gas
Nuclear
5.2 trillion kwh
Renewable
Renewable
Nuclear
Petroleum
Petroleum
25%
39%
45%
Source: US DOE/EIA
27%
Source: Deutsche Bank
Today there are three types of utility companies in the US:
Publicly owned utilities: These are owned and operated by municipalities, states or the
federal government. They produce electricity and sell it to consumers or other utilities at cost.
Investor owned utilities (IOUs): These are owned by private shareholders. Most IOUS are
beginning to divest their energy production and focus on distribution. Around three-quarter of
the US power grid is owned by these companies.
Cooperative utilities: These were created by the government to provide electricity to rural
areas deemed unprofitable by the IOUs. They are government subsidised non-profit entities
free from state or local taxes.
There are two basic types of power generators today and they can be distinguished by the
type of load they handle namely base or peak load. Base-load plants are typically steam
driven. These must be run at full capacity and are difficult to start up and shut down. Peak
load plants usually use gas turbines. They operate at a lower efficiency, but can be started up
and shut down rapidly.
Exchange traded
In February 2003, the Commodity Futures Trading Commission (CFTC) approved Nymex’s
monthly, weekly and daily Pennsylvania / New Jersey / Maryland (PJM) electricity futures
contracts. The monthly contract started trading on April 11, 2003 and is based on the
electricity prices in the Pennsylvania/New Jersey/Maryland (PJM) Western hub at 111
delivery points, mainly on the utility transmission systems of PPL Corporation and FirstEnergy
Corporation. This contract is priced in US dollars per megawatt hour. At the beginning of this
year, Nymex launched a further five electricity futures contracts. The new contracts are: ISO
New England peak daily futures, NYISO A peak daily futures, NYISO G peak daily futures,
NYISO J peak daily futures and Cinergy hub peak daily futures.
The PJM Interconnection administers the largest electricity market in the world serving more
than 44 million customers in Delaware, Illinois, Indiana, Kentucky, Maryland, New Jersey,
Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and Washington D.C. The power
companies within PJM operate more than 1,000 generating units, representing more than
137,000 megawatts of capacity fuelled with coal, natural gas, oil, nuclear and hydro power.
This generating and distribution network is also tied to the power grids of the Midwest, New
York State and other areas in the mid-Atlantic states.
Deutsche Bank AG/London
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A User Guide to Commodities
European Power
Properties
Electricity cannot be stored and must be generated in real-time balance with instantaneous
demand. Transmission system operators are charged with managing imbalances between
supply and demand, which can lead to undesirable variations in the system frequency. An
excess of supply over demand will lead to a rise in frequency, and vice versa.
Generation mix
Power generation is dominated by fossil-fuel generation (48%), which includes hard coal,
lignite, fuel oil, natural gas. Nuclear power runs a close second (32%), with hydro (14%) and
other renewables (8%) coming in last. Hydropower includes run-of-river generation and
pumped storage, while other renewable generation is primarily composed of wind turbines
and photo-voltaic solar installations.
France is responsible for the bulk of nuclear generation, with power generated of 408TWh in
2010, representing 74% of French net generation, and 50% of total nuclear power generated
in EU-27 countries. Germany is responsible for the greatest volume of power generated from
solar photovoltaic panels, with 10.8TWh generated in 2010, representing 54% of total
photovoltaic power generated in the EU-27.
Traded contracts
Power is traded via baseload and peak contracts. Baseload covers the entire day from 23:00
on the previous night to 23:00 on the nominal contract day in the UK, and 00:00 to 24:00 in
Continental Europe, while the peak contract only concerns the 12 hours from 07:00 to 19:00
in the UK, and 08:00 to 20:00 in Continental Europe. The peak contract derives its name from
the fact that day-time demand is significantly higher than overnight demand. Consequently,
peak prices are higher than baseload prices.
Figure 1: EU-27 Power generation by source, 2010
Figure 2: Example of daily demand profile (MW)
45000
8%
40000
14%
Fossil
48%
Nuclear
35000
Hydro
Other Renew ables
30%
30000
25000
Peak
20000
00:00 02:30 05:00 07:30 10:00 12:30 15:00 17:30 20:00 22:30
Source: ENTSO-E
Source: National Grid
The capacity of power plants is commonly described using the gross generating capacity.
However, the actual power contributed to the system is net of power used by the station
itself for control, pollution reduction and other internal requirements. The difference between
these two figures ranges between 5-10%.
Prices for power generation can be modelled using a stack, in which power plants are
ordered by increasing marginal cost of generation, and summed by net capacity. The settled
power price will generally be equivalent to the most expensive plant required to meet
demand. Marginal costs for nuclear and hydro generation are close to zero, while coal and
gas are generally in competition. Fuel-oil plants are much more expensive and typically only
employed during extreme peaks in demand.
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Profitability of power generation
The short-run profit to the power generator (not including capital costs) for fossil-fuel plants is
commonly referred to as the spark spread (for gas-fired plants) and dark spread (for coal
plants). Each is simply calculated as the difference between the wholesale power price per
megawatt-hour and the cost of the fuel necessary to generate a megawatt-hour. Owing to
the varying efficiencies of individual power plants, there is a range of spark and dark spreads
in practice.
Subtracting the cost of European Union emissions allowances (EUA) yields the “clean” spark
and “clean” dark spreads. Since coal emits a greater amount of carbon dioxide during
combustion than natural gas, the cost of emissions allowances is greater for coal-fired power
plants per unit of power generated.
Comparing the forward prices of power, coal, natural gas, and carbon emissions allowances
yields the comparative profitability of coal-fired and gas-fired generation. Utility companies
typically hold a mix of fossil-fuel generation technologies, and shift production among fuels
according to these short-run measures of profitability. Producer decisions to shift from one
fuel to another cause swings in demand for these basic fuels, creating feedback loops among
the prices of these commodities.
Figure 3: EU-27 Annual power consumption by country, 2010
Country
TWh
% of Total
Germany
548
20%
France
513
19%
Italy
324
12%
Spain
267
10%
Sw eden
147
5%
Poland
144
5%
Netherlands
112
4%
Belgium
89
3%
Finland
87
3%
Austria
67
3%
Other
383
14%
EU-27
2,681
100%
Source: ENTSO-E
Deutsche Bank AG/London
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May 2011
A User Guide to Commodities
Thermal Coal
History & properties
Coal is a fossil fuel. It is a combustible, sedimentary, organic rock which is composed mainly
of carbon, hydrogen and oxygen. Coal is classified into four types, lignite, sub-bituminous,
bituminous and anthracite according to its carbon, ash, sulphur and water content. The harder
the coal, the less moisture it has and the more efficient when it is used as a fuel. Lignite, (a
low quality thermal coal), has the lowest carbon content and heating value and alongside subbituminous coals are used primarily for electricity generation. Anthracite has the highest
carbon content with the lowest amount of moisture and hence has the highest energy
content of all coals. It is used in high-grade steel production. Bituminous is sub-divided into
thermal and coking coal, (often referred to as semi-soft coking coal). It is used for both
electricity generation and for making steel.
Historians believe coal was first used commercially in China for smelting copper and for
casting coins around 1,000BC. The demand for coal surged during the 19th Century during
the industrial revolution and at the end of that century, the development of the coal industry
became closely tied to electricity generation when the first coal-fired electrical power plant
came into operation in New York in 1882.
Production
There are two mining methods in coal production: surface or ‘open cut' mining (40% share)
and underground or ‘deep’ mining (60% share). The choice of mining method is largely
determined by the geology of the coal deposit. Two-thirds of the world’s coal reserves are
located in Europe, Eurasia and the Asia Pacific. At current consumption levels, there is
enough coal in the world to last for several more centuries.
Major uses
Thermal coal, also referred to as steaming coal, is used to generate electricity. Approximately
40% of electricity production worldwide is generated via thermal coal. At most coal-fired
power stations, the coal is first milled into a fine powder and then blown into a combustion
chamber of a boiler where it is burnt at high temperature. The heat converts water into steam
which is pressurised and passed into a turbine which generates electricity.
According to the World Coal Institute, consumption of thermal coal is projected to grow by
1.5% per year until 2030. Asia is the biggest market, currently accounting for around 60% of
global coal consumption, with the bulk being made up by China. Most countries in the region
do not have sufficient domestic supplies and consequently turn to the seaborne trade market
to meet their energy requirements, particularly Japan, Taiwan and South Korea.
Major producers
The largest thermal coal producing countries are China, USA, India, Australia, Russia,
Indonesia and South Africa. Because there are vast differences in coal qualities and due to
the sheer volume produced, detailed statistics of total global production are not readily
available nor are they important for market dynamics. Rather global supply and demand
balances and the ensuing effect on prices is determined by the global seaborne market or
coal exports. Two countries, Australia and South Africa, dominate the high quality market for
seaborne coal. While Indonesia tops the list in terms of total export, the quality of their coal is
relatively poor. Columbian material is almost exclusively used in the Atlantic market (US and
Europe). By volume, China is the world’s largest producer, but most material is poor quality
and consumed domestically.
Page 34
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 1: Major exporters and importers of thermal coal in 2010
Tonnes
Exporters
Tonnes
Indonesia
(Mn)
210
Australia
148
20.6%
Russia
83
11.6%
Colombia
80
11.1%
Taiwan
South Africa
65
9.1%
India
US
36
5.1%
UK
Kazahkstan
29
4.0%
China
16
2.2%
Vietnam
15
6
Venezuela
% of world
29.3%
Japan
(Mn)
128.3
% of world
17.9%
China
81.6
11.4%
South Korea
80.9
11.3%
59
8.2%
45.3
6.3%
36
5.0%
Germany
28.8
4.0%
Russia
24.6
3.4%
2.0%
US
23.8
3.3%
0.9%
Malaysia
18.6
2.6%
World
716.6
716.2
World
Importers
Source: AME
Exchange traded
Thermal coal is priced according to its calorific content measured as kilocalories/kilograms
with the standard level at 6500kcal/kg. Most thermal coal is procured through negotiated
annual contracts between producers and consumers. In the Asia-pacific market, annual
contracts have historically been set between Japanese power utilities and Australian
producers on a Japanese financial year basis. The European market is dominated by South
African supply, but, prices are generally priced on a spot basis that is highly influenced by the
Asian price.
Coal futures are traded on NYMEX. The contract trades in units of 1,550 tons and is priced in
USD per ton. The two main coal price contracts are the API#2 and API#4 Coal Indices. The
API#2 is the arithmetic average of the McCloskey Coal Information Services (MCCIS) NWE
Steam Coal Marker, which tracks steam coals used for electricity generation and the
International Index compiled by Energy Argus in its Coal Daily index. This tracks shipments of
coal to northwest Europe. The API#4 price is calculated as an average of the Argus fob
Richards Bay assessment and McCloskey’s fob Richards Bay marker. It is the benchmark
price for coal exported out of South Africa’s Richards Bay terminal.
Figure 2: Spot thermal coal prices
200
Figure 3: Global coal consumption, million tonnes oil
equivalent
3500
Richards Bay FOB (South Africa)
USD/t
New Castle FOB (Australia)
180
3000
Annual Contract Price (JFY)
160
2500
140
120
ROW
Asia Pacific
Europe
North America
2000
100
1500
80
60
1000
40
500
20
0
2002
2003
2004
2005
Source: Bloomberg Finance L.P, Deutsche Bank
Deutsche Bank AG/London
2006
2007
2008
2009
2010
0
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
Source: BP Statistical Review 2010
Page 35
May 2011
A User Guide to Commodities
Uranium
History & properties
Uranium, a silvery white metal, has the symbol U and atomic number 92. A common
element, it occurs naturally at low levels in virtually all rock, soil and water found throughout
the world. Uranium is as about as common as zinc and about 40 times as abundant as silver.
The German chemist Martin Klaproth was responsible for discovering uranium in the mineral
called pitchblende in 1789. It was named after the planet Uranus, which had been discovered
eight years earlier.
Mined uranium ore is a mildly radioactive element with two principle isotopes, U-235 and U238, with the former suitable for use as nuclear fuel. This material must be processed before
it can be used as a fuel for a nuclear reactor, and the first step, milling, is usually done at the
mine site. Ore is crushed and ground and then treated with acid to dissolve the uranium,
which is recovered from solution. Uranium oxide concentrate (U3O8) is the form in which
uranium is typically sold and often referred to as yellowcake because of its colour. Following
this, uranium must be enriched to increase the proportion of U-235 to about 3.5% in order for
it to be used in power generation. The enrichment process typically consists of converting
the uranium oxide to a gas, uranium hexafluoride (UF6), and then separating the heavier
isotopes using a gas centrifuge. Because natural uranium contains such a small percentage
of U-235, the enrichment process results in the creation of large amounts of depleted
uranium, which is mostly U-238.
Major producers
In 2010, Kazakhstan was the world’s largest producer of uranium, amounting to 46,510 Mlb
followed by Canada. Australia has the world’s largest reasonably assured reserves of
uranium, amounting to over 1Mt, representing 30% of the world’s total. The long dated 3
mines policy was overturned in 2007 by the Federal government and the WA state
government followed soon thereafter lifting a long ban on uranium mining. A mining ban
remains in place in Queensland. Other major producing countries are Namibia, Russia, Niger
and Uzbekistan.
Major uses
Today, nearly 100% of all uranium produced goes to nuclear reactors for electricity
generation, with a very small amount used in research, medical applications and as fuel for
nuclear-powered ships and submarines. In its final physical form, uranium dioxide (UO2) is a
ceramic powder, pressed into small cylindrical pellets. These pellets are loaded into
zirconium alloy or stainless steel fuel rods which are assembled into bundles to form an array
of reactor fuel assemblies.
Figure 1: Uranium production by country in 2010
Com pa n y
Mlb
Ma r ke t s ha r e
Figure 2: The leading uranium mining companies in 2009
Com pa ny
Count r y
Tonnes
Ma r ket s ha r e
Kazakhstan
46510
33.1%
Areva
France
8623
16.7%
Canada
24128
17.2%
Cameco
Canada
7963
15.4%
Namibia
17401
12.4%
Rio Tinto
Australia
7467
14.5%
Australia
16200
11.5%
KazAtomProm
Kazakhstan
4624
9.0%
Russia
10140
7.2%
ARMZ
Niger
8432
6.0%
BHP Biliton
Uzbekistan
6250
4.5%
USA
3752
2.7%
China
2000
1.4%
700
0.5%
Chzech Republic
Wor ld
Source: Ux Consulting
Page 36
Navoi
Russia
2955
5.7%
Australia
2429
4.7%
Uzbekistan
1368
2.7%
Uranium one
Canada
1368
2.7%
Paladin
Australia
1210
2.3%
USA
583
1.1%
GA/Heathgate
1 40 365
Source: Ux Consulting
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 3: The nuclear fuel cycle
Figure 4: Sources of OECD electricity generation in 2010
3%
13%
Thermal
Nuclear
Hydro
22%
Renewables
62%
Source: DB Global Markets Research
Source: IEA
Pricing and exchange traded
The uranium market is very small relative to other commodities. Transactions are either
publicly tendered to market participants, or solicited from individual counterparties or via a
broker and remain undisclosed to the wider market. Transactions are ‘over the counter’ with
the market split between long term supply (~70% market volume) contracting and a spot
market (~30%). The spot market generally consists of all contracts for delivery of material
within a six-month period. The majority of material is delivered under long-term contracts
which are arranged in one of two ways: 1) Specified Pricing, which sets a base price at a
specific date which can be escalated by various public economic indexes agreed upon by the
contracting parties to the date of delivery; and 2) Market Pricing, which refers to contracts
that are tied to the prevailing spot price as of the delivery date. The average delivery term and
volume vary by transaction, but as an example, a typical contract does not usually begin
before 2-3 years and lasts roughly 3-5 years on volume and 2-4 years on price, with an
average volume per delivery of around 115t.
Figure 5: Spot uranium price since 1968
150
USD/lb
Summer 2003:
McArthur River flooding
125
100
April 1986:
Chernobyl Accident
75
GFC and US DOE
sales
October 2006:
Cigar Lake flood
Japanese
Earthquake
October 2001:
Olympic Dam fire
March 1979:
3 Mile Island Accident
50
1994: Russian HEU
enters US market
25
1968
1974
1980
1986
1992
1998
2004
2010
Source: UxC, DB Global Markets Research
Deutsche Bank AG/London
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May 2011
A User Guide to Commodities
Ethanol
History & properties
Ethanol is a volatile, flammable, colourless liquid that burns with a smokeless blue flame that
is not always visible in normal light. Ethanol is most frequently known as a drinking alcohol,
but in recent years it is increasingly used in vehicle transportation. Except for the use of fire,
the fermentation of sugar into ethanol is most probably the earliest organic reaction known to
man.
Major producers & consumers
World production of ethanol in 2007 was 13,101 million gallons, with 88% of the world
supply coming from Brazil (38%) and the United States (50%). Fuel ethanol production in
Brazil is largely sugar cane based while in the US it is largely corn based. US ethanol
production has increased by just over 50% in the last two years alone. The Energy
Independence and Security Act signed at the end of last year mandates an increase in overall
renewable fuels of 9,000 billion gallons of biofuels rising to 24 billion gallons by 2017. Of this
total, a rising proportion will be met by advanced biofuels such as cellulosic ethanol and
biodiesel. The rapid rise in food prices during the 2006-2008 led to China and Europe moving
away from the industrial use of agricultural commodities for ethanol and biodiesel production.
Given the priority to feed its population, China is using alternative feedstocks such as
cassava, for future ethanol production. In the EU, rapeseed oil is the main feedstock for its
biodiesel production.
Major uses
The largest single use of ethanol is as a motor fuel and fuel additive. Brazil leads the world in
the use of fuel ethanol. Brazilian gasoline is required by law to contain at least 25% ethanol.
Currently approximately 92% of all new cars in Brazil have flexible-fuel engines, which can
run on any combination of gasoline and ethanol. The increasing use of ethanol as a gasoline
additive in the US was enhanced in 2006 by government action to ban the use of methyl tertbutyl ether (MTBE) as an oxygenate fuel additive, which has been responsible for
groundwater and soil contamination. Ethanol produces fewer emissions of carbon monoxide
and oxides of nitrogen, and can be produced at lower cost than gasoline. Fuel ethanol takes
two basic forms: anhydrous ethanol (with all water removed) to use for blending with
gasoline (E-10, E-25, E-85, where the number refers to the percentage of ethanol mixed with
gasoline; and hydrous ethanol (with some water), to be used as a standalone fuel in nearly
pure form.
Figure 1: The world’s top fuel ethanol producers
Country
Gallons (m )
% of w orld
US
10,600.0
54.3%
Brazil
6,577.9
33.7%
EU
1,039.5
5.4%
China
541.6
2.8%
Thailand
435.2
2.2%
Figure 2: Ethanol price since 2005
5
Ethanol price (USD/gallon)
4
3
Canada
290.6
1.5%
India
91.7
0.5%
Colombia
83.2
0.4%
Australia
56.8
0.3%
1
Others
247.3
1.3%
Jun-05
Total
19,535.0
100%
Source: Renewable Fuels Association (2009)
Page 38
2
Apr-06
Feb-07
Dec-07
Oct-08
Aug-09
Jun-10
Apr-11
Source: Bloomberg Finance LP
Deutsche Bank AG/London
A User Guide to Commodities
Figure 3: US ethanol production approaches the blend
wall
15.0
10% of gasoline use
Gallons (billions)
12.5
10.0
7.5
5.0
US ethanol production
2.5
Figure 4: US corn use in domestic ethanol production
Corn used for fuel use (Bushels, million)
May 2011
6000
5000
4000
3000
Historic data
2000
2012
1000
2015
0
0
0.0
1995
1997
1999
Source: USDA
2001
2003
2005
2007
2000
4000
6000
8000
10000 12000 14000 16000
Ethanol production (Gallons, millions)
2009
Source: USDA
In the US, all vehicles can run on a 10% ethanol blend, E10, but it is commonly available only
in the US Midwest. Over the past few months, the US Environment Protection Agency has
granted approval for fuel containing up to 15% ethanol in late-model cars and light trucks. As
a result, E15 will now be able to be used for around 55% of the US car fleet, or over 200
million cars. However, some oil refiners believe there is still a non-negligible risk that higher
ethanol blends may cause engine failure.
The United States fuel ethanol industry is based largely on corn. At the end of last year, the
US administration agreed to a one year renewal of the USD0.45/gallon ethanol tax incentive,
a one year extension of the USD0.54/gallon ethanol import tariff and introduced a
USD1/gallon biodiesel and renewable diesel tax credit retroactive to the end of 2009 and set
to expire at the end of this year. Other countries requiring various ethanol blends include
Argentina, Thailand and India. Brazil is the most efficient producer of ethanol, by virtue of the
fact that its primary feedstock is sugar cane rather than corn. For each unit of energy used in
production, sugar cane yields 8.3 units, while corn yields only 1.3 units. However, one
difficulty with ethanol is that it cannot be transported by pipeline due to its chemical volatility.
Exchange & prices
Ethanol futures are traded primarily on the Chicago Board of Trade (CBOT) in units of 29,000
US gallons (approximately one rail car), for delivery by tank car, on track, at shipping origin
with seller responsible for transporting product to buyer’s destination. The Bloomberg ticker
for one month generic denatured fuel ethanol contract traded on the CBOT is DL1
<Commodity>.
In April 2007, Brazil launched a futures contract for anhydrous ethanol on the Brazilian
Mercantile and Futures Exchange. This new anhydrous contract is quoted in US dollars in unit
of 30 cubic meters (30,000 litres) and uses the Santos port as a delivery reference, with
Bloomberg ticker AFA1 <Commodity>. There was an ethanol futures contract listed on the
ICE, but, it was de-listed in December 2007.
Deutsche Bank AG/London
Page 39
May 2011
A User Guide to Commodities
Carbon Emissions
History & properties
CO2 is the molecular formula for carbon dioxide, an atmospheric gas comprising one carbon
and two oxygen atoms. CO2 was first recognized as a gas distinct from air in the 17th
Century by the Flemish chemist Jan Baptist van Helmont, who noticed it as a product of
combustion after burning charcoal. CO2 is one of the greenhouse gases (GHGs) that
contribute to the natural greenhouse effect, the process by which solar energy is trapped
within the Earth’s atmosphere.
In recent decades, concern has grown across the international scientific community over the
increasing concentration of GHGs within the atmosphere. Industrialisation over the past 250
years has been held responsible for the rising levels of carbon in the atmosphere. Antarctic
ice-core samples indicate that CO2 concentrations in the atmosphere were fairly constant at
around 280 parts per million (ppm) until the Industrial Revolution, but that since 1800 there
has been a steady increase in CO2 concentrations up to today’s level of 375ppm. This
concentration continues to increase at the rate of approximately 1.5ppm per annum. A similar
trend has been observed with concentrations of other GHGs.
The concern is that the increase in GHG concentration levels has intensified the natural
warming effect of existing GHGs in the atmosphere, and increased the average temperature
of the Earth by approximately 0.6°C between 1850 and 2000. The International Panel on
Climate Change (IPCC), a UN body set up in 1988 to improve understanding of global
warming, estimates that if the current rate of increase in GHG emissions in general, and CO2
in particular, is not arrested, the Earth’s average temperature will rise by between 1.8°C and
4°C by 2100, with increasingly severe and potentially catastrophic consequences for the
planet..
Emissions trading as a response to climate change: Kyoto and the EU-ETS
The recommendations of the IPCC and the United Nations Framework Convention on Climate
Change (UNFCCC) are to slow the rate of increase in and then reduce GHG emissions. In
adopting this stance the UNFCCC has identified six GHGs. It is these that the 1997 Kyoto
Protocol commits its signatories to reducing relative to their 1990 emissions levels. The six
gases are ranked in terms of an index that measures their global warming potential (GWP)
relative to carbon dioxide. So, carbon dioxide has a GWP of 1, methane of 23, and so on, all
the way up to sulphur hexafluoride, which is 22,200 times more powerful than carbon dioxide
in terms of its impact on the Earth’s temperature when released into the atmosphere, Figure
1.
Figure 1: Index of global warming potential of GHGs relative to CO2
Greenhouse Gas
Global Warming Potential (GWP)
Carbon dioxide(CO2)
1
Methane (CH4)
23
Nitrous Oxide (N2O)
296
Hydrofluorocarbons (HFCs )
12-12,000
Perfluorocarbons (PFCs)
5,700-11,900
Sulphur hexafluoride (SF6)
22,200
Source: UNFCCC
Page 40
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
The Kyoto Protocol established a framework for international emissions trading, enabling
industrialized countries known as Annex-1 countries under the UNFCCC terminology to trade
emissions allowances both between themselves and with developing countries known as
Annex-B countries.
Kyoto established three main types of carbon assets, all of which are denominated in units of
one tonne of CO2 equivalent (CO2e):
1.
Assigned Amount Units, or AAUs (these are the units of compliance for Annex-B
countries with emissions limits under Kyoto, whereas non Annex-B countries do not
have limits under Kyoto and so do not have AAUs either);
2.
Certified Emission Reductions, or CERs (these are the carbon credits generated under
the Clean Development Mechanism, or CDM, a flexible project mechanism designed to
incentivize clean-infrastructure projects in non-Annex-B countries);
3.
Emission Reductions Units, or ERUs (these are the carbon credits generated under the
Joint Implementation, or JI, mechanism, a flexible project mechanism designed to
incentivize clean-infrastructure projects in Annex-B countries).
The CDM enables projects in developing countries to sell CERs to both governments and
companies in developed countries (in the framework of emissions trading schemes or other
voluntary schemes), and has so far been much more important than the JI mechanism in
generating credits. CERs that are bought direct from projects are known as primary CERs,
while CERs bought on a guaranteed basis from market intermediaries are known as
secondary CERs.
As part of its strategy for enabling European-Union Member States to comply with their
Kyoto targets, the EU established an emissions-trading scheme (ETS) in 2005 for heavy
industry covering about 42% of all GHG emissions in the EU. Phase 1 of the ETS operated
over 2005-07, Phase 2 is concurrent with the Kyoto compliance period over 2008-12, and
Phase 3 will run over 2013-20.
The carbon credits traded in the EU-ETS are known as European Unit Allowances (EUAs). In
Phase 1 EUAs collapsed to zero, but action by the European Commission to enforce tougher
caps in Phase 2 and in Phase 3 is supporting EUAs price and have prevented a price slump in
the wake of the 2009 credit crisis, Figure 2.
Figure 2: Phase-1 & 2 EUA & CER prices
Figure 3: The current state of the global carbon market
Source: Analyzerlite
Source: World Bank, Unep Risoe, DB Global Markets Research
Deutsche Bank AG/London
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May 2011
A User Guide to Commodities
Also shown in Figure 2 is the price trend for secondary CERs, as these can also be used in
the EU-ETS for compliance purposes. Since the beginning of Phase 2 ERUs are also
admissible. Note, however, that there is a fixed limit on the use of both CERs and ERUs
within the EU-ETS, as the EU is keen for the price of EUAs to reflect the cost of domestic
abatement within the EU.
EUAs and CERs/ERUs are traded over the counter and on various European exchanges, for
example, Bluenext, the ECX, EEX, and Nordpool. All the CO2 emissions-allowances/credits
are priced in Euros per allowance/credit, but commonly quantified in Euros per tonne.
Future prospects for the global carbon market
The outlook for carbon markets globally is best considered on three levels, namely (i) the EUETS, (ii) the prospects for a new international agreement to succeed Kyoto after 2012, and (iii)
policy developments in other industrialized jurisdictions:
(i)
The EU-ETS: Phase 3 of the ETS still under debate
The ETS remains by far the largest driver of the global carbon market at the moment
accounting for 82% of total turnover in 2009 ($118bn out of $144bn), and even more when
EU purchasing of CERs is taken into account.
The EU-ETS is also the market that has the highest degree of future certainty, in that we
know it will exist beyond 2012, and that Phase 3 will run over 2013-20. The rules governing
the operation of the ETS have been revised under a process known as the ETS Review in
2008.
The main changes are as follows:
Page 42
„
the maximum cap by 2020 will be 21% below the actual level of 2005 emissions for EUETS installations that were covered by the ETS in Phase-2 (i.e. a maximum cap of
1,720Mt by 2020). However, the cap will be reduced progressively over this period,
rather than reduced in one go in 2013 and then held constant over the whole of Phase 3;
„
New sectors and gases will enter the scheme from 2013, besides the aviation joining in
2012;
„
a very much higher levels of auctioning in Phase 3, with 100% of all allowances for the
power-generation sector already auctioned as of 2013 (with a possible transitional free
allocation in some eastern European countries), and a phased reduction for the other
sectors such that by 2027 there are no more free allowances for any installations;
„
The transitional free allocation will be based on product benchmarks rather than on
grand-fathering;
„
In Phase 3 CERs/ERUs will not be anymore compliance instruments in the EU ETS.
However they will be swappable against EUAs, in the maximum limit of c.1,610Mt over
2008-2020 (the final number is still to be defined). The eligibility of CERs/ERUs in Phase 3
will vary depending on CDM/JI projects registration date and credits issuance date.
„
In 2011, the Climate Change Committee (a body comprising the European Commission
and the governments of the 27 EU Member States) voted to ban credits from HFC-23
and N2O adipic acid destruction projects from 2013. It is possible that further qualitative
restrictions may be applied on credits from certain types of projects and/or that other
offset credits may be accepted in Europe.
„
There will be unlimited banking of EUAs between Phase 2 and Phase 3.
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
(ii)
A new international framework beyond 2012
Kyoto Protocol’s first commitment period ends in 2012. Negotiations to shape a
comprehensive international climate agreement are slow going and although the December
2010 Cancun’s UN-meeting re-instilled some hope on the multilateral discussions process, it
did nothing to re-assure us that a globally binding climate deal to succeed Kyoto can be
secured at COP-17 in December 2011.
With the US mid-term elections in November likely having wiped out any residual chance of
legislation on a federal cap-and-trade scheme there until 2013 at the earliest, and with Japan,
Russia, and Canada refusing at COP-16 to countenance a two-year extension of existing
Kyoto commitments (in large part because neither the US nor China have binding
commitments under Kyoto), we do not see any prospect of a second international
commitment period being in place by 1 January 2013. Indeed, we think it is now likely to take
some years for a new legally binding global deal to be negotiated. This raises the prospect of
the CDM existing beyond 2012 without a second international commitment period, a
scenario that while perfectly possible under the governance arrangements of the CDM was
nonetheless not the original assumption when the Kyoto Protocol was ratified.
(iii)
The outlook for other jurisdictions
In the absence of material progress towards a new international climate deal at Cancun,
market interest outside the EU in 2011 is likely to be focused on California and Australia. In
California, the AB32 legislation is now set to move forward, with a cap-and-trade scheme
beginning in 2012 (power generators only to start with, and then covering all of heavy
industry from 2015). The impact of the Californian scheme on international carbon markets
may be limited, however, as if allowed at all the admissibility of CDM credits into the scheme
will likely be very restricted. Eventually, if the Australian government were to decide in favour
of an emissions-trading scheme similar in design to the CPRS that it almost enacted in 2009,
it would not be implemented before 2016 at the earliest according to a recent proposal by
the Government and Greens members of the Multi-Party Climate Change Committee in
which they agreed on a short-term carbon tax for three to five years starting 1 July 2012. One
way or the other, though, there could finally be clarity on how and when carbon will be priced
in Australia by the end of 2011.
Deutsche Bank AG/London
Page 43
May 2011
A User Guide to Commodities
Renewable Energy
History & properties
Renewable energy is produced from resources which are naturally replenished, such as rain,
wind, sunlight, oceanic waves, tides, geothermal heat and biomass. In order to get
compensate for the intermittency inherent in renewables, back-up generation in the form of
gas-fired power plants is typically necessary, although pumped storage can provide some
buffering ability.
Hydropower
Hydropower is the most common of all renewable energy sources for electricity generation.
Hydropower generates electricity by harnessing or directing moving water. Typically, water
flowing through a penstock or a pipe, turns and pushes against the blades in a turbine to spin
a generator to produce electricity. Hydropower has been used for thousands of years to turn
stones for grinding grains and consequently it is one of the oldest harnessed sources of
energy. However, it did not become widely used until the 20th Century when the technology
to transmit electricity over long distances was developed.
Hydropower also includes pumped storage, which utilises cheap overnight power to pump
water into an elevated reservoir, thereby storing electricity as potential energy. During the
daytime, when power prices are higher, the water is allowed to flow downwards, driving
turbines and generating electricity.
Wind power
Wind power uses wind turbines to generate electricity. The power output of a turbine
increases dramatically as wind speed increases. Areas where winds are more constant and
stronger, such as high altitude sites and offshore regions, are better albeit more expensive
locations for wind farms. Wind energy has also been used by people since ancient times as a
source of power to grind grains and other materials. The earliest windmills were built in
Persia in the 7th century.
Solar power
Solar power describes the conversion of solar energy into other forms of energy, such as
heat and electricity. Solar energy can be converted into electricity using photovoltaic (PV)
devices or solar power plants. Photovoltaic panels generate electricity directly from sunlight.
Solar power plants can also generate electricity indirectly using thermal collectors to focus
the sun’s rays to heat fluid to a high temperature. The heated fluid is then used to boil water,
producing steam that is used to drive a turbine and generate electricity. British astronomer
John Herschel used a solar thermal collector box to cook food during an expedition to Africa
in the 1830s.
Geothermal energy
Geothermal energy is the energy derived from the hot interior of the earth. It is a renewable
energy because heat is continuously produced inside the earth by the slow decay of
radioactive particles. Water heated by the geothermal energy rises naturally to the surface via
fissures in the earth’s crust at hot springs and geysers. Heated underground steam or water
is tapped and brought to the surface to operate steam turbines and generate electricity, a
practise common in Iceland.
Biomass energy
Biomass energy is generated from non-fossilized materials derived from plants. The main
sources of biomass energy are wood and wood waste, followed by energy from municipal
solid waste (MSW) and alcohol fuels. Biomass in the form of organic waste can be converted
through gasification to produce a biogas (normally methane). The biogas is then burnt to
produce energy. When using biomass as a renewable source of energy it is necessary to
ensure the durability of the source via land management practices.
Page 44
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Major producers and consumers
While renewable energy is often measured in terms of capacity, actual generation achieved is
quite a different story. Load factors (utilisation) using 2008 data range from 39.7% for
hydropower, to 20.6% for wind turbines, and 10.6% for grid-connected solar photovoltaics,
on a world-total basis. China holds the largest hydropower capacity, with 197GW, or 20% of
the world total. Actual generation in 2008 measured 585TWh, implying a load factor of
roughly 34%. By region, the bulk of world hydropower capacity is in the EU-27 countries,
which together account for 580GW, or 59% of the world total.
The United States held the largest total capacity of wind generation in 2009, with 35.1GW.
The largest additions to wind generation capacity in 2009 occurred in China, as a result of
legal requirements for large power generators. Wind generation capacity in China increased
by 111% from 12.2GW to 25.8GW. However, the load factor of Chinese windpower is
among the lowest, at 12.2%.
Germany is the undisputed champion in terms of solar photovoltaic capacity, as a result of
generous governmental feed-in tariffs, which guarantee a price for photovoltaic power
contributed into the grid. 47% of the world’s total photovoltaic capacity is located in
Germany. Recent reductions in the feed-in tariffs will probably mean that future increases in
capacity will be more measured.
Figure 1: Renewable electric power capacity including large hydro, 2009 (GW)
1400
Geothermal power
Solar photovoltaic-grid
1200
Biomass power
Windpower
1000
Total hydropower (all sizes)
800
600
400
200
0
World Total
EU-27
China
Developing
Countries
United
States
Japan
Germany
India
Spain
Source: REN21, Renewables 2010: Global Status Report
Figure 2: Renewable electric power capacity excluding large hydro, 2009 (GW)
350
Geothermal power
Solar photovoltaic-grid
300
Biomass power
Small hydropower (<10 MW)
250
Windpower
200
150
100
50
0
World Total
EU-27
Developing
Countries
China
United
States
Germany
Spain
India
Japan
Source: REN21, Renewables 2010: Global Status Report
Deutsche Bank AG/London
Page 45
May 2011
A User Guide to Commodities
Precious metals
Precious metals production ranges from nearly 22,800 tonnes in silver to a mere 7.8 tonnes
for iridium. Iridium is one of the rarest metals on the planet representing less that 1 part per
billion of the earth’s crust. However, it is regularly found in meteorites and has been linked to
theories on the extinction of dinosaurs.
One of the major distinguishing features of the gold market compared to other commodities
is that annual mine production for gold is less than 10% of total above ground stocks. This
tends to mean that the gold forward curve is always in contango and level of volatility tends
to be lower than other commodity markets where inventories are significantly lower
compared to annual demand and supply.
Gold held by central banks amounted to just over 30,500 tonnes as of the end of March
2011. The lion’s share of these holdings is held by the United States, Germany, Italy and
France. These countries’ gold holdings are equivalent to around two-thirds of their total
reserves, compared to a world average of just over 11%. Gold to total reserve ratios are
significantly lower in Asia and the Middle East and in some circumstances below 3% of total
reserves. The performance of the gold price has been closely linked to the course of the US
dollar and the level of real interest rates in the United States.
Figure 1: Precious metals production in 2010
3,000
Figure 2: Central bank gold reserves
9000
2010F production (tonnes)
Silver production = 22,796t
2,637.0
Top 13 Central Bank Gold Holdings ( tonnes, Mar 2011)
World total = 30,534.5 tonnes
Top 13 constitute 74% of world total
74
8000
2,500
7000
2,000
6000
5000
1,500
4000
1,000
70
3000
68
% share of gold
to total reserves
65
2000
500
2
222.1
186.9
34.2
17
1000
23.9
7
3
57
8
29
7.8
5
81
0
0
Gold
Palladium
Platinum
Ruthenium
Rhodium
Iridium
US
GER
ITA
FRA CHN SWZ RUS
JPN NETH IND
ECB
TAI PORT
Source: GFMS, Johnson Matthey, Deutsche Bank, 2010 estimates
Source: IMF, World Gold Council (data end March 2011)
Figure 3: Gold and silver returns in different US real
Figure 4: The top precious metals futures contracts
interest rate environments
Contract
Year-on-year returns since 1970
60
Gold
Silver
YoY returns (% )
40
20
0
-20
-40
-60
-5
-4
-3
-2
-1
0
1
2
3
4
5
Real short-term Fed funds rate (%)
Source: DB Global Markets Research, Bloomberg
Page 46
6
7
8
9
Exchange
Turnover Turnover % change
2009
2010
Gold
NYMEX
35.1
44.7
27%
Silver
NYMEX
8.0
12.8
61%
Gold
Tokyo Commodity Exchange
11.9
12.2
2%
Platinum
Tokyo Commodity Exchange
3.6
4.4
21%
Gold
SFE
3.4
3.4
0%
Platinum
NYMEX
0.8
1.5
85%
Palladium
NYMEX
0.4
0.9
125%
Silver
Tokyo Commodity Exchange
0.1
0.2
111%
Palladium
Tokyo Commodity Exchange
0.1
0.2
46%
Source: TOCOM, NYMEX, (data are in million lots)
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Gold
History & properties
Gold has the symbol Au derived from the Latin word aurum. Gold has the atomic number 79
and was first mined in Egypt more than 4,000 years ago. It was used in the world’s first
coinage around 640BC in Lydia, in what is now modern day Turkey.
Gold is a dense, lustrous, yellow precious metal that has been used for millennia as a store of
value, as a unit of exchange and in jewellery. It is the most malleable and ductile metal known
to man such that a single gram of gold can be beaten into a sheet of one square metre or a
wire more than one mile long. Gold is a good conductor of heat and electricity, and it is
unaffected by air, heat, moisture and most solvents. It is occasionally found in nuggets, but
occurs more commonly as minute grains between mineral grain boundaries. Historically, gold
was obtained by panning streambeds, but modern extraction techniques can economically
recover gold from ore grades as low as 0.5 parts per million. Gold was used as a benchmark
for the world monetary system between 1944 and 1971, when the Bretton Woods
agreement fixed the world’s paper currencies to the US dollar, which, in turn, was tied to
gold. The collapse of this system at the end of 1971 heralded not only freely floating
exchange rates, but, also gold prices.
Major producers
Since 1905, South Africa had been the world’s largest producer of gold. However, since 2007
it has been overtaken by China who is the largest producer at 344t, Australia and the US.
During this decade South African production has suffered from declining ore grades,
maturing mines, power disruptions and labour unrest. Today China, South Africa, Australia
and the US account for approximately 40% of the world’s annual gold mine production.
Major holders
Global central banks remain a powerful community in terms of the world gold market. Their
combined holdings amounted to 30,534.5 tonnes as of March 2011. The largest holder of
reserves is the United States with 8,134 tonnes, equivalent to 73.8% of total reserves. The
average gold to total reserve ratio across all central banks is 11.6%. However, in Europe
ratios are significantly higher with Portugal holding the highest gold to total reserve ratio at
81.3%.
While European central banks can still be considered to be ‘overweight’ gold, aggressive
central bank intervention across Asia over the past few years has led to a dramatic increase
in their FX reserves and consequently a decline in their gold to total reserve ratios. In the case
of Japan and China, gold to total reserve ratios currently stand at 3% and 1.6% respectively.
Figure 1: The world’s top 10 gold producers and consumers in 2010 by country and
region
Producers
Tonnes
% of world
China
340.9
13.4
India
540.0
31.5
USA
284.6
11.2
China
579.5
19.0
260
10.2
Europe ex CIS
267.3
8.8
South Africa
191.8
7.5
Middle East
238
7.8
Russia
184.8
7.2
USA
233.3
7.6
Peru
163.4
6.4
Germany
126.9
4.2
Indonesia
104.9
4.1
Turkey
114.6
3.8
Ghana
92.9
3.6
Switzerland
91.7
3.0
Canada
90.5
3.5
Saudi Arabia
87.5
2.9
Uzbekistan
73.2
2.9
Vietnam
81.4
2.7
World
2550
World
3,055
Australia
Tonnes
% of world Consumers
Source: WGC, WBMS
Deutsche Bank AG/London
Page 47
May 2011
A User Guide to Commodities
Figure 2: Gold demand by sector in 2010
11%
Figure 3: Top 10 gold producing companies in 2010
2%
Com pa ny
Jewellery
52%
Private Investment
16%
Official Holdings
Other Fabrication
19%
Lost and unaccounted
Source: GFMS
Tonnes
Moz
Ma r ket s ha r e
Barrick Gold
241
7.75
9.1%
Newmont Mining
166
5.35
6.3%
AngloGold Ashanti
140
4.50
5.3%
Gold Fields
103
3.31
3.9%
Goldcorp
79
2.55
3.0%
Newcrest Mining
74
2.37
2.8%
Kinross Gold
72
2.32
2.7%
Navoi MMC
63
2.03
2.4%
Freeport McMoRan
59
1.90
2.2%
Harmony Gold
42
1.35
1.6%
Source: GFMS, Company Reports, Deutsche Bank
Major uses
The lion’s share of gold consumption comes from the jewellery sector, accounting for 52%
of total demand in 2010. Alloys of gold with silver, copper and other metals are often used
because pure gold is too soft for ordinary use. When used in jewellery, it is measured in
karats (k), with pure gold being 24k, and lower numbers indicating higher copper or silver
content. Gold has some industrial uses, due to its electrical conductivity, resistance to
corrosion, reflectiveness and other physical and chemical properties. It is used in electrical
connectors and contacts, electronics, restorative dentistry, medical applications, chemistry
and photography.
Exchange traded & price conventions
Gold is traded on the Tokyo Commodity Exchange (TOCOM), the New York Mercantile
Exchange (NYMEX) and the Shanghai Futures Exchange. The Bloomberg ticker for the spot
gold price is GOLDS <Comdty>. The Bloomberg codes for the DB Gold total returns and
excess returns indices are DBRGCTR <Index> and DBRGC <Index> respectively. The
Bloomberg codes for the DB Gold-Optimum Yield total and excess returns indices are
DBLCOGCT <Index> and DBLCOGCE <Index>.
Figure 4: Gold price since 1964
1500
Figure 5: Gold turnover by exchange
Gold spot price (USD/oz)
45
1200
Annual turnover in 2010
(Futures only, million lots)
50
44.7
40
35
900
30
25
600
20
15
300
12.2
10
3.4
5
0
1964 1968 1973 1978 1982 1987 1992 1996 2001 2006 2010
Source: DB Global Markets Research, IMF (monthly data as of 7 April 2011)
Page 48
0
NYMEX
TOCOM
SFE
Source: TOCOM, NYMEX, SFE)
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Silver
History & properties
Silver has the symbol Ag derived from the Latin argentum. It has the atomic number 47. First
mined on a large scale around five thousand years ago in an area that is modern-day Turkey,
its use was widespread due to its ease of access since silver deposits were on or near the
earth’s surface. Silver is often found in close proximity to other ores, such as lead, copper
and zinc.
Silver has the highest electrical conductivity of all metals, but its cost being 64 times more
expensive than copper has prevented it from being used more widely for electrical purposes.
It is also ductile, malleable, superior conductor of heat and good reflector of light. Sterling
silver is a commonly used alloy of silver containing 92.5% silver and 7.5% copper.
Major producers & consumers
Approximately three-quarters of silver is mined from gold, copper, lead and zinc mines as a
by product of these metals. Mexico is the world’s largest producer of silver at 128.6 million
ounces in 2010, followed by Peru, China, Australia and Chile. Industrial applications are an
important component of total silver demand. The US and China being the largest consumers
representing roughly a third of world demand. Japan and India are the world’s third and
fourth largest consumers of the metal respectively.
Major uses
Throughout history, silver has been used in the manufacture of ornaments, utensils, jewellery
and coins. Today demand for silver is dominated by three main categories:
jewellery/silverware, industrial applications and photography. Jewellery and silverware are
not only the largest category of demand, but, also the most sensitive to price.
Unlike gold, silver has significant industrial applications, helped by the fact that silver is 35
times cheaper than gold. Due to its conductivity silver is used extensively in the electronics
sector as well as in photography. However, photographic fabrication demand of silver has
fallen steadily over the past several years due to the increasing popularity of digital cameras.
Other industrial applications of silver include catalyst use, photovoltaic solar panels, water
purification, electrical applications, brazing and soldering, mirror and other coating and
electroplating.
Figure 1: The world’s top 10 silver producers and consumers in 2010
Producers
Moz
Mexico
128.6
Peru
116.1
China
% of World
Consumers
Moz
% of World
17.5%
USA
189.6
21.6%
15.8%
China
127.2
14.5%
99.2
13.5%
Japan
102.1
11.6%
Australia
59.9
8.1%
India
94.1
10.7%
Chile
41.0
5.6%
Germany
39.6
4.5%
Bolivia
41.0
5.6%
Italy
35.2
4.0%
USA
38.6
5.2%
Thailand
30.7
3.5%
Poland
37.7
5.1%
South Korea
29.9
3.4%
Russia
36.8
5.0%
UK & Ireland
20.7
2.4%
Argentina
20.6
2.8%
Belgium
17.7
2.0%
World
735.9
World
879
Source: GFMS
Deutsche Bank AG/London
Page 49
May 2011
A User Guide to Commodities
Figure 2: Silver demand by sector in 2010
Figure 3: Top 10 silver producing companies in 2010
Com pa ny
1.7%
12.2%
Industrial
45.7%
17.1%
Other Fabrication
Tonnes
Moz
Ma r ket s ha r e
BHP Billiton
1,449
46.6
6.3%
Fresnillo
1,179
37.9
5.2%
KGHM
1,160
37.3
5.1%
Jewellery
Pan American Silver
756
24.3
3.3%
Implied Net investments
Goldcorp
715
23.0
3.1%
Minera Volcan
622
20.0
2.7%
Hochschild Mining
554
17.8
2.4%
Polymetal
538
17.3
2.4%
Coeur d'Alene
522
16.8
2.3%
Sumitomo
448
14.4
2.0%
Indian Bar hoarding
23.2%
Source: GFMS, 2010 estimates
Source: GFMS, Company Reports, Deutsche Bank
Exchange traded
Silver is traded on the COMEX division of the New York Mercantile Exchange (NYMEX), and
the Tokyo Commodities Exchange (TOCOM). The COMEX silver futures contract specifies
delivery of 5,000 troy ounces, and is quoted in US cents per troy ounce. The Bloomberg
ticker for the spot silver price is SLVRLN <Comdty> and is quoted in US cents per troy
ounce.
The Bloomberg codes for the Deutsche Bank Silver Optimum Yield total returns and excess
returns indices are DBLCYTSI <Index> and DBLCYESI <Index> respectively.
Figure 4: Silver price from 1968
Figure 5: Silver turnover by exchange
Silver spot price (USD/oz)
45
40
14
12.8
Annual turnover in 2010
(Futures only, million lots)
12
35
10
30
25
8
20
6
15
4
10
5
0
1968
2
0.2
1974
1980
1986
1992
1998
2004
2010
0
NYMEX
Source: DB Global Markets Research, IMF (monthly data as of 7 April 2011)
Page 50
TOCOM
Source: NYMEX, TOCOM
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Platinum
History & properties
Platinum has the symbol Pt and the atomic number 78. The English word platinum derives
from the Spanish word platina meaning little silver as the Spaniards named the metal when
they first encountered it in Colombia. Platinum is one of the noble metals, that is very few
chemicals will react with it or corrode it. It is 30 times rarer than gold, representing around 3
parts per billion of the Earth’s crust. In addition, it is twice as heavy as gold. Like gold,
platinum is pliable such that one gram can be rolled into a fine wire over one mile long.
The metal has excellent catalytic properties and its resistance to tarnishing makes it well
suited for making jewellery. It is extremely corrosion resistant and has a high melting point.
Fuel cells use it as a catalyst to convert hydrogen and oxygen to electricity. Platinum has
been found in objects from ancient Egyptian civilisation as early as 700BC. However, it is
claimed to have been discovered by astronomer, Antonio de Ulloa in the mid-1700s and was
formally recognised as a new metal in 1751. Until recently, the definition of a metre was
based on the distance between two marks on a platinum/iridium bar housed at the Bureau
International des Poids et Mesures in Sèvres, France. Even today, the definition of a kilogram
is based on a platinum/iridium cylinder also housed in the Bureau.
Major producers
Around 80% of the world’s reserves and production of platinum occur in Southern Africa
primarily in South Africa’s Bushveld Igneous Complex, in three “limbs”, the Western (a more
mature region), the Eastern and Northern limbs (less developed). Platinum also occurs in
Zimbabwe’s Great Dyke, which bisects the country from north to south. Of the remaining
global deposits, Russia’s are the most significant and these are predominantly a by-product
of Norilsk’s nickel deposits. The next major producers are Canada (Sudbury) and the US.
Again this production is mostly a by-product of nickel and palladium production. In terms of
yield, 10 to 15 tonnes of ore are required to produce just one troy ounce, or approximately 31
grams, of platinum.
Figure 1: The world’s top 5 platinum producers and consumers in 2010F
Producers
koz
% of world
4,585
koz
78.6%
China
1,985
26.3%
Russia
810
13.5%
Europe
1,955
25.9%
Zimbabwe
280
4.7%
North America
1,385
18.3%
North America
210
3.5%
Japan
1,155
15.3%
Others
125
2.1%
Other
1,080
14.3%
World
6,010
World
7,560
South Africa
% of world Consumers
Source: Johnson Matthey; 1 tonne = 32,151 troy ounces
Figure 2: Platinum demand by sector in 2010
Figure 3: Platinum turnover by exchange
5
3.3% 2.7%
3.9%
Autocatalyst
4.0%
Jewellery
5.7%
Annual turnover in 2010
(Futures only, million lots)
4.4
4
Chemical
Investment
6.7%
46.2%
3
Glass
Medical
2
Other
7.0%
Electrical
1.5
1
Petroleum
20.5%
0
NYMEX
Source: Johnson Matthey,2010 estimates
Deutsche Bank AG/London
TOCOM
Source: TOCOM, NYMEX
Page 51
May 2011
A User Guide to Commodities
Figure 4: Major platinum producing companies (2010F)
Com pa ny
koz
Tonnes
Ma r ket s ha r e
Anglo Platinum
2,189
68.1
36.4%
Impala
1,517
47.2
25.2%
Lonmin
706
22.0
11.7%
Norilsk
680
21.1
11.3%
Aquarius Platinum
266
8.3
4.4%
Northam
190
5.9
3.2%
Royal Bafokeng
170
5.3
2.8%
Xstrata
135
4.2
2.2%
Stillwater
112
3.5
1.9%
Vale
100
3.1
1.7%
65
2.0
1.1%
Eastplats
Source: Company reports, Deutsche bank
Figure 5: Platinum price since 1976
2500
Platinum spot price (USD/oz)
2000
1500
1000
500
0
1976
1981
1986
1991
1996
2001
2006
2011
Source: Datastream, Bloomberg (data as of 7 April 2011)
Major uses
Autocatalytic applications are the largest single use of platinum, accounting for over 46% of
total platinum usage. Its use is predominantly to clean tailpipe emissions in diesel
automobiles. Jewellery is the second most important demand category, accounting for
around 21% of total demand with Japan and China representing the majority of the global
platinum jewellery market.
Platinum is also becoming increasingly important as an industrial metal in the chemical,
electrical and glass manufacturing industries. However, it is platinum as well as ruthenium’s
role as a catalyst in hydrogen fuel cell technology which could revolutionise demand for these
metals particularly in an environment of high oil prices. Fuel cells convert the energy of a
chemical reaction directly into electricity, with heat as a by-product. Unlike fossil fuels, the
exhaust product of a fuel cell is water. Electric vehicles represent the biggest substitution
threat to platinum, but the impact is expected to be fairly modest. ETFs have seen strong
inflows over the past few years, as investment demand has increased in line with other
precious metals.
Exchange traded & price conventions
The main exchange for trading platinum futures is the Tokyo Commodities Exchange, but,
they are also listed on the New York Mercantile Exchange. The Bloomberg ticker for the
platinum spot price is PLAT <Comdty>.
Page 52
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Palladium
History & properties
Palladium has the symbol Pd and the atomic number 46. Palladium has similar chemical
attributes to platinum, although it is less dense with a specific gravity of 12 compared to 21.5
for platinum. Palladium also has the lowest melting point of all the platinum group metals at
1,555˚C compared to 1,768˚C for platinum. The metal has excellent catalytic properties and
although not as resistant to tarnishing as platinum, it is still well suited for jewellery.
Palladium was discovered by the English chemist, William Hyde Wollaston in 1803. Until
recently, palladium chloride was used in the treatment of tuberculosis and has played an
important role in cold fusion experiments.
Major producers
The Russian mining company Norilsk is a major producer of palladium as a by-product of its
nickel operations. In 2010, it represented around 44% of world supply. However, 80% of the
world’s reserves of palladium occur in Southern Africa primarily in South Africa’s Bushveld
Igneous Complex, but, also in Zimbabwe’s Great Dyke. Of the remaining global deposits, the
United States and Canada constitute a few percent of global reserves, with little of any
consequence elsewhere in the world.
Major uses
Like platinum, autocatalytic applications is the largest category of demand, accounting for
61% of total palladium usage. In 2010, electronics and investment accounted for nearly 12%
and 8% respectively of palladium demand. Palladium is also used in chemical and dental
industries as well as in anti-cancer medication as it works to inhibit cell division.
Figure 1: The world’s top palladium producers and consumers in 2010F
Producers
koz
% of world
Russia*
2.700
koz
% of world Consumers
44.0%
North America
2,605
29.1%
South Africa
2,485
40.5%
China
1,810
20.2%
North America
560
9.1%
Europe
1,550
17.3%
Zimbabwe
220
3.6%
Japan
1,465
16.40%
Others
165
2.7%
Other
1,510
16.90%
World
6,130
World
8,940
Source: Johnson Matthey, *excluding stockpile sales;; 1 tonne = 32,151 troy ounces
Figure 2: Palladium demand by sector in 2010
4.6%
Figure 3: Palladium turnover by exchange
1
1.0%
0.9
6.5%
Annual turnover in 2010
(Futures only, million lots)
0.8
Autocatalyst
7.4%
Electrical
Investment
8.0%
Dental
Jewellery
61.2%
11.5%
0.6
0.4
Chemical
Other
0.2
0.2
0
NYMEX
Source: Johnson Matthey, 2010 estimates
Deutsche Bank AG/London
TOCOM
Source: TOCOM, COMEX
Page 53
May 2011
A User Guide to Commodities
Figure 4: Major palladium producing companies
(2010F)
Com pa ny
koz
Tonnes
Ma r ket s ha r e
Norilsk
2,700
84.0
44.0%
Anglo Platinum
1,243
38.7
20.3%
Impala
983
30.6
16.0%
Stillwater
377
11.7
6.2%
Lonmin
315
9.8
5.1%
Xstrata
160
5.0
2.6%
Vale
150
4.7
2.4%
Aquarius Platinum
142
4.4
2.3%
Royal Bafokeng
100
3.1
1.6%
Northam
93
2.9
1.5%
Eastplats
30
0.9
0.5%
Source: Company reports, Deutsche bank
Figure 5: Palladium price since 1987
Palladium spot price (USD/oz)
1200
1000
800
600
400
200
0
1987
1990
1993
1996
1999
2002
2005
2008
2011
Source: Bloomberg, DB Global Markets Research (data as of 7 April 2011)
Exchange traded & price conventions
Until 2000, when onerous restrictions were imposed on various contracts, the Tokyo
Commodities Exchange was the main exchange for trading palladium futures. During this
decade COMEX, which forms part of NYMEX has become the largest more liquid exchange
for trading palladium. The Bloomberg ticker for the palladium spot price is PALL <Comdty>.
Page 54
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Rhodium
History & properties
Rhodium has the symbol Rh and the atomic number 45. The English word rhodium derives
from the Greek rhodon meaning rose. Rhodium is an extremely rare metal, representing less
than 1 part per billion of the Earth’s crust. The metal was discovered by the English chemist,
William Hyde Wollaston in 1803, shortly after he discovered palladium. Around 400g of
rhodium can be recovered from each ton of spent nuclear fuel. These rhodium isotopes have
a half life of three years and as a consequence need to be stored for at least 20 years.
Major producers
Like the rest of the PGM complex, the majority of the world’s reserves occur in Southern
Africa. It is produced primarily as a by-product of platinum mining in South Africa, which
accounts for over 80% of world supply. Anglo Platinum is the single largest producer of
rhodium in the world, which accounted for nearly half of South African supply in 2010.
Major uses
Fabrication demand for Rhodium is dominated by autocatalytic applications. According to
Johnson Matthey, auto catalysts have accounted for about 83% of total rhodium fabrication
demand in 2010. Like platinum and palladium, it is predominantly used to clean tailpipe
emissions in diesel automotives and “lean-burn” gasoline automotives. The metal has also
become increasingly important to the glass manufacturing sector where it is used in the
tooling for new flat screen and LCD displays.
Exchange traded & price conventions
Rhodium is not an exchange traded commodity. The Bloomberg ticker for the rhodium
Johnson Matthey spot price is JMATRHOD <Index>. The Reuters instrument code (RIC) for
rhodium spot price is RHOD-LON.
Figure 1: The world’s top rhodium producers and consumers in 2010F
Producers
koz
koz
% of world
South Africa
612
% of world Consumers
85.4%
USA
230
26.1%
Russia
70
9.8%
Europe
230
26.1%
Zimbabwe
23
3.2%
Japan
210
23.9%
North America
11
1.5%
China
190
21.6%
Others
1
0.1%
Other
20
2.3%
World
717
World
880
Source: Johnson Matthey, Deutsche Bank
Figure 2: Rhodium demand by sector in 2010
2.4%
Figure 3: Rhodium price since 1994
0.5%
10000
6.5%
Rhodium spot price (USD/oz)
8000
7.6%
Autocatalyst
Chemical
6000
Glass
Other
4000
Electrical
2000
83.0%
Source: Johnson Matthey, 2010 estimates
Deutsche Bank AG/London
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Reuters (data as of 7 April 2011)
Page 55
May 2011
A User Guide to Commodities
Other PGMs: Ruthenium, Iridium & Osmium
History & major uses
Iridium (Ir) and ruthenium (Ru) and Osmium (Os) are lesser known Platinum Group Metals,
discovered in 1803, 1844 and 1803 respectively. These metals are largely produced as
byproducts of nickel, platinum and palladium. While iridium is rare on earth, it is relatively
common in meteorites and has been linked to theories on the extinction of dinosaurs. Iridium
is also the most corrosion-resistant metal known to man. Ruthenium is a rare transition metal
of the PGM family and can also be recovered from spent nuclear fuel. Osmium is the densest
natural element.
Ruthenium’s primary demand category is the electronics sector (65%) where it significantly
increases the storage capacity and durability of hard disk drives. It is also used in the making
of plasma display screens. Ruthenium is also used in various chemical catalysts.
Iridium is primarily used in high-strength alloys, capable of withstanding very high
temperatures. It is also used in electronics and in the manufacture of crucibles required for
the production of high quality single crystals, spark plug electrodes and other chemical
applications.
Osmium’s major use is as a catalyst in making steroids. Due to its hardness and corrosion
resistance osmium is often used in the production of extremely hard alloys. Alloys of osmium
are used in fountain pen nibs, electrical contacts and armour-piercing shells.
Exchange traded & price conventions
The markets for iridium and ruthenium are small and illiquid and as a result futures markets
are non-existent. The Bloomberg tickers for the iridium and ruthenium Johnson Matthey spot
price are JMATIRID <Index> and JMATRUTH <Index> respectively. The Reuters code for
iridium and ruthenium are RUTH-LON and IRID-LON respectively.
The osmium market is extremely small both in terms of traded volume and the number of
companies involved in the production and consumption of the metal.
Figure 1: Ruthenium price since 1994
1000
Figure 2: Iridium price since 1994
1200
Ruthenium spot price (USD/oz)
Iridium spot price (USD/oz)
1000
800
800
600
600
400
400
200
200
0
1994
1996
1998
2000
Source: Reuters (data as of 7 April 2011)
Page 56
2002
2004
2006
2008
2010
0
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Reuters (data as of 7 April 2011)
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Industrial Metals & Bulk Commodities
Industrial metals are also known as non-ferrous metals, meaning they are not associated with
iron. The industrial metals complex is comprised of aluminium, copper, lead, nickel, tin and
zinc. These six metals are traded on several exchanges around the world. However, the
benchmark contracts are listed on the London Metal Exchange (LME). The LME was founded
for in 1877 and much of the business is still conducted through open outcry trading in the
‘Ring.’ Volume on the LME is dominated by the aluminium, copper and zinc contracts, which
combined represent around 85% of all turnover on the exchange.
The LME is a highly liquid market and in 2010 turnover reached a new record of 120 million
lots, equivalent to USD11.6 trillion. During 2010 the LME have been increasing the number of
listed futures contracts for example cobalt and molybdenum. Aluminium is the most actively
traded metal on global exchanges. The annual production of aluminium, which reached 40.7
million tonnes in 2010, exceeds the output of all other industrial and precious metals
combined, with the exception of steel.
One of the most important trends during the past decade had been China’s voracious
appetite for industrial raw materials, which has accelerated since the country joined the
World Trade Organisation in 2001. This has led the country’s share of world consumption of
not only industrial metals, but all major raw materials to increase substantially, Figure 3.
Figure 1: Metallgesellschaft Metals Index
Figure 2: Industrial metals primary production
500
45
450
40
400
35
350
30
300
25
250
2010 production (tonnes, million)
40.7
19.3
20
200
12.7
15
150
9.3
10
100
5
1.5
50
0.4
0
0
1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Aluminium
Copper
Zinc
Lead
Nickel
Source: Bloomberg, IMF; (Monthly data as of end Feb-11) ; Note: The MGMI is a composite price index of
the six LME metals which is weighted according to traded volume
Source: World Bureau of Metal Statistics
Figure 3: China’s raw materials consumption as a
Figure 4: The world’s top metals futures contracts
Tin
percent of global consumption
70%
2005
2010
2015E
60%
50%
40%
30%
20%
10%
0%
Aluminium
Copper
Lead
Source: Brook Hunt, UNCTAD, Tex Report, AME
Deutsche Bank AG/London
Nickel
Zinc
Crude Steel
Iron Ore
Contract
Exchange
Turnover
2009
Turnover
2010
Rebar
Shanghai Futures Exchange
161.6
225.6
% change
40%
Zinc
Shanghai Futures Exchange
32.3
146.6
354%
-37%
Copper
Shanghai Futures Exchange
81.2
50.8
Alum inium
LME
47.0
46.5
-1%
Copper
LME
24.9
29.9
20%
Zinc
LME
15.9
18.1
14%
Alum inium
Shanghai Futures Exchange
20.5
17.3
-16%
Copper
NYMEX
6.4
10.3
61%
Lead
LME
6.0
7.7
29%
Nickel
LME
6.7
7.3
9%
Tin
LME
4.6
1.6
-66%
-36%
NASAAC
LME
0.9
0.6
Alum inium Alloy
LME
0.4
0.5
9%
Wire rod
Shanghai Futures Exchange
1.1
0.2
-86%
Aluminium
Tokyo Commodity Exchange
0.0
0.0
-93%
Source: LME, NYMEX, SFE (million lots)
Page 57
May 2011
A User Guide to Commodities
Aluminium
History & properties
Aluminium has the symbol Al and atomic number 13. Its name derives from the Latin word
alumen. It is one of the most abundant metallic elements in the earth’s crust and is a silvery
white colour. However, it does not naturally occur in free form, instead it is found combined
with other elements in mineral form (silicates/oxides), specifically in bauxite ore. Its most
important characteristics are its resistance to corrosion and its light weight. Aluminium has
been commercially produced since 1888. Today, more aluminium is produced annually than
all other non-ferrous metals combined.
Aluminium is extremely difficult to separate from the other elements in bauxite ores
(aluminium-rich minerals), requiring enormous amounts of energy. Two to three tonnes of
bauxite are required to produce one tonne of alumina (aluminium oxide) and about two
tonnes of alumina are required to produce one tonne of aluminium metal. The basis for
aluminium production today dates back to 1886 when scientists invented a new electrolytic
process whereby aluminium oxide (alumina) was dissolved in a bath of molten cryolite and a
powerful electric current passed through them (Haull-Heroult process). Molten aluminium
would be then deposited at the bottom of the bath.
Major producers & consumers
The world’s major primary aluminium producers are China, Russia and Canada. In terms of
exports, Russia accounts for the lion’s share with 26%. The main importers are the US,
Japan, and Germany. However, in terms of bauxite mine production Australia, Brazil, China,
Indonesia and Guinea accounted for over 76% of world mine production in 2010. In terms of
bauxite production, Australia, China, Indonesia and Brazil account for 68% of the world’s
share. Rusal, Rio Tinto, and Alcoa are the three largest companies in terms of aluminium
smelting, with a production share of more than 27% in 2010.
Major uses
Aluminium combines unique characteristics that make it highly attractive. It is lightweight,
but, very strong and durable. It is highly conductive, non-corrosive, malleable, recyclable and
has historically been priced cheaply compared to its peer metals. It is primarily used in the
transportation, packaging (cans), building/construction and consumer electronic industries.
Most materials that claim to be aluminium are in fact an aluminium alloy. Since aluminium
weighs less than one-third as much as steel, its high strength-to-weight ratio makes
aluminium suitable for the construction of aircraft, cars and train carriages. Building
construction and transportation equipment account for around 50% of aluminium
consumption, Figure 4. Given the cost of production, recovery of this metal from scrap has
become an important component of the aluminium industry.
Figure 1: The world’s top 10 aluminium producers, consumers, exporters and importers in 2010
Refined
Tonnes
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
China
(000s)
16,119
% of
world
40%
consumption
China
(000s)
15,805
world
40%
exports
Russia
(000s)
4,876
world
26%
imports
USA
(000s)
2,766
world
15%
Russia
3,869
10%
USA
4,369
11%
Canada
2,523
14%
Japan
2,740
15%
Canada
2,963
7%
Japan
2,025
5%
Australia
1,696
9%
Germany
2,194
12%
Australia
1,911
5%
Germany
1,904
5%
Norway
1,496
8%
South Korea
1,318
7%
USA
1,727
4%
India
1,504
4%
Iceland
812
4%
Turkey
743
4%
India
1,610
4%
South Korea
1,255
3%
China
754
4%
Italy
727
4%
Brazil
1,536
4%
Brazil
985
2%
Brazil
606
3%
Belgium
657
4%
Norway
1,056
3%
Italy
823
2%
South Africa
536
3%
Norway
580
3%
UAE
1,002
2%
Turkey
703
2%
Netherlands
499
3%
Netherlands
528
3%
Bahrain
858
2%
Russia
685
2%
USA
449
2%
Mexico
512
3%
World
40,672
World
39,717
World
17,890
World
18,583
Source: World Bureau of Metal Statistics
Page 58
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: The world’s top 10 bauxite producers
Figure 3: The world’s top 10 alumina producers
Count r y
Tonnes (000s )
% of wor ld
Count r y
Australia
67678
33.4%
China
29000
33.9%
China
27000
13.3%
Australia
20082
23.5%
Indonesia
23213
11.5%
Brazil
9571
11.2%
Brazil
22836
11.3%
USA
4005
4.7%
Guinea
15956
7.9%
India
3741
4.4%
India
12662
6.3%
Russia
2855
3.3%
1845
2.2%
Tonnes (000s )
% of wor ld
Jamaica
8540
4.2%
Ireland
Kazakhstan
5310
2.6%
Jamaica
1777
2.1%
Russia
5302
2.6%
Japan
1640
1.9%
Venezuela
4267
2.1%
Spain
1539
1.8%
Others
9611
4.7%
Others
9552
11.2%
Wor ld Tot a l
Wor ld Tot a l
202375
Source: WBMS (2010 data)
85606
Source: Brook Hunt (2010 data)
Exchange traded
Aluminium is traded on the London Metal Exchange (LME), the New York Mercantile
Exchange (NYMEX), the Tokyo Commodity Exchange, the Osaka Mercantile Exchange (OME)
and the Shanghai Futures Exchange (SFE). The LME aluminium forward is quoted in US
dollars per tonne. On NYMEX, aluminium is quoted in US cents per pound.
The Bloomberg ticker for the 3M aluminium forward is LMAHDS03 <Index>. The Bloomberg
ticker for the Deutsche Bank Aluminium total returns and excess returns indices are
DBRMALTR <Index> and DBRMAL <Index> respectively. The Bloomberg ticker for the DB
Aluminium-Optimum Yield total returns and excess returns indices are DBLCOALT <Index>
and DBLCOALE <Index> respectively. LSAH <Index> tracks aluminium inventories on the
London Metal Exchange.
Figure 4: Aluminium consumption by end use in 2010
Figure 5: Aluminium prices since 1957
4000
Aluminium cash price (USD/tonne)
7%
18%
8%
9%
Building and
construction
3500
Transport
3000
Electrical
2500
2000
Packaging
1500
Consumer Goods
1000
28%
Machinary &
Equipment
20%
Other
10%
Source: Brook Hunt
Deutsche Bank AG/London
500
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Source: Bloomberg, IMF; (Monthly data as of end Feb-11
Page 59
May 2011
A User Guide to Commodities
Figure 6: Top 10 companies in aluminium smelting in 2010
Company name
UC Rusal
Rio Tinto
Alcoa
Chalco
Hydro Aluminium
BHP Billiton
Dubal
Alba
East Hope
Henan Zhongfu Industry
Country
Russia
UK
USA
China
Norway
Australia
Dubai
Bahrain
China
China
Production (‘000 tonnes)
4,090.7
3,806.3
3,440.1
3,239.4
1,370.4
1,243.2
1,120.0
860.0
709.6
671.0
% of world
9.9%
9.2%
8.3%
7.8%
3.3%
3.0%
2.7%
2.1%
1.7%
1.6%
Production (‘000 tonnes)
12,663.2
10,319.5
9,122.2
8,313.0
6,300.3
5,950.0
4,508.2
4,375.0
3,421.8
2,041.8
% of world
14.6%
11.9%
10.5%
9.6%
7.3%
6.9%
5.2%
5.1%
3.9%
2.4%
Production (Mn tonnes)
30,495.3
27,357.6
16,855.7
14,800.0
12,712.0
9,750.1
6,645.9
6,125.0
4,300.0
3,918.6
% of world
21.0%
18.8%
11.6%
10.2%
8.7%
6.7%
4.6%
4.2%
3.0%
2.7%
Source: Wood MacKenzie/BrookHunt, 2010
Figure 7: Top 10 companies in alumina refining in 2010
Company name
Chalco
Alcoa
Rio Tinto
UC Rusal
Alumina Limited
Xinfa Aluminium Electrical
BHP Billiton
Weiqiao Textile Group
Vale
Hydro Aluminium
Country
China
USA
UK
Russia
Australia
China
Australia
Brazil
China
China
Source: Wood MacKenzie/BrookHunt, 2010
Figure 8: Top 10 companies in bauxite mining in 2010
Company name
Rio Tinto
Alcoa
Alumina Limited
Vale
BHP Billiton
Chalco
UC Rusal
Government of Guinea*
Nalco*
Jamaican Government*
Country
UK
USA
Australia
Brazil
Australia
China
Russia
Guinea
India
Jamaica
Source: Wood MacKenzie/BrookHunt, 2010
Page 60
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Copper
History & properties
Copper has the symbol Cu and has the atomic number 29. It is reddish in colour and highly
electrically conductive. The word copper originates from the Mediterranean island of Cyprus,
or Kupros in Greek, where it was originally mined. It is the oldest mined commodity in the
world dating back more than 10,000 years. When mixed with tin it becomes bronze and
when combined with zinc it produces brass.
Major producers & consumers
The world’s major copper mine producing countries are Chile, Peru, China and the United
States. However, Chile accounts for over 40% of world exports. The state-owned Chilean
mining company Codelco and US producer Freeport McMoran each control around 12% &
10% of the world’s copper production. BHP Billiton, Xstrata and Rio Tinto are the next three
largest mining companies followed by Anglo American. The top 10 copper mining companies
controlled 58% of copper production in 2010. Along with aluminium and nickel, the copper
market is one of the most concentrated in the mining sector.
In 2010, China alone imported 39% of the world’s refined copper. Similarly, copper imports
of many other developing economies are rising rapidly as a result of urbanisation and the
consequent structural shift in global consumption trends.
Major uses
Copper is used extensively in electrical applications and construction, accounting for about
33% each of total copper usage. Since copper is biostatic, that is bacteria will not grow on its
surface, it is also used in air-conditioning systems, and as an anti-germ surface in hospitals. In
terms of substitutes, aluminium can replace copper’s use in power cables, electrical
equipment, automobile radiators and cooling and refrigeration tubes while plastic can
substitute for copper in water and drain pipes and plumbing fixtures.
Figure 1: The world’s top 10 copper producers, consumers, exporters and importers in 2010
Mine
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
Chile
(000s)
5,415
world
34%
consumption
China
(000s)
7,419
world
39%
exports
Chile
(000s)
3,169
world
40%
imports
China
(000s)
2,920
world
39%
Peru
1,247
8%
USA
1,796
9%
Zambia
753
10%
Germany
670
9%
China
1,156
7%
Germany
1,295
7%
Japan
528
7%
U.S.A.
583
8%
USA
1,111
7%
Japan
1,070
6%
Russia
444
6%
Italy
527
7%
Indonesia
862
5%
South Korea
835
4%
Peru
364
5%
Taiwan
497
7%
Australia
825
5%
Italy
637
3%
Australia
315
4%
South Korea
414
6%
Russia
728
5%
Taiwan
535
3%
Kazakhstan
272
3%
Turkey
332
4%
Zambia
722
5%
India
531
3%
Poland
264
3%
Brazil
253
3%
Canada
520
3%
Brazil
459
2%
Canada
184
2%
Thailand
244
3%
Poland
427
3%
Russia
421
2%
Belgium
162
2%
France
227
3%
World
16,042
World
19,234
World
7,871
World
7,498
Source: World Bureau of Metal Statistics
Deutsche Bank AG/London
Page 61
May 2011
A User Guide to Commodities
Figure 2: Refined copper production by country in 2010
Count r y
Figure 3: Identified copper resources
T onnes (000s )
% of wor ld
China
4573
23.8%
Chile
150000
23.6%
Chile
3217
16.7%
Peru
90000
14.2%
Japan
1549
8.0%
Australia
80000
12.6%
38000
6.0%
5.5%
Count r y
Res er ve Tonnes (000s )
% of wor ld
USA
1113
5.8%
Mexico
Russia
864
4.5%
USA
35000
Zambia
825
4.3%
China
30000
4.7%
30000
4.7%
30000
4.7%
Germany
709
3.7%
Indonesia
India
647
3.4%
Russia
Poland
547
2.8%
Poland
26000
4.1%
South Korea
535
2.8%
Zambia
20000
3.1%
Others
4674
24.3%
Others
106000
16.7%
Wor ld
635000
Wor ld
19253
Source: WBMS
Source: US Geological Survey (2010 data)
Exchange traded & price conventions
Copper is traded on the London Metal Exchange (LME), the COMEX division of the New York
Mercantile Exchange (NYMEX) as well as the Shanghai Futures Exchange (SFE). The copper
price is quoted in USD per tonne on the LME and US cents per pound on NYMEX. The
Bloomberg ticker for the LME 3M copper forward is LMCADS03 <Index>. The Bloomberg
ticker for the DB Copper-Optimum Yield total returns and excess returns indices are
DBLCYTCU <Index> and DBLCYECU <Index> respectively. LSCA <INDEX> tracks copper
inventories on the LME.
Figure 4: Copper consumption by end use
Figure 5: Copper price since 1957
10000
8%
Copper cash price (USD/tonne)
9000
Construction
8000
13%
33%
7000
Electronic products
6000
5000
Industrial Machinery
13%
4000
3000
Transport
2000
1000
Consumer Products
33%
Source: Brook Hunt (2009 data)
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Source: Bloomberg, IMF; (Monthly data as of end Feb-11)
Figure 6: Top 10 companies in copper mining in 2010
Company name
Codelco
F-McM Copper & Gold
BHP Billiton
Xstrata AG
Rio Tinto
Anglo American plc
Southern Copper (ex SPCC)
RAO Norilsk
KGHM Polska Miedz
Antofagasta plc
Country
Chile
USA
Australia
Switzerland
UK
South Africa
Mexico
Russia
Poland
Chile
Production (‘000 tonnes)
1,736.2
1,467.1
1,103.4
861.0
683.8
647.7
539.0
431.2
429.3
356.2
% of world
12.2%
10.3%
7.7%
6.0%
4.8%
4.5%
3.8%
3.0%
3.0%
2.5%
Source: Wood MacKenzie/BrookHunt, 2010
Page 62
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Nickel
History & properties
Nickel has the symbol Ni and atomic number 28. It is a hard, malleable, ductile metal that has
a silvery tinge that can take on a high polish. Nickel occurs in nature principally as oxides,
sulphides and silicates. Nickel is primarily used in the production of stainless steel and other
corrosion-resistant alloys.
Major producers
The major nickel producing countries include Russia, Indonesia, Canada and Australia. Ores of
nickel are mined in about 20 countries on all continents, and are smelted and/or refined in
about 25 countries. Russia, Norway and Canada are the world’s largest nickel exporters
accounting for almost 70% of world exports.
Major uses
The chief use of nickel is in the production of stainless steel accounting for 65% of nickel
usage in 2010. Nickel helps to improve the durability and corrosion resistance of steel,
making it highly attractive for specialty products and applications exposed to the weather or
certain chemicals. Apart from the steel industry, nickel has uses in the production of other
steel and non-ferrous alloys including "super" alloys, often for highly specialized industrial,
aerospace and military applications. It is also used in plating and coins.
Exchange traded
Nickel is traded on the London Metal Exchange (LME) and is quoted in US dollars per tonne.
The Bloomberg ticker for the 3M forward is LMNIDS03 <Index>. The Bloomberg ticker for
the DB Nickel-Optimum Yield total returns and excess returns indices are DBLCYTNI <Index>
and DBLCYENI <Index> respectively. LSNI <INDEX> tracks Nickel inventories on the LME.
Figure 1: Nickel consumption by first use in 2010
Figure 2: Nickel price since 1957
7%
60000
3%
Stainless
5%
50000
Non-ferrous Alloys
7%
Nickel cash price (USD/tonne)
40000
Plating
30000
Alloy steel
20000
13%
Foundry
65%
10000
Other
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Source: Brook Hunt
Source: Bloomberg, IMF; (Monthly data as of end Feb-11)
Figure 3: The world’s top 10 nickel producers, consumers, exporters and importers in 2010
Mine
production
Russia
Indonesia
Philippines
Australia
Canada
New Caledonia
China
Cuba
Brazil
Colombia
World
Tonnes
% of
Refined
(000s)
274
205
185
168
158
130
80
65
53
49
world
18%
13%
12%
11%
10%
8%
5%
4%
3%
3%
consumption (000s)
China
561
Japan
178
U.S.A.
121
South Korea
101
Germany
97
Taiwan
73
Italy
64
South Africa
40
Finland
39
UK
32
1,533
World
Tonnes
1,507
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
world
37%
12%5
8%
7%
6%
5%
4%
3%
3%
2%
exports
Russia
Norway
Canada
China
Finland
Singapore
UK
Brazil
France
Hong Kong
(000s)
222
92
88
53
28
25
19
11
9
8
world
39%
16%
15%
9%
5%
4%
3%
2%
2%
1%
imports
China
USA
Germany
Japan
Italy
South Korea
Taiwan
Sweden
Singapore
Spain
(000s)
181
110
65
43
33
24
21
19
18
16
world
29%
17%
10%
7%
5%
4%
3%
3%
3%
3%
World
572
World
630
Source: World Bureau of Metal Statistics
Deutsche Bank AG/London
Page 63
May 2011
A User Guide to Commodities
Figure 4: Refined nickel production by country
Figure 5: Identified nickel resources
Count r y
T onnes (000s )
% of wor ld
Count r y
Res er ve T onnes (000s )
386
25.6%
Australia
24000
31.5%
China
% of wor ld
Russia
249
16.5%
Brazil
8700
11.4%
Japan
165
10.9%
New Caledonia
7100
9.3%
Australia
108
7.2%
Russia
6000
7.9%
Canada
104
6.9%
Cuba
5500
7.2%
Norway
92
6.1%
Indonesia
3900
5.1%
Colombia
49
3.3%
Canada
3800
5.0%
Finland
49
3.3%
South Africa
3700
4.9%
New Caledonia
40
2.7%
China
3000
3.9%
South Africa
40
2.6%
Colombia
1600
2.1%
Others
228
15.1%
Others
8840
11.6%
Wor ld
1510
Wor ld
76140
Source: WBMS (2010 data)
Source: US Geological Survey (2010 data)
Identified land-based resources averaging 1% nickel or greater contain at least 130 million
tons of nickel. About 60% is in laterites and 40% is in sulfide deposits. In addition, extensive
deep-sea resources of nickel are in manganese crusts and nodules covering large areas of
the ocean floor, particularly in the Pacific Ocean. The long-term decline in discovery of new
sulfide deposits in traditional mining districts has forced companies to shift exploration
efforts to more challenging locations like the Arabian Peninsula, east-central Africa, and the
Subarctic.
There are dozens of grades of stainless steel, most of which require high-grade nickel to
produce the ideal anti-corrosive base material for a number of commercial applications.
Aluminium, coated steels and plastics can replace stainless steel to a limited extent in some
construction and transportation applications. Nickel-free speciality steels are sometimes used
in place of stainless steels with the power generating, petrochemical and petroleum
industries. Titanium alloys or speciality plastics can substitute for nickel metal or nickel-base
alloys in highly corrosive chemical environments. Historically, substitutes for nickel would
result in increased cost or a trade-off in the performance of the end products. However, a
more recent substitution has appeared that has dramatically affected the nickel market.
China began importing laterite ores in 2005 in order to produce a low nickel bearing product
called pig iron. Although cheaper to produce than primary nickel, pig iron is also labour
intensive, energy inefficient and polluting. So far, most pig iron produced has only been
suitable for utilisation in the lower grades of stainless steel. It is expected that superior pig
iron for use in higher quality stainless will eventually occur.
Figure 6: Top 10 companies in nickel mining in 2010
Company name
RAO Norilsk
Vale
BHP Billiton
Jinchuan
Xstrata AG
Pacific Metals
Sumitomo Metal Mining
Union del Niquel*
Eramet
Queensland Nickel
Country
Russia
Brazil
Australia
China
Switzerland
Australia
Japan
Cuba
France
Australia
Production (‘000 tonnes)
245.7
118.5
102.6
73.5
53.9
41.6
39.0
35.4
33.3
29.0
% of world
19.2%
9.2%
8.0%
5.7%
4.2%
3.2%
3.0%
2.8%
2.6%
2.3%
Source: Wood MacKenzie/BrookHunt, 2010
Page 64
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Zinc
History & properties
Zinc has the symbol Zn and atomic number 30 and is bluish grey in colour. Centuries before
zinc was recognised as a distinct element, zinc ores were used for making brass in India and
China. Zinc was recognised as a separate metal in Europe in 1546. Englishman William
Champion established the first commercial zinc smelter in Bristol in 1747. Zinc is the fourth
most common metal in use, behind iron, aluminium and copper in terms of annual
production.
Major producers
Zinc ores are mined in more than fifty countries with Peru, Australia, Canada and Spain being
the leading exporters. China dominates zinc refining, commanding around 31% of the world’s
production in 2010. Zinc has several substitutes since aluminium, steel and plastics substitute
for galvanised steel. Plastic coating, paint, cadmium and aluminium alloy coating can also
replace zinc for corrosion protection. Unlike nickel and copper, the share of zinc production in
the hands of the top 10 mining companies is less than 50%.
Major uses
Roughly 56% of all metallic zinc produced today is used to galvanise other metals such as
steel or iron to prevent corrosion. Large quantities of zinc are used to produce die castings,
which are used extensively by the automotive, electrical and hardware industries. Zinc is also
used as a chemical compound in rubber, ceramics, paints and agriculture.
Figure 1: Zinc price since 1957
5000
Figure 2: Zinc demand by end use in 2010
6%
Zinc cash price (USD/tonne)
7%
4500
4000
Construction (residential
and non-residential)
3500
Infrastructure
3000
20%
2500
51%
Transport
2000
Industrial Machinery
1500
1000
Consumer Products
500
16%
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Source: Bloomberg, IMF; (Monthly data as of end Feb-11)
Source: Brook Hunt
Figure 3: The world’s top 10 zinc producers, consumers, exporters and importers in 2010
Mine
Tonnes % of
production (000s)
China
3,700
Peru
1,471
Australia
1,457
USA
738
India
724
Canada
649
Mexico
477
Kazak
405
Bolivia
382
Ireland
340
World
world
31%
12%
12%
6%
6%
5%
4%
3%
3%
3%
11,992
Refined
Tonnes
consumption (000s)
China
5,306
US
917
India
547
Japan
520
Germany
502
S. Korea
459
Italy
351
Belgium
298
Taiwan
233
Australia
223
World
12,346
% of
Refined
Tonnes % of
Refined
world
43%
7%
4%
4%
4%
4%
3%
2%
2%
2%
exports
Canada
Spain
S. Korea
Australia
Kazakhstan
Finland
Mexico
Peru
Norway
Belgium
(000s)
547
304
277
273
264
243
179
157
123
122
imports
(000s)
US
623
Germany
354
China
323
Taiwan
216
Italy
197
Turkey
183
Netherlands
161
Belgium
155
France
132
Malaysia
102
World
3,371
world
16%
9%
8%
8%
8%
7%
5%
5%
4%
4%
World
Tonnes
% of
world
19%
11%
10%
6%
6%
5%
5%
5%
4%
3%
3,358
Source: World Bureau of Metal Statistics, Brook Hunt
Deutsche Bank AG/London
Page 65
May 2011
A User Guide to Commodities
Figure 4: Refined zinc production by country in 2010
Figure 5: Identified zinc resources
Count r y
Tonnes (000s )
% of wor ld
Count r y
Res er ve T onnes (000s )
% of wor ld
China
5164
40.7%
Australia
53000
21.4%
India
701
5.5%
China
42000
16.9%
Canada
688
5.4%
Peru
23000
9.3%
South Korea
668
5.3%
Kazakhstan
16000
6.5%
Japan
574
4.5%
Mexico
15000
6.0%
Spain
517
4.1%
USA
12000
4.8%
Australia
496
3.9%
India
11000
4.4%
Kazakhstan
319
2.5%
Bolivia
6000
2.4%
Finland
302
2.4%
Canada
6000
2.4%
Mexico
285
2.2%
Ireland
2000
0.8%
Others
2972
23.4%
Others
62000
25.0%
Wor ld
12686
Wor ld
248000
Source: WBMS
Source: US Geological Survey (2010 data)
Exchange traded
Zinc is traded on the London Metal Exchange (LME) and is quoted in US dollars per tonne.
The Bloomberg ticker for the 3M forward is LMZSDS03 <Index>. It is the third most liquid
contract on the LME, after aluminium and copper. The Bloomberg ticker for the DB ZincOptimum Yield total returns and excess returns indices are DBLCYTZN <Index> and
DBLCYEZN <Index> respectively. LSZS <INDEX> tracks zinc inventories on the LME.
Figure 6: Top 10 companies in zinc mining in 2010
Company name
Country
Production (‘000 tonnes)
% of world
Xstrata AG
Hindustan Zinc
Switzerland
946.0
10.5%
India
659.6
7.3%
Minmetals
China
596.6
6.6%
Teck
USA
563.3
6.3%
Glencore
Switzerland
412.4
4.6%
Vedanta Resources
UK
312.2
3.5%
New Boliden
Sweden
260.8
2.9%
Votorantim
Brazil
254.2
2.8%
Minera Volcan
Peru
252.6
2.8%
Sumitomo Corp
Japan
217.2
2.4%
Source: Wood MacKenzie/BrookHunt, 2010
Page 66
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Lead
History & properties
Lead has the symbol Pb and atomic number 82 and is a bluish-white lustrous metal. The
symbol Pb is derived from the Latin word plumbum. The use of lead in pipes also gave rise to
the English word for plumber. It is very soft, highly malleable, ductile, but, is a relatively poor
conductor of electricity. Lead is very resistant to corrosion, but, tarnishes upon exposure to
air. Lead was one of the first metals to be used by man, dating back more than 5,500 years.
It is usually found in association with zinc, silver as well as copper ores.
Major producers & consumers
China and Australia are the world’s major producers, while China and US are the world’s
major consumers of refined lead. In 2010, about 1.15 million tons of secondary lead was
produced, an amount equivalent to 82% of reported domestic lead consumption. Nearly all of
it was recovered from old (post-consumer) scrap.
Major uses
The principal use of lead is in the manufacture of batteries, primarily for use in automobiles,
motorcycles and electric cars and bicycles. While the metal had been widely used in
plumbing and petroleum products, it has more recently been phased out from these uses
because of its toxic nature.
Exchange traded
Lead is traded on the London Metal Exchange (LME) and Shanghai Futures Exchange
(SFE).Lead in LME is quoted in US dollars per tonne. The Bloomberg ticker for the 3M
forward price is LMPBDS03 <Index>. The Bloomberg ticker for the DB Lead-Optimum Yield
total returns and excess returns indices are DBLCYTPB <Index> and DBLCYEPB <Index>
respectively. LSPB <INDEX> tracks lead inventories on the LME.
Figure 1: Lead price since 1957
4500
Figure 2: Lead consumption by end use in 2010
Lead cash price (USD/tonne)
11%
Battery
4000
3500
8%
SLI Replacement
batteries
3000
4%
2500
45%
SLI OE batteries
2000
7%
1500
Traction batteries
1000
Stationary batteries
500
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Non-Battery
25%
Source: Bloomberg, IMF; (Monthly data as of end Feb-11)
Source: Brook Hunt
Figure 3: The world’s top 10 lead producers, consumers, exporters and importers in 2010
Mine
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
(000s)
world
consumption
(000s)
world
exports
(000s)
world
China
Refined imports
Tonnes
% of
(000s)
world
1,851
45%
China
4,213
45%
Australia
163
11%
USA
271
18%
Australia
651
16%
U.S.A.
1,412
15%
Germany
156
11%
South Korea
141
9%
U.S.A.
366
9%
Germany
320
3%
Canada
133
9%
Spain
97
6%
Peru
262
6%
Italy
272
3%
Belgium
119
8%
Germany
89
6%
Mexico
161
4%
South Korea
255
3%
UK
105
7%
Brazil
86
6%
India
93
2%
Spain
235
3%
Mexico
104
7%
Italy
81
5%
Russia
78
2%
Japan
223
2%
Russia
87
6%
Thailand
79
5%
Bolivia
68
2%
UK
208
2%
Kazakhstan
84
6%
Czech Republic
74
5%
Sweden
66
2%
India
202
2%
South Korea
80
5%
Indonesia
72
5%
Canada
65
2%
Mexico
189
2%
Japan
60
4%
Turkey
70
5%
World
4,107
World
9,316
World
1,480
World
1,501
Source: World Bureau of Metal Statistics
Deutsche Bank AG/London
Page 67
May 2011
A User Guide to Commodities
Figure 4: Refined lead production by country
Figure 5: Identified lead resources
Count r y
Tonnes (000s )
% of wor ld
Count r y
Res er ve T onnes (000s )
China
4199
45.2%
Australia
27000
33.7%
U.S.A.
1280
13.8%
China
13000
16.2%
Germany
405
4.4%
Russia
9200
11.5%
UK
297
3.2%
USA
7000
8.7%
Japan
267
2.9%
Peru
6000
7.5%
Canada
266
2.9%
Mexico
5600
7.0%
Mexico
258
2.8%
India
2600
3.2%
South Korea
194
2.1%
Bolivia
1600
2.0%
Australia
187
2.0%
Poland
1500
1.9%
Italy
180
1.9%
Sweden
1100
1.4%
Others
1763
19.0%
Others
5550
6.9%
Wor ld
9297
Wor ld
80150
Source: WBMS (2010 data)
% of wor ld
Source: US Geological Survey (2010 data)
In recent years, significant lead reserves have been found in association with zinc and/or
silver or copper deposits in Australia, China, Russia, USA, Peru, Mexico, India, and Bolivia.
Identified lead resources of the world are estimated to total more than 1.5 billion tonnes,
according to the US Geological Survey. In terms of substitutes, plastics have reduced the use
of lead in building construction, electrical cable covering, cans and containers.
Aluminium, iron, plastics and tin compete with lead in other packaging and protective
coating. Tin has replaced lead in solder for new or replacement potable water systems in the
US. In the electronics industry, there has been a move towards lead-free solders with
compositions of bismuth, copper, silver, and tin. Steel and zinc were common substitutes for
lead in wheel weights.
Figure 6: Top 10 companies in lead mining in 2010
Company name
BHP Billiton
Xstrata AG
The Doe Run Company
Teck
Hindustan Zinc
Zhongjin Lingnan Metals
West Mining
Sumitomo Corp
Minmetals
Glencore
Country
Australia
Switzerland
USA
USA
India
China
China
Japan
China
Switzerland
Production (‘000 tonnes)
232.7
226.5
177.7
125.3
87.5
80.1
66.8
66.3
62.3
60.4
% of world
10.1%
9.8%
7.7%
5.4%
3.8%
3.5%
2.9%
2.9%
2.7%
2.6%
Source: Wood MacKenzie/BrookHunt, 2010
Page 68
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Tin
History & properties
Tin has the symbol Sn and atomic number 50. It is silvery-white, lustrous grey metallic
element. It is also soft and pliable. The symbol Sn is derived from the Latin word stannum,
meaning dripping because the metal melts easily. Tin is one of the earliest metals known to
man and because of its hardening effect on copper, it was used in bronze implements as
early as 3,500BC.
Major producers
The principle ore of tin is the mineral cassiterite, the majority of which is found in, China,
Indonesia and Peru. World resources, principally in West Africa, South East Asia, Australia,
Bolivia, Brazil, China and Russia are sufficient to sustain recent annual production rates well
into this century.
Major uses
The main uses of tin are in soldering in the electronics industry and tinplating. It is also
commonly used in glass manufacture and super-conducting magnets. Aluminium, glass,
paper, plastic or tin-free steels can substitute for tin in cans and containers. Other materials
that substitute for tin are epoxy resins for solders, copper-based alloys and plastics for
bronze, plastic for bearing metals that contain tin and compounds of lead and sodium for
some tin in chemicals.
Figure 1: Tin prices since 1957
35000
Figure 2: US tin consumption by end use in 2010
Tin cash price (USD/tonne)
30000
28%
28%
25000
Electrical
Cans and
containers
20000
Construction
15000
Transportation
10000
Other
12%
19%
5000
13%
0
1957 1960 1964 1967 1971 1974 1978 1981 1985 1989 1992 1996 1999 2003 2006 2010
Source: Bloomberg, IMF; (Monthly data as of end Feb-11)
Source: US Geological Survey (2010 data)
Figure 3: The world’s top 10 tin producers, consumers, exporters and importers in 2010
Mine
production
Tonnes
(000s)
% of
world
Refined
consumption
Tonnes
(000s)
% of
world
Refined
exports
Tonnes
(000s)
% of
world
Refined
imports
Tonnes
(000s)
% of
world
China
134
43%
China
153
41%
Indonesia
84
37%
U.S.A.
35
15%
Indonesia
84
27%
Japan
36
10%
Malaysia
32
14%
Japan
35
15%
Peru
34
11%
U.S.A.
35
9%
Singapore
30
13%
Singapore
20
8%
Bolivia
20
6%
Germany
18
5%
Thailand
18
8%
Thailand
19
8%
Brazil
11
4%
South Korea
17
5%
U.S.A.
18
8%
South Korea
18
7%
D.R.Congo
7
2%
Taiwan
11
3%
Bolivia
15
7%
Germany
17
7%
Australia
6
2%
India
11
3%
Peru
13
6%
China
16
7%
Vietnam
5
2%
Brazil
11
3%
Belgium
5
2%
Taiwan
12
5%
Rwanda
Malaysia
3
3
1%
1%
Spain
Netherlands
6
5
2%
1%
Hong Kong
Netherlands
4
3
2%
1%
Malaysia
Netherlands
10
9
4%
4%
World
240
World
312
World
375
World
228
Source: World Bureau of Metal Statistics
Deutsche Bank AG/London
Page 69
May 2011
A User Guide to Commodities
Figure 4: Refined tin production by country
Figure 5: Identified tin resources
Count r y
Count r y
Tonnes (000s )
% of wor ld
China
149
41.9%
China
1500
28.8%
Indonesia
63
17.6%
Indonesia
800
15.4%
Malaysia
39
10.9%
Peru
710
13.7%
Peru
36
10.2%
Brazil
590
11.3%
Thailand
23
6.4%
Bolivia
400
7.7%
Bolivia
15
4.2%
Russia
350
6.7%
Brazil
11
3.1%
Malaysia
250
4.8%
Belgium
10
2.8%
Australia
180
3.5%
India
4
1.0%
Other countries
180
3.5%
Vietnam
4
1.0%
Thailand
170
3.3%
Others
3
1.0%
Others
70
1.3%
Wor ld
357
Wor ld
5200
Source: World Bureau of Metal Statistics (2010 data)
Res er ve T onnes (000s )
% of wor ld
Source: US Geological Survey (2010 data)
Exchange traded
Tin is traded on the London Metal Exchange (LME) and is quoted in US dollars per tonne. The
Bloomberg ticker for the 3M forward is LMSNDS03 <Index>. However, turnover is very
illiquid, representing less than 2% of total turnover on the LME in 2010. LSSN <INDEX>
tracks tin inventories on the LME.
Figure 6: Top companies in tin mining in 2010
Company name
Yunnan Tin
PT Timah
Malaysia Smelting Corp
Minsur
Thaisarco
Guangxi China Tin
Yunnan Chengfeng
EM Vinto
Country
China
Indonesia
Malaysia
Peru
Thailand
China
China
Bolivia
Production (Tonnes)
59,180
40,413
38,737
36,052
23,505
14,300
14,155
11,520
% of world
16.8%
11.5%
11.0%
10.3%
6.7%
4.1%
4.0%
3.3%
Source: ITRI 2010
Page 70
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Iron Ore
History & properties
Iron has the symbol Fe and is one of the most abundant of all metals in the Earth’s crust. It
exists naturally in chemical combination with oxygen (or iron oxide) and concentrations of iron
oxide in the earth’s crust are known as iron ore. Ideally, iron ore contains only iron and
oxygen, but contaminants such as silica, phosphorus, aluminium and sulphur are often
present in varying concentrations. Iron ore is the primary raw material input into iron and steel
production, thus one of the most consumed commodities on the market. Taken literally, iron
ore refers to the actual rocks from which metallic iron is extracted, which are generally a dull
red colour (a result of oxidization, rust). Around 85% of global production is obtained from
open pit mines with the rest coming from underground mines. Depending on the ore quality
(iron content), iron ore is either crushed into manageable sized rock or ground and treated to
remove some of the impurities such as silicon, phosphorus, aluminium, and/or sulphur as
well as impregnations of waste rock. The output comes in various forms of different sizes or
strengths (lump, fines, sinter or pellets) which are then sold to steel makers for use as feed in
blast furnaces.
Major producers
By volume, the global iron ore market towers over other metals. In 2010, total global
production of iron ore was 2,582 million tonnes while the combined out put of the six LME
metals was 82.4 million tonnes. Approximately 60% of iron ore produced globally is used
domestically, with the remaining amount shipped long distances. Although China is
technically the largest producer of iron ore, most production is used domestically. The global
market is dominated by two countries: Brazil (355Mt in 2010) and Australia (454Mt in 2010).
The three largest producing companies Vale, BHP Billiton and Rio Tinto, supply nearly 60% of
the world’s iron ore exports.
Major uses
Almost all iron ore mined (98%) is used for steelmaking. Other than the iron content and
impurities, iron ore consists mainly of oxygen. In order to remove the oxygen, the ore is
placed in a blast furnace at high temperatures and mixed with a carbon element in the form
of coke, which “reduces” the iron or strips the oxygen off the iron forming carbon dioxide as
a result. The result is a molten metal when cooled becomes pig iron. By itself, raw iron can
be brittle because of its high carbon content and thus not strong and hard enough for
construction and other applications. Therefore raw iron is alloyed with various other elements
such as nickel, chromium, manganese, vanadium and tungsten to make steel. Other than
steel making, iron ore is also used in production of metallurgy products, magnets, auto parts,
chemical catalysts and paints.
Figure 1: Major exporters and importers of iron ore in 2010
Exporters
Australia
Brazil
India
CIS
South Africa
Canada
Sweden
Middle East
Other Countries
Tonnes (miillon)
424
285
99
68
38
26
19
18
58
Total
1,034.0
% of world
41%
28%
10%
7%
4%
2%
2%
2%
6%
Importers
China
Japan
South Korea
Germany
Middle East
France
Taiwan
Italy
Other Countries
Total
Tonnes (Million)
619
134
50
43
18
16
15
13
136
% of world
59%
13%
5%
4%
2%
2%
1%
1%
13%
1,043.7
Source: AME
Deutsche Bank AG/London
Page 71
May 2011
A User Guide to Commodities
Figure 2: Iron ore prices
Figure 3: Global iron ore mine production in 2010
250
Iron ore price (USD/Tonne)
200
150
100
50
0
Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11
C ou n t r y
Mn t on n e s
% of w or ld
China
900
37.0%
Australia
420
17.3%
Brazil
370
15.2%
India
260
10.7%
Russia
100
4.1%
Ukraine
72
3.0%
South Africa
55
2.3%
US
49
2.0%
Canada
35
1.4%
Iran
33
1.4%
T ot a l
Source: Bloomberg Finance LP (data as of end Feb-11)
2430
Source: USGS, 2010 estimate
Pricing
Most iron ore is now procured on a contractual basis (either annually or quarterly), based on
negotiations between producers and steel makers. A spot market does exist and third party
industry consultants provide weekly indications of those levels. More recently, there has
been an OTC swap market emerging with some banks, including Deutsche Bank, able to
offer contracts with tenors up to 12 months. The spot reference price for Deutsche Bank's
Index is an average of the indices reported by Metal Bulletin and Steel Business Briefing.
They are quoted in US dollars per tonne on a cost and freight difference (CFR) which
incorporates adjustment for iron content and moisture levels.
As a consequence of the variance in iron ore qualities and products, each has different
properties and preferences among consumers. Thus prices are based on each region’s
largest volume brand and there is not one global benchmark price. The following outlines the
primary regions from which prices are settled.
„
Mount Newman/Hamersley (lump and fines): Iron ore form the Pilbara region in Western
Australia.
„
Yandi (fines): Also from the Pilbara, but contains a higher phosphorous content and lower
iron and is generally priced around a 6% discount to Hamersley.
„
Carajas (fines and lump): Material from a high quality deposit in the eastern part of the
Amazon Cratone and sent via a 900km railway to Ponta da Madeira sea terminal.
„
Itabira (fines): Iron ore from rich reserve in central southeast Brazil.
„
Tubarão (pellets): Vale’s benchmark pellet price referring to material shipped from this
port in southern Brazil.
Figure 4: Top 10 companies in iron ore mining in 2010
Company name
Vale S.A
Rio Tinto Group
BHP Billiton Limited
ArcelorMittal
Fortescue Metals Group Limited
Cliffs Natural Resources Inc
Kumba Iron Ore Ltd
Metalloinvest Holding
NMDC Limited*
Mitsui & Co Ltd
Country
Brazil
UK
Australia
Luxembourg
Australia
USA
South Africa
Russia
India
Japan
Production (Mn tonnes)
293.1
171.2
120.9
42.1
40.7
37.6
33.4
31.4
29.3
27.0
% of world
24.4%
14.2%
10.1%
3.5%
3.4%
3.1%
2.8%
2.6%
2.4%
2.2%
Source: AME, 2010
Page 72
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Ferro Chrome
History & properties
Ferrochrome (FeCr) is an alloy of iron and chrome containing between 50% to 65% chrome.
Ferrochrome is produced from chromium ore (chromite) by subjecting it to a chemical
reaction with coke and coal under high temperatures. As an element that helps makes
stainless steel corrosion resistant, ferrochrome is primarily used in the production of steel
products.
Major producers
The main source of ferrochrome is chromite, which is an iron-magnesium-chromium oxide
ore. It is a reasonably abundant ore with known deposits equating to 380 years of production
at 2010 production rates. According to CRU the main exporters of ferrochrome in 2010 were
South Africa, China and Kazakhstan accounting for over 77% of world’s supply, while the
leading users were China, Europe, Japan and USA.
Ferrochrome production from chromite is very energy intensive process, requiring around
4kWhr per kg of material. Although there are many different grades of ferrochrome produced
and used globally, they can be broadly grouped into three types: Low/medium carbon, high
carbon and charge chrome.
Production share of low and medium carbon ferrochrome have remained at around 10% over
the last decade, but high carbon ferrochrome has been increasing its share gradually by
around five percentage points, at the expense of charge chrome. Charge chrome is the
newest of the three products and it is the primary feed for modern stainless steel plants.
Major uses
The production of steel is the largest consumer of ferrochrome, especially the production of
stainless steel with chromium content of 10% to 20%. Over 80% of the word’s ferrochrome
is utilised in the stainless steel production.
Figure 1: Supply & demand of ferrochrome in 2010
Tonnes
% of
Supply
(000s)
world
South Africa
3,489
41.2%
Tonnes
% of
Demand
(000s)
world
China
3,609
43.2%
China
1,982
23.4%
Europe
1,626
19.5%
Kazakhstan
1,075
12.7%
Japan
866
10.4%
Others
1,919
22.7%
USA
438
5.2%
8,464
1,810
8,349
21.7%
Total
Others
Total
Source: CRU
Exchange traded & price conventions
Ferrochrome is not traded on any exchange. Metals Bulletin provide price data with the
Bloomberg ticker is MBCMCM02 <Index>.
Deutsche Bank AG/London
Page 73
May 2011
A User Guide to Commodities
Coking Coal
History & properties
Coal is classified according to its carbon, ash, sulphur and water content. Anthracite, a
relatively scarce but high quality coal, has the highest carbon content with the lowest amount
of moisture and hence has the highest energy content of all coals. It is usually used in highgrade steel production. Lower rank Bituminous is sub-divided into thermal and coking coal. It
is used for both power generation and for steel making.
Major uses
Coking coal also referred to as hard or metallurgical coal; it is essential for iron and steel
production. Most iron in steel is produced in blast furnaces which use iron ore, coke (made
from coking coal) and small quantities of other raw materials. The coking coals need to be
higher quality that is of lower sulphur and phosphorous content. As a result, they are more
expensive than thermal coal (used in electricity generation). Coking coal is first crushed and
washed, then ‘purified’ or ‘carbonised’ in a series of coke ovens, known as batteries. During
this process, by-product gases are removed and coke is produced.
Major producers
Australia dominates in terms of exports, while Japan accounts for 22% of world imports of
coking coal. The next major exporters are the US, Canada and Russia.
Figure 1: International coking coal imports & exports in 2010
Exporters
Australia
United States
Canada
Russia
Indonesia
Colombia
New Zealand
South Africa
Venezuela
China
World
Tonnes
% of
(Mn)
140.5
37.5
27.0
12.0
6.2
2.9
2.3
2.0
0.9
0.8
249.2
world
56.4%
15.0%
10.8%
4.8%
2.5%
1.2%
0.9%
0.8%
0.4%
0.3%
Importers
Japan
China
India
S. Korea
Brazil
Germany
Italy
Taiwan
UK
Ukraine
World
Tonnes
% of
(Mn)
55.8
44
34.6
19.6
14.5
7.2
6.9
6.3
5.8
5.6
249.2
world
22.4%
17.7%
13.9%
7.9%
5.8%
2.9%
2.8%
2.5%
2.3%
2.2%
Source: AME
Pricing
There are no exchange traded mechanisms for coking coal. Most coking coal is procured on
an annual contractual basis between coal producers and steel makers and priced for the
Japanese financial year, which runs from April to March.
Figure 2: Coking coal prices
170
Figure 3: China’s net export of steel
Met coal (USD/short tonne)
8
Mt
160
6
150
140
4
Net Exports
130
2
120
110
0
Net Imports
100
-2
90
80
Dec 07
Apr 08
Aug 08
Dec 08
Source: Bloomberg (data as of end Feb-11)
Page 74
Apr 09
Aug 09 Dec 09
Apr 10
Aug 10 Dec 10
-4
2000 2001 2002 2003
2004 2005 2006
2007 2008
2009 2010 2011
Source: Reuters
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Steel
History & properties
Steel is a metal alloy made up primarily of iron with small amounts of carbon. An iron-nickel
alloy obtained from meteorites was first used in Egypt to form weapons and ornaments
around 4,000BC. Beginning around 3,000BC, smelted iron was used in Anatolia, Egypt and
Mesopotamia to fashion ornamental weapons. The widespread adoption of iron, however,
did not occur until approximately 1,000BC in Greece, Mesopotamia, and central Europe.
Around 200BC in China and India, steel was being produced by melting together wrought
iron and cast iron or charcoal. The first European blast furnaces for smelting were built in
Sweden between 1150 and 1350. The modern mass-production of steel was made possible
by Henry Bessemer in 1855 and Sir William Siemens in 1867.
The addition of varying amounts of carbon allows for greater hardness and strength, but also
results in increased brittleness. Steel typically contains between 0.2% and 2.1% carbon by
weight; higher carbon content alloys are referred to as cast iron, and lower carbon content
alloys are called wrought iron. Iron is typically found in the form of iron oxide or iron pyrite.
Extraction of iron from iron oxide is performed through a process called smelting whereby
the ore is heated to a liquid state and the oxygen removed as it bonds with carbon. Following
this, the iron is reprocessed to remove excess carbon. By itself, raw iron can be brittle
because of its high carbon content and thus not strong and hard enough for construction and
other applications. Therefore raw iron is alloyed with various other elements such as nickel,
chromium, manganese, vanadium and tungsten to make steel.
Major producers
The largest steel-producing country is China. In 2010 production reached 626 million tonnes,
or 44% of global production. ArcelorMittal, Hebei Steel Group and Nippon are the top three
producers of crude steel.
Major uses
Steel is one of the most versatile and common industrial materials. The construction industry
is the largest market, utilizing steel in modular building systems, bridge and highway
construction, harbours, tunnels and culverts. In automobile manufacturing, steel accounts for
more than 50% of the weight of a typical car in the form of the car body, engine, gearbox and
transmission. Additional transport uses include the construction of commuter trains, rail
tracks, buses, trucks, ships and jet engines. In the power and energy industries, steel is used
in the construction of oil and gas wells, offshore oil platforms, pipelines, and turbines for
power generation.
Figure 1: Major producers of steel in 2010
Companies
Tonnes
% of
(Mn)
world
Countries
Tonnes
% of
(Mn)
world
ArcelorMittal
135.6
9.9%
China
626.7
44.3%
Hebei Steel Group
41.9
3.1%
Japan
109.6
7.8%
Nippon Steel
35.5
2.6%
USA
80.6
5.7%
Anben Group
35.4
2.6%
Russia
67.0
4.7%
Posco
34.5
2.5%
India
66.8
4.7%
Shagang Group
31.9
2.3%
S. Korea
58.5
4.1%
JFE Steel
31.2
2.3%
Germany
43.8
3.1%
Tata Corus
31.0
2.3%
Ukraine
33.6
2.4%
Baosteel Group
26.7
2.0%
Brazil
32.8
2.3%
26.6
2.0%
Turkey
29.0
2.1%
World
1414
Wuhan Steel Group
World
1363
Source: CRU, IISI
Deutsche Bank AG/London
Page 75
May 2011
A User Guide to Commodities
Steel is delivered to the market in a number of ways, divided into two categories, finished
products and semi-finished products.
Finished Products
„
Plates (construction, ship-building)
„
Flat rolled (appliances, external automotive panels, food containers / cans)
„
Long products: Wire rod, merchant bar, structural beam products, rebar
(transportation, construction)
Semi-finished Products
„
further processed into finished products such as rebar (billets and blooms) or
plates (slab)
Exchange traded
Steel is traded on Shanghai Futures Exchange (SHFE). Each SHFE steel rebar futures contract
represents 10 tons of deliverable grade steel wire rod, which is defined as a standard hotrolled ribbed bars(GB1499.2-2007) in the category of HRB400 or HRBF400 with a diameter of
16mm, 18mm, 20mm, 22mm, 25mm or a substitution, hot-rolled ribbed bars steel wire rod
(GB1499.2-2007)in the category of HRB335 or HRBF335 with a diameter of 16mm, 18mm,
20mm, 22mm, 25mm as good delivery, and its delivery date is set as the 16th to 20th day of
the spot month. Also, the market is gradually becoming more sophisticated with the London
Metal Exchange (LME) launching a steel contract (billet) in 2008 in two regions – Far East and
Mediterranean delivery. Lot sizes are 65 metric tonnes with delivery points in Inchon, South
Korea and Johor, Malaysia (Far Eastern) and Marmara, Turkey and Dubai, UAE
(Mediterranean). The maturity is limited to 15 months.
Figure 2: Steel consumption by end use in 2009
5%
Figure 3: Steel price since 2006
1200
6%
Household and
catering
Steel price (USD/short tonne)
1000
33%
14%
Industrial equipment
Transport
Construction
800
600
400
Welded tubes
200
17%
Other
0
2006
2007
2008
2009
2010
25%
Source: CRU
Page 76
Source: Bloomberg (data up to end of Feb-11)
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Minor Metals
Introduction
Minor metals are generally defined as industrial metals which due to their small market size
and light trading volumes are not listed on major public metals exchanges like the London
Metals Exchange or the New York Mercantile Exchange.
Most minor metals are by-products, and in some cases by-products of non-ferrous metals.
Minor metals prices are therefore sensitive to the same economic cycles as industrial metals
prices. However, with in come cases minor metal production levels less than 5% of industrial
metals production these smaller markets can be more susceptible to price spikes in
environments of strengthening demand.
Minor metals have varied uses ranging from fuel efficient components in aircraft engines,
rechargeable batteries, television screens to nuclear reactors and missiles. These high-tech
uses combined with limited supply and few sources can make many of the minor metals
strategically important commodities.
The Minor Metals Trade Association (MMTA) founded in 1973 facilitates trading in minor
metals by bringing together producers and consumers, who generally enter into long or short
term contracts based on the contract specifications provided by MMTA. MMTA has defined
strict specifications for all the different impurities, sizing and packing, warehousing and
transportation for most minor metals.
Source: US Geological Survey
Deutsche Bank AG/London
Rhenium
Gallium
Tantalum
Lithium
Vanadium
Tungsten
Cobalt
Rare Earths
Molybdenum
Magnesium
Titanium
Manganese
0%
Zinc
0
100%
Aluminium
48
200%
Gold
Rhenium
2
300%
Lead
665
106
Nickel
Tantalum
Gallium
Copper
4
400%
Tin
56,000
25,350
Silver
Vanadium
Lithium
500%
Titanium
6
% change since end of 2001
600%
Cobalt
86,800
61,150
Magnesium
8
Cobalt
Tungsten
700%
Vanadium
760,000
234,000
133,600
Exchange traded commodities
800%
Manganese
Magnesium
Molybdenum
Rare Earths
10
Non-exchange traded commodities
900%
Ferrochrome
12
12,920,000
6,335,000
Tungsten
Manganese
Titanium
2010 production (tonnes, million)
Cadmium 99.5%
14
Figure 2: Commodity price performance since 2001
Molybdenum
Figure 1: Minor metals production in 2010 compared
Source: Reuters, Bloomberg Finance LP, Deutsche Bank; Data as of end Feb-11
Page 77
May 2011
A User Guide to Commodities
Cobalt
History & properties
Cobalt has the symbol Co and atomic number 27. In its pure form, it is a silvery-blue, hard,
brittle metal and is often produced as a by-product of copper or nickel mining. The word
cobalt is derived from the German “Kobold,” the name of a mischievous goblin in German
mythology. When yields declined in silver mines across Saxony in the 16th Century, Kobold
was blamed for stealing the silver and leaving behind worthless rock. This rock was later
found to be cobalt ore, and the name transferred to cobalt metal. However, it was the
Swedish chemist George Brandt who first isolated cobalt in 1735, and showed that it was the
cause of the blue colour in glass.
Cobalt has a high melting point (1,493°C) and retains strength at a high temperature. It is
ferromagnetic and retains its magnetism up to 1,100°C, which is a higher temperature (Curie
point) than any other material. It is stable in air and water, has low toxicity, but is a possible
carcinogen. As the main component of the vitamin B-12, it is an essential trace element for
humans.
Major producers
Cobalt production is mainly derived as a by-product of the mining and processing of copper
and nickel ores, but advances in hydrometallurgical extraction techniques and higher prices
have seen the development of more primary cobalt projects. The main sources of ores are
found in the copper-cobalt deposits in the Democratic Republic of Congo, Australia and Cuba.
The major producers of cobalt are Democratic Republic of Congo, Zambia and China.
Major uses
Cobalt as a pure metal has few applications, but it is used as an alloying constituent or as a
chemical compound in a wide range of commercial applications. The largest contemporary
uses of cobalt are in rechargeable batteries and superalloys for jet turbine parts. When used
as an alloying element, cobalt allows use of elevated temperatures and it is more resistant to
corrosion by sulphur than nickel. The metal is used in electroplating because of its
appearance, hardness, and resistance to oxidation. Cobalt’s melting point makes it attractive
for high-speed alloys for cutting tools. The metal’s ferromagnetic properties make it an
important constituent of permanent magnets. Both the British Geological Survey and the
USGS forecast that the increase in demand for cobalt in rechargeable batteries may decline
as cobalt is substituted in lithium-ion cells by cheaper metals like manganese and nickel.
Figure 1: Major producers and reserves of cobalt in 2010
Mine production
Congo
Zambia
China
Russia
Australia
Cuba
Canada
New Caledonia
Brazil
Other countries
World
2010 (Tonnes)
45,000
11,000
6,200
6,100
4,600
3,500
2,500
1,700
1,500
4,700
86,800
% of world
51.8%
12.7%
7.1%
7.0%
5.3%
4.0%
2.9%
1.9%
1.7%
5.4%
Countries
Congo
Australia
Cuba
New Caledonia
Zambia
Russia
Canada
Brazil
China
United States
Other countries
World
Reserves (Kt)
3,400,000
1,400,000
500,000
370,000
270,000
250,000
150,000
89,000
80,000
33,000
760,000
% of world
46.6%
19.2%
6.9%
5.1%
3.7%
3.4%
2.1%
1.2%
1.1%
0.5%
10.4%
7,302,000
Source: USGS, 2010 estimate
Page 78
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Cobalt price since 1993
60
Figure 3: Composition of cobalt demand by use in 2010
Cobalt price (Usc/lb)
15%
50
Superalloys
40
Carbides
30
49%
Chemical
applications
20
29%
Others
10
0
1993
1995
1996
1998
1999
2001
2002
2004
2005
2007
2008
2010
7%
Source: Reuters (Data to end of Feb - 2011)
Source: USGS
Exchange traded & price conventions
Cobalt is not traded on any futures market. Cobalt is priced on the Shanghai Changjiang nonferrous spot market. Its Bloomberg ticker is CCSMCOBL <Index>. The price convention in
Shanghai Changjiang market is Chinese yuan per tonne. The Reuters code is COB-CATH-LON
and is priced in USD per pound.
Figure 4: CDI Member Refined Cobalt Production in 2009
Company name
OMG
ICCI
Xstrata
Umicore
BHPB/QNPL
CTT
Sumitomo
Vale Inco
Country
Finland
Canada
Norway
Belgium
Australia
Morocco
Japan
Canada
Production (Tonnes)
8850
3721
3510
2150
1700
1600
1332
1193
% of world
35.3%
14.8%
14.0%
8.6%
6.8%
6.4%
5.3%
4.8%
Gécamines
DR Congo
415
1.7%
Eramet
France
368
1.5%
Source: CDI
Deutsche Bank AG/London
Page 79
May 2011
A User Guide to Commodities
Gallium
History & properties
Gallium is silver in colour and brittle in solid form, but liquefies just above room temperature.
It is found as a trace element in coal, bauxite and other minerals. Gallium is used in
semiconductor technology and as a component of various low-melting alloys. Its symbol and
atomic number are Ga and 31 respectively. Its melting point is 29.78oC.
Major producers
Gallium occurs in very small concentrations in ores of other metals. Most gallium is produced
as a by-product of treating bauxite, and the remainder is produced from zinc-processing
residues. Only part of the gallium present in bauxite and zinc ores is recoverable, and the
factors controlling the recovery are proprietary. Therefore, an estimate of current reserves
that is comparable to the definition of reserves of other minerals cannot be made. The world
bauxite reserve base is so large that much of it will not be mined for many decades; hence,
most of the gallium in the bauxite reserve base cannot be considered to be readily available
in the short term.
In 2010, world primary production was estimated to be 106 tonnes, 34% greater than the
revised 2009 world primary production of 79 tonnes. China, Germany, Kazakhstan, and
Ukraine were the leading producers, countries with lesser output were Hungary, Japan,
Russia, and Slovakia. Refined gallium production was estimated to be about 161 tonnes, this
figure includes some scrap refining. China, Japan, and the United States were the principal
producers of refined gallium. Gallium was recycled from new scrap in Canada, Germany,
Japan, the United Kingdom, and the United States. World primary gallium production capacity
in 2010 was estimated to be 184 tonnes, refinery capacity, 177 tonnes, and recycling
capacity, 141 tonnes.
Major uses
Gallium arsenide (GaAs) and gallium nitride (GaN) electronic components represented about
99% of gallium consumption in the United States. About 64% of the gallium consumed was
used in integrated circuits (ICs) in defence applications, high-performance computers, and
telecommunications. Optoelectronic devices, which include light-emitting diodes (LEDs),
laser diodes, photodetectors, and solar cells, represented 35% of gallium demand. The
remaining 1% was used in research and development, specialty alloys, and other
applications. Optoelectronic devices were used in areas such as aerospace, consumer
goods, industrial equipment, medical equipment, and telecommunications.
Exchange traded & price conventions
Gallium is not traded on any exchange. Spot prices are available from the Minor Metals Trade
Association. The Reuters RIC for Gallium Ingots is GALL-ING-LON.
Figure 1: Gallium prices since 1993
1800
Figure 2: Composition of gallium demand by use in 2010
1%
Gallium price (USD/kg)
1600
1400
Integrated circuits
1200
35%
1000
800
Optoelectronic
devices
600
64%
400
Research &
development
200
0
1993
1995
1996
1998
Source: Reuters (data as of end Feb-11)
Page 80
1999
2001
2002
2004
2005
2007
2008
2010
Source: USGS
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Lithium
History & properties
Lithium is a soft alkali metal with a silver white colour. Its symbol is Li, atomic number is 3
and melting point is 180.54oC. Lithium is the lightest metal and least dense solid element
under standard conditions. It is highly reactive and corrodes quickly in the moist air to form a
black tarnish. It is therefore typically stored under the cover of oil. Lithium’s main source is of
petalite (lithium aluminium silicate) and spodumene. On a commercial scale, lithium metal is
isolated electrolytically from a mixture of lithium chloride and potassium chloride. Its major
application is in making batteries, in metallurgy, in ceramic, glass industry, pharmaceutical
industry, aeronautics and has use in several other industries.
Major producers
In 2010, Chile was the leading lithium chemical producer in the world accounting for nearly
35% of the world’s production, followed by Australia, China and Argentina. Chile also held
more than 57% of the world’s lithium reserves in the year 2010.
Figure 1: Major producers and reserves of lithium in 2010
Reserves
Producers
Chile
Australia
China
Argentina
Zimbabwe
Brazil
US
2010 (Tonnes)
8,800
8,500
4,500
2,900
470
180
W
World
25,350
% of world
34.7%
33.5%
17.8%
11.4%
1.9%
0.7%
W
Countries
Chile
China
Argentina
Australia
Brazil
US
Zimbabwe
Portugal
Other Countries
(Tonnes)
7,500,000
3,500,000
850,000
580,000
64,000
38,000
23,000
10,000
435,000
World
% of world
57.7%
26.9%
6.5%
4.5%
0.5%
0.3%
0.2%
0.1%
3.4%
13,000,000
*W: withheld to avoid disclosing company proprietary data; Source: USGS, 2010 estimate
Major uses
Lithium has a strong presence in the consumer electronic and telecommunication products,
with its use in batteries expanding rapidly in recent years because rechargeable lithium
batteries are increasingly being used in portable devices (laptops, mobile phones) and electric
vehicles. About 23% is used in lithium-ion batteries, nearly 31% is used in glass and ceramic
industry with another 9% of lithium used in lubricating greases. The Bloomberg ticker for
lithium is MBLILI02 <Index>.
Figure 2: Lithium price since 1997
800
Figure 3: Lithium uses in 2010
Lithium price (USD/tonne)
Ceramics & glass
15%
700
31%
600
6%
Lubricating greases
500
400
300
Batteries
4%
Air conditioning
6%
Primary aluminium
production
Casting
200
6%
100
Pharmaceuticals &
polymers
9%
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Bloomberg (Data as of end Feb - 2011)
Deutsche Bank AG/London
23%
Other uses
Source: USGS
Page 81
May 2011
A User Guide to Commodities
Magnesium
History & properties
Magnesium constitutes about 2% of the Earth’s crust and is the eighth most abundant
element in the world after hydrogen, helium, oxygen, neon, nitrogen, carbon and silicon.
Magnesium and magnesium compounds are also produced from seawater, well and lake
brines and bitterns. It is a relatively strong but lightweight metal of silvery white colour.
Magnesium is a highly flammable substance most easily ignited when powdered or shaved
into thin strips. Magnesite deposits were discovered in Austria and Greece during the latter
half of the 19th century, and by 1890, magnesite was in general use in Europe for refractory
linings in Bessemer and open-hearth furnaces. Because of its bright flash point, it was used
in the early days of photography and currently used in fireworks and marine flares.
Major producers
Magnesium production has traditionally been concentrated in North America. The first
magnesium plant in the United States was constructed by General Electric at Schenectady,
New York in 1914. Magnesium production in the United States increased steadily through the
decades, peaking during World War II because of the use of magnesium in incendiary
bombs. By the mid-1990s, around half of world production originated in the US. Since then
China has become the dominate producer. Magnesium production in China increased from
75Kt in 1996 to 650Kt by 2010. However, anti-dumping duties established in the United
States have essentially eliminated China from the United States market, which leaves Israel
and Russia as the principal United States suppliers. Russia, Israel, Kazakhstan and Brazil’s
production for 2010 were 40kt, 30kt, 20kt, and 16kt respectively.
Major uses
Aluminium alloying was the principal use for primary magnesium, accounting for 41% of total
demand in 2010. Aluminium-magnesium alloys have improved ductility, enhanced resistance
to saltwater corrosion, and are used in beverage cans, automobiles and machinery. Other
major uses include die-casting and iron and steel desulfurization.
Exchange traded & price conventions
Magnesium is not traded on a futures market. However, it is quoted on the Shanghai
Changjiang non-ferrous spot market. Its Bloomberg ticker is CCSMMGIN <Index>. The price
convention in Shanghai Changjiang market is Chinese Yuan per tonne. The Reuters code is
MGN-CHINA and is priced in US dollars per tonne.
Figure 1: Magnesium price since 1995
7000
Figure 2: Composition of magnesium demand in 2010
Magnesium price (USD/tonne)
14%
6000
Aluminium
alloying
5000
13%
4000
41%
Die-casting
3000
Steel & Iron
desulfurization
2000
Others
1000
0
1995
1997
1998
2000
Source: Reuters (Data as of end Feb - 2011)
Page 82
2001
2003
2004
2006
2007
2009
32%
2010
Source: USGS
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Manganese
History & properties
A grey-white metal that resembles iron, manganese is hard and brittle, fusible with difficulty,
but easily oxidised. Manganese is the twelfth most abundant element in the earth’s crust.
Nevertheless it is rarely found in concentrations high enough to form a manganese ore
deposit. It is designated by the symbol Mn and has an atomic number of 25. Manganese
metal and its common ions are paramagnetic, meaning that while manganese metal does not
form a permanent magnet, it does exhibit strong magnetic properties in the presence of an
external magnetic field.
The first utilization of manganese can be traced back to the Stone Age. Humans were already
using manganese dioxide as a pigment for their cave paintings during the upper Paleolithic
period, 17,000 years ago. Later in Ancient Greece, the presence of manganese in the iron ore
used by the Spartans is a likely explanation as to why their steel weapons were superior to
those of their enemies. Manganese has also long been related to glass-making. The
Egyptians and the Romans used manganese ore either to decolorize glass or to give it pink,
purple and black tints. It has been continually used for this purpose until modern times.
In the mid-17th century, the German chemist Glauber obtained permanganate, the first
usable manganese salt. Nearly a century later, manganese oxide became the basis for the
manufacture of chlorine. Yet manganese was only recognized as an element in 1771, by the
Swedish chemist Scheele. It was isolated in 1774 by one of his collaborators, J.G. Gahn. At
the beginning of the 19th century, both British and French scientists began considering the
use of manganese in steelmaking, with patents granted in the U.K. in 1799 and 1808. In
1816, a German researcher observed that manganese increased the hardness of iron, without
reducing its malleability or toughness.
Major producers
Manganese reserves are concentrated in Ukraine, South Africa, Brazil and Australia, supplying
over 73% of the international market. Manganese ore deposits are widely distributed in
China, but they lack high grade ore and mines are generally situated far from the end-user
industries. As a consequence, China imports high grade ores to blend with domestic
material.
Figure 1: Major producers and reserves of manganese in 2010
Mine production
China
Australia
South Africa
Gabon
Other countries
India
Brazil
Ukraine
Mexico
World
2010 (Tonnes,
000s)
2,800
2,400
2,200
1,400
1,400
1,100
830
580
210
12,920
Reserves
% of world
21.7%
18.6%
17.0%
10.8%
10.8%
8.5%
6.4%
4.5%
1.6%
Countries
Ukraine
South Africa
Brazil
Australia
India
Gabon
China
Other countries
Mexico
World
(Tonnes, 000s)
140,000
120,000
110,000
93,000
56,000
52,000
44000
11,000
4000
% of world
22.2%
19.1%
17.5%
14.8%
8.9%
8.3%
7.0%
1.8%
0.6%
630,000
Source: USGS, 2010 estimate
Deutsche Bank AG/London
Page 83
May 2011
A User Guide to Commodities
Major uses
Manganese is essential to iron and steel production by virtue of its sulphur-fixing, deoxidizing
and alloying properties. Steelmaking, including its iron making component, has accounted for
most manganese demand, presently in the range of 55% to 60% of the total demand.
Among a variety of other uses, manganese is a key component of low-cost stainless steel
formulations and certain widely used aluminium alloys.
The metal is very occasionally used in coins; the only United States coins to use manganese
were the "wartime" nickel from 1942–1945, and since 2000 dollar coins. The EU uses
manganese in 1 and 2 Euro coins, due to its greater and cheaper availability.
Figure 2: Manganese price since 1992
7000
Manganese price (USD/tonne)
6000
5000
4000
3000
2000
1000
0
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Bloomberg (data as of end Feb-11)
Exchange traded & price conventions
Manganese is not traded on any exchange although the price ticker for min. 99.7%
electrolytic manganese flake is available from Metal Bulletin and has the Bloomberg code
MBMNFMEL <Index>. The Reuters code is MNG-FERRO-LON.
Page 84
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Molybdenum
History & properties
Molybdenum has the symbol Mo and atomic number 42. The most significant naturally
occurring compound containing molybdenum is molybdenite (MoS2) and occurs in
association with copper sulphide. Mining of molybdenum is therefore often performed in
conjunction with copper mining. Molybdenum ore is crushed and ground into fine particles,
combined with oil, and separated by flotation in water. The resulting molybdenite concentrate
is then heated at 600-700°C to yield molybdenum oxide, which is then sold in powder form
or as briquettes for steelmaking.
Molybdenum is used primarily as an alloying agent in steel, cast iron, and super-alloys to
enhance strength, heat and corrosion resistance. It has one of the highest melting points of
all elements. Molybdenum would have been indistinguishable from other materials such as
lead, galena and graphite in ancient times and consequently were known collectively by their
Greek word molybdos, meaning lead-like.
Major producers
China is the world’s largest molybdenum producing country followed by the USA and Chile.
China also has the largest reserves, at 4.3 million tonnes, about 44% of the world’s total
reserves. Other reserves are located in USA, Central America and South America.
Figure 1: Major producers and reserves of Molybdenum in 2010
Reserves
Mine production
China
United States
Chile
Peru
Canada
Mexico
Armenia
Russia
Iran
Mongolia
Uzbekistan
Kazakhstan
Kyrgyzstan
World
2010 (Tonnes)
94,000
56,000
39,000
12,000
9,100
8,000
4200
3,800
3,700
3000
550
400
250
234,000
% of world
40.2%
23.9%
16.7%
5.1%
3.9%
3.4%
1.8%
1.6%
1.6%
1.3%
0.2%
0.2%
0.1%
Countries
China
United States
Chile
Peru
Russia
Armenia
Canada
Mongolia
Kazakhstan
Mexico
Kyrgyzstan
Uzbekistan
Iran
World
(tonnes, 000s)
4,300
2,700
1,100
450
250
200
200
160
130
130
100
60
50
% of world
43.7%
27.5%
11.2%
4.6%
2.5%
2.0%
2.0%
1.6%
1.3%
1.3%
1.0%
0.6%
0.5%
9,830
Source: USGS, 2010 estimate
Major uses
Over two-thirds of all molybdenum is used in high-strength alloys with resistance to corrosion
and stress corrosion cracking and there are few substitutes. These alloys are used in oil
refineries, oil wells, pipelines, power plants, petrochemical plants, mechanical parts, highspeed cutting tools and construction. A steel containing 2% molybdenum called Type 316 is
used in architectural applications for its resistance to wind-borne chlorides in coastal
environments, such as Canary Wharf in London and the Petronas Towers in Kuala Lumpur.
The ability of molybdenum to withstand extreme temperatures without significantly
expanding or softening makes it useful in applications that involve intense heat, including the
manufacture of aircraft parts, electrical contacts, industrial motors and filaments.
Deutsche Bank AG/London
Page 85
May 2011
A User Guide to Commodities
Figure 2: Molybdenum price since 1987
45
Figure 3: Composition of molybdenum demand by use in
2010
Molybdenum price (Usc/lb)
40
5%
Constructional Steel
6%
35
6%
Stainless Steels
30
35%
25
Chemicals
9%
20
Tool & Highspeed Steel
15
Mo Metal
14%
10
5
Cast Iron
25%
0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Bloomberg (data as of end Feb 2011)
Superalloys
Source: IMOA
Exchange traded & price conventions
The Bloomberg price ticker for molybdenum from Metal Bulletin is MBMOUSOX
<Index>.Metal Bulletin prices are updated every Wednesday and Friday. The Reuters code is
MLY-OXIDE-LON.
Figure 4: Controlling companies in molybdenum mining in 2010
Company name
Freeport
Codelco
Grupo Mexico
Thompson Creek
Kennecott
Antofagasta
Collahuasi
Antamina
Controlled production (‘000 tonnes)
71.8
46
45.7
31.1
26.5
20.3
9.6
6.9
% of world
27.8%
17.8%
17.7%
12.1%
10.3%
7.9%
3.7%
2.7%
Source: CRU
Page 86
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Rhenium
History & properties
Rhenium has the symbol Re and atomic number 75 and is one of the rarest but most
dispersed metallic elements in the Earth's crust. Molybdenite is the only significant host
mineral for rhenium. Walter Noddack, the German chemist, is generally credited with the
discovery of rhenium in 1925. At the University of Tennessee in 1942, A.D. Melaven and J.A.
Bacon developed a process for extracting the element from the dust that accumulated in the
roasting molybdenum ore.
Major producers
Rhenium mostly occurs with molybdenum in porphyry copper deposits and is developed as a
byproduct. Identified Chile and U.S. reserves are estimated to be about 1.7 million kilograms,
and the identified reserves of the rest of the world are approximately 0.7 million kilograms,
with Russia and Kazakhstan holders of major reserves. Rhenium also exists in sedimentary
copper deposits.
Figure 1: Major producers and reserves of rhenium in 2010
Mine production
Chile
United States
Peru
Poland
Kazakhstan
Canada
Russia
Other countries
Armenia
2010 (kg)
25,000
6,000
5,000
4,500
2,500
1,800
1,500
1,500
400
World
% of world
51.9%
12.5%
10.4%
9.3%
5.2%
3.7%
3.1%
3.1%
0.8%
48,200
Countries
Chile
United States
Russia
Kazakhstan
Armenia
Other countries
Peru
Canada
Reserves (kg)
1,300,000
390,000
310,000
190,000
95,000
91,000
45,000
32,000
World
% of world
53.0%
15.9%
12.6%
7.8%
3.9%
3.7%
1.8%
1.3%
2,453,000
Source: USGS, 2010 estimate
Major uses
Rhenium has an ultra-high melting point (3,186 degrees C) and is primarily used in producing
nickel-based super alloys, a vital resource for specialty metal users such as the aerospace
industry. By aiding aircraft engines to run at higher temperatures, they become more fuel
efficient. Thus in response to higher oil prices, the sector has demanded more and more of
the metal. The metal is also used in petroleum-reforming catalysts for the production of highoctane hydrocarbons, which are used in the formulation of lead-free gasoline.
Price conventions
The Bloomberg ticker is ENGHRHEN <Commodity>.
Figure 2: Rhenium price since 2001
6000
Figure 3: Composition of rhenium demand in 2010
Rhenium price (Usc/lb)
10%
5000
Superalloys &
powder
metallurgy
4000
20%
3000
Catalysts
2000
Others
1000
70%
0
2001
2002
2003
2004
2005
2006
Source: Bloomberg Finance LP (data as of end Feb-2011)
Deutsche Bank AG/London
2007
2008
2009
2010
2011
Source: USGS
Page 87
May 2011
A User Guide to Commodities
Tantalum
History & properties
Tantalum is a chemical element with the symbol Ta and atomic number 73. A rare, hard, bluegray, lustrous, ductile metal, tantalum is highly conductive of heat and electricity. The metal is
renowned for its resistance to corrosion by acids. Tantalum's high melting point of 3,017 C is
exceeded only by tungsten and rhenium.
Tantalum was discovered in 1802 by the Swedish chemist Anders Ekeberg and named after
the mythological character Tantalus because of the tantalizing problem of dissolving the oxide
in acids. It is often found with niobium, and for many years it was believed that these two
metals were actually the same element, until Heinrich Rose in 1844 proved otherwise.
Major producers
Identified resources of tantalum, most of which are in Australia and Brazil, are considered
adequate to meet projected needs. The United States has about 1,500 tons of tantalum
resources in identified deposits, all of which are considered uneconomic at 2010 prices. The
main source of primary ore is Australia which has the two largest mines in the world:
Greenbushes in the south of Western Australia and Wodgina in the north of the same state.
These two mines supply over one half of the world’s production. Tantalum mining also
occurs in Mozambique, Rwanda and Canada.
Major uses
The major use for tantalum in powder form is in the production of electronic components,
mainly capacitors and some high-power resistors. Because of the size and weight
advantages, tantalum capacitors are attractive for portable telephones, pagers, personal
computers and automotive electronics.
Tantalum is also used to produce a variety of alloys that have high melting points, are strong
and have good ductility. Alloyed with other metals, it is also used in making carbide tools for
metalworking equipment and in the production of superalloys for jet engine components,
nuclear reactors and missile parts. Due to its resistance to attack by body fluids and is also
non-irritating, tantalum is widely used in making surgical instruments and implants.
Figure 1: Major producers and reserves of tantalum in 2010
Reserves
Mine production
Brazil
Other countries
Mozambique
Rwanda
Australia
Canada
United States
World
2010 (Tonnes)
180
170
110
100
80
25
0
665
% of world
27.1%
25.6%
16.5%
15.0%
12.0%
3.8%
0.00%
Countries
Brazil
Australia
Mozambique
United States
Canada
Rwanda
Other countries
World
(Tonnes)
65,000
40,000
3,200
0
% of world
60.1%
37.0%
3.0%
0.0%
0.0%
0.0%
0.0%
108,200
Source: USGS, 2010 estimate
Page 88
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Thorium
History & properties
Thorium is a chemical element that has the symbol Th and atomic number 90. Thorium was
discovered in 1828 by the Swedish chemist Jons Jakob Berzelius, who named it after Thor,
the Norse god of thunder. As a naturally occurring, slightly radioactive metal, thorium has
been considered as an alternative nuclear fuel to uranium. When pure, thorium is a silvery
white metal. However, when it is exposed to oxygen, thorium slowly tarnishes, becoming
grey and eventually black. Thorium dioxide, also called thoria, has the highest melting point of
any oxide (3300°C). Thorium has the largest liquid range of any element: 2946 K between the
melting point and boiling point.
Major producers
Large thorium reserves are found in United States, Australia, India, Canada, South Africa and
Brazil. The leading share is contained in placer deposits. Resources of more than 500,000
tonnes are contained in placer, vein, and carbonatite deposits. Disseminated deposits in
various other alkaline igneous rocks contain additional resources of more than 2 million
tonnes
Figure 1: Major thorium reserves in 2010
Country
2010 Reserves (tonnes)
% of world
United States
440,000
34.5%
Australia
300,000
23.5%
India
290,000
22.7%
Canada
100,000
7.8%
Other countries
90,000
7.1%
South Africa
35,000
2.7%
Brazil
16,000
1.3%
Malaysia
4,500
0.4%
World
1,275,500
Source: USGS 2010 estimate
Major uses
The principal use of thorium has been in mantles in portable gas lights. It is also used to coat
tungsten wire used in electronic equipment. However, the use of thorium in the United
States has decreased significantly over the past two decades as a consequence of the high
cost of disposal due to its radio-activity.
Thorium as a nuclear fuel. Like uranium, thorium can be used as nuclear fuel. It is an attractive
alternative because it is much more abundant than uranium, easier to extract from the ground
and safer to use. Unlike uranium and plutonium, thorium is not fissle and cannot undergo
nuclear fission by itself. However, there are many barriers for thorium to gain acceptance in
the nuclear industry. For one, nuclear power industry has already built its infrastructure
around uranium and has little reason to invest in changing it. Furthermore, the technology is
not available to make it economically attractive. Because thorium cannot sustain a nuclear
reaction once it starts, it needs to be constantly exposed to enough neutrons to keep the
reaction going unlike uranium which only needs to be “zapped” once.
Exchange traded
Thorium is not traded on any exchange. However USGS sources its prices from the domestic
and international miners and processors.
Deutsche Bank AG/London
Page 89
May 2011
A User Guide to Commodities
Titanium
History & properties
Titanium is a durable, lightweight metal derived from minerals such as ilmenite or rutile. The
chemical element has the symbol Ti and atomic number 22 and is grayish in colour. It is
highly valued due to its resistance to corrosion and because of it has the highest strength-toweight ratio of any metal. In its unalloyed condition, titanium is as strong as some steels, but
45% lighter.
Major producers
Australia and South Africa are the largest producers of titanium and combined account for
41% of world production. Although China is fourth in terms of annual production, it has the
largest pool of reserves, constituting more than one-fourth of total world reserves, followed
by Australia and India.
Figure 1: Major producers and reserves of titanium (ilmenite and rutile) in 2010
Reserves
Mine production
Australia
2010 (Tonnes)
1350
% of world
21.3%
Countries
China
(Tonnes)
200,000
% of world
28.9%
South Africa
1250
19.7%
Australia
118,000
Canada
700
11.1%
India
92,400
17.0%
13.3%
China
600
9.5%
South Africa
71,300
10.3%
India
440
7.0%
Brazil
44,200
6.4%
Vietnam
410
6.5%
Madagascar
40,000
5.8%
Ukraine
357
5.6%
Norway
37,000
5.3%
Mozambique
352
5.6%
Canada
31,000
4.5%
Norway
320
5.1%
other countries
26,400
3.8%
United States
200
3.2%
Mozambique
16,480
2.4%
Madagascar
156
2.5%
Ukraine
8,400
1.2%
Sierra Leone
67
1.1%
Sierra Leone
3,800
0.6%
Sri Lanka
52
0.8%
United States
2,000
0.3%
Brazil
46
0.7%
Vietnam
1,600
0.2%
other countries
35
0.6%
World
6,335
World
692,580
Source: USGS 2010 estimate
Reserves constitute of economically extractable reserves, though facilities might or might not be operative.
Reserve Base encompasses economic, marginally economic and sub economic resources.
Major uses
Titanium can be alloyed with aluminium, iron, vanadium, molybdenum among others to
produce strong lightweight materials. About two thirds of all titanium metal produced is used
in aircraft engines and frames. Due to their high tensile strength to density ratio, high
corrosion resistance, and ability to withstand moderately high temperatures without
creeping, titanium alloys are used in aircraft, armour plating, naval ships, spacecraft, missiles,
wheelchairs and sports equipment.
Exchange traded & price conventions
Titanium is not traded on any exchange. However USGS sources its prices from the domestic
and international miners and processors.
Page 90
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Tungsten
History & properties
Tungsten, also known as Wolfram, is a chemical element that has the symbol W and atomic
number 74. A steel-gray metal, tungsten is found in the minerals wolframite, scheelite,
ferberite and hübnerite. It is valued for its robust physical properties as well as possessing
the highest melting point (3,422 °C) of all the non-alloyed metals and the second highest of all
the elements after carbon. Tungsten is often brittle and hard to work in its raw state. The
metal oxidizes in air and must be protected at elevated temperatures. It also has excellent
corrosion resistance.
In 1781, Carl Wilhelm Scheele ascertained that a new acid could be made from scheelite (at
the time named tungstenite): tungstic acid. Scheele and Torbern Bergman suggested that it
could be possible to obtain a new metal by reducing this acid. In 1783 José and Fausto
Elhuyar found an acid made from wolframite that was identical to tungstic acid. In Spain later
that year the brothers succeeded in isolating tungsten through reduction of this acid with
charcoal. They are credited with the discovery of the element.
Major producers
World tungsten supply is dominated by Chinese production and exports. More than 66% of
the world’s tungsten reserves exist in China, much of the remainder being supplied by
Russia. Various companies worked towards developing tungsten deposits or reopening
inactive tungsten mines in Australia, Canada, China, Kyrgyzstan, Mexico, Spain, Thailand, the
United States, Uzbekistan, and Vietnam.
Figure 1: Major producers and reserves of tungsten in 2010
Reserves
Mine production
2010 (Tonnes)
% of world
China
52,000
85.0%
Countries
China
(Tonnes)
1,900,000
Other Countries
3,300
5.4%
Other Countries
Russia
2,500
4.1%
Russia
250,000
8.7%
Boliva
1,100
1.8%
United States
140,000
4.9%
Austria
1,000
1.6%
Canada
120,000
4.2%
400,000
% of world
66.0%
13.9%
Portugal
950
1.6%
Boliva
53,000
1.8%
Canada
300
0.5%
Austria
10,000
0.4%
4,200
0.2%
United States
World
W
Portugal
61,150
World
2,877,200
*W: withheld to avoid disclosing company proprietary data; Source: USGS, 2010 estimate
Major uses
Tungsten is used in many extreme-temperature applications such as light bulbs, cathode-ray
tubes, vacuum tube filaments as well as nozzles on rocket engines. It is also suitable for
aerospace and other high temperature uses such as electrical, heating, and welding
applications. It is also used in electrodes and electron microscopes. The metal is also used in
X-ray targets. The hardness and density of tungsten find uses in heavy metal alloys that are
used in armament, heat sinks, and high density applications. Tungsten, which has a similar
density to gold, is sometimes used in jewellery as an alternative to gold or platinum. Its
hardness makes it ideal for rings that will resist scratching, are hypoallergenic and will not
need polishing.
Exchange traded & price conventions
Tungsten is not traded on any exchange although the price ticker for Tungsten APT European
is available from Metal Bulletin and has the Bloomberg code MBWOEUFM <Index>. The
Reuters codes are APT-CHINA and TUN-FERRO-LON.
Deutsche Bank AG/London
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A User Guide to Commodities
Vanadium
History & properties
Vanadium is a soft, silver-gray metallic element with the symbol V and atomic number 23. It
is found in about 65 different minerals, phosphate rocks and certain iron ores, and is also
present in some crude oils in the form of organic complexes. Vanadium was first discovered
by Andres Manuel del Rio in 1801. However, due to an incorrect counter-claim from a French
chemist the element was rediscovered in 1830 by Sefstrom, who named the element after
the Scandinavian goddess, Vanadis, because of its beautiful multi-coloured compounds. It
was isolated in nearly pure form by Roscoe, who in 1867 reduced the chloride with
hydrogen. Vanadium has good corrosion resistance to alkalis, sulphuric and hydrochloric acid,
and salt water, but the metal oxidizes above 660oC. The metal has good structural strength
and a low fission neutron cross section, making it useful in nuclear applications.
Major producers
China is the world’s largest producer and exporter of vanadium. South Africa and Russia are
also major producers. The US Geological Survey currently puts the total world reserves of
vanadium for 2010 at over 13 million tonnes. Vanadium is not traded on any exchange,
although the price ticker from Metal Bulletin is available: MBVAUS80 <Index> for FerroVanadium and the Reuters code for Ferro-Vanadium is VAN-FERRO-LON.
Figure 1: Major producers and reserves of vanadium in 2010
Mine production
China
2010 (Tonnes)
23,000
% of world
41.1%
Countries
China
Reserves (Tonnes,
000s)
5,100
% of world
37.4%
South Africa
18,000
32.1%
Russia
5,000
36.6%
Russia
14,000
25.0%
South Africa
3,500
25.7%
Other countries
1,000
1.8%
United States
45
0.3%
-
0.0%
United states
W
World
Other countries
56,000
World
13,600
*W: withheld to avoid disclosing company proprietary data; Source: USGS, 2010 estimate
Major uses
The key use of vanadium is as an alloying element in a number of types of steel, where it
increases strength and fatigue resistance. Over 14% of vanadium’s current production is
used for production of carbon while 41% of ferro-vanadium for alloying purpose and 33% for
adding to steel. These hard, strong ferro-vanadium alloys are used to make armor plating for
military vehicles. It is also used to make car engine parts, such as piston rods and crank
shafts. It is also used in the steel “skeleton” or frames of high-rise buildings and oil drilling
platforms. Some vanadium is used in other industrial applications. For example, vanadium
pentoxide (V2O5) is used in the production of glass and ceramics and as a chemical catalyst.
Figure 2: Ferro-vanadium price since 1993
70
Figure 3: Vanadium uses in 2010
Ferro-Vanadium price (Usc/lb)
12%
14%
60
Production of
Carbon
50
Full alloy
40
30
High strength
steel
33%
20
41%
10
0
1993
1995
1997
1999
2001
Source: Bloomberg Finance LP (data as of end Feb-2011)
Page 92
2003
2005
2007
2009
Other
2011
Source: USGS
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Mineral Sands
History & properties
Mineral sands refer to concentrations of heavy minerals with high specific gravity, which
include minerals rich in titanium, zirconium and rare earths. The mineral sands industry is
orientated primarily towards the supply of titanium raw materials, for use in the production of
titanium dioxide pigment and titanium metals. However, zircon and pig iron are also classified
within mineral sands mining.
Mineral sands tend to accumulate in river channels or along coastal shorelines. Beach sands
contain the most important accumulations of these minerals, so they are also sometimes
known as beach sands. However, they are also found in varying levels above the present sea
level and some deposits have been located up to 35km inland.
Major producers
Australia is a major producer of heavy minerals. During 1998, deposits in Western Australia,
New South Wales and Queensland supplied 0.25 millon tonnes or 58% of the world’s rutile
concentrate, 2.4 Mt or 27% of world’s ilmenite, and 0.40 Mt or 40% of the world’s zircon.
Major uses
The titanium dioxide pigment industry is the major end-user of titanium feedstock. A majority
of titanium dioxide pigment comes from rutile and ilmenite, as they produce a superior
pigment. About 90% of the world’s titanium mineral production is used in the manufacture of
white titanium dioxide pigment.
Titanium dioxide pigment is white in colour, with high opacity and resistance to colour
change, used primarily in paints as a whitener, and also in plastics, paper and rubber
products. Because it is non-toxic it also has minor uses in cosmetics, sun protection creams
and pharmaceuticals. About 6% is used to manufacture titanium metal, a light, strong,
corrosion-resistant metal used in aircraft, spacecraft and medical prostheses. Other minor
uses include welding rod coatings, sand blasting and water filtration.
The group of primary mineral sands mined are:
Zircon: Zircon is the third most heavy mineral in mineral sands and is a colourless to offwhite mineral, with a specific gravity between 4.6 to 4.7,that is it is 4.6-4.7 times heavier than
water. It is used as the raw material for making refractory bricks and furnace linings due to its
melting point of over 2500 degrees Celcius. It is also used widely in the ceramics industry as
a speciality glaze and foundry medium. A small percentage of pure zircon is used to make
nuclear fuel containers. Zircon is the world’s major source of zirconium products which are
used as alloying agents in materials that are exposed to corrosive agents such as space
vehicle parts, surgical appliances and explosive primers.
Rutile: Rutile is a red to black, naturally occurring titanium dioxide. Theoritically its composed
of 100% titatnium dioxide, but, practically impurities mean it typically contains about 95%
titanium dioxide. Rutile has a specific gravity of 4.25. Finely powdered rutile is used in paints,
plastics, papers, foods, and other applications that call for a bright white colour.
Ilmenite: Ilmenite is the most abundant titanium mineral, theoretically containing 52.7%
titanium dioxide, although in reality this figure ranges from 35-65%. Iimenite is black and
opaque with a specific gravity between 4.5 to 5.0 and it can be slightly magnetic. Similar to
rutile, ilmenite in fine powder form is a highly white substance used as a base in high-quality
paint, paper and plastics applications.
Deutsche Bank AG/London
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A User Guide to Commodities
Pig iron: Pig iron is a metallic iron containing greater than 90% iron, and is most commonly
produced from the smelting of iron ore in a blast furnace. It is relevant to mineral sands
because it is also a co-product of titanium slag production. In this operation, iron is recovered
from the smelting of ilmenite, and is collected as a high grade molten iron. Around 500-600
kilograms of pig iron is produced per 1,000 kilograms of titanium slag produced.
Monazite: Monazite is the rarest mineral that exists as a rare earth phosphate. It contains
about 30% throrium, which makes it mildly radiocative. Monazite grains are yellowish to
brown with the specific gravity of about 4.6 to 5.4. It is used in colour television screens,
screen luminescence materials, video monitors and high efficiency lights. Its potential also
lies in futuristic computer, medical and electronic industries.
Leucoxene: Leucoxene is not a definable mineral species, but rather refers to a range of
commercial titanium-bearing products, typically containing between 65% to 92% of titanium
dioxide. If leucoxene contains higher concentrations of titanium dioxide then it is classified as
rutile. Leucoxene is physically characterised by a weak magnetic susceptibility; and is often
coated in surface impurities. The major markets for leucoxene fall into two categories: as a
direct feedstock for the production of chlorine grade pigment; and in the manufacture of
welding electrode flux.
Page 94
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Rare Earth Metals
History & properties
Rare earths metals are a group of fifteen metallic elements consisting of the Lanthanide
series on the periodic table as well the element Yttrium. The rare earth metals can be
subdivided into the light or ceric elements of Cerium, Lanthanum, Neodymium, and
Praseodymium and the heavy elements of Yttrium, Samarium, Europium, Gadolinium,
Terbium, Dysprosium, Holmium, Erbium, Ytterbium and Lutetium. The three most important
ores on a global scale are the minerals bastnäsite, monazite and ion adsorption clays. Despite
their title, some of the rare earth metals such as cerium and lanthanum are relatively
abundant in the earth’s crust.
Major producers
According to US Geological Survey, the largest producer of rare earth metals is China
followed by India, Brazil and Malaysia. Although production has been concentrated in these
four countries in 2010, plans to boost rare earth metals production is occurring in other
countries around the world, such as the United States and Australia.
Figure 1: Major producers and reserves of Rare earth metals in 2010
Mine production
2010 (Tonnes)
% of world
Countries
Reserves (Tonnes)
% of world
China
130,000
97.31%
China
55,000,000
48.34%
India
2,700
2.02%
Other Countries
22,000,000
19.34%
Brazil
550
0.41%
Russia & CIS
19,000,000
16.70%
Malaysia
350
0.26%
11.43%
United States
13,000,000
United States
-
India
3,100,000
2.72%
Australia
-
Australia
1,600,000
1.41%
Russia & CIS
-
Brazil
48,000
0.04%
Other Countries
-
Malaysia
30,000
0.03%
World
133,600
World
113,778,000
Source: USGS, 2010 estimate
Major uses
Rare earth metals play a critical role in the automotive, electronics, environmental, protection
and petrochemical sectors. They are the world’s strongest magnets, and have been
attributable to the miniaturization of many technologies, such as iPods. The major
applications that drive the demand are:
Catalysts: Automotive catalytic converters (autocats) use rare earths particularly cerium.
Stricter environmental legislation is expected to sustain the strong demand for rare earth
metals in emission controls systems.
Cracking catalysis: Rare earth metals are also used in the petroleum refining industry. Their
applications are in the cracking process as they are able to enhance the gasoline yield.
Glass: Rare earths, most notably cerium and lanthanum, are used in a variety of applications
in digital cameras and fibre optics.
Magnets: Rare earth magnets are the world’s strongest permanent magnets. They are used
extensively in the automotive and electronic sectors for example in hard disk drives and
hybrid car motors.
Deutsche Bank AG/London
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May 2011
A User Guide to Commodities
NiMH batteries: Lanthanum based batteries are used extensively for hybrid vehicles as they
are rechargeable and portable.
Phosphors: Many rare earth metals are fluorescent and have their applications for flat screen
displays and energy efficient lighting.
Polishing powders: Cerium oxide is used in the polishing industry for televisions, silicon
wafers and chips.
Figure 2: Rare earth metals demand by use in 2010
Figure 3: World rare earth production & prices
140
6%
6%
21%
M agnets
7%
10%
Rare Earth Oxide Equivalent Price (USD/tonne, rhs)
130
13,000
Catalysts
120
M etal A llo ys
110
P o lishing
15,000
Global production ('000 tonnes, lhs)
11,000
100
9,000
Glass
P ho spho rs
20%
12%
90
Other
80
Ceramics
70
7,000
5,000
60
18%
50
3,000
1994
Source: USGS
Page 96
1996
1998
2000
2002
2004
2006
2008
2010E
Source: USGS
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Agriculture
By 2050, the United Nations estimates that the world’s population will reach 9.5 billion
people compared to approximately 6.5 billion today. India will represent 20% of this growth
compared to 4% for China. The rise in population levels will lead to an additional 1 billion tons
of soft grain consumption either directly as food or indirectly as a feedstock for cattle.
Consequently, we estimate that just over one third of the total growth in soft grains
consumption between now and 2050 will be driven by demographics. Rising per capita
incomes across the developing world will also lead to an improvement in dietary intake such
that protein demand between now and 2050 will be more than double. This will be another
powerful source of boosting grain demand going forward.
We believe the challenge will be to raise agricultural production given the constraints of land
and water at the same time that urbanisation rates are rising. Urbanisation has been partly
responsible for the steady decline in land dedicated to agricultural production globally. In fact
since the 1960s, the size of agricultural land per capita globally has been cut in half. To a large
degree this has been offset by a significant improvement in agricultural yields in certain parts
of the world. Even so, we expect significant challenges lie ahead not least given the scarcity
of water resources, particularly across Asia.
According to the FAO, the Americas have the largest share of the world’s total fresh water
resources. In an average year, 1,000m³ of water per inhabitant can be considered as a
minimum to sustain life and ensure agricultural production in countries with climates that
require irrigation for agriculture. The FAO identifies 33 countries that depend on other
countries for over 50% of their renewable water resources. These include Argentina,
Uzbekistan, Ukraine and Vietnam, all of whom can be considered important agricultural
exporters and hence vulnerable to adverse weather conditions such as droughts. In contrast,
the world’s four water richest countries are Brazil, Russia, Canada and Indonesia.
Figure 1: The world’s top agricultural producers
500
Figure 2: World agricultural land per capita
1.2
Sugar
Agricultural output in 2010-2011 (million tonnes )
Soybeans
400
World per capita agricultural area
1.1
Rice
300
Wheat
1.0
Corn
0.9
200
0.8
Thailand
Mexico
Australia
Ukraine
Vietnam
Canada
Pakistan
Russia
Indonesia
Brazil
Argentina
United States
India
0.6
EU-27
0.7
0
China
100
0.5
0.4
1965
Source: USDA
1970
1975
1980
1985
1990
1995
2000
2005
2010e
Source: USDA, IMF, Deutsche Bank
Figure 3: World water resources by region
Figure 4: Total land suitable for cultivation
Total = 4.2bn hectares
30000
Water resources per inhabitant
by continent (m³/year)
5%
Africa
9%
25000
27%
20000
Latin America
12%
15000
Industrial
countries
10000
Transition
countries
21%
5000
East Asia
26%
0
South Asia
Americas
Source: FAO
Deutsche Bank AG/London
Europe
Africa
Asia
Source: FAO, Terrastat (2005)
Page 97
May 2011
A User Guide to Commodities
According to the FAO approximately 12% of the world’s land surface is now being used for
crop production. Total land suitable for crop planting is estimated at 4.2bn hectares, of which
1.6bn is already under cultivation. This means that there is still a balance of 2.6bn hectares
(19% of land area) of suitable land left for new cultivation. Developing countries have the
highest land balance with Brazil, Congo, Argentina, Sudan and Indonesia being the top five.
However, this may overstate the available land for new cultivation since according to the
FAO, the gross land balance of 2.6bn hectares includes protected areas and land used for
human settlements. In addition much of this land suffers from constraints such as economic
fragility, low fertility, toxicity and high incidence of disease. For example large tracts of land in
Africa are only suitable for the cultivation of minor crops such as olive trees. This could cut
the FAO estimate of feasible land for cultivation by at least 50%.
In an environment of land and water constraints at a time when demand for agricultural
commodities is rising part of the solution to meet this increased demand could be the
increasing take-up of biotech crops alongside more conventional methods of increasing
productivity such as mechanisation and irrigation. Genetically engineered technology was
first introduced in 1996 and in six countries: the United States, Argentina, Brazil, Canada,
China and Australia. Today 29 countries are engaged in the planting of biotech crops.
However, up until now, the adoption of genetically engineered crops has been primarily
concentrated in just three countries, the US, Argentina and Brazil and principally in two crops,
soybeans and corn. According to the International Service for the Acquisition of Agri-biotech
Applications, these three countries account for over 75% of planted GE crops.
The two GE traits that are currently commercialised are ones that are either herbicide tolerant
(HT) or insect resistant (Bt) or both. HT technology allows crops to survive herbicides that are
aimed at destroying weeds and is the dominant trait deployed in soybeans, corn, cotton and
canola (rapeseed oil). This strain has been particularly successful in soybean cultivation.
Insect resistant GE crops are mostly used in the cultivation of corn and cotton as it possess a
gene, Bacillus thuringiensis (Bt), which produces a protein that is toxic to specific insects.
Going forward, advances in GE technology are expected to deliver strains that allow crops to
survive in environments which require less water or fertilizer as well as producing crops that
are higher in nutrients and consequently useful as a cattle feed to promote rapid weight gain.
We expect this improvement in yields will spread and particularly across the developing
world. We find that India has the potential to stage a noticeable improvement in agricultural
productivity, as yields lie significantly below those of her Asian neighbours.
Figure 5: Corn yields across various countries since
1960
900
China
800
South Korea
700
Brazil
645
600
India
452
500
400
256
300
100
Page 98
1970
1975
1980
1985
1990
1995
2000
2005
2010
Sugar
Rice
Soybeans
1965
Wheat
Corn
Source: USDA
48
25
10
8
4
0
2
0
1960
58
Cocoa
4
Coffee
153
200
Rubber
6
Cotton
8
World production
(million tonnes 2010-11)
814
Palm oil
10
United States
Rapeseed
12
Figure 6: Total world production of a selection of
agricultural commodities
Source: USDA
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Cocoa
History & properties
The first traces of the consumption of cocoa appear to have been in South America and
specifically during the Mayan civilisation in the 6th Century. By the time of the Aztecs around
the 15th Century, cocoa beans had become a unit of currency across the whole of Central
America.
Cocoa derives from the cacao tree, which grows to around 12 meters (40 feet), bears fruit or
pods which are more than 30cm long. Each pod holds between 30 to 40 cocoa beans, with
approximately 400 beans required to make one pound of chocolate. Cacao trees typically
grow in hot and humid tropical climates, with an average rainfall of 1150mm to 2500mm and
a temperature range of between 18 to 32 degrees Centigrade. Consequently production
tends to occur between 10 to 20 degrees north and south of the equator and specifically in
the Ivory Coast, Ghana and Indonesia. A cacao tree takes about five years to reach maturity,
but, can live for up to 50 years with the peak growing period lasting for around 10 years. The
growing season is continuous such that ripe pods can be found on cacao trees throughout
the year. However, the main harvesting period starts from September and can extend into
the first few months of a new year.
The fruit from the cacao tree can be classified according to three broad types: Criollo,
Forestero and Trinitario. Forestero accounts for over 85% of global cocoa production and is
largely concentrated in Africa. Criollo beans are primarily grown in Central and South America
and are generally considered superior in quality. Two-thirds of cocoa bean production is used
to make chocolate and one-third to make cocoa powder.
Major producers & consumers
While the cacao tree is a native of the Americas, today West Africa dominates the world
production of cocoa. Ivory Coast, Ghana and Indonesia account for 65% of global cocoa
production, with Ivory Coast the most dominant producer in the world. Disease is a major
factor affecting production such as witches broom, monilia and black pod disease. Military
conflict in West Africa has also been responsible for disrupting cocoa production. Indeed at
the start of this year, Ivory Coast imposed a ban on cocoa and coffee exports. Following the
removal of incumbent President Gbagbo from office exports bans have been lifted in April,
and alongside higher production in Ghana should help in alleviating supply shortages. Cocoa
consumption is measured by grindings or processing. The Netherlands and the US remain
the major cocoa processing countries, with grindings exceeding 390,000 tonnes in both
countries in 2010/11.
Figure 1: The world’s top 8 cocoa producers & consumers in 2010
Producer
Ivory Coast
Ghana
Tonnes (000s)
% of world
Consumer
Tonnes (000s)
% of world
1,325
33.6%
Netherlands
525
13.9%
825
20.9%
United States
390
10.3%
370
9.8%
Indonesia
500
12.7%
Germany
Nigeria
240
6.1%
Ivory Coast
350
9.3%
Cameroon
220
5.6%
Malaysia
315
8.3%
275
7.3%
Brazil
190
4.8%
Ghana
Ecuador
150
3.8%
Brazil
235
6.2%
50
1.3%
Indonesia
130
3.4%
Papua New Guinea
World
3,938
World
3,780
Source: International Cocoa Organization; Consumers are measured by grindings/cocoa processing
Deutsche Bank AG/London
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May 2011
A User Guide to Commodities
Figure 2: Cocoa turnover by exchange
Figure 3: Cocoa prices
Annual turnover in 2010 (Futures only, million lots)
4500
3.8
4
Cocoa price (USD/tonne)
5000
3.5
4000
3500
3
3000
2500
2
2000
1500
1
1000
500
0
1957
0
Cocoa (ICE)
Cocoa (EURONEXT)
Source: NYBOT, EURONEXT
1963
1969
1975
1981
1987
1993
1999
2005
2011
Source: Deutsche Bank, IMF, Bloomberg Finance LP (monthly data as of 14 April 2011)
Major uses
Cocoa beans are fermented for up to seven days and are then sun-dried. The drying process
takes between one and two weeks. The beans are then polished by machine and roasted at
which point the shells are removed and the beans are ready to make chocolate, chocolate
paste, cocoa powder and cocoa butter.
International organizations & exchange traded
The International Cocoa Organization (ICCO) was established in 1973 with the aim over time
to boost farm incomes and market access for major cocoa exporting countries. The
International Cocoa Council is the governing body of the ICCO and consists of 15 cocoa
exporting and 29 cocoa importing member countries. Cocoa is traded on the New York Board
of Trade and on EURONEXT. The futures contract calls for the delivery of 10 tonnes of cocoa
and is priced in US dollars per tonne. The Bloomberg ticker for the one month generic cocoa
futures contract is CC1 <Commodity>.
The Bloomberg codes for the total return and excess return DBLCI-Optimum Yield Cocoa
Index are DBLCYTCC <Index> and DBLCYECC <Index> respectively.
Figure 4: Cocoa market balance
Figure 5: Cocoa inventory-to-use ratio
Market balance (rhs)
4500
400
60
300
55
Inventory-to-grindings ratio (%)
Production (lhs)
Consumption (lhs)
4000
Tonnes (000s)
3500
100
0
3000
-100
Tonnes (000s)
200
50
45
40
2500
-200
2000
-300
2001
2002
2003
Source: International Cocoa Organization
Page 100
2004
2005
2006
2007
2008
2009
2010
35
30
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: International Cocoa Organization; Years run from September to August such that the end of the 2009
marketing year takes place in August 2010
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Coffee
History & properties
Coffee first came to prominence in Ethiopia more than 2,000 years ago. According to legend,
an Ethiopian goat herder witnessed the lively behaviour of his goats after they consumed the
berries of a coffee tree. He then enjoyed their unusual properties and monks in a local
monastery took this discovery and turned it into a beverage. The first coffee houses sprang
up in and around Mecca and pilgrims helped to spread the beverage beyond Arabia. Coffee
was then traded through Mocha, a port city on the Red Sea coast of Yemen, which gave its
name to a fine quality of coffee. By the 17th Century coffee houses had spread across Europe
and had become an important meeting place for traders and merchants. Both Lloyd’s of
London and the London Stock Exchange were founded in coffee houses. Coffee is generally
classified according to two types of bean: Arabica and Robusta. The most widely produced
coffee is arabica, which makes up just over 60% of world production. It is also considered
superior and trades at a premium to the robusta bean. Robusta is the stronger of the two
beans with more caffeine, a bitter taste and is grown at lower altitudes.
Major producers & consumers
Coffee was introduced to Brazil in 1727 from French Guiana. Today, Brazil and Colombia are
the world’s largest producers of arabica coffee. 80% of all coffee produced in Brazil is of the
arabica variety. Coffee in Brazil is grown in the states of Paraná, Espirito Santos, São Paulo,
Minas Gerais, and Bahia. Vietnam, which specializes in robusta production, has seen strong
growth in its coffee production over the past few years. Robusta coffee production is also
concentrated in Indonesia and West Africa. The EU and the US constitute 70% of world
coffee consumption. Coffee prices have recently hit their highest levels in 34 years on low
inventories and following poor harvests in a number of key producing countries. The
increasing incidence of El Niña and La Niña conditions has contributed to the more volatile
performance of coffee and other agricultural production levels in recent years.
Price conventions & organizations
The International Coffee Organization was set up in London in 1963. The last International
Coffee Agreement was signed in September 2007 and outlined among its objectives to
promote not only coffee consumption, but, also its quality. Coffee is measured in 60kg bags,
with one bag equivalent to 132.3 pounds. The coffee marketing year runs from 1 October to
30 September. The coffee price is quoted in US cents per pound as well as US dollars per
tonne. The Bloomberg ticker for the NYBOT Coffee ‘C’ one month generic coffee futures
contract is KC1 <Commodity>.
Figure 1: The world’s top 10 coffee producers, consumers, exporters and importers in 2010
% of
Producers
% of
000s
world
Consumers
Brazil
54,500
39.2%
Vietnam
18,725
Colombia
Indonesia
% of
000s
world
Exporters
000s
world
EU-27
45,130
34.4%
Importers
000s
% of world
Brazil
32,000
30.5%
EU-27
47,200
13.5%
USA
23,910
46.1%
18.2%
Vietnam
17,430
16.6%
USA
24,300
23.7%
9,000
6.5%
Brazil
9,000
6.5%
Japan
19,500
14.9%
Colombia
8,650
8.2%
Japan
6,900
6.7%
6,750
5.2%
Indonesia
7,400
7.0%
Russia
4,300
India
5,125
3.7%
4.2%
Russia
4,300
3.3%
India
4,075
3.9%
Algeria
2,100
Mexico
4,500
2.1%
3.2%
Philippines
2,175
1.7%
Peru
3,900
3.7%
Canada
2,000
Ethiopia
2.0%
4,400
3.2%
Algeria
2,100
1.6%
Guatemala
3,850
3.7%
Switzerland
1,975
1.9%
Guatemala
4,000
2.9%
Canada
2,000
1.5%
Honduras
3,300
3.1%
S Korea
1,750
1.7%
Peru
4,000
2.9%
Switzerland
1,975
1.5%
Mexico
2,900
2.8%
Malaysia
1,570
1.5%
Honduras
3,500
2.5%
Indonesia
1,900
1.5%
Uganda
2,800
2.7%
Philippines
1,550
1.5%
World
104,967
World
139,084
World
131,025
World
102,413
Source: USDA, International Coffee Organization (Units are 60kg bags)
Deutsche Bank AG/London
Page 101
May 2011
A User Guide to Commodities
Figure 2: Coffee turnover by exchange
6
Figure 3: Coffee prices since 1957
Annual turnover on in 2010
(Million lots 2010)
5.5
Coffee price (USc/pound)
400
350
5
300
4
250
2.8
3
200
150
2
100
1
Coffee C Arabica
(NYBOT)
Coffee Robusta
(EURONEXT)
50
0.1
0.0
Coffee Arabica
(TGE)
Coffee Robusta
(TGE)
0
Source: TGE, NYBOT, EURONEXT, BM&F
0
1957
1963
1969
1975
1981
1987
1993
1999
2005
2011
Source: IMF, Bloomberg Finance LP (monthly data as on 14 April 2011)
Major uses
Coffee berries are picked, defruited, dried, sorted and sometimes aged to yield the green
coffee bean. The beans are then roasted and ground before being prepared to make coffee.
Exchange traded
Coffee futures and options are traded on the Tokyo Grain Exchange (TGE), the Coffee, Sugar
and Cocoa Exchange Division of the New York Board of Trade (NYBOT), EURONEXT London
and the Brazilian Mercantile & Futures Exchange (BM&F).
The NYBOT Coffee “C” Futures contract was first listed in 1955 and is for delivery of arabica
coffee, in a contract size of 37,500 pounds and quoted in US cents per pound. Since October
2007, NYBOT offers a Robusta coffee futures contract. This reflects the growing importance
of robusta production, which regularly accounts for around 40% of global coffee production.
The size and pricing conventions are the same as for the Coffee “C” futures contract.
The EURONEXT London robusta coffee futures contract calls for delivery of robusta coffee in
a contract size of ten tonnes, quoted in US dollars per tonne. The TGE trades both the arabica
and robusta bean futures contracts. The Bloomberg codes for the total return and excess
return DBLCI-Optimum Yield Coffee C Index are DBLCYTKC <Index> and DBLCYEKC
<Index> respectively.
Figure 4: Per capita coffee consumption
7
Figure 5: Coffee inventory-to-consumption ratio
Per capita coffee
consumption (kg, 2009)
6.50
2500
Coffee inventory-to-consumption ratio
5.64
6
2000
5
Total available
stocks divided by
daily consumption
4.09
4
1.93
2
1.33
1.20
1
0.87
Source: International Coffee Organization
Page 102
Indonesia
Mexico
Russia
Korea
Japan
US
Brazil
Germany
0
Days of use
3.36
3
1500
1000
500
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Deutsche Bank, USDA
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Corn
History & properties
Corn or maize is a native grain of the Americas. It is part of the coarse grain family, which
also includes barley, sorghum, oats and rye. Corn is the world’s largest cereal crop in terms
of global production, amounting to 814 million tonnes in 2010, compared to wheat
production of 645 million tonnes during the same year. Fossils of corn pollen have been
found in lake sediment dating back over 80,000 years in what is now Mexico City. Corn can
be cultivated in very diverse environments from sea level to as high as 12,000 feet. It can
also grow in climates with as little as 12 inches or as much as 400 inches of rainfall per
annum.
Major producers & consumers
The United States is the world’s largest producer and exporter of corn, representing 39% of
global production and 55% of world exports in 2010. The largest corn producing states in the
US are Iowa, Illinois, Nebraska and Indiana. After the US, Argentina is the world’s second
largest exporter of corn. China is the world’s second largest consumer of corn while Japan is
the world’s largest importer, importing almost twice much corn as it does wheat and
soybeans combined. 80% of Japan’s corn imports come from the US and their value is
greater than any other good imported from the US. Over the past decade, corn and soybean
acreage in the US has been rising at the expense of lower acreage for wheat and cotton.
The increasing use of corn as a feedstock for the US ethanol industry has contributed to US
corn exports falling over the past few years such that the country now represents 55% of
world exports, compared to 64% of world exports in 2007. In China, domestic corn
consumption is rising rapidly, particularly as an animal feed. This is in response to the
increasing consumption of meat. Strong consumption growth in China had been met by a
significant drawdown in corn inventories, which are now being rebuilt, but it has also meant
that the country is no longer an exporter of corn. This has contributed to corn prices hitting
and surpassing their old price highs hit in 2008.
Major uses
Corn is used for livestock feed, human consumption and as a feedstock for ethanol
production, most notably in the US. Since 1990, corn demand for ethanol purposes in the US
has risen from 349 million bushels to 5,000 million bushels or equivalent to 40% of total US
corn production. The United States Department of Agriculture estimates that by 2015 the US
ethanol industry will absorb 5.5 billion bushels of corn per annum.
Figure 1: The world’s top 10 corn producers, consumers, exporters and importers in 2010
Tonnes
% of
(000s)
world
Consumers
Tonnes
% of
Tonnes
% of
(000s)
world
Exporters
(000s)
world
Importers
USA
316,165
38.8%
(000s)
% of world
USA
293,384
35.0%
USA
49,532
54.6%
Japan
16,100
China
168,000
17.6%
20.6%
China
164,000
19.5%
Argentina
14,500
16.0%
Mexico
9,000
9.8%
EU-27
Brazil
55,193
6.8%
EU-27
60,500
7.2%
Brazil
8,500
9.4%
S. Korea
8,000
8.7%
55,000
6.7%
Brazil
48,800
5.8%
Ukraine
5,500
6.1%
EU-27
6,500
7.1%
Argentina
22,000
2.7%
Mexico
30,800
3.7%
India
2,500
2.8%
Egypt
5,400
5.9%
Mexico
22,000
2.7%
India
18,000
2.1%
S. Africa
2,000
2.2%
Taiwan
4,700
5.1%
India
20,500
2.5%
Japan
16,100
1.9%
Paraguay
1,700
1.9%
Colombia
3,600
3.9%
S. Africa
12,000
1.5%
Canada
12,300
1.5%
Serbia
1,700
1.9%
Iran
3,200
3.5%
Ukraine
11,919
1.5%
Egypt
12,100
1.4%
Canada
1,000
1.1%
Malaysia
2,800
3.1%
Canada
11,714
1.4%
S. Africa
10,600
1.3%
EU-27
1,000
1.1%
Algeria
2,400
2.6%
World
814,941
World
839,223
World
90,797
World
91,703
Producers
Tonnes
Source: USDA (metric tons); To convert tonnes into bushels multiply by 39.367
Deutsche Bank AG/London
Page 103
May 2011
A User Guide to Commodities
Figure 2: Corn turnover by exchange
Annual turnover on in 2010
(Million lots 2010)
69.8
70
Figure 3: Corn price since 1972
8
7
1st nearby corn futures price
(USD/bushel)
60
6
50
5
40
36.0
4
30
3
20
2
10
1.1
0.2
Corn (TGE)
Corn (EURONEXT)
0
Corn (CBOT)
Corn (DCE)
Source: DCE, CBOT, Tokyo Grain Exchange, EURONEXT
1
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Other feedstocks used for ethanol production include sugar and sorghum. Demand for corn
as an animal feed has also been rising due to the improvement in living standards and
specifically more high protein diets across Asia. Cattle are voracious consumers of grains,
such that approximately seven pounds of feed are required to generate an additional one
pound in weight.
Exchange traded
The two most important commodity exchanges in terms of corn futures turnover in 2010
were the Chicago Board of Trade (CBOT) and the Dalian Commodity Exchange (DCE). Corn
futures are also traded on the Tokyo Grain Exchange (TGE) as well as the Kansai Commodity
Exchange, Bolsa de Mercadarios & Futuros (BM&F) in Brazil, the Budapest Commodity
Exchange, the Mercado a Termino de Buenos Aires, EURONEXT Paris, the Johannesburg
Securities Exchange and the Minneapolis Grain Exchange.
Price conventions
The corn price is quoted in US cents per bushel. The contract months for the Chicago Board
of Trade corn future are March, May, July, September and December. The Bloomberg ticker
for the first nearby corn futures contract is C 1 <Commodity>. The Bloomberg ticker for the
total returns and excess returns Deutsche Bank Corn Indices are DBRCTR <Index> and
DBRC <Index> respectively. The DB Corn-Optimum Yield total return and excess return index
codes are DBLCOCNT <Index> and DBLCOCNE <Index> respectively.
Figure 4: Global corn inventory-to-consumption ratio
180
Corn inventory-to-consumption ratio
160
Figure 5: Chinese corn production and inventory
180
Total available
stocks divided by
daily consumption
160
80
60
40
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Deutsche Bank, USDA
Page 104
Tonnes (millions)
Days of use
100
Corn Inventories
140
140
120
Corn production
120
100
80
60
40
20
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Cotton
History & properties
Cotton is one of the oldest fibres known to man. It has been in use for over 5,000 years and
has its origins in modern day Pakistan. However, there is evidence that it was prevalent in
Mexico even earlier. The English name derives from the Arabic word al qutun. The quality of
the cloth compared to wool so impressed Europeans during the 14th century that they
believed cotton fibre grew on trees, hence the German word “baumwolle” or “tree wool”.
Today, cotton is the most important textile fibre in the world, making up more than 40% of
total world fibre production. Cotton is classified according to the staple, grade and character
of each bale. Staple refers to the fibre length. Grade ranges from coarse to premium and is a
function of colour, brightness and purity. Character refers to the fibre’s strength and
uniformity. Cotton is measured in terms of bales, with one bale equivalent to 480 pounds in
weight.
Major producers & consumers
The largest producers of cotton are China, India and the US, constituting 60% of world
production. China is not only the world’s largest producer, but also the largest consumer and
importer of cotton. China’s cotton needs are a result of its dominance in the global textile
industry. The majority of Chinese cotton acreage is grown on small farms located in the
Yellow River valley, Yangtze River valley and Northwest region. The US is the second-largest
producer of cotton, but, the world’s top exporter, making up over 40% of total world trade in
cotton. The US cotton belt extends from Florida and northern Carolina westward to California.
The planting season varies across the US from the beginning of February in Texas to as late
as June is the northern part of the US cotton belt, which extends from Texas eastwards to
Georgia.
In India, the introduction of genetically engineered Bt cotton six years ago helped to propel
the country from being a net importer to the world’s second largest net exporter of cotton.
Farmers globally are increasing harvested area to cotton as prices have surged to record
highs over the past two years. This has in part been driven by poor weather in China, Pakistan
and Australia, but, also the imposition of exports caps in India. In response to higher prices,
India cotton acreage is estimated to hit 11.2 million hectares in the current crop year, a new
all time high. Although representing almost 7% of world exports, Brazil is also expected to
move up the league table of cotton exporters in the years ahead as it increases acreage.
Figure 1: The world’s top 10 cotton producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers
(000s)
world
Exporters
(000s)
world
Importers
(000s)
world
China
29,500
25.8%
China
47,000
40.2%
USA
15,750
41.3%
China
15,000
39.3%
India
25,000
21.8%
India
21,500
18.4%
India
4,800
12.6%
Bangladesh
3,850
10.1%
USA
18,100
15.8%
Pakistan
10,525
9.0%
Uzbekistan
3,500
9.2%
Turkey
3,150
8.3%
Brazil
9,000
7.9%
Turkey
5,820
5.0%
Australia
3,000
7.9%
Indonesia
1,925
5.0%
Pakistan
8,700
7.6%
Brazil
4,250
3.6%
Brazil
2,350
6.2%
Thailand
1,675
4.4%
Uzbekistan
4,650
4.1%
Bangladesh
3,910
3.3%
Turkmenistan
1,100
2.9%
Vietnam
1,650
4.3%
Australia
4,500
3.9%
USA
3,702
3.2%
Greece
750
2.0%
Mexico
1,350
3.5%
Turkey
2,100
1.8%
Indonesia
1,950
1.7%
Burkina
725
1.9%
Pakistan
1,300
3.4%
Turkmenistan
1,500
1.3%
Mexico
1,925
1.6%
Mali
450
1.2%
S. Korea
1,000
Argentina
1,250
1.1%
Vietnam
1,725
1.5%
Tajikistan
450
1.2%
Taiwan
875
Total
114,533
Total
116,973
Total
38,130
Total
2.6%
2.3%
38,128
Source: USDA (1000 480 lb. Bales)
Deutsche Bank AG/London
Page 105
May 2011
A User Guide to Commodities
Figure 2: Cotton turnover by exchange
100
Annual turnover in 2010
(Futures only, million lots)
Figure 3: Cotton price since 1957
Cotton price (US cents/pound)
220
86.96
200
180
80
160
140
60
120
100
40
80
60
20
40
5.70
20
0
Cotton #2 (ICE)
0
1957
Cotton (ZCE)
Source: ZCE, NYBOT
1963
1969
1975
1981
1987
1993
1999
2005
2011
Source: Deutsche Bank, IMF, Bloomberg Finance LP (monthly data as of 14 April 2011)
Major uses
Cotton’s properties such as softness, absorbency and insulation make it suited to a diverse
range of applications. Its fibres are used to make a variety of textiles that are used in clothing,
furnishings and industry.
Exchange traded & prices
Cotton futures and options trade on the New York Board of Trade (NYBOT) as well as the
Zhengzhou Commodity Exchange. Other exchanges which have listed cotton futures are the
MCX and NCDE exchanges in India and the Bolsa de Mercadarios & Futuros (BM&F) in Brazil.
The NYBOT Cotton No. 2 futures contract specifies delivery of 50,000 pounds net weight,
certain minimum standards of basis grade and staple length, and is quoted in terms of US
cents per pound. The five delivery months are March, May, July, October and December. The
Bloomberg ticker for the NYBOT one month generic cotton futures contract is CT1
<Commodity>. The Bloomberg tickers for the total returns and excess returns Deutsche
Bank Cotton Optimum Yield indices are DBLCYTCT <Index> and DBLCYECT <Index>
respectively.
Figure 4: Cotton yields since 1960 by country
1600
1400
1200
Figure 5: Biotechnology & Indian cotton exports
China
7,000
US
Pakistan
India introduces
Bt cotton
5,000
India
4,000
Brazil
1000
Bales (000s)
Kg per hectare
India's net trade
balance in cotton
6,000
800
600
3,000
2,000
1,000
0
400
200
-1,000
India deploys GE
technology
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Page 106
-2,000
-3,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: USDA
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Palm Oil
History & properties
Trading in palm oil has been dated back to as early as 3,000 BC. Crude palm oil (CPO) is
produced from the fruits of the oil palm plant, which is native to West Africa. The plant
thrives in humid tropical climates within 10 degrees north and south of the equator and at
altitudes of less than 1,600 feet. The plum-sized fruits of the oil palm grow in large bunches
of between 1,000-3,000 fruits, termed fresh fruit bunches (FFB). The fruit of the oil palm
produces two types of oils, palm oil (90%) from the flesh of the fruit and palm kernel oil
(10%) from the seed of the fruit.
The oil palm has become a popular source of edible oil thanks to its superior oil yield of four
tonnes per planted hectare which is 10 times that of soybeans and six times that of
rapeseed, making it the most efficient oil-bearing crop in the world. Given its high yields,
palm oil accounts for 57% of world exports of oil and fats in 2010/11. The plant can be
harvested throughout the year and has a long productive lifespan of 25-30 years. However,
we believe strong production growth will be constrained by a lack of suitable arable land,
slow progress in yield improvement due to slow progress in agricultural research, climate
change and insufficient freshwater resources and growing pressure from NGOs to limit the
expansion in new planting, particularly in Indonesia.
Major producers & consumers
Since oil palm’s introduction to Indonesia and Malaysia in the late 1800s, the two countries
have grown to become the largest palm oil producers in the world. According to the USDA,
Indonesia and Malaysia accounted for 49% and 38% global CPO production respectively in
2010. Both countries were also the world’s largest exporters of CPO. Oil World estimates
that Indonesia’s CPO production is set to rise further and to exceed 50% of global production
this year. On the demand side, China and India are the largest consumers and accounted for
a combined 29% of global consumption and almost 37% of global imports in 2010.
According to Oil World, CPO is the world’s most consumed oil, forming 33% of consumption
of the 17 major oil and fats in 2010. Demand for CPO is largely driven by its use as a
relatively cheap vegetable oil and increasingly as a feedstock for bio-diesel.
Major uses
There are three main areas of palm oil usage, first as a food, second in the oleo-chemical
industry and lastly as a biofuel feedstock. In its edible form, palm oil is used as cooking oil,
margarine, confectionary fats and as a non-dairy creamer.
Figure 1: The world’s top 10 palm oil producers, consumers, exporters and importers in 2010
Tonnes
% of
Producers
(million)
world
Consumers
Tonnes
% of
(million)
% of world
Exporters
(million)
world
Importers
Indonesia
23,600
49.2%
India
7,750
15.8%
Indonesia
17,850
47.9%
Malaysia
18,000
37.5%
China
6,277
12.8%
Malaysia
16,100
Thailand
1,500
3.1%
Indonesia
5,745
11.7%
Papua NG
Nigeria
850
1.8%
EU-27
5,388
11.0%
Colombia
820
1.7%
Malaysia
3,700
Papua NG
500
1.0%
Pakistan
Ecuador
460
1.0%
Ivory Coast
300
Brazil
Honduras
World
Tonnes
Tonnes
(million)
% of world
India
7,200
19.5%
43.2%
China
6,250
17.0%
500
1.3%
EU-27
5,400
14.7%
Benin
480
1.3%
Pakistan
2,300
6.2%
7.6%
UAE
265
0.7%
Malaysia
1,250
3.4%
2,250
4.6%
Ecuador
200
0.5%
USA
975
2.6%
Thailand
1,520
3.1%
Honduras
180
0.5%
Bangladesh
965
2.6%
0.6%
Nigeria
1,240
2.5%
Singapore
180
0.5%
Egypt
850
2.3%
265
0.6%
US
1,009
2.1%
Guatemala
165
0.4%
Iran
620
1.7%
252
0.5%
Bangladesh
960
2.0%
EU-27
150
0.4%
Japan
580
1.6%
World
37,284
World
36,838
47,972
World
48,907
Source: USDA (metric tons)
Deutsche Bank AG/London
Page 107
May 2011
A User Guide to Commodities
Figure 2: Crop yields for a variety of commodities
5
Yields by crop type
Tonnes per hectare
4.04
4
Figure 3: Palm oil price
4500
Crude palm oil price (MYR/tonne)
4000
3500
3000
3
2500
2000
2
1500
1
1000
0.69
0.53
0.37
500
0
0
Palm oil
Rapeseed
Sunflower
1992
Soybean
Source: USDA (2010-11)
1995
1998
2001
2004
2007
2010
Source: Bloomberg Finance LP
As an oleo-chemical, palm oil is used in the production of soap, cosmetics, detergents and
pharmaceutical/nutraceutical products. In recent years, palm oil along with other vegetable
oils has also been used as a feedstock for biofuel. Food represents approximately three
quarters of palm oil use and industry and specifically oleochemicals and biodiesel accounted
for 21% of palm oil use.
Exchange traded
The most liquid crude palm oil futures contract is traded on the Bursa Malaysia. Contracts are
denominated in Ringgit with a contract size of 25 tonnes. A US dollar denominated contract
on the Bursa Malaysia has also been recently launched. A US dollar denominated CPO
futures contract is already listed on the Joint Asian Derivatives Exchange (JADE) in
Singapore. Other exchanges that trade CPO include India’s National Commodity &
Derivatives Exchange and the National Multi-Commodity Exchange of India.
Price conventions
The CPO price is most often quoted in Malaysian Ringgits per tonne. The Bloomberg ticker
for the first nearby palm oil futures contract is KO1 <Commodity> and the benchmark
Malaysian Palm Oil Board CPO spot price ticker is PAL2MALY <Commodity>. The
Bloomberg Contract Rotterdam CPO price, which is quoted in US dollars per tonne, is
PALMROTT <Index>.
Figure 4: World production of vegetable oils 2010
Figure 5: Evolution of world production of vegetable oils
60
Palm oil & palm
kernel oil
32.9%
7.0%
Sunflower oil
22.4%
Rapeseed oil
Soyabean oil
Rapeseed oil
13.8%
Others
40
Page 108
Sunflow er oil
30
20
10
0
1964
Source: Oil World Monthly 2010
Soybean oil
50
Tonnes (millions)
23.9%
Palm oil & palm kernel oil
1969
1974
1979
1984
1989
1994
1999
2004
2009
Source: USDA
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Rapeseed
History & properties
Rapeseed production goes back 4,000 years, when it was used for cooking and as lamp oil in
China and India. Today, it is the second largest oilseed crop after soybeans and the third
largest vegetable oil after soybean oil and palm oil. It has passed peanut, cottonseed and
sunflower in worldwide production during the past twenty years because of the increasing
use of Canola. Canola is a genetic variation of rapeseed and was developed in Canada. The
word canola derives from Canadian oil, low acid. Although rapeseed has been domestically
grown since World War II, its popularity increased significantly from 1985 after canola oil was
granted safe as a food additive by the US Food and Drug Administration.
Major producers & consumers
The European Union and China account for 55% of the world’s production of rapeseed. India
and Canada, the next largest producers account for 20% and 12% respectively of global
production. The major consumers are the European Union, China, India and Canada. Although
the EU and China are large producers, they are net importers of rapeseed. Since rapeseed oil
is the main feedstock for Europe’s biodiesel industry and the EU has mandated that biofuels
account for 10% of transportation fuel use by 2020, Europe is likely to increasingly rely on
foreign imports specifically from Russia and the Ukraine. In terms of exports, Canada is the
world’s largest exporter accounting for almost 66% of world’s exports, followed by Ukraine
and Australia.
Major uses
Processing of rapeseed for oil production provides animal meal as a by-product, which has a
high protein content. Rapeseed is also a heavy nectar producer. A more recent development
is the use of oil in the manufacture of bio-diesel. Europe is the world’s largest bio-diesel
producer and rapeseed is its main feedstock.
Exchange traded
Rapeseed and/or canola futures and options are traded on EURONEXT, the ICE Canada and
the Australian Stock Exchange. The EURONEXT rapeseed futures contract calls for the
delivery of 50 tonnes of rapeseed and the ICE contracts calls for the delivery of 20 tonnes.
Rapeseed oil futures are also listed on the Zhengzhou Commodity Exchange.
Price conventions
The Bloomberg ticker for the ICE one month generic canola futures contract is RS1
<Commodity>. The price of canola is quoted in Canadian dollars per tonne.
Figure 1: The world’s top 10 rapeseed producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(‘000)
world
Consumers
(‘000)
world
Exporters
(‘000)
world
Importers
(‘000)
% of world
EU-27
20,300
34.8%
EU-27
23,150
38.3%
Canada
6,800
66.1%
Japan
2,200
21.8%
China
12,800
21.9%
China
15,250
25.3%
Australia
1,500
14.6%
EU-27
2,120
21.0%
Canada
11,866
20.3%
India
6,795
11.3%
Ukraine
1,350
13.1%
China
1,900
18.8%
India
7,000
12.0%
Canada
6,120
10.1%
USA
308
3.0%
Mexico
1,185
11.7%
Australia
2,150
3.7%
Japan
2,196
3.6%
EU-27
220
2.1%
Pakistan
800
7.9%
Ukraine
1,470
2.5%
USA
1,285
2.1%
Russia
50
0.5%
UAE
650
6.4%
USA
1,114
1.9%
Mexico
1,185
2.0%
Kazakhstan
25
0.2%
USA
500
5.0%
Russia
500
0.9%
Pakistan
1,056
1.7%
Paraguay
17
0.2%
Canada
270
2.7%
Belarus
400
0.7%
Australia
720
1.2%
India
5
0.0%
Turkey
250
2.5%
Pakistan
230
0.4%
UAE
650
1.1%
Belarus
5
0.0%
Bangladesh
160
1.6%
World
10,283
World
58,387
World
60,377
Tonnes
World
10,088
Source: USDA (metric tons)
Deutsche Bank AG/London
Page 109
May 2011
A User Guide to Commodities
Rice
History & properties
Rice is a staple diet for half of the world’s population, especially in tropical Latin America, and
East, South and Southeast Asia. The plant, which measures 2-6 feet tall, has long, flat leaves
and stalk-bearing flowers that produce the grain called rice. Rice is rich in genetic diversity,
with thousands of varieties grown throughout the world. In addition, it is entirely nonallergenic and gluten-free. Although it can be grown practically anywhere, rice cultivation is
well suited to regions with high rainfall and low labour costs, as it is very labour-intensive to
cultivate and requires plenty of water.
Major producers & consumers
China and India account for more than half of the world’s production, with Asia combined
constituting 90% of global rice production. The largest three exporting countries are Thailand
(32.2%), Vietnam (18.7%) and the US (11.4%), while the largest three importers are Nigeria
(6.4%), the Philippines (6.2%) and Indonesia (5.9%). Although China and India are the top
producers of rice in the world, both countries consume most of the rice produced
domestically leaving not much to be traded internationally. Both countries constitute around
30% and 21% of the world’s consumption respectively.
Global rice production is forecast to rise to a record high of 452 million tonnes in 2010-11.
Unlike other agricultural commodities, rice prices have been relatively stable over the past
year and are almost 40% below their 2008 peak. Three years ago supply disruption and
export bans contributed to rice prices rising by over 80% within a year. More recently, the
rice market has benefited from good harvests in Thailand and Vietnam which have helped to
limit price advances. The beginning of the Japanese rice planting season in April and May has
raised concerns that certain areas by have been affected by the tsunami and subsequent
nuclear contamination. The area affected by the tsumani represents approximately 22% of
the country’s rice crop. As things stand today it appears soil samples are safe outside the
30km exclusion zone around the Fukushima nuclear plant. As a result, it is hoped that
Japanese rice production will not be adversely affected by the natural disaster in March 2011.
Major uses
Apart from being a staple food, rice has other uses as well. Rice starch is used in making icecream, custard powder, puddings and gel. The bran is used in confectionary products. The
defatted bran is also used as s cattle feed and organic fertilizer. Rice bran oil is used as edible
oil and in manufacturing soaps and fatty acids. Rice husk is used as a fuel, in board and paper
manufacturing, packing and building materials and as an insulator.
Figure 1: The world’s top 10 rice producers, consumers, exporters and importers in 2010
Tonnes
% of
(‘000)
world
Consumers
Tonnes
% of
Tonnes
% of
Tonnes
% of
(‘000)
world
Exporters
(‘000)
world
Importers
(‘000)
world
China
139,300
30.9%
India
94,500
21.0%
China
136,000
30.5%
Thailand
10,000
32.9%
Nigeria
1,900
6.5%
India
91,000
20.4%
Vietnam
6,000
19.7%
Indonesia
1,750
Indonesia
36,900
6.0%
8.2%
Indonesia
38,850
8.7%
USA
3,565
11.7%
Bangladesh
1,350
Bangladesh
4.6%
32,300
7.2%
Bangladesh
33,100
7.4%
Pakistan
2,650
8.7%
EU-27
1,350
4.6%
Vietnam
24,983
5.5%
Vietnam
19,300
4.3%
India
2,400
7.9%
Iran
1,200
4.1%
Thailand
20,262
4.5%
Philippines
13,325
3.0%
Cambodia
1,200
3.9%
Philippines
1,200
4.1%
Burma
10,500
2.3%
Thailand
10,500
2.4%
Uruguay
900
3.0%
Iraq
1,150
3.9%
Philippines
10,350
2.3%
Burma
10,100
2.3%
Argentina
625
2.1%
S. Arabia
1,069
3.7%
Brazil
8,908
2.0%
Brazil
8,400
1.9%
Brazil
600
2.0%
Malaysia
907
3.1%
Japan
7,720
1.7%
Japan
8,125
1.8%
China
600
2.0%
Ivory Coast
900
3.1%
World
450,681
World
446,232
World
30,399
Producers
World
29,232
Source: USDA (metric tons)
Page 110
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Futures trading compared
80
Figure 3: Rice price since 1989
Annual futures turnover in 2010 for various
agricultural products on US exchange (mllion lots)
69.8
70
25
1st nearby rough rice futures price
(USD/cwt)
20
60
50
15
36.9
40
29.2
30
23.1
10
20
5.7
10
5.5
3.8
0.4
5
0
Corn
(CBOT)
Soybeans Sugar #11
(CBOT) (NYBOT)
Wheat
(CBOT)
Cotton #2 Coffee ‘C’
(NYBOT) (NYBOT)
Cocoa
(ICE)
Rough
Rice
(CBOT)
Source: CBOT, NYBOT, ICE
0
1989
1992
1995
1998
2001
2004
2007
2010
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
Rice futures and options are traded on Chicago Board of Trade (CBOT). The deliverable grade
is US No. 2 or better long grain rough rice with a total milling yield of not less than 65%,
including head rice of not less than 48% with a contract size of 2000 cwt. Despite being one
of the most important commodities in the world, futures trading in rice is virtually nonexistent. We believe the relatively inactive trading in rice futures reflects the various grades
available and the relatively small internationally traded market in rice.
Price conventions
The price of rice is quoted in US dollars per hundred pounds (cwt). The Bloomberg ticker for
the CBOT one month rough rice futures contract is RR1 < Commodity>.
Figure 4: Global rice production & exports
500
140
World rice production
Rice inventory-to-consumption ratio
120
World rice exports
100
300
200
100
Days of use
Tonnes (million)
400
Figure 5: Rice inventory-to consumption ratio
80
60
40
Total available
stocks divided by
daily consumption
20
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Deutsche Bank AG/London
0
1960
1970
1980
1990
2000
2010
Source: USDA
Page 111
May 2011
A User Guide to Commodities
Rubber
History & properties
The origins of rubber are to be found in South America. It was then discovered by European
explorers in the 15th century. The first popular use of the substance was in the late 18th
Century as an eraser to “rub out” pencil marks, hence the name rubber. In 1876, Henry
Wickham gathered rubber seeds from Brazil for germination in Kew Gardens, England and
the seedlings were later sent to parts of Southeast Asia for commercial production. With the
invention of automobiles in the late 19th century, the boom in the natural rubber industry
began.
There are two types of rubber that are in use today: natural and synthetic rubber. Natural
rubber is obtained by coagulating the latex produced by the Hevea Brasiliensis or rubber tree.
Typically, a rubber tree takes 6-7 years to reach maturity compared to 3-4 years for a palm oil
tree. Synthetic rubber is a petroleum product and is almost identical to natural rubber in its
physical and chemical properties. However, it was not until WW1 when Germany developed
the industrial version of synthetic rubber that it became commercially viable. Before that time
the production of synthetic rubber was prohibitively expensive. The development of synthetic
rubber production was further accelerated when US supplies from Asia were severely
curtailed during the Second World War and alternative supplies were required. The
advantages of synthetic rubber over natural rubber are the former’s great resistance to oil,
solvents, oxygen and certain chemicals, and a greater resilience over a wider temperature
range. Presently, synthetic rubber constitutes 55% of the global rubber market.
Over the past few decades natural rubber has been losing its competitiveness to synthetic
rubber as well as versus other agricultural products. For example, there has been a shift in
natural rubber acreage to palm oil cultivation given higher yields in palm oil, shorter time to
maturity (3-4 years) compared to rubber (6-7 years) and the tendency for palm oil demand to
be more resilient during economic downturns and less vulnerable than rubber to extreme
weather conditions. Consequently, this has led to years of underinvestment in the natural
rubber industry. The main increase in acreage has occurred in Thailand between 2005 and
2008. Given the time it takes from planting to becoming productive, we expect this will only
lead to stronger supply growth from 2013 onwards.
Major producers and consumers
The largest producers of natural rubber are Thailand, Indonesia and Malaysia, accounting for
almost 70% of global production in 2010. China, the US, EU-25 and Japan are the largest
consumers and hence importers of natural rubber. China overtook the US to become the
world’s largest consumer of natural rubber in 2000. Today, China constitutes approximately
30% of the world’s rubber consumption given the country’s increasing demand for car and
hence tyres. Over the past three years India has overtaken the US to become the world’s
third largest consumer of rubber. This has occurred not only as a result of the US recession,
but, the expanding passenger and commercial vehicle market in India.
Figure 1: The world’s top 10 rubber producers and consumers in 2010
Producers
Thailand
Indonesia
Malaysia
India
Vietnam
Others
Total
Tonnes (‘000)
2,989
2,850
939
851
754
1,674
10,054
% of world
29.7%
28.3%
9.3%
8.5%
7.5%
16.6%
Consumers
China
Europe
India
USA
Japan
Others
Total
Tonnes (‘000)
3,350
1,070
971
909
678
3,522
10,500
% of world
31.9%
10.2%
9.2%
8.7%
6.5%
33.5%
Source: International Rubber Study Group
Page 112
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Rubber acreage by size & age
4
Figure 3: Market balance in rubber
Total area under rubber cultivation
(hectares mn, lhs)
100
% of young trees (<10 years, rhs)
80
3
300
Surplus/Deficit (000s tons, lhs)
16
200
Price (RMB/kg, rhs)
14
100
12
0
10
60
2
40
1
20
-100
8
-200
6
-300
4
-400
2
-500
0
0
Indonesia
Thailand
Malaysia
China
Vietnam
India
0
2004
2005
2006
2007
2008
2009
2010
2011F 2012F 2013F
Cambodia
Source: ANRPC, IRSG, Deutsche Bank
Source: ANRPC, IRSG, Deutsche Bank
Major uses
The characteristics and properties of rubber such as elasticity, water repellence, electrical
resistance, heat tolerance and toughness make it suited for a variety of applications. The
most common use of rubber is in the production of tyres and footwear. It is also extensively
used in the production of a broad range of latex products, gloves and electrical insulators.
Resistance to abrasion also makes rubber valuable for pump housings and piping. Thanks to
the resistance of rubber to water, it is also widely used in rainwear, diving gear and chemical
and medicinal tubing. Most natural rubber produced today conforms to the Technically
Specified Rubber scheme. This scheme requires standardized tests to be performed on each
grade of rubber as well as standardized packaging. Individual rubber producing countries set
the acceptable limits for the rubber they produce. The main ones are Standard Malaysian
Rubber (SMR), Standard Thai Rubber (STR) and Standard Indonesian Rubber (SIR). Ribbed
Smoked Sheets consists of deliberately coagulated rubber sheets, completely dried using
smoke. These sheets are then graded according to their colour, consistency and observed
impurities. RSS is generally more difficult to process than TSR.
Exchange traded
Natural rubber futures are listed on a number of exchanges around the world. The RSS3
natural rubber (Ribbed Smoked Sheets No. 3) contracts are traded on the Osaka Mercantile
Exchange (OME), the Tokyo Commodity Exchange (TOCOM), the Singapore Commodity
Exchange (SICOM), the Agricultural Futures Exchange of Thailand (AFE) and the Shanghai
Futures Exchange (SFE). The other exchange traded natural rubber grades include RSS
1(SICOM), TSR 20 (SICOM, CBOT) and SCR 5 (SFE). The Bloomberg tickers for various RSS3
contracts are A61<CMDTY>, RQ1 <COMDTY>, RG1 <CMDTY> and JN1 <CMDTY>.
Figure 4: Rubber turnover by exchange
180
167.4
160
Figure 5: Rubber price
Annual turnover in 2010
(Lots million)
300
250
140
120
No. 1 smoked sheet rubber
price SICOM (US cent/pound)
200
100
150
80
60
100
40
50
20
3.1
0
0
SFE
Source: SFE, TOCOM
Deutsche Bank AG/London
TOCOM
1980
1985
1990
1995
2000
2005
2010
Source: Bloomberg Finance LP
Page 113
May 2011
A User Guide to Commodities
Soybeans
History & properties
The soybean is a member of the oilseed family, which also includes canola, peanuts,
rapeseed and sunflower seed. Soybeans are native to Asia and specifically China, Japan and
Korea. The English word soy is derived from the Japanese word shoyu. It was introduced into
the US at the end of the 18th Century.
Major producers & consumers
The United States is the largest producer of soybeans in the world. It has overtaken wheat to
be the country’s second largest production of any crop after corn. Soybean production is
concentrated in Illinois, Iowa, Minnesota, Indiana, Nebraska and Ohio. Soybean crops in the
US are planted in May or June and are harvested in autumn as the crop typically matures
between 100-150 days after planting. Brazil and Argentina are the world’s second and third
largest soybean producers and since 2002 the combined exports of these two countries have
exceeded US soybean exports. Since 2000, the proportion of soybean under cultivation that
is genetically engineered as risen from 58% of all land harvested to 93% today.
Genetically engineered soybeans have also been deployed in Argentina and Brazil.
Consequently, of the total global area of soybeans under cultivation almost two-thirds is
genetically modified. In Brazil, of the 25.4 million hectares dedicated to GE crops, with the
majority relating to GE soybeans and the remainder to Bt corn and cotton. Part of the success
of GE soybean technology has been its ability to reduce herbicide spraying costs by 50-80%
and hence lower input costs into the farming process. The USDA estimates that soybean
acreage in Brazil will grow by an average of 3% per annum into the next decade and by 2016
the country will overtake the US to become the world’s largest producer of soybeans.
Major uses
Soybeans are used to produce a wide variety of food products. The key value of soybeans is
their relatively high protein content without the many negative factors associated with animal
meat. Common forms of soy include soy meal used as animal feed for poultry and swine and
more recently the aquaculture of catfish. Soy milk is used in imitation dairy products, such as
soy yogurt, ice cream and soy cheese. Soybeans are also used in the industrial production of
soap, cosmetics, resins, plastics, inks, crayons, solvents and bio-diesel. Typically the US,
Brazil and Argentina have employed soybeans as a feedstock for bio-diesel production while
Indonesia, Malaysia and the EU use palm oil and rapeseed oil.
Figure 1: The world’s top 10 soybean producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers
(000s)
world
Exporters
(000s)
world
Importers
(000s)
% of world
USA
90,610
34.7%
China
68,450
26.8%
USA
43,001
43.7%
China
57,000
59.8%
Brazil
72,000
27.6%
USA
48,313
18.9%
Brazil
32,750
33.2%
EU-27
14,000
14.7%
Argentina
49,500
19.0%
Argentina
39,865
15.6%
Argentina
11,000
11.2%
Mexico
3,700
3.9%
China
15,200
5.8%
Brazil
38,600
15.1%
Paraguay
5,985
6.1%
Japan
3,450
3.6%
India
9,600
3.7%
EU-27
14,770
5.8%
Canada
2,825
2.9%
Taiwan
2,550
2.7%
Paraguay
8,100
3.1%
India
10,345
4.0%
Uruguay
1,580
1.6%
Thailand
1,830
1.9%
Canada
4,345
1.7%
Mexico
3,805
1.5%
Ukraine
750
0.8%
Egypt
1,750
1.8%
Ukraine
1,680
0.6%
Japan
3,692
1.4%
China
300
0.3%
Indonesia
1,635
1.7%
Uruguay
1,620
0.6%
Taiwan
2,555
1.0%
S. Africa
150
0.2%
S. Korea
1,260
1.3%
Bolivia
1,580
0.6%
Indonesia
2,375
0.9%
Bolivia
50
0.1%
Russia
1,150
1.2%
World
260,972
World
98,510
World
95,370
World
255,772
Tonnes
Source: USDA (metric tons)
Page 114
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Soybean trading by exchange
37.4
40
36.9
Figure 3: Soybean price since 1972
Annual turnover in 2010
(million lots)
30
18
1st nearby soybean futures price
(USD/bushel)
16
14
12
20
10
8
10
6
1.1
4
0.0
0
2
No. 1 Soybeans
(DCE)
Soybeans (CBT)
Soybeans (TGE)
Non-GMO
Soybeans (TGE)
Source: DCE, CBT, TGE
0
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
Soybean futures and options are traded on the Dalian Commodity Exchange in China, the
Chicago Board of Trade (CBOT) and the Tokyo Grain Exchange (TGE). In addition, soybean
futures are also listed on the Bolsa de Mercadarios & Futuros (BM&F) in Brazil, the Mercado
a Termino in Buenos Aries, the Kansai Commodity Exchange, the NCDEX in India and the
South African Securities Exchange.
Although the futures turnover on the DCE was approximately 50% greater than that of the
CBOT soybeans futures contract in 2007, contract size is significantly lower with the DCE
calling for the delivery of less than 400 bushels. In comparison the CBOT soybean futures
contract calls for the delivery of 5,000 bushels of No. 2 yellow soybeans. Soybean meal and
soybean oil futures contracts are also listed on the DCE and CBOT exchanges.
Price conventions
The soybean price is quoted in US cents per pound. The Bloomberg ticker for the CBOT one
month generic soybean futures contract is S 1 <Commodity>. The Bloomberg tickers for the
total returns and excess returns Deutsche Bank Soybean Optimum Yield indices are
DBLCYTSS <Index> and DBLCYESS <Index> respectively.
Figure 4: Soybean inventory-to-use ratio
Figure 5: Soybean yields since 1986 by country
Total available stocks divided
by daily consumption
120
4
3.5
100
3
Tonnes per hectare
Days of use
80
60
40
Argentina
Brazil
China
India
Soybean yields by country
From 1996, the US, Agrentina
and Brazil deploy GE technology
United States
2.5
2
1.5
1
20
0
1965
0.5
0
1970
1975
1980
Source: USDA
Deutsche Bank AG/London
1985
1990
1995
2000
2005
2010
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: USDA
Page 115
May 2011
A User Guide to Commodities
Sugar
History & properties
Sugar cane is thought to have originated in New Guinea as much as 9,000 years ago.
However, the first reported production of sugar from sugar cane took place on the River
Ganges around 2,000 years ago. The word sugar originates from the Indian Sanskrit word
sharkara, which later became al zukkar in Arabic. Sugar did not arrive in Europe until the 14th
Century. At the time, sugar was so expensive that one ounce of gold could buy just 30
pounds of sugar. Today a similar amount of gold can buy almost 22,000 pounds of sugar.
Sugar can be derived from both sugar cane and sugar beets, the latter being more costly to
produce. There is little perceptible difference between the sugar derived from either source.
Most sugar cane comes from countries with warm climates, such as Brazil, India, China and
Australia. Beet sugar is grown in regions with cooler climates. Of all the sugar produced,
almost 80% is processed from sugar cane. The International Sugar Organization currently has
85 members, which constitute just over 80% of world sugar production and 95% of world
exports.
Major producers & consumers
Brazil is the largest producer and exporter of sugar in the world with Thailand a distant
second in terms of exports. Brazil, Thailand and Australia account for approximately 65% of
global exports. US production is evenly divided between beet and cane sugar. The largest
sugar beet producing states are Minnesota, Idaho, North Dakota and Michigan. The largest
cane producers are Florida, Louisiana, Texas and Hawaii.
Brazil is by far the world’s largest sugar producer even though more than half of its sugar
cane is used to make ethanol. Even though relative returns of producing ethanol and sugar
can swing considerably within and between crop years, capacity constraints at individual
plants (most of which produce both products) means that the product mix shifts less than
5% a year.
India is the world’s largest consumer and second largest sugar producer. However, large
swings in production have moved them periodically from the largest importer to the second
largest exporter. This has added a lot of variability to the world sugar markets.
Subsidies and high import tariffs have made it difficult for other countries to export into the
EU or compete with it on world markets. The World Trade Organization ruling in April 2005
against EU sugar export subsidies heralded a four-year programme of subsidy cuts, which
has seen a decline in EU sugar production, such that by 2006 the EU-27 became a net
importer of sugar.
Figure 1: The world’s top 10 sugar producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
Tonnes
(000s)
world Consumers
% of
(000s)
world
Exporters
(000s)
world
Importers
(000s)
world
Brazil
39,400
24.3% India
25,000
15.8%
Brazil
26,850
51.8%
EU-27
3,575
7.3%
India
25,700
15.9% EU-27
17,000
10.7%
Thailand
4,700
9.1%
Russia
3,050
6.2%
EU-27
14,800
9.1%
China
15,100
9.5%
Australia
3,750
7.2%
Indonesia
2,910
5.9%
China
12,670
7.8%
Brazil
12,000
7.6%
UAE
1,750
3.4%
USA
2,058
4.2%
USA
7,607
4.7%
USA
9,866
6.2%
Guatemala
1,680
3.2%
UAE
1,910
3.9%
Thailand
6,870
4.2%
Russia
5,736
3.6%
EU-27
1,460
2.8%
China
1,800
3.7%
Mexico
5,450
3.4%
Indonesia
4,900
3.1%
Mexico
938
1.8%
S Korea
1,600
3.3%
Australia
4,800
3.0%
Mexico
4,435
2.8%
S Africa
800
1.5%
Nigeria
1,525
3.1%
Pakistan
3,270
2.0%
Pakistan
4,280
2.7%
Colombia
740
1.4%
Malaysia
1,515
3.1%
Russia
2,850
1.8%
Egypt
2,800
1.8%
Cuba
500
1.0%
Algeria
1,375
2.8%
World
161,899
World
158,202
World
49,159
World
51,824
Source: USDA (metric tons)
Page 116
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Sugar turnover by exchange
Annual turnover on in 2010
(Million lots)
29.2
30
Figure 3: Sugar price since 1957
60
25
50
20
40
15
Sugar price (US cents/lb)
30
10
20
5
1.9
0.4
10
0
Sugar #11 (ICE)
White Sugar
(EURONEXT)
Raw Sugar (TGE)
Source: NYBOT, EURONEXT, TGE
0
1957
1963
1969
1975
1981
1987
1993
1999
2005
201
Source: Deutsche Bank, IMF, Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
The most actively traded sugar futures contract is the No. 11 (world) sugar contract on the
New York Board of Trade (NYBOT). Other exchanges which have listed sugar futures are the
Bolsa de Mercadorias & Futuros (BM&F), the Tokyo Grain Exchange (TGE), the Kansai
Commodity Exchange, the Zhengzhou Commodity Exchange, EURONEXT and the MCX and
NCDEX exchanges in India. The NYBOT No. 11 contract calls for the delivery of 112,000
pounds (50 long tons) of raw cane centrifugal sugar from any of the 28 producing countries
and the United States. The majority (almost 80% of the total tonnage) delivered against
NYBOT’s sugar futures contract is accounted for by Brazilian sugars. Futures on white sugar
are traded on EURONEXT and call for the delivery of 50 tonnes of white beet sugar, cane
crystal sugar or refined sugar of any origin.
Price conventions
The sugar price is quoted in US cents per pound. The Bloomberg ticker for the one month
generic futures sugar contract is SB1 < Commodity>. The Bloomberg tickers for the total
returns and excess returns Deutsche Bank Sugar Optimum Yield indices are DBLCYTSB
<Index> and DBLCYESB <Index> respectively.
Figure 4: Sugar inventory-to-consumption ratio
150
Figure 5: Sugar cane versus beet production
Sugar inventory-to-consumption ratio
140
140
120
Global sugar cane production
Global sugar beet production
130
100
110
100
90
80
70
60
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Deutsche Bank AG/London
Tonnes (million)
Days of use
120
80
60
40
20
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Page 117
May 2011
A User Guide to Commodities
Wheat
History & properties
Wheat is believed to have originated in the area known as the Fertile Crescent, an area
watered by the Nile, Jordan, Euphrates and Tigris rivers. The earliest archaeological evidence
for wheat cultivation comes from Syria and Turkey around 10,000 years ago. It was only
introduced into the United States at the beginning of the 17th Century.
Wheat is classified according to season, gluten content and grain colour. The different
growing seasons mean that there is either winter wheat or spring wheat. Winter wheat in the
United States is planted from September to December and harvested in early July. In terms
of gluten content, wheat can either be hard or soft. Hard wheat has a high protein content
while soft wheat has a high starch content. Wheat is also classified according to grain colour
such as red, white or amber. Wheat planted in the spring is mostly hard wheat while winter
wheat is mostly soft wheat.
Major producers & consumers
The world’s largest wheat producer is the European Union followed by China and India. The
United States is the fourth largest producer of wheat in the world, but, it is the world’s
largest exporter, representing just under 30% of global exports. The largest US wheat
producing states are Kansas, Oklahoma, Washington and Texas. Extreme weather events
such as droughts in Russia and excessive rains in Canada and Europe were responsible for
disruptions to wheat production during 2010. Price advances were compounded by the
introduction of export bans by the Russian government last summer. Wheat prices are
remaining well supported by the strength in corn pries given possibly demand switching from
corn to wheat and on account of dry weather across Europe which is raising fears of lower
production going forward.
Major uses
Wheat is a staple food used to make flour for bread, cakes, pasta and noodles as well as for
fermentation to make alcohol. The husk of the grain, separated when milling white flour, is
bran. Some of the ban is consumed in other food products but most of it is sold as livestock
feed. Wheat is also planted as a forage crop for livestock while straw remaining after the
grain is harvested is used as bedding material for livestock and is also used for roofing thatch.
Wheat grain is also used as a livestock feed in many areas of the world where corn is
unavailable or seasonally more expensive than wheat. At the world level wheat feeding
accounts for 15 to 20% of total wheat consumption. Therefore wheat price are often
supported by corn.
Figure 1: The world’s top 10 wheat producers, consumers, exporters and importers in 2010
Tonnes
% of
(000s)
world
Consumers
Tonnes
% of
Tonnes
% of
(000s)
world
Exporters
(000s)
world
Importers
EU-27
136,078
21.0%
(000s)
% of world
EU-27
122,000
18.5%
USA
34,700
27.9%
Egypt
10,000
China
114,500
8.2%
17.7%
China
109,500
16.6%
EU-27
22,000
17.7%
Brazil
6,500
India
5.3%
80,800
12.5%
India
82,525
12.5%
Canada
17,000
13.7%
Indonesia
5,600
4.6%
USA
60,103
9.3%
Russia
45,800
6.9%
Australia
14,500
11.7%
Algeria
5,300
4.3%
Russia
41,508
6.4%
USA
32,109
4.9%
Argentina
8,500
6.8%
Japan
5,200
4.2%
Australia
26,000
4.0%
Pakistan
23,200
3.5%
Kazakhstan
5,000
4.0%
EU-27
4,500
3.7%
Pakistan
23,900
3.7%
Egypt
17,500
2.6%
Russia
4,000
3.2%
S. Korea
4,200
3.4%
Canada
23,167
3.6%
Turkey
17,200
2.6%
Ukraine
3,500
2.8%
Morocco
3,900
3.2%
Turkey
17,000
2.6%
Iran
16,200
2.5%
Turkey
3,000
2.4%
Nigeria
3,700
3.0%
Ukraine
16,844
2.6%
Ukraine
11,600
1.8%
Brazil
1,700
1.4%
Mexico
3,500
2.9%
World
647,181
World
660,774
World
124,157
World
122,674
Producers
Tonnes
Source: USDA; To convert tonnes into bushels multiply by 36.7437
Page 118
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Figure 2: Wheat turnover by exchange
25
23.1
Figure 3: Wheat prices since 1972
Annual turnover in 2010 (Futures only, million lots)
12
1st nearby w heat futures price
(USD/bushel)
10
20
8
15
6
10
5.8
4
5.5
5
1.7
2
0
Wheat (CBT)
Wheat (ZCE)
Wheat (KCBT) Wheat (MGE)
Source: CBT, KCBT, MGE, ZCE
0
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
Wheat futures and options are traded on the Chicago Board of Trade (CBOT), the Kansas City
Board of Trade (KCBT) and the Minneapolis Grain Exchange (MGE). In China, the Zhengzhou
Commodity Exchange trades the strong gluten wheat and the hard winter wheat contracts.
Wheat futures are traded, albeit with considerably lower volumes on the Australian Stock
Exchange, the Turkish Derivatives Exchange, the Mercado a Termino de Buenos Aires (MAT),
EURONEXT, the South African Futures Exchange, the Budapest Commodity Exchange (BCE)
and the MCX and NCDEX exchanges. The KCBT futures trades hard red winter wheat, which
is the largest class of wheat produced in the United States. The MGE trades hard red spring
wheat which is a premium high protein blending wheat. The Chicago Board of Trade’s wheat
futures represents soft red winter wheat but the allows for the delivery of soft red wheat
(No. 1 and 2), hard red winter wheat (No. 1 and 2) and dark northern spring wheat (No. 1 and
2) making it the most inclusive and widely traded contract in the world. Annual turnover for
the wheat futures contract on the DCE in 2007 surpassed that of the equivalent CBOT futures
contract. However, the contract size of the CBOT wheat future is 12 times larger than the
DCE futures contract.
Price conventions
The wheat price is quoted in US cents per bushel. The Bloomberg ticker for the one month
generic futures wheat contract is W 1 <Commodity>. The Bloomberg code for the Deutsche
Bank Wheat total and excess returns indices are DBRWTR <Index> and DBRW < Index>
respectively. The Bloomberg tickers for the total returns and excess returns Deutsche Bank
Wheat Optimum Yield indices are DBLCOWTT <INDEX> and DBLCOWTE <Index>
respectively. Deutsche Bank also employs the optimum yield technology on the Kansas City
wheat contract. The Bloomberg index codes for the total and excess return indices on this
contract are DBLCYTKW <Index> and DBLCYEKW <Index> respectively.
Figure 4: Wheat inventory-to-consumption ratio
160
Wheat inventory-to-use ratio
Days of use
140
Total available stocks
divided by daily
consumption
Figure 5: Average applied water on irrigated land by
type of crop
Irrigation application (inches)
30
25
20
120
15
100
80
60
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: USDA
Deutsche Bank AG/London
10
5
0
Rice
Sugarbeets
Corn
Cotton
Soybeans
Wheat
Barley
Source: USDA
Page 119
May 2011
A User Guide to Commodities
Livestock
Of the five broad commodity sectors, livestock is one of the smallest in terms of production,
world trade and futures turnover. The United States is the world’s largest producer of beef
followed by Brazil and the EU-27 countries. However, the global trade in meat products is
small compared to world production. Today Brazil is the world’s leading exporter of beef.
Although per capita consumption of beef and veal is low in China compared to other
developed and developing countries, the country is the world’s largest producer and
consumer of pork. Indeed the country’s per capita consumption of pork exceeds that of the
US and Japan.
The livestock industry has had to contend with a significant increase in feedstock prices such
as grains over the past few years. The recent natural disaster in Japan has also affected the
country’s cattle and hog industry. While the main area for livestock production is located in
south-east of the country, the affected area did represent 15% of the country’s hog herd.
There was also damage to animal feed manufacturing facilities. According to the USDA,
immediately following the disaster Japan increased purchases of feed wheat and feed barley.
US pork and beef exports also responded to ensure Japan would avoid meat shortages.
Figure 1: Agricultural and livestock futures turnover on
US exchanges in 2010
Agriculture
60
Feeder cattle turnover = 0.46 mn lots
50
37
100
50
Cocoa
Wheat
Soybeans
Feeder Cattle
0
Live Cattle
0
Pork Bellies
3
Lean Hogs
4
Corn
6
Sugar
6
Coffee
6
Cotton
Live Cattle (CME)
Soybean Meal (CBOT)
Soybean Oil (CBOT)
Wheat (CBOT)
Sugar #11 (NYBOT)
10
Feeder Cattle (CME)
11
Lean Hogs (CME)
14
Soybeans (CBOT)
250
150
21
20
Corn (CBOT)
Price change (%)
End 2008 - April 20, 2011
300
200
23
Cocoa CC (NYBOT)
29
30
Coffee ‘C’ (NYBOT)
40
0
Livestock
Annual turnover, mllion lots (2010)
70
Wheat (KCBT)
70
Cotton #2 (NYBOT)
80
Figure 2: Livestock & agricultural scorecard since 2008
Source: CBT, KCBT, MGE, CME, NYBOT
Source: Bloomberg Finance LP (Data as of April 20, 2011)
Figure 3: Meat consumption per capita across various
countries
Figure 4: Meat consumption relative to income across
Asia
60
Kg pf meat (beef & veal) per capita
Beef & veal
50
14
Broiler meat
12
40
Kg per person
Meat consumption
as a function of income
16
Pork
10
30
20
10
8
6
4
China (2011)
Korea
2
China
Japan
0
0
0
USA
Source: USDA
Page 120
Japan
EU-27
Russia
China
Korea
5,000
Argentina
10,000
15,000
20,000
25,000
30,000
35,000
40,000
GDP PPP per capita
Source: USDA, FAO, IMF
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Feeder & Live Cattle
History & properties
The beef production cycle, that is the time from birth to slaughter, typically lasts two years.
Calves are born in the spring after a nine month gestation period. Weaning then takes place
after the first six to eight months of the calf’s life. Once the calf reaches between six to eight
months old, they are moved into the “stocker” operation. Calves spend between six to ten
months in this stage until they reach between 600-800 pounds. At this point, the cattle are
sent to a feedlot to become “feeder cattle” with the aim of encouraging rapid weight gain.
This is typically achieved by a high energy diet of grains, such as corn or wheat,
supplemented with some protein such as silage, distillers dried grains or soybean meal.
Cattle in feed lots are not very efficient consumers of grains, such that in the US seven
pounds of feed are required to generate an additional one pound in weight. When animals
have reached a full weight of 1,200 pounds, normally after six months, they are ready for
slaughter. This final stage of the animal’s life is referred to as “live cattle”.
Major producers & consumers
The United States is not only the largest producer of beef in the world, but also the largest
consumer and importer of beef, accounting for 21% of the world’s production and a similar
share of global beef consumption.
Live cattle and feeder cattle prices have risen to new all time highs in 2011. In recent year,
the livestock sector has had to contend with rising feed costs in recent years. This has in part
been driven by the increasing use of agricultural commodities such as corn and soybeans for
the biofuel industry. Rising oil prices has also had their effect on raising costs. This has
contributed to a rise in US commercial cow slaughter. This has been partly responsible for
the decline in beef imports into the US. Indeed the scale of US cow slaughter and beef
imports are often inversely related and according to the USDA may push the US to become a
net exporter of beef heading by the end of this year.
Major uses
While feeder cattle are weaned calves that have not yet attained optimal weight for
slaughter, live cattle have achieved an optimal weight for sale to packers. After sale to
packers, the animal is slaughtered and the meat is divided into grades by both quality and
yield, and sold boxed. This beef is used almost completely for human consumption: 50% as
steaks and roasts, 45% as hamburger and 5% as stewing beef. The packer also sells the
“drop,” or excess carcass products, which are used to produce leather, soaps, animal feed
and other products.
Figure 1: The world’s top 10 bovine producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers
(000s)
world
Exporters
Tonnes
(000s)
% of world
Tonnes
USA
12,048
21.0%
USA
12,040
21.3%
Brazil
1,558
Brazil
9,115
15.9%
EU-27
8,185
14.5%
Australia
EU-27
8,085
14.1%
Brazil
7,592
13.4%
China
5,600
9.8%
China
5,589
9.9%
India
2,830
4.9%
Russia
2,307
Argentina
2,600
4.5%
Argentina
Australia
2,087
3.6%
Mexico
1,751
Pakistan
1,486
Russia
1,435
World
57,323
Importers
(000s)
% of world
20.5%
USA
1,042
15.4%
1,368
18.0%
Russia
877
12.9%
USA
1,043
13.7%
Japan
721
10.6%
India
900
11.8%
EU-27
436
6.4%
4.1%
N. Zealand
530
7.0%
S. Korea
366
5.4%
2,305
4.1%
Canada
523
6.9%
Mexico
296
4.4%
Mexico
1,944
3.4%
Uruguay
347
4.6%
Egypt
290
4.3%
3.1%
India
1,930
3.4%
EU-27
336
4.4%
Iran
287
4.2%
2.6%
Pakistan
1,491
2.6%
Argentina
298
3.9%
Vietnam
270
4.0%
2.5%
Japan
1,224
2.2%
Paraguay
296
3.9%
Canada
243
3.6%
World
56,544
World
6,779
World
7,609
Source: USDA
Deutsche Bank AG/London
Page 121
May 2011
A User Guide to Commodities
Figure 2: Livestock turnover on US exchanges
12
Annual turnover, mllion lots (2010)
Figure 3: Live & feeder cattle prices since 1988
140
11.3
10
USc/pound
Live cattle
130
Feeder cattle
120
110
8
100
90
6
80
4
70
60
2
0.5
50
40
1988
0
Feeder Cattle
Live Cattle
Source: CME
1990
1993
1995
1998
2000
2003
2006
2008
2011
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
Future and options are traded for both feeder and live cattle on the Chicago Mercantile
Exchange (CME). In the mid-1960s, live cattle future contracts were introduced to the CME
such contracts for a non-storable commodity departed from convention at the time. In 1971,
feeder cattle futures were first listed on the CME, and options were introduced in 1987. For
live cattle, the contract size is for 40,000 lbs of 55% choice, 45% select grade futures. For
feeder cattle it is 50,000 lbs of 700-849 lb. steers futures.
Price conventions
Cattle are sold as units, and prices are quoted in dollars per pound. Contract months are
February, April, June, August, October, and December. The Bloomberg ticker for the CME
live cattle one month generic futures contract is LC1 <Commodity>. The Bloomberg ticker
for the CME feeder cattle one month generic futures contract is FC1 <Commodity>.
Figure 4: Feed-to-meat conversion rates
8
7
Pounds of feed needed to
produce 1 pound of meat
Figure 5: US beef imports & commercial cow slaughter
6.5
6
5
4
3
1800
1100
1600
1000
1400
900
1200
800
1000
700
7
2.6
600
800
Commercial cow slaughter (1,000 head, lhs)
2
600
500
US beef imports (million lbs, rhs)
1
400
400
0
Chicken
Source: USDA
Page 122
Pork
Beef
2000
2002
2004
2006
2008
2010
Source: USDA, FAO, IMF
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Lean Hogs & Pork Bellies
History & properties
The pork production cycle, that is the time from birth to slaughter, typically lasts for six
months. The life cycle begins with the baby piglet. Each sow is generally bred twice a year.
These breeding hogs are kept in the breeding herd for an average of two years before being
sent to slaughter. The gestation period is approximately 114 days and an average little size is
between nine to ten pigs. Weaning then takes place for the first three to four weeks of the
pig’s life. The average litter size is reduced to an average of 8-9 pigs between farrowing and
weaning due to disease or weather conditions leading to death loss. Pigs are fed a diet of
grains (mainly corn) and high protein meal (mainly soybean meal) as well as supplements.
Unlike cattle hog diets must have a balanced amino acid profile for optimal growth. On
average, 3.5 pounds of feed are required to generate an additional one pound in live weight.
When the animals have reached a full weight of approximately 250 pounds, after around six
months, they are ready for slaughter. One hog yields an average of between 140 lbs and 150
lbs of salable retail cuts.
Major producers & consumers
Approximately 41% of all meat consumed across the world is pork. Therefore, to meet the
growing demand in meat consumption, world pork production has increased 1% annually
over the past five years. China is the largest producer and consumer of pork in the world,
accounting for over 45% of both the world’s production and consumption. In China, pork is
such a sensitive commodity that the government keeps a strategic reserve to adjust pricing.
The US is a relatively new player on pork export markets. The country only became a net
exporter of pork in 1995, but today it is the world’s largest exporter, selling primarily to
Japan, Mexico and Canada. After negotiating several free trade agreements, the US is hoping
to expand its market reach in Central America and Chile.
Although Brazilian pork exports have gone mainly to Russia, it is looking into other markets
due to new Russian quotas. Pork production and consumption are expected to rise in the EU
as living standards improve in accession states. Japan is the world’s largest importer of pork,
constituting about 24% of world imports.
Major uses
Once the hog is slaughtered, approximately 21% of the carcass weight is ham, 20% pork
loin, 10% picnic, 7% Boston butt roast and blade steaks, 3% spareribs, 7% sausage meat,
and the pork belly is generally about 14% of carcass weight. The pork belly is cured and put
into cold storage for up to a year to be used as bacon, which is unique among other meat
products in its lack of substitutes.
Figure 1: The world’s top 10 pork producers, consumers, exporters and importers in 2010
Tonnes
% of
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers
(000s)
world
Exporters
(000s)
world
Importers
(000s)
world
China
51,070
49.5%
China
51,097
49.6%
USA
1,917
31.9%
Japan
1,198
20.8%
EU-27
23,000
22.3%
EU-27
21,271
20.7%
EU-27
1,754
29.2%
Russia
854
14.8%
USA
10,187
9.9%
USA
8,653
8.4%
Canada
1,159
19.3%
Mexico
687
11.9%
Brazil
3,195
3.1%
Russia
2,773
2.7%
Brazil
619
10.3%
USA
390
6.8%
Russia
1,920
1.9%
Brazil
2,577
2.5%
China
278
4.6%
S. Korea
382
6.6%
Vietnam
1,870
1.8%
Japan
2,485
2.4%
Chile
130
2.2%
China
355
6.2%
Canada
1,772
1.7%
Vietnam
1,881
1.8%
Mexico
78
1.3%
Hong Kong
347
6.0%
Japan
1,291
1.3%
Mexico
1,774
1.7%
Australia
41
0.7%
Australia
183
3.2%
Philippines
1,255
1.2%
S. Korea
1,539
1.5%
Vietnam
13
0.2%
Canada
183
3.2%
Mexico
1,165
1.1%
Philippines
1,358
1.3%
Norway
6
0.1%
Ukraine
146
2.5%
World
103,223
World
6,013
World
5,758
World
102,953
Source: USDA (metric tons CWE)
Deutsche Bank AG/London
Page 123
May 2011
A User Guide to Commodities
Figure 2: Turnover by exchange
Figure 3: Live hog & pork belly prices
Annual turnover, mllion lots (2010)
4
140
120
3.0
Live hogs
USc/pound
Pork belly
100
2
80
60
40
0.0
0
Lean Hogs
Source: CME
Pork Belly
20
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: Bloomberg Finance LP (monthly data as of 14 April 2011)
Exchange traded
In 1961, the Chicago Mercantile Exchange (CME) began trading frozen pork belly futures; this
was the first future contract based on frozen, stored meats. It was added to help meat
packers and warehouse operators mediate the volatility of hog prices and the price risks
associated with holding processed foods in inventory. Both frozen and fresh pork belly
futures and contracts are currently listed on the CME.
The trading unit for each of these contracts is 40,000 pounds of the product. For lean hogs,
contract months are Feb, April, May, June, July, August, October and December. For pork
bellies, these are February March, May, July and August.
Price conventions
Before 1997, hogs were traded based on their weight prior to slaughter, or their ‘live weight’.
The CME then changed the hog contract to 40,000 pounds ‘lean weight,’ or post-slaughter
weight. When live hogs are sold, price is based on expected percent lean weight. Prices are
quoted in US cents per pound. The Bloomberg ticker for the CME pork bellies one month
generic futures contract is PB1 <Commodity>. For CME lean hogs,’ the ticker for one month
generic futures contract is LH1 <Commodity>.
Page 124
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Commodity Exchanges & Turnover
Commodity exchanges by type of contract listed
Commodity
Energy
Metals
Electricity
Fibres
Grains & Oilseeds
Softs
Livestock
Exchange
Abbreviation
New York Mercantile Exchange
NYMEX
Intercontinental Exchange
ICE
Shanghai Futures Exchange
SHFE
Central Japan Commodity Exchange
CJCE
Tokyo Commodity Exchange
TOCOM
Dalian Commodity Exchange
DCE
London Metal Exchange
LME
New York Mercantile Exchange
COMEX
Shanghai Futures Exchange
SHFE
Philadelphia Board of Trade
PHLX
Osaka Mercantile Exchange
OME
Tokyo Commodity Exchange
TOCOM
New York Mercantile Exchange
NYMEX
Nordic Power Exchange
NORDPOOL
European Energy Exchange
EEX
UK Power Exchange
UKPX
Amsterdam Power Exchange
APX
Paris Power Exchange
POWERNEXT
Chicago Mercantile Exchange
CME
New York Cotton Exchange
NYCE
Zhengzhou Commodity Exchange
YCE
Budapest Commodity Exchange
BCE
Chicago Board of Trade
CBT
Dalian Commodity Exchange
DCE
EURONEXT
EURONEXT
Fukuoka Futures Exchange
FFE
Johannesburg Securities Exchange
JSE
Kansas City Board of Trade
KCBT
Malaysian Derivatives Exchange
MDE
Mercado a Termino de Rosaio
ROFEX
Minneapolis Grain Exchange
MGE
Tokyo Grain Exchange
TGE
Winnipeg Commodity Exchange
WCE
New York Board of Trade
NYBOT
Bolsa de Mercadorias & Futuros
BM&F
Kansai Agricultural Commodities Exchange
KANEX
Tokyo Grain Exchange
TGE
EURONEXT
EURONEXT
National Commodity & Derivatives Exchange
NCDEX
Zhengzhou Commodity Exchange
ZCE
Chicago Mercantile Exchange
CME
Bolsa de Mercadorias & Futuros
BM&F
EURONEXT, Amsterdam
EURONEXT
Sydney Futures Exchange
SFE
Source: CRB Yearbook, DB Global Markets Research
Deutsche Bank AG/London
Page 125
May 2011
A User Guide to Commodities
Commodity Turnover
The world’s top commodity futures contracts in 2010*
Contract
Exchange
Turnover (million lots)
White Sugar
Zhengzhou Commodity Exchange
305.3
Rebar
Shanghai Futures Exchange
225.6
WTI Crude Oil
New York Mercantile Exchange
168.7
Rubber
Shanghai Futures Exchange
167.4
Zinc
Shanghai Futures Exchange
146.6
Soy Meal
Dalian Commodity Exchange
125.6
Brent Crude Oil
Intercontinental Exchange
100.0
Cotton
Zhengzhou Commodity Exchange
87.0
Corn
Chicago Board of Trade
69.8
Natural Gas
New York Mercantile Exchange
64.3
WTI Crude Oil
Intercontinental Exchange
52.6
Gas Oil
Intercontinental Exchange
52.3
Copper
Shanghai Futures Exchange
50.8
Aluminium
London Metal Exchange
46.5
Gold
New York Mercantile Exchange
44.7
No. 1 Soybeans
Dalian Commodity Exchange
37.4
Soybeans
Chicago Board of Trade
36.9
Corn
Dalian Commodity Exchange
36.0
Copper
London Metal Exchange
29.9
Sugar #11
Intercontinental Exchange
29.2
RBOB Gasoline
New York Mercantile Exchange
27.9
Heating Oil No. 2
New York Mercantile Exchange
27.0
Early Rice
Zhengzhou Commodity Exchange
26.9
Wheat
Chicago Board of Trade
23.1
Soybean Oil
Chicago Board of Trade
20.8
Zinc
London Metal Exchange
18.1
Aluminium
Shanghai Futures Exchange
17.3
Soybean Meal
Chicago Board of Trade
14.1
Silver
New York Mercantile Exchange
12.8
Gold
Tokyo Commodity Exchange
12.2
Live Cattle
Chicago Mercantile Exchange
11.3
Fuel Oil
Shanghai Futures Exchange
10.7
Copper
New York Mercantile Exchange
10.3
Rapeseed Oil
Lead
Nickel
Strong Gluten Wheat
Cotton #2
Wheat
Coffee ‘C’
Platinum
Wheat - Milling
Canola (Rapeseed)
Crude Palm Oil
Cocoa CC
Cocoa #7
Zhengzhou Commodity Exchange
London Metal Exchange
London Metal Exchange
Zhengzhou Commodity Exchange
Intercontinental Exchange
Kansas City Board of Trade
Intercontinental Exchange
Tokyo Commodity Exchange
EURONEXT
Intercontinental Exchange
Malaysia Derivatives Exchange
Intercontinental Exchange
EURONEXT
9.5
7.7
7.3
5.8
5.7
5.5
5.5
4.4
4.4
4.2
4.1
3.8
3.5
Gold
Shanghai Futures Exchange
3.4
Miny WTI Crude oil
New York Mercantile Exchange
3.2
Source: NYMEX, ICE, TOCOM, SFE, LME, DCE, CBT, NYBOT, ZCE, TGE, KCBT, EURONEXT
Page 126
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Continued: The world’s top commodity futures contracts in 2010
Contract
Exchange
Rubber
Tokyo Commodity Exchange
Turnover (million lots)
3.13
Lean Hogs
Chicago Mercantile Exchange
3.02
Coffee Robusta
EURONEXT
2.79
Gasoline
Tokyo Commodity Exchange
2.51
Natural Gas
Intercontinental Exchange
2.11
White Sugar
EURONEXT UK
1.85
Spring Wheat
Minneapolis Grain Exchange
1.69
Tin
London Metal Exchange
1.55
Platinum
New York Mercantile Exchange
1.49
Rapeseed
EURONEXT
1.20
Kerosene
Tokyo Commodity Exchange
1.20
American Soybeans
Tokyo Grain Exchange
1.15
Corn
Tokyo Grain Exchange
1.08
Crude Oil
Tokyo Commodity Exchange
0.94
Palladium
New York Mercantile Exchange
0.90
White Maize
Johannesburg Securities Exchange
0.77
Orange Juice (FCOJ)
Intercontinental Exchange
0.69
NASAAC
London Metal Exchange
0.59
Aluminium Alloy
London Metal Exchange
0.47
Feeder Cattle
Chicago Mercantile Exchange
0.46
Rough Rice
Chicago Board of Trade
0.45
Mini Soybeans
Chicago Board of Trade
0.41
Raw Sugar
Tokyo Grain Exchange
0.37
Oats
Chicago Board of Trade
0.34
Lumber
Chicago Mercantile Exchange
0.31
MILK
Chicago Mercantile Exchange
0.28
Corn
EURONEXT
0.24
Mini Corn
Chicago Board of Trade
0.24
Silver
Tokyo Commodity Exchange
0.24
Red Beans
Tokyo Grain Exchange
0.18
Palladium
Tokyo Commodity Exchange
0.16
Wire rod
Shanghai Futures Exchange
0.15
Wheat - Feed
EURONEXT
0.15
Heating Oil
Intercontinental Exchange
0.12
Mini Wheat
Chicago Board of Trade
0.09
Coffee Arabica
Tokyo Grain Exchange
0.05
Non-GMO-Soybean
Tokyo Grain Exchange
0.04
Hard White Wheat
Zhengzhou Commodity Exchange
0.04
Uranium
New York Mercantile Exchange
0.03
* Note contract sizes on Chinese exchanges tend to be around one-fifth the size of equivalent futures contracts on US exchanges. For example the white sugar futures
contract on the ZCE has a contract size of 22,046lbs which compares to a contract size of 112,000lbs of the SB sugar futures contract on ICE.
Source: NYMEX, ICE, TOCOM, SFE, LME, DCE, CBT, NYBOT, ZCE, TGE, KCBT, EURONEXT
Deutsche Bank AG/London
Page 127
May 2011
A User Guide to Commodities
Conversion Factors
Commonly Used Weights
The troy, avoirdupois and apothecaries’ grains are identical in the U.S. and British weight
systems, equal to 0.0648 gram in the metric system. One avoirdupois ounce equals 437.5
grains. The troy and apothecaries’ ounces equal 480 grains, and their pounds contain 12
ounces.
Troy Weight & Conversions:
100 kilograms
=
1 quintal
24 grains
=
1 pennyweight
20 pennyweights
=
1 ounce
12 ounces
=
1 pound
1 troy ounce
=
31.103 grams
1 troy ounce
=
0.0311033 kilogram
1 troy pound
=
0.37224 kilogram
1 kilogram
=
32.151 troy ounces
1 tonne
=
32,151 troy ounces
Avoirdupois Weights & Conversions:
27 11/32 grains
=
1 dram
16 drams
=
1 ounce
16 ounces
=
1 lb.
1 lb.
=
7,000 grains
14 lbs.
=
1 stone (U.K.)
100 lbs.
=
1 hundredweight (U.S.)
112lbs.
=
8 stone = 1 hundredweight (U.K.)
2,000 lbs.
=
1 short ton (U.S. ton)
2,240 lbs.
=
1 long ton (U.K. ton)
160 stone
=
1 long ton
20 hundredwght =
1 ton
1 lb.
=
0.4536 kilogram
1 hundredwght
=
45.359 kilograms
1 short ton
=
907.18 kilograms
1 long ton
=
1,016.05 kilograms
Metric Weights & Conversions:
Page 128
1,000 grams
=
1 kilogram
1 tonne
=
1,000 kilograms=10 quintals
1 kilogram
=
2.204622 lbs.
1 quintal
=
220.462 lbs.
1 tonne
=
2204.6 lbs.
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
1 tonne
=
1.102 short tons
1 tonne
=
0.9842 long ton
U.S. Dry Volumes & Conversions
1 pint
= 33.6 cubic inches = 0.5506 litre
2 pints = 1 quart
= 1.1012 litres
8 quarts = 1 peck
= 8.8098 litres
4 pecks = 1 bushel
= 35.2391 litres
1 cubic foot
= 28.3169 litres
U.S. Liquid Volumes & Conversions
1 ounce = 1.8047 cubic inches = 29.6 millilitres
1 cup
= 8 ounces = 0.24 litre = 237 millilitres
1 pint
= 16 ounces = 0.48 litre = 473 millilitres
1 quart = 2 pints = 0.946 litre = 946 millilitres
1 gallon = 4 quarts = 231 cubic inches = 3.785 litres
1 millilitre = 0.033815 fluid ounce
1 litre
= 1.0567 quarts = 1,000 millilitres
1 litre
= 33.815 fluid ounces
1 imperial gallon = 277.42 cubic inches = 1.2 U.S. gallons = 4.546 litres
Agricultural Weights & Measurements
Bushel Weights
Wheat & soybeans
=
60 lbs.
Corn, sorghum & rye
=
56 lbs.
Barley grain
=
48 lbs.
Oats
=
38 lbs.
Barley malt
=
34 lbs.
Wheat & soybeans
=
bushels x 0.0272155
Barley grain
=
bushels x 0.021772
Corn, sorghum & rye
=
bushels x 0.0254
Oats
=
bushels x 0.0172365
Bushels to Tonnes:
1 tonne (metric ton) equals:
2204.622 lbs.
1,000 kilograms
22.046 hundredweight
10 quintals
1 tonne (metric ton) equals:
36.7437 bushels of wheat & soybeans
Deutsche Bank AG/London
Page 129
May 2011
A User Guide to Commodities
39.3670 bushels of corn, sorghum or rye
45.9296 bushels of barley grain
68.8944 bushels of oats
4.5929 cotton bales (the statistical bale used by the USDA and ICAC contains a net weight of
480 pounds of lint)
Area Measurements
1 acre
= 43,560 square feet = 0.040694 hectares
1 hectare = 2.4710 acres = 10,000 square metres
640 acres = 1 square mile = 259 hectares
Energy
U.S Crude Oil (average gravity)
1 U.S. barrel = 42 U.S. gallons
1 short ton = 6.65 barrels
1 tonne = 7.33 barrels
Barrels per tonne for various origins
Abu Dhabi
7.624
Australia
7.775
Canada
7.428
Dubai
7.295
Indonesia
7.348
Iran
7.37
Kuwait
7.261
Libya
7.615
Mexico
6.825
Nigeria
7.41
Norway
7.41
Saudi Arabia
7.338
United Arab Emirates
7.522
United Kingdom
7.279
United States
7.418
Former Soviet Union
7.35
Venezuela
7.005
Barrels per tonne of refined products:
Page 130
Aviation Gasoline
8.90
Motor Gasoline
8.50
Kerosene
7.75
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Jet Fuel
8.00
Distillate, including diesel
7.46
Residual Fuel Oil
6.45
Lubricating Oil
7.00
Grease
6.30
White Spirits
8.50
Paraffin Oil
7.14
Paraffin Wax
7.87
Petrolatum
7.87
Asphalt & Road Oil
6.06
Petroleum Coke
5.50
Bitumen
6.06
Liquefied Petroleum Gas (LPG)
11.6
Approximate heat content of refined products:
(million Btu per barrel, 1 British thermal unit is the amount of heat required to raise the
temperature of 1 pound of water 1 degree Fahrenheit.)
Petroleum Product
Heat content
Asphalt
6.636
Aviation Gasoline
5.048
Butane
4.326
Distillate Fuel Oil
5.825
Ethane
3.082
Isobutane
3.974
Jet Fuel, kerosene
5.67
Jet Fuel, naphtha
5.355
Kerosene
5.67
Lubricants
6.065
Motor Gasoline
5.253
Natural Gasoline
4.62
Pentanes Plus
4.62
Natural Gas Conversions
Although there are approximately 1,031 Btu in a cubic foot of gas, for most applications, the
following conversions are sufficient:
Cubic Feet
Deutsche Bank AG/London
MMBtu
1,000
=
1Mcf
1,000,000,000
=
1Bcf
1,000,000,000,000
=
1Tcf
Page 131
May 2011
A User Guide to Commodities
The authors of this report wish to acknowledge the contribution made by Sheshachal Purohit,
Rohit Samsukha and Christabel Charles, employees of Infosys, a third-party provider to
Deutsche Bank of offshore research support services.
Page 132
Deutsche Bank AG/London
May 2011
A User Guide to Commodities
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report, please see
the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the
undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in
this report. Michael Lewis
Deutsche Bank AG/London
Page 133
May 2011
A User Guide to Commodities
Regulatory Disclosures
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2. Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent
or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at
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Risks to Fixed Income Positions
Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay
fixed or variable interest rates. For an investor that is long fixed rate instruments (thus receiving these cash flows), increases in
interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the
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Page 134
Deutsche Bank AG/London
David Folkerts-Landau
Managing Director
Global Head of Research
Stuart Parkinson
Associate Director
Company Research
Marcel Cassard
Global Head
Fixed Income Research
Europe
Asia-Pacific
Germany
Americas
Guy Ashton
Regional Head
Fergus Lynch
Regional Head
Andreas Neubauer
Regional Head
Steve Pollard
Regional Head
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