Fuller Treacy Money · MORGAN STANLEY RESEARCH Region December 22, 2014 The Commodity Manual Gas...

M O R G A N S T A N L E Y R E S E A R C H

Region

December 22, 2014

The Commodity Manual Gas Still Challenged; Any Oil Relief Would be Short-Lived

Gas headwinds to persist through year-end, but risk-reward shifting to the upside in early 2015. Jan-15 Henry Hub has fallen ~23% from late Nov highs as supply growth and mild weather returned working gas storage to a YoY surplus for the first time since Dec 2012. Based on weather-driven models, the YoY surplus should grow to 150+ Bcf by end-Dec, which adds to near-term downside risk. That said, plenty of bad news is priced in, and with managed money net positioning near two-year lows, the potential for cold weather (which early Jan forecasts view as more likely) to produce upside swings and volatility also increases.

If oil is going to see any relief rally, it needs to happen soon. We wouldn’t be surprised to see some value buying (or OTM calls) over the next two months. Global crude demand will be elevated between Dec and Feb, and product demand is strong during winter. Libyan supply is also at low levels, and winter could disrupt US production. Moreover, large cuts to capital budgets should continue to be announced through early 2015, which along with falling rig counts may provide some comfort to investors. Lastly, a new year, growing interest from value investors and index repositioning could bring some new money into oil.

However, any oil relief rally is likely to be limited and short-lived, barring a major outage. We see too many headwinds that must be addressed. 1) OPEC reaffirmed there will be no emergency meeting or cut in output in 1H15. Supply growth must be curtailed, so lifting prices prematurely would be counterproductive. 2) Physical market indicators are relatively weak, and inventory overhangs need to be cleared. 3) More supply is coming in early 2015 (Brazil, US shale, GoM, Canada, Iraq, Russia/WAF), and supply may take longer to slow than most expect, even with fewer rigs. 4) Imbalances will grow in 2Q15. 5) Our FX team expects continued USD appreciation during 2015.

Inside: 1) Zambia’s royalty hike highlights supply risk for miners. 2) Cattle on feed data partially vindicates last week’s stampede.

Due to the holiday season, the Commodity Manual will not be published next week. HH Prices May Feel More Pressure As Storage Deficits Disappear

(LHS: Storage level vs. previous year, RHS: Prompt HH prices, reverse orientation in $/MMbtu)

$1.75

$2.25

$2.75

$3.25

$3.75

$4.25

$4.75

$5.25

$5.75-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Jan

-12

Ma

y-12

Sep

-12

Jan

-13

Ma

y-13

Sep

-13

Jan

-14

Ma

y-14

Sep

-14

3 wk Fcst Storage vs prev yr NYMEX Prompt

Source: EIA, CME, Morgan Stanley Commodity Research

Nat Gas Managed Money Positioning Approaching 2-Year Lows

(LHS: net positioning, contracts, RHS: 12-mth HH contract, $/MMbtu)

$2.75

$3.00

$3.25

$3.50

$3.75

$4.00

$4.25

$4.50

$4.75

$5.00

$5.25

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

Jan-13 Apr-13 Jul-13 Nov-13 Feb-14 Jun-14 Sep-14

NYMEX MMNet ICE HH OTC MM Net

NYMEX Swap MM Net NYMEX HH Pen Swap MM Net

NYMEX Euro Style Opt MM Net HH Last Day Fin MM Net

ICE Pen MMNet Total

Generic 12 mo stip (rhs)

Source: CFTC, ICE, Morgan Stanley Commodity Research

Data Points of the Week Middle Eastern crude diffs strengthen as Forties weaken WoW (p. 24) Chinese crude processing unch MoM (p. 26)

Morgan Stanley & Co. LLC Adam Longson, CFA, CPA [email protected] +1 212 761 4061

Bennett Meier

Stefan Revielle

Elizabeth Volynsky

Lee Jackson

Morgan Stanley & Co. International plc

Tom Price [email protected] +44 20 7425-4655

Morgan Stanley Australia Limited Joel Crane [email protected] +61 3 9256-8965

For important disclosures, refer to the Disclosures Section, located at the end of this report.


2

December 22, 2014 The Commodity Manual

Zambia’s Royalty Hike Highlights Supply Risk – Joel Crane

Last week, Zambia’s parliament approved an increase in the country’s mining royalty on revenues: from 6% to 20%, effective 1 January 2015. In response, global mining heavyweight Barrick Gold Corp announced it will shut down production at its Lumwana project (135ktpa) by mid-2015. The company believes that the hike is too much, impairing the viability of the operation, particularly given the currently subdued copper price. Our Barrick analysts Brad Humphrey and Tom Dalton forecast production around 115 thousand tonnes in CY2015.

This latest development is yet another example of sovereign risk and regulatory challenges facing miners worldwide. Earlier this year, Indonesia’s government constrained exports of unprocessed copper. Similarly, Mongolia’s government has changed its royalty rates for its mining industry. In Latin America, on-going revisions to the social and environmental obligations are inflating capital costs for copper projects and expansions.

Right now, these announcements are unlikely to attract as much investor attention as they did over the past decade – as metal and bulk commodity markets are now reporting persistent surpluses. Indeed, in the current environment, it would probably require a substantial mine disruption to alter copper’s short-term price outlook.

Still, we regard Zambia’s royalty hike as an important reminder of the risks mine supply growth faces. Other significant supply growth drivers that we are tracking include:

Big start-ups of Las Bambas (400ktpa, 2016), Toromocho (230ktpa, 2014, ramping up), Sentinel (280ktpa, 2014, ramping up);

Codelco’s ability to fund growth to >2Mtpa;

Policy development for Indonesia’s concentrate exports;

Possible grade issues at Escondida (conc. to fall from 910ktpa, after re-rating by 380ktpa during 2011-14);

Similarly, grade issues at Bingham Canyon (225ktpa).

We forecast US$7.050/t ($3.2/lb) for 2015e (+3%yoy), a modestly bullish outlook based largely on our view that mine supply growth carries risk (Global Metals Playbook: 2015 Outlook - Back to Metals, 16-Dec-2014).

Global Crude Demand Should Be Elevated from Dec to Feb, But Probably Not Enough

(global crude oil demand – refinery runs + direct use – mmb/d)

73.0

74.0

75.0

76.0

77.0

78.0

79.0

80.0

81.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2015 2014 2013 2012 2011 5Y Avg

Source: IEA, JODI, Morgan Stanley Commodity Research estimates

Cattle on feed data partially vindicates last week’s stampede. Cattle markets locked limit-down early in the week as participants squared positions ahead of Friday’s Cattle on Feed report in the face of weakening slaughter data and concerns over potentially improving seasonal feeder cattle supply. The feeder cattle contract, which has outperformed live cattle by 1100 basis points YTD, lost 4% in the first three days of the week before recovering slightly on Friday. Live cattle faced a similar, though shallower decline, ending the week down less than 1% WoW. Friday’s data largely justified the bearish move, with Dec 1 feedlot inventories rising 1.4% YoY vs consensus expectations of a 1.2% increase. Some may read this report as more bearish for live cattle than for feeders, as an 11.1% decline in marketings YoY (vs consensus expectations of just a 9.8% decline) indicated continued weakness in slaughter demand. Meanwhile placements down 4% YoY (vs consensus predictions of a 3.4% decline) could be read as a sign that feeder supply remains challenged. However, we see the weakness in placements as signaling poor demand from feedlots rather than supply constraints. Average placement weights set a 5+ year high in Nov, signaling that ranchers are still holding back cattle to raise them to higher weights, artificially inflating prices. With high feeder cattle prices keeping feedlot margins under pressure and slaughter demand prospects weakening, feeder cattle prices may need to weaken further relative to live cattle to increase the flow of feeder cattle onto feed as winter reduces grazing options.



Table of Contents

Macro 4

Week in Review 4

MS Forecasts, Forward Curves, and Recommendations 5

Monthly Index Performance 8

Catalyst Calendar 10

Macro Indicators 11

Forward Curves 16

Net Speculative Length 21

Energy 22

Crude Oil 23

Crude Products 32

Natural Gas 54

Agriculture 66

Weather Map 67

Corn 68

Soybeans 74

Wheat 83

Cotton 90

Sugar 94

Coffee 99

Livestock 100

Metals 102

Gold 103

Aluminum 106

Copper 109

Nickel 112

Lead and Zinc 115

Iron Ore 120


4


Week in Review

Energy Performance Tables

Brent and WTI declined by ~$0.50/bbl and $1.30/bbl

WoW, respectively. Both crudes rallied significantly mid-

week ($4/bbl intraday on Wednesday), potentially on

short covering, but the gains were not sustained. Driven

by continued bearish YoY storage, weather and

production comps, NYMEX prices fell $0.33/MMbtu,

settling below $3.50/MMbtu for the first time since Nov

2013 on Friday.

Base Metals

Prices were broadly lower throughout the week, albeit in

thin trading conditions. Momentum traders and continued

oil price weakness appeared to be most influential

absent any real near-term fundamental drivers. Nickel

garnered the most attention after a sharp mid-week drop

– a peculiar move given the consensus view of better

prices early in the New Year.

Precious Metals

The FOMC statement largely corroborated our US

economists’ call that the Fed is unlikely to tighten until

the start of 2016. This view helped halt the recent slide in

gold prices, although a strengthening dollar likely limited

greater upside. Notably absent from gold price moves

was a reaction to wobbles in the Russian economy,

perhaps suggesting market participants are not overly

fearful of contagion effects.

Agriculture and Softs

Prices were mixed WoW last week. Wheat was the

biggest mover, up 8% thru Thu amid ongoing Russian

export restriction fears. On Friday, headlines that EU

supplies could cover any Russian shortfalls drove prices

lower, and wheat closed up 4% WoW. Corn rose <1%,

supported by continued strong ethanol and export

demand, while soybeans fell >1% against a backdrop of

slowing export sales. Livestock contracts fell, led by a

>2% drop in feeder cattle. Feeders locked limit-down the

first 3 days of the week amid weak feedlot margins,

before rebounding into Fri’s Cattle on Feed report.

Updated as of December 19, 2014

Energy Latest 12/12 - 12/19 MTD QTD YTD

NYMEX WTI Crude 57 -2.2% -14.6% -38.0% -42.6%

ICE Brent Crude 61 -0.8% -12.5% -35.2% -44.6%

NYMEX RBOB Gasoline 156 -2.4% -18.1% -39.7% -44.0%

NYMEX Heating Oil 196 -2.7% -12.0% -25.9% -36.2%

NYMEX HH Natural Gas 3.46 -8.7% -15.3% -15.9% -18.1%

Metals Latest 12/12 - 12/19 MTD QTD YTD

Aluminium (LME cash) 1,888 -1.6% -8.9% -2.4% 7.0%

Copper (LME cash) 6,446 -1.2% -1.1% -4.3% -12.8%

Nickel (LME cash) 15,350 -6.0% -4.6% -7.0% 9.9%

Zinc (LME cash) 2,158 -0.7% -3.1% -5.8% 3.5%

Lead (LME cash) 1,870 -5.2% -7.7% -10.2% -15.2%

Tin (LME cash) 19,400 -5.0% -3.8% -4.6% -14.0%

Gold (spot) 1,196 -2.2% 2.4% -1.0% -0.5%

Silver (spot) 16.08 -5.6% 4.1% -5.3% -17.4%

Platinum (spot) 1,202 -2.4% 0.0% -7.6% -12.2%

Agriculture Latest 12/12 - 12/19 MTD QTD YTD

Corn 411 3.6% 9.2% 28.0% -2.7%

Soybeans 1,031 -1.6% 1.4% 12.8% -21.5%

Wheat 632 0.8% 9.5% 32.3% 4.5%

Sugar 15 0.0% -3.9% -3.2% -8.7%

Cotton 61 0.6% -0.1% -1.7% -28.1%

Coffee 175 1.0% -6.4% -9.6% 57.8%

Cocoa 2,980 3.1% 3.5% -9.7% 10.0%

Livestock Latest 12/12 - 12/19 MTD QTD YTD

Live Cattle 161 -0.8% -4.8% 0.2% 19.5%

Feeder Cattle 220 -2.4% -4.7% -6.5% 32.1%

Lean Hogs 82 -6.4% -9.3% -24.1% -4.1%

Selected Indices Latest 12/12 - 12/19 MTD QTD YTD

DXY (USD Index) 90 1.4% 1.4% 4.3% 11.9%

DJIA 17,805 3.0% -0.1% 4.5% 7.4%

S&P 500 2,071 3.4% 0.1% 5.0% 12.0%

MSCI World 1,717 2.5% -1.3% 1.1% 3.4%

Eurostoxx 50 3,141 2.4% -3.4% -2.6% 1.0%

Source: Bloomberg; Energy - New York Mercantile Exchange; Base Metals - London Metals Exchange; Precious Metals - Bloomberg; Agriculture - Chicago Board of Trade, New York Board of Trade/InterContinental Exchange; Livestock - Chicago Mercantile Exchange


5


Morgan Stanley Price Forecasts and Forward Curve

Average Period Price As of 20-December-14

Energy Units 1Q14 2Q14 3Q14 4Q14e 2014e 2015e 2016e 2017e 2018e LT

Crude Oil (Brent) US$/bbl 108 110 103 79 100 70 88 100 92 -

Bull case 108 110 103 82 101 89 98 115 120

Bear case 108 110 103 78 100 53 65 75 80

Forward Curve 100 65 71 74 75

WTI-Brent Differential US$/bbl -9.35 -6.86 -6.44 -9.00 -8.00 -11.00 - - - -

Bull case -9.35 -6.86 -6.44 -5.00 -7.00 -6.00 -6.00

Bear case -9.35 -6.86 -6.44 -17.00 -10.00 -25.00 -25.00

Forward Curve -6.55 -1.57 -4.07 -4.99 -5.52

Natural Gas 4.72 4.58 3.95 4.05 4.32 3.50 4.25 4.70 4.25

Bull case 4.72 4.58 3.95 4.50 4.49 4.50 4.50 5.25 5.00

Bear case 4.72 4.58 3.95 3.75 4.20 2.75 3.75 4.00 3.75

Forward Curve 4.02 3.44 3.72 3.94 4.09

Base Metals 1Q14 2Q14 3Q14 4Q14e 2014e 2015e 2016e 2017e 2018e LT

Aluminum US$/MT 1,718 1,808 1,992 1,874 1,830 1,913 2,748

Forward Curve 1,874 1,925 1,961 2,000 2,044

Copper US$/MT 7,029 6,789 6,991 7,165 6,971 7,397 7,938

Forward Curve 6,860 6,380 6,336 6,305 6,282

Nickel US$/MT 14,668 18,478 18,605 18,629 17,640 19,346 22,439

Forward Curve 16,918 15,665 15,705 15,700 15,700

Zinc US$/MT 2,023 2,073 2,309 2,205 2,123 2,348 2,740

Forward Curve 2,161 2,194 2,200 2,186 2,173

Precious Metals 1Q14 2Q14 3Q14 4Q14e 2014e 2015e 2016e 2017e 2018e LT

Gold US$/oz 1,294 1,289 1,281 1,225 1,264 1,180 1,444

Forward Curve 1266 1198 1204 1222 1244

Silver US$/oz 20.45 19.63 19.66 18.09 19.00 18.86 19.23 19.64 22.22 25.92

Forward Curve 100 65 71 74 75

Platinum US$/oz 1,429 1,449 1,434 1,550 1,488 1,640 2,246

Forward Curve 1,385 1,199

Softs * 1Q MYe 2Q MYe 3Q MYe 4Q MYe 2014/15e 2015/16e 2016/17e 2017/18e 2018/19e LT

Cotton US¢/lb N.A. N.A. N.A. N.A. N.A. - - - - -

Forward Curve 62.39 65.64

Sugar US¢/lb 17.60 18.60 16.80 18.20 17.90 - - - - -

Bull case 19.80 20.80 19.20 20.70 20.00

Bear case 15.60 16.40 15.10 16.30 15.80

Forward Curve 15.60 16.73

Grains * 1Q MYe 2Q MYe 3Q MYe 4Q MYe 2014/15e 2015/16e 2016/17e 2017/18e 2018/19e LT

Corn US$/bu 3.45 3.75 4.10 4.30 3.90 4.25 - - - -

Bull case 3.65 4.65 5.10 5.40 4.70 5.70

Bear case 3.35 3.05 3.35 3.45 3.30 2.90

Forward Curve 4.01 4.43 4.41

Soybean US$/bu 9.75 8.60 8.80 8.90 9.00 9.50 - - - -

Bull case 10.25 11.20 11.70 12.10 11.30 13.30

Bear case 9.60 7.00 6.95 6.80 7.60 6.50

Forward Curve 10.32 10.28 10.22

Wheat US$/bu 5.59 5.20 5.40 5.45 5.40 5.50 - - - -

Bull case 5.59 5.25 6.70 7.25 6.20 7.40

Bear case 5.59 5.05 4.50 4.45 4.90 3.90

Forward Curve 5.85 6.47 6.31

Livestock 1Q MY 2Q MY 3Q MY 4Q MY e 2014e 2015e 2016e 2017e 2018e LT

Live Cattle US¢/lb 130 N.A. - - - -

Forward Curve 151 155

Feeder Cattle US¢/lb 150 N.A. - - - -


Lean Hogs US¢/lb 85 N.A. - - - -


US$/mmBtu

Source: Bloomberg, Morgan Stanley Commodity Research estimates


6


Commodity Thermometer

Commodity Bearish Neutral Bullish Thesis

CopperStill one of our top picks on disappointment on supply growth, although a weaker Chinese property sector tempers our view.

PlatinumWe are more positive medium to long-term as the appreciation in the Rand platinum price is unlikely to exceed S African mining cost inflation.

ZincZinc remains popular in the investment community, but the recent increase in visible inventory is a small worry for us.

Coking CoalA much-needed supply response is happening gradually, and we think spot prices will improve by year-end.

Live CattleLimited placements on feed in recent months should leave live cattle supply constrained through YE14, with export demand helping to keep prices supported in the near term.

PalladiumInvestment flows have driven a sell off; however, fundamentals remain attractive amid a structural deficit.

LeadA mixed picture amid weakening Chinese demand fundamentals and less of a supply deficit than previously forecast.

Natural Gas

Thanks to a record start to the injection season, inventories are well on track to reach 3.5 Tcf by November. Elevated levels of production are expected to keep prices in the low $4 range in 2H14 as the market becomes less reliant on gas-to-coal switching to balance.

CornWe see the near-term risks to corn prices as balanced, as strong demand and the need to maintain acreage helps offset the impact of falling soy and wheat prices.

CottonWhile changes to Chinese policy have pressured prices, we hold a relatively neutral price outlook until these policy changes translate into actual declines in the country's import demand.

NickelRecent price correction was likely overdone given next year's supply deficit, although we do not expect prices to rise materially higher than this year's peak of US$21,000/t.

UraniumPrices have come alive following supply cuts and impending Japanese nuclear power restarts - we think upward price momentum is required to get supply growth back on track.

Source: Morgan Stanley Commodity Research


7


Commodity Thermometer (cont.)

WheatWe see downside to wheat prices in the near term as the US remains priced out of global export business as low conr prices continue to whittle away wheat feed demand.

AluminumWe think the higher 3Q average price was justified and sustainable given 3 years of ex-China producer discipline and strong demand.

SoybeansA record US harvest and limited prospects for acreage reduction in South America should drive a rapid transition from deficit to surplus in 14/15.

Lean HogsDiminishing disease pressure through the summer and a likely demand response to record high pork prices leave us less constructive on prices in 2H14.

Feeder CattleDespite a pickup in feedlot placements, an impending wave of new supply (the result of farrowing decisions in 2013) should begin to pressure prices through YE 14.

Iron OrePrices likely to remain depressed amid vast oversupply. However, we think prices return close to US$90/t if high cost supply exits the market.

SilverThe sharp deterioration in the outlook for the gold price has had an equally negative impact on silver. Just as the fall in gold prices made a clear and decisive break of the uptrend price channel for that metal, so, too, in silver.

SugarDespite recent weather concerns, adequate early-season Brazilian sugar supply and limited global demand should continue to pressure sugar prices.

Thermal CoalStill in oversupply, but there is hope that China's domestic supply cuts may help re-balance the market and lead to a price rebound.

GoldHard to get excited about a commodity in which all key indicators point to lower prices over the medium-term.

Brent Crude Oil

While we expect higher runs to support physical markets (and likely prompt structure) through Feb, flat price should continue to trade on concerns about OPEC, an upcoming supply overhang (OPEC needs to cut by 2Q15) and USD appreciation. For markets to turn bullish in the near term would likely require significantly tighter physical markets, potentially via supply disappointment or a large outage.

WTI Crude Oil

WTI will trade with global fundamentals and may struggle to narrow its diff from tight levels. New Cushing infrastructure may create volatility in Cushing flows and inventory, but major congestion isn't expected as long as the USGC is tight. Threats come from strong pricing potentially attracting imports and 1Q15 turnarounds.

Source: Morgan Stanley Commodity Research


8


Monthly Index Performance Table

% in GSCI Total Return Month QTD YTD Dec01 to Dec13 Roll Yield L12M

S&P GSCI TR 100% 3,743 -10.9% -16.3% -22.5% 4.2% 1.6%

BCOM TR N/A 227 -4.1% -4.8% -10.2% 4.2% N/A

GSCI Light Energy TR N/A 2,775 -5.8% -7.4% -13.2% 3.4% 0.2%

US S&P 500 TR N/A 3,779 2.7% 5.2% 14.0% 5.7% N/A

UK FTSE 100 TR N/A 5,071 3.1% 2.1% 3.1% 5.4% N/A

MSCI World TR N/A 782 1.7% 2.5% 6.7% 6.6% N/A

MSCI Europe TR N/A 8,513 2.7% 0.0% -1.5% 7.1% N/A

MSCI EM TR N/A 421 -1.1% 0.1% 2.5% 11.7% N/A

MSCI EM Asia Pac ex. Japan TR N/A 327 0.4% 3.1% 7.7% 8.8% N/A

Bloomberg 7-10 Yr Treas TR N/A 433 1.5% 2.9% 8.9% 5.2% N/A

Energy 72.1% 785 -15.7% -23.9% -30.3% 5.0% 2.8%

Non Energy 27.9% 2,181 -0.4% 2.9% -1.8% 2.7% -1.3%

Grains 9.7% 358 1.9% 15.9% -10.2% -0.1% 0.2%

Agriculture 13.3% 544 0.4% 9.3% -10.2% 0.2% -2.4%

Livestock 5.8% 2,480 0.9% -0.3% 19.9% -3.5% 0.0%

Base Metals 6.3% 1,323 -3.1% -1.6% -3.2% 8.1% -2.0%

Prec. Metals 2.7% 1,451 -0.2% -3.7% -4.8% 11.1% -0.4%

WTI Crude 25.4% 981 -17.8% -26.8% -28.5% 5.1% 6.1%

Brent Crude 23.1% 796 -18.9% -26.9% -36.4% 13.0% -0.2%

Natural Gas 3.3% 62.91 3.1% -5.3% -1.5% -24.9% 2.1%

GasOil 8.2% 710 -11.3% -19.0% -30.9% 13.5% -0.3%

Heating Oil 6.0% 1,057 -13.4% -18.1% -27.8% 9.1% 2.3%

Unleaded Gasoline 6.1% 3,441 -14.2% -23.2% -30.2% 14.0% 5.9%

Aluminum 1.8% 63 -2.6% 2.7% 6.1% -0.9% -6.8%

Copper 3.0% 3,863 -4.9% -4.1% -12.2% 16.8% 1.4%

Nickel 0.5% 427 3.0% -0.5% 15.6% 9.7% -1.6%

Zinc 0.6% 109 -4.4% -3.4% 5.6% 4.6% -2.3%

Lead 0.4% 340 1.1% -3.5% -10.6% 13.5% -2.9%

Gold 2.4% 637 0.3% -3.0% -2.5% 11.1% -0.3%

Silver 0.3% 553 -3.7% -9.1% -20.6% 10.8% -1.2%

Corn 3.4% 111 -0.2% 17.2% -15.1% -3.1% -7.9%

Wheat 2.8% 131 7.2% 19.5% -11.2% -6.5% -7.1%

Soybeans 2.8% 4,578 -3.2% 10.3% -5.6% 13.3% 21.4%

Sugar 1.4% 135 -2.8% -5.2% -25.8% 3.2% -21.9%

Cotton 1.1% 251 -4.7% 0.1% -21.4% -2.0% 10.7%

Kansas Wheat 0.7% 54 7.4% 14.3% -2.6% 0.2% -2.6%

Coffee 0.8% 101 -2.6% -5.3% 55.0% -4.4% -8.5%

Cocoa 0.3% 37 -2.1% -14.0% 3.8% 4.4% -1.1%

Live Cattle 3.1% 4,429 1.0% 2.6% 26.3% -0.3% 0.4%

Feeder Cattle 0.6% 186 1.1% 0.9% 39.8% N/A 1.3%

Lean Hogs 2.1% 210 0.4% -6.5% 3.9% -11.1% 0.5%

(1) Annualized, (2) Calculated on basis of annual January reset to S&P GSCI weights, (3) Calculated on basis of annual Jan reset to BCOM weights, (4) Pre Roll applied Feb-Dec

Source: Bloomberg, Morgan Stanley Commodity Research QTD: since Sep 30, 2014 YTD: since Dec 31, 2013

Ind

ivid

ua

l Co

mm

od

itie

sE

qu

itie

s/B

on

ds

Co

mm

od

ity

Se

cto

rsC

om

mo

ds

As of 30-Nov-14


9


Index Performance

S&P GSCI TR, BCOM TR, Backwd Basket TR Rebased at 100 on Jan 3rd 2005

S&P GSCI Sub-Indices (TR) Rebased at 100 on Jan 3rd 2005

S&P GSCI Individual Commodity Indices (TR) Rebased at 100 on Jan 3rd 2005

Source: Bloomberg, S&P GSCI

(1) Calculated on basis of annual January reset to GSCI w eights (Petroleum, Copper, Sugar, Livestock, Soybeans).

(2) Calculated on basis of annual January reset to BCOM w eights (Petroleum, Copper, Sugar, Livestock, Soybeans).

50

75

100

125

150

175

200

225

250

275

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13

S&P GSCI TR BCOM TR Backw Bskt TR (1) Backw Bskt TR (2)

50

100

150

200

250

300

350

400

450

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Energy Agriculture

Livestock Base Metals

Precious Metals

0

50

100

150

200

250

300

350

400

450

500

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

WTI Brent Heating

Gasoil Gasoline Copper

Sugar Soybeans Live Cattle


10


Catalyst Calendar and Upcoming Reports

Date Name

Tuesday, December 23 Japanese Weekly Oil Stocks

Wednesday, December 24 EIA Weekly Petroleum Status Report

Thursday, December 25 ARA and Singapore Oil Stocks

Tuesday, December 30 Japanese Weekly Oil Stocks

Tuesday, December 30 EIA Petroleum Supply Monthly

Wednesday, December 31 EIA Weekly Petroleum Status Report

Tuesday, January 6 Japanese Weekly Oil Stocks

Wednesday, January 7 EIA Weekly Petroleum Status Report

Thursday, January 8 ARA and Singapore Oil Stocks

Tuesday, January 13 Japanese Weekly Oil Stocks

Wednesday, January 14 EIA Weekly Petroleum Status Report

Thursday, January 15 ARA and Singapore Oil Stocks

Thursday, January 15 OPEC Monthly Oil Market Report

Wednesday, December 24 EEI Weekly Electric Output

Thursday, December 25 Weekly Natural Gas Storage Report

Friday, December 26 Baker Hughes US Rig Count

Wednesday, December 31 EEI Weekly Electric Output

Wednesday, December 31 EIA Natural Gas Monthly

Wednesday, January 7 EEI Weekly Electric Output

Thursday, January 8 Weekly Natural Gas Storage Report

Friday, January 9 Baker Hughes US Rig Count

Wednesday, January 14 EEI Weekly Electric Output

Thursday, January 15 Weekly Natural Gas Storage Report

Monday, December 22 Cold Storage

Tuesday, December 23 Quarterly Hogs and Pigs

Wednesday, December 24 Livestock Slaughter

Friday, December 26 Weekly Ethanol report

Friday, December 26 USDA Weekly Exports

Friday, January 2 USDA Weekly Exports

Wednesday, January 7 EIA Weekly Ethanol Report

Wednesday, January 7 Census Exports for November

Thursday, January 8 USDA Weekly Exports

Monday, January 12 USDA WASDE

Monday, January 12 Grain Stocks

Monday, January 12 Crop Production - Monthly and Annual

Wednesday, January 14 EIA Weekly Ethanol Report

Thursday, January 15 USDA Weekly Exports

Thursday, January 22 Cold Storage

Oil

Natural Gas

Agriculture

Source: EIA, IEA, OPEC, PAJ, IE Singapore, PJK International, JODI, EEI, Baker Hughes, USDA, UNICA, ABARES, US Census Bureau Morgan Stanley Commodity Research


11


Macro Indicators

Indicator Frequency Data Point Date Data Point Date Trend*World Trade:

Global (Volume) Monthly 3.2% Oct-14 4.8% Sep-14 ▼

Industrial Production (YoY % Change):Global Monthly 3.1% Oct-14 3.3% Sep-14 ▼U.S. Monthly 5.2% Nov-14 4.5% Oct-14 ▲Euro Area Monthly 0.8% Oct-14 0.1% Sep-14 ▲Japan Monthly -0.8% Oct-14 -0.6% Sep-14 ▼Brazil Monthly -3.2% Oct-14 -4.8% Sep-14 ▲Russia Monthly -0.3% Nov-14 3.0% Oct-14 ▼India Monthly -4.2% Oct-14 2.8% Sep-14 ▼China Monthly 7.2% Nov-14 7.7% Oct-14 ▼

Real GDP (YoY % Change):U.S. Qtrly 2.4% Sep-14 2.6% Jun-14 ▼Euro Area Qtrly 0.8% Sep-14 0.0% Jun-14 ▲Japan Qtrly -1.3% Sep-14 -0.3% Jun-14 ▼Brazil Qtrly -0.2% Sep-14 -0.9% Jun-14 ▲Russia Qtrly 0.7% Sep-14 0.8% Jun-14 ▼India Qtrly 5.3% Sep-14 5.7% Jun-14 ▼China Qtrly 7.3% Sep-14 7.5% Jun-14 ▼

PMI (index):Global Monthly 53.2 Nov-14 53.5 Oct-14 ▼U.S. Monthly 58.7 Nov-14 59.0 Oct-14 ▼Japan Monthly 52.0 Nov-14 52.4 Oct-14 ▼Brazil Monthly 48.7 Nov-14 49.1 Oct-14 ▼China Monthly 50.3 Nov-14 50.8 Oct-14 ▼

CPI (YoY % Change):U.S. Monthly 1.3% Nov-14 1.7% Oct-14 ▼Euro Zone Monthly 0.3% Nov-14 0.4% Oct-14 ▼Japan Monthly 2.9% Oct-14 3.2% Sep-14 ▼Brazil Monthly 6.6% Nov-14 6.6% Oct-14 ▬Russia Monthly 9.1% Nov-14 8.3% Oct-14 ▲India Monthly 5.0% Oct-14 6.3% Sep-14 ▼China Monthly 1.6% Oct-14 1.6% Sep-14 ▬

Economic Surprise IndexG10 Weekly 10.5 19-Dec-14 1.7 12-Dec-14 ▲U.S. Weekly 31.5 19-Dec-14 29.6 12-Dec-14 ▲Eurozone Weekly -0.8 19-Dec-14 -20.3 12-Dec-14 ▲Japan Weekly -14.6 19-Dec-14 -24.3 12-Dec-14 ▲Australia Weekly -9.5 19-Dec-14 -12.6 12-Dec-14 ▲Canada Weekly 5.9 19-Dec-14 17.6 12-Dec-14 ▼Emerging Markets Weekly -12.8 19-Dec-14 -15.5 12-Dec-14 ▲Asia Pacif ic Weekly -22.4 19-Dec-14 -26.2 12-Dec-14 ▲Latin America Weekly -12.1 19-Dec-14 -14.1 12-Dec-14 ▲CEEMEA Weekly 15.4 19-Dec-14 15.3 12-Dec-14 ▲China Weekly 0.9 19-Dec-14 -8.4 12-Dec-14 ▲

Global Risk Demand Daily 114.2 17-Dec-14 116.5 10-Dec-14 ▼GRDI - Standardized Daily -1.80 17-Dec-14 -1.73 10-Dec-14 ▼

Most Recent Previous

*Trend as it relates to commodity prices. Source: Bloomberg, CPB Netherlands, Morgan Stanley Commodity Research


12


Macro Indicators (cont.)

Industrial Production – Global and Developed Markets (IP YoY % ∆)

Industrial Production – Emerging Markets (IP YoY % ∆)

-15%

-10%

-5%

0%

5%

10%

15%

20%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Global YoY U.S. YoY Euro Area YoY Japan YoY

Source:, Bloomberg, Morgan Stanley Commodity Research

-10%

-5%

0%

5%

10%

15%

20%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Brazil YoY Russia YoY India YoY China YoY

Source: Bloomberg, Morgan Stanley Commodity Research

Real GDP - Global and Developed Markets (Real GDP YoY % ∆)

Real GDP – Emerging Markets (Real GDP YoY % ∆)

-2%

-1%

0%

1%

2%

3%

4%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Global YoY U.S. YoY Euro Area YoY Japan YoY


-2%

0%

2%

4%

6%

8%

10%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4



Purchasing Manager Index – Global and Developed Markets (Monthly PMI readings) Purchasing Manager Index – Emerging Markets

(Monthly PMI readings)

40

45

50

55

60

65

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Global U.S. Euro zone Japan


45

50

55

60

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Global Brazil China



13


Macro Indicators (cont.)

CPI – Developed Markets (CPI YoY % ∆)

CPI – Emerging Markets (CPI YoY % ∆)

-2%

-1%

0%

1%

2%

3%

4%

5%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

U.S. YoY Euro Zone YoY Japan YoY


0%

2%

4%

6%

8%

10%

12%

14%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4



World Trade Volume (seasonally adjusted) (Left axis: YoY % ∆ in World Trade; right axis: CPB World Trade Index) MS Standardized GRDI Index

(Standardized GRDI, a near-term measure of risk appetite)

120

125

130

135

140

145

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Global YoY Global

Source: CPB Netherlands, Morgan Stanley Commodity Research

-6.0

-4.0

-2.0

0.0

2.0

4.0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Risk Seeking

Risk Averse

Global Risk Demand Index – US Pat. No. 7,617,143 Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research

DM Economic Surprise Index (Economic news surprise index) EM Economic Surprise Index

(Economic news surprise index)

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

G10 U.S. Eurozone Japan


-150

-100

-50

0

50

100

150

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Emerging Markets Latin America Asia Pacific CEEMEA



14


Foreign Exchange

Currency Description Units Spot WoW % ∆ YoY % ∆ 52w H 52w L 1 Month 3 Month 6 Month YTD

DXY DOLLAR INDEX Index 89.60 1.4% 11.2% 89.60 79.09 1.5% 4.6% 11.6% 11.9%USTWD US TRADE WTD BROAD $ Index 110.34 0.0% 8.1% 110.38 101.67 2.2% 4.4% 8.3% 8.3%EUR EURO USD 1.22 -1.9% -10.6% 1.39 1.22 -1.3% -3.6% -10.0% -11.0%JPY JAPANESE YEN JPY 119.50 -0.6% -12.9% 121.46 100.98 -1.4% -8.5% -14.6% -11.9%GBP BRITISH POUND USD 1.56 -0.6% -4.3% 1.72 1.56 -0.2% -3.8% -8.9% -5.6%CAD CANADIAN DOLLAR CAD 1.16 -0.2% -8.3% 1.17 1.06 -3.2% -3.8% -8.2% -8.4%AUD AUSTRALIAN DOLLAR USD 0.81 -1.4% -8.9% 0.95 0.81 -6.2% -7.2% -13.2% -8.8%CHF SWISS FRANC CHF 0.98 -2.1% -9.0% 0.98 0.87 -1.5% -3.3% -9.2% -9.3%NOK NORWEGIAN KRONE NOK 7.36 -0.2% -16.3% 7.48 5.90 -7.6% -12.3% -15.9% -17.6%SEK SWEDISH KRONA SEK 7.73 -2.4% -14.8% 7.73 6.33 -3.5% -6.0% -11.5% -16.8%NZD NEW ZEALAND DOLLAR USD 0.78 -0.2% -5.4% 0.88 0.77 -1.6% -1.3% -11.2% -5.5%

Average Change in USD Terms -0.7% -6.5% -2.1% -3.7% -7.5% -6.8%

Currency Description Units Spot WoW % ∆ YoY % ∆ 52w H 52w L 1 Month 3 Month 6 Month YTDINR INDIAN RUPEE INR 63.30 -1.6% -2.0% 63.62 58.46 -2.4% -3.4% -5.6% -2.4%CNY CHINA RENMINBI CNY 6.22 -0.5% -2.4% 6.26 6.04 -1.5% -1.5% -0.3% -2.7%CNH OFFSHORE CNY CNH 6.22 -0.5% -2.5% 6.26 6.02 -1.4% -1.3% -0.3% -2.7%HKD HONG KONG DOLLAR HKD 7.75 0.0% 0.0% 7.77 7.75 0.1% 0.1% 0.0% 0.0%IDR INDONESIAN RUPIAH IDR 12,497 -0.2% -2.3% 12,725 11,289 -2.8% -3.6% -5.0% -2.6%KRW SOUTH KOREAN WON KRW 1,102 0.1% -3.7% 1,118 1,009 1.1% -5.2% -8.4% -4.7%MYR MALAYSIAN RINGGIT MYR 3.48 0.6% -5.4% 3.50 3.15 -3.5% -6.2% -8.3% -5.8%PHP PHILIPPINES PESO PHP 44.77 -0.4% -0.6% 45.41 43.23 0.5% 0.1% -2.9% -0.8%SGD SINGAPORE DOLLAR SGD 1.31 -0.1% -3.7% 1.32 1.24 -1.2% -3.1% -5.2% -3.9%

THB THAI BAHT THB 32.86 -0.1% -0.8% 33.08 31.76 -0.3% -1.6% -1.5% -0.5%


Currency Description Units Spot WoW % ∆ YoY % ∆ 52w H 52w L 1 Month 3 Month 6 Month YTDARS ARGENTINE PESO ARS 8.55 0.0% -24.9% 8.56 6.52 -0.4% -1.2% -4.8% -23.8%CLP CHILEAN PESO CLP 611 1.2% -13.3% 620 525 -2.7% -2.1% -10.1% -14.0%COP COLOMBIAN PESO COP 2,296 4.8% -15.8% 2,429 1,844 -6.5% -12.1% -19.6% -16.0%MXN MEXICAN PESO MXN 14.60 1.1% -11.1% 14.78 12.84 -6.7% -7.9% -11.1% -10.7%BRL BRAZILIAN REAL BRL 2.66 -0.2% -10.2% 2.74 2.19 -5.4% -9.0% -16.8% -11.2%

Average Change in USD Terms 1.4% -15.1% -4.4% -6.5% -12.5% -15.1%

Currency Description Units Spot WoW % ∆ YoY % ∆ 52w H 52w L 1 Month 3 Month 6 Month YTDRUB RUSSIAN RUBLE RUB 59.62 -2.2% -44.7% 67.91 32.86 -23.1% -34.3% -42.2% -44.9%SAR SAUDI RIYAL SAR 3.75 0.0% -0.1% 3.75 3.75 -0.1% -0.1% -0.1% -0.1%ZAR S. AFRICAN RAND ZAR 11.58 0.1% -10.6% 11.76 10.29 -5.5% -3.1% -7.1% -9.4%TRY TURKISH LIRA TRY 2.31 -0.6% -9.5% 2.38 2.07 -3.9% -2.2% -7.7% -7.1%


EM

EA

Lat

in A

mer

ica

Asi

a ex

-Jap

anG

10


DXY Dollar Index (Left axis: YoY % ∆; right axis: index value) USDBRL Exchange Rate

(Left axis: YoY % ∆; right axis: BRL exchange rate)

76

78

80

82

84

86

88

90

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Feb

-13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Feb

-14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

YoY % DXY

.


1.50

1.70

1.90

2.10

2.30

2.50

2.70

2.90

-14%

0%

14%

28%

42%

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Feb

-13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

Feb

-14

Apr

-14

Jun-

14

Aug

-14

Oct

-14

Dec

-14

YoY % BRL



15


FX: Commodity Prices

Brent Crude Oil (Jan 2012 = 100)

Gold (Jan 2012 = 100)

50

60

70

80

90

100

110

120

130

140

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB


50

60

70

80

90

100

110

120

130

140

150

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB


Corn (Jan 2012 = 100)

Soybeans (Jan 2012 = 100)

40

50

60

70

80

90

100

110

120

130

140

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB


60708090

100110120130140150160170180

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB


Wheat (Jan 2012 = 100) Copper

(Jan 2012 = 100)

708090

100110120130140150160170180190200

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB


70

80

90

100

110

120

130

140

150

160

170

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

USD EUR JPY BRL AUD

CAD INR CNY RUB



16


Forward Curves: Energy

WTI Crude Oil Forward Curve ($/bbl)

Brent Crude Oil Forward Curve ($/bbl)

50

55

60

65

70

75

80

85

0 10 20 30 40 50 60 70Dec-19 Dec-12 Nov-19

Source: NYMEX, Bloomberg, Morgan Stanley Commodity Research

60

65

70

75

80

85

90

95

0 10 20 30 40 50 60 70

Dec-19 Dec-12 Nov-19

Source: ICE, Bloomberg, Morgan Stanley Commodity Research

Dubai Crude Oil Forward Curve ($/bbl)

NYMEX Heating Oil Forward Curve (US¢/gal)

50

55

60

65

70

75

80

85

0 2 4 6 8 10 12 14 16



185

195

205

215

225

235

245

255

0 10 20 30 40



ICE Gasoil Forward Curve ($/MT) NYMEX Gasoline Forward Curve

(US¢/gal)

525

575

625

675

725

775

825

0 6 12 18Dec-19 Dec-12 Nov-19


150

160

170

180

190

200

210

220

230

0 3 6 9 12 15 18 21 24 27 30 33 36 39




17


Forward Curves: Energy

WTI-Brent Forward Curve ($/bbl)

RBOB-HO Forward Curve ($/bbl)

-11

-10

-9

-8

-7

-6

-5

-4

-3

-2

0 10 20 30 40 50 60 70



-50

-45

-40

-35

-30

-25

-20

-15

-10

-5

-

0 3 6 9 12 15 18 21 24 27 30 33 36



Henry Hub Natural Gas Forward Curve ($/mmBtu)

3.2

3.4

3.6

3.8

4.0

4.2

4.4

4.6

0 10 20 30 40




18


Forward Curves: Metals

Gold Forward Curve ($/Troy oz) Silver Forward Curve

($/Troy oz)

1,180

1,200

1,220

1,240

1,260

1,280

1,300

1,320

0 10 20 30 40 50 60 70


Source: COMEX, Bloomberg, Morgan Stanley Commodity Research

15.5

16.0

16.5

17.0

17.5

18.0

18.5

0 10 20 30 40 50 60 70


Source: COMEX, Bloomberg, Morgan Stanley Commodity Research

Aluminum Forward Curve ($/MT) Copper Forward Curve

($/MT)

1,850

1,900

1,950

2,000

2,050

2,100

0 10 20 30 40 50


Source: LME, Bloomberg, Morgan Stanley Commodity Research

6,250

6,300

6,350

6,400

6,450

6,500

6,550

6,600

6,650

6,700

6,750

0 10 20 30 40 50



Nickel Forward Curve ($/MT) Zinc Forward Curve

($/MT)

15,400

15,600

15,800

16,000

16,200

16,400

16,600

16,800

17,000

0 10 20 30 40 50 60 70Dec-19 Dec-12 Nov-19


2,160

2,180

2,200

2,220

2,240

2,260

2,280

0 10 20 30 40 50 60 70




19


Forward Curves: Grains/Softs

Corn Forward Curve (¢/bu) Soybeans Forward Curve

(¢/bu)

370

380

390

400

410

420

430

440

450

460

0 10 20 30 40 50


Source: CBOT, Bloomberg, Morgan Stanley Commodity Research

970

980

990

1,000

1,010

1,020

1,030

1,040

1,050

1,060

1,070

0 10 20 30 40



Wheat Forward Curve (¢/bu) Kansas Wheat Forward Curve

(¢/bu)

500

520

540

560

580

600

620

640

660

680

0 3 6 9 12 15 18 21 24 27 30 33 36 39



550

570

590

610

630

650

670

690

710

0 3 6 9 12 15 18 21 24 27 30 33 36



Sugar Forward Curve (¢/lb) Cotton Forward Curve

(¢/lb)

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

0 3 6 9 12 15 18 21 24 27 30 33 36 39



58

60

62

64

66

68

70

0 3 6 9 12 15 18 21 24 27 30 33 36




20


Forward Curves: Livestock

Live Cattle Forward Curve (¢/lb) Feeder Cattle Forward Curve

(¢/lb)

150

155

160

165

170

175

0 3 6 9 12 15 18


Source: CME, Bloomberg, Morgan Stanley Commodity Research

215

220

225

230

235

240

0 3 6 9 12 15 18



Lean Hogs Forward Curve (¢/lb)

70

75

80

85

90

95

100

0 3 6 9 12 15 18 21Dec-19 Dec-12 Nov-19



21


CTFC Commitment of Traders Report Summary

Non-Commercial Long WoW Δ Non-Commercial Short WoW ΔNet Spec Length

WoW Δ WoW % Δ 52w H 52w L Price ($) WoW Δ ($) WoW % ΔOpen

Interest (OI)WoW Δ NSL as a % of OI

ICE Brent ICCBB CO1 Comdty 107287 10011 -86396 -6980 20,891 3,031 17.0% 180,343 (21,370) 59.86 (6.98) - 10.4% 2,248,580 49,341 0.9%

NYMEX WTI NYMOC CL1 Comdty 440503 34150 120910 9905 319,593 24,245 8.2% 479,739 270,010 55.93 (7.89) - 12.4% 2,267,373 (18,522) 14.1%

ICE WTI EN1CA CL1 Comdty 78604 12165 37564 2662 41,040 9,503 30.1% 97,055 31,537 55.93 (7.89) - 12.4% 644,927 17,281 6.4%

RBOB NYMOX XB1 Comdty 108626 5710 30927 3542 77,699 2,168 2.9% 89,690 34,183 154.10 (18.26) - 10.6% 382,956 21,755 20.3%

Heating Oil NYMOH HO1 Comdty 56296 4433 88924 7988 (32,628) (3,555) -12.2% 14,921 (32,628) 196.00 (12.40) - 6.0% 393,227 (1,131) 8.3%

NYMEX Natural Gas

NYMON NG1 Comdty 232741 -8815 450957 -12961 (218,216) 4,146 1.9% (34,345) (222,362) 3.62 (0.03) - 0.9% 966,940 (29,801) 22.6%

Other Natural Gas*

NG1 Comdty 314951.25 -14516 137309.5 1083 177,642 (15,599) -8.1% 532,333 102,113 N/A N/A N/A N/A N/A N/A

Gold CMXOG GC1 Comdty 196636 -6520 60261 -7311 136,375 791 0.6% 172,204 54,587 1,193.90 (37.60) - 3.1% 595,431 (2,772) 22.9%

Silver CMXOS SI1 Comdty 50848 -219 26370 2767 24,478 (2,986) -10.9% 51,799 (2,324) 15.72 (1.37) - 8.0% 202,850 5,524 12.1%

Platinum NYMOP PL1 Comdty 43993 -76 16542 1192 27,451 (1,268) -4.4% 51,675 20,951 1,196.50 (50.30) - 4.0% 68,555 331 40.0%

Palladium NYMOA PA1 Comdty 24065 -825 4073 388 19,992 (1,213) -5.7% 27,141 17,376 784.00 (28.10) - 3.5% 33,152 (337) 60.3%

Copper CMXOC HG1 Comdty 46990 -133 76693 -3369 (29,703) 3,236 9.8% 14,660 (34,190) 287.75 (6.90) - 2.3% 152,538 (200) 19.5%

Corn CBTOC C 1 Comdty 443124 -8691 119144 -13111 323,980 4,420 1.4% 342,697 (48,041) 406.00 23.00 6.0% 1,619,574 50,340 20.0%

Wheat CBTOW W 1 Comdty 126198 5034 105233 -8253 20,965 13,287 173.1% 43,243 (66,938) 623.25 22.75 3.8% 491,303 26,422 4.3%

Soybean CBTOS S 1 Comdty 179468 4581 126283 7925 53,185 (3,344) -5.9% 228,343 (37,651) 1,023.50 (25.75) - 2.5% 948,096 18,145 5.6%

Soybean Meal CBTTS SM1 Comdty 115396 -6646 52854 2049 62,542 (8,695) -12.2% 97,213 20,966 356.60 (55.00) - 13.4% 426,697 6,515 14.7%

Soybean Oil CBTPS BO1 Comdty 109088 -7271 70391 -6750 38,697 (521) -1.3% 68,319 (55,611) 31.77 (0.14) - 0.4% 400,467 (6,214) 9.7%

Sugar CSCOS SB1 Comdty 229511 -11960 253524 -2444 (24,013) (9,516) -65.6% 194,711 (24,013) 14.71 (0.71) - 4.6% 986,037 (15,822) 2.4%

Coffee CSCOF KC1 Comdty 45201 -1759 10551 85 34,650 (1,844) -5.1% 51,820 (3,970) 176.70 (2.75) - 1.5% 187,524 (3,206) 18.5%

Cocoa CSCOC CC1 Comdty 64441 -1511 20401 -4715 44,040 3,204 7.8% 86,982 39,350 2,914.00 (72.00) - 2.4% 219,465 (2,891) 20.1%

Cotton NYCOC CT1 Comdty 58842 1804 55228 -967 3,614 2,771 328.7% 68,825 (12,638) 59.78 (0.10) - 0.2% 227,156 2,746 1.6%

Live Cattle CMEOL LC1 Comdty 135022 -8695 19778 -725 115,244 (7,970) -6.5% 156,812 102,997 158.98 (3.43) - 2.1% 384,224 3,803 30.0%

Feeder Cattle CMEOF FC1 Comdty 15190 -855 7284 -1854 7,906 999 14.5% 16,492 6,620 219.60 (13.18) - 5.7% 59,707 4,230 13.2%

Lean Hogs CMEOH LH1 Comdty 94346 -4357 26838 4060 67,508 (8,417) -11.1% 116,134 64,454 81.68 (5.28) - 6.1% 276,640 (20,771) 24.4%

As of 12/16/14 Brent as of 12/9/14

Liv

es

toc

kM

eta

lsA

gri

cu

ltu

reS

oft

sE

ne

rgy

Source: NYMEX, ICE, CME, Bloomberg, Morgan Stanley Commodity Research

Note: Net Spec Length is defined as non-commercial long positions minus non-commercial short positions.


22


Energy Table of Contents

Crude Oil 23

Cash Prices and Spreads 24

Refining Throughput 26

Imports 27

Production 28

Stocks 31

Crude Oil Products 32

Prices and Refining Margins 32

Demand 35

OECD Stocks 39

Country Profiles 43

Natural Gas 54

Storage 55

North American Profile 57

Production 62

Asian Demand 63


23


Commodity Snapshot: Crude Oil

Outages Pose Major Bullish Risk

(Supply shut-ins, mmb/d)

Demand Ticking Higher into 2015

(Global crude oil demand, runs + direct use, mmb/d)

-

0.5

1.0

1.5

2.0

2.5

3.0

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

Jan-

15

Mar

-15

Libya United Kingdom Argentina Yemen Syria

Canada offshore Colombia GoM Alaska Angola

Nigeria China UAE South Sudan Brazil

Iraq Russia Kazakhstan Norway

Est

73.0

74.0

75.0

76.0

77.0

78.0

79.0

80.0

81.0


2015 2014 2013 2012 2011 5Y Avg

Source: IEA, Morgan Stanley Commodity Research estimates Source: IEA, JODI, Morgan Stanley Commodity Research estimates

Cash Costs Set the Price Floor if OPEC Is Unwilling to Intervene

(y axis: Operating costs with and without royalty effects, $/bbl, x axis: global liquids production, mmb/d)

Stocks Build Largely in Crude and Other Products YTD

(2014 YTD Δ in inventory, mmb)

$0

$10

$20

$30

$40

$50

$60

0 10 20 30 40 50 60 70 80 90

Cash costs without royalties Cash Costs with Royalties

Canada OilsandsVenezuela

Russia

US

UK

Nigeria

Canada ex Oilsands

UAEChina

Saudi Arabia

Iraq

Mexico

ChinaUS

RussiaIran

153

60

(21)

9

(4)

43

67

40 32

(16)(4)

3 22

4

(40) (20)

- 20 40 60 80

100 120 140 160 180

Tot

al

Cru

de

Gas

olin

e

Mid

Dis

t

Res

id

NG

L+F

eeds

tk

Oth

er

2014 YTD 5Y Avg

Source: Rystad Energy, Morgan Stanley Commodity Research Source: IEA, Morgan Stanley Commodity Research

Supply-Demand Balance DEMAND 2011 2012 2013 2014 2015

OECD Crude Runs 36.7 37.0 36.6 36.7 37.0

Non-OECD Crude Runs 38.3 38.4 39.2 40.6 41.1

Global Crude Runs 75.0 75.4 75.8 77.3 78.1

Total Direct Use 0.8 0.9 0.9 1.0 0.9

Total Crude Demand 75.8 76.3 76.7 78.3 79.0

SUPPLY

OECD Crude 14.8 15.5 16.4 17.6 18.5

Non-OECD Crude 27.6 27.1 27.2 27.3 27.3

OPEC Condensate 2.4 2.5 2.7 2.7 2.8

Supply Before OPEC Crude 44.7 45.2 46.3 47.7 48.5

OPEC Crude Production 29.9 31.3 30.5 30.3 30.5

Total Crude Supply 74.6 76.5 76.7 78.0 78.9

OPEC & STOCKS

Call on OPEC Crude + Stocks 31.1 31.1 30.4 30.6 30.5

Historical Implied Stock ∆ (0.9) (0.9) (0.4) (0.4) (0.3)

Implied Call on OPEC 30.2 30.2 30.0 30.2 30.2

OECD Ending Stocks - mmb 2,190 2,254 2,240 2,275 2,285

Implied Stock ∆ (1.2) 0.2 0.1 (0.3) (0.0)

OECD Stock ∆ (0.2) 0.2 (0.0) 0.1 0.1 Source: IEA, JODI, Morgan Stanley Commodity Research estimates

Investment Thesis

The S&D suggests a cut is not required before Mar given rising crude runs, but with OPEC taking a hands-off approach, the risk of oil prices moving even lower into 2015 (as well as higher volatility) is now significantly elevated. By 2Q15, the market will be oversupplied and needs to find a mechanism to balance. Without intervention, prices will need to move lower - potentially as low as cash costs ($35-40/bbl) for a brief period to shut in existing production. We expect US supply growth to slow as a response, leading to a potential recovery in 2H15. Bullish risks include outages (which become more likely at lower prices), demand stimulation, slower supply growth, and/or capitulation from OPEC or other oil exporters.

Supply

Our balance assumes that US production growth slows as unconventional production should be quickest to respond to lower prices. Larger, more complex international projects require more lead time and we could see a delayed response.

Non-OPEC: We forecast crude supply before OPEC crude to grow by only 0.8 mmb/d in 2015, a growth rate that is 0.6 mmb/d less than the previous year. US supply is particularly at risk.

OPEC: At this point, we expect OPEC production to grow marginally (0.2 mmb/d YoY) as OPEC appears to be on the sidelines. There could still be intervention however, especially if prices continue to fall.

Demand

We expect crude demand to grow by 0.7 mmb/d YoY in 2015, with crude runs rising 0.8 mmb/d and direct use declining by 0.1 mmb/d. Refinery throughput growth should be weaker than 2014's 1.5 mmb/d given the hyperseasonality and tough comps from 1H14. However, lower prices should help to stimulate demand.

OECD: We forecast crude runs growth of 0.2 mmb/d YoY, with growth coming only from the Americas (helped by higher refinery capacity) outweighing declines in Europe and Asia.

Non-OECD: Runs should rise by 0.5 mmb/d YoY amid growth in the Middle East, FSU, and China. Additional refining capacity, competition with Europe (in the case of FSU), and efforts to produce more gasoline should drive crude demand in the regions.


24


Crude Oil Cash Prices

Crude Oil Front-Month Price ($/bbl)

North American Differentials (Various crude grades versus WTI, $/bbl)

50

60

70

80

90

100

110

120

130

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

WTI Brent


-45

-40

-35

-30

-25

-20

-15

-10

-5

0

-45

-35

-25

-15

-5

5

15

25

35

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3A

ug 1

3S

ep 1

3O

ct 1

3N

ov 1

3D

ec 1

3Ja

n 14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

LLS WTS Mars

Syncrude Bakken - Clearbrook Midland

WCS (RHS)


North Sea Differentials (North Sea crude grades versus Dated Brent, $/bbl)

Urals Differentials (Various crude differentials, $/bbl)

-1.0

0.0

1.0

2.0

3.0

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3A

ug 1

3S

ep 1

3O

ct 1

3N

ov 1

3D

ec 1

3Ja

n 14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

Forties Ekosfisk Oseberg


-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Jan

12

Mar

12

May

12

Jul 1

2

Sep

12

Nov

12

Jan

13

Mar

13

May

13

Jul 1

3

Sep

13

Nov

13

Jan

14

Mar

14

May

14

Jul 1

4

Sep

14

Nov

14

Urals vs. Floating Dated Brent Urals NW Europe vs. Med Strip

Urals Augusta vs. Med Strip Source: Bloomberg, Morgan Stanley Commodity Research

African Differentials (Various crude grades versus Dated Brent, $/bbl)

Middle East Differentials (Various crude grades versus Dubai, $/bbl)

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Jun

11

Aug

11

Oct

11

Dec

11

Feb

12

Apr

12

Jun

12

Aug

12

Oct

12

Dec

12

Feb

13

Apr

13

Jun

13

Aug

13

Oct

13

Dec

13

Feb

14

Apr

14

Jun

14

Aug

14

Oct

14

Dec

14

Qua Ibo (Nigeria) Bonny Light (Nigeria)Cabinda (Angola) Kissanje (Angola)


-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3A

ug 1

3S

ep 1

3O

ct 1

3N

ov 1

3D

ec 1

3Ja

n 14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

Qatar Marine vs. QP OSP Murban vs. ADNOC OSP Source: Bloomberg, Morgan Stanley Commodity Research


25


Crude Oil Spreads

Light-Heavy Spreads (Left axis: LLS-Maya; right axis: Arab light-heavy and Brent-Urals, $/bbl)

Brent Differentials ($/bbl)

-5

0

5

10

15

20

25

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3

Aug

13

Sep

13

Oct

13

Nov

13

Dec

13

Jan

14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

Arab Light-Heavy Minas-Duri

Brent-Urals (NWE) Saharan Blend-Urals (Med)

LLS-Maya


-8.00

-7.00

-6.00

-5.00

-4.00

-3.00

-2.00

-1.00

0.00

1.00

-25

-20

-15

-10

-5

0

5

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3A

ug 1

3S

ep 1

3O

ct 1

3N

ov 1

3D

ec 1

3Ja

n 14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

WTI-Brent (LHS) Dubai-Brent (RHS)


Prompt Month Spreads ($/bbl)

1m vs. 12m ($/bbl)

-2.0

-1.0

0.0

1.0

2.0

3.0

Jan 1

3F

eb 1

3M

ar 13

Apr

13

May

13

Jun 1

3Ju

l 13

Aug 1

3S

ep 1

3O

ct 13

Nov

13

Dec

13

Jan 1

4F

eb 1

4M

ar 14

Apr

14

May

14

Jun 1

4Ju

l 14

Aug 1

4S

ep 1

4O

ct 14

Nov

14

Dec

14

WTI Brent Dubai Source: Bloomberg, Morgan Stanley Commodity Research

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Jan 1

3F

eb 1

3M

ar 13

Apr

13

May

13

Jun 1

3Ju

l 13

Aug 1

3S

ep 1

3O

ct 13

Nov

13

Dec

13

Jan 1

4F

eb 1

4M

ar 14

Apr

14

May

14

Jun 1

4Ju

l 14

Aug 1

4S

ep 1

4O

ct 14

Nov

14

Dec

14

WTI Brent



26


Crude Oil: Refining Throughput

US Total Crude Inputs into Refineries (mmb/d)

US PADD II (Midwest) Crude Inputs into Refineries (mmb/d)

13.0

13.5

14.0

14.5

15.0

15.5

16.0

16.5

17.0


2014 2013 2012 5-Year Avg

Source: EIA, Morgan Stanley Commodity Research

3.00

3.10

3.20

3.30

3.40

3.50

3.60

3.70

3.80

3.90


2014 2013 2012 5-Year Avg


Japan Total Crude Inputs into Refineries (mmb/d)

Korea Total Crude Inputs into Refineries (mmb/d)

2.5

3.0

3.5

4.0

4.5


2014 2013 2012 5-Y Avg.

Source: METI, Morgan Stanley Commodity Research

2.2

2.3

2.4

2.5

2.6

2.7

2.8


2014 2013 2012 5-Y Avg.


China Total Crude Inputs into Refineries (mmb/d)

Brazil Total Crude Inputs into Refineries (mmb/d)

8.1

8.4

8.7

9.0

9.3

9.6

9.9

10.2

10.5

10.8


2014 2013 2012 5-Y Avg.


1.7

1.8

1.9

2.0

2.1

2.2


2014 2013 2012 5-Y Avg.

Source: ANP, Morgan Stanley Commodity Research


27


Crude Oil: Imports

US Total Crude Imports (mmb/d, 4wma)

US Waterborne Imports (PADDs 1, 3, & 5 - mmb/d, 4wma)

6.5

7.0

7.5

8.0

8.5

9.0

9.5


2014 2013 2012 5-Year Avg


4.5

5.0

5.5

6.0

6.5

7.0

7.5


2014 2013 2012 5-Year Avg


US Pipeline Imports (PADDs 2 & 4 - mmb/d, 4wma)

Korea Total Crude Imports (mmb/d)

1.5

2.0

2.5


2014 2013 2012 5-Year Avg


2.1

2.5

2.9


2014 2013 2012 5-Y Avg.


China Total Crude Imports (mmb/d)

India Total Crude Imports (mmb/d)

4.0

5.0

6.0

7.0

8.0


2014 2013 2012 5-Y Avg.


2.5

3.0

3.5

4.0

4.5


2014 2013 2012 5-Y Avg.

Source: Thomson Reuters, Morgan Stanley Commodity Research


28


Crude Oil: OPEC Crude Production

Total OPEC (mmb/d)

OPEC Production YoY Δ (mmb/d)

28

29

30

31

32

33


2014 2013 2012 5-Y Avg.


-6.0

-4.0

-2.0

0.0

2.0

4.0

2008 2009 2010 2011 2012 2013 2014


Saudi Arabia (mmb/d)

Iran (mmb/d)

8.3

8.8

9.3

9.8

10.3


2014 2013 2012 5-Y Avg.


2.4

2.7

3.0

3.3

3.6


2014 2013 2012 5-Y Avg.


Iraq (mmb/d)

Kuwait (mmb/d)

2.5

2.8

3.0

3.3

3.5


2014 2013 2012 5-Y Avg.


2.3

2.6

2.8

3.1


2014 2013 2012 5-Y Avg.



29


Crude Oil: OPEC Crude Production

United Arab Emirates (mmb/d)

Venezuela (mmb/d)

2.2

2.4

2.6

2.8

3.0


2014 2013 2012 5-Y Avg.


2.2

2.3

2.4

2.5

2.6

2.7

2.8


2014 2013 2012 5-Y Avg.


Nigeria (mmb/d)

Angola (mmb/d)

1.7

1.8

1.9

2.0

2.1

2.2

2.3


2014 2013 2012 5-Y Avg.


1.4

1.5

1.6

1.7

1.8

1.9

2.0


2014 2013 2012 5-Y Avg.


Libya (mmb/d)

Algeria (mmb/d)

0.0

0.5

1.0

1.5

2.0


2014 2013 2012 5-Y Avg.


1.05

1.10

1.15

1.20

1.25

1.30


2014 2013 2012 5-Y Avg.



30


Crude Oil: Non-OPEC Crude Production

United States (mmb/d)

Russia (mmb/d)

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5


2014 2013 2012 5-Year Avg


10.0

10.2

10.4

10.6

10.8


2014 2013 2012 5-Y Avg.


Brazil (mmb/d)

China (mmb/d)

1.8

1.9

2.0

2.1

2.2

2.3

2.4


2014 2013 2012 5-Y Avg.


4.0

4.1

4.2

4.3

4.4

4.5


2014 2013 2012 5-Y Avg.


India (mmb/d)

0.68

0.70

0.72

0.74

0.76

0.78

0.80


2014 2013 2012 5-Y Avg.



31


Crude Oil: Stocks Crude Oil Stocks ex SPR (mmb)

OECD Total (mmb)

300

320

340

360

380

400

420


2014 2013 2012 5-Year Avg


900

920

940

960

980

1,000

1,020

1,040


2014 2013 2012 5-Y Avg Source: IEA, Morgan Stanley Commodity Research

Cushing Stocks (mmb)

OECD Pacific (mmb)

17

22

27

32

37

42

47

52

57


2014 2013 2012 5-Year Avg


140

145

150

155

160

165

170

175

180


2014 2013 2012 5-Y Avg

Source: IEA, Morgan Stanley Commodity Research

EoR Stocks (mmb)

OECD Europe (mmb)

250

265

280

295

310

325

340

355


2014 2013 2012 5-Year Avg


280

300

320

340

360


2014 2013 2012 5-Y Avg



32


Crude Oil Products: Product Prices

Gasoline Front-Month Price ($c/gal)

NYMEX RBOB Crack ($/bbl)

100

150

200

250

300

350

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14

Gasoline Ethanol


0

10

20

30

40

50

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

2014 2013 2012 5-year average


Heating Oil Front-Month Price (cents/gal)

NYMEX Heating Oil Crack ($/bbl)

175

200

225

250

275

300

325

350

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Sep

-14

Nov

-14


10

20

30

40

50

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

2014 2013 2012 5-year average


Chinese Fuel Prices (USD/gal)

321 Cracking Margins ($/bbl)

$3.0

$3.5

$4.0

$4.5

$5.0

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Diesel Prices - $/gal Gasoline Prices - $/gal


0

5

10

15

20

25

0

10

20

30

40

50

Jan

13F

eb 1

3M

ar 1

3A

pr 1

3M

ay 1

3Ju

n 13

Jul 1

3A

ug 1

3S

ep 1

3O

ct 1

3N

ov 1

3D

ec 1

3Ja

n 14

Feb

14

Mar

14

Apr

14

May

14

Jun

14Ju

l 14

Aug

14

Sep

14

Oct

14

Nov

14

Dec

14

US - WTI Cushing (LHS) EU - Brent (RHS)



33


Crude Oil Products: Refining Margins

LLS USGC Simple Refining Margin ($/bbl)

Brent USGC Cracking Refining Margin ($/bbl)

-10.00

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00


2014 2013 2012


-12

-7

-2

3

8

13


2014 2013 5Y Avg


Brent NWE Simple Refining Margin ($/bbl)

Brent Rotterdam Cracking Refining Margin ($/bbl)

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8


2014 2013 5Y Avg


-5

0

5

10

15


2014 2013 5Y Avg


Urals Mediterranean Simple Refining Margin ($/bbl)

Urals Mediterranean Cracking Refining Margin ($/bbl)

-15

-13

-11

-9

-7

-5

-3

-1

1

3

5


2014 2013 5Y Avg


-4

-2

0

2

4

6

8

10


2014 2013 5Y Avg



34


Crude Oil Products: Refining Margins

Arab Light Singapore Simple Refining Margin ($/bbl)

Dubai Singapore Cracking Refining Margin ($/bbl)

-10

-8

-6

-4

-2

0

2

4


2014 2013 2012


0

2

4

6

8

10

12


2014 2013 5Y Avg



35


OECD Total Product Demand

OECD Total (mmb/d)

OECD North America (mmb/d)

44

46

48


2014 2013 2012 5-Y Avg


22.5

23.5

24.5

25.5


2014 2013 2012 5-Y Avg


OECD Pacific (mmb/d)

OECD Europe (mmb/d)

7.0

7.5

8.0

8.5

9.0

9.5

10.0


2014 2013 2012 5-Y Avg


12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0


2014 2013 2012 5-Y Avg



36


OECD Middle Distillate Demand

OECD Total (mmb/d)


15

16

17

18


2014 2013 2012 5-Y Avg


6.3

6.6

6.9

7.2


2014 2013 2012 5-Y Avg



OECD Europe (mmb/d)

2.0

2.5

3.0

3.5


2014 2013 2012 5-Y Avg


6.5

7.0

7.5

8.0


2014 2013 2012 5-Y Avg Source: IEA, Morgan Stanley Commodity Research


37


OECD Total Gasoline Demand

OECD Total (mmb/d)


12.5

13.0

13.5

14.0

14.5

15.0


2014 2013 2012 5-Y Avg


9.8

10.0

10.2

10.4

10.6

10.8

11.0

11.2


2014 2013 2012 5-Y Avg



OECD Europe (mmb/d)

1.3

1.4

1.5

1.6

1.7

1.8


2014 2013 2012 5-Y Avg


1.6

1.8

2.0

2.2

2.4


2014 2013 2012 5-Y Avg



38


OECD Total Residual Fuel Oil Demand

OECD Total (mmb/d)


1.5

2.0

2.5

3.0

3.5


2014 2013 2012 5-Y Avg


0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1


2014 2013 2012 5-Y Avg



OECD Europe (mmb/d)

0.5

0.6

0.7

0.8

0.9

1.0

1.1


2014 2013 2012 5-Y Avg


0.8

1.0

1.2

1.4


2014 2013 2012 5-Y Avg



39


Crude Oil Products: OECD Product Stocks (Industry)

OECD Total (mmb)

OECD North America (mmb)

1.25

1.30

1.35

1.40

1.45

1.50

1.55


2014 2013 2012 5-Y Avg


630

660

690

720

750


2014 2013 2012 5-Y Avg


OECD Pacific (mmb)

OECD Europe (mmb)

150

165

180

195


2014 2013 2012 5-Y Avg


480

500

520

540

560

580

600

620


2014 2013 2012 5-Y Avg



40


Crude Oil Products: OECD Middle Distillate Stocks (Industry)

OECD Total (mmb)


450

500

550

600

650


2014 2013 2012 5-Y Avg


180

200

220

240

260


2014 2013 2012 5-Y Avg


OECD Pacific (mmb)

OECD Europe (mmb)

52

56

60

64

68

72


2014 2013 2012 5-Y Avg


225

250

275

300

325


2014 2013 2012 5-Y Avg



41


Crude Oil Products: OECD Gasoline Stocks (Industry)

OECD Total (mmb)


340

350

360

370

380

390

400

410

420


2014 2013 2012 5-Y Avg


230

240

250

260

270

280


2014 2013 2012 5-Y Avg


OECD Pacific (mmb)

OECD Europe (mmb)

20

22

24

26

28

30


2014 2013 2012 5-Y Avg


80

85

90

95

100

105

110

115


2014 2013 2012 5-Y Avg



42


Crude Oil Products: OECD Residual Fuel Oil Stocks (Industry)

OECD Total (mmb)


120

130

140

150

160

170

180


2014 2013 2012 5-Y Avg


40

44

48

52

56


2014 2013 2012 5-Y Avg


OECD Pacific (mmb)

OECD Europe (mmb)

17

18

19

20

21

22

23

24

25


2014 2013 2012 5-Y Avg


60

65

70

75

80

85

90

95

100

105


2014 2013 2012 5-Y Avg



43


Crude Oil Products: US Product Inventories

US Total Product Stocks (mmb)

US Gasoline Stocks (mmb)

650

675

700

725

750

775

800


2014 2013 2012 5-Year Avg


195

200

205

210

215

220

225

230

235

240

245


2014 2013 2012 5-Year Avg Source: EIA, Morgan Stanley Commodity Research

US Heating Oil Stocks (mmb)

US Diesel Stocks (mmb)

10

20

30

40


2014 2013 2012 5-Year Avg


80

100

120


2014 2013 2012 5-Year Avg


US Jet Fuel Stocks (mmb)

US Resid Stocks (mmb)

32

36

40

44

48



30

35

40


2014 2013 2012 5-Year Avg



44


Crude Oil Products: US Product Imports

US Total Product Imports (mmb/d)

US Gasoline Imports (mmb/d)

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8


2014 2013 2012 5-Year Avg


0.2

0.6

1.0

1.4


2014 2013 2012 5-Year Avg


US Gasoline Imports (PADD I) (mmb/d)

US Distillate Imports (mmb/d)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


2014 2012 2013 5-Year Avg


0.0

0.2

0.3

0.5



US Jet Imports (mmb/d)

US Resid Imports (mmb/d)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35



0.0

0.1

0.1

0.2

0.2

0.3

0.3

0.4

0.4

0.5




45


Crude Oil Products: US Product Demand

US Total Product Demand (4-week moving average mmb/d)

US Gasoline Demand (4-week moving average mmb/d)

17.5

18.0

18.5

19.0

19.5

20.0

20.5



7.75

8.00

8.25

8.50

8.75

9.00

9.25

9.50



US Jet Fuel Demand (4-week moving average mmb/d)

US Distillate Demand (4-week moving average mmb/d)

1.20

1.30

1.40

1.50

1.60

1.70

1.80



3.25

3.50

3.75

4.00

4.25


2014 2013 2012 5-Year Avg


US Resid Demand (4-week moving average mmb/d)

US Other Oils Demand (4-week moving average mmb/d)

100

200

300

400

500

600



2.5

2.7

2.9

3.1

3.3

3.5

3.7

3.9

4.1

4.3


2014 2012 2013 5-Year Avg



46


Crude Oil Products: US Product Supply

US Gasoline Production (mmb/d)

US Gasoline Production (PADD I) (mmb/d)

8.4

8.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

10.2

10.4

10.6


2014 2013 2012 5-Year Avg


2.3

2.4

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

3.3


2014 2012 2013 5-Year Avg


US Distillate Production (mmb/d)

US Jet Production (mmb/d)

3.8

4.3

4.8

5.3



1.2

1.4

1.5

1.7

1.8



US Resid Production (mmb/d)

0.3

0.4

0.5

0.6

0.7

0.8




47


Crude Oil Products: Korea

Crude Imports (mmb/d)

Crude Refinery Inputs (mmb/d)

2.1

2.5

2.9


2014 2013 2012 5-Y Avg.


2.2

2.3

2.4

2.5

2.6

2.7

2.8


2014 2013 2012 5-Y Avg. Source: Bloomberg, Morgan Stanley Commodity Research

Total Product Demand (mmb/d)

Total Product Production (mmb/d)

2.00

2.10

2.20

2.30

2.40

2.50



2.25

2.50

2.75

3.00

3.25


2014 2013 2012 5-Y Avg.


Total Product Net Imports (mmb/d)

Total Product Stocks (mmb)

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0


2014 2013 2012 5-Y Avg.


40

45

50

55

60


2014 2013 2012 5-Y Avg.



48


Crude Oil Products: Korea

Gasoline – Net Imports (mmb/d)

Gasoline Demand (mmb/d)

-0.25

-0.20

-0.15

-0.10

-0.05

0.00



0.16

0.18

0.20

0.22

0.24



Gasoline Stocks (mmb)

Middle Distillate – Net Imports (mmb/d)

3.5

4.0

4.5

5.0

5.5

6.0


2014 2013 2012 5-Y Avg.


-1.00

-0.90

-0.80

-0.70

-0.60

-0.50


2014 2013 2012 5-Y Avg.


Middle Distillate Demand (mmb/d)

Middle Distillate – Stocks (mmb)

0.45

0.47

0.49

0.51

0.53

0.55

0.57

0.59

0.61

0.63


2014 2013 2012 5-Y Avg.


11.5

12.5

13.5

14.5

15.5

16.5

17.5

18.5

19.5


2014 2013 2012 5-Y Avg.



49


Crude Oil Products: China Crude Production (mmb/d)

Crude Imports (mmb/d)

4.0

4.1

4.2

4.3

4.4

4.5


2014 2013 2012 5-Y Avg.


4.0

5.0

6.0

7.0

8.0


2014 2013 2012 5-Y Avg.


Crude Processing (mmb/d)


8.1

8.4

8.7

9.0

9.3

9.6

9.9

10.2

10.5

10.8



8.5

9.0

9.5

10.0

10.5

11.0


2014 2013 2012 5-Y Avg.


Gasoline – Demand (mmb/d)

Middle Distillates – Exports (kb/d)

1.5

1.7

1.9

2.1

2.3

2.5

2.7


2014 2013 2012 5-Y Avg.


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


2014 2013 2012 5-Y Avg.



50


Crude Oil Products: China Middle Distillate – Demand (mmb/d)

Middle Distillate – Imports (mmb/d)

3.3

3.5

3.7

3.9

4.1

4.3


2014 2013 2012 5-Y Avg.


0.00

0.10

0.20

0.30



Fuel Oil – Demand (mmb/d)

Fuel Oil – Imports (mmb/d)

0.2

0.4

0.6

0.8

1.0


2014 2013 2012 5-Y Avg.


0.2

0.3

0.4

0.5

0.6

0.7



Jet Fuel – Demand (kb/d)

Jet Fuel – Imports (kb/d)

250

350

450

550

650


2014 2013 2012 5-Y Avg.


60

80

100

120

140

160

180

200


2014 2013 2012 5-Y Avg.



51


Crude Oil Products: India


Total Product Imports (kb/d)

2.75

3.00

3.25

3.50

3.75


2014 2013 2012 5-Y Avg.


250

300

350

400

450

500

550


2014 2013 2012 5-Y Avg.


Gasoline – Demand (kb/d)

Gasoline – Exports (mmb/d)

275

300

325

350

375

400

425

450

475

500


2014 2013 2012 5-Y Avg.


0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50


2014 2013 2012 5-Y Avg.


Middle Distillate – Demand (mmb/d)

Middle Distillate – Exports (mmb/d)

1.3

1.4

1.5

1.6

1.7

1.8

1.9


2014 2013 2012 5-Y Avg.


0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90


2014 2013 2012 5-Y Avg. Source: Thomson Reuters, Morgan Stanley Commodity Research


52


Crude Oil Products: India

Diesel – Demand (mmb/d)

Diesel – Exports (kb/d)

1.0

1.1

1.2

1.3

1.4

1.5

1.6


2014 2013 2012 5-Y Avg.


0.20

0.30

0.40

0.50

0.60

0.70

0.80


2014 2013 2012 5-Y Avg.


LPG – Demand (mmb/d)

LPG – Imports (mmb/d)

0.40

0.45

0.50

0.55

0.60

0.65


2014 2013 2012 5-Y Avg.


0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35



Naphtha – Demand (kb/d)

Naphtha – Imports (kb/d)

200

250

300

350



5

15

25

35

45

55

65


2014 2013 2012 5-Y Avg.



53


Crude Oil Products: Brazil

Crude Refinery Inputs (mmb/d)


1.7

1.8

1.9

2.0

2.1

2.2


2014 2013 2012 5-Y Avg.


1.8

1.9

2.0

2.1

2.2

2.3

2.4

2.5

2.6


2014 2013 2012 5-Y Avg.


Middle Distillate Demand (mmb/d)

Gasoline Demand (mmb/d)

1.0

1.1

1.2

1.3

1.4

1.5


2014 2013 2012 5-Y Avg.


0.5

0.6

0.7

0.8

0.9


2014 2013 2012 5-Y Avg.


Diesel Demand (mmb/d)

Fuel Oil Demand (mmb/d)

0.7

0.8

0.8

0.9

0.9

1.0

1.0

1.1

1.1

1.2

1.2


2014 2013 2012 5-Y Avg.


50

60

70

80

90

100

110

120

130


2014 2013 2012 5-Y Avg.



54


Commodity Snapshot: Natural Gas

Demand and End Use by Source

(US natural gas demand, bcf/d)

Supply by Source

(US natural gas supply, bcf/d)

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Residential/Commercial Electric Power Industrial Demand

-10

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Mexico Dry Production L48 Canada LNG

Source: EIA, Morgan Stanley Commodity Research estimates Source: EIA, Morgan Stanley Commodity Research estimates

US Shale Gas Production Leads to Large Supply Expansion

(US shale gas production, bcf/d)

Inventories below the 5-Yr Min

(Total US inventories, bcf)

0

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Barnett Fayetteville WoodfordHaynesville SW Marcellus NE MarcellusWV Eagle Ford Utica

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec

5-yr range 5-yr average 2013 2014


Supply-Demand Balance SummarySUPPLY 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Dry Production L48 49.5 51.7 54.0 55.5 57.4 61.8 64.8 66.5 69.8 72.5

YoY 2.1 2.4 1.4 1.9 4.4 3.0 1.7 3.3 2.7

NET IMPORTSCanada 8.9 9.0 8.3 7.0 7.0 6.0 5.4 5.1 5.1 4.8

YoY 0.2 -0.8 -1.2 -0.1 -1.0 -0.5 -0.3 -0.1 -0.3

Mexico -0.8 -0.6 -0.9 -0.9 -0.8 -1.4 -1.7 -1.8 -2.0 -2.5YoY 0.2 -0.2 0.0 0.0 -0.5 -0.3 -0.1 -0.2 -0.5

LNG 1.6 2.1 1.0 1.2 1.2 1.0 0.5 0.3 0.1 -0.1YoY 0.5 -1.1 0.3 -0.1 -0.2 -0.5 -0.2 -0.1 -0.2

Total Net Imports 9.7 10.5 8.4 7.4 7.3 5.6 4.2 3.6 3.2 2.2YoY 0.9 -2.1 -0.9 -0.1 -1.7 -1.3 -0.6 -0.4 -1.0

DEMANDResidential/Commercial 19.8 21.4 22.0 21.7 21.7 21.7 19.3 21.8 23.2 22.1

YoY 1.5 0.7 -0.3 0.0 0.0 -2.4 2.5 1.4 -1.1

Electric Power 17.0 18.7 18.2 18.8 20.2 20.7 24.9 22.3 22.1 24.6YoY 1.7 -0.5 0.6 1.4 0.5 4.2 -2.6 -0.2 2.5

Industrial Demand 17.9 18.3 18.2 16.9 18.7 19.2 19.7 20.5 20.7 21.3YoY 0.4 0.0 -1.3 1.8 0.5 0.6 0.7 0.3 0.6

Vehicle Demand 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1YoY 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.0 0.0

Lease Plant/Pipeline Fuel 4.7 5.1 5.1 5.3 5.4 5.5 5.8 5.9 6.1 6.3YoY 0.3 0.0 0.2 0.0 0.1 0.3 0.1 0.2 0.2

Total Demand 59.5 63.4 63.6 62.8 66.1 67.1 69.8 70.5 72.2 74.4YoY 3.9 0.2 -0.8 3.3 1.1 2.7 0.7 1.7 2.2

BALACING ITEM 0.29 (0.54) 0.02 (0.25) 0.33 (0.24) (0.26) (0.44) (0.48) (0.48)

STORAGE INJ/WTH (Bcf) (63) (591) (405) (24) (339) 30 (354) (282) 137 (37) End March Inventory 1,692 1,603 1,266 1,660 1,652 1,577 2,473 1,723 857 1,631End-October Inventory 3,452 3,565 3,399 3,810 3,851 3,804 3,929 3,816 3,567 3,594

Forecast

Source: EIA, Morgan Stanley Commodity Research estimates

Investment Thesis Despite a record 2013-14 winter storage draw, we are more bearish on natural gas prices than current futures suggest. Substantial supply growth and coal-to-gas switching are set to send storage back to comfortable levels this fall, in the 3.4-3.5 Tcf range. In addition, another round of infrastructure additions in 2H14 will allow for further supply growth through year-end and into 2015.

Supply US production should remain elevated on the

back of growing shale production, adding 3.3 Bcf/d YoY in 2014.

Northeast supply basins, namely the Utica and Marcellus shale, should grow a combined ~4.0 Bcf/d YoY as the region's infrastructure continues to expand, opening up new markets and supply routes.

Partially offsetting this growth are declines from dry gas shale plays (Barnett, Haynesville, etc) and legacy gas wells.

Last, we expect associated gas production to add another ~3.0 Bcf/d to gross gas supply led by increased oil production out of the Bakken, Eagle Ford and Permian basins.

Demand The 2014 cooling season has been

dominated by lower than anticipated weather load, but higher than expected power burn in the east due to exceptionally low regional prices. Coal-to-gas switching remains the key component to balance the gas market.

YTD losses in power demand of just 0.3 Bcf/d according to pipeline data should expand in the months ahead as the YoY price gap widens, favoring a more steadfast switch to coal generation. Storage injections should therefore increase in the second half of summer, all else being equal.

Storage facilities will need to inject at a rate of ~2 Bcf/d than last year for the remainder of summer to reach 3.5 Tcf. We think this is achievable with $3.75/Mmbtu-$4 average prices for the 2H14 (although basis is a wild card).


55


Natural Gas: Storage US Working Gas Storage, Lower-48 (bcf)

US Working Gas Storage, Lower-48 (YoY ∆, bcf)

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec



(1,500)

(1,000)

(500)

-

500

1,000

Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14

YoY storage surplus

YoY storage deficit


Canadian Gas Storage, Eastern & Western (bcf)

Canadian Working Gas Storage, Eastern & Western (YoY ∆, bcf)

100

200

300

400

500

600

700

800

900




(300)

(200)

(100)

-

100

200

300

400

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

YoY storage surplus

YoY storage deficit


European Working Gas Storage (bcf)

European Working Gas Storage (YoY ∆, bcf)

-

500

1,000

1,500

2,000

2,500

3,000

Jan Mar May Jul Sep Nov

Last year 2014

Source: Gas Storage Europe, Morgan Stanley Commodity Research

(800)

(600)

(400)

(200)

-

200

400

600

800

1,000

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

YoY storage surplus

YoY storage deficit



56


Natural Gas: US Regional Storage and Basis

US Consuming East Storage (bcf)

Dominion/Appalachia Basis ($/mmBtu)

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200




(2.9)

(2.4)

(1.9)

(1.4)

(0.9)

(0.4)

0.1

0.6


2012 2013 2014


US Consuming West Storage (bcf)

AECO Basis ($/mmBtu)

100

150

200

250

300

350

400

450

500

550

600




(2.5)

(2.0)

(1.5)

(1.0)

(0.5)

-

0.5

1.0

1.5

2.0


2012 2013 2014


US Producing Region Storage (bcf)

Houston Ship Channel Basis ($/mmBtu)

300

500

700

900

1,100

1,300

1,500




(0.50)

(0.40)

(0.30)

(0.20)

(0.10)

-

0.10

0.20


2012 2013 2014



57


Natural Gas: North American Supply

US Gas Production (Left axis: US gas production, bcf/d; right axis: YoY ∆, bcf/d)

US LNG Imports (bcf/d)

(6)

(4)

(2)

-

2

4

6

8

48

53

58

63

68

73

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

YoY US production


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0


5-year range 5-year average 2013 2014


Canadian Gas Production (Left axis: Canadian gas production, bcf/d; right axis: YoY ∆, bcf/d)

Net US Imports from Canada (bcf/d)

(2.0)

(1.5)

(1.0)

(0.5)

-

0.5

1.0

1.5

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0


YoY Canadian production

Source: Companies data, Morgan Stanley Commodity Research estimates

3.5

4.5

5.5

6.5

7.5

8.5

9.5




Mexico Gas Production (Left axis: Mexican gas production, bcf/d; right axis: YoY ∆, bcf/d)

Net US Exports to Mexico (bcf/d)

(0.4)

(0.3)

(0.2)

(0.1)

-

0.1

0.2

0.3

0.4

0.5

4.0

4.2

4.4

4.6

4.8

5.0

5.2


YoY Mexico production

Source: Mexico Energy Secretary, Morgan Stanley Commodity Research

-

0.5

1.0

1.5

2.0

2.5





58


Natural Gas: US Power

US Electricity Output (‘000 Gwh)

US Nuclear Generation (GW)

65

70

75

80

85

90

95

100


5-Y range 2014 2013 5-Y avg

Source: EEI, Morgan Stanley Commodity Research

60

65

70

75

80

85

90

95

100

105


5-Y range 2013 2014

Source: NRC, Morgan Stanley Commodity Research

SERC Power Gas Demand (bcf/d)

RFC Power Gas Demand (bcf/d)

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0


2012 2013 2014

Source: Ventyx, Morgan Stanley Commodity Research estimates

-

1.0

2.0

3.0

4.0

5.0

6.0


2012 2013 2014


WECC Power Gas Demand (bcf/d)

SPP Power Gas Demand (bcf/d)

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0


2012 2013 2014


-

0.2

0.4

0.6

0.8

1.0

1.2

1.4


2012 2013 2014



59


Natural Gas: US Demand

US Industrial Gas Demand (bcf/d)

US Power Gas Demand (bcf/d)

14.0

16.0

18.0

20.0

22.0

24.0

26.0




10.0

15.0

20.0

25.0

30.0

35.0

40.0




Total US Generation (GWh)

Total US Gas-Based Generation (GWh)

270

290

310

330

350

370

390

410

430




35

55

75

95

115

135

155




Total US Coal-Based Generation (GWh)

Total US Hydro-Based Generation (GWh)

80

100

120

140

160

180

200

220




10

15

20

25

30

35





60


Natural Gas: North American Rig Activity

US Rig Count Utica Rig Count

0

200

400

600

800

1000

Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14

Est vertical/directional gas rigs Est horizontal gas rigs

Source: Baker Hughes, Morgan Stanley Commodity Research

0

5

10

15

20

25

30


Horizontal Directional Vertical


Marcellus Rig Count Eagle Ford Rig Count

0

20

40

60

80

100

120

140

160




0

10

20

30

40

50

60

70

80

90

100




Haynesville Rig Count Barnett Rig Count

0

20

40

60

80

100

120

140

160

180




0

10

20

30

40

50

60

70





61


Natural Gas: Others

Estimated Generation Costs

NAPP CoalGen Units

CAPP CoalGen Units

PRB CoalGen Units

CCGTGas

Gas Turbines10K units

Fuel cost ($/ton for coal, $/mmBtu for gas) $62.00 $64.00 $11.38 $3.94 $3.94Estimated Shipping cost $15.00 $20.00 $22.00 $0.30 $0.30

Delivered cost of fuel, $/ton 77.00$ 84.00$ 33.38$ Delivered cost of fuel, $/mmBtu + Emissions $2.97 $3.36 $1.90 $4.24 $4.24

Plant Heat Rate (btu/kw h) 10,000 10,000 10,000 7,200 10,000

Fuel generation costs, $/Mw h $29.66 $33.63 $19.00 $30.51 $42.38Variable O&M costs, $/Mw h $3.50 $3.50 $4.00 $1.50 $1.50Total variable generation costs, $/Mwh $33.16 $37.13 $23.00 $32.01 $43.88

Note: Coal prices are Morgan Stanley Coal team estimates for 2013 Source: Morgan Stanley Commodity Research estimates

Henry Hub, NBP, and CAPP Coal Prices ($/mmBtu)

Cooling Degree Days (US total CDD)

$-

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

1/1/2011 1/1/2012 1/1/2013 1/1/2014

Henry Hub Gas CAPP Coal NBP Gas

Source: CME, ICE, Morgan Stanley Commodity Research

8

9

3

2

1

3

4

9

6

5

4

3

2

5

0

1

2

3

4

5

6

7

8

9

10

Oct-23 Oct-30 Nov-06 Nov-13 Nov-20 Nov-27 6-Wk Avg.

CDD Actual CDD 30-Yr Normal

Source: NOAA, Morgan Stanley Commodity Research

Henry Hub Natural Gas Net Speculative Interest (Left axis: NSL, NYMEX equivalent lots; right axis: Henry Hub average weekly price, $/mmBtu)

Henry Hub Natural Gas Net Commercial Interest (Left axis: NCL, NYMEX equivalent lots; right axis: Henry Hub average weekly price, $/mmBtu)

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$6.0

$6.5

(200)

(100)

-

100

200

300

400

500

Dec-13 Mar-14 Jun-14 Sep-14

NSL, total NYMEX equivlent lots NYMEX weekly avg. HH prices

Source: CFTC, Morgan Stanley Commodity Research

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

$6.0

$6.5

(600)

(500)

(400)

(300)

(200)

(100)

-

100

Dec-13 Apr-14 Aug-14

NCL, total NYMEX equivlent lots NYMEX weekly avg. HH prices

Source: CFTC, Morgan Stanley Commodity Research


62


Natural Gas: Production

US Gas Production (bcf/d)

Canadian Gas Production (bcf/d)

45

50

55

60

65

70

75




12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0




Russia Gas Production (bcf/d)

Norwegian Gas Production (bcf/d)

40

45

50

55

60

65

70

75

80




6

7

8

9

10

11

12

13

14




China Gas Production (bcf/d)

India Gas Production (bcf/d)

4

5

6

7

8

9

10

11

12

13

14




3

4

5

6





63


Natural Gas: Asian LNG Demand

Japan LNG Imports (bcf/d)

Korea LNG Imports (bcf/d)

5

6

7

8

9

10

11

12

13

14



Source: Japan customs, Morgan Stanley Commodity Research

-

1

2

3

4

5

6

7

8

9



Source: KEEI, Morgan Stanley Commodity Research

Taiwan LNG Imports (bcf/d)

China LNG Imports (bcf/d)

-

0.5

1.0

1.5

2.0

2.5

3.0



Source: Taiwan customs, Morgan Stanley Commodity Research

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5



Source: China customs, Morgan Stanley Commodity Research

India LNG Imports (bcf/d)

Asian LNG Imports (bcf/d)

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00



Source: PPAC, Morgan Stanley Commodity Research

9

11

13

15

17

19

21

23

25

27



Source: Various customs data, Morgan Stanley Commodity Research


64


Natural Gas: Japan Power Sector

Japan FEPC Generated and Purchased Power (‘000 GWh)

Japan Nuclear Power Generation (‘000 GWh)

65

70

75

80

85

90

95

100



Source: FEPC, Morgan Stanley Commodity Research

-

5

10

15

20

25

30




Japan Thermal Power Generation (‘000 GWh)

Japan FEPC Consumed LNG (bcf/d)

25

30

35

40

45

50

55

60

65

70




2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5




Japan FEPC Consumed Coal (mln MT)

Japan FEPC Consumed Crude + Heavy Fuel Oil (bln liters)

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0




-

1.0

2.0

3.0

4.0

5.0

6.0





65


Natural Gas: China Power Sector

Chinese Power Production (bln KWh)

China Thermal Power Production (bln KWh)

100

150

200

250

300

350

400

450

500

550



Source: CEI, Morgan Stanley Commodity Research

100

150

200

250

300

350

400

450



Source: CEI, Morgan Stanley Commodity Research estimates

China Nuclear Power Production (bln KWh)

China Hydro Power Production (bln KWh)

2

4

6

8

10

12

14




-

20

40

60

80

100

120

140



Source: CEI, Morgan Stanley Commodity Research estimates

China LNG Imports (bcf/d)

China Coal Imports (mln MT)

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5




-

5

10

15

20

25

30

35

40





66


Agriculture Table of Contents

Weather Maps 67

Corn 68

Prices, Spreads, and Basis 69

Demand 70

Ethanol 72

Supply 73

Soybeans 74

Prices, Spreads, and Basis 75

Soybean Demand 76

Soybean Products Demand 79

Soybean Supply 81

Biodiesel Fundamentals 82

Wheat 83

Prices, Spreads, and Margins 84

Demand 85

Wheat by Class Exports 87

Supply 89

Cotton 90

Demand 91

Supply 93

Sugar 94

Prices and Spreads 95

Demand 96

Supply 97

Coffee 99

Livestock 100


67


Agriculture: US and South America Weather Map

US Major Crop Producing States Last 4 Weeks’ Deviation from 5-Year Average Growing Degree Days and Precipitation

?

Minnesota Iowa7% -6% Wisconsin*** *** -13% Michigan

811% 23%33%

North Dakota-11%

***

South Dakota-33%

*** Ohio-41%41%

Nebraska112%525%

Indiana-36%-36%

IllinoisKansas -45%139% Missouri -26%100% 13%

12%

Precipitation

Growing Degree Days

4-Wk vs. 5-Yr Ave, % ∆


South American Major Crop Producing Areas Last 4 Weeks’ Deviation from 5-Year Average Growing Degree Days and Precipitation

Mato Grosso Do Sul Maranhão Alagoas15% -85% 421%-6% 0% -2%

Mato Grosso Bahia-17% 34%1% -3%

Chaco-13%-1% Goais

19%-7%

Cordoba-42%-3% São Paulo

-5%-14%

La Pampa Buenos Aires Rio Grande Do Sul Parana-37% 11% 89% -36%-14% -1% -2% 2%

4-Wk vs. 5-Yr Ave, % ∆

Precipitation

Growing Degree Days



68


Commodity Snapshot: Corn

US Supply vs. Demand by End Use

(US supply and demand, mln bu)

US Corn Stocks to Use

(US corn stocks to use, %)

0

4,000

8,000

12,000

16,000

06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14e

Feed & Residual Other Consumption Ethanol Use

Exports Production

0%

5%

10%

15%

20%

25%

30%

91/92 94/95 97/98 00/01 03/04 06/07 09/10 12/13


Ethanol Mandates Make up Majority of Ethanol Demand

(Biofuels Mandate, mln gal)

World Counting on Rebound in US Yields to Support Supply

(Annual incremental change in bushels, mln bu)

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2022e

Ethanol-All Feedstocks Cellulosic Ethanol

Biodiesel Other Advanced Biofuels

-4,000

-2,000

0

2,000

4,000

88/89 92/93 96/97 00/01 04/05 08/09 12/13

Impact in Bushels of YoY Δ in Yield

Impact in Bushels of YoY Δ in Area Harvested


Supply-Demand Balance World USDA Morgan StanleySUPPLY 13/14e 14/15e 13/14e 14/15eBeginning Stocks (mln bu) 5,425 6,804 5,425 6,910Area Harvested (mln acres) 445 438 445 433Production (mln bu) 38,946 39,036 38,946 38,531 United States 13,925 14,407 13,925 14,267 Brazil 3,122 2,953 3,122 2,781 Argentina 984 866 984 842Supply (mln bu) 49,176 50,163 49,159 49,915

DEMAND 13/14e 14/15e 13/14e 14/15eConsumption (mln bu) 37,248 38,174 37,201 37,970

Feed & Residual (mln bu) 22,675 23,507 22,620 23,040 United States 5,132 5,375 5,132 5,394 Brazil 1,811 1,870 1,811 1,744

FSI Consumption (mln bu) 14,573 14,666 14,582 14,931Ending Stocks (mln bu) 6,804 7,567 6,910 7,386Stocks to Use % 18.3% 19.8% 18.6% 19.5% United States 9.1% 14.6% 9.1% 13.4%

Source: USDA, Morgan Stanley Commodity Research estimates

Investment Thesis

Though declines in the prices of competing crops may pressure corn prices modestly in the near term, the prospect of further acreage losses in 2015 should prove supportive into 1H15.

Supply After better-than-normal fall weather

supported above-trend US yields, record-high US 14/15 production should leave S/U at the most comfortable level in at least 5 years.

Poor planting margins in Brazil should also continue to pressure safrinha acreage and production YoY.

With US S/U poised to tighten in 15/16, corn prices need to hold their ground to protect 2015 acreage from further soybean switching.

Demand We expect US feed and residual

demand to continue to rise YoY in 14/15, as falling corn prices leave livestock producers profitable, encouraging expansion of the aggregate herd.

US ethanol production should remain strong, as we move through the coming months, supported by limited imports of Brazilian ethanol and US restocking.

Modest global consumption growth in 14/15 should prove inadequate to offset the largest global carry-in since 01/02.


69


Corn: Prices, Spreads, and Basis

Prices of Corn Delivered to Japan (Delivered corn prices to Tokyo Bay from various origins; $/bu)

Full Carry Calculation

$4.75

$5.00

$5.25

$5.50

$5.75

$6.00

$6.25

1‐Jul 21‐Jul 10‐Aug 30‐Aug 19‐Sep 9‐Oct 29‐Oct 18‐Nov 8‐Dec

Paranagua, Brazil Odessa, Ukraine US Gulf

Source: Bloomberg, Reuters, Morgan Stanley Commodity Research

Current Full Carry % Full Carry

C H5 C K5 8.50 11.44 74.3%

C N5 15.50 23.07 67.2%

C U5 17.75 34.88 50.9%

C Z5 24.50 52.23 46.9%

C K5 C N5 7.00 11.66 60.0%

C U5 9.25 23.51 39.3%

C Z5 16.00 40.91 39.1%

C N5 C U5 2.25 11.88 18.9%

C Z5 9.00 29.31 30.7%

C H6 17.50 46.75 37.4%

C U5 C Z5 6.75 17.45 38.7%

C H6 15.25 34.90 43.7%

Spreads


Export Basis (¢/bu)

Interior Basis (¢/bu)

-80

-40

0

40

80

120

160

200

240

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14

PNW Central IL Toledo Gulf Chicago


-100

-50

0

50

100

150

200

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13May-14 Oct-14

S. Peoria Cincinnati Memphis So. Iowa Omaha


Time Spreads (¢/bu)

Corn Feed Substitution vs. HRW ($/MT)

-50

-40

-30

-20

-10

0

10

20

30

40

50

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14

Sep - Dec Dec - Jul Dec - Dec July - Dec


100

150

200

250

300

350

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Corn HRW



70


Corn: Demand Current MY Net Export Sales (mln bu)

Current MY Total Commitment (mln bu)

-20

-10

0

10

20

30

40

50

60

70

80

90

Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

5-Yr Range 5-Yr Average 2014/15 2013/14

Source: USDA, Morgan Stanley Commodity Research

0

500

1,000

1,500

2,000

2,500




Current MY Export Shipments (mln bu)

Current MY Accumulated Shipments (mln bu)

0

10

20

30

40

50

60

70




0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000




New MY Outstanding Sales (mln bu)

0

50

100

150

200

250

300

350

400

450

500

Sep Nov Jan Mar May Jul




71


Corn: Demand

US Quarterly Corn Use (mln bu)

Chinese Corn Imports (‘000 MT)

0

50

100

150

200

250

300

350

400

450

05/06Q1 06/07Q3 08/09Q1 09/10Q3 11/12Q1 12/13Q3

Non-Fuel Alcohol Cereals Glucose and Dextrose HFCS Seed Starch


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9


5-Yr Range 2014 2013 Average

Source: CEIC, Morgan Stanley Commodity Research

China Import Arb ($/bu)

Quarterly Feed Demand (mln bu)

-8

-6

-4

-2

0

2

4

6

8

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Corn Import Arb Corn Import Arb (Ex-VAT)

No Incentive to Import from US

Incentive to Import from US


0

500

1,000

1,500

2,000

2,500

3,000

2000/01 2003/04 2006/07 2009/10 2012/13

Q1 Sep-Nov Q2 Dec-Feb Q3 Mar-May Q4 Jun-Aug


US Exports and Shipments (mln bu)

12/11/2014Export Sales

Export Shipments

USDA Estimate

Current Week 27 30

CMYTD 961 461 1,750

10-w eek Avg 36 26

Needed/ Week 21 34Source: USDA, Morgan Stanley Commodity Research


72


Corn: Ethanol US Corn Ethanol Producer Economics

Ethanol Blender Economics Ex-RIN ($/gal)

RevenuesEthanol price ($/gal) $1.62DDGS price ($/gal) $0.56

CostsCorn cost ($/gal) $1.49Natural gas cost ($/gal) $0.10Total other operating costs ($/gal) $0.51

Total Revenue ($/gal) $2.19Total Costs ($/gal) $2.11Cash Margin ($/gal) $0.08


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2008 2009 2010 2011 2012 2013 2014

Uneconomic to blend ethanol

Economic to blend ethanol


US Weekly Ethanol Production (kb/d)

US Ethanol Inventories (mln barrels)

750

800

850

900

950

1000

Jun 10 Feb 11 Oct 11 Jun 12 Feb 13 Oct 13 Jun 14


14

15

16

17

18

19

20

21

22

23

24

Jul 10 Mar 11 Nov 11 Jul 12 Mar 13 Nov 13 Jul 14


Monthly Ethanol Exports (mln gal)

Forward Ethanol Production Margins ($/gal)

0

20

40

60

80

100

120

140

160

180

200

January March May July September November

5-Yr Range 2014 2013 5-Yr Avg


0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-0.6

-0.2

0.2

0.6

1.0

1.4

1.8

Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15



73


Corn: Supply

Soy/Corn Price Ratio (1st May CBOT soybean contract / 1st May CBOT corn contract)

Corn Quarterly Inventories (bln bu)

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

5-yr range 5-yr avg 2013 2014


0

2

4

6

8

10

12

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13



Brazil Corn Exports (‘000 MT)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5


2010 2011 2012 2013 2014

Source: Conab, Morgan Stanley Commodity Research


74


Commodity Snapshot: Soybeans

US Supply vs. Demand by End Use

(World supply and demand, mln bu)

US Soybean Stocks to Use

(US soybeans stocks to use, %)

0

1,000

2,000

3,000

4,000

5,000

08/09 09/10 10/11e 11/12e 12/13e 13/14e 14/15e

Crush Feed, Seed, Residual

Exports Production

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

92/93 97/98 02/03 07/08 12/13

Source: USDA, Morgan Stanley Commodity Research Source: USDA, Morgan Stanley Commodity Research

Chinese Imports to Remain Strong

(Chinese soybean imports, mln bu)

US Production Likely Up on Rebounding Yields

(LHS: US acreage, mln acres; RHS: US soybean yield, bu/acre)

0

10

20

30

40

50

60

70

80

02/03 04/05 06/07 08/09 10/11 12/13 14/15e

25

29

33

37

41

45

49

50

55

60

65

70

75

80

02/03 04/05 06/07 08/09 10/11 12/13 14/15e

Planted Area Yield


Supply-Demand Balance World USDASUPPLY 13/14e 14/15e 13/14e 14/15eBeginning Stocks (mln bu) 2,068 2,447 2,068 2,364Area Harvested (mln acres) 280 292 280 292Production (mln bu) 10,483 11,494 10,483 11,485Yield (bu/acre) 37.4 39.4 37.4 39.4Imports (mln bu) 4,058 4,144 4,072 4,163Total Supply (mln bu) 16,609 18,084 16,623 18,012

DEMAND 13/14e 14/15e 13/14e 14/15eCrush Consumption (mln bu) 8,812 9,255 8,835 9,284

Brazil 1,443 1,497 1,443 1,511China 2,951 3,156 2,951 3,138US 1,832 1,895 1,832 1,896

Exports (mln bu) 4,146 4,270 4,218 4,323Total Demand (mln bu) 14,163 14,782 14,258 14,860Ending Stocks (mln bu) 2,447 3,302 2,364 3,152

World Stocks to Use % 24.4% 31.4% 23.5% 29.9%US Stocks to Use % 2.6% 11.2% 2.6% 11.1%

Morgan Stanley


Investment Thesis

US prices should continue to grind lower under the weight of record US production and impending record crops in South America.

Supply

The best farmer returns (relative to corn) in 5+ years encouraged farmers to plant record soybean area in 2014. Better than normal weather has also boosted yields, leaving production prospects record-high.

Favorable planting economics has caused increases in soybean acreage in Brazil and Argentina at the expense of corn — driving South American production to new records. Economics suggest more corn to soybean switching is likely in 15/16.

Demand

With the 14/15 South American carry-in at record highs, falling prices should discourage farmer hoarding as we head into 14/15, leading to a YoY pickup in Argentine crushing and export sales.

Limited need to restock and stagnation in the Chinese livestock herd should slow the country's import demand growth YoY.


75


Soybean: Prices, Spreads, and Basis

Prices of Soybeans Delivered to China (Delivered soybean prices to East China from various origins; $/bu)

Global Soybean Oil Prices ($/lb)

$13.00

$13.50

$14.00

$14.50

$15.00

$15.50

$16.00

$16.50

$17.00

$17.50

$18.00

4‐Aug 24‐Aug 13‐Sep 3‐Oct 23‐Oct 12‐Nov 2‐Dec

River Plate, Argentina Paranagua, Brazil US Gulf


0.3

0.4

0.5

0.6

0.7

0.8

Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14

China Argentina Brazil US


Global Soybean Meal Prices ($/MT)


200

300

400

500

600

700

Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14

China Argentina Brazil US


-50

0

50

100

Nov 11 Apr 12 Sep 12 Feb 13 Jul 13 Dec 13 May 14

Nov - Mar Spread Jul - Nov Spread Nov - Nov Spread


Soybean Basis (¢/bu)

Malaysian Palm Oil Price ($/MT)

-60

-30

0

30

60

90

120

150

180

210

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14

Toledo-Not on River Central IL Toledo Gulf Chicago


200

400

600

800

1000

1200

1400

1600

Jan 10 Sep 10 May 11 Jan 12 Sep 12 May 13 Jan 14 Sep 14



76


Soybean: Demand

Current MY Export Sales (mln bu)


-40

-20

0

20

40

60

80

100

120




0

200

400

600

800

1,000

1,200

1,400

1,600

1,800




Current MY Weekly Shipments (mln bu)


0

20

40

60

80

100

120




0

200

400

600

800

1,000

1,200

1,400

1,600

1,800





0

100

200

300

400

500

600

700

800

900





77


Soybean: Demand

Shipments to China (mln bu)

Oil/Meal Share of Crush Revenues (%)

0

20

40

60

80

100

120




0%

25%

50%

75%

100%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Oil Share Meal Share


NOPA Soybean Crush (mln bu)

NOPA Soy Oil Yield (lb/bu)

90

100

110

120

130

140

150

160

170



Source: NOPA, Morgan Stanley Commodity Research

10.8

11.2

11.6

12.0




NOPA Meal Yield (lb/bu)

NOPA Soy Oil Stocks (mln lb)

46.0

46.5

47.0

47.5

48.0

48.5




800

1,200

1,600

2,000

2,400

2,800

3,200

3,600





78


Soybean: Demand

China Soybean Crush Margins (China soybean crush margin, RMB/MT)

Brazil Soybean Exports (‘000 MT)

-100

-50

0

50

100

150

200

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

Source: JCI, Bloomberg, Morgan Stanley Commodity Research

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000


2011 2012 2013 2014


China Import Arb ($/bu)

US Exports and Shipments (mln bu)

-6

-4

-2

0

2

4

6

8


Soybean Arb Soybean Import Arb (Ex-VAT)

No Incentive to import from US

Incentive to Import from US



Export Shipments

USDA Estimate

Current Week 26 69

CMYTD 1,512 927 1,760

10-w eek Avg 42 82

Needed/ Week 7 22 Source: USDA, Morgan Stanley Commodity Research


79


Soybean Oil: Demand

US Soybean Crush Margins ($/bu)

Soy Oil Export Shipments (mln lb)

0.3

0.7

1.1

1.5

1.9

2.3

2.7

3.1

3.5

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14


0

50

100

150

200

250

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep



Outstanding Sales as % of Total Commitment (%)

Soy Oil Accumulated Shipments (mln lb)

0%

10%

20%

30%

40%

50%

60%

70%

Dec-14Dec-13Dec-12


0

500

1,000

1,500

2,000

2,500

3,000

3,500




US Exports and Shipments (mln lb)

Soy Oil Export Sales (mln lb)


Export Shipments

USDA Estimate

Current Week 86 59

CMYTD 885 528 2,101

10-w eek Avg 48 49

Needed Per Week 29 37 Source: USDA, Morgan Stanley Commodity Research

-100

0

100

200

300

400





80


Soybean Meal: Demand

Soy Meal Export Sales (mln lb)

Soy Meal Export Shipments (mln lb)

-500

0

500

1,000

1,500

2,000




0

200

400

600

800

1,000




Soy Meal New MY Outstanding Sales (mln lb)

Soy Meal Accumulated Shipment (mln lb)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000




0

5,000

10,000

15,000

20,000

25,000




Exports and Shipments (mln lb)



Export Shipments

USDA Estimate

Current Week 324 657

CMYTD 15,425 5,294 25,600

10-w eek Avg 263 501Needed Per Week 242 483


50%

52%

54%

56%

58%

60%

62%

64%

66%

68%

70%

Dec 14Dec 13Dec 12



81


Soybean: Supply

Soybean Quarterly Inventories (mln bu)

Canadian Soybean Exports (‘000 MT)

0

500

1,000

1,500

2,000

2,500

3,000

2001/02 2003/04 2005/06 2007/08 2009/10 2011/12 2013/14



0

200

400

600

800

1000

1200

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

2011/2012 2012/2013 2013/2014 2014/2015

Source: Canadian Grains Commission, Morgan Stanley Commodity Research

Brazilian Expansion Economics

Line Item R$/haFertilizer 623

Chemicals 643

Seeds 192

Process 177

Financing 114

Total direct costs 1751

Indirect costs 197

Post harvest 134

Total cost 2082

Yield (ton/ha) 3

Cost/Yield (R$/ton) 687

Logistic (R$/ton) 325

Port costs (R$/ton) 26

Discount of trader (R$/ton) 13

FX (BRL/USD) 2.66

Cost/Yield (US$/ton) 395

Cost/Yield (US$/bu) 10.76

Cost/Yield, CBOT Equiv. (US$/bu) 10.16

Expansion cost (R$/ha) 656.70

Expansion cost (US$/bu) 2.22

Total cost with expansion (US$/bu) 12.97

Needed price for ~5% return (US$/bu) 13.66

Needed price for ~10% return (US$/bu) 14.42 Source: USDA, Morgan Stanley Commodity Research


82


Soybean: Biodiesel

U.S. Biodiesel Economics

Malaysian Palm Oil Inventory (mln MT)

Revenue Soybean OilSME price ($/gal) $3.10Glycerin Revenue ($/gal BD) $0.39Total Revenues ($/gal) $3.49

CostsFeedstock $2.48Chemicals $0.27Energy $0.11Other operating Costs $0.26Total Costs ($/gal) $3.11

Cash Margin ($/gal) $0.38


0

500

1000

1500

2000

2500

3000

2000 2002 2004 2006 2008 2010 2012 2014


Biodiesel Producer Margins (Cash margin, $/gal)

Biodiesel Blending Margins (Ex retroactive tax credit) ($/gal)

(1.0)

(0.5)

0.0

0.5

1.0

1.5

2.0

Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Feb 14 Aug 14


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14



83


Commodity Snapshot: Wheat

World Supply vs. Demand by End Use

(World supply and demand, bln bu)

World Wheat Stocks to Use

(World wheat stocks to use, %)

0

5

10

15

20

25

30

35

08/09 09/10 10/11 11/12 12/13 13/14 14/15e 15/16e

Feed Consumption FSI Consumption Exports Production

0%

5%

10%

15%

20%

25%

30%

35%

40%

00/01 03/04 06/07 09/10 12/13

US S/U World S/U



Wheat Feed Share Declining YoY

(US YoY feed demand Sep-Aug corn MY, bln bu)

Higher Production YoY Should Support Russian Exports

(Russian exports, mln bu)

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

92/93 99/00 04/05 09/10 14/15e

Wheat Corn

0

100

200

300

400

500

600

700

800

900

03/04 06/07 09/10 12/13e



Supply-Demand Balance World USDASUPPLY 13/14e 14/15e 13/14e 14/15eBeginning Stocks (mln bu) 7,208 6,410 6,410 6,808Area Harvested (mln acres) 534 546 546 548Production (mln bu) 26,263 26,536 26,263 26,588

EU 5,259 5,710 5,259 5,710China 4,480 4,630 4,480 4,630US 2,135 2,026 2,135 2,026

Yield (bu/acre) 48.1 48.4 48.1 48.5Supply (mln bu) 38,427 39,082 38,427 38,742

DEMAND 13/14e 14/15e 13/14e 14/15eConsumption (mln bu) 25,526 26,114 25,526 25,874

Feed Consumption 4,786 5,115 4,786 4,870EU 1,764 2,058 1,764 2,058Russia 459 478 459 478China 772 845 772 803

FSI Consumption 20,740 20,998 20,740 21,005Exports (mln bu) 6,092 5,807 6,092 5,462Demand (mln bu) 31,619 31,921 31,619 31,336Ending Stock (mln bu) 6,808 7,161 6,808 7,405Stocks to Use % 26.7% 27.4% 26.7% 28.6%

Morgan Stanley


Investment Thesis

Declining global feed demand and adequate global supply should pressure wheat prices in 14/15. However, relatively stable global inventories (compared with large builds in corn stocks) should allow wheat prices to retain their traditional premium to corn.

Supply

Concerns of supply disruptions in the Black Sea have proven unfounded to date, leaving US exports largely priced out of the export market.

Although they have not had material impacts so far, weather risks outside the US may pose threats to global production. Drought may affect Australia's 14/15 winter wheat harvest and the condition of Russia's 15/16 winter wheat crop, while wetness may reduce the quality of South American supplies.

Demand

Falling corn prices will further weigh on global wheat feed share, though rising livestock inventories should still grow demand in absolute terms YoY.


84


Wheat: Prices, Spreads, and Margins

Prices of Wheat Delivered to Egypt (Delivered hard wheat prices to Egypt from various origins; $/bu)

Wheat Spreads ($/bu)

$6.00

$6.50

$7.00

$7.50

$8.00

$8.50

$9.00

$9.50

$10.00

$10.50

$11.00

1-Jun 1-Jul 1-Aug 1-Sep 1-Oct 1-Nov 1-Dec

River Plate, Argentina Rouen, FranceNovorossiysk, Russia US Gulf


-1.0

0.0

1.0

2.0

3.0

4.0


KCBOT-CBOT Spread MW-CH Spread Matif-Liffe Spread

Source: KCBOT, CME, MGEX, Morgan Stanley Commodity Research


HRW Wheat Basis (HRW basis, ¢/bu)

-40

-30

-20

-10

0

10

20

Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14

Mar - Jul Spread Jul - Dec Spread Dec - Dec Spread


-150

-100

-50

0

50

100

150

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13May-14 Oct-14

Portland (11.5) PNW Kansas City Gulf


Wheat Flour Prices ($/cwt)

0

5

10

15

20

25

30

35

85/86 88/89 91/92 94/95 97/98 00/01 03/04 06/07 09/10 12/13

Minneapolis Kansas City



85


Wheat: Demand Current MY Export Sales (mln bu)


-10

0

10

20

30

40

50

60




0

200

400

600

800

1,000

1,200

1,400

Jun Aug Oct Dec Feb Apr



Current MY Weekly Shipments (mln bu)


0

5

10

15

20

25

30

35

40

45

50




0

200

400

600

800

1,000

1,200

1,400






0

50

100

150

200

250




0%

6%

12%

18%

24%

30%

Dec 14Dec 13Dec 12



86


Wheat: Demand

Quarterly US Wheat Consumption (mln bu)

Quarterly US Wheat Food Use (mln bu)

0

100

200

300

400

500

600

700

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15

Q1 Jun-Aug Q2 Sep-Nov Q3 Dec-Feb Q4 Mar-May


190

200

210

220

230

240

250

260

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15



Exports and Shipments (mln bu)

China Imports (mln MT)


Export Shipments

USDA Estimate

Current Week 17 15

CMYTD 656 491 925

10-w eek Avg 16 17

Needed/ Week 11 17Source: USDA, Morgan Stanley Commodity Research

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4



Source: CEIC, Morgan Stanley Commodity Research


87


Wheat by Class: Current MY Export Total Commitment

Hard Red Winter Wheat (mln bu)

Soft Red Winter Wheat (mln bu)

0

100

200

300

400

500

600

700




0

50

100

150

200

250




Hard Red Spring Wheat (mln bu)

Durum Wheat (mln bu)

0

50

100

150

200

250

300

350

400




0

5

10

15

20

25

30

35

40

45




White Wheat (mln bu)

All Wheat (mln bu)

0

50

100

150

200

250




0

200

400

600

800

1,000

1,200

1,400





88


Wheat by Class: Accumulated Export Shipments

Hard Red Winter Wheat (mln bu)

Soft Red Winter Wheat (mln bu)

0

100

200

300

400

500

600

700




0

50

100

150

200

250

300




Hard Red Spring Wheat (mln bu)

Durum Wheat (mln bu)

0

50

100

150

200

250

300

350




0

5

10

15

20

25

30

35

40




White Wheat (mln bu)

All Wheat (mln bu)

0

40

80

120

160

200

240




0

200

400

600

800

1,000

1,200

1,400





89


Wheat: Supply

Wheat Quarterly Inventories (mln bu)

Canadian Wheat Exports (‘000 MT)

0

500

1,000

1,500

2,000

2,500

3,000

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15



0

500

1000

1500

2000

2500

3000


2011/2012 2012/2013 2013/2014 2014/2015

Source: Canadian Grain Commission, Morgan Stanley Commodity Research


90


Commodity Snapshot: Cotton

World Supply vs. Demand by End Use

(World supply and demand, mln 480-lb bales)

Cotton Stocks to Use

(World Stocks-to-use, %)

0

25

50

75

100

125

150

175

07/08 08/09 09/10 10/11 11/12e 12/13e 13/14e

Use Exports Production

0%

20%

40%

60%

80%

100%

120%

91/92 96/97 01/02 06/07 11/12e



World Export Demand Growth Slowing

(US and world exports, mln 480-lb bales)

Lower Prices Pressuring Acreage

(Left axis: yield, kg/ha; right axis: area harvested, ‘000 ha)

0

10

20

30

40

50

03/04 05/06 07/08 09/10 11/12e 13/14e

US World

650

700

750

800

850

25

30

35

40

04/05 06/07 08/09 10/11 12/13e

Yield (LHS) Area Harvested (RHS)



Supply-Demand Balance (‘000 480 lb-bales)

USDA Morgan StanleyPRODUCTION 13/14e 14/15e 13/14e 14/15eWorld 120,293 118,978 119,517 119,263India 31,000 31,000 31,000 31,137United States 12,909 15,923 12,909 16,338China 32,750 30,000 32,150 30,066

DEMAND 13/14e 14/15e 13/14e 14/15eWorld 108,473 112,500 110,912 114,218India 22,850 24,000 22,850 24,014United States 3,742 3,783 3,742 3,893China 34,500 37,000 36,930 37,200World Ending Stock 101,638 108,076 98,170 102,146

Stock to Use % 13/14e 14/15e 13/14e 14/15eWorld 93.3% 96.0% 88.1% 89.3%India 35.9% 50.4% 36.1% 45.6%United States 17.2% 33.4% 17.2% 35.3%China 181.6% 169.1% 161.3% 159.7%


Investment Thesis

Global cotton prices remain beholden to Chinese reserve policy decisions with cotton prices likely to remain near current levels until the country's import demand slows. After that point, we expect a global production surplus of as much as 10 mln bales should pull prices well below global cost of production.

Supply

US supplies should prove adequate, with US 14/15 yields likely to stay above 800 lbs/acre.

Demand

We see the potential for incremental demand as cotton prices remain lower YoY. However, the persistence of synthetic blending after widespread mill reconfigurations in 2011 is likely to keep cotton demand growth depressed into 14/15.


91


Cotton: Demand

Weekly Shipments (‘000 480-lb Bales)

Accumulated Shipments (mln 480-lb Bales)

0

100

200

300

400

500

600

Aug Oct Dec Feb Apr Jun

5-Yr Range Average 2014/15 2013/14


0

2

4

6

8

10

12

14

16




Upland Cotton Current MY Export Sales (mln 480-lb bales)

China Retail Clothing Sales Growth (YoY Δ, %)

-0.4

0.0

0.4

0.8

1.2




0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009 2010 2011 2012 2013

YoY % Change Yearly Average


US – China Export Economics (Price, $/kg)

2

3

4

5

6

7

8


China (328) US Cotton, delivered (out of quota)

Source: ICE, Bloomberg, Morgan Stanley Commodity Research estimates


92


Cotton: Demand

Global Prices ($/lb)

Time Spreads (¢/lb)

0.4

1.0

1.6

2.2

2.8


India China US Brazil


-8

-4

0

4

Jan 14 Apr 14 Jul 14 Oct 14

Dec - Mar Spread Jul - Dec Spread Dec - Dec Spread


Pakistan Raw Cotton Imports (‘000 480-lb bales)

0

50

100

150

200

250

300

350

400

450


2010/11 2011/12 2012/13 2013/14

Source: Globecot, Morgan Stanley Commodity Research


93


Cotton: Supply

ICE Daily Certified Stockpiles Total (ICE certified stockpiles, ‘000 bales)

CFTC Cotton on Call (CFTC unfixed call position sales, ‘000 contracts)

0

200

400

600

800

1,000

1,200

Jan 10Jul 10Jan 11Jul 11Jan 12Jul 12Jan 13Jul 13Jan 14Jul 14


0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013 2014



94


Commodity Snapshot: Sugar

Production Surplus to Shrink in 14/15

(Global production surplus, mln mtrv)

World S/U Above 30-Year Average

(Global sugar S/U, %)

-12

-9

-6

-3

0

3

6

9

12

07/08 08/09 09/10 10/11e 11/12e 12/13e 13/14e 14/15e

10%

15%

20%

25%

30%

35%

73/74 83/84 93/94 03/04 13/14e

World S/U 30-Year Average


Demand by Region

(Total use, mln mtrv)

Chinese Imports Still Strong

(Chinese sugar imports, ‘000 MT)

0

10

20

30

40

50

60

70

80

90

100

07/08 09/10 11/12e 13/14e

Brazil EU (27) India China

US Thailand Russia Australia

0

100

200

300

400

500

600

700

800


10/11 11/12 12/13 13/14


Supply-Demand Balance (‘000 MTRV)

SUPPLY 10/11e 11/12e 12/13e 13/14e 14/15eWorld 162,189 172,297 177,557 175,529 172,164Brazil 39,916 37,628 40,064 39,603 37,000EU (27) 15,939 18,320 18,020 16,821 17,129India 26,574 27,820 26,322 25,413 25,810China 11,199 12,341 14,001 14,800 13,069US 7,104 7,697 8,147 7,906 7,729Thailand 9,663 10,504 10,284 11,271 11,879Russia 2,996 5,545 5,000 4,772 4,744

DEMAND 10/11e 11/12e 12/13e 13/14e 14/15eWorld 156,432 159,830 165,879 168,982 172,026Brazil 12,000 11,500 11,200 11,260 11,417EU (27) 18,040 18,200 18,177 18,434 18,746India 23,050 24,180 25,000 25,643 26,187China 14,000 14,200 15,100 16,000 16,186US 10,379 10,205 10,659 10,932 11,125Thailand 2,400 2,779 2,785 2,600 2,696Russia 5,538 5,715 5,715 5,615 5,615

Surplus/Deficit 5,757 12,467 11,678 6,547 138Surplus/Deficit as % of Use 4% 8% 7% 4% 0%

USDA Morgan Stanley


Investment Thesis

We expect sugar prices to remain depressed in the coming months as Brazilian supply proves more than adequate to cover limited incremental demand. However, in 2015, a shrinking global surplus, coupled with limited reinvestment in cane plantings, should conspire to lift prices YoY.

Supply

Although weather remains a risk to C/S Brazil production, the cane crop had 9-12 months to develop under normal conditions prior to the onset of drought in Jan. With dryness conducive to crushing, weather has had a smaller impact on sugar/ethanol production than previously expected.

A weak monsoon season may pose risks to Indian and Thai cane yields in the 14/15 crushing season and should shift market sentiment more bullish on sugar into 1H15.

Demand

Falling sugar/ethanol prices should lift Brazilian hydrous ethanol demand to 4-year highs, reducing sugar’s share of Total Recoverable Sugars (TRS) to a 5-year low of 44%.

Despite falling domestic prices, Chinese import demand for sugar has remained resilient in 2014. However, we warn that China’s internal debate on the future of its minimum price support policies may limit additional import demand from the country.


95


Sugar: Prices and Spreads

Global Raw Sugar Prices ($/lb)

White Sugar Prices ($/lb)

0.1

0.2

0.3

0.4

0.5

Jan10

May10

Sep10

Jan11

May11

Sep11

Jan12

May12

Sep12

Jan13

May13

Sep13

Jan14

May14

Sep14

NYSE No. 11 Sugar M30 Sugar, Mumbai Raws, Sao Paulo


0.15

0.25

0.35

0.45

0.55

0.65

Jan10

May10

Sep10

Jan11

May11

Sep11

Jan12

May12

Sep12

Jan13

May13

Sep13

Jan14

May14

Sep14

LIFFE White Sugar S30 Sugar, Mumbai

White Sugar, Sao Paulo White Sugar, China


White-Raw Spread ($/lb)


0.00

0.03

0.06

0.09

0.12

Jan11

Apr11

Jul11

Oct11

Jan12

Apr12

Jul12

Oct12

Jan13

Apr13

Jul13

Oct13

Jan14

Apr14

Jul14

Oct14


-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14

Oct - Mar Spread Mar - Jul Spread Oct - Oct Spread


Brazilian Sugar/Ethanol Parity (%)

Ethanol Export Arbs ($/gal)

(0.6)

(0.2)

0.2

0.6

1.0

1.4

1.8

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Hydrous Anhydrous

Better to produce sugar

Better to produce ethanol


-2

0

2

4

6

8

2008 2009 2010 2011 2012 2013 2014

Brazilian Ethanol, Delivered US Ethanol



96


Sugar: Demand

Brazilian Sugar Exports (‘000 MT)

Monthly US Consumption (‘000 MT)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

5-year Range 5-Year Avg 2013/14 2014/15


600

700

800

900

1,000

1,100

1,200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec.

10-yr Range 2013 2014 10-yr Avg


US Ethanol Export Economics (with Tariffs)

Quarterly US HFCS Deliveries (‘000 short tons, dry value)

Conversion from Ethanol Brazil to Ethanol USLocal Price (Brazil) At the Mill (R$/l) 1.39 FX 2.66 FOB Santos (US$/l) 0.56 Litres/Gallons 3.78 Price in Gallons (US$) 2.10 (+) Gallon Import Tariff (US$) 0.54 Price w/ Tariff (US$) 2.64 (+) Ad Valorem 2.50%Price Ad Valorem (US$) 2.70 (+) Gallon Freight (US$) 0.17 Local Price (Brazil) w/ Costs (US$) 2.87


0

500

1,000

1,500

2,000

2,500

3,000

2001 2003 2005 2007 2009 2011 2013

Q1 Q2 Q3 Q4



97


Sugar: Supply

C/S Brazil Sugar Cane Crush (mln MT)

C/S Brazil Cumulative Cane Crush (mln MT)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2HMar 1HMay 2HJun 1HAug 2HSep 1HNov 2HDec 1HFeb

10/11 11/12 12/13 13/14 14/15

Source: UNICA, Morgan Stanley Commodity Research

0

100

200

300

400

500

600

700


10/11 11/12 12/13 13/14 14/15 Source: UNICA, Morgan Stanley Commodity Research

C/S Brazil Sugar Production (mln MT)

C/S Brazil Cumulative Sugar Production (mln MT)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


10/11 11/12 12/13 13/14 14/15


0

5

10

15

20

25

30

35


10/11 11/12 12/13 13/14 14/15


C/S Brazil Hydrous Ethanol Production (‘000 cu m)

C/S Brazil Cumulative Hydrous Ethanol Production (‘000 cu m)

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0


10/11 11/12 12/13 13/14 14/15


0

3

6

9

12

15

18

21


10/11 11/12 12/13 13/14 14/15



98


Sugar: Supply

C/S Brazil ATR (Total Recoverable Sugars) (kg/MT cane)

C/S Brazil Cumulative ATR (Total Recoverable Sugars) (kg/MT cane)

60

70

80

90

100

110

120

130

140

150


10/11 11/12 12/13 13/14 14/15


0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

2HMar 2HMay 2HJul 2HSep 2HNov 2HJan

10/11 11/12 12/13 13/14 14/15


C/S Brazil Anhydrous Ethanol Production (‘000 cu m)

US Sugar Production (mln MT)

-200

0

200

400

600

800

1,000

1,200

2HMar 1HMay 2HJun 1HAug 2HSep 1HNov 2HDec 1HFeb10/11 11/12 12/13 13/14 14/15


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Oct Dec. Feb Apr June Aug

10-yr Range 2013/14 2012/13 10-yr Avg

Source: U.S. Census, Morgan Stanley Commodity Research

Cumulative Thai Sugar Production (mln MT)

0

2

4

6

8

10

12

28 Nov 26 Dec 23 Jan 20 Feb 19 Mar 16 Apr 14 May

2008/09 2009/10 2010/11

2011/12 2012/13 2013/14 Source: Bloomberg, Morgan Stanley Commodity Research


99


Coffee

Global Prices ($/lb)


0

1

2

3

4

Jan 11 Jun 11 Nov 11 Apr 12 Sep 12Feb 13 Jul 13 Dec 13May 14 Oct 14

ICE Arabica Brazil (Arabica) Colombia (Arabica)

LIFFE Robusta Vietnam (Robusta)


-40

-20

0

20

40

60

80

Aug 13 Nov 13 Feb 14 May 14 Aug 14

Sep - Dec Dec - July Dec - Dec


Arabica vs. Robusta Spread ($/lb)

ICE Total Exchange Total Coffee Inventories (mln bags)

0.3

0.7

1.1

1.5

1.9

2.3

Jan 11 Jun 11Nov 11Apr 12Sep 12Feb 13 Jul 13 Dec 13May 14Oct 14


1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

Jan 11 Jun 11 Nov 11 Apr 12 Sep 12Feb 13 Jul 13 Dec 13May 14 Oct 14


Liffe Total Coffee Stock (‘000 MT)

Colombian Production (‘000 bags)

0

100

200

300

400

500

Jan 11 Jun 11 Nov 11 Apr 12 Sep 12 Feb 13 Jul 13 Dec 13 May 14 Source: Bloomberg, Morgan Stanley Commodity Research

0.3

0.6

0.9

1.2

1.5

1.8


5-Yr Range 2013 5-Yr Avg 2014

Source: Federacion de Cafeteros, Morgan Stanley Commodity Research


100


Livestock: Prices/Spreads

Prices (¢/lb)

Hog Production Margins ($/head)

20

70

120

170

220

270

Jan 09 Sep 09May 10 Jan 11 Sep 11May 12 Jan 13 Sep 13May 14

Live Cattle Feeder Cattle Lean Hog

Source: Bloomberg, CME, Morgan Stanley Commodity Research

-60

-40

-20

0

20

40

60

80

100

120


Forw ard Curve

Source: CME, Bloomberg, Morgan Stanley Commodity Research estimates

Select Boxed Beef Cutout Values ($/cwt)

Hog Cutout Values ($/cwt)

120

140

160

180

200

220

240

260

280

Jan Feb Apr Jun Aug Oct

5-Year Range 5-Year Average 2014 2013 Source: Bloomberg, USDA, Morgan Stanley Commodity Research

40

60

80

100

120

140

160



Choice Boxed Beef Cutout Values ($/cwt)

Boxed Pork Belly Prices ($/cwt)

120

140

160

180

200

220

240

260

280



40

80

120

160

200

240


5-Year Range 5-Year Average 2014 2013

Source: USDA, Bloomberg, Morgan Stanley Commodity Research


101


Livestock: Supply

Cattle Slaughter (‘000 head, 4wma)

Cattle Live Weights (Average live weights, lb)

400

475

550

625

700

775


5-year range 2014 2013 5-year average


1,180

1,230

1,280

1,330

1,380


10-year range 2014 2011 10-year average


Hogs Slaughter (mln head, 4wma)

Heifer Slaughter (% of total slaughter, 4wma)

1.6

1.8

2.0

2.2

2.4

2.6


5-year range 2014 2013 5-year average Source: USDA, Morgan Stanley Commodity Research

25%

26%

27%

28%

29%

30%

31%

32%

33%


5-year range 5-yr average 2014 2013 Source: USDA, Morgan Stanley Commodity Research

Hog Live Weights (lb, 4wma)

Cattle Feedlot Economics ($/head)

255

265

275

285

295


5-year range 2014 2013 5-year average Source: USDA, Morgan Stanley Commodity Research

-115

-110

-105

-100

-95

-90

-85

-80

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15



102


Metals Table of Contents

Gold 103

Supply / Demand 104

Prices 105

Aluminum 106

Supply / Demand 107

Prices 108

Copper 109

Supply / Demand 110

Prices 111

Nickel 112

Supply / Demand 113

Prices 114

Lead and Zinc 115

Zinc 116

Zinc Prices 117

Lead 118

Lead Prices 119

Iron Ore 120

Iron Ore Supply / Demand and Prices 121


103


Commodity Snapshot: Gold

Gold Investment Demand vs. Price

(Left axis: MT, right axis: USD/oz)

Official Gold World Holdings

(MT)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

2000 2002 2004 2006 2008 2010 2012 2014e 2016e 2018e

US

$/o

z

ton

ne

s

Medals/Imitation coins

Official Coin Sales

Bar Hoarding

Change in ETF Holdings

Implied investment

Gold Price (RHS)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000 Changes in Official Gold Holdings since 1Q 2011

Q1 2011 3Q14

tonnes

ETFs: -19%

Russia:+35%Turkey: +342%

Source: WGC, GFMS, Morgan Stanley Commodity Research estimates

Source: WGC, GFMS, Morgan Stanley Commodity Research

Known Gold ETF Holdings

(Left axis: ETF holdings, MT; right axis: price, USD/oz)

Gold vs. Brent Crude Oil

(Gold/Brent, bbl per oz)

$350

$550

$750

$950

$1,150

$1,350

$1,550

$1,750

$1,950

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US

$/o

z

ton

ne

s

Gold ETFs (LHS)

Gold Price (RHS)

5

10

15

20

25

30

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Gold/Brent Average-Long Run +1STDEV -1STDEV

Source: Bloomberg, Morgan Stanley Commodity Research Source: Bloomberg, Morgan Stanley Commodity Research

Supply-Demand Balance SUPPLY Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eTotal Mine Production tonnes 2,648 2,738 2,829 3,017 3,035 3,051 3,040 3,009 year-over-year chg % 2.6 3.4 3.3 6.6 0.6 0.5 -0.4 -1.0Scrap supply tonnes 1,605 1,580 1,390 1,320 1,200 1,125 1,025 990 year-over-year chg % -2.4 -1.6 -12.0 -5.0 -9.1 -6.3 -8.9 -3.4Official sector net sales/(purchases) tonnes -346 -139 -180 -100 -75 -25 15 75 year-over-year chg % -1503.5 -59.8 29.7 -44.5 -25.0 -66.7 -160.0 400.0Net producer hedging tonnes 12 -40 -50 70 90 125 180 220Total Supply % 3,919 4,139 3,989 4,307 4,250 4,276 4,260 4,294 year-over-year chg % -5.1 5.6 -3.6 8.0 -1.3 0.6 -0.4 0.8

DEMAND Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eJewelry tonnes 1,975 1,896 2,210 2,135 2,206 2,270 2,426 2,510 year-over-year chg % -2.2 -4.0 16.5 -3.4 3.3 2.9 6.9 3.5Electronics tonnes 320 285 282 285 295 305 320 320 year-over-year chg % -1.9 -11.1 -0.7 0.9 3.5 3.4 4.9 0.0Dental tonnes 53 39 37 55 55 55 55 55 year-over-year chg % 4.8 -26.5 -3.4 47.5 0.0 0.0 0.0 0.8Official Coins, Medals & Imitation coins tonnes 333 411 387 463 449 431 413 429 year-over-year chg % 10.5 23.3 -5.7 19.5 -3.0 -4.1 -4.0 3.8Total Fabrication Demand tonnes 2,681 2,630 2,916 2,938 3,005 3,060 3,214 3,315 year-over-year chg % -0.6 -1.9 10.9 0.7 2.3 1.8 5.0 3.1

Change in ETF Holdings tonnes 238 279 -881 -200 -150 -50 -50 -50Bar Hoarding tonnes 1,197 963 1,267 1,229 1,192 1,132 1,076 1,022Implied Investment/(Disinvestment) tonnes -197 268 686 340 203 133 20 7Total Investment Demand 1,238 1,509 1,072 1,369 1,245 1,216 1,046 979Investment as a % of Total Demand % 31.6 38.8 26.9 33.2 32.2 31.4 30.0 29.3Total Demand tonnes 3,919 4,139 3,989 4,307 4,250 4,276 4,260 4,294Gold Price US$/oz 1,546 1,669 1,411 1,273 1,180 1,165 1,150 1,200 Research e = Morgan Stanley Research estimates Source: WGC, GFMS, CRU, Morgan Stanley Commodity Research estimates

Investment Thesis

Beyond expectations of a stronger USD, rising real US interest rates and bond yields and a lack of inflationary pressure will also generate considerable headwinds for gold and the other precious metals. As a result we continue to forecast lower gold prices in the coming quarters.

Supply

The lower price environment will pose significant challenges for the gold miners, given the substantial rise in costs over the past decade. Indeed, we pin the current marginal cost of gold production at US$1,254/oz.

Demand

India and China’s robust growth in consumer demand will only benefit physical gold demand (jewellery, bars and coins). The sharp gold price correction in 2013 prompted a material increase in demand, and while that growth has slowed, these two countries will have a positive influence on global gold demand in the coming years, in our view.


104


Gold: Supply / Demand

Gold Investment Demand (Left axis: MT; right axis: price of gold, USD/oz)

Gold Fabrication Demand by End Market (Left axis: MT; right axis: price of gold, USD/oz)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

-600

-400

-200

0

200

400

600

800

1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14

US

$/o

z

ton

ne

s

Medals/ Imitation coins

Official Coin Sales

Physical Bar Demand

ETFs and similar

Gold Price (RHS)


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

0

200

400

600

800

1000

1200

1400

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US

$/o

z

ton

ne

s

Technology

Jewellery

Investment

Gold Price (RHS)


Gold Price vs. Real US 10Y Yield (Left axis: US$/oz; right axis: yield)

Gold Jewelry Demand Breakdown by Region (MT)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

2006 2007 2008 2009 2010 2011 2012 2013 2014

Re

al 1

0yr

Yie

ld

US

$/o

z

Gold Price (LHS)

Real US 10Y (RHS)

INVERTED SCALE


Global Mined Production by Geography (MT)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

ton

ne

s

Europe N America Latin America South Africa Australia China Russia Others

Source: CRU, Morgan Stanley Commodity Research estimates

0

500

1,000

1,500

2,000

2,500

3,000

2004 2006 2008 2010 2012 2014e 2016e 2018e

ton

ne

s g

old

E Asia India Middle East Europe N America Other Countries Source: WGC, GFMS, Morgan Stanley Commodity Research estimates

Global Supply – by Source (MT)

-1,000

0

1,000

2,000

3,000

4,000

5,000

2006 2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

ton

ne

s

Total Mine Supply Scrap supply Official sector net sales/(purchases) Net producer hedging

Source: WGC, GFMS, CRU, Morgan Stanley Commodity Research estimates


105


Gold: Prices

Gold Price in EUR (Left axis: price, USD/oz; right axis: EUR/oz)

Gold Price in AUD (Left axis: price, USD/oz; right axis: AUD/oz)

0

200

400

600

800

1,000

1,200

1,400

1,600

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14

USD EUR


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000


USD AUD


Gold Price in INR (Left axis: price, USD/oz; right axis: INR/oz)

Gold Net Producer Hedging vs. Price (Left axis: MT; right axis: USD/oz)

0

20,000

40,000

60,000

80,000

100,000

120,000

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000


USD INR


$-

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

(600)

(400)

(200)

-

200

400

600

1998 2000 2002 2004 2006 2008 2010 2012 2014e2016e

Net Producer Hedging - Supply/(Demand) (LHS) Gold Price (RHS)

Demand

Supply

Source: Bloomberg, Morgan Stanley Commodity Research estimates

YoY Change in Gold Price vs. GRDI (Left axis: YoY change, %; right axis: Global Risk Demand Index)

60

80

100

120

140

160

180

-40%

-20%

0%

20%

40%

60%

80%

2003 2005 2007 2009 2011 2013YoY % Change GRDI

Global Risk Demand Index – US Pat. No. 7,617,143 Source: Bloomberg, Morgan Stanley Commodity Research


106


Commodity Snapshot: Aluminum

Aluminum Demand by Region

(Global demand, MT/year)

Aluminum Production by Region

(Global supply, ‘000 MT/year)

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e 2018e

China BRI (Brazil, Russia, India) USA W Europe Japan ROW

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e 2018e

China Russia Europe USA CanadaBrazil Australia India Middle East ROW

Source: WBMS, Morgan Stanley Commodity Research estimates

Source: WBMS, Morgan Stanley Commodity Research estimates

China Trade Balance

(China net exports of primary aluminum, ‘000 MT)

Chinese Production vs. Price

(Left axis: China primary aluminum production: ‘ 000 MT; right axis: price, $/MT)

-1700

-1200

-700

-200

300

800

2000 2002 2004 2006 2008 2010 2012 2014YTD

Kt

Net Exports

Net Imports

0

500

1,000

1,500

2,000

2,500

3,000

3,500

0

500

1,000

1,500

2,000

2,500

2000 2002 2004 2006 2008 2010 2012 2014

Primary Prod, Kt (LHS) LME Al price, USD/t (RHS)



Supply-Demand Balance: Alumina SUPPLY Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eSmelter Grade Production Mt 91.7 96.2 100.4 105.4 112.4 118.5 125.3 132.8Chemical Grade Production Mt 6.5 6.5 6.9 7.2 7.8 8.2 8.5 8.8World Production Mt 98.2 102.6 107.3 112.6 120.1 126.6 133.8 141.6 year-over-year % 11.4 4.5 4.5 5.0 6.7 5.4 5.6 5.8

DEMAND Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eMetallurgical Consumption Mt 90.5 94.1 98.7 104.9 112.2 118.9 125.6 134.2 year-over-year % 8.8 4.0 4.8 6.3 7.0 6.0 5.6 6.9Apparent Surplus/(Deficit) Mt 1.24 2.03 1.73 0.50 0.17 -0.39 0.25 0.10Average Spot Price US$/t 361 319 329 325 368 372 374 394

Supply-Demand Balance: Aluminum SUPPLY Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eChina Primary Production Mt 19.6 22.3 24.9 27.6 30.0 32.0 34.3 37.3Non-China Primary Production Mt 26.6 25.8 25.6 26.2 27.5 29.0 30.3 31.7World Primary Production Mt 46.2 48.1 50.5 53.8 57.4 61.1 64.6 69.0 year-over-year % 11.2 4.3 4.8 6.6 6.7 6.3 5.7 6.9

DEMAND Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eChina Mt 19.5 21.5 23.9 26.2 28.6 31.0 33.7 36.6India Mt 1.6 1.7 1.7 1.8 1.8 1.9 2.1 2.2USA Mt 4.3 4.8 4.9 5.1 5.4 5.8 6.1 6.4Europe Mt 7.8 7.2 7.0 7.7 7.9 8.1 8.3 8.4Japan Mt 1.9 2.0 1.8 2.2 2.2 2.3 2.4 2.4ROW Mt 5.3 5.9 6.1 5.6 6.0 6.2 6.5 6.8World Primary Usage Mt 44.5 47.3 49.9 53.2 57.1 60.8 64.8 69.0 year-over-year % 10.8 6.3 5.5 6.6 7.4 6.4 6.6 6.6Primary Market Balance Mt 1.65 0.82 0.57 0.62 0.31 0.28 -0.23 -0.02Reported Stocks Mt 7.05 7.29 7.18 7.80 8.11 8.39 8.16 8.14Stock-to-Consumption Ratio Wks 8.24 8.01 7.48 7.63 7.39 7.17 6.55 6.13Average LME Cash Price US$/t 2,425 2,052 1,891 1,893 2,072 2,094 2,138 2,249Average LME Cash Price US$/lb 1.10 0.93 0.86 0.86 0.94 0.95 0.97 1.02

e = Morgan Stanley Research estimates Source: IAI, WBMS, CRU, Morgan Stanley Commodity Research estimates

Investment Thesis

Over the last year the all-in aluminium price has risen by ~20% on the back of solid demand growth, but more importantly as a result of producer discipline (outside of China). We believe the rise is sustainable and raise our price profile by an average of 8% over the next five quarters and expect the all-in price to average US$2,410/t in 2015.

Supply

In January-July, world ex-China smelter production was down 2%, with the cutbacks most prominent in Brazil and India on the back of power shortages and higher costs.

Given prices have held above the marginal cost of the smelting community (outside of China) since 1Q, it is likely that after three years of flat to negative net growth in primary production, smelting capacity could again start to rise. Meanwhile our channel checks in China suggest most capacity that was idled earlier in the year has returned.

Demand

Global demand growth has been driven by a strong US market as shown in semis import growth of 7% in 1H14 and a 20% decline in LME inventory in North America since March. In our view, the auto and construction sectors, which together account for 45% of aluminum demand, are the key factors behind the strength. The increased use of aluminium in Ford’s new F150 has been well documented as a boon for aluminium demand, but we’ve seen an increase in similar auto body changes among a number of other car makers.


107


Aluminum: Supply / Demand

China Aluminum Trade – Monthly (Left axis: primary production, ‘000 MT; right axis: net exports, ‘000 MT)

Chinese Alumina Imports as % of Apparent Consumption (Left axis: % of consumption; right: spot price, $/MT)

‐400

‐300

‐200

‐100

0

100

200

0

500

1,000

1,500

2,000

2,500

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

China Production(LHS) China Net Exports (RHS)


$100

$200

$300

$400

$500

$600

$700

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US

$/t

Alu

min

a im

po

rts a

s a

% o

f R

eq

uir

em

ent

Imports as % of apparent consumption (LHS)

Pacific spot alumina, US$/t (RHS)


Aluminum Exchange Inventory (‘000 MT)

Aluminum Stock-to-Consumption Ratio (Left axis: ‘000 MT; right axis: ex. days-of-consumption)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

LME Comex SHFE


0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0

500

1000

1500

2000

2500

3000

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014Total commercial stocks (LHS) Stock to consumption ratio (RHS)

Avg ratio


LME Aluminum Price vs. Marginal Cost (¢/lb)

Aluminum Production Growth (YoY change, %)

0

20

40

60

80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

1983 1988 1993 1998 2003 2008 2013

US

c/lb

US

c/lb

50th Percentile 60th Percentile


LME Cash Aluminium Price All-in Cost

90th Percentile

Source: Global Insight, Morgan Stanley Commodity Research

-20%

-10%

0%

10%

20%

30%

40%

2011 2012 2013 2014e 2015e 2016e

Pro

du

ctio

n C

hg

Yo

Y

China

USA

Middle East

India

Russia

Europe

Australia

Source: WBMS, Morgan Stanley Commodity Research


108


Aluminum: Prices

Aluminum Term Structure vs. Inventories (Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)

Aluminum Pinch Point (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, weeks)

-150

-100

-50

0

50

100

150

200

0 10 20 30 40 50 60

month-end data 10/31/2014

Backw ardation

Contango


11/30/2014

0

20

40

60

80

100

120

140

160

0.00 20.00 40.00 60.00 80.00 100.00


SHFE/LME Arbitrage vs. SHFE inventories (Left axis: arbitrage, ¢/lb; right axis: SFE stocks, ‘000 MT)

Copper to Aluminum Ratio ($/MT)

0

50

100

150

200

250

300

350

400

450

500

550

-50

-40

-30

-20

-10

0

10

20

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

Arbitrage, USD/lb (lhs) SFE Stocks, Kt (rhs)

Shanghai Premium

London Premium


-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1998 2000 2002 2004 2006 2008 2010 2012 2014

Copper / Aluminum Long-run-average Current Ratio


Spot Regional Premiums for Primary Aluminum ($/MT)

Spot Australian vs. Domestic Chinese Alumina Price ($/MT)

-50

50

150

250

350

450

550

-50

50

150

250

350

450

550

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US

$/t

US

$/t

Europe

USA

Japan

Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research

0

100

200

300

400

500

600

700

2007 2008 2009 2010 2011 2012 2013 2014

US

$/t

China domestic price Australian price (FOB)



109


Commodity Snapshot: Copper

Copper Demand by Region

(Global refined demand, MT/year)

Copper Production by Region

(Global concentrate production, ‘000 MT/year)

-

5,000

10,000

15,000

20,000

25,000

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

China USA Europe Japan Russia ROW

0

5,000

10,000

15,000

20,000

25,000

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

Africa China Australia USA Canada Mexico Chile Peru ROW

Source: WMBH, Morgan Stanley Commodity Research estimates

Source: WMBH, Morgan Stanley Commodity Research estimates

China Trade Balance

(‘000 MT)

Chinese Production vs. Price

(Left axis: ‘000 MT; right axis: US$/lb)

-4,000

-3,000

-2,000

-1,000

0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014YTD

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

0

100

200

300

400

500

600

700

800

2000 2002 2004 2006 2008 2010 2012 2014

China Refined Copper Production (LHS) LME Price, USD/lbs (RHS)

Source: Thomson Reuters, MS Commodity Research Source: Thomson Reuters, MS Commodity Research

Supply-Demand Balance: Concentrate Supply Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eConcentrates Mt 12.55 13.03 14.29 14.48 15.01 16.41 16.75 17.14SX/EW Mt 3.47 3.67 3.80 3.89 4.15 4.10 4.25 4.18Mine Production Mt 16.03 16.71 18.09 18.40 19.18 20.49 20.85 21.11 year-over-year % -0.1 4.2 8.3 1.7 4.2 6.8 1.8 1.3

Demand Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018ePrimary Mt 12.85 13.13 13.42 13.98 14.75 16.00 16.67 17.05Secondary Mt 3.12 3.46 3.47 3.78 4.02 3.95 4.18 4.00Total Smelter Production Mt 15.96 16.59 16.88 17.77 18.77 19.96 20.84 21.05 year-over-year % 2.1 3.9 1.7 5.2 5.6 6.3 4.5 1.0Impute d concentra te ba la nce Kt -301.4 -100.3 874.7 499.2 262.3 409.4 82.7 84.7

Supply-Demand Balance: Refined Market Supply Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eElectrowon Mt 3.47 3.67 3.80 3.89 4.15 4.10 4.25 4.18Primary Mt 12.69 12.88 13.32 13.84 14.38 15.60 16.33 16.71Secondary Mt 3.48 3.58 3.85 4.18 4.42 4.35 4.60 4.40Total Refinery Production % 19.65 20.13 20.97 21.92 22.95 24.05 25.18 25.29 year-over-year % 3.4 2.4 4.2 4.5 4.7 4.8 4.7 0.4

Demand Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eChina Mt 7.89 8.85 9.49 9.98 10.55 11.12 11.73 12.01Europe Mt 3.78 3.54 3.54 3.61 3.81 3.95 4.05 3.99USA Mt 1.76 1.76 1.82 1.89 1.93 2.01 2.05 2.01Japan Mt 1.00 0.98 0.99 1.05 1.09 1.11 1.13 1.09World Copper Usage Mt 19.83 20.39 21.25 21.91 23.12 24.17 25.20 25.51 year-over-year % 2.5% 2.8% 4.2% 3.1% 5.5% 4.6% 4.3% 1.2%

China usage growth % 6.7% 12.2% 7.3% 5.1% 5.7% 5.4% 5.5% 2.4%Refined Market Balance Mt -0.18 -0.26 -0.28 0.01 -0.17 -0.12 -0.02 -0.22Refined Stocks End of Period Kt 1,210 1,373 1,303 1,311 1,146 1,023 1,000 779Stock to Usage Rate Weeks 3.18 3.51 3.20 3.12 2.58 2.21 2.07 1.59LME Copper Price US$/lb 4.01 3.61 3.34 3.15 3.26 3.40 3.45 3.35

e = Morgan Stanley Research estimates Source: ICSG, Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research estimates

Investment Thesis

Despite shaving a bit off our expectations as a result of our downgrades to global growth, we’ve preserved our positive outlook and are expecting prices the remainder of the year to average US$3.20/lb (US$7,055/t) and US$3.26/lb (US$7,175/t) in 2015.

Supply

Despite the recent increase in TC/RC prices (a sign of greater concentrate availability), global mined output will disappoint vs early-year expectations on mine disruptions. Even though greater concentrate availability remains high, the lack of scrap in the market continues to eat away at metal availability for two key reasons: 1) some producers dependent on scrap use refined metal as a substitute; and 2) unrealised capacity constrains growth in refined output.

Demand

We’ve pulled back consumption expectations not only as a result of our broader global downgrade, but also because of some disappointing demand figures from the US as well as some key EM economies such as Brazil and India. We dropped our 2014/15 consumption growth estimates by an average of 1.1%, or around 250Kt.

We are concerned that China’s State Grid (accounting for ~45% of China’s copper consumption) is unlikely to meet the budget it had forecast at the start of the year. The YTD increase in investment is just 3% vs the projected 13%. Nevertheless despite the negativity around China’s growth prospects, China’s apparent consumption remains in positive territory, with export market strength a likely aid source.


110


Copper: Supply / Demand Global Production Balance vs. LME Price (Left axis: production less consumption, ‘000 MT; right axis: price, $/lb)

Chinese Copper Usage by Sector (% of total usage)

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

-250

-200

-150

-100

-50

0

50

100

150

200

250

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Production Less Consumption Price, $/lbs (RHS)

Surplus Production

Production Deficit


Pow er, 46%

Air-con and fridge, 15%

Transportation, 11%

Electronics, 8%

Construction, 9%

Others, 11%


Copper Exchange Inventory (‘000 MT)

Copper Stock-to-Consumption Ratio (Left axis: ‘000 MT; right axis: ex. days-of-consumption)

-

200

400

600

800

1,000

1,200

1,400

1994 1997 2000 2003 2006 2009 2012

LME Comex SHFE


0

10

20

30

40

50

60

70

0

200

400

600

800

1000

1200

1400

1600

1800

2000


Total commercial stocks (LHS) Stock to consumption ratio (RHS)

Kt Days


Est. Yield on US-based Copper Inventory Financing Deals (%)

LME Copper Price vs. Marginal Cost (Left axis: price, ¢/lb; right axis: marginal cost, $/MT)

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-20%

-15%

-10%

-5%

0%

5%

10%

15%


3-month 15-month 27-month

Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0

50

100

150

200

250

300

350

400

450

1982 1986 1990 1994 1998 2002 2006 2010 2014

US

$/t

US

c/lb

LME Cash Copper Price

50th Percentile

60th Percentile

70th Percentile

80th Percentile

90th Percentile



111


Copper: Prices

Copper Term Structure vs. Inventories (Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)

Copper Pinch Point (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, days)

-200

-100

0

100

200

300

400

500

600

0 5 10 15 20 25 30 35


Backw ardation

Contango


11/30/2014

0

50

100

150

200

250

300

350

400

450

500

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Price (USc/lb)

Stock to consumption ratio (days)


Spot Copper to Aluminum Ratio (Ratio)

China Imports vs. Price (Left axis: imports YoY change,%; right axis: LME price, $/MT)

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Copper to Aluminum Average


2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

-60%

0%

60%

120%

180%

240%

300%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

US

$/t

Yo

Y c

hg

YoY chg in China's copper imports (3mma) LME copper price (RHS)

Re-stocking


Spot Copper to Iron Ore Ratio (LME copper spot / China import iron ore refined 62% FE spot)

Brent to Copper Ratio (lbs per bbl)

-

20

40

60

80

100

120

2010 2011 2012 2013 2014

Copper / Iron Ore Long-run-average Current Ratio

Source: Wood Mackenzie, Bloomberg, Morgan Stanley Commodity Research

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1998 2000 2002 2004 2006 2008 2010 2012 2014

Brent / Copper Long-run-average Current Ratio



112


Commodity Snapshot: Nickel

Nickel Demand by Region

(‘000 MT)

Refined Nickel Production by Region

(‘000 MT)

-

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

China Nickel Pig Iron China Refined Canada Brazil Australia New Caledonia Japan Russia Europe

Source: INSG, Morgan Stanley Commodity Research estimates Source: INSG, Morgan Stanley Commodity Research estimates

China Monthly Nickel Ore Imports

(Left axis: China imports, ‘000 MT; right axis: LME price, $/lb)

Nickel Supply/Demand Balance

(Left axis: ‘000 MT; right axis: $/MT)

0.00

5.00

10.00

15.00

20.00

25.00

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2008 2009 2010 2011 2012 2013 2014

Indonesia

The Philippines

LME Price (RHS)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

-50

0

50

100

150

200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Rolling 12-month global market balance (LHS) LME price (RHS)

Source: Reuters, Morgan Stanley Commodity Research Source: INSG, Morgan Stanley Commodity Research

Supply-Demand Balance Supply Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eWorld mine production Kt 1,916 2,154 2,227 1,847 1,934 2,052 2,099 2,103 year-over-year % 21.4 12.4 3.4 -17.1 4.7 6.1 2.3 0.2

Refined ProductionChina Pig Iron Kt 267 307 472 454 233 200 185 185China Refined Nickel Kt 187 205 235 239 249 249 247 243Russia Kt 266 256 245 239 246 177 177 177Europe Kt 250 257 255 240 246 269 269 269Japan Kt 157 170 178 181 189 189 189 189Canada Kt 148 152 153 143 152 135 134 139Refined Prod (ex China NPI) Kt 1,346 1,444 1,470 1,515 1,604 1,647 1,654 1,672 year-over-year % 6.3 7.3 1.8 3.0 5.8 2.7 0.4 1.1

Demand Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018ePrimary Nickel in Stainless Kt 1,070 1,110 1,248 1,327 1,366 1,429 1,482 1,541Primary Nickel in Non-Stainless Kt 538 555 592 606 627 638 642 640Total world nickel usage Kt 1,608 1,659 1,770 1,934 1,993 2,067 2,125 2,181 year-over-year % 9.9 3.2 6.7 9.2 3.1 3.7 2.8 2.6

Refined Nickel Market Balance Kt 4.5 92.4 172.4 36.0 -114.2 -136.1 -15.1 70.0

Reported total commercial stocks Kt 191 238 411 447 333 197 181 251Reported stock to usage ratio Wks 6.16 7.47 12.07 12.02 8.68 4.94 4.44 5.99

US$/t 22,930 17,584 15,142 18,044 19,346 19,842 19,290 18,739US$/lb 10.40 7.98 6.87 8.18 8.78 9.00 8.75 8.50

Average LME Cash Nickel Price

e = Morgan Stanley Research estimates Source: Wood Mackenzie Brook Hunt, INSG, Morgan Stanley Commodity Research estimates

Investment Thesis

In the aftermath of the Qingdao port scandal, metal that was previously wrapped up in inventory financing deals began making its way out of China resulting in the rapid surge in LME inventories. We maintain our view that the Nickel market would enter into deficit in 2015 due to the Indonesian ban. Subsequently we keep our price profile unchanged.

Supply

Of the three most advanced Indonesian nickel pig iron (NPI) projects (Tsingshan, Indoferro and PT Modern Light with a combined capacity of ~46ktpa), the 30ktpa Tsingshan project is the most likely to progress to production within the next 12 months. We included Indonesian NPI for the first time in our last Playbook, though we now temper our expected ramp-up profile widening the supply gap which should be supportive of price over the short-term.

Demand

Key drivers of nickel demand have softened recently as the property and infrastructure investment in China has been lacklustre. However auto and white goods sales remain broadly well supported.


113


Nickel: Supply / Demand

LME Asia Nickel Stocks (‘000 MT)

China NPI Production vs. % Share of Global Production (Left axis: production, ‘000 MT; right axis: share of global production, %)

0

50

100

150

200

250

2008 2009 2010 2011 2012 2013 2014


0%

5%

10%

15%

20%

25%

30%

0

50

100

150

200

250

300

350

400

450

500

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e 2019e

China NPI production % share of global Production

Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research estimates

Nickel Exchange Inventory (‘000 MT)

Nickel Stock-to-Consumption Ratio (Left axis: ‘000 MT; right axis: ex. days-of-consumption)

-

50

100

150

200

250

300

350

400

450

1993 1996 1999 2002 2005 2008 2011 2014

LME


0

20

40

60

80

100

120

0

100

200

300

400

500

600

Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 Jan-14

Total Commerical Stocks Stock-to-Consumption Ratio Avg Ratio

D


Est. Yield on US-based Nickel Inventory Financing Deals (%)

LME Nickel Price vs. Marginal Cost ($/MT)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%




0

10,000

20,000

30,000

40,000

50,000

0.00

3.00

6.00

9.00

12.00

15.00

18.00

21.00

24.00


US

$/t

US

$/t



LME Cash Nickel Price 90th Percentile



114


Nickel: Prices

Nickel Term Structure vs. Inventories (Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)

Nickel Pinch Point (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, days)

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

0 20 40 60 80 100


Backw ardation

Contango


11/30/2014

0

500

1000

1500

2000

2500

2.0 22.0 42.0 62.0 82.0 102.0 122.0

Price (USc/lb)



China Laterite Ore Inventory vs. NPI Output (Left axis: inventory, mn MT; right axis: production, ‘000 MT)

Stainless Steel Production & Austenitic Ratio (Left axis: production, ‘000 MT; right axis: Austenitic ratio, %)

-5

0

5

10

15

20

25

30

35

40

45

50

0

2

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014

Laterite Ore Inventory (LHS)

NPI output, 3mma (RHS)

Source: INSG, Bloomberg, Morgan Stanley Commodity Research

66%

68%

70%

72%

74%

76%

78%

80%

82%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2000 2002 2004 2006 2008 2010 2012 2014e 2016e

Stainless Steel Melt Output (LHS) Austenitic Ratio (RHS)

Kt

Source: Wood Mackenzie Brook Hunt, Morgan Stanley Commodity Research estimates

Nickel and Stainless Steel price (Left axis: LME nickel, $/MT; right axis: China stainless steel, $/MT)

Nickel to Aluminum Ratio (LME spot nickel / LME spot aluminum)

1,500

2,500

3,500

4,500

5,500

0

10,000

20,000

30,000

40,000

50,000

60,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

LME Nickel Price (LHS) China Stainless Steel Price (RHS)

Source: ILZSG, Morgan Stanley Commodity Research

0

2

4

6

8

10

12

14

16

18

20

2007 2008 2009 2010 2011 2012 2013 2014

Nickel / Aluminum Long-run-average Current Ratio



115


Commodity Snapshot: Lead and Zinc

Lead Production by Region

(Global refined production, ‘000 MT/year)

Zinc Demand by Region

(Global demand, ‘000 MT/year)

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

China Australia Mexico Peru Europe N America ROW

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e


Source: ILZSG, Morgan Stanley Commodity Research estimates Source: ILZSG, Morgan Stanley Commodity Research estimates

Lead Monthly S/D Balance

(Left axis: ‘000 MT; right axis: YoY change %)

Zinc Monthly S/D Balance

(Left axis: ‘000 MT; right axis: YoY change %)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

(150)

(100)

(50)

-

50

100

150

2006 2007 2008 2009 2010 2011 2012 2013

Rolling 12-month balance (LHS) YoY chg in global consumption (RHS)

-30%

-20%

-10%

0%

10%

20%

30%

40%

(600)

(400)

(200)

-

200

400

600

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Rolling 12-month balance (LHS) YoY chg in global consumption (RHS)

Source: ILZSG, Morgan Stanley Commodity Research Source: ILZSG, Morgan Stanley Commodity Research

Supply-Demand Balance: Lead Supply Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eWorld mine production Kt 4,631 5,249 5,398 5,334 5,450 5,617 5,928 6,667 year-over-year % 12.1 13.3 2.8 -1.2 2.2 3.1 5.5 12.5

Refined ProductionPrimary Refined Production Kt 5,146 5,233 5,681 5,947 6,148 6,249 6,524 7,109Secondary Refined Production Kt 5,326 5,612 5,533 5,587 5,903 6,253 6,488 6,488Total Refined Availability Kt 10,472 10,845 11,213 11,418 12,051 12,377 13,012 13,598 year-over-year % 6.7 3.6 3.4 1.8 5.5 2.7 5.1 4.5

Demand Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eWorld Usage Kt 10,191 10,876 11,212 11,538 11,992 12,387 13,060 13,561 year-over-year % 8.5 6.7 3.1 2.9 3.9 3.3 5.4 3.8

Market balance Kt 281 -32 1 -119 59 -10 -48 36Reported total commercial stocks Kt 641 697 652 533 592 582 533 569Reported stock to usage ratio Wks 3.27 3.33 3.02 2.40 2.57 2.44 2.12 2.18Annual average LME cash prices US$/lb 1.09 0.94 0.98 0.96 1.00 1.06 1.07 1.06 Supply-Demand Balance: Zinc Supply Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eWorld mine production Mt 12.57 12.78 12.49 12.75 13.61 14.31 14.64 15.00 year-over-year % 1.7 1.7 -2.3 2.1 6.8 5.1 2.2 2.5

Refined ProductionPrimary Refined Production Mt 12.39 12.01 12.52 12.52 13.35 13.98 14.77 15.57Secondary Refined Production Mt 0.71 0.70 0.76 0.77 0.84 0.96 1.01 1.06Total Refined Availability Mt 13.10 12.71 13.28 13.29 14.19 14.93 15.78 16.63 year-over-year % 2.1 -3.0 4.5 0.1 6.8 5.2 5.7 5.4

Demand Unit 2011 2012 2013 2014e 2015e 2016e 2017e 2018eWorld Refined Usage Mt 12.74 12.46 13.70 14.03 15.02 15.44 16.04 17.07 year-over-year % 1.6 -2.2 10.0 2.4 7.1 2.8 3.9 6.5

Market balance Mt 0.36 0.25 -0.43 -0.74 -0.83 -0.51 -0.26 -0.44Reported commercial stocks Mt 1.18 1.53 1.17 1.40 0.57 0.06 -0.20 -0.64Stock to usage ratio Wks 4.83 6.39 4.45 5.19 1.96 0.20 -0.65 -1.95Annual average LME cash prices US$/lb 1.00 0.89 0.88 0.99 1.07 1.10 1.12 1.17 e = Morgan Stanley Research estimates Source: Wood Mackenzie Brook Hunt, ILZSG, Morgan Stanley Commodity Research estimates

Investment Thesis

Although growing environmental regulations in China have moderated the demand for lead, we expect slower medium-term mine supply growth to tighten global supply. We believe this outlook is yet to be factored into lead prices, and hence remain constructive in the near term. The zinc price rally has continued in 3Q, underpinned by robust consumer demand and growing Chinese refined imports. We see these factors continuing to drive the drawdown in warehouse inventory, resulting in a positive outlook for zinc.

Supply

Lower Chinese zinc production at a time of stronger demand growth is tightening global supply.

Despite some high-profile mine closures expected for this year (Brunswick, Perseverance) and the next few years (Century, Lisheen, Skorpion), global zinc mine production still expected to grow by 2% this year and 7% next year. However downside risks to production remain in the form of growth mainly expected to come from locations that are either risky in terms of geopolitics (Russia and Kazakhstan) or risky in terms of being new projects/expansions and thus subject to delays/ramp-up/technical issues.

Demand

Lead demand growth continues to suffer from an increasing number of Chinese cities restricting or banning e-bikes. The outlook has also deteriorated because of a gradual reduction in battery size on new e-bikes, and ever-improving battery quality and lives.

Zinc demand strength has been buoyed by autos and consumer goods. However, weakness in China's construction sector casts a shadow over the 2015 outlook. Chinese zinc demand has also been boosted by increased intensity in domestic automobile use to improve corrosion resistance.


116


Zinc

Global Zinc Slab Production and Consumption (‘000 MT)

Chinese Zinc Net Exports (‘000 MT)

700

800

900

1,000

1,100

1,200

1,300

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Consumption Production Source: Bloomberg, Morgan Stanley Commodity Research

-700

-200

300

800

2000 2002 2004 2006 2008 2010 2012 2014

Net Exports

Net Imports


Zinc Exchange Inventory (‘000 MT)

Zinc Stock-to-Consumption Ratio (Left axis: ‘000 MT; right axis: ex. days-of-consumption)

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

LME Comex SHFE Source: Bloomberg, Morgan Stanley Commodity Research

0

10

20

30

40

50

60

70

80

90

0

100

200

300

400

500

600

700

800

Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Total commercial stocks (LHS) Stock to consumption ratio (RHS) Avg ratio

Kt Days


Est. Yield on US-based Zinc Inventory Financing Deals (Yield, %)

LME Zinc Price vs. Marginal Cost (Left axis: marginal cost, ¢/lb; right axis: LME price, $/MT)

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%




0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

0

45

90

135

180

225

1981 1985 1989 1993 1997 2001 2005 2009 2013

US

$/t

US

c/lb



LME Cash Zinc Price 90th Percentile



117


Zinc: Prices

Zinc Term Structure vs. Inventories (Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)

Zinc Pinch Point (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, days)

-100

-50

0

50

100

150

200

250

300

350

400

450

0 10 20 30 40 50


Backw ardation

Contango


11/30/2014

20

40

60

80

100

120

140

160

180

200

220

0.0 20.0 40.0 60.0 80.0 100.0

Price (USc/lb)



SHFE/LME Arbitrage vs SHFE inventories (Left axis: arbitrage, US cents/lb; right axis: SFE stocks, ‘000 MT)

Zinc Commercial Stocks vs. Price (Left axis: MT; right axis: $/MT)

0

50

100

150

200

250

300

350

400

450

-200

-150

-100

-50

0

50

100

150

200

250

2007

2008

2008

2009

2009

2010

2010

2011

2011

2012

2012

2013

2013

2014

2014

Arbitrage, USc/lb (lhs) SFE Stocks, Kt (rhs)

Shanghai Premium

London Premium


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

0

100

200

300

400

500

600

Jul-97 Jul-99 Jul-01 Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13

Total commercial stocks (LHS) Price (RHS)

Source: Bloomberg, ILZSG, Morgan Stanley Commodity Research

Zinc to Iron Ore Ratio (LME zinc / iron ore spot price index)

Nickel to Zinc Ratio (Left axis: LME nickel / LME zinc)

-

5

10

15

20

25

30

35

2010 2011 2012 2013 2014

Zinc / Iron Ore Long-run-average Current Ratio


-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

1998 2000 2002 2004 2006 2008 2010 2012 2014

Nickel / Zinc Long-run-average Current Ratio



118


Lead

Global Lead Slab Production and Consumption (‘000 MT)

YoY Change in Lead Regional Demand (‘000 MT)

500

550

600

650

700

750

800

850

900

950

1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Consumption Production


(100)

-

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014e 2015e 2016e 2017e 2018e

China W Europe USA Brazil India ROW

Source: ILZSG, Morgan Stanley Commodity Research estimates

Lead Exchange Inventory (‘000 MT)

Lead Stock-to-Consumption Ratio (Left axis: ‘000 MT; right axis: ex. days-of-consumption)

-

50

100

150

200

250

300

350

400

450

500

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

LME Comex SHFE Source: Bloomberg, Morgan Stanley Commodity Research

0

5

10

15

20

25

30

35

40

45

0

100

200

300

400

500

600

700

800

900

Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

Total commercial stocks (LHS) Stock to consumpt ion ratio (RHS) Avg ratio

Kt Days


Est. Yield on US-based Lead Inventory Financing Deals (Yield, %)

Chinese Lead Net Exports (‘000 MT)

-50.0%

0.0%

50.0%

100.0%

150.0%

200.0%

2007 2008 2009 2010 2011 2012

Cash to 3-month Cash to 15-month Cash to 27-month Source: WBMS, Thomson Reuters, Morgan Stanley Commodity Research

-200

-100

0

100

200

300

400

500

600

2000 2002 2004 2006 2008 2010 2012 2014

Net Exports

Net Imports



119


Lead: Prices

Lead Term Structure vs. Inventories (Vertical axis: 1st mnth – 12th mnth; horizontal axis: ex. days-of-consumption)

Lead Pinch Point (Vertical axis: LME price, ¢/lb; horizontal axis: world days-of-consumption, days)

-100

-50

0

50

100

150

200

0 5 10 15 20


Backw ardation

Contango


11/30/2014

0

20

40

60

80

100

120

140

160

180

0 10 20 30 40 50

Price (USc/lb)



Global Refined Production Balance vs. Price (Left axis: production less consumption, ‘000 MT; right axis: LME price, $/lb)

Lead Commercial Stocks vs. Price (Left axis: MT; right axis: $/MT)

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

-70

-50

-30

-10

10

30

50

70

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Production Less Consumption Price, $/lbs (RHS)

Surplus Production

Production Deficit


$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

0

100

200

300

400

500

600

700

800

900

Aug-97 Aug-99 Aug-01 Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

Total commercial stocks (LHS) Price (RHS)

Source: Bloomberg, ILZSG, Morgan Stanley Commodity Research

Lead to Iron Ore Ratio (LME lead / iron ore spot price index)

Lead to Zinc Ratio (LME lead/ LME nickel)

-

5

10

15

20

25

30

35

2010 2011 2012 2013 2014

Lead / Iron Ore Long-run-average Current Ratio


-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1998 2000 2002 2004 2006 2008 2010 2012 2014

Lead / Zinc Long-run-average Current Ratio



120


Commodity Snapshot: Iron Ore

Global Seaborne Iron Ore Supply

(mln MT)

Global Seaborne Iron Ore Demand

(mln MT)

0

200

400

600

800

1000

1200

1400

1600

1800

2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

mill

ion

to

nn

es

ROWOther BrazilIndiaOther AustraliaFortescue Metals Group

ValeBHP BillitonRio Tinto (Australia)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2010 2011 2012 2013 2014e 2015e 2016e 2017e 2018e

milli

on

tonn

es

Japan

South Korea

Taiwan

Western Europe

Other Asia

ROW

China

Source: WSA, UNCTAD, Tex Report, Wood Mackenzie, Morgan Stanley Commodity Research estimates


Seaborne Market Balance vs. Price

(Left axis: mln MT, right axis: $/MT)

Global Crude Steel Production

(mln MT)

$ -

$ 20

$ 40

$ 60

$ 80

$ 100

$ 120

$ 140

$ 160

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

1,700

2012 2013 2014e 2015e 2016e 2017e 2018e

mill

ion

ton

ne

s

Seaborne Supply

Seaborne Demand

Seaborne Price (RHS)

-400

100

600

1100

1600

2100

2600

2013 2014e 2015e 2016e 2017e 2018e

mill

ion

to

nn

es

Others Japan North America European Union (27) China



Supply-Demand Balance Million Me tric Tonne s 2 0 11 2 0 12 2 0 13 2 0 14 e 2 0 15 e 2 016 e 2 0 17 e 2 018 e

China Ste e l P roduc tion 6 8 4 7 3 0 7 7 9 8 08 8 19 8 30 8 4 1 85 3

China Annual % Change 9.1% 6.7% 6.6% 3.7% 1.4% 1.3% 1.3% 1.4%

Tota l World S te e l Produc tion 1,5 10 1,5 50 1,6 0 2 1,6 46 1,6 8 4 1,72 1 1,7 5 5 1,7 8 3

Total Annual % Change 6.4% 2.6% 3.3% 2.7% 2.3% 2.2% 2.0% 1.6%

Apparent/derived demand for iron ore 1,749 1,818 1,901 1,977 2,048 2,118 2,185 2,185

Se a borne Iron Ore Dema nd

China 692 754 830 935 971 992 1,071 1,108

Japan 128 131 136 139 138 136 132 130

South Korea 65 66 63 66 68 70 72 74

Taiwan 21 18 22 23 23 24 24 25

Other Asia 13 13 15 16 16 17 19 21

Western Europe 130 125 133 134 137 141 144 147

ROW 18 18 15 16 18 19 21 23

Tota l Se a borne De mand 1,111 1,17 3 1,2 6 4 1,3 80 1,4 2 7 1,45 8 1,5 4 7 1,5 9 4

Annual % Change 6.8% 5.5% 7.8% 9.2% 3.4% 2.2% 6.1% 3.0%

Iron Ore Supply (6 2 % e quiva le nt)

China (Adjusted to Fe 62% Equivalent) 355 347 350 275 256 252 190 170

Se a borne Supply

Rio Tinto (Australia) 229 235 250 274 325 346 362 370

BHP Billiton 174 187 216 248 253 258 268 280

Fortescue Metals Group 46 64 96 152 159 159 159 159

Other Australia 32 48 68 75 71 89 93 94

Vale 272 269 248 287 298 296 338 388

Other Brazil 67 64 63 61 80 96 114 126

India 77 47 10 18 2 0 0 0

ROW 201 220 283 264 205 183 209 188

Tota l Se a borne Iron Ore Supply 1,0 9 8 1,13 3 1,2 3 3 1,3 80 1,4 2 5 1,45 2 1,5 4 0 1,5 9 3

Annual % Change 6.5% 3.2% 8.8% 11.9% 3.3% 1.9% 6.0% 3.4%

Appa rent Se a borne Ma rke t Ba la nce - 13 - 3 9 - 3 0 0 - 2 - 6 - 7 - 1

Annua l Ave ra ge Price s (JFY a nnua l ne gotia te d FOB pric e prior to 2 0 10 )

Iron Ore Fine s 6 2 % Fe , CFR N China $ 16 8 $ 12 8 $ 13 5 $ 100 $ 8 7 $ 87 $ 8 5 $8 5 Source: WSA, UNCTAD, Tex Report, Wood Mackenzie, Morgan Stanley Commodity Research estimates

Investment Thesis

Given the relentless price decline below US$80/t at the end of 3Q, we now cut our 4Q expectation to US$85/t 62% equivalent CFR China delivery, which still signals our belief that the dip into the mid-US$70s was an overshoot. Our economic team’s lower Chinese and global growth estimates, published on Sept 7, also prompted us to temper our demand outlook and thus our 2015 iron ore price forecast to US$87/t.

Supply

While the slowdown in China’s apparent steel demand has weighed on sentiment, strong supply growth has been the primary driver of the steady decline. Our call for the iron ore price to return to the upper US$80s/t is founded on our expectations the new low-cost supply will displace high-cost output. At the end of 3Q, we think over 20% of global seaborne market producers (including Chinese domestic production) were operating at a loss. Among seaborne suppliers we did not expect any major curtailments until 2015, but we’ve tracked 20Mt capacity cuts so far this year. In China, we estimate producers have cut at least 15Mt of capacity (62% equivalent) through August.

Demand

China’s property sales have yet to find a bottom amid continued tightness in credit growth; sales volume is likely to post negative YoY growth in 2014 (though coming from a high base after 2013’s sales boom). As our China property team maintains new supply will continue to undermine pricing and thus sales, construction activity will likely remain weaker for longer than we had expected in our last quarterly review.

Chinese as well as global steel production typically wanes in 3Q, and recovers into 4Q. So far this year, it has followed the script and we see no reason to forecast otherwise. We also think China’s property market will eventually recover as Beijing continues to aim targeted easing at the sector.


121


Iron Ore: Supply / Demand and Prices

Spot Iron Ore vs. China Rebar and Steel Billet Spot Prices (Left axis: USD/MT, right axis: RMB/t)

China's Inventory at Small & Medium-Sized Steel Mills (Left axis: ‘000 MT, right axis: days of inventory)

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

$55

$75

$95

$115

$135

$155

$175

$195

2009 2010 2011 2012 2013 2014

RM

B/t

US

$/t

Iron Ore Spot (LHS)

China Domestic Rebar (RHS)

Tangshan Billet (RHS)


0

10

20

30

40

50

60

0

100

200

300

400

500

600

700

Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14

Day

s

000

ton

ne

sImported iron o re (LHS) Domestic i ron ore (LHS) Days of Inventory (RHS )

Source: CISA, Morgan Stanley Commodity Research

China’s Crude Steel Production vs. Iron Ore Dependency (Left axis: mMT, right axis: share, %)

China's Inventory at Ports and Stock-to-Consumption Ratio (Left axis: mln MT, right axis: stock-to-consumption ratio)

30%

40%

50%

60%

70%

80%

90%

100%

25

30

35

40

45

50

55

60

65

70

75

2006 2007 2008 2009 2010 2011 2012 2013 2014

sh

are

of r

equ

irem

ent i

mpo

rted

mill

ion

ton

nes

China 's Crude Steel Output (LHS)

China 's Ir on Ore Dependency (RHS)

6 per. Mov. A vg. (China's Ir on Ore Dependency (RHS) )


15

20

25

30

35

40

0

10

20

30

40

50

60

70

80

90

100

110

120

2010 2011 2012 2013 2014

Day

s

mill

ion

ton

nes

Chinese Iron Ore Port S tocks Days o f Inventory (RHS )


China Iron ore Imports by Source (Left axis: %)

China Steel Producers GP vs. RM Cost (Left axis: Gross Profit RMB/t, right axis: Spot Price RMB/t)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014

Austral ia Brazil Other Ind ia


0

1,000

2,000

3,000

4,000

5,000

6,000

-400

-200

0

200

400

600

800

1,000

1,200

2006 2007 2008 2009 2010 2011 2012 2013 2014

Sp

ot P

rice

, RM

B/t

Gro

os

Pro

fit,

RM

B/t

Gross Profi t Rebar (RHS) Total Cost (RHS)



122


Iron Ore: Supply / Demand and Prices (cont.)

Avg Inventory Days at Mills & Traders vs. Steel Inventory Cover Ratio (Left axis: mMT, right axis: steel inventory cover ratio)

Iron Ore Price vs. China and Seaborne Mined Marginal Cost ($/MT, CFR 62% Fe equivalent)

1.0

1.2

1.4

1.6

1.8

2.0

2.2

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014

Rati

o

millio

n to

nnes

Producers

Traders

Steel Inv entory Cover Ratio (RHS )

Source: MySteel, CEIC, Morgan Stanley Commodity Research

$40

$60

$80

$100

$120

$140

$160

$180

$200

$40

$60

$80

$100

$120

$140

$160

$180

$200

2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

US

$/t

cfr

Ch

ina

62%

Fe

Eq

uiv

US

$/t

cfr

Ch

ina

62%

Fe

Eq

uiv

Iron Ore Price China Marginal Cost Seaborne Marginal Cost


Global Seaborne Iron Ore Plus China Domestic Costs (Vertical axis: $/MT, CFR 62% Fe equivalent; horizontal axis: mln MT)

MS China Steel Consumption Index vs. Apparent Consumption(YoY, %)

0

20

40

60

80

100

120

140

160

0 200 400 600 800 1000 1200 1400 1600

Australia Brazil China RoW

Source: CRU, Morgan Stanley Commodity Research

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

-20%

-10%

0%

10%

20%

30%

40%

50%

2007 2008 2009 2010 2011 2012 2013 2014

Steel - apparent consumption Steel Consumption Index (3MMA)



123


Global Commodities Strategy Team Commodities Strategist1 Adam Longson, CFA, CPA, Executive Director [email protected] +1 212 761 6005 Commodity Strategist1 Stefan Revielle, Vice President [email protected] +1 212 761 6005 Commodity Strategist1 Bennett Meier, Associate [email protected] +1 212 761 4967 Commodity Strategist1 Elizabeth Volynsky, Associate [email protected] +1 212 761 7201 Commodity Strategist1 Lee Jackson, Associate [email protected] +1 212 761 3585 Commodities Strategist2 Tom Price, Executive Director [email protected] +44 20 7425-4655 Commodities Strategist3 Joel B Crane, Vice President [email protected] +61 3 9256 8961 1 Morgan Stanley & Co. LLC 2 Morgan Stanley & Co. International plc 3 Morgan Stanley Australia Limited


124


Disclosure Section The information and opinions in Morgan Stanley Research were prepared by Morgan Stanley & Co. LLC, and/or Morgan Stanley C.T.V.M. S.A., and/or Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., and/or Morgan Stanley Canada Limited. As used in this disclosure section, "Morgan Stanley" includes Morgan Stanley & Co. LLC, Morgan Stanley C.T.V.M. S.A., Morgan Stanley Mexico, Casa de Bolsa, S.A. de C.V., Morgan Stanley Canada Limited and their affiliates as necessary. For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures, or contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY, 10036 USA. For valuation methodology and risks associated with any price targets referenced in this research report, please contact the Client Support Team as follows: US/Canada +1 800 303-2495; Hong Kong +852 2848-5999; Latin America +1 718 754-5444 (U.S.); London +44 (0)20-7425-8169; Singapore +65 6834-6860; Sydney +61 (0)2-9770-1505; Tokyo +81 (0)3-6836-9000. Alternatively you may contact your investment representative or Morgan Stanley Research at 1585 Broadway, (Attention: Research Management), New York, NY 10036 USA.

Global Research Conflict Management Policy Morgan Stanley Research has been published in accordance with our conflict management policy, which is available at www.morganstanley.com/institutional/research/conflictpolicies.

Important Disclosures Morgan Stanley is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Morgan Stanley Research does not provide individually tailored investment advice. Morgan Stanley Research has been prepared without regard to the circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of an investment or strategy will depend on an investor's circumstances and objectives. The securities, instruments, or strategies discussed in Morgan Stanley Research may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Morgan Stanley Research is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. The value of and income from your investments may vary because of changes in interest rates, foreign exchange rates, default rates, prepayment rates, securities/instruments prices, market indexes, operational or financial conditions of companies or other factors. There may be time limitations on the exercise of options or other rights in securities/instruments transactions. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is that of the primary exchange for the subject company's securities/instruments. The fixed income research analysts, strategists or economists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues), client feedback and competitive factors. Fixed Income Research analysts', strategists' or economists' compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks. With the exception of information regarding Morgan Stanley, Morgan Stanley Research is based on public information. Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. We have no obligation to tell you when opinions or information in Morgan Stanley Research change apart from when we intend to discontinue equity research coverage of a subject company. Facts and views presented in Morgan Stanley Research have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel. Morgan Stanley may make investment decisions or take proprietary positions that are inconsistent with the recommendations or views in this report. To our readers in Taiwan: Information on securities/instruments that trade in Taiwan is distributed by Morgan Stanley Taiwan Limited ("MSTL"). Such information is for your reference only. The reader should independently evaluate the investment risks and is solely responsible for their investment decisions. Morgan Stanley Research may not be distributed to the public media or quoted or used by the public media without the express written consent of Morgan Stanley. Information on securities/instruments that do not trade in Taiwan is for informational purposes only and is not to be construed as a recommendation or a solicitation to trade in such securities/instruments. MSTL may not execute transactions for clients in these securities/instruments. To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Asia Limited as part of its regulated activities in Hong Kong. If you have any queries concerning Morgan Stanley Research, please contact our Hong Kong sales representatives. Morgan Stanley is not incorporated under PRC law and the research in relation to this report is conducted outside the PRC. Morgan Stanley Research does not constitute an offer to sell or the solicitation of an offer to buy any securities in the PRC. PRC investors shall have the relevant qualifications to invest in such securities and shall be responsible for obtaining all relevant approvals, licenses, verifications and/or registrations from the relevant governmental authorities themselves. Morgan Stanley Research is disseminated in Brazil by Morgan Stanley C.T.V.M. S.A.; in Japan by Morgan Stanley MUFG Securities Co., Ltd. and, for Commodities related research reports only, Morgan Stanley Capital Group Japan Co., Ltd; in Hong Kong by Morgan Stanley Asia Limited (which accepts responsibility for its contents) and by Bank Morgan Stanley AG, Hong Kong Branch; in Singapore by Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H), regulated by the Monetary Authority of Singapore (which accepts legal responsibility for its contents and should be contacted with respect to any matters arising from, or in connection with, Morgan Stanley Research) and by Bank Morgan Stanley AG, Singapore Branch (Registration number T11FC0207F); in Australia to "wholesale clients" within the meaning of the Australian Corporations Act by Morgan Stanley Australia Limited A.B.N. 67 003 734 576, holder of Australian financial services license No. 233742, which accepts responsibility for its contents; in Australia to "wholesale clients" and "retail clients" within the meaning of the Australian Corporations Act by Morgan Stanley Wealth Management Australia Pty Ltd (A.B.N. 19 009 145 555, holder of Australian financial services license No. 240813, which accepts responsibility for its contents; in Korea by Morgan Stanley & Co International plc, Seoul Branch; in India by Morgan Stanley India Company Private Limited; in Vietnam this report is issued by Morgan Stanley Singapore Holdings; in Canada by Morgan Stanley Canada Limited, which has approved of and takes responsibility for its contents in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main and Morgan Stanley Private Wealth Management Limited, Niederlassung Deutschland, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that Morgan Stanley Research has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. LLC, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized by the Prudential Regulatory Authority and regulated by the Financial Conduct Authority and the Prudential Regulatory Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates. Morgan Stanley Private Wealth Management Limited, authorized and regulated by the Financial Conduct Authority, also disseminates Morgan Stanley Research in the UK. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International plc or Morgan Stanley Private Wealth Management representative about the investments concerned. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited. The trademarks and service marks contained in Morgan Stanley Research are the property of their respective owners. Third-party data providers make no warranties or representations relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley Research or portions of it may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services Authority (the DFSA), and is directed at Professional Clients only, as defined by the DFSA. The financial products or financial services to which this research relates will only be made available to a customer who we are satisfied meets the regulatory criteria to be a Professional Client.


125


The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by the QFCRA. As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided exclusively to persons based on their risk and income preferences by the authorized firms. Comments and recommendations stated here are general in nature. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.


The Americas

1585 Broadway

New York, NY 10036-8293

United States

Tel: +1 (1)212 761 4000

Europe

20 Bank Street, Canary Wharf

London E14 4AD

United Kingdom

Tel: +44 (0) 20 7 425 8000

Japan

4-20-3 Ebisu, Shibuya-ku

Tokyo 150-6008

Japan

Tel: +81 (0)3 5424 5000

Asia/Pacific

1 Austin Road West

Kowloon

Hong Kong

Tel: +852 2848 5200

© 2014 Morgan Stanley

Fuller Treacy Money · MORGAN STANLEY RESEARCH Region December 22, 2014 The Commodity Manual Gas...

Documents

Transcript of Fuller Treacy Money · MORGAN STANLEY RESEARCH Region December 22, 2014 The Commodity Manual Gas...