Commodities: Still (Largely) A China Story

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COMMODITIES: STILL (LARGELY) A CHINA STORYBUT BEWARE UNRESTRAINED OPTIMISMCLYDE RUSSELLREUTERS8 NOVERMBER 2017(Clyde Russell is a Reuters market analyst. The views expressed are his own)

WHAT WE KNOW China demand driving commodities priceshigher in 2017 China growth is solid, surprised to the upside China aims to close excess capacity Steel, aluminium, cement, ship-buildingtargets Commodity import volumes still robust, moredifferentiated

WHAT WE DON’T KNOW Can China keep economic growth robust? Will China avoid hard landing (credit crisis,currency depreciation, capital outflows)? Will China be able to restructure heavyindustries? Will China continue to stimulate construction,will it enforce coal, steel policies?

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CHINA NICKEL IMPORTS TREND UPImports of nickel ores and concentrates vs. LME 3-month nickelChina Nickel imports (mln/T)LME Nickel ( Source: Thomson Reuters Eikon531-Mar-1631-May-16Reuters graphic/Clyde Russell -1731-May-1731-Jul-1730-Sep-17

COPPER RALLIES WITH CHINA PMINBS PMI vs LME 3-month copperLME Copper ( /tonne)11561095485275064854631-Jan-10 31-Jul-10 31-Jan-11 31-Jul-11 31-Jan-12 31-Jul-12 31-Jan-13 31-Jul-13 31-Jan-14 31-Jul-14 31-Jan-15 31-Jul-15 31-Jan-16 31-Jul-16 31-Jan-17 31-Jul-17Source: Thomson Reuters EikonReuters graphic/Clyde Russell 07/11/176Thomson Reuters PowerPoint Template Quick Reference Guide4ThousandsChina PMI58

CHINA'S STRONG IRON ORE IMPORTSSeaborne vessel-tracking iron ore imports vs. SGX iron ore contractChina imports (mln/T)100Price ( ote: November iron ore price is average to dateSource: Thomson Reuters Eikon7Reuters graphic/Clyde Russell -1731-Aug-1731-Oct-17

CHINA'S LNG IMPORTS TREND HIGHERChina LNG imports vs. spot Asian priceMillionsLNG imports (mln/T)Spot LNG price ( /mmBtu)41093.58372.562541.53120.5031-Jan-15Source: Thomson Reuters Eikon81030-Apr-1531-Jul-15Reuters graphic/Clyde Russell -1631-Jan-1730-Apr-1731-Jul-17

CHINA CRUDE OIL IMPORTSChina crude oil imports vs. Brent priceChina crude imports (mln/T)Brent price ( /bbl)70605040302010031-Jan-17Source: Thomson Reuters Eikon928-Feb-17Reuters graphic/Clyde Russell -1731-Aug-1730-Sep-17

GLOBAL COAL TRADE FLATLININGTotal seaborne coal flows vs. Newcastle IndexWorld Coal Flows (mln/tonnes)120Newcastle price ( /tonne)10080604020030-Apr-16Source: Thomson Reuters Eikon1030-Jun-16Reuters graphic/Clyde Russell -1730-Jun-1731-Aug-17

ELECTRIC CARS BOOST COBALTSales of plug-in cars vs. LME cobaltLME cobalt ( 17Source: Thomson Reuters Eikon, EVvolumes.com1131-Mar-17Reuters graphic/Clyde Russell -1730-Sep-1731-Oct-17ThousandsElectric vehicle sales ('000s)140

Air pollution: Delhi vs BeijingDelhi has been struggling with its worst pollution in 17 years. Levels of PM 2.5, tiny particulatematter that reaches deep into the lungs, rose to over 30 times the World Health Organization’smean guideline of 25 micrograms per cubic meter on average over a 24-hour period.SEASONAL CYCLES30-day rolling average - PM2.5 concentration inmicrograms per cubic metre12

THE TRUMP FACTOR Trump’s policies still a work in progress Investors have priced for “good” Trump, butso far we’ve only seen “bad” Trump Is there a genuine risk of a trade war withChina, others? How will commodities perform in such anenvironment of uncertainty?

WHAT’S HOT, OR RISKY Battery metals are most promising But are extremely hard to invest in Pricing looks to be running ahead of demand Especially in nickel, cobalt Gold depends on your view of the world Long-term trends still very positive Consumer commodities most constructive

CONCLUSIONS China still drives many commodities But supply-constrained commodities likely tooutperform With China and Trump, actions speak louderthan words. But words matter too for sentiment What China gives, China can take away

“They suck the bloodout of us, and we owethem money.”― Donald Trump

China still drives many commodities But supply-constrained commodities likely to outperform With China and Trump, actions speak louder than words. But words matter too for sentiment What China gives, China can take away "They suck the blood out of us, and we owe