Commodities Research
Deutsche Bank@
Global Markets Research
September 2008
A User Guide To Commodities
Table of Contents
Introduction .................. 3
Energy .......................... 4
Precious Metals.......... 36
Industrial Metals......... 47
Minor Metals .............. 67
Mineral Sands............. 83
Rare Earth Metals....... 85
Agriculture .................. 87
Livestock .................. 110
Exchanges ................ 115
Conversion Factors... 118
London
Michael Lewis
44 20 7545 2166
Hong Kong
Amanda Lee, CFA
852 2203 8376
New York
Joel Crane
1 212 250 5353
Washington
Adam Sieminski, CFA
1 202 662 1624
Paris
Mark Lewis
33 1 4495 6761
Isabelle Curien
33 1 4495 6616
Deutsche Bank AG/London
David Folkerts-Landau
Managing Director
Global Head of Research
All prices are those current at the end of the previous trading session unless otherwise
indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other
vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does
and seeks to do business with companies covered in its research reports. Thus, investors
should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in
making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1
September 2008
A User Guide To Commodities
Table of Contents
Introduction........................................................................................................................................... 3
Energy .................................................................................................................................................... 4
Crude Oil ................................................................................................................................................. 5
Oil Products ............................................................................................................................................ 8
Refining................................................................................................................................................. 11
Coal-to-Liquids & Gas-to-Liquids ........................................................................................................... 14
Oil Sands............................................................................................................................................... 15
Oil Transportation.................................................................................................................................. 17
US Natural Gas...................................................................................................................................... 19
Liquefied Natural Gas ........................................................................................................................... 21
US Power.............................................................................................................................................. 22
Thermal Coal ......................................................................................................................................... 24
Uranium ................................................................................................................................................ 26
Ethanol .................................................................................................................................................. 28
CO2 Emissions ..................................................................................................................................... 30
Renewable Energy................................................................................................................................ 34
Precious Metals................................................................................................................................... 36
Gold....................................................................................................................................................... 37
Silver ..................................................................................................................................................... 39
Platinum ................................................................................................................................................ 41
Palladium............................................................................................................................................... 43
Rhodium................................................................................................................................................ 45
Other Platinum Group Metals: Ruthenium, Iridium & Osmium ............................................................ 46
Industrial Metals & Bulk Commodities............................................................................................. 47
Aluminium............................................................................................................................................. 48
Copper .................................................................................................................................................. 51
Lead ...................................................................................................................................................... 53
Nickel .................................................................................................................................................... 55
Tin ......................................................................................................................................................... 57
Zinc ....................................................................................................................................................... 59
Iron Ore................................................................................................................................................. 61
Ferro-Chrome........................................................................................................................................ 63
Metallurgical Coal.................................................................................................................................. 64
Steel...................................................................................................................................................... 65
Minor Metals ....................................................................................................................................... 67
Cobalt.................................................................................................................................................... 68
Gallium .................................................................................................................................................. 70
Lithium .................................................................................................................................................. 71
Magnesium ........................................................................................................................................... 72
Manganese ........................................................................................................................................... 73
Molybdenum......................................................................................................................................... 75
Rhenium................................................................................................................................................ 77
Tantalum ............................................................................................................................................... 78
Thorium................................................................................................................................................. 79
Titanium ................................................................................................................................................ 80
Tungsten ............................................................................................................................................... 81
Vanadium .............................................................................................................................................. 82
Mineral Sands ..................................................................................................................................... 83
Rare Earth Metals ............................................................................................................................... 85
Agriculture........................................................................................................................................... 87
Cocoa .................................................................................................................................................... 89
Coffee ................................................................................................................................................... 91
Corn ...................................................................................................................................................... 93
Cotton ................................................................................................................................................... 95
Palm Oil................................................................................................................................................. 97
Rapeseed .............................................................................................................................................. 99
Rice ..................................................................................................................................................... 100
Rubber ................................................................................................................................................ 102
Soybeans ............................................................................................................................................ 104
Sugar................................................................................................................................................... 106
Wheat ................................................................................................................................................. 108
Livestock............................................................................................................................................ 110
Feeder & Live Cattle ........................................................................................................................... 111
Lean Hogs & Pork Bellies ................................................................................................................... 113
Commodity Exchanges & Turnover ................................................................................................ 115
Conversion Factors ........................................................................................................................... 118
Page 2
Global Markets Research
September 2008
A User Guide To Commodities
Introduction
September 11, 2008
To Deutsche Bank’s Clients
Since the publication of the first Deutsche Bank User Guide To Commodities in July
2006, the universe of financially traded commodities has expanded to include, for
example, steel billet futures on the London Metal Exchange and the first derivatives
contract with iron ore as the underlying. Next year, the LME plans to launch futures
contracts for cobalt and molybdenum.
To address the increasing importance of commodities during this decade, we are
publishing an update to the 2006 User Guide to Commodities, which not only
includes the major commodity markets covered in the first edition, but also extends
the coverage to include smaller, less mainstream commodity markets.
This report is divided into five broad sections: energy, precious metals, industrial
metals, agriculture and livestock. It covers over 50 commodity markets and identifies,
among other things, the key producer and consumer nations, the commodity’s major
uses and, where applicable, the commodity exchanges on which they are traded.
I hope you, our clients, find this guide instructive.
Michael Lewis
Global Head of Commodities Research
michael.lewis@db.com
Figure 1: Commodity Scorecard since 2002
Figure 2: Top 20 commodity futures by turnover
% returns
31-Dec-01 to 9-Sep-2008
Palladium
WTI Crude Oil (NYMEX)
Lumber
Soy Meal (DCE)
Sugar #11
Brent Crude Oil (ICE)
Corn (DCE)
Cotton
Corn (CBOT)
Aluminium
No. 1 Soybeans (DCE)
Zinc
Rubber (SHFE)
Wheat
Aluminium (LME)
Silver
Gluten Wheat (ZCE)
Platinum
Soybeans (CBOT)
Corn
Natural Gas (NYMEX)
Gasoline
Gold (NYMEX)
Gold
Gas Oil (ICE)
Soybeans
Copper (LME)
Coffee
Sugar #11 (NYBOT)
US natural gas
Wheat (CBOT)
Copper
Gold (TCE)
WTI crude oil
Heating Oil (NYMEX)
Heating oil
Copper (LME)
Coal API#4
Soybean Oil (CBOT)
-150
-50
50
150
250
350
450
0
25
50
75
100
125
Turnover (million lots, 2007)
Source: DB Global Markets Research, Bloomberg
Global Markets Research
Source: NYMEX, ICE, DCE, LME, NYBOT, TCE, SHFE, CBOT, ZCE
Page 3
September 2008
A User Guide To Commodities
Energy
Global energy consumption has nearly doubled since the 1973 oil crisis. In terms of
the energy mix, oil provides approximately 36% of total primary energy consumption,
that is primary fuels that are commercially-traded. Despite the implications for global
warming and the environment, coal represents 29% of total energy use followed by
natural gas, which meets 26% of energy demand. Hydro-power and nuclear energy
account for approximately 6% each.
Not surprisingly, the surge in oil prices during this decade has encouraged the
development of alternative energy sources such as modern bio-fuels and renewable
energies such as wind, solar, geothermal and tidal power. However, altogether these
represent less than 2% of global energy demand. Fuels such as wood, peat and
animal waste are still important in many economies, for example the International
Energy Agency estimates that more than 10% of China’s energy use in 2007 was in
the form of such traditional biomass. However, these are generally not counted in
global energy statistics.
Going forward, we expect it will require the development and expansion of all
economic energy sources to meet rapid population growth, urbanisation and to
sustain the improvement in living standards underway in many parts of the
developing world. Even allowing for rapid growth in alternative energies, we believe
the world economy will remain heavily dependent on fossil fuels, including coal, oil
and natural gas, over the next two to three decades.
Energy markets, and specifically crude oil, are the deepest and most liquid of all the
five broad commodity sectors. The Nymex WTI crude oil futures contract is the most
actively traded commodity future anywhere in the world, with annual turnover in 2007
of just over 120 million lots. The NYMEX WTI futures contract is therefore twice as
liquid as its nearest rival, the ICE Brent futures contracts. In the past two years,
turnover on both contracts has more than doubled.
Figure 1: Global energy use by region in 2007
Contract
Exchange
Hydro Electric
WTI crude oil
NYMEX
59.65
121.53
104%
80
Nuclear Energy
Brent crude oil
ICE
27.41
59.73
118%
70
Coal
WTI crude oil
ICE
n/a
51.39
-
US natural gas
NYMEX
19.14
29.79
56%
Gasoil
ICE
10.97
24.51
123%
Fuel oil
Shanghai Futures Exchange
9.81
24.01
145%
90
mmb/d oil equivalent
Figure 2: Energy futures turnover
60
Natural Gas
50
Oil
40
30
20
2005
2007
% change
Gasoline
NYMEX
13.17
19.79
50%
Heating oil
NYMEX
13.14
18.08
38%
Gasoline
Tokyo Commodity Exchange
17.45
7.53
-57%
Gasolie
Central Japan Commodity Exchange
11.97
3.64
-70%
10
Kerosene
Central Japan Commodity Exchange
9.79
2.69
-73%
0
Kerosene
Tokyo Commodity Exchange
7.30
2.35
-68%
Crude oil
Tokyo Commodity Exchange
1.98
1.49
-25%
UK natural gas
Intercontinental Exchange
0.44
1.23
180%
Africa
S. & Cent.
America
Source: BP Statistical Review
Page 4
Middle East
North
America
Europe &
Eurasia
Asia Pacific
Source: NYMEX, ICE, TOCOM, SHFE, CJCE (Turnover in million lots)
Global Markets Research
September 2008
A User Guide To Commodities
Crude Oil
History & properties
Petroleum, or crude oil, is a complex mixture of various hydrocarbons found in the
upper layers of the Earth’s crust. The word petroleum derives from the Greek petra
meaning rock and elaion meaning oil. In ancient Mesopotamia around 4000BC, a tarry
crude was used to make ships watertight as well as being used as an adhesive.
Crude oil was also used in the construction of the pyramids, embalming by the
Egyptians and as body paint by Native Americans. It was believed to have medicinal
th
benefits in ancient Persia and Sumatra. The first oil wells were drilled in 4 Century
China using bits attached to bamboo poles. However, the commercial drilling of oil
began in Titusville, Pennsylvania by Edwin Drake in 1859.
There are hundreds of different grades of crude oil around the world. Their grades are
mainly a function of sulphur content and gravity. The highest quality crudes are those
with low sulphur content and a high specific gravity. Specific gravities measure the
weight of the oil relative to water. The higher the API gravity (measured in degrees,
º), the lighter the compound. Figure 2 identifies the main benchmark crude oils
according to specific gravity and sulphur content.
On this basis West Texas Intermediate (WTI), the US benchmark crude oil and
Malaysia’s Tapis are the best quality crude oils in the marketplace. The heavier, sour
crudes from the United Arab Emirates and Mexico are of a poorer quality and
consequently trade at a discount to WTI.
Sweet crudes are defined as those with 0.5% sulphur content or less while sour
crudes have a sulphur content of 1.5% or more. The area between 0.5-1.5% is
sometimes referred to as intermediate sweet or intermediate sour. The reference to
sweet and sour relates to the early days of crude oil production as one of the easiest
ways to judge the sulphur content of crude oil and products was by taste and smell.
Major producers
Saudi Arabia is the world’s largest producer as well as exporter of crude oil. Although
the US is the world’s third-largest oil producing nation, it is also the world’s largest
importer of oil, representing 25% of cross-border trade in oil. In terms of annual
production, OPEC's market share has declined from about 50% in 1973 to 32% in
1987 and has averaged approximately 43% over the 2005 to 2008 period. This share
is expected to rise going forward since the 12 OPEC member countries hold 75% of
the world’s proved crude oil reserves. The largest oil reserves exist in Saudi Arabia,
Iran and Iraq, Figure 5.
Figure 1: The world’s top 10 oil producers, consumers, exporters and importers in 2007
% of
% of
% of
mmb/d world
Consumers
mmb/d world
Exporters
Saudi Arabia
10.41
13%
USA
20.70
24%
Saudi Arabia
8.26
15%
USA
Russia
9.98
12%
China
7.85
9%
Russia
7.28
13%
USA
6.88
8%
Japan
5.05
6%
Iran
2.78
Iran
4.40
5%
India
2.75
3%
UAE
China
3.74
5%
Russia
2.70
3%
Mexico
3.48
4%
Germany
2.39
3%
Canada
3.31
4%
S. Korea
2.37
UAE
2.91
4%
Canada
Kuwait
2.63
3%
Brazil
2.61
3%
Venezuela
World
81.53
mmb/d world
% of
Producers
Importers
mmb/d
world
13.82
25%
Japan
5.03
9%
5%
China
4.11
7%
2.46
4%
Germany
2.37
4%
Kuwait
2.35
4%
S. Korea
2.35
4%
Norway
2.34
4%
India
1.95
4%
3%
Nigeria
2.10
4%
France
1.90
3%
2.30
3%
Venezuela
2.02
4%
Italy
1.62
3%
2.19
3%
Algeria
1.73
3%
Spain
1.61
3%
Saudi Arabia
2.15
3%
Angola
1.66
3%
Taiwan
1.00
2%
World
83.22
World
54.82
World
54.82
Source: BP Statistical Review, International Energy Agency, DB Global Markets Research
Global Markets Research
Page 5
September 2008
A User Guide To Commodities
Figure 2: Crude oil price since 1970
Figure 3: Different crude oil grades compared
4
140
Cheap
Maya (Mexico)
SOUR
100
80
SULPHUR CONTENT (%)
Real W TI Price ($2008)
120
60
40
20
1970
1975
1980
1985
1990
1995
WTI (nominal)
2000
SWEET
0
2005
WTI (CPI)
3
Arab Heavy (Saudi)
BCF-17 (Venezuela)
Bow River (Canada)
2
Basrah (Iraq)
Mars (US)
Saudi Lt (Saudi)
Expensive
Urals (Russia)
1
ANS (US)
Oman (Oman)
Brent (UK)
Bonny Lt (Nigeria)
Daqing (China)
0
15
20
HEAVY
Source: US DOE/EIA, Bloomberg (monthly data as of end June 2008)
Kuwait (Kuwait)
Dubai (UAE)
25
30
35
°API GRAVITY
WTI (US)
Tapis (Malaysia)
40
45
50
LIGHT
Source: EIA
Major consumers
The United States remains the largest consumer of oil, accounting for 24% of world
consumption in 2007. In 2005, China overtook Japan to become the world’s second
th
largest oil consumer. Since 1995 India has moved from being the 13 largest oil
th
consuming nation to the world’s 4 . Brazil has also moved up the league table of oil
th
th
consuming nations from 12 to 9 place over the same period. In terms of oil demand
growth, China is expected to post the largest incremental increase in oil demand
during the current decade, Figure 4.
In addition to rising GDP, the role of oil subsidies at the consumer level remains an
important factor in driving oil demand in the Asia Pacific and Middle East regions.
Policies aimed at dismantling fuel subsidies are being adopted in a number of Asian
nations, but this has not been as prevalent in other regions such as the Middle East or
OPEC countries in Africa and South America.
Major uses
Fuel products constitute the vast majority of demand for petroleum. Gasoline is used
to power automobiles, light trucks, boats, recreational vehicles and farm equipment.
Kerosene is used for commercial aircraft, while distillate fuel oils such as diesel and
heating oil are used to power buses, trucks, trains and machinery, heat buildings and
fire industrial boilers. Liquefied petroleum gases (LPGs) such as propane, ethane and
butane are used for domestic heating and cooking, farming and as a gasoline
alternative. Petroleum is also used in the petrochemical production of solvents,
lubricating oils, waxes, asphalt, fertilizers, pesticides, synthetic rubber and plastics.
Figure 4: Oil demand growth in key consuming nations
Region
Avg. annual growth
Avg. annual growth
Total demand
2000-2007 kb/d
2000-2007 (%)
mmb/d 2010E
Asia Pacific
614
2.7
Middle East
212
4.0
27.5
6.9
North America
211
0.9
25.2
S. & C. America
84
1.6
5.7
Europe & Eurasia
76
0.4
20.2
Africa
71
2.7
3.1
World
1,268
1.6
88.6
China
440
7.4
9.6
USA
142
0.7
21.1
Source: BP Statistical Review, IEA, DB Global Markets Research
Page 6
Global Markets Research
September 2008
A User Guide To Commodities
Figure 5: Crude oil reserves by country
Estimated world oil reserves
1238 billion barrel at end of 2007
Expected global oil demand growth by region in 2008
Saudi Arabia
1.5
Iran
Iraq
23%
2%
Kuwait
2%
United Arab Emirates
3%
Venezuela
Russian Federation
3%
Libya
3%
12%
Kazakhstan
Nigeria
7%
US
Canada
7%
10%
8%
Source: BP Statistical Review
Qatar
1.01
million barrels per day
10%
2%
8%
Figure 6: Global oil demand by region in 2008
1.0
0.80
0.5
0.24
0.0
-0.5
-0.45
-1.0
Non-OECD
operating fuel
subsidies
Non-OECD
unsubsidised
OECD
Total oil demand
Other
Source: IEA, DB Global Markets Research
Exchange traded
Crude oil futures and options are traded primarily on the New York Mercantile
Exchange (Nymex) and the Intercontinental Exchange (ICE). Brent crude is generally
accepted to be the world benchmark as it is used to price two-thirds of the world’s
internationally traded crude oil supplies. In the US, the West Texas Intermediate (WTI)
crude oil is the benchmark.
Price conventions & codes
Crude oil is priced in US dollars per barrel. The Bloomberg tickers for the WTI and
Brent crude oil generic one month futures contracts are CL1 <Commodity> and CO1
<Commodity> respectively.
The Bloomberg ticker for the DB Crude Oil total returns and excess returns indices
are DBRCLTR <Index> and DBRCL <Index> respectively. The Bloomberg ticker for
the DB Crude Oil-Optimum Yield total returns and excess returns indices are
DBLCOCLT <Index> and DBLCOCLE <Index> respectively.
Global Markets Research
Page 7
September 2008
A User Guide To Commodities
Oil Products
History & properties
The commercial drilling of crude oil by Edwin Drake in 1859 was first seen as an
opportunity for kerosene, refined from rock oil, to compete with whale oil in the
illumination market. However, technical progress in petroleum refining from simple
distillation, boiling the crude oil in a vacuum, to the extraction of gasoline and other
light products, via more sophisticated thermal and catalytic cracking and reforming,
for transportation and heating purposes led to rapid demand growth for crude oil. For
more details see the Refining section that follows this article.
The different types of oil products contained in a barrel of crude oil will each have
their own boiling temperature. As a result, oil products are lumped into groups called
fractions, which are determined according to that product’s boiling point, Figure 1.
Figure 1: Refined products by type
Boiling Point (ºF)
Fraction
Less than 90ºF
Liquefied Petroleum Gases: Butanes, Propanes & Lighter
90-220ºF
Gasoline
220-315ºF
Naphtha
315-450ºF
Kerosene, Jet Fuel
450-800ºF
Diesel, Gas, Fuel & Heating Oils
800ºF and higher
Residue
Source: Petroleum Refining, William Leffler, DB Global Markets Research
Since there are many different crude oil grades, refineries can be optimised to
produce “cuts” or fractions that are best suited to the characteristics of the crude oil
being run and the type of products that are most in demand in local markets. Figure 2
shows the sectoral demand for oil products while Figure 3 outlines the proportion of
the various petroleum products that are derived from a US and European barrel of
crude oil. The reason for WTI crude oil typically being priced above Brent reflects its
more superior barrel, which comprises more gasoline and less residual fuel oil and
other heavy oils.
Figure 2: Global oil use by sector in 2007
Figure 3: A barrel of US and European crude oil:
the petroleum products spectrum
100%
Light
Propane/LPGs
Gasoline/Naphtha
52%
Residential
6%
Commercial
3%
Industrial
Transportation
Electricity
33%
Yields in % volume on crude intake
6%
Kerosene/Jet Fuel
80%
Diesel/Heating Oil
Residual Fuel Oil
Other Oils
60%
40%
20%
Heavy
0%
US (W TI)
Source: US DOE/EIA
Page 8
Europe (Brent)
Source: Nymex, ICE
Global Markets Research
September 2008
A User Guide To Commodities
The stream of oil products
•
Petroleum gas is the lightest hydrocarbon chain, commonly known by the
names methane, ethane, propane and butane. It is a gas at room temperature,
easily vaporised and is used for heating, cooking and making plastics. It is often
liquefied under pressure to create liquefied petroleum gas (LPG) which is
transported by pipeline, filled tanks or large bottles.
•
Naphtha is a light, easily vaporised, clear liquid used for further processing into
petrochemicals, most notably in Western Europe and Asia, as well as being used
a solvent in dry cleaning fluids, paint solvents and other quick-drying products. It
is also an intermediate product that can be further processed to make gasoline.
•
Gasoline is a motor fuel that vaporises at temperatures below the boiling point of
water. It evaporates quickly. Gasoline is rated by octane number, an index of
quality that reflects the ability of the fuel to resist detonation and burn evenly
when subjected to high pressures and temperatures inside an engine. Premature
detonation produces “knocking”, wastes fuel and may cause engine damage.
Previously a form of lead was added to cheaper grades of gasoline to raise the
octane rating, but, with the environmental crackdown on exhaust emissions, this
is no longer permitted in most countries. New formulations of gasoline designed
to raise the octane number contain increasing amounts of aromatics and oxygencontaining compounds, or oxygenates. Cars are now also equipped with catalytic
converters that oxidise un-reacted gasoline.
•
Kerosene is a liquid fuel used for jet engines or as a starting material for making
other products.
•
Gasoil or diesel distillate is a liquid used for automotive diesel fuel and home
heating oil, as well as a starting material for making other products.
•
Lubricating oil is a liquid used to make motor oil, grease and other lubricants. It
does not vaporise at room temperature and varies from the very light through
various thicknesses of motor oil, gear oils, semi-solid greases, and petroleum
jellies.
•
Heavy gasoil or fuel oil is a liquid fuel used in industry for heat or power
generation and as feedstock for making other products. Heavy grades of fuel oil
are also used as ‘bunker oil’ to fuel ships. Most of the contaminants of oil
(sulphur, metals, etc.) tend to concentrate in the heavy end of the barrel. Taken
together with a heavy fuel oil’s low hydrogen to carbon ratio, this makes it the
most potentially polluting fraction of the oil barrel.
•
Residual fuel (or resid) is a very viscous industrial fuel.
•
Coke, asphalt, tar and waxes are generally the lowest value products in the
barrel, but, can also be used as starting materials for making other products.
Refined products by use
Not surprisingly, different parts of the crude oil barrel have different uses. The US
tends to favour crudes with a high gasoline cut and favours complex refineries that
can produce clean, light products. Also, the US emphasises liquefied petroleum gas
(LPG).
Propane is a liquid under low pressure, is easy to burn and is typically used in
locations where natural gas is not available. It is also used as a chemical feedstock for
making ethylene and propylene. Butane is used predominantly as a motor gasoline
blending component as it is good for starting cold engines. Normal butane is also
used as a chemical feedstock.
Global Markets Research
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September 2008
A User Guide To Commodities
Terminology for oil products can vary around the world. For example, heating oil in the
US is referred to as “gas oil” in Europe. Jet fuel in the US and Europe is referred to
as kerosene in Asia. The term gasoline is used globally in spark-ignited combustion
engines although “petrol” is a more common term for gasoline in the UK. In the US,
gasoline is often referred to as “gas” but should not be confused with natural gas.
The term distillate normally refers to middle distillate fuels which incorporate the
middle cuts of the refined barrel: jet fuel, diesel, gas oil, fuel oil and heating oil.
Figure 4: Refined product futures turnover by contract
30
Annual turnover (futures only, million lots 2007)
25
20
15
10
5
0
Gasoil (ICE)
Fuel Oil
(SFE)
Gasoline
(NYMEX)
Heating Oil
(NYMEX)
Gasoline
(TOCOM)
Gasolie
(CJCE)
Kerosene
(CJCE)
Kerosene
(TOCOM)
Crude Oil
(TOCOM)
Source: TOCOM, Nymex, CJCE, ICE, SFE
Prices
The Bloomberg tickers for the one month generic heating oil and gasoline futures
contract are HO1 <Commodity> and XB1 <Commodity> respectively.
The Bloomberg codes for the DB Heating Oil total returns and excess returns indices
are DBRHOTR <Index> and DBRHO <Index> respectively. The Bloomberg codes for
the DB Heating Oil-Optimum Yield total returns and excess returns indices are
DBLCOHOT <Index> and DBLCOHOE <Index> respectively.
Page 10
Global Markets Research
September 2008
A User Guide To Commodities
Refining
Description
Refining is the process of converting crude oil into usable products. Crude oil is a
mixture of hundreds of different types of hydrocarbons with carbon chains of
different lengths. These can be separated through refining. The shortest chain
hydrocarbons are gases (under five carbon atoms); chains containing five to 18 carbon
atoms are liquids; and chains of 19 or more carbon atoms generally form solids at
room temperature.
Oil refining produces a wide variety of products that are prevalent in many every day
uses: gasoline for motor vehicles; kerosene; jet fuel; diesel and heating oil to name
just a few. Petroleum products are also used in the manufacture of rubber, nylon and
plastics.
A typical product yield or a refinery product slate (the proportion of refined products
obtained by refining one barrel of crude) obtained from a complex refinery in Western
Europe is shown in Figure 1. This yield reflects both the refineries configuration and
the type of crude oil that is processed.
Figure 1: Typical Western European product yield
Product
Petroleum Gas
Western Europe (%)
3
Naphtha
6
Gasoline
22
Kerosene
6
Gasoil/ Diesel (aka middle distillates)
34
Fuel Oil
20
Others (residuals, lubricants)
9
Source: Deutsche Bank
The initial product yield can be improved by further processing the oil products using
more sophisticated refining units to crack, unify and/or alter the hydrocarbons.
Refinery yields also tend to vary slightly over the year as refiners respond to both the
regular seasonal swings in product demand (more heating oil in the winter, more
gasoline in the summer) and irregular movements in product prices (the best and
most flexible refineries can quickly alter their output to produce the highest priced
mix).
How a refinery works
The function of a refiner is to convert crude oil into finished products required by the
market in the most efficient, and therefore profitable, manner. How this is done
varies widely from refinery to refinery, depending upon the location of the site, the
configuration of the refinery, crude oil processed and many other factors.
In general, there are four major refining steps taken to separate crude oil into useful
substances:
• Physical separation through crude distillation
• Conversion or upgrading of the basic distillation streams
• Product treatment to purify and remove contaminants and pollutants
• Product blending to create products that comply with market specifications
Global Markets Research
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A User Guide To Commodities
Figure 2: The oil refinery crude distillation process – fractionation
through blending
200C
Gases
700C
Light
Distillates
Reforming
Gases (C1 to C4)
Naphtha (C5 to C9)
Hydrotreating
Gasoline (C5 to C10)
1200C
Alkylation
1700C
Kerosene (C10 to C16)
Middle
Distillates
Diesel (C14 to C20)
Cracking
2700C
Heavy
Distillates
Lubricating oil (C20 to C50)
Coking
Fuel Oil (C20 to C70)
6000C
Residue (> C70)
Distillation
Conversion
Treatment
Blending
Final Products
Source: Deutsche Bank
Crude distillation, also known as ‘Topping’ or ‘Skimming’
Distillation or fractionation is a process by which crude oil is separated into groups of
hydrocarbon compounds of differing boiling point ranges called “fractions” or “cuts”.
It uses the property of differing boiling points of different sizes of carbon chains in the
crude oil, such that the longer the chain, the higher the boiling point. Two types of
distillation can be performed:
„
Atmospheric distillation: This takes place at atmospheric pressure, when the
crude is heated to 350-4000C. The liquid falls to the bottom and the vapour rises,
passing through a series of perforated trays (sieves). The lighter products, liquid
petroleum gases (LPG), naphtha, and so-called "straight run" gasoline, are
recovered at the lowest temperatures. Middle distillates such as jet fuel,
kerosene, home heating oil and diesel fuel) come next. Finally, the heaviest
products, such as, residuum or residual fuel oil (resid) are recovered.
„
Vacuum distillation: To recover additional heavy distillates from this residue, it
may be piped to a second distillation column where the process is repeated in
vacuum conditions. Vacuum distillation allows heavy hydrocarbons with boiling
points of 450°C and higher to be separated without the feedstock partially
cracking (breaking down) into unwanted products such as coke and gas.
Conversion (or upgrading)
Unlike distillation, which maintains the chemical structure of the hydrocarbons,
conversion alters their size and/or structure. Using several processes to improve the
natural yield of products achieved through simple distillation, upgrading enables
refiners to more closely match their output with the requirements of the market. For
example, the typical output from a light crude oil might include around 25% gasoline
but 40% resid, after further processing in a sophisticated refinery the product slate
can be altered to something nearer 60% gasoline, and 5% resid, far more in line with
the demand from end markets.
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September 2008
A User Guide To Commodities
The following are the major types of conversion processes:
„
Cracking: Cracking processes break down heavier hydrocarbon molecules (high
boiling point oils) into lighter products such as petrol and diesel, using heat
(thermal) or catalysts (catalytic).
Thermal cracking involves heating the hydrocarbons, sometimes under high
pressure, resulting in decomposition of heavier hydrocarbons. Thermal cracking
may use steam cracking, coking (severe form of cracking - uses the heaviest
output of distillation to produce lighter products and petroleum coke),
visbreaking (mild form of cracking -quenched with cool gasoil to prevent overcracking, used for reducing viscosity without affecting the boiling point range).
Catalytic cracking describes the chemical breakdown of the feedstock under
controlled heat (450-500°C) and pressure in the presence of a catalyst, a
substance which promotes the reaction without itself being chemically changed,
such as silica. Fluid catalytic cracking uses a catalyst in the form of a very fine
powder, which is maintained in an aerated or fluidized state by oil vapours.
Feedstock entering the process immediately meets a stream of very hot catalyst
and vaporizes. Hydrocracking uses hydrogen as a catalyst.
„
Unification/Alteration: These processes combine lighter hydrocarbons to create
heavier hydrocarbons of the desired characteristics. Alkylation is one such
process and uses a catalyst such as sulphuric acid to convert lighter
hydrocarbons into alkylates, a mixture of high-octane hydrocarbons used to blend
with gasoline. Processes such as isomerization and catalytic reforming for “rearranging” the chemical structure of hydrocarbons also fall into this category.
Catalytic reforming uses a catalyst to produce higher-octane components under
controlled temperatures and pressure. The process also produces hydrogen, a
valuable by-product.
Treatment
A number of contaminants are found in crude oil. As the fractions travel through the
refinery processing units, these impurities can damage the equipment, the catalysts
and the quality of the products. There are also regulatory limits on the contents of
some impurities, such as sulphur, in products. Treatment includes processes such as
dissolution, absorption, or precipitation to remove/separate these undesirable
substances. Desalting (dehydration) is used to remove impurities such as inorganic
salts from crude oil. Catalytic hydro-treating is a hydrogenation process used to
remove about 90% of contaminants such as nitrogen, sulphur, oxygen, and metals
from liquid petroleum fractions.
Formulating and Blending
Blending involves the mixing and combining of hydrocarbon fractions, additives, and
other components to produce finished products with specific performance properties.
Additives including octane enhancers, metal deactivators, anti-oxidants, anti-knock
agents, gum and rust inhibitors, detergents, etc., are added during and/or after
blending to provide specific properties not inherent in hydrocarbons.
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A User Guide To Commodities
Coal-To-Liquids & Gas-To-Liquids
History & properties
Gas-to-liquids (GTL) and coal-to-liquids (CTL) refer to the technologies that convert
natural gas or coal into synthetic petroleum products in the form of clean-burning
liquid fuels.
There are two leading technologies for converting coal into liquid fuels. The first one
is direct liquefaction: a highly efficient process in which coal is dissolved in a solvent
at high temperature and pressure. The liquid produced is further refined to achieve
high grade fuel characteristics. Indirect liquefaction is the second method. Coal is
gasified to form a mixture of hydrogen and carbon monoxide (syngas) which are
condensed using a catalyst. Ultra-clean, high quality products can then be produced
by the Fischer-Tropsch process.
The history of Fischer-Tropsch process dates back to two German scientists Franz
Fischer and Hans Tropsch, who were searching for an alternative source of liquid
fuels in petroleum-poor, but, coal-rich Germany in the 1920s. They discovered that in
the presence of either an iron or cobalt catalyst at high pressures and temperatures,
they could produce liquid, long chain, carbon molecules (synthetic petroleum) by
combining carbon monoxide with hydrogen. The synthetic petroleum could be used
as fuel which contained no sulphur or other impurities and so it enhanced engine
performance. It became an important source of energy supply for countries in
need of transport fuels but have problems securing reliable crude oil supply.
Major GTL producers
Despite the fact that the Fischer-Tropsch process has been used for nearly a century,
commercial GTL plants are still rare. Today, there are only three plants operating
commercially: Petro SA (producing 22.5kb/d in South Africa), Shell (producing
14.7kb/d in Malaysia) and Sasol, which built the 34kb/d Oryx facility in Qatar recently.
Limiting factors in development have been high capital costs, poor energy efficiency
of the chemical process and problems associated with the technology.
Major CTL producers
South Africa has the only commercial coal-to-liquids facility in operation today. The
country has been producing coal-derived fuels since 1955 and currently about 30% of
the gasoline and diesel in the country is produced from domestic coal. We estimate
that 160kb/d of total capacity exists in South African CTL operations. Countries with
large domestic reserves of coal but limited resources of oil and gas such as the US,
China and India are potential candidates for using CTL in our view. There are a
number of CTL projects which are at various stages of development in the world. For
example, China is targeting a planned capacity of 1 Mt/y of liquid products using
direct liquefaction.
Figure 1: The GTL process
Air
Remove impurities and
longer chain gases
Natural Gas
Gas
Gas
Air
Separation
Processing
+
Pre-Treat
-
H2S, CO2, H2O, other
C5+, LPG & (Ethane)
Hydrogen
CH 4
O2
Syngas
CO
Generation
H
2
Fischer
Tropsch
(cobalt
catalyst)
Mix syngas with liquid wax
slurry such that it diffuses
into it and creates more wax
Product
Upgrade
LPG
Naphtha
Kero/Diesel
(plus specialties)
Use of hydro-cracking to
crack wax and create
desired chain length
No sulphur, no aromatics,
high performance fuels
Source: Deutsche Bank
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September 2008
A User Guide To Commodities
Oil Sands
History & properties
Oil sands is a generic term used to describe a heavy, viscous form of crude oil that is
found mixed with sand, clay and water. Deposits are known to exist in many parts of
the world, but the largest proved oil sands resources are in Alberta, Canada, and in
the Orinoco area of Venezuela. Some of the earliest records of commercial oil sands
activity are associated with the Pechelbronn oil-field in France where oil sands mining
began as early as 1735.
In Canada, the first large-scale production of oil from the Athabasca oil sands was
launched by Suncor in 1967, followed by Syncrude in 1972. During the 1980s, oil
prices declined to very low levels, resulting in considerable retrenchment in the oil
industry. With the rise in oil prices this decade, numerous projects are under
development or in planning. The bitumen contained in oil sands in Canada is extracted
and processed using two main methods:
Mining: According to the Canadian Association of Petroleum Producers (CAPP),
about 20% of the oil sands in Alberta (or 35 billion barrels of recoverable reserves) is
less than 50 meters deep and can be surface -mined using large trucks and shovels.
After processing in separators and upgrading in special-purpose refineries, a synthetic
crude oil results that can then be sent on to standard refineries for conversion into
petroleum products.
In-situ: This method of extraction relies on the injection of steam (or more recently,
chemicals) to extract the petroleum without the need for mining. According to CAPP,
approximately 80% of the oils sands resources in Alberta are more than 50 meters
deep (recoverable reserves of 140 billion barrels). The two most common forms of insitu recovery are Steam Assisted Gravity Drainage (SAGD) and the Cyclic Steam (CS)
process. After extraction, the bitumen is upgraded in the same way that mining
bitumen is processed.
Major producers
By company, Suncor, ExxonMobil and Shell are the three key leading oil sands
producers at the present time. These three companies account for nearly half of
Canadian oil sand production, with output in 2007 of about 277kb/d by Suncor,
followed by ExxonMobil (155kb/d) and Shell (130kb/d). There has been a surging
interest in the development of Canada’s oil sands as the oil price has climbed. Oil
sands production represented approximately a third of Canada’s total crude oil
production in 2007. According to Wood Mackenzie estimates, the production of
around 1.4mb/d in 2007 is expected to rise to around 3.7mb/d by 2015, at a 15%
CAGR (compound annual growth rate). However, because of the sheer speed at
which the region has developed, spurred by the rapid rise in crude oil prices,
accompanying pressures such as equipment cost, labour, taxes, regulatory &
environmental costs have been equally dramatic.
Figure 1: Major Canadian projects (>50kb/d)
Mining
Companies
Suncor Mining Project
Syncrude Project
Athabasca Oil Sands Project
Joslyn
Horizon
Northern Lights
Fort Hills
Kearl
Suncor
IMO, PCA, NXY, Canadian Oil Sands, COP
Shell, Chevron, Western Oil Sands
Total, Enerplus
Canadian Natural Resources
Synenco, Sinopec
PetroCanada, UTS, Teck-Cominco
Imperial Oil
410
550
500
205
270
100
170
300
In Situ
Primrose/Wolf Lake
Cold Lake
Foster Creek
Christina Lake
Suncor Firebag
Kai Kos Dehseh
Long Lake
Surmont
Sunrise
Hangingstone
Lewis
Canadian Natural Resources
Imperial Oil
EnCana
EnCana
Suncor
StatoilHydro
OPTI, Nexen
ConocoPhillips, Total
Husky
JACOS, Nexen
PetroCanada
75
180
100
70
140
200
70
110
200
50
60
Source: Wood Mackenzie, DB Global Markets Research
Global Markets Research
Final Capacity kb/d
Figure 2: Canadian oil sands production outlook
4500
thousand barrel/day
4000
3500
In-situ
3000
M ining
2500
2000
1500
1000
500
0
1996
1998
2000
2002
2004
2006 2008E 2010E 2012E 2014E 2016E
Source: Wood Mackenzie, DB Global Markets Research
Page 15
September 2008
A User Guide To Commodities
Figure 3: Diagrammatic representation of
Cyclic Steam Simulation (CSS)
Source: Courtesy of Shell
Figure 4: Diagrammatic representation of Steam
Assisted Gravity Drainage (SAGD)
Source: Courtesy of Shell
Major uses
The bitumen extracted from the oil sands is very heavy and viscous. Once extracted,
lighter hydrocarbons can be added to the bitumen by the oil sands producer in order
to be further processed or upgraded into a form of synthetic crude oil (SCO) that is
less viscous. After that, it can be sold to a traditional oil refinery, though some
bitumen is also sold in raw form for the production of heavy products like tar and
asphalt.
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September 2008
A User Guide To Commodities
Oil Transportation
History & properties
Energy resources such as oil and natural gas are often found in distant locations far
away from where they are consumed. Tankers and pipelines are the main
transportation methods used to move these products to major population and
manufacturing centres. Tankers are more important than pipelines in terms of the
amount of oil transported. Tankers move around 2 billion tons of oil every year, or
roughly 2/3 of all the petroleum produced. The remainder goes predominantly by
pipeline, but sometimes by rail, and then via trucks for retail product delivery.
Oil pipelines
Pipelines are the only feasible way to transport large volumes of oil by land over long
distances. Oil pipelines are tubes typically made from high-strength steel with inner
diameters usually ranging from 4 to 48 inches. Most pipelines are buried to a depth of
3 to 6 feet and are powered by pump stations that keep the oil in motion at a speed
of flow of about 1 to 6 metres per second.
Oil pipelines date back to the 1860s when a six-mile long, two-inch diameter wrought
iron pipeline was built to connect an oil field to a rail road station in Oil Creek,
Pennsylvania. Currently, the Druzhba pipeline and the Baku-Tbilisi-Ceyhan pipeline
(BTC pipeline) are two of the longest oil pipelines in the world. The Druzhba pipeline
is the longest oil pipeline and it transports oil from southeast Russia to terminals in
Ukraine, Hungary, Poland and Germany. It is therefore the principal channel for the
transportation of Russian oil across Europe. The BTC pipeline is the world’s second
largest oil pipeline, carrying oil from fields in the Caspian Sea to the Mediterranean,
connecting Baku (the capital of Azerbaijan); Tbilisi (the capital of Georgia); and Ceyhan
(a port on the south-eastern Mediterranean coast of Turkey).
Figure 1: The BTC pipeline
Source: BP
Global Markets Research
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September 2008
A User Guide To Commodities
Oil Tankers
Crude tankers are designed to carry unrefined crude oil from the extraction points to
refineries while product tankers (often referred to as “clean” tankers) transport
refined products to consuming markets that do not have sufficient refining capacity.
The first commercially recorded oil tanker was Nobel’s Zoroaster, designed in
Sweden and first run from Baku to Astrahan in 1878. Today, the Jahre Viking, which
was built in 1979 at Oppama Shipyard in Japan, is the world’s largest oil tanker. It has
a length of 1504 feet, making it the largest ship ever constructed.
Natural gas
According to the BP Statistical Review, in 2007 some 550 billon cubic metres of
natural gas flowed in international trade via pipeline and an additional 226 billion cubic
meters moved by LNG tanker. For more details see the following section on LNG.
Disruption risks
According to EIA estimates, global seaborne oil trade was approximately 43 million
barrels per day in 2007. Of that 16.5-17 million barrels per day, or about two-fifths of
all the seaborne traded oil in the world, moves through the Straits of Hormuz. The
Straits are therefore the world major oil trading route. The Strait of Malacca close to
Singapore is the second most important oil trading channel with around 15 mmb/d of
oil using this trading route. The next four are the Suez Canal, Babel Mandab, the
Turkish Straits, and the Panama Canal with 4.5 mmb/d, 3.3 mmb/d, 2.4 mmb/d, and
0.5 mmb/d flow respectively. Recent events in Georgia highlight the vulnerability of
transit point since some 1.3 mmb/d of Caspian oil moves through Georgia’s pipelines
and ports.
Figure 2: Straits of Hormuz
Source: DOE/EIA
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September 2008
A User Guide To Commodities
US Natural Gas
History & properties
Natural gas is a colourless, odourless, highly flammable gaseous hydrocarbon which
gives off a great deal of energy when burned. Although it consists primarily of
methane, it can also contain ethane, propane, butane and pentane. These coproducts, once removed from the gas stream, are called natural gas liquids (NGLs).
Natural gas is relatively clean burning, emitting relatively low levels of harmful
combustion by-products. Although there is some evidence for the abiogenic
existence of methane in the earth’s mantle, most geologists favour the view that gas,
like coal and oil, was formed via the compression and decomposition of organic
material over long periods of time. It is typically found in the same geologic
formations below the earth’s surface that trap oil, that is, in permeable mineral layers
that are capped by non-porous sedimentary rock.
Natural gas seeps were first discovered in Iran between 6000BC and 2000BC. These
naturally occurring surface leaks could sometimes be ignited by lightning strikes. A
similar ‘burning spring’ was found in Greece around 1000BC and became the site of
the Temple of Oracle in Delphi. Around 500BC, the Chinese used natural gas to boil
sea water to produce fresh water. The first gas well in the US was drilled in 1825, and
connected by pipeline to users in Fredonia, New York.
Like oil, natural gas is described as sweet or sour depending on, in the case of gas, its
hydrogen sulphide content. Hydrogen sulphide is highly poisonous and is removed
during processing. Because methane is odourless, natural gas distribution companies
add a harmless, but, stinky chemical (mercaptans) to the gas prior to distribution to
end-users so that consumers can more easily detect leaks. Gas is also described as
wet or dry depending on the presence of natural gas liquids (NGLs) and other energy
gases. If natural gas is greater than 90% methane then it is referred to as dry. Wet
gas can be “stripped” of the NGLs (or LPGs) at facilities called gas processing plants.
Finally, natural gas is described as associated or non-associated depending upon
whether or not it is associated with significant oil production. In the US, only 20% of
natural gas reserves are believed to be oil associated.
Major producers
The US and the countries of the former Soviet Union are the largest producers of
natural gas. The Russian natural gas industry is dominated by Gazprom, which
controls 95% of production. In the US, Texas, Louisiana, Alaska, New Mexico and
Oklahoma hold more than half of the country’s reserves. Other major producers
include Canada, Iran, Norway, Algeria, Saudi Arabia, and the United Kingdom. World
natural gas reserves are estimated at 6,261 trillion cubic feet (tcf). The Middle East
holds 41% of world reserves, while an additional 40% is located in the former Soviet
Union, with only 9% held in the OECD countries.
Figure 1: The world’s top 10 natural gas producers, consumers, exporters and importers in 2007
% of
% of
Producers
bcf/d
world
Consumers
Russia
58.8
21%
USA
USA
52.8
19%
Canada
17.8
Iran
bcf/d
% of
% of
world
Exporters
bcf/d
world
Importers
63.2
22%
Russia
16.3
22%
USA
Russia
42.5
15%
Canada
8.7
12%
6%
Iran
10.8
4%
Norway
8.3
11%
bcf/d
world
10.4
14%
Japan
8.7
12%
Germany
8.0
11%
10.8
4%
Canada
9.1
3%
Algeria
5.7
8%
Italy
7.5
10%
Norway
8.7
3%
UK
8.8
3%
Turkmenistan
4.4
6%
Ukraine
4.4
6%
Algeria
8.0
3%
Japan
8.7
3%
Qatar
3.8
5%
France
4.1
5%
Saudi Arabia
7.3
3%
Germany
8.0
3%
Trinidad
3.2
4%
S. Korea
3.6
5%
UK
7.0
3%
Italy
7.5
3%
Indonesia
3.2
4%
Spain
3.4
5%
China
6.7
2%
Saudi Arabia
7.3
3%
Malaysia
3.1
4%
Turkey
3.4
5%
6.5
2%
China
6.5
2%
Netherlands
2.6
4%
UK
1.8
2%
Turkmenistan
World
284.5
World
282.7
World
75.0
World
75.0
Source: BP Statistical Review, DB Global Markets Research
Global Markets Research
Page 19
September 2008
A User Guide To Commodities
Figure 2: World natural gas reserves by
country
Figure 3: US natural gas price since 1976
Estimated world gas reserves
6261 trillion cubic feet at end of 2007
26%
25%
Iran
Qatar
Saudi Arabia
UAE
US
3%
3%
Nigeria
3%
16%
3%
Venezuela
Algeria
3%
4%
Source: BP Statistical Review
14%
Natural Gas Prices (USD/mmBtu)
16
Russia
14
12
10
8
6
4
2
0
1976
1980
1984
1988
1992
1996
2000
2004
2008
Other
US NatGas Nominal
US NatGas Real (CPI)
Source: Nymex, US DOE/EIA, DB Global Markets Research
Major uses
Burning natural gas is relatively clean, producing 30% less carbon dioxide than
petroleum and 45% less than coal. The major use for gas is in homes, businesses
and factories for heating, cooking and cooling. Natural gas is increasingly used as a
source of energy for electricity generation via gas turbines and steam turbines.
Compressed natural gas is used as a vehicle fuel for public transport buses. In
addition, natural gas is used as a base ingredient in the manufacture of ammonia, antifreeze, fabrics, glass, steel, plastics and paint.
Regulatory matters
Natural gas was originally considered an undesirable by-product of oil production. As a
gas, it is more difficult to transport than oil and it was often flared-off, or burned at the
wellhead as a disposal method. Gas flares are still common in Africa, the Middle East
and parts of the Former Soviet Union that do not yet have the infrastructure for the
utilisation of gas. Rules that prohibit flaring are now becoming increasingly common.
Around 1950, the development of high-strength steel pipelines made it possible to
transport natural gas over much longer distances and this, combined with the
development of offshore drilling, has resulted in a significant increase in the use of
natural gas. The emergence of LNG has supported the development of a global gas
market. In many countries, natural gas tends to be much more highly regulated than
oil because of the tendency for natural gas transportation and distribution to be
concentrated in the hands of fewer suppliers.
Exchanges & prices
Natural gas futures are traded on the New York Mercantile Exchange (Nymex) in units
of 10,000 million British thermal units (mmBtu), for delivery via the Sabine Pipe Line
Co. Henry Hub in Louisiana. There is also a natural gas futures contract listed on the
ICE, but turnover in 2005 was negligible. The Bloomberg ticker for the one month
generic US natural gas futures contract is NG1 <Commodity>.
The Bloomberg tickers for the total returns and excess returns of the Deutsche Bank
US Natural Gas-Optimum Yield index are DBLCYTNG <Index> and DBLCYENG
<Index> respectively.
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September 2008
A User Guide To Commodities
Liquefied Natural Gas (LNG)
History & properties
The liquid formed when natural gas is cooled to -162°C is called liquefied natural gas,
or LNG It is clear, odourless, non-toxic and non-corrosive. Liquefaction takes place
when natural gas is cooled under high pressure, condensed, and then reduced in
pressure for storage. The resulting liquid is 1/600th of the volume of natural gas, and
about half as dense as water. Purified LNG is usually composed of 90% methane and
small amounts of ethane, propane, butane and heavier alkanes.
th
The history of natural gas liquefaction dates back to the 19 Century. Commercial
LNG plants were built in West Virginia in 1912 and Ohio in 1941. The first LNG tanker,
the Methane Pioneer, transported LNG from Louisiana to the UK in 1959,
demonstrating the viability of long-range transport. In 1964, Algeria became the first
continuous large-scale exporter. LNG’s primary benefit is its ease of transportation
and density of storage. It can be transported efficiently over long distances where
pipelines are not an option. Specially designed seagoing vessels incorporate double
hulls and specialized storage tanks. At the receiving terminal, LNG can be stored or
reheated to return to gaseous form and distributed via pipeline.
Major producers and users
The world’s largest LNG producers and exporters are Qatar, Malaysia, and Indonesia,
with exports going to Japan, South Korea and Taiwan. US supplies come mainly from
Trinidad, while Algeria and Nigeria mainly supply Europe. Russia and Iran possess the
world’s largest proved gas reserves, but do not yet have liquefaction capability,
although there are LNG projects currently underway in both countries.
The demand for LNG has been rising significantly during this decade. Earthquakes in
Japan and China have disrupted domestic nuclear of hydro power capabilities which
has necessitated both countries to increase LNG imports. Droughts in Spain as well
as the emergence of new demand centres in Kuwait, Singapore, Chile and Argentina
are now competing for US summer LMG imports. Short supply has polarized returns,
driving shipping & regas often below the cost of capital, yet upstream returns to
exceed 50% IRR. Strong international demand plus a security of supply and
environmental premium in Asia and Europe has left international prices set by the
marginal price of demand, pushing long-term contracts to straight line oil parity, with
implied pricing of USD17/mmBtu at USD100/bbl oil.
Exchange traded
The trade in LNG is conducted via long-term sale and purchase agreements (SPA)
which typically extend for over 15 years.
Figure 1: Major exporters & importers of LNG
Exporters
bcf/d
% of
World
Importers
bcf/d
% of
World
Qatar
3.7
17%
Japan
8.6
39%
Malaysia
2.9
13%
South Korea
3.3
15%
Indonesia
2.7
12%
Spain
2.3
11%
Algeria
2.4
11%
US
2.1
10%
Nigeria
2.0
9%
France
1.3
6%
Australia
2.0
9%
Taiwan
1.1
5%
Trinidad
1.8
8%
India
1.0
4%
Egypt
1.3
6%
Turkey
0.6
3%
Oman
1.2
5%
China
0.4
2%
Brunei
0.9
4%
Belgium
0.3
1%
Other
1.1
5%
Other
1.0
5%
World
21.9
100%
World
21.9
100%
Source: BP Statistical Review, DB Global Markets Research (2007 data)
Global Markets Research
Figure 2: Global LNG supply/demand balance
350
mmt/y
Greenfield Supply
300
Base Supply
250
Total Demand
200
150
100
50
0
1995
2000
2005
2010E
2015E
Source: Wood Mackenzie, DB Global Markets Research
Page 21
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A User Guide To Commodities
US Power
History & properties
The origins of the commercial US power industry date back to 1882 and the
establishment of the Pearl Street electricity generating station in New York City.
Electricity is measured in watts and watt-hours and unlike other commodities is
difficult to store economically, although advances in capacitor and battery technology
are improving this characteristic in many applications.
The market for electricity involves three activities: production, transmission and
distribution. The US operates approximately 10,000 power plants with an average
thermal efficiency of 33%. Efficiency has not changed much since 1960 due to the
long life of a power plant. The average age of a power plant in the US is 30 years. In
terms of transmission, the US operates 275,000 miles of high voltage power lines
arranged in three networks. The average loss in transmission is around 5-7%.
Distribution involves the handoff from high voltage lines to low voltage distribution
networks to deliver power to the consumer. In 1940, 10% of the US’s total energy
consumption was used to produce electricity. Today it is over 40%. Annual revenues
for electrical utilities are around USD370bn or 2.5% of GDP. Consumers spend some
2.3% of their disposable income on household electricity and gas purchases.
Electricity is also one of the most capital intensive sectors in the US with current
assets valued at USD1.3tn. The US power market is fragmented along regional lines
and according to Regional Reliability Councils.
The move towards deregulation of the US power sector began in the 1970s.
Moreover the 1970 Clean Air Act as well as the subsequent two oil price shocks
encouraged the more efficient use of fossil fuels as well as the development of
alternative energy sources. Trust in the nuclear power was damaged by the Three
Mile Island accident in 1979.
Figure 1: The US power market
Source: EIA, Annual Energy Review 2007
Page 22
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: US power generation by fuel source
Figure 3: US planned power capacity additions
221 GW to
Year 2013
Total US net generation (2007E)
4,100,000 GWhours
7%
3%
18%
Coal
7%
Coal
49%
Petroleum
Natural Gas
17%
Nuclear
Natural Gas
19%
19%
Wind
Nuclear
Hydro
1%
Renewbles
38%
20%
Other
Renewable
Other Gas
2%
Source: US DOE/EIA, DB Global Markets Research
Source: Wood Mackenzie, DB Global Markets Research
Today there are three types of utility companies in the US:
Publicly owned utilities: These are owned and operated by municipalities, states or
the federal government. They produce electricity and sell it to consumers or other
utilities at cost.
Investor owned utilities (IOUs): These are owned by private shareholders. Most
IOUS are beginning to divest their energy production and focus on distribution.
Around three-quarter of the US power grid is owned by these companies.
Cooperative utilities: These were created by the government to provide electricity
to rural areas deemed unprofitable by the IOUs. They are government subsidised nonprofit entities free from state or local taxes.
There are two basic types of power generators today and they can be distinguished
by the type of load they handle namely base or peak load. Base-load plants are
typically steam driven. These must be run at full capacity and are difficult to start up
and shut down. Peak load plants usually use gas turbines. They operate at a lower
efficiency, but can be started up and shut down rapidly.
Exchange traded
In February 2003, the Commodity Futures Trading Commission (CFTC) approved
Nymex’s monthly, weekly and daily Pennsylvania / New Jersey / Maryland (PJM)
electricity futures contracts. The monthly contract started trading on April 11, 2003
and is based on the electricity prices in the Pennsylvania/New Jersey/Maryland (PJM)
Western hub at 111 delivery points, mainly on the utility transmission systems of PPL
Corporation and FirstEnergy Corporation. This contract is priced in US dollars per
megawatt hour. At the beginning of this year, Nymex launched a further five
electricity futures contracts. The new contracts are: ISO New England peak daily
futures, NYISO A peak daily futures, NYISO G peak daily futures, NYISO J peak daily
futures and Cinergy hub peak daily futures.
The PJM Interconnection administers the largest electricity market in the world
serving more than 44 million customers in Delaware, Illinois, Indiana, Kentucky,
Maryland, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and
Washington D.C. The power companies within PJM operate more than 1,000
generating units, representing more than 137,000 megawatts of capacity fuelled with
coal, natural gas, oil, nuclear and hydro power. This generating and distribution
network is also tied to the power grids of the Midwest, New York State and other
areas in the mid-Atlantic states.
Global Markets Research
Page 23
September 2008
A User Guide To Commodities
Thermal Coal
History & properties
Coal is a fossil fuel. It is a combustible, sedimentary, organic rock which is composed
mainly of carbon, hydrogen and oxygen. Coal is classified into four types, lignite, subbituminous, bituminous and anthracite according to its carbon, ash, sulphur and water
content. The harder the coal, the less moisture it has and the more efficient when it is
used as a fuel. Lignite, or thermal coal, has the lowest carbon content and heating
value and alongside sub-bituminous coals are used primarily for electricity generation.
Anthracite, also referred to as metallurgical coal, has the highest carbon content with
the lowest amount of moisture and hence has the highest energy content of all coals.
It is used in high-grade steel production. Bituminous is sub-divided into thermal and
metallurgical coal, but, often referred to as semi-soft. It is used for both electricity
generation and for making coke in steel production.
Historians believe coal was first used commercially in China for smelting copper and
for casting coins around 1,000BC. The demand for coal surged during the 19th
Century during the industrial revolution and at the end of that century, the
development of the coal industry became closely tied to electricity generation when
the first coal-fired electrical power plant came into operation in New York in 1882.
Production
There are two mining methods in coal production: surface or ‘open cut' mining (40%
share) and underground or ‘deep’ mining (60% share). The choice of mining method
is largely determined by the geology of the coal deposit. Two-thirds of the world’s
coal reserves are located in Europe, Eurasia and the Asia Pacific. At current
consumption levels, there is enough coal in the world to last for several more
centuries.
Major uses
Thermal coal, also referred to as steaming coal, is used to generate electricity.
Approximately 40% of electricity production worldwide is generated via thermal coal.
At most coal-fired power stations, the coal is first milled into a fine powder and then
blown into a combustion chamber of a boiler where it is burnt at high temperature.
The heat converts water into steam which is pressurised and passed into a turbine
which generates electricity.
According to the World Coal Institute, consumption of steaming coal is projected to
grow by 1.5% per year until 2030. Asia is the biggest market, currently accounting for
around 55% of global coal consumption, with the bulk being made up by China. Most
countries in the region do not have sufficient domestic supplies and consequently
turn to the seaborne trade market to meet their energy requirements, particularly
Japan, Taiwan and South Korea.
Major producers
The largest thermal coal producing countries are China, USA, India, Australia and
South Africa. Because there are vast differences in coal qualities and due to the shear
volume produced, detailed statistics of total global production are not readily available
nor are they important for market dynamics. Rather global supply and demand
balances and the ensuing effect on prices is determined by the global seaborne
market or coal exports. Two countries, Australia and South Africa, dominate the high
quality market for seaborne coal. While Indonesia tops the list in terms of total export,
the quality of their coal is poor. Columbian material is almost exclusively headed to
the US. By volume, China is the world’s largest producer, but most material is poor
quality and consumed domestically.
Page 24
Global Markets Research
September 2008
A User Guide To Commodities
Figure 1: Major exporters and importers of thermal coal in 2007
Tonnes
Exporters
Indonesia
(Mn)
196
Australia
113
Russia
78
Colombia
Tonnes
% of world
32.8%
Importers
Japan
(Mn)
116
% of world
19.7%
18.8%
Korea
64
10.8%
13.0%
Taiwan
58
10.0%
67
11.1%
UK
38
6.5%
South Africa
66
11.1%
India
33
5.6%
China
45
7.6%
USA
32
5.4%
Poland
11
1.8%
Germany
28
4.8%
USA
9
1.5%
Spain
20
3.5%
Venezuela
8
1.3%
Italy
17
2.9%
Canada
5
0.8%
China
13
2.3%
World
598.0
World
586.5
Source: AME
Exchange traded
Thermal coal is priced according to its calorific content measured as Kcalories/kg with
the standard level at 6500kcal/kg. Most thermal coal is procured through negotiated
annual contracts between producers and consumers. In the Asia-pacific market,
annual contracts have historically been set between Japanese power utilities and
Australian producers on a Japanese financial year basis. The European market is
dominated by South African supply, but, prices are generally priced on a spot basis
that is highly influenced by the Asian price.
Coal futures are traded on NYMEX. The contract trades in units of 1,550 tons and is
priced in USD per ton. The two main coal price contracts are the Tradition Financial
Services (TFS) API#2 and API#4 Coal Indices. The API#2 is the arithmetic average of
the McCloskey Coal Information Services (MCCIS) NWE Steam Coal Marker, which
tracks steam coals used for electricity generation and the International Index
compiled by Energy Argus in its Coal Daily index. This tracks shipments of coal to
northwest Europe. The TFS API#4 price is the arithmetic average of three prices: the
FOM Richards Bay price published in the McCloskey Fax, the Spot Coal Price Index
published in the South African Coal Report and the FOB Richards Bay published in
Energy Argus Coal Daily.
Figure 2: Spot thermal coal prices
200
USD/t
Figure 3: Global coal consumption, million
tonnes oil equivalent
3500
Richards Bay FOB (South Africa)
180
Newcastle FOB (Australia)
160
Annnual contract price
ROW
Asia Pacific
3000
Europe
2500
140
120
North Am erica
2000
100
1500
80
1000
60
40
500
20
Source: Argus (data as of March 2008)
Global Markets Research
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
2008
1975
2007
1973
2006
1971
2005
1969
2004
1967
0
2003
1965
0
2002
Source: BP
Page 25
September 2008
A User Guide To Commodities
Uranium
History & properties
Uranium, a silvery white metal, has the symbol U and atomic number 92. A common
element, it occurs naturally at low levels in virtually all rock, soil and water found
throughout the world. Uranium is as about as common as zinc and about 40 times as
abundant as silver. The German chemist Martin Klaproth was responsible for
discovering uranium in the mineral called pitchblende in 1789. It was named after the
planet Uranus, which had been discovered eight years earlier.
Mined uranium ore is a mildly radioactive element with two principle isotopes, U-235
and U-238, with the former suitable for use as nuclear fuel. This material must be
processed before it can be used as a fuel for a nuclear reactor, and the first step,
milling, is usually done at the mine site. Ore is crushed and ground and then treated
with acid to dissolve the uranium, which is recovered from solution. Uranium oxide
concentrate (U3O8) is the form in which uranium is typically sold and often referred to
as yellowcake because of its khaki colour. Following this, uranium must be enriched
to increase the proportion of U-235 to about 3.5% in order for it to be used in power
generation. The enrichment process typically consists of converting the uranium
oxide to a gas, uranium hexafluoride (UF6), and then separating the heavier isotopes
using a gas centrifuge. Because natural uranium contains such a small percentage of
U-235, the enrichment process results in the creation of large amounts of depleted
uranium, which is mostly U-238.
Major producers
In 2007, Canada was the world’s largest producer of uranium, amounting to 9.5Kt,
although Kazakhstan is set to surpass Canada as the top global producer in the
coming years. Australia has the world’s largest reasonably assured reserves of
uranium, amounting to 1,142,000 tonnes, representing 30% of the world’s total.
However, there are tight restrictions on new uranium mining in Australia that will
likely remain in place for the next several years which will restrict access to most
Australian material, though we think these policies will eventually be overturned.
Other major producing countries are South Africa, Namibia, Russia and Niger.
Major uses
Today, nearly 100% of all uranium produced goes to nuclear reactors for electricity
generation, with a very small amount used in research, medical applications and as
fuel for nuclear-powered ships and submarines. In its final physical form, uranium
dioxide (UO2) is a ceramic powder, pressed into small cylindrical pellets. These pellets
are loaded into zirconium alloy or stainless steel fuel rods which are assembled into
bundles to form an array of reactor fuel assemblies.
Figure 1: Uranium production by country
Canada
Australia
Kazakhstan
Russia
Niger
Namibia
USA
Uzbekistan
South Africa
Ukraine
China
Czech Rep.
World
Tonnes
9,000
9,000
7,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
1,000
400
43000
Source: UxC, DB Global Markets Research (2007 data)
Page 26
Market share
21%
21%
16%
9%
7%
7%
5%
5%
2%
2%
2%
1%
Figure 2: The leading uranium mining companies
Com pany nam e
Country
Controlled
% of w orld
production (tonnes)
Cameco Corporation
Canada
9,000
20%
Rio Tinto plc
UK
8,000
19%
Kazatomprom
Kazakhstan
5,000
12%
Areva SA
France
5,000
12%
BHP Billiton
Australia
4,000
9%
Tvel Corporation
Russia
4,000
9%
Navoi Mining
Uzbekistan
3,000
7%
Vostochny Mining
Ukraine
2,000
5%
State of Niger
Niger
1,000
2%
Anglogold Ashanti
S. Africa
1,000
2%
Source: Raw Materials Group
Global Markets Research
September 2008
A User Guide To Commodities
Figure 3: The nuclear fuel cycle
Figure 4: Sources of global electricity generation
1%
16%
Thermal
Hydro
Nuclear
17%
Renewables
66%
Source: DB Global Markets Research
Source: DOE/EIA (2007)
Pricing and exchange traded
The uranium market is very small relative to other commodities. Transactions are
either publicly tendered to market participants, or solicited from individual
counterparties or via a broker and remain undisclosed to the wider market.
Transactions are ‘over the counter’ with the market split between long term supply
(~90% market volume) contracting and a spot market (~10%). The spot market
generally consists of all contracts for delivery of material within a six-month period.
The majority of material is delivered under long-term contracts which are arranged in
one of two ways: 1) Specified Pricing, which sets a base price at a specific date
which can be escalated by various public economic indexes agreed upon by the
contracting parties to the date of delivery; and 2) Market Pricing, which refers to
contracts that are tied to the prevailing spot price as of the delivery date. The average
delivery term and volume vary by transaction, but as an example, a typical contract
does not usually begin before 2-3 years and lasts roughly 3-5 years with an average
volume per delivery of around 115t.
Figure 5: Spot uranium price since 1968
150.00
USD/lb
Sum m er 2003:
M cArthur River flooding
125.00
100.00
75.00
October 2006:
Cigar Lake flood
April 1986:
Chernobyl Accident
October 2001:
Olym pic Dam fire
M arch 1979:
3 M ile Island Accident
1994: Russian HEU
enters US m arket
50.00
25.00
1968
1973
1978
1983
1988
1993
1998
2003
2008
Source: UxC, DB Global Markets Research
Global Markets Research
Page 27
September 2008
A User Guide To Commodities
Ethanol
History & properties
Ethanol is a volatile, flammable, colourless liquid that burns with a smokeless blue
flame that is not always visible in normal light. Ethanol is most frequently known as a
drinking alcohol, but in recent years it is increasingly used in vehicle transportation.
Except for the use of fire, the fermentation of sugar into ethanol is most probably the
earliest organic reaction known to man.
Major producers & consumers
World production of ethanol in 2007 was 13,101 million gallons, with 88% of the
world supply coming from Brazil (38%) and the United States (50%). Fuel ethanol
production in Brazil is largely sugar cane based while in the US it is largely corn based.
US ethanol production has increased by just over 50% in the last two years alone.
The Energy Independence and Security Act signed at the end of last year mandates
an increase in overall renewable fuels of 9,000 billion gallons of biofuels rising to 24
billion gallons by 2017. Of this total, a rising proportion will be met by advanced
biofuels such as cellulosic ethanol and biodiesel.
Major uses
The largest single use of ethanol is as a motor fuel and fuel additive. Brazil leads the
world in the use of fuel ethanol. Brazilian gasoline is required by law to contain at
least 25% ethanol. As of 2005, 80% of all new cars in Brazil have flexible-fuel
engines, which can run on any combination of gasoline and ethanol. The increasing
use of ethanol as a gasoline additive in the US was enhanced in 2006 by government
action to ban the use of methyl tert-butyl ether (MTBE) as an oxygenate fuel additive,
which has been responsible for groundwater and soil contamination.
Ethanol produces fewer emissions of carbon monoxide and oxides of nitrogen, and
can be produced at lower cost than gasoline. Fuel ethanol takes two basic forms:
anhydrous ethanol (with all water removed) to use for blending with gasoline (E-10, E25, E-85, where the number refers to the percentage of ethanol mixed with gasoline;
and hydrous ethanol (with some water), to be used as a standalone fuel in nearly pure
form.
In the US, all vehicles can run on a 10% ethanol blend, E10, but it is commonly
available only in the US Midwest. However, ethanol production is heavily subsidised
by up to USD0.51 per gallon yet ethanol only has 66% of the energy content of
gasoline. Other countries requiring various ethanol blends include Argentina, Thailand
and India. Brazil is the most efficient producer of ethanol, by virtue of the fact that its
primary feedstock is sugar cane rather than corn. For each unit of energy used in
production, sugar cane yields 8.3 units, while corn yields only 1.3 units. One difficulty
with ethanol is that it cannot be transported by pipeline due to its chemical volatility.
Figure 1: The world’s top fuel ethanol
producers
Gallons (m illion)
% of w orld
USA
6,499
49.6%
Brazil
5,019
38.3%
Figure 2: Ethanol price since 2005
4.5
EU-27
570.3
4.4%
China
486.0
3.7%
Canada
211.3
1.6%
3.0
Thailand
79.2
0.6%
2.5
Columbia
74.9
0.6%
3.5
India
52.8
0.4%
2.0
australia
26.4
0.2%
1.5
Turkey
15.8
0.1%
Other
66.6
0.5%
World
13,102
100%
Source: Renewable Fuels Association (2007)
Page 28
Ethanol price (USD/gallon)
4.0
1.0
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Source: DB Global Markets Research, Bloomberg (data as Aug-08)
Global Markets Research
September 2008
A User Guide To Commodities
Figure 3: World fuel ethanol production
Figure 4: World fuel biodiesel production
Brazil (Sugar cane)
25000
4000
Canada
China
Canada
20000
EU
Argentina
Brazil
3000
Gallons (million)
USA
Gallons (million)
Ukraine & Russia
3500
15000
10000
USA
2500
EU
2000
1500
1000
500
5000
0
2004
0
2004
2005
2006
2007
2008
2009
2010
2011
2005
2006
2007
2008
2009
2010
2011
2012
2012
Source: USDA
Source: USDA
The United States fuel ethanol industry is based largely on corn. According to the
Renewable Fuels Association, as of July 2008, 162 grain ethanol bio-refineries in the
United States have the capacity to produce 9.4 billion US gallons of ethanol per year.
An additional 48 construction projects underway (in the U.S.) can add 4.2 billion
gallons of new capacity in the next 18 months. Over time, it is believed that a material
portion of the 150 billion gallon per year market for gasoline will begin to be replaced
with fuel ethanol.
Exchange & prices
Ethanol futures are traded primarily on the Chicago Board of Trade (CBOT) in units of
29,000 US gallons (approximately one rail car), for delivery by tank car, on track, at
shipping origin with seller responsible for transporting product to buyer’s destination.
The Bloomberg ticker for one month generic denatured fuel ethanol contract traded
on the CBOT is DL1 <Commodity>.
In April 2007, Brazil launched a futures contract for anhydrous ethanol on the Brazilian
Mercantile and Futures Exchange. This new anhydrous contract is quoted in US
dollars in unit of 30 cubic meters (30,000 litres) and uses the Santos port as a delivery
reference, with Bloomberg ticker AFA1 <Commodity>. There was an ethanol futures
contract listed on the ICE, but, it was de-listed as of Dec 18, 2007.
Figure 5: Biofuel production & land use by major producing country in 2006/07
Country
Biofuel production
Biofuel feedstocks
Biofuel yield
Implied feedstock area
Arable land
Country
Ethanol
Biodiesel Ethanol
Biodiesel
Ethanol
Gallons (million)
Argentina -
117
Brazil
5,284
105
Canada
159
27
China
EU-27
469
488
USA
6,485
30
1,480
509
12,884
2,267
Ethanol
Biodiesel
Gallons/acre
Biofuel
total
Area
share
Acres (million)
%
Soy
-
65
-
1.8
1.8
70
2.5
Sugar
Soy
710
65
7.4
1.1
8.5
146
5.8
Corn
-
370
-
0.3
-
0.7
113
0.6
Wheat
-
115
-
0.4
-
-
-
-
Corn
-
215
-
1.6
-
2.4
354
0.7
Wheat
-
185
-
0.8
-
-
-
-
Wheat
Rape
182
140
1.3
6.8
12.3
281
4.4
Sugar
Soy
550
60
0.3
3.9
-
-
-
Corn
Soy
403
66
15.7
5.7
22.1
431
5.1
146
-
0.7
-
-
-
-
Sorghum
Total
Biodiesel
28.5
19.3
47.8
1,395
3.4
Source: USDA
Global Markets Research
Page 29
September 2008
A User Guide To Commodities
Carbon Emissions
History & properties
CO2 is the molecular formula for carbon dioxide, an atmospheric gas comprising one
carbon and two oxygen atoms. CO2 was first recognized as a gas distinct from air in
th
the 17 Century by the Flemish chemist Jan Baptist van Helmont, who noticed it as a
product of combustion after burning charcoal. CO2 is one of the greenhouse gases
(GHGs) that contribute to the natural greenhouse effect, the process by which solar
energy is trapped within the Earth’s atmosphere.
In recent decades, concern has grown across the international scientific community
over the increasing concentration of GHGs within the atmosphere. Industrialisation
over the past 250 years has been held responsible for the rising levels of carbon in
the atmosphere. Antarctic ice-core samples indicate that CO2 concentrations in the
atmosphere were fairly constant at around 280 parts per million (ppm) until the
Industrial Revolution, but that since 1800 there has been a steady increase in CO2
concentrations up to today’s level of 375ppm. This concentration continues to
increase at the rate of approximately 1.5ppm per annum. A similar trend has been
observed with concentrations of other GHGs.
The concern is that the increase in GHG concentration levels has intensified the
natural warming effect of existing GHGs in the atmosphere, and increased the
average temperature of the Earth by approximately 0.6°C between 1850 and 2000.
The International Panel on Climate Change (IPCC), a UN body set up in 1988 to
improve understanding of global warming, estimates that if the current rate of
increase in GHG emissions in general, and CO2 in particular, is not arrested, the
Earth’s average temperature will rise by between 1.8°C and 4°C by 2100, with
increasingly severe and potentially catastrophic consequences for the planet.
Emissions trading as a response to climate change: Kyoto and the EU-ETS
The recommendations of the IPCC and the United Nations Framework Convention on
Climate Change (UNFCCC) are to slow the rate of increase in and then reduce GHG
emissions. In adopting this stance the UNFCCC has identified six GHGs. It is these
that the 1997 Kyoto Protocol commits its signatories to reducing relative to their 1990
emissions levels. The six gases are ranked in terms of an index that measures their
global warming potential (GWP) relative to carbon dioxide. So, carbon dioxide has a
GWP of 1, methane of 23, and so on, all the way up to sulphur hexafluoride, which is
22,200 times more powerful than carbon dioxide in terms of its impact on the Earth’s
temperature when released into the atmosphere, Figure 1.
Greenhouse Gas
Global Warming Potential (GWP)
Carbon dioxide(CO2)
1
Methane (CH4)
23
Nitrous Oxide (N2O)
296
Hydrofluorocarbons (HFCs)
12-12,000
Perfluorocarbons (PFCs)
5,700-11,900
Sulphur hexafluoride (SF6)
22,200
Figure 2: Observed prices for Kyoto-credit
transactions since 2005
30
Carbon assets prices (€)
Figure 1: Index of global warming potential of
GHGs relative to CO2
25
20
15
10
5
0
Source: UNFCCC
Page 30
primary Secondary
CER
CER
2005
ERU
primary Secondary
CER
CER
ERU
2006
primary Secondary
CER
CER
ERU
2007-early 2008
Source: World Bank, DB Global Markets Research
Global Markets Research
September 2008
A User Guide To Commodities
The Kyoto Protocol established a framework for international emissions trading,
enabling industrialized countries known as Annex-1 countries under the UNFCCC
terminology to trade emissions allowances both between themselves and with
developing countries known as Annex-B countries.
Kyoto established three main types of carbon credits, all of which are denominated in
units of one tonne of CO2 equivalent (CO2e):
1.
Assigned Amount Units, or AAUs (these are the units of compliance for
Annex-1 countries with emissions limits under Kyoto, whereas Annex-B
countries do not have limits under Kyoto and so do not have AAUs either);
2.
Certified Emission Reductions, or CERs (these are the carbon credits
generated under the Clean Development Mechanism, or CDM, a flexible
project mechanism designed to incentivize clean-infrastructure projects in
Annex-B countries);
3.
Emission Reductions Units, or ERUs (these are the carbon credits generated
under the Joint Implementation, or JI, mechanism, a flexible project
mechanism designed to incentivize clean-infrastructure projects in Annex-1
countries).
The CDM enables projects in developing countries to sell CERs to both governments
and companies in developed countries, and has so far been much more important
than the JI mechanism in generating credits. CERs that are bought direct from
projects are known as primary CERs, while CERs bought on a guaranteed basis from
market intermediaries are known as secondary CERs. Figure 2 shows the prices for
primary and secondary CERs over the past two years.
As part of its strategy for enabling European-Union Member States to comply with
their Kyoto targets, the EU established an emissions-trading scheme (ETS) in 2005 for
heavy industry covering about 42% of all GHG emissions in the EU. Phase 1 of the
ETS operated over 2005-07, Phase 2 is concurrent with the Kyoto compliance period
over 2008-12, and Phase 3 will run over 2013-20.
The carbon credits traded in the EU-ETS are known as European Unit Allowances
(EUAs). In Phase 1 EUAs collapsed to zero, but action by the European Commission
to enforce tougher national allocation plans in Phase 2 have meant EUA prices have
been rising steadily for the past eighteen months, Figure 3.
Figure 3: Phase-1 & 2 EUA & CER prices
Figure 4: The current state of the global carbon
market
EU Emission Certificate (Dec 07)
35
EU Emission Certificate (Dec 08)
Price EUR/tonne
30
CER Swap (Dec'08)
CCX
($72M)
25
($50bn)
20
Asia
60% of all CDM
Projets that issued credits
Kyoto related
projects*
15
South America
39.2% of all CDM
10
5
0
Jan-05
*
EU ETS
projects*
Phase 1
Aug-05
Mar-06
Oct-06
May-07
Source: Datastream (data as of August 2008)
Global Markets Research
Dec-07
Africa
0.8% of all CDM
projects*
New South Wales
($224M)
Jul-08
Source: World Bank, Unep Risoe, DB Global Markets Research
Page 31
September 2008
A User Guide To Commodities
Also shown in Figure 3 is the price trend for secondary CERs, as these can also be
used in the EU-ETS for compliance purposes. Since the beginning of Phase 2 ERUs
are also admissible, but so far none have been issued so there is no meaningful price
history. Note, however, that there is a fixed limit on the use of both CERs and ERUs
within the EU-ETS, as the EU is keen for the price of EUAs to reflect the cost of
domestic abatement within the EU.
EUAs are traded over the counter and on various European exchanges, for example,
Bluenext, the EEX, and Nordpool. CERs and ERUs are mainly traded over the counter,
but can also be traded on exchanges. All the CO2 emissions-allowances are priced in
Euros per tonne.
Future prospects for the global carbon market
The outlook for carbon markets globally is best considered on three levels, namely (i)
the EU-ETS, (ii) the prospects for a new international agreement to succeed Kyoto
after 2012, and (iii) policy developments in other industrialized jurisdictions to:
(i)
The EU-ETS: Phase 3 of the ETS still under debate
The ETS remains by far the largest driver of the global carbon market at the
moment accounting for 78% of total turnover in 2007 ($50bn out of $64bn), and
for up to 90% when EU purchasing of CERs is taken into account, Figure 4
The EU-ETS is also the market that has the highest degree of future certainty, in
that we know it will exist beyond 2012, and that Phase 3 will run over 2013-20.
The rules governing the operation of the ETS are currently being revised under a
process known as the ETS Review, which formally began in January 2008 with
the recommendations from the European Commission.
The main recommendations made by the European Commission in its Review
are as follows:
-
-
-
the cap by 2020 be 21% below the actual level of 2005 emissions for
EU-ETS installations (i.e. a cap of 1,720Mt by 2020). However, it also
recommends that the cap be reduced progressively over this period,
rather than reduced in one go in 2013 and then held constant over the
whole of Phase 3.
if no new international agreement is reached the use of CERs/ERUs in
Phase 3 will be limited to the CERs/ERUs eligible for use in Phase 2 of
the EU ETS as part of the limits fixed on each installation but not
actually used by the end of 2012.
There will be unlimited banking between Phase 2 and Phase 3
the Commission wants to see very much higher levels of auctioning in
Phase 3, with 100% of all allowances for the power-generation sector
already auctioned as of 2013, and a phased reduction for the other
sectors such that by 2020 there are no more free allowances for any
installations.
The EU Parliament and EU Council of Ministers have yet to adopt their formal
positions on the Commission’s recommendations, but if all goes to plan the French
presidency of the European Union will have the revised ETS Directive finalized by the
end of 2008.
Page 32
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September 2008
A User Guide To Commodities
(ii)
A new international framework beyond 2012
The Kyoto Protocol expires at the end of 2012, and beyond this the international
framework for action against climate change at the UNFCCC level has not yet been
agreed. However at the UNFCCC’s thirteenth Conference-of-the-Parties’ (COP)
meeting in Bali last December, a so-called roadmap was agreed to deliver a binding
international agreement to succeed Kyoto by the time of the fifteenth COP meeting in
Copenhagen in December 2009. Before that, the fourteenth COP meeting will take
place in Poznan, Poland, in December 2008.
However, there are very important differences in the approach of many leading
countries (both industrialized and developing countries) to negotiating an international
agreement, and, in our view, this makes the political process for reaching agreement
by December 2009 very challenging. Figure 5 sets out the timeframe for agreement
and ratification according to the COP process.
(iii)
The outlook for other jurisdictions
In addition to the EU-ETS and the existing Kyoto framework, a number of countries
and jurisdictions have either already established trading schemes of their own, for
example New Zealand, or are moving towards doing so in the next few years, for
example Australia, Japan and California. In addition, 13 north-eastern states in the US
have formed a regional trading scheme known as the regional Greenhouse-Gas
Initiative, or RGGI. Eventually this may encompass the whole of the United States.
Figure 5: Toward a post-2012 agreement
Towards mandate (Art.3.9)
2nd Review of the K.P. (art. 9)
Dialogue under UNFCCC
New mandates
for Kyoto
?
2008
COP 14
Poznan
2009
Clear picture
of post 2012
framework
Negociated
post 2012
agreement
COP 15
Copenhagen
2010
COP 16
2011
COP 17
2012
COP 18
NEGOTIATIONS
NEGOTIATIONS
RATIFICATION
Japan G8
Italy G8
New US President
Source: Point Carbon, DB Global Markets Research
Global Markets Research
Page 33
September 2008
A User Guide To Commodities
Renewable Energy
History and properties
Renewable energy is produced from resources which are naturally replenished, such
as rain, wind, sunlight, oceanic streams, geothermal heat and biomass. In order to get
rid of the intermittency inherent in renewables, storage capacities and integration to
the electricity’s transportation network are essential, not even taking into account the
potential of smart grids in the future.
Hydropower is the most commonly of all renewable energy sources for electricity
generation. Hydropower generates electricity by harnessing or directing moving
water. Typically, water flowing through a penstock or a pipe, turns and pushes against
the blades in a turbine to spin a generator to produce electricity. Hydropower has
been used for thousands of years to turn stones for grinding grains and consequently
it is one of the oldest harnessed sources of energy. However, it did not become
th
widely used until the 20 Century when the technology to transmit electricity over
long distances was developed.
Wind power uses wind turbines to generate electricity. The power output of a
turbine increases dramatically as wind speed increases. Areas where winds are more
constant and stronger, such as high altitude sites and offshore regions, are better
albeit more expensive locations for wind farms. Wind energy has also been used by
people since ancient times as a source of power to grind grains and other materials.
th
The earliest windmills were built in Persia in the 7 century.
Solar power describes the conversion of solar energy into other forms of energy,
such as heat and electricity. Solar energy can be converted into electricity using
photovoltaic (PV) devices or solar power plants. Photovoltaic generates electricity
directly from sunlight. Solar power plants can also generate electricity indirectly using
thermal collectors to focus the sun’s rays to heat fluid at a high temperature. The
heated fluid then produces steam that is used to operate a turbine and generate
electricity. British astronomer John Herschel used a solar thermal collector box to
cook food during an expedition to Africa in the 1830s.
Geothermal energy is the energy derived from the hot interior of the earth. It is a
renewable energy because heat is continuously produced inside the earth by the slow
decay of radioactive particles. Water heated by the geothermal energy rises naturally
to the surface via fissures in the earth’s crust at hot springs and geysers. Heated
underground steam or water are tapped and brought to the surface to operate steam
turbines and generate electricity, a practise common in Iceland.
Biomass energy is generated from non-fossilized materials derived from plants. The
main sources of biomass energy are wood and wood waste, followed by energy from
municipal solid waste (MSW) and alcohol fuels. Biomass in the form of organic waste
can be converted through gasification to produce a biogas (normally methane). The
biogas is then burnt to produce energy. When using biomass as a renewable source
of energy it is absolutely necessary to consider the durability of the source via land
management practises.
Major producers and consumers
China is the world’s largest producer of energy using renewable resources. In 2007,
about 820 megawatts of solar PV were produced in China, second only to Japan.
Canada, the largest producer of hydropower in the world, produces about 3.1 billion
kilowatt hours of hydropower per year, followed by the United States. China is the
world leader in total renewable energy consumption, followed by the United States
and Canada. However, the United States consumes the most non-hydro renewable
energy, consuming twice as much non-hydro renewable energy as Germany and
more than three times as much as Japan.
Page 34
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September 2008
A User Guide To Commodities
Figure 1: Renewable power capacities in 2006
Solar PV (grid)
250
Geothermal
Biomass
200
Wind
Gigawatts
Small hydro
150
100
50
0
World
Developing
World
EU-25
China
Germany
United
States
Spain
India
Japan
Note: Excludes large hydropower
Source: REN21 Renewables 2007 Global Status Report
Global Markets Research
Page 35
September 2008
A User Guide To Commodities
Precious Metals
Precious metals production ranges from just over 17,000 tonnes in silver to a mere 4
tonnes for iridium. Iridium is one of the rarest metals on the planet representing less
that 1 part per billion of the earth’s crust. However, it is regularly found in meteorites
and has been linked to theories on the extinction of dinosaurs.
One of the major distinguishing features of the precious metals complex and
specifically the gold market compared to other commodities is that annual mine
production for gold is less than 10% of total above ground stocks. This tends to mean
that the gold forward curve is always in contango and level of volatility tends to be
lower than other commodity markets where inventories are significantly lower
compared to annual demand and supply.
Gold held by central banks amounted to just over 29,800 tonnes as of the end of June
2008. The lion’s share of these holdings is held by the United States, Germany,
France and Italy. These countries gold holdings are equivalent to around two-thirds of
total reserves, compared to a world average of just over 10%. In contrast, gold to
total reserve ratios are significantly lower in Asia and the Middle East and in some
circumstances below 3% of total reserves. The performance of the gold price has
been closely linked to the course of the US dollar and the level of real interest rates in
the United States.
Figure 1: Precious metals production in 2007
2007 production (tonnes)
Silver production=17,337t
3000
2500
Figure 2: Central bank gold reserves
9000
Top 14 Central Bank Gold Holdings (tonnes, June 2008)
World total = 29,813 tonnes
Top 14 constitute 73% of w orld total
78
8000
2447
7000
6000
2000
5000
1500
4000
1000
66
59
3000
2000
500
234
205
36
25
Palladium
Platinum
Ruthenium
Rhodium
40
1000
4
0
Gold
% share of gold
to total reserves
68
2
61
1
25
2
4
87
3
0
Iridium
US
GER FRA
ITA
SWZ
JPN NETH CHN ECB RUS
TAI PORT IND
Source: CPM Group
Source: IMF, World Gold Council (data end June 2008)
Figure 3: Gold returns in different US real
interest rate environments
Figure 4: The top precious metals futures
contracts
Year-on-year returns 1970-2007
100
Gold yoy returns (%)
80
60
40
Contract
Exchange
Turnover Turnover % change
2005
2007
Gold
NYMEX
15.9
25.1
58%
Gold
Tokyo Commodity Exchange 18
18.2
1%
Platinum
Tokyo Commodity Exchange 8.6
9.2
7%
Silver
NYMEX
5.5
6.8
23%
20
Gold
CBOT
0.6
1.5
130%
0
Silver
Tokyo Commodity Exchange 0.8
0.5
-35%
Platinum
NYMEX
0.4
0.5
32%
Palladium
NYMEX
0.3
0.4
25%
Palladium
Tokyo Commodity Exchange 0.3
0.2
-35%
-20
-40
-5
-4
-3
-2
-1
0
1
2
3
4
5
Real short-term Fed funds rate (%)
Source: DB Global Markets Research, Bloomberg
Page 36
6
7
8
9
Source: TOCOM, NYMEX, CBOT (data are in million lots)
Global Markets Research
September 2008
A User Guide To Commodities
Gold
History & properties
Gold has the symbol Au derived from the Latin word aurum. Gold has the atomic
number 79 and was first mined in Egypt more than 4,000 years ago. It was used in
the world’s first coinage around 640BC in Lydia, in what is now modern day Turkey.
Gold is a dense, lustrous, yellow precious metal that has been used for millennia as a
store of value, as a unit of exchange and in jewellery. It is the most malleable and
ductile metal known to man such that a single gram of gold can be beaten into a
sheet of one square metre or a wire more than one mile long. Gold is a good
conductor of heat and electricity, and it is unaffected by air, heat, moisture and most
solvents. It is occasionally found in nuggets, but occurs more commonly as minute
grains between mineral grain boundaries. Historically, gold was obtained by panning
streambeds, but modern extraction techniques can economically recover gold from
ore grades as low as 0.5 parts per million. Gold was used as a benchmark for the
world monetary system between 1944 and 1971, when the Bretton Woods
agreement fixed the world’s paper currencies to the US dollar, which, in turn, was
tied to gold. The collapse of this system at the end of 1971 heralded not only freely
floating exchange rates, but, also gold prices.
Major producers
Since 1905, South Africa had been the world’s largest producer of gold. However, last
year China surpassed South African production by 16 tonnes. During this decade
South African production has suffered from declining ore grades, maturing mines,
power disruptions and labour unrest. Today China, South Africa, Australia and the US
account for approximately 40% of the world’s annual gold mine production.
Major holders
Global central banks remain a powerful community in terms of the world gold market.
Their combined holdings amounted to 29,813 tonnes as of June 2008. The largest
holder of reserves is the United States with 8,134 tonnes, equivalent to 78.2% of
total reserves. The average gold to total reserve ratio across all central banks is
10.8%. However, in Europe ratios are significantly higher with Greece holding the
highest gold to total reserve ratio at 89.9%.
While European central banks can still be considered to be ‘overweight’ gold,
aggressive central bank intervention across Asia over the past few years has led to a
dramatic increase in their FX reserves and consequently a decline in their gold to total
reserve ratios. In the case of Japan and China, gold to total reserve ratios currently
stand at 2.1% and 1.0% respectively.
Figure 1: The world’s top 10 gold producers and consumers in 2007 by
country and region
Producers
Tonnes
% of world
China
Tonnes
270.6
% of world Consumers
11.1%
Middle East*
643.8
22.2%
South Africa
254.6
10.4%
India
438.0
15.1%
Australia
245.7
10.0%
Thailand
373.2
12.9%
USA
241.1
9.9%
Asia**
317.2
11.0%
Peru
170.1
7.0%
Italy
220.9
7.6%
Russia
166.1
6.8%
Japan
196.5
6.8%
Indonesia
112.8
4.6%
USA
150.9
5.2%
Canada
101.7
4.2%
Germany
34.2
1.2%
Uzbekistan
87.1
3.6%
Africa***
31.4
1.1%
Ghana
82.4
3.4%
Latin America
30.1
1.0%
World
2,447
World
2,892
* Middle East includes Pakistan ** Asia excludes Japan and Thailand *** Africa excludes South Africa
World production data excludes secondary supply. World consumption excludes investment demand
Source: CPM Group
Global Markets Research
Page 37
September 2008
A User Guide To Commodities
Figure 2: Gold demand by sector in 2007
Company
Tonnes
Ounces (mn)
Market share
Barrick Gold
250.7
8.06
10.3%
Anglogold Ashanti
170.4
5.48
7.0%
Newmont Mining
164.3
5.28
6.8%
Other industrial
Gold Fields
130.4
4.19
5.4%
Dental & medical
Freeport McMoran
72.4
2.33
3.0%
Goldcorp
71.3
2.29
2.9%
Harmony Gold Mining
60.3
1.94
2.5%
Navoi Metals and Mining
58.2
1.87
2.4%
Newcrest Mining
54.7
1.76
2.3%
Kinross Gold
47.3
1.52
1.9%
Jewellery
3.4% 1.8%
6.3%
Bars, coins & medallions
Producer de-hedging
6.6%
Figure 3: Top 10 gold producing companies in
2007
Electronics
ETF and similar
10.1%
61.3%
10.4%
Source: CPM Group, DB Global Markets Research
Source: CPM Group, DB Global Markets Research
Major uses
The lion’s share of gold consumption comes from the jewellery sector, accounting for
61.3% of total demand in 2007. Alloys of gold with silver, copper and other metals
are often used because pure gold is too soft for ordinary use. When used in jewellery,
it is measured in karats (k), with pure gold being 24k, and lower numbers indicating
higher copper or silver content. Gold has some industrial uses, due to its electrical
conductivity, resistance to corrosion, reflectiveness and other physical and chemical
properties. It is used in electrical connectors and contacts, electronics, restorative
dentistry, medical applications, chemistry and photography.
Exchange traded & price conventions
Gold is traded on the Tokyo Commodity Exchange (TOCOM), the New York
Mercantile Exchange (NYMEX) and the Chicago Board of Trade (CBOT). The
Bloomberg ticker for the spot gold price is GOLDS <Commodity>. The Bloomberg
codes for the DB Gold total returns and excess returns indices are DBRGCTR
<Index> and DBRGC <Index> respectively. The Bloomberg codes for the DB GoldOptimum Yield total and excess returns indices are DBLCOGCT <Index> and
DBLCOGCE <Index>.
Figure 4: Gold price since 1964
1200
Figure 5: Gold turnover by exchange
Gold spot price (USD/oz)
1000
800
600
30
Annual turnover in 2007
(standard futures, million lots)
25
20
15
400
10
200
5
0
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
0
NYMEX
Source: DB Global Markets Research, IMF (monthly data as of end Aug-08)
Page 38
TOCOM
CBOT
Source: TOCOM, NYMEX, CBOT (*Data excludes mini gold futures traded on
CBOT & TOCOM)
Global Markets Research
September 2008
A User Guide To Commodities
Silver
History & properties
Silver has the symbol Ag derived from the Latin argentum. It has the atomic number
47. First mined on a large scale around five thousand years ago in an area that is
modern-day Turkey, its use was widespread due to its ease of access since silver
deposits were on or near the earth’s surface. Silver is often found in close proximity
to other ores, such as lead, copper and zinc.
Silver has the highest electrical conductivity of all metals, but its cost being 64 times
more expensive than copper has prevented it from being used more widely for
electrical purposes. It is also ductile, malleable, superior conductor of heat and good
reflector of light. Sterling silver is a commonly used alloy of silver containing 92.5%
silver and 7.5% copper.
Major producers & consumers
Approximately three-quarters of silver is mined from gold, copper, lead and zinc
mines as a by product of these metals. Peru is the world’s largest producer of silver
at 3,494 tonnes in 2007, followed by Mexico, China, Australia and Chile. Given silver’s
importance in industrial applications, the US and Japan are the largest consumers
representing almost than 40% of world fabrication demand. India and China are the
world’s third and fourth largest consumers of the metal.
Major uses
Throughout history, silver has been used in the manufacture of ornaments, utensils,
jewellery and coins. Today demand for silver is dominated by three main categories:
jewellery and silverware, industrial applications and photography. Jewellery and
silverware is not only the largest category of demand, but, it is also the most
sensitive to price.
Unlike gold, silver has significantly more industrial applications helped by the fact that
silver is 50 times cheaper than gold. Due to its conductivity silver is used extensively
in the electronics sector as well as in photography. However, photographic fabrication
demand of silver has fallen steadily over the past several years due to the increasing
popularity of digital cameras. Other industrial applications of silver inlcude catalyst
use, water purification, electrical applications, brazing and soldering, mirror and other
coating and electroplating.
Figure 1: The world’s top 10 silver producers and consumers* in 2007
Producers
Tonnes
Tonnes
% of world
Peru
3,493.9
% of world Consumers
20.2
USA
5,371.6
23.3
Mexico
3,094.8
17.9
Japan
3,760.4
16.3
China
2,690.5
15.5
India
2,674.9
11.6
Australia
1,928.4
11.1
China**
1800.0
7.8
Chile
1,835.1
10.6
Italy
1,660.9
7.2
Poland
1,306.3
7.5
Germany
1,583.2
6.9
Russia
1,259.7
7.3
Thailand
1,570.7
6.8
USA
1,181.9
6.8
Belgium
902.0
3.9
Kazakhstan
870.9
5.0
UK
870.9
3.8
Canada
862.3
5.0
France
653.2
2.8
World
17,337.1
World
28,023
World production data excludes secondary supply, Consumption figures excludes investment demand
Source: CPM Group, **DB Global Markets Research estimate
Global Markets Research
Page 39
September 2008
A User Guide To Commodities
Figure 2: Silver fabrication demand by sector in
2007
Figure 3: Top 10 silver producing companies in
2007
Com pany
Photography
23%
24%
Jewellery & Silverware
Tonnes
Ounces (m n)
Market share
1448.4
46.57
6.7%
1420.8
45.68
6.6%
1215.0
39.06
5.6%
Volcan
657.5
21.14
3.1%
Kazakhymys
590.5
18.99
2.7%
Pan American Silver
531.9
17.10
2.5%
Goldcorp
531.0
17.07
2.5%
Polymetal
495.0
15.92
2.3%
Grupo Mexcio
473.7
15.23
2.2%
Cia de Minas Buenaventura
459.3
14.77
2.1%
Industrias Penoles
BHP Billiton Group
`
KGHM Polska Miedz
Electronics and Batteries
Other uses
17%
36%
Source: CPM Group, DB Global Markets Research
Source: CPM Group
Exchange traded
Silver is traded on the COMEX division of the New York Mercantile Exchange
(NYMEX), the Chicago Board of Trade (CBOT), and the Tokyo Commodities Exchange
(TOCOM). The COMEX silver futures contract specifies delivery of 5,000 troy ounces,
and is quoted in US cents per troy ounce. The Bloomberg ticker for the spot silver
price is SLVRLN <Commodity> and is quoted in US cents per troy ounce.
The Bloomberg codes for the Deutsche Bank Silver Optimum Yield total returns and
excess returns indices are DBLCYTSI <Index> and DBLCYESI <Index> respectively.
Figure 4: Silver price from 1968
45
Figure 5: Silver turnover by exchange
Silver spot price (USD/oz)
8
Annual turnover in 2007
(standard & mini futures, million lots)
40
35
6
30
25
20
4
15
10
2
5
0
1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
0
NYMEX
Source: DB Global Markets Research, IMF (monthly data as of end-Aug-08)
Page 40
CBOT
TOCOM
Source: NYMEX, TOCOM, CBOT
Global Markets Research
September 2008
A User Guide To Commodities
Platinum
History & properties
Platinum has the symbol Pt and the atomic number 78. The English word platinum
derives from the Spanish word platina meaning little silver as the Spaniards named
the metal when they first encountered it in Colombia. Platinum is one of the noble
metals, that is very few chemicals will react with it or corrode it. It is 30 times rarer
than gold, representing around 3 parts per billion of the Earth’s crust. In addition, it is
both twice as expensive as well as heavy as gold. Like gold, platinum is pliable such
that one gram can be rolled into a fine wire over one mile long.
The metal has excellent catalytic properties and its resistance to tarnishing makes it
well suited for making jewellery. It is extremely corrosion resistant and has a high
melting point. Fuel cells use it as a catalyst to convert hydrogen and oxygen to
electricity. Platinum has been found in objects from ancient Egyptian civilisation as
early as 700BC. However, it is claimed to have been discovered by astronomer,
Antonio de Ulloa in the mid-1700s and was formally recognised as a new metal in
1751. Until recently, the definition of a metre was based on the distance between
two marks on a platinum/iridium bar housed at the Bureau International des Poids et
Mesures in Sèvres, France. Even today, the definition of a kilogram is based on a
platinum/iridium cylinder also housed in the Bureau.
Major producers
Around 80% of the world’s reserves and production of platinum occur in Southern
Africa primarily in South Africa’s Bushveld Igneous Complex, just north of Pretoria.
Platinum also occurs in Zimbabwe’s Great Dyke, which bisects the country from
north to south. Of the remaining global deposits, Russia’s are the most significant and
these are predominantly a by-product of Norilsk’s nickel deposits. The next major
producers are Canada and the US. Again this production is mostly a by-product of
nickel and palladium production. In terms of yield, 7 to 12 tonnes of ore are required
to produce just one troy ounce, or approximately 31 grams, of platinum.
Figure 1: The world’s top 5 platinum producers and consumers in 2007
Producers
Ounces
% of world
5,186,311
Ounces
78.6
Western Europe
2,263,000
30.9
Russia
800,000
12.1
USA
2,215,000
30.3
Canada
255,000
3.9
Japan
1,449,000
19.8
Zimbabwe
170,000
2.6
Other countries
870,000
11.9
USA
134,300
2.0
China
560,000
7.7
World
7,317,000
South Africa
World
% of world Consumers
6,599,000
Source: CPM Group; 1 tonne = 32,151 troy ounces
Figure 2: Platinum demand by sector in 2007
4.5%
2.9% 1.0%
Autocatalyst
Figure 3: Platinum turnover by exchange
10
9.2
5.1%
Jewellery
5.6%
Annual turnover in 2007
(Futures only, million lots)
8
Other
Electrical
6.3%
6
Chemical
4
54.2%
Glass
Petroleum
2
20.4%
0.5
Investment
0
TOCOM
Source: Johnson Matthey, DB Global Markets Research estimate
Global Markets Research
NYMEX
Source: TOCOM, NYMEX
Page 41
September 2008
A User Guide To Commodities
Figure 4: Major platinum producing companies
Com pany
Tonnes
Ounces (m n)
Market share
Anglo Platinum
77.0
2.47
36.5%
Impala
54.7
1.76
26.0%
Lonmin
25.8
0.83
12.2%
Norilsk Nickel
23.0
0.74
10.9%
Aquarius Platinum
7.1
0.23
3.4%
Northam
6.2
0.20
2.9%
Vale
4.4
0.14
2.1%
Stillw ater Mining
3.9
0.12
1.8%
Koryak
2.5
0.08
1.2%
Eastplats
2.2
0.07
1.0%
Figure 5: Platinum price since 1976
2500
Platinum spot price (USD/oz)
2000
1500
Source: CPM Group
1000
500
0
1976
1980
1984
1988
1992
1996
2000
2004
2008
Source: Datastream, Bloomberg (data as of end July 2008)
Major uses
Autocatalytic applications are the largest single use of platinum, accounting for over
50% of total platinum usage. Its use is predominantly to clean tailpipe emissions in
light duty diesel automotives. Jewellery is the second most important demand
category, accounting for around 20% of total demand with Japan and China
representing the majority of the global platinum jewellery market.
Platinum is also becoming increasingly important as an industrial metal in the
chemical, electrical and glass manufacturing industries. However, it is platinum as
well as ruthenium’s role as a catalyst in hydrogen fuel cell technology which could
revolutionise demand for these metals particularly in an environment of high oil
prices. Fuel cells convert the energy of a chemical reaction directly into electricity,
with heat as a by-product. Unlike fossil fuels, the exhaust product of a fuel cell is
water.
Exchange traded & price conventions
The main exchange for trading platinum futures is the Tokyo Commodities Exchange,
but, they are also listed on the New York Mercantile Exchange. The Bloomberg ticker
for the platinum spot price is PLAT <Commodity>.
Page 42
Global Markets Research
September 2008
A User Guide To Commodities
Palladium
History & properties
Palladium has the symbol Pd and the atomic number 46. Palladium has similar
chemical attributes to platinum, although it is less dense with a specific gravity of 12
compared to 21.5 for platinum. Palladium also has the lowest melting point of all the
platinum group metals at 1,555˚C compared to 1,768˚C for platinum. The metal has
excellent catalytic properties and although not as resistant to tarnishing as platinum, it
is still well suited for jewellery. Palladium was discovered by the English chemist,
William Hyde Wollaston in 1803. Until recently, palladium chloride was used in the
treatment of tuberculosis and has played an important role in cold fusion
experiments.
Major producers
The Russian mining company Norilsk Nickel is a major producer of palladium as a byproduct of its nickel operations. In 2007, it represented around 43% of world supply.
However, 80% of the world’s reserves of palladium occur in Southern Africa primarily
in South Africa’s Bushveld Igneous Complex, but, also in Zimbabwe’s Great Dyke. Of
the remaining global deposits, the United States and Canada constitute a few percent
of global reserves, with little of any consequence elsewhere in the world.
Major uses
Like platinum, autocatalytic applications is the largest category of demand, accounting
for 58% of total palladium usage. In 2007, electronics and jewellery accounted for
nearly 15% and 10% respectively of palladium demand. Palladium is also used in
electronic and dental industries as well as in anti-cancer medication as it works to
inhibit cell division.
Figure 1: The world’s top palladium producers and consumers in 2007
Producers
Million ounces
% of world
Russia
Million ounces
3.10
% of world Consumers
41.3
US
2.49
30.3
South Africa
2.72
36.2
Japan
2.48
30.1
Canada
0.57
7.6
W Europe
1.78
21.7
US
0.43
5.7
China
0.88
10.7
Zimbabwe
0.13
1.8
Other
0.60
7.2
World
7.51
World
8.22
Source: CPM Group; 1 tonne = 32,151 troy ounces
Figure 2: Palladium demand by sector in 2007
4.7%
4.6%
Autocatalyst
Figure 3: Palladium turnover by exchange
0.5
Annual turnover in 2007
(Futures only million lots)
Electronics
8.2%
0.4
Jewellery
Dental
9.9%
0.3
Chemical
Other
0.2
0.1
14.6%
58.0%
0
NYMEX
Source: CPM Group, DB Global Markets Research
Global Markets Research
TOCOM
Source: TOCOM, COMEX
Page 43
September 2008
Figure
4:
companies
Com pany
A User Guide To Commodities
Major
palladium
producing
Tonnes
Ounces (m n)
Market share
Norilsk Nickel
96.8
3.11
43.3%
Anglo Platinum
43.2
1.39
19.3%
Impala
28.6
0.92
12.8%
Stillw ater Mining
12.8
0.41
5.7%
Lonmin
11.9
0.38
5.3%
North American Palladium
8.9
0.29
4.0%
Vale
5.9
0.19
2.7%
Aquarius Platinum
3.8
0.12
1.7%
Northam
2.6
0.08
1.2%
Xtrata
2.0
0.07
0.9%
Figure 5: Palladium price since 1987
1200
Palladium spot price
(USD/ )
1000
800
600
Source: CPM Group
400
200
0
1987
1990
1993
1996
1999
2002
2005
2008
Source: Bloomberg, DB Global Markets Research (data as of end July 2008)
Exchange traded & price conventions
Until 2000, when onerous restrictions were imposed on various contracts, the Tokyo
Commodities Exchange was the main exchange for trading palladium futures. During
this decade COMEX, which forms part of NYMEX has become the largest more liquid
exchange for trading palladium. The Bloomberg ticker for the palladium spot price is
PALL <Commodity>.
Page 44
Global Markets Research
September 2008
A User Guide To Commodities
Rhodium
History & properties
Rhodium has the symbol Rh and the atomic number 45. The English word rhodium
derives from the Greek rhodon meaning rose. Rhodium is an extremely rare metal,
representing less than 1 part per billion of the Earth’s crust. The metal was
discovered by the English chemist, William Hyde Wollaston in 1803, shortly after he
discovered palladium. Around 400g of rhodium can be recovered from each ton of
spent nuclear fuel. These rhodium isotopes have a half life of three years and as a
consequence need to be stored for at least 20 years.
Major producers
Like the rest of the PGM complex, the majority of the world’s reserves occur in
Southern Africa. It is produced primarily as a by-product of platinum mining in South
Africa, which accounts for over 80% of world supply. Anglo Platinum is the single
largest producer of rhodium in the world, which accounted for nearly half of South
African supply in 2007.
Major uses
Fabrication demand for Rhodium is dominated by autocatalytic applications. According
to CPM consultants, auto catalysts have accounted for about 88% of total rhodium
fabrication demand in 2007. Like platinum and palladium, it is predominantly used to
clean tailpipe emissions in light duty diesel automotives and “lean-burn” gasoline
automotives. The metal has also become increasingly important to the glass
manufacturing sector where it is used in the tooling for new flat screen and LCD
displays.
Exchange traded & price conventions
Rhodium is not an exchange traded commodity. The Bloomberg ticker for the
rhodium Johnson Matthey spot price is JMATRHOD <CMDTY>. The Reuters
instrument code (RIC) for rhodium spot price is RHOD-LON.
Figure 1: The world’s top rhodium producers and consumers in 2007
Producers
Ounces
Ounces
% of world
South Africa
654,819
82.2
USA
415,650
38.7
Russia
94,000
11.8
Europe
290,400
25.6
Canada
27,700
3.5
Japan
182,000
17.0
Zimbabwe
14,000
1.8
Other
184,800
17.2
USA
4,000
0.5
796,519
100%
World
1,072,850
100%
World
% of world Consumers
Source: CPM Group
Figure 2: Rhodium demand by sector in 2007
3.2%
3.1%
2.0%
Autocatalyst
3.9%
Source: CPM, DB Global Markets Research
Global Markets Research
10000
Glass
8000
Electronics
6000
Chemical
4000
Other
87.9%
Figure 3: Rhodium price since 1994
Rhodium price USD/oz
2000
0
1994
1996
1998
2000
2002
2004
2006
2008
Source: Reuters (data as of end July 2008)
Page 45
September 2008
A User Guide To Commodities
Other PGMs: Ruthenium, Iridium & Osmium
History & major uses
Iridium (Ir) and ruthenium (Ru) and Osmium (Os) are lesser known Platinum Group
Metals, discovered in 1803, 1844 and 1803 respectively. These metals are largely
produced as by products of nickel, platinum and palladium. While iridium is rare on
earth, it is relatively common in meteorites and has been linked to theories on the
extinction of dinosaurs. Iridium is also the most corrosion-resistant metal known to
man. Ruthenium is a rare transition metal of the PGM family and can also be
recovered from spent nuclear fuel. Osmium is the densest natural element.
Ruthenium’s primary demand category is the electronics sector (65%) where it
significantly increases the storage capacity and durability of hard disk drives. It is also
used in the making of plasma display screens. Ruthenium is also used in various
chemical catalysts.
Iridium is primarily used in high-strength alloys, capable of withstanding very high
temperatures. It is also used in electronics and in the manufacture of crucibles
required for the production of high quality single crystals, spark plug electrodes and
other chemical applications.
Osmium’s major use is as a catalyst in making steroids. Due to its hardness and
corrosion resistance osmium is often used in the production of extremely hard alloys.
Alloys of osmium are used in fountain pen nibs, electrical contacts and armourpiercing shells.
Exchange traded & price conventions
The markets for iridium and ruthenium are small and illiquid and as a result futures
markets are non-existent. The Bloomberg tickers for the iridium and ruthenium
Johnson Matthey spot price are JMATIRID <Commodity> and JMATRUTH
<Commodity> respectively. The Reuters code for iridium and ruthenium are RUTHLON and IRID-LON respectively.
The osmium market is extremely small both in terms of traded volume and the
number of companies involved in the production and consumption of the metal.
Figure 1: Ruthenium price since 1994
Figure 2: Iridium price since 1994
1000
600
Ruthenium price USD/oz
Iridium price USD/oz
800
400
600
400
200
200
0
1994
1996
1998
2000
2002
Source: Reuters (data as of end July 2008)
Page 46
2004
2006
2008
0
1994
1996
1998
2000
2002
2004
2006
2008
Source: Reuters (data as of end July 2008)
Global Markets Research
September 2008
A User Guide To Commodities
Industrial Metals
Industrial metals are non-ferrous metals, meaning they do not contain an appreciable
amount of iron. The industrial metals complex is comprised of aluminium, copper,
lead, nickel, tin and zinc. These six metals are traded on several exchanges around
the world. However, the benchmark contracts are listed on the London Metal
Exchange (LME). The LME was founded for in 1877 and much of the business is still
conducted through open outcry trading in the ‘Ring.’ Volume on the LME is
dominated by the aluminium, copper and zinc contracts, which combined represent
around 85% of all turnover on the exchange.
The LME is a highly liquid market and in 2007 turnover reached a new record of 93
million lots, equivalent to USD9,500 billion. During this decade the LME have been
increasing the number of listed futures contracts for example polypropylene, low
density polyethylene and steel billets. Aluminium is the most actively traded metal on
global exchanges. The annual production of aluminium, which reached 38.1 million
tonnes in 2007, exceeds the output of all other industrial and precious metals
combined, with the exception of steel.
One of the most important trends during this decade has been China’s voracious
appetite for industrial raw materials, which has accelerated since the country joined
the World Trade Organisation in 2001. This has led the country’s share of world
consumption of not only industrial metals, but all major raw materials to increase
substantially, Figure 3.
Figure 1: Metallgesellschaft Metals Index
Figure 2: Industrial metals primary production
500
40
450
35
400
2007 production (tonnes, million)
38.1
30
350
25
300
20
250
200
18.0
15
11.2
150
5
50
0
1957
8.1
10
100
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: Reuters, IMF; (Monthly data as of end Aug-08) ; Note: The
MGMI is a composite price index of the six LME metals which is
weighted according to traded volume
Figure 3: China’s raw materials consumption
as a percent of global consumption
60%
2000
40%
30%
20%
10%
0%
Copper
Lead
Nickel
Zinc
Source: Brook Hunt, UNCTAD, Tex Report, AME
Global Markets Research
Crude
Steel
Iron Ore
0.4
Aluminium
Copper
Zinc
Lead
Nickel
Tin
Source: Brook Hunt, World Bureau of Metal Statistics
Figure 4: The world’s top metals futures
contracts
Contract
Exchange
Turnover
2005
Turnover
2007
% change
Aluminium
LME
30.4
40.2
32%
Copper
LME
19.2
21.4
11%
Copper
Shanghai Futures Exchange
12.4
16.3
32%
2010E
50%
Aluminium
1.4
0
Zinc
LME
10.6
12.6
19%
Aluminium
Shanghai Futures Exchange
2.1
4.8
126%
Lead
LME
4.1
4.7
16%
Nickel
LME
3.5
3.8
9%
Copper
NYMEX
4
3.8
-5%
Tin
LME
1.1
1.3
18%
NASAAC
LME
10
1.2
24%
0.5
0.5
-1%
Aluminium alloy LME
Source: LME, TOCOM, NYMEX, SFE, OME (million lots)
Page 47
September 2008
A User Guide To Commodities
Aluminium
History & properties
Aluminium has the symbol Al and atomic number 13. Its name derives from the Latin
word alumen. It is one of the most abundant metallic elements in the earth’s crust
and is a silvery white colour. However, it is very rare in its free form, occurring often
in volcanic mud, but more often is found combined in other minerals, and specifically
bauxite ore. Its most important characteristics are its resistance to corrosion and its
light weight. Aluminium has been commercially produced since 1888. Today, more
aluminium is produced annually than all other non-ferrous metals combined.
Aluminium is extremely difficult to separate from the ore body (bauxite) and
consequently difficult to refine, requiring enormous amounts of energy. Two to three
tonnes of bauxite are required to produce one tonne of alumina (aluminium oxide) and
two tonnes of alumina are required to produce one tonne of aluminium metal. The
basis for aluminium production today dates back to 1886 when scientists invented a
new electrolytic process whereby aluminium oxide (alumina) was dissolved in a bath
of molten cryolite and a powerful electric current passed through them. Molten
aluminium would be then deposited at the bottom of the bath.
Major producers & consumers
The world’s major primary aluminium producers are China, Russia and Canada. In
terms of exports, Russia accounts for the lion’s share with 22%. The main importers
are the Japan, US, and Germany. However, in terms of bauxite mine production
Australia, Brazil, China, India and Guinea accounted for over 75% of world mine
production in 2007. In terms of identified bauxite resources, the US Geological Survey
estimates these at between 55 to 75 billion tonnes located in South America (33%),
Africa (27%), Asia (17%) and Oceania (13%). Rio Tinto, Rusal and Alcoa are the three
largest companies in terms of aluminium smelting, with a production share of 32% in
2007.
Major uses
Aluminium combines unique characteristics that make it highly attractive. It is
lightweight, but, very strong and durable. It is highly conductive, non-corrosive,
malleable, recyclable and has historically been priced cheaply compared to its peer
metals. It is primarily used in the transportation, packaging (cans), defence and
consumer electronic industries. Most materials that claim to be aluminium are in fact
an aluminium alloy. Since aluminium weighs less than one-third as much as steel, its
high strength-to-weight ratio makes aluminium suitable for the construction of
aircraft, cars and train carriages. Building construction and transportation equipment
account for around 50% of aluminium consumption, Figure 4. Given the cost of
production, recovery of this metal from scrap has become an important component of
the aluminium industry.
Figure 1: The world’s top 10 aluminium producers, consumers, exporters and importers in 2007
Refined
Tonnes % of
Refined
production
China
Russia
Canada
USA
Australia
Brazil
Norway
India
S. Africa
UAE
World
(000s)
12,559
3,955
3,083
2,560
1,959
1,655
1,354
1,223
898
890
38,087
consumption
China
USA
Japan
Germany
Italy
Korea
Russia
India
Brazil
France
World
world
33%
10%
8%
7%
5%
4%
4%
3%
2%
2%
Tonnes % of
(000s)
12,347
5,580
2,197
2,008
1,087
1,081
1,020
1,020
854
737
37,246
world
33%
15%
6%
5%
3%
3%
3%
3%
2%
2%
Refined
exports
Russia
Canada
Australia
Norway
Brazil
Netherlands
S. Africa
China
Iceland
Germany
Total
Tonnes
(000s)
3,949
2,501
1,659
1,610
823
795
625
546
446
423
17,671
% of
world
22%
14%
9%
9%
5%
4%
4%
3%
3%
2%
Refined
Tonnes % of
imports
Japan
USA
Germany
Korea
Italy
Netherlands
Belgium
France
Norway
Taiwan
Total
(000s)
2,986
2,951
2,231
1,169
1,079
1,043
754
587
508
504
19,171
world
16%
15%
12%
6%
6%
5%
4%
3%
3%
3%
Source: World Bureau of Metal Statistics, Brook Hunt
Page 48
Global Markets Research
September 2008
Figure 2:
producers
A User Guide To Commodities
The
world’s
top
Country
Tonnes (000s)
Australia
62,428
Brazil
22,836
10
bauxite
% of world
Figure 3: The world’s top 10 bauxite producers
Country
Tonnes (000s)
% of world
33%
China
20,900
26%
12%
Australia
19,248
24%
7,132
9%
China
21,600
11%
Brazil
India
19,308
10%
USA
4,636
6%
Guinea
18,908
10%
Jamaica
3,997
5%
Jamaica
14,568
8%
Russia
3,322
4%
Russia
6,054
3%
India
3,178
4%
Surinam
5,273
3%
Surinam
2,178
3%
Kazakhstan
5,000
3%
Ireland
1,806
2%
3%
Ukraine
1,653
2%
Total
81,053
Venezuela
4,936
World
191,655
Source: Brook Hunt (2007 data)
Source: Brook Hunt (2007 data)
Exchange traded
Aluminium is traded on the London Metal Exchange (LME), the New York Mercantile
Exchange (NYMEX), the Tokyo Commodity Exchange, the Osaka Mercantile
Exchange (OME) and the Shanghai Futures Exchange (SFE). The LME aluminium
forward is quoted in US dollars per tonne. On NYMEX, aluminium is quoted in US
cents per pound.
The Bloomberg ticker for the 3M aluminium forward is LMAHDS03 <Index>. The
Bloomberg ticker for the Deutsche Bank Aluminium total returns and excess returns
indices are DBRMALTR <Index> and DBRMAL <Index> respectively. The Bloomberg
ticker for the DB Aluminium-Optimum Yield total returns and excess returns indices
are DBLCOALT <Index> and DBLCOALE <Index> respectively. LSAH <Index> tracks
aluminium inventories on the London Metal Exchange.
Figure 4: Aluminium consumption by first
use in 2007
Figure 5: Aluminium prices since 1957
4000
10%
22%
Building &
Construction
Aluminium cash price (USD/tonne)
3500
3000
Transport
22%
Electrical
2500
2000
1500
Packaging
11%
35%
1000
500
Consumer Goods
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Source: Brook Hunt
Global Markets Research
Source: Reuters, IMF; (Monthly data as of end Aug-08)
Page 49
September 2008
A User Guide To Commodities
Figure 6: Controlling companies in aluminium smelting in 2007
Company name
Rio Tinto plc
United Company Rusal
Alcoa Inc
Norsk Hydro ASA
BHP Billiton Group
State of United Arab Emirates
State of Bahrein
Glencore International AG
State of Venezuela
AdityaBirla Group
Country
UK
Russia
USA
Norway
Australia
UAE
Bahrain
Switzerland
Venezuela
India
Controlled production (‘000 tonnes)
4,364
4,178
3,693
1,688
1,372
890
875
765
616
455
% of world
11.6%
11.1%
9.8%
4.5%
3.6%
2.4%
2.3%
2.0%
1.6%
1.2%
Source: Raw Materials Group
Figure 7: Controlling companies in alumina refining in 2007
Company name
Alcoa Inc
United Company Rusal
State of China
Rio Tinto plc
Alumina Ltd
BHP Billiton Group
Companhia Vale do Rio Doce (Vale)
Glencore International AG
Norsk Hydro ASA
State of Venezuela
Country
USA
Russia
China
UK
Australia
Australia
Brazil
Switzerland
Norway
Venezuela
Controlled production (‘000 tonnes)
10,080
9,806
9,675
9,406
5,813
4,551
2,445
2,125
1,944
1,900
% of world
13.1%
12.7%
12.6%
12.2%
7.6%
5.9%
3.2%
2.8%
2.5%
2.5%
Source: Raw Materials Group
Figure 8: Controlling companies in bauxite mining in 2006
Company name
Alcoa Inc
Alumina Ltd
Rio Tinto plc
BHP Billiton Group
Alcan Inc
Glencore International AG
Companhia Vale do Rio Doce
State of Guinea
Rusal - Russky Aluminii
Siberian-Urals Aluminium Company Group
Country
USA
Australia
UK
Australia
Canada
Switzerland
Brazil
Guinea
Russia
Russia
Controlled production (Mn tonnes)
27.6
16.6
16.1
12.0
11.3
8.4
7.3
6.6
6.2
5.5
% of world
16.1%
9.7%
9.4%
7.0%
6.5%
4.9%
4.3%
3.9%
3.6%
3.2%
Source: Raw Materials Group
Page 50
Global Markets Research
September 2008
A User Guide To Commodities
Copper
History & properties
Copper has the symbol Cu and has the atomic number 29. It is reddish in colour and
highly electrically conductive. The word copper originates from the Mediterranean
island of Cyprus, or Kupros in Greek, where it was originally mined. It is the oldest
mined commodity in the world dating back more than 10,000 years. When mixed
with tin it becomes bronze and when combined with zinc it produces brass.
Major producers & consumers
The world’s major copper mine producing countries are Chile, the United States, Peru
and Australia. However, Chile accounts for over 35% of world exports. The stateowned Chilean mining company Codelco and US producer Freeport McMoran each
control around 10% of the world’s copper production. BHP Billiton, Xstrata and Rio
Tinto are the next three largest mining companies followed by Grupo Mexico. The top
10 copper mining companies controlled 58% of copper production in 2007. Along
with aluminium and nickel, the copper market is one of the most concentrated in the
mining sector.
In 2007, China overtook the USA as the largest importer of refined copper. Similarly,
copper imports of many other developing economies are rising rapidly as a result of
urbanisation and the consequent structural shift in global consumption trends.
Major uses
Copper is used extensively in electrical applications accounting for about 75% of total
copper usage with building construction being the single largest market. Since copper
is biostatic, that is bacteria will not grow on its surface, it is also used in airconditioning systems, and as an anti-germ surface in hospitals. In terms of
substitutes, aluminium can replace copper’s use in power cables, electrical
equipment, automobile radiators and cooling and refrigeration tubes while plastic can
substitute for copper in water and drain pipes and plumbing fixtures.
Figure 1: The world’s top 10 copper producers, consumers, exporters and importers in 2007
Mine
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
Chile
USA
Peru
Australia
China
Indonesia
Russia
Canada
Zambia
Poland
(000s)
5,557
1,223
1,190
870
831
773
770
589
544
452
world
36%
8%
8%
6%
5%
5%
5%
4%
4%
3%
consumption
China
USA
Germany
Japan
Korea
Italy
Russia
Taiwan
India
France
(000s)
4,861
2,170
1,392
1,252
857
764
687
603
442
337
world
27%
12%
8%
7%
5%
4%
4%
3%
2%
2%
exports
Chile
Peru
Zambia
Japan
Kazakhstan
Canada
Australia
Russia
Poland
Belgium
(000s)
2,910
512
491
428
357
298
295
275
240
201
world
39%
7%
7%
6%
5%
4%
4%
4%
3%
3%
imports
China
Germany
USA
Italy
China
France
Korea
Thailand
Brazil
Malaysia
(000s)
1496
844
832
746
615
432
419
245
218
196
world
22%
12%
12%
11%
9%
6%
6%
4%
3%
3%
World
15,541
World
17,964
Total
7,472
Total
6,936
Source: World Bureau of Metal Statistics, Brook Hunt
Global Markets Research
Page 51
September 2008
A User Guide To Commodities
Figure 2: Refined copper production by
country in 2007
Country
Tonnes (000s)
% of world
China
3,497
19%
Chile
2,937
Japan
USA
Figure 3: Identified copper resources
Reserves
Reserve base
Country
Tonnes (000s)
Tonnes (000s)
Chila
140,000
360,000
16%
USA
35,000
70,000
1,577
9%
Indonesia
35,000
38,000
1,351
8%
Peru
30,000
60,000
Poland
30,000
48,000
Russia
962
5%
India
719
4%
Germany
666
4%
Australia
24,000
43,000
S. Korea
584
3%
Russia
2,000
30,000
Zambia
522
3%
Zambia
19,000
35,000
3%
Kazakhstan
14,000
20,000
Other countries
67,000
130,000
Canada
453
World
17,972
Mexico
27,000
40,000
China
26,000
63,000
Source: Brook Hunt
Source: US Geological Survey (2007 data)
Exchange traded & price conventions
Copper is traded on the London Metal Exchange (LME), the COMEX division of the
New York Mercantile Exchange (NYMEX) as well as the Shanghai Futures Exchange
(SFE). The copper price is quoted in USD per tonne on the LME and US cents per
pound on NYMEX. The Bloomberg ticker for the LME 3M copper forward is
LMCADS03 <Index>. The Bloomberg ticker for the DB Copper-Optimum Yield total
returns and excess returns indices are DBLCYTCU <Index> and DBLCYECU <Index>
respectively. LSCA <INDEX> tracks copper inventories on the LME.
Figure 4: Copper consumption by first use
Figure 5: Copper price since 1957
10000
Copper cash price (USD/tonne)
9000
10%
Construction
8000
11%
35%
Electronic products
7000
6000
Industrial
Machinery
Transport
12%
5000
4000
3000
Consumer
Products
2000
1000
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
32%
Source: Brook Hunt (2007 data)
Source: Reuters, IMF; (Monthly data to end-Aug 08)
Figure 6: Controlling companies in copper mining in 2007
Company name
Freeport McMoran Copper & Gold Inc
Corporacion Nacional del Cobre de Chile (Codelco)
BHP Billiton Group
Xstrata plc
Rio Tinto plc
Grupo Mexico SA de CV
Anglo American plc
KGHM Polska Miedz SA
Norilsk Nickel Mining & Metallurgical Company
Antofagasta plc
Country
USA
Chile
Australia
Switzerland
UK
Mexico
UK
Poland
Russia
UK
Controlled production (‘000 tonnes)
1680
1668
1155
938
801
789
665
460
434
428
% of world
10.9%
10.8%
7.5%
6.1%
5.2%
5.1%
4.3%
3.0%
2.8%
2.8%
Source: Raw Materials Group
Page 52
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September 2008
A User Guide To Commodities
Lead
History & properties
Lead has the symbol Pb and atomic number 82 and is a bluish-white lustrous metal.
The symbol Pb is derived from the Latin word plumbum. The use of lead in pipes also
gave rise to the English word for plumber. It is very soft, highly malleable, ductile, but,
is a relatively poor conductor of electricity. Lead is very resistant to corrosion, but,
tarnishes upon exposure to air. Lead was one of the first metals to be used by man,
dating back more than 5,500 years. It is usually found in association with zinc, silver
as well as copper ores.
Major producers & consumers
China and Australia are the world’s major producers as well as refined consumers of
lead. Secondary production or recycling is now widely practised and currently
accounts for more than 50% of usage worldwide.
Major uses
The principal use of lead is in the manufacture of batteries, primarily for use in
automobiles, motorcycles and electric cars and bicycles. While the metal had been
widely used in plumbing and petroleum products, it has more recently been phased
out from these uses because of its toxic nature.
Exchange traded
The only international exchange where lead is traded is the London Metal Exchange
(LME). The Bloomberg ticker for the 3M forward price is LMPBDS03 <Index>. The
Bloomberg ticker for the DB Lead-Optimum Yield total returns and excess returns
indices are DBLCYTPB <Index> and DBLCYEPB <Index> respectively.
Figure 1: Lead price since 1957
25000
Figure 2: Lead consumption by first use in 2007
Lead cash price (USD/tonne)
Batteries - SLI Replacement
20.77
20000
Batteries - SLI Original Equipment
15000
42.08
10000
Batteries - Traction
12.25
Batteries - Stationary
5000
10.59
0
1957
Non Battery Uses
14.30
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: Reuters, IMF; (Monthly data to end-Aug 08)
Source: Brook Hunt
Figure 3: The world’s top 10 lead producers, consumers, exporters and importers in 2007
Mine
Tonnes
production (000s)
China
1,205
Australia
605
USA
410
Peru
304
Mexico
125
Canada
78
Sweden
66
Ireland
57
Morocco
46
Poland
43
World
% of
Refined
Tonnes % of
Refined
Tonnes
% of
Refined
Tonnes
% of
world
36%
18%
12%
9%
4%
2%
2%
2%
1%
1%
consumption
China
USA
Germany
S. Korea
Spain
Italy
UK
Mexico
Japan
France
(000s)
2,665
1,570
408
340
270
269
239
238
218
216
exports
China
Australia
Canada
Peru
Germany
Belgium
Singapore
Russia
UK
Sweden
(000s)
244
222
169
120
113
112
74
68
68
60
world
15%
13%
10%
7%
7%
7%
4%
4%
4%
4%
imports
USA
Spain
France
S. Korea
Germany
Italy
Taiwan
Thailand
Indonesia
Czech Rep.
(000s)
257
139
113
112
108
94
78
68
67
65
world
15%
8%
7%
7%
6%
5%
5%
4%
4%
4%
World
8,377
Total
1,655
Total
1,716
3,355
world
32%
19%
5%
4%
3%
3%
3%
3%
3%
3%
Source: World Bureau of Metal Statistics, Brook Hunt
Global Markets Research
Page 53
September 2008
A User Guide To Commodities
Figure 4: Refined lead production by country
Country
Tonnes (000s)
China
2,896
USA
1,273
Germany
381
Figure 5: Identified lead resources
% of world
36%
16%
5%
Reserves
Reserve base
Country
Tonnes (000s)
Tonnes (000s)
Australia
15,000
28,000
China
11,000
36,000
USA
8,100
20,000
Kazakhstan
5,000
7,000
Peru
3,500
4,000
Canada
2,000
9,000
Mexico
1,500
2,000
Morocco
500
1,000
500
1,000
Japan
259
3%
South Korea
255
3%
Mexico
251
3%
UK
244
3%
Australia
244
3%
Kazakhstan & CIS
231
3%
Sw eden
Canada
227
3%
South Africa
400
700
World
8,083
Other countries
19,000
30,000
Source: Brook Hunt (2007 data)
Source: US Geological Survey (2007 data)
In recent years, significant lead reserves have been found in association with zinc
and/or silver or copper deposits in Australia, Canada, Chile, Ireland, Mexico, Peru,
Portugal and the US. Identified lead resources of the world are estimated to total
more than 1.5 billion tonnes, according to the US Geological Survey. In terms of
substitutes, plastics have reduced the use of lead in building construction, electrical
cable covering, cans and containers.
Aluminium, iron, plastics and tin compete with lead in other packaging and protective
coating. Tin has replaced lead in solder for new or replacement potable water
systems in the US. In the electronics industry, there has been a discernible move
towards lead-free solders with varying compositions of tin, bismuth, silver and
copper.
Figure 6: Controlling companies in lead mining in 2007
Company name
BHP Billiton
Doe Run Co
Xstrata plc
Teck Cominco Ltd
Volcan Cia Minera SA
Vedanta Resources plc
Zinifex Ltd (Oz Minerals)
Industrias Penoles SA de CV
Boliden AB
Cia de Minas Buenaventura SA
Country
Australia
USA
Switzerland
Canada
Peru
UK
Australia
Mexico
Sweden
Peru
Controlled production (‘000 tonnes)
258.3
230.0
215.2
147.2
114.8
75.0
65.3
59.3
54.2
52.1
% of world
7.2%
6.4%
6.0%
4.1%
3.2%
2.1%
1.8%
1.7%
1.5%
1.5%
Source: Raw Materials Group
Page 54
Global Markets Research
September 2008
A User Guide To Commodities
Nickel
History & properties
Nickel has the symbol Ni and atomic number 28. It is a hard, malleable, ductile metal
that has a silvery tinge that can take on a high polish. Nickel occurs in nature
principally as oxides, sulphides and silicates. Nickel is primarily used in the production
of stainless steel and other corrosion-resistant alloys.
Major producers
The major nickel producing countries are Russia, Canada, Indonesia and Australia.
Ores of nickel are mined in about 20 countries on all continents, and are smelted
and/or refined in about 25 countries. Russia, Canada and Norway are the world’s
largest nickel exporters accounting for almost 80% of world exports.
Major uses
The chief use of nickel is in the production of stainless steel accounting for 70% of
nickel usage in 2007. Nickel helps to improve the durability and corrosion resistance
of steel, making it highly attractive for specialty products and applications exposed to
the weather Apart from the steel industry, nickel has uses in the production of other
steel and non-ferrous alloys including "super" alloys, often for highly specialized
industrial, aerospace and military applications. It is also used in plating and coins.
Exchange traded
Nickel is traded on the London Metal Exchange (LME) and is quoted in US dollars per
tonne. The Bloomberg ticker for the 3M forward is LMNIDS03 <Index>. The
Bloomberg ticker for the DB Nickel-Optimum Yield total returns and excess returns
indices are DBLCYTNI <Index> and DBLCYENI <Index> respectively.
Figure 1: Nickel consumption by first use in
2007
8%
Figure 2: Stainless steel consumption by first
use in 2007
3%
5%
Household and catering
6%
Stainless and Alloy Steel
9%
33%
Plating
Industrial equipment
14%
Transport
10%
Non-ferrous Alloys
Construction
Other
70%
Welded tubes
17%
Foundry
25%
Source: CRU
Other
Source: CRU
Figure 3: The world’s top 10 nickel producers, consumers, exporters and importers in 2007
Mine
Tonnes
production (000s)
Russia
288.0
Canada
254.8
Indonesia
188.4
Australia
184.0
N Caledonia
125.2
Columbia
100.5
Philippines
79.5
Cuba
78.4
China
67.5
Brazil
38.4
World
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes % of
world
18%
16%
12%
12%
8%
6%
5%
5%
4%
2%
consumption
China
Japan
USA
Germany
Taiwan
S. Korea
Italy
Spain
Belgium
Sweden
(000s)
330.0
169.0
134.6
96.5
69.5
62.5
53.8
44.0
41.1
36.5
world
23%
12%
9%
7%
5%
4%
4%
3%
3%
3%
exports
Russia
Canada
Norway
Australia
Finland
UK
S. Africa
Belgium
China
Brazil
(000s)
244.0
135.3
88.5
71.6
43.3
31.4
20.7
16.7
14.6
13.3
world
36%
20%
13%
11%
6%
5%
3%
2%
2%
2%
imports
China
USA
Germany
Australia
Japan
Belgium
Taiwan
Sweden
Spain
S. Korea
(000s)
107.5
102.0
75.9
70.5
58.6
39.8
29.0
27.0
21.0
19.5
World
1,323
Total
679
Total
551
1600
world
20%
19%
14%
13%
11%
7%
5%
5%
4%
4%
Source: World Bureau of Metal Statistics, Brook Hunt
Global Markets Research
Page 55
September 2008
A User Guide To Commodities
Figure 4: Refined nickel production by country
Country
Tonnes (000s)
Russia
272
Figure 5: Identified nickel resources
% of world
19%
Reserves
Reserve base
Country
Tonnes (000s)
Tonnes (000s)
Australia
22,000
27,000
Russia
6,600
9,200
China
199
14%
Japan
166
12%
Canada
163
11%
Australia
111
8%
Brazil
4,500
8,300
Norway
88
6%
New Caledonia
4,400
12,000
Finland
55
4%
South Africa
3,700
12,000
Colombia
49
3%
Indonesia
3,200
13,000
1,100
7,600
Cuba
5,600
23,000
Canada
4,900
15,000
New Caledonia
45
3%
China
Cuba
42
3%
Philippines
940
5,200
Other countries
5,205
10,710
World
1,431
Source: Brook Hunt (2007 data)
Source: US Geological Survey (2007 data)
Identified land-based resources averaging 1% nickel or greater contain at least 130
million tonnes of nickel. Around 65-70% of this resource is in laterites and the rest in
sulphide deposits. Although sulphide deposits are usually deeper to mine, lateritic
deposits contain different quantities of iron, magnesium and silica and must be
processed differently which only until very recently was viewed as uneconomical.
Indonesia, Australia and New Caledonia combined account for around 60% of global
nickel laterite reserves and several new projects are expected to bring new material
to the market in the coming years.
There are dozens of grades of stainless steel, most of which require high-grade nickel
to produce the ideal anti-corrosive base material for a number of commercial
applications. Aluminium, coated steels and plastics can replace stainless steel to a
limited extent in some construction and transportation applications. Nickel-free
speciality steels are sometimes used in place of stainless steels with the power
generating, petrochemical and petroleum industries. Titanium alloys or speciality
plastics can substitute for nickel metal or nickel-base alloys in highly corrosive
chemical environments. Historically, substitutes for nickel would result in increased
cost or a trade-off in the performance of the end products. However, a more recent
substitution has appeared that has dramatically affected the nickel market.
China began importing laterite ores in 2005 in order to produce a low nickel bearing
product called pig iron. Although cheaper to produce than primary nickel, pig iron is
also labour intensive, energy inefficient and polluting. So far, most pig iron produced
has only been suitable for utilisation in the lower grades of stainless steel. It is
expected that superior pig iron for use in higher quality stainless will eventually occur.
Figure 6: Controlling companies in nickel mining in 2007
Company name
Norilsk Nickel
Companhia Vale do Rio Doce (Vale)
BHP Billiton Group
PT Antam Tbk
Xstrata plc
State of Cuba
State of China
Anglo American plc
Eramet-SLN
Sumitomo Metal Mining Co Ltd
Country
Russia
Brazil
Australia
Indonesia
Switzerland
Cuba
China
UK
France
Japan
Controlled production (‘000 tonnes)
278.8
228.1
131.5
110.0
85.2
60.0
55.0
42.8
33.6
31.3
% of world
18.1%
14.8%
8.5%
7.1%
5.5%
3.9%
3.6%
2.8%
2.2%
2.0%
Source: Raw Materials Group
Page 56
Global Markets Research
September 2008
A User Guide To Commodities
Tin
History & properties
Tin has the symbol Sn and atomic number 50. It is silvery-white, lustrous grey
metallic element. It is also soft and pliable. The symbol Sn is derived from the Latin
word stannum, meaning dripping because the metal melts easily. Tin is one of the
earliest metals known to man and because of its hardening effect on copper, it was
used in bronze implements as early as 3,500BC.
Major producers
The principle ore of tin is the mineral cassiterite, the majority of which is found in
Indonesia, China and Peru. World resources, principally in West Africa, South East
Asia, Australia, Bolivia, Brazil, China and Russia are sufficient to sustain recent annual
production rates well into this century.
Major uses
The main uses of tin are in soldering in the electronics industry and tinplating. It is
also commonly used in glass manufacture and super-conducting magnets.
Aluminium, glass, paper, plastic or tin-free steels can substitute for tin in cans and
containers. Other materials that substitute for tin are epoxy resins for solders, copperbased alloys and plastics for bronze, plastic for bearing metals that contain tin and
compounds of lead and sodium for some tin in chemicals.
Figure 1: Tin prices since 1957
Figure 2: US tin consumption by finished
product
Tin cash price
(USD/tonne)
25000
12%
20000
2%
Solders
8%
39%
15000
Chemicals
Tinplate
10000
15%
Bronze and brassware
Tinning
5000
Others
24%
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Source: Reuters, IMF; (Monthly data to Aug-08)
Source: CRU (2007)
Figure 3: The world’s top 10 tin producers, consumers, exporters and importers in 2007
Mine
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
China
Indonesia
Peru
Bolivia
DRC
Brazil
Vietnam
Russia
Malaysia
Nigeria
(000s)
136.3
102.0
39.0
16.0
12.0
9.6
5.4
5.1
2.8
2.4
world
41%
30%
12%
5%
4%
3%
2%
2%
1%
1%
consumption
China
USA
Japan
Germany
S. Korea
Taiwan
India
France
Spain
Brazil
(000s)
132.2
33.7
34.2
22.7
16.1
12.7
8.1
7.1
7.0
6.0
world
37%
9%
10%
6%
4%
4%
2%
2%
2%
2%
exports
Indonesia
Singapore
Peru
China
Thailand
Malaysia
Bolivia
USA
Brazil
India
(000s)
75.5
50.0
34.8
23.5
18.8
13.5
11.8
8.4
5.6
4.7
world
29%
19%
13%
9%
7%
5%
5%
3%
2%
2%
imports
Singapore
USA
Japan
Germany
S. Korea
Taiwan
UK
Netherlands
France
Spain
(000s)
47.5
34.6
33.5
23.9
16.4
13.7
13.6
7.9
7.7
7.1
world
20%
15%
14%
10%
7%
6%
6%
3%
3%
3%
World
335.4
World
358.5
Total
260.9
Total
236.5
Source: World Bureau of Metal Statistics
Global Markets Research
Page 57
September 2008
A User Guide To Commodities
Figure 4: Refined tin production by country
Country
Tonnes (000s)
Figure 5: Identified tin resources
% of world
Reserves
Reserve base
Country
Tonnes (000s)
Tonnes (000s)
China
1,700
3,500
China
147
42%
Indonesia
78
22%
Malaysia
1,000
1,200
USA
38
11%
Indonesia
800
900
Peru
36
10%
Peru
710
1,000
Malaysia
25
7%
Brazil
540
2,500
Bolivia
450
900
Russia
300
350
Thailand
170
200
Australia
145
300
Portugal
70
80
USA
20
40
Other countries
180
200
Thailand
18
5%
Bolivia
12
3%
Brazil
10
3%
Belgium
8
2%
Russia
5
1%
World
351
Source: World Bureau of Metal Statistics (2007 data)
Source: US Geological Survey (2007 data)
Exchange traded
Tin is traded on the London Metal Exchange (LME) and is quoted in US dollars per
tonne. The Bloomberg ticker for the 3M forward is LMSNDS03 <Index>. However,
turnover is very illiquid, representing less than 2% of total turnover on the LME in
2005.
Figure 6: Controlling companies in tin mining in 2007
Company name
PT Timah Tbk
Minsur SA
Straits Trading Co Ltd
State of Bolivia
Paranapanema SA
Metals X Ltd
Glencore International AG
State of UK
Country
Indonesia
Peru
Singapore
Bolivia
Brazil
Australia
Switzerland
UK
Controlled production (‘000 tonnes)
61.8
39.0
11.3
7.7
6.0
2.0
1.3
1.3
% of world
18.7%
11.8%
3.4%
2.3%
1.8%
0.6%
0.4%
0.4%
Source: Raw Materials Group
Page 58
Global Markets Research
September 2008
A User Guide To Commodities
Zinc
History & properties
Zinc has the symbol Zn and atomic number 30 and is bluish grey in colour. Centuries
before zinc was recognised as a distinct element, zinc ores were used for making
brass in India and China. Zinc was recognised as a separate metal in Europe in 1546.
Englishman William Champion established the first commercial zinc smelter in Bristol
in 1747. Zinc is the fourth most common metal in use, behind iron, aluminium and
copper in terms of annual production.
Major producers
Zinc ores are mined in more than fifty countries with Canada and Australia being the
leading exporters. China dominates zinc refining, commanding one third of global
production in 2007. Zinc has several substitutes since aluminium, steel and plastics
substitute for galvanised steel. Plastic coating, paint, cadmium and aluminium alloy
coating can also replace zinc for corrosion protection. Unlike nickel and copper, the
share of zinc production in the hands of the top 10 mining companies is less than
50%.
Major uses
Roughly 55% of all metallic zinc produced today is used to galvanise other metals
such as steel or iron to prevent corrosion. Large quantities of zinc are used to produce
die castings, which are used extensively by the automotive, electrical and hardware
industries. Zinc is also used as a chemical compound in rubber, ceramics, paints and
agriculture.
Figure 1: Zinc price since 1957
5000
Figure 2: Zinc demand by first use in 2007
Zinc cash price (USD/tonne)
15%
4500
Construction
4000
3500
7%
Transport
3000
2500
Industrial
Machinery
49%
2000
18%
1500
Consumer
Products
1000
Infrastructure
500
0
1957
11%
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: Reuters, IMF; (Monthly data to Aug-08)
Source: Brook Hunt
Figure 3: The world’s top 10 zinc producers, consumers, exporters and importers in 2007
Mine
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
Refined
Tonnes
% of
production
China
Australia
Peru
USA
Canada
India
Kazakhstan
Mexico
Ireland
Namibia
(000s)
3,163
1,412
1,395
756
618
533
450
435
401
223
world
28%
13%
13%
7%
6%
5%
4%
4%
4%
2%
consumption
China
USA
Japan
Germany
India
Korea
Italy
Belgium
Spain
France
(000s)
3,531
1,097
599
559
469
554
348
332
244
295
world
31%
10%
5%
5%
4%
5%
3%
3%
2%
3%
exports
Canada
Australia
Netherlands
China
Finland
Korea
Spain
Mexico
Namibia
Norway
(000s)
614
404
301
276
260
257
220
197
152
131
world
22%
14%
11%
10%
9%
9%
8%
7%
5%
5%
imports
USA
Italy
Germany
Netherlands
Taiwan
Belgium
France
China
UK
Malaysia
(000s)
758
315
315
286
229
210
165
149
135
114
world
28%
12%
12%
11%
9%
8%
6%
6%
5%
4%
World
11,115
World
11,495
Total
2,812
Total
2,676
Source: World Bureau of Metal Statistics, Brook Hunt
Global Markets Research
Page 59
September 2008
A User Guide To Commodities
Figure 4: Refined zinc production by country
in 2007
Country
Tonnes (000s)
Figure 5: Identified zinc resources
Reserves
Reserve base
Country
Tonnes (000s)
Tonnes (000s)
% of world
China
3,714
33%
Canada
802
7%
China
33,000
92,000
Australia
33,000
80,000
USA
30,000
90,000
Kazakhstan
30,000
35,000
South Korea
708
6%
Japan
610
5%
Australia
506
5%
Spain
494
4%
India
448
4%
Peru
16,000
20,000
Kazakhstan
340
3%
Canada
11,000
31,000
Mexico
8,000
25,000
Other countries
59,000
87,000
Mexico
331
3%
Finland
307
3%
World
11,238
Source: International Lead and Zinc Study Group
Source: US Geological Survey (2007 data)
Exchange traded
Zinc is traded on the London Metal Exchange (LME) and is quoted in US dollars per
tonne. The Bloomberg ticker for the 3M forward is LMZSDS03 <Index>. It is the third
most liquid contract on the LME, after aluminium and copper. The Bloomberg ticker
for the DB Zinc-Optimum Yield total returns and excess returns indices are
DBLCYTZN <Index> and DBLCYEZN <Index> respectively.
Figure 6: Controlling companies in zinc mining in 2007
Company name
Country
Controlled production (‘000 tonnes)
% of world
Xstrata plc
Switzerland
840.0
7.5%
Teck Cominco Ltd
Canada
705.5
6.3%
Zinifex Ltd (Oz Minerals)
Australia
621.6
5.6%
Glencore International AG
Switzerland
539.7
4.8%
Vedanta Resources plc
UK
535.0
4.8%
Volcan Cia Minera SA
Peru
345.5
3.1%
Anglo American plc
UK
335.7
3.0%
Boliden AB
Sweden
319.4
2.9%
Votorantim, SA Industrias
Brazil
180.0
1.6%
Industrias Penoles SA de CV
Mexico
179.8
1.6%
Source: Raw Materials Group
Page 60
Global Markets Research
September 2008
A User Guide To Commodities
Iron Ore
History & properties
Iron has the symbol Fe and is one of the most abundant of all metals in the Earth’s
crust. It exists naturally in chemical combination with oxygen (or iron oxide) and
concentrations of iron oxide in the earth’s crust are known as iron ore. Ideally, iron ore
contains only iron and oxygen, but contaminants such as silica, phosphorus,
aluminium and sulphur are often present in varying concentrations. Iron ore is the
primary raw material input into iron and steel production, thus one of the most
consumed commodities on the market. Taken literally, iron ore refers to the actual
rocks from which metallic iron is extracted, which are generally a rusty red colour as a
result of oxidization. Around 85% of global production is obtained from open pit
mines with the rest coming from underground mines. Depending on the ore quality
(iron content), iron ore is either crushed into manageable sized rock or ground and
treated to remove some of the impurities such as silicon, phosphorus, aluminium,
and/or sulphur as well as impregnations of waste rock. The output comes in various
forms of different sizes or strengths (lump, fines, sinter or pellets) which are then
sold to steel makers for use as feed in blast furnaces.
Major producers
By volume, the global iron ore market towers over other metals. In 2007, total global
production of iron ore was 2,220 million tonnes while the combined out put of the six
LME metals was 77.3 million tonnes. Approximately 60% of the two billion tonnes of
iron ore produced globally is used domestically, with the remaining amount shipped
long distances. Although China is technically the largest producer of iron ore, most
production is used domestically. The global market is dominated by two countries:
Brazil (335Mt in 2007) and Australia (294Mt in 2007). Combined the three largest
producing companies Vale, BHP Billiton and Rio Tinto, supply 70% of the world’s iron
ore exports.
Major uses
Almost all iron ore mined (98%) is used for steelmaking. Other than the iron content
and impurities, iron ore consists mainly of oxygen. In order to remove the oxygen, the
ore is placed in a blast furnace at high temperatures and mixed with a carbon element
in the form of coke, which “reduces” the iron or strips the oxygen off the iron
forming carbon dioxide as a result. The result is a molten metal when cooled
becomes pig iron. By itself, raw iron can be brittle because of its high carbon content
and thus not strong and hard enough for construction and other applications.
Therefore raw iron is alloyed with various other elements such as nickel, chromium,
manganese, vanadium and tungsten to make steel. Other than steel making, iron ore
is also used in production of metallurgy products, magnets, auto parts, chemical
catalysts and paints.
Figure 1: Major exporters and importers of iron ore in 2007
Exporters
Brazil
Australia
India
S. Africa
Canada
Russia
Ukraine
Sweden
Kazakhstan
Mauritania
Total
Tonnes (miillon)
270
265
100
30
29
26
21
19
16
12
834.0
% of world
32%
32%
12%
4%
4%
3%
3%
2%
2%
1%
Importers
China
Japan
S. Korea
Germany
France
UK
Taiwan
Italy
Netherlands
Belgium/Luxembourg
Total
Tonnes (Million)
383.6
138.9
44.3
44.1
20.7
16.7
16.0
17.2
12.5
9.5
% of world
46%
17%
5%
5%
3%
2%
2%
2%
2%
1%
834.1
Source: AME
Global Markets Research
Page 61
A User Guide To Commodities
Figure 2: Iron ore prices lag steel prices
1400
USD/ t
1200
US HRC
140
Japan HRC
120
China HRC
1000
80
600
60
400
40
200
20
0
Sep-86
Mar-92
Sep-97
Feb-03
2500
0
A ug-08
Source: CRU, DB Global Markets Research, (Data to 10-Aug-08)
Apparent demand for iron ore
Equivalent world production
2000
100
I
800
Figure 3: Global iron ore demand & production
Tonnes (million)
September 2008
1500
1000
500
2000
2001
2002
2003
2004
2005
2006
2007 2008E 2009E 2010E
Source: AME, IISI, DB Global Markets Research
Pricing
Around 90-95% of all iron ore is procured on a contractual basis on a Japanese
financial year basis, based on annual negotiations between producers and steel
makers. A spot market does exist and third party industry consultants provide weekly
indications of those levels. More recently, there has been an OTC swap market
emerging with some banks, including Deutsche Bank, able to offer contracts with
tenors up to 12 months. The spot reference price for Deutsche Bank's Index is an
average of the indices reported by Metal Bulletin and Steel Business Briefing. They
are quoted in US dollars per tonne on a cost and freight difference (CFR) which
incorporates adjustment for iron content and moisture levels.
As a consequence of the variance in iron ore qualities and products, each has
different properties and preferences among consumers. Thus prices are based on
each region’s largest volume brand and there is not one global benchmark price. The
following outlines the primary regions from which prices are settled.
•
Mount Newman/Hamersley (lump and fines): Iron ore form the Pilbara region
in Western Australia.
•
Yandi (fines): Also from the Pilbara, but contains a higher phosphorous
content and lower iron and is generally priced around a 6% discount to
Hamersley.
•
Carajas (fines and lump): Material from a high quality deposit in the eastern
part of the Amazon Cratone and sent via a 900km railway to Ponta da
Madeira sea terminal.
•
Itabira (fines): Iron ore from rich reserve in central southeast Brazil.
•
Tubarão (pellets): Vale’s benchmark pellet price referring to material shipped
from this port in southern Brazil.
Figure 4: Controlling companies in iron ore mining in 2006
Company name
Companhia Vale do Rio Doce (Vale)
Rio Tinto plc
BHP Billiton Group
State of China
Metalloinvest Management Company
Anglo American plc
Cleveland Cliffs Inc
Mitsui & Co Ltd
Steel Authority of India Ltd
National Mineral Development Corp Ltd
Country
Brazil
UK
Australia
China
Russia
UK
USA
Japan
India
India
Controlled production (Mn tonnes)
271.1
129.8
115.2
60.5
38.1
32.5
29.9
27.6
24.5
23.7
% of world
18.1%
8.7%
7.7%
4.0%
2.5%
2.2%
2.0%
1.8%
1.6%
1.6%
Source: Raw Materials Group
Page 62
Global Markets Research
September 2008
A User Guide To Commodities
Ferro Chrome
History & properties
Ferrochrome (FeCr) is an alloy of iron and chrome containing between 50% to 65%
chrome. Ferrochrome is produced from chromium ore (chromite) by subjecting it to a
chemical reaction with coke and coal under high temperatures. As an element that
helps makes stainless steel corrosion resistant, ferrochrome is primarily used in the
production of steel products.
Major producers
The main source of ferrochrome is chromite, which is an iron-magnesium-chromium
oxide ore. It is a reasonably abundant ore with known deposits equating to 384 years
of production at 2006 production rates. According to the USGS more than 95% of
world’s chromite production in 2006 was smelted in electric-arc furnaces to produce
ferrochromium for the metallurgical industry. In 2006, South Africa, India and
Kazakhstan accounted for 74% of chromite production and in the same year, South
Africa, Kazakhstan and China accounted for 71% of ferrochrome production.
Ferrochrome production from chromite is very energy intensive process, requiring
around 4kWhr per kg of material. Although there are many different grades of
ferrochrome produced and used globally, they can be broadly grouped into three
types: Low/medium carbon, high carbon and charge chrome.
Production share of low and medium carbon ferrochrome have remained at around
10% over the last decade, but high carbon ferrochrome has been increasing its share
gradually by around five percentage points, at the expense of charge chrome. Charge
chrome is the newest of the three products and it is the primary feed for modern
stainless steel plants.
Major uses
Around 68% is used in stainless steel and 27% is consumed as an in alloy steel. A
typical tonne of stainless steel might contain 18% chrome, 8% nickel and 1%
molybdenum.
Exchange traded & price conventions
Ferrochrome is not traded on any exchange. Metals Bulletin provide price data with
the Bloomberg ticker is MBCMCM02 <Index>.
Figure 1: Production of ferro-chrome & chromite
by country
Country
Ferro-chrom e
% of w orld
Country
production (Mt)
Chrom ite
Figure 2: Chrome consumption by first use in
2007
1%
% of w orld
3%
production (Mt)
South Africa
3.03
41.0%
South Africa
7.42
37.6%
Kazakhstan
1.20
16.2%
India
3.60
18.2%
China
1.00
13.5%
Kazakhstan
3.60
18.2%
India
0.63
8.6%
Turkey
1.06
5.4%
Russia
0.60
8.1%
Russia
0.97
4.9%
Finland
0.24
3.3%
Brazil
0.62
3.1%
Brazil
0.20
2.7%
Zimbabw e
0.60
3.0%
Zimbabw e
0.20
2.7%
Finland
0.55
2.8%
Sw eden
0.14
1.8%
Australia
0.25
1.3%
Turkey
0.07
0.9%
Iran
0.25
1.1%
Albania
0.04
0.5%
China
0.20
1.0%
World
7.39
World
19.75
Source: USGS (2006 data)
Global Markets Research
1%
Stainless Steel
27%
Alloy Steel
Foundries & Castings
Nickel Alloys
68%
Others
Source: Heinz Pariser
Page 63
September 2008
A User Guide To Commodities
Metallurgical Coal
History & properties
Coal is classified according to its carbon, ash, sulphur and water content. Anthracite,
also referred to as metallurgical coal, has the highest carbon content with the lowest
amount of moisture and hence has the highest energy content of all coals. It is used
in high-grade steel production. Bituminous is sub-divided into thermal and
metallurgical coal. It is used for both electricity generation and for making coke.
Major uses
Metallurgical coal, also referred to as hard or coking coal, is essential for iron and
steel production. Most iron in steel is produced in blast furnaces which use iron ore,
coke (made from metallurgical coal) and small quantities of other raw materials. The
coking coals need to be higher quality that is of lower sulphur and phosphorous
content. As a result, they are more expensive than thermal coal used for electricity
generation. Coking coal is first crushed and washed, then ‘purified’ or ‘carbonised’ in
a series of coke ovens, known as batteries. During this process, by-products are
removed and coke is produced.
Major producers
Australia dominates in terms of both production and exports of metallurgical coal. The
next major producers are the US, Canada and Russia.
Figure 1: International metallurgical supply & demand in 2007
Production
Australia
USA
Canada
Russia
Indonesia
China
Czech Republic
New Zealand
Poland
Colombia
Total
Tonnes
% of
(Mn)
134.0
28.5
24.8
16.5
7.0
4.5
4.0
2.8
2.8
2.5
235.6
world
56.9%
12.1%
10.5%
7.0%
3.0%
1.9%
1.7%
1.2%
1.2%
1.1%
Importers
Japan
India
S. Korea
Brazil
Germany
Ukraine
Taiwan
France
UK
Italy
Total
Tonnes
% of
(Mn)
63.3
23.3
21.2
14.8
10.5
10.0
8.6
8.0
7.4
7.1
238.4
world
26.6%
9.8%
8.9%
6.2%
4.4%
4.2%
3.6%
3.4%
3.1%
3.0%
Source: AME
Pricing
There are no exchange traded mechanisms for metallurgical coal. Around 90-95% of
all metallurgical coal is procured on an annual contractual basis between coal
producers and steel makers and priced for the Japanese financial year, which runs
from April to March.
Figure
2:
Metallurgical
benchmark prices
coal
annual
Figure 3: China became a net exporter of steel in
2005
7.0
350
Hard coking coal benchmark
(USD/tonne)
Mt
6.0
300
5.0
4.0
250
3.0
200
2.0
150
1.0
Net Exports
0.0
100
Net Im ports
-1.0
-2.0
50
-3.0
2000
0
1972
1976
1980
1984
1988
Source: AME (data as of Q1 2008)
Page 64
1992
1996
2000
2004
2001
2002
2003
2004
2005
2006
2007
2008
2008
Source: Reuters
Global Markets Research
September 2008
A User Guide To Commodities
Steel
History & properties
Steel is a metal alloy made up primarily of iron with small amounts of carbon. An ironnickel alloy obtained from meteorites was first used in Egypt to form weapons and
ornaments around 4,000BC. Beginning around 3,000BC, smelted iron was used in
Anatolia, Egypt and Mesopotamia to fashion ornamental weapons. The widespread
adoption of iron, however, did not occur until approximately 1,000BC in Greece,
Mesopotamia, and central Europe. Around 200BC in China and India, steel was being
produced by melting together wrought iron and cast iron or charcoal. The first
European blast furnaces for smelting were built in Sweden between 1150 and 1350.
The modern mass-production of steel was made possible by Henry Bessemer in 1855
and Sir William Siemens in 1867.
The addition of varying amounts of carbon allows for greater hardness and strength,
but also results in increased brittleness. Steel typically contains between 0.2% and
2.1% carbon by weight; higher carbon content alloys are referred to as cast iron, and
lower carbon content alloys are called wrought iron. Iron is typically found in the form
of iron oxide or iron pyrite. Extraction of iron from iron oxide is performed through a
process called smelting whereby the ore is heated to a liquid state and the oxygen
removed as it bonds with carbon. Following this, the iron is reprocessed to remove
excess carbon. By itself, raw iron can be brittle because of its high carbon content
and thus not strong and hard enough for construction and other applications.
Therefore raw iron is alloyed with various other elements such as nickel, chromium,
manganese, vanadium and tungsten to make steel.
Major producers
The largest steel-producing country is China. In 2007 production reached 489 million
tonnes, or 36% of global production. China and India also represent the largest areas
of production growth with output rising 15.3% and 19.3% respectively in 2007.
Major uses
Steel is one of the most versatile and common industrial materials. The construction
industry is the largest market, utilizing steel in modular building systems, bridge and
highway construction, harbours, tunnels and culverts. In automobile manufacturing,
steel accounts for more than 50% of the weight of a typical car in the form of the car
body, engine, gearbox and transmission. Additional transport uses include the
construction of commuter trains, rail tracks, buses, trucks, ships, aircraft and jet
engines. In the power and energy industries, steel is used in the construction of oil
and gas wells, offshore oil platforms, pipelines, and turbines for power generation.
Figure 1: Major producers of steel in 2007
Tonnes
% of
Companies
(Mn)
world
ArcelorMittal
116.4
9.1%
China
489.2
Nippon Steel
35.7
2.8%
Japan
120.2
8.9%
JFE
34.0
2.6%
USA
98.2
7.3%
POSCO
31.1
2.4%
Russia
72.2
5.4%
Baosteel
28.6
2.2%
India
53.1
3.9%
Tata Steel
26.5
2.1%
S. Korea
51.4
3.8%
Anshan-Benxi
23.6
1.8%
Germany
48.6
3.6%
Jiangsu Shagang
22.9
1.8%
Ukraine
42.8
3.2%
Tangshan
22.8
1.8%
Brazil
33.8
2.5%
US Steel
21.5
1.7%
Italy
32.0
2.4%
Total
1285
Countries
Total
Tonnes
% of
(Mn)
world
36.4%
1344
Source: International Iron and Steel Institute
Global Markets Research
Page 65
September 2008
A User Guide To Commodities
Steel is delivered to the market in a number of ways, divided into two categories,
finished products and semi-finished products.
Finished Products
–
Plates (construction, ship-building)
–
Flat rolled (appliances, external automotive panels, food containers /
cans)
–
Long products: Wire rod, merchant bar, strural beam products, rebar
(transportation, construction)
Semi-finished Products
–
further processed into finished products such as rebar (billets and
blooms) or plates (slab)
Exchange traded
Historically there have been no exchange traded mechanisms for steel as prices were
negotiated between producers and consumers on a regional basis. The market has
traditionally relied on price indicators from industry consultants such as CRU who
compile indices from a weighted basket of steel prices by product and region.
However, the market is gradually becoming more sophisticated with the London
Metal Exchange (LME) launching a steel contract (billet) in 2008 in two regions – Far
East and Mediterranean delivery. Lot sizes are 65 metric tonnes with delivery points
in Inchon, South Korea and Johor, Malaysia (Far Eastern) and Marmara, Turkey and
Dubai, UAE (Mediterranean). The maturity is initially limited to 15 months.
Figure 2: China dominates steel consumption
growth
Mature economies
Emerging markets ex-China
China
Mature economies as a % of World
China as a % of world
2000
1500
Figure 3: Hot rolled coil (HRC) prices by region
1400
50%
US HRC
USD/t
Japan HRC
1200
China HRC
40%
30%
1000
1000
800
600
20%
500
10%
0
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: IISI, AME, DB Global Markets Research
Page 66
400
200
0
2003
2004
2005
2006
2007
2008
Source: CRU (data up to Feb-08)
Global Markets Research
September 2008
A User Guide To Commodities
Minor Metals
Introduction
Minor metals are generally defined as industrial metals which due to their small
market size and light trading volumes are not listed on major public metals exchanges
like the London Metals Exchange or the New York Mercantile Exchange.
Most minor metals are by-products, and in some cases by-products of by-products of
non-ferrous metals. Minor metals prices are therefore sensitive to the same
economic cycles as industrial metals prices. However, with in come cases minor
metal production levels less than 5% of industrial metals production these smaller
markets can be more susceptible to price spikes in environments of strengthening
demand.
Minor metals have varied uses ranging from fuel efficient components in aircraft
engines, rechargeable batteries, television screens to nuclear reactors and missiles.
These high-tech uses combined with limited supply and few sources can make many
of the minor metals strategically important commodities.
The Minor Metals Trade Association (MMTA) founded in 1973 facilitates trading in
minor metals by bringing together producers and consumers, who generally enter
into long or short term contracts based on the contract specifications provided by
MMTA. MMTA has defined strict specifications for all the different impurities, sizing
and packing, warehousing and transportation for most minor metals.
Figure 1: Minor metals production in 2007
compared
10
Tonnes (million)
Non-exchange traded commodities
Manganese: 11,600,000
Ferrochrome: 7,396,690
Titanium:
6,100,000
Magnesium:
670,000
Molybdenum: 187,000
Rare Earths:
124,000
Tungsten:
89,600
Cobalt:
62,300
Vanadium:
58,600
Lithium:
25,000
Thorium:
6,500
Tantalum:
1,400
Gallium:
80
Rhenium:
50
12
8
6
4
2
Figure 2: Commodity price performance since
2001
Exchange traded commodities
1400%
% change since end 2001
1200%
1000%
800%
600%
400%
200%
0%
Rhenium
Gallium
Tantalum
Thorium
Lithium
Vanadium
Cobalt
Tungsten
Rare Earths
Molybdenum
Magnesium
Titanium
Ferro Chrome
Manganese
Aluminium
Zinc
Gold
Silver
Nickel
Lead
Tin
Copper
Titanium
Magnesium
Cobalt 99.6%
Tungsten
Manganese
Ferrochrome
Cadmium 99.5%
Global Markets Research
Vanadium
Source: US Geological Survey
Molybdenum
0
Source: Reuters, DB Global Markets Research; Data as of end Aug-08
Page 67
September 2008
A User Guide To Commodities
Cobalt
History & properties
Cobalt has the symbol Co and atomic number 27. In its pure form, it is a silvery-blue,
hard, brittle metal and is often produced as a by-product of copper or nickel mining.
The word cobalt is derived from the German “Kobold,” the name of a mischievous
goblin in German mythology. When yields declined in silver mines across Saxony in
th
the 16 Century, Kobold was blamed for stealing the silver and leaving behind
worthless rock. This rock was later found to be cobalt ore, and the name transferred
to cobalt metal. However, it was the Swedish chemist George Brandt who first
isolated cobalt in 1735, and showed that it was the cause of the blue colour in glass.
Cobalt has a high melting point (1,493°C) and retains strength at a high temperature.
It is ferromagnetic and retains its magnetism up to 1,100°C, which is a higher
temperature (Curie point) than any other material. It is stable in air and water, has low
toxicity, but is a possible carcinogen. As the main component of the vitamin B-12, it is
an essential trace element for humans.
Major producers
Cobalt production is mainly derived as a by-product of the mining and processing of
copper and nickel ores, but advances in hydrometallurgical extraction techniques and
higher prices have seen the development of more primary cobalt projects. The main
sources of ores are founds in the copper-cobalt deposits in the Democratic Republic
of Congo and Zambia, the nickel sulphide ore bodies in Australia, Canada, Finland and
Russia, the nickel oxide ore bodies in Cuba, New Caledonia, Australia and Russia and
primary recovery from mixed ores, tailings and slag in Congo and Zambia.
Major uses
Cobalt as a pure metal has few applications, but it is used as an alloying constituent
or as a chemical compound in a wide range of commercial applications. The largest
contemporary uses of cobalt are in rechargeable batteries and superalloys for jet
turbine parts. When used as an alloying element, cobalt allows use of elevated
temperatures and it is more resistant to corrosion by sulphur than nickel. The metal is
used in electroplating because of its appearance, hardness, and resistance to
oxidation. Cobalt’s melting point makes it attractive for high-speed alloys for cutting
tools. The metal’s ferromagnetic properties make it an important constituent of
permanent magnets. Both the British Geological Survey and the USGS forecast that
the increase in demand for cobalt in rechargeable batteries may decline as cobalt is
substituted in lithium-ion cells by cheaper metals like manganese and nickel.
Figure 1: Major producers and reserves of cobalt
Mine production
2007
(tonnes)
% of
world
Reserves
(tonnes)
Reserve base
(tonnes)
USA
-
-
33,000
860,000
Congo
22,500
36%
3,400,000
470,000
Canada
8,000
13%
120,000
350,000
Australia
7,500
12%
1,400,000
1,700,000
Zambia
7,000
11%
270,000
680,000
Russia
5,000
8%
250,000
350,000
Cuba
4,000
6%
1,000,000
1,800,000
China
2,300
4%
72,000
4,700,000
North Caledonia
2,000
3%
230,000
860,000
Morocco
1,500
2%
20,000
NA
Other countries
1,300
2%
130,000
1,100,000
Brazil
1,200
2%
29,000
40,000
World
62,300
7,000,000
13,000,000
Source: USGS
Page 68
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Cobalt price since 1993
55
Figure 3: Composition of cobalt demand by use
in 2007
USD/lb
Superalloys
7%
50
22%
8%
Batteries
45
Hardmetals
40
9%
35
Catalysts
30
Other
25
10%
20
22%
15
Tyre adhesives/soaps/driers
11%
10
Pigments
11%
Magnets
5
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Reuters (Data to end 2007)
Source: Cobalt Development Institute
Exchange traded & price conventions
Cobalt is not traded on any futures market. Cobalt is priced on the Shanghai
Changjiang non-ferrous spot market. Its Bloomberg ticker is CCSMCOBL <Index>.
The price convention in Shanghai Changjiang market is Chinese yuan per tonne. The
Reuters code is COB-CATH-LON and is priced in USD per pound.
Figure 4: Controlling companies in cobalt mining in 2006
Company name
Companhia Vale do Rio Doce (Vale)
Norilsk Nickel Mining & Metallurgical Company
Glencore International AG
State of Cuba
Vedanta Resources plc
Xstrata plc
Sherritt International Corp
Copperbelt Development Foundation
Votorantim, SA Industrias
Eramet-SLN
Country
Brazil
Russia
Switzerland
Cuba
UK
Switzerland
Canada
Luxembourg
Brazil
France
Controlled production (Tonnes, ‘000s)
5.0
4.4
4.1
2.8
1.8
1.6
1.3
1.0
0.9
0.9
% of world
9.3%
8.2%
7.6%
5.1%
3.3%
2.9%
2.3%
1.8%
1.7%
1.7%
Source: Raw Materials Group
Global Markets Research
Page 69
September 2008
A User Guide To Commodities
Gallium
History & properties
Gallium is silver in colour and brittle in solid form, but liquefies just above room
temperature. It is found as a trace element in coal, bauxite and other minerals.
Gallium is used in semiconductor technology and as a component of various lowmelting alloys. Its symbol and atomic number are Ga and 31 respectively. Its melting
o
point is 29.78 C.
Major producers
Gallium occurs in very small concentrations in ores of other metals. Most gallium is
produced as a by-product of treating bauxite, and the remainder is produced from
zinc-processing residues. Only part of the gallium present in bauxite and zinc ores is
recoverable, and the factors controlling the recovery are proprietary. Therefore, an
estimate of current reserves that is comparable to the definition of reserves of other
minerals cannot be made. The world bauxite reserve base is so large that much of it
will not be mined for many decades; hence, most of the gallium in the bauxite
reserve base cannot be considered to be readily available in the short term.
In 2007, the USGS estimated the world primary production amounted to
approximately 80 tonnes, little changed from the previous year. China, Germany,
Japan and the Ukraine are the leading producers with smaller production occurring in
Hungary, Kazakhstan, Russia and Slovakia. Refined gallium production in 2007 is
estimated to be about 103 tonnes including some scrap refining. China, Japan, and
the United States are the principal producers of refined gallium. World primary gallium
production capacity in 2007 was estimated to be 184 tonnes with refinery capacity of
167 tonnes and recycling capacity of 78 tonnes.
Major uses
Gallium arsenide (GaAs) and gallium nitride (GaN) electronic components represented
about 98% of gallium consumption in the United States. About 66% of the gallium
consumed was used in integrated circuits (ICs) in defence applications, highperformance computers, and telecommunications. Optoelectronic devices, which
include light-emitting diodes (LEDs), laser diodes, photodetectors, and solar cells,
represented 20% of gallium demand. The remaining 14% was used in research and
development, specialty alloys, and other applications. Optoelectronic devices were
used in areas such as aerospace, consumer goods, industrial equipment, medical
equipment, and telecommunications.
Exchange traded & price conventions
Gallium is not traded on any exchange. Spot prices are available from the Minor
Metals Trade Association. The Reuters RIC for Gallium Ingots is GALL-ING-LON.
Figure 1: Gallium prices since 1993
1800
Figure 2: Composition of gallium demand by use
in 2007
Gallium price (USD/Kg)
1600
14%
Integerated Circuits
1400
1200
1000
800
20%
Optoelectronic devices
600
66%
400
Research and development
200
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Bloomberg (data as of end Aug-08)
Page 70
Source: USGS
Global Markets Research
September 2008
A User Guide To Commodities
Lithium
History & properties
Lithium is a soft alkali metal with a silver white colour. Its symbol is Li, atomic
number is 3 and melting point is 180.54oC. Lithium is the lightest metal and least
dense solid element under standard conditions. It is highly reactive and corrodes
quickly in the moist air to form a black tarnish. It is therefore typically stored under the
cover of oil. Lithium’s main source is of petalite (lithium aluminium silicate) and
spodumene. On a commercial scale, lithium metal is isolated electrolytically from a
mixture of lithium chloride and potassium chloride. Its major application is in making
batteries, in metallurgy, in ceramic, glass industry, pharmaceutical industry,
aeronautics and has use in several other industries.
Major producers
In 2007, Chile was the leading lithium chemical producer in the world, followed by
Australia, Argentina and China.
Figure 1: Major producers of lithium
Producers
2007 (tonnes)
% of world
Reserves
tonnes)
Reserves base
(tonnes)
Chile
9,400
38%
3,000,000
3,000,000
Australia
5,500
22%
160,000
260,000
Argentina
3,000
12%
NA
NA
China
3,000
12%
540,000
1,100,000
Russia
2,200
9%
NA
NA
Canada
710
3%
180,000
360,000
Zimbabwe
600
2%
23,000
27,000
Portugal
320
1%
NA
NA
Brazil
240
1%
190,000
910,000
USA
W*
W*
38,000
410,000
Bolivia
-
-
-
5,400,000
World
25,000
4,100,000
11,000,000
*W: withheld to avoid disclosing company proprietary data; Source: USGS
Major uses
Lithium has a strong presence in the consumer electronic and telecommunication
products, with its use in batteries expanding rapidly in recent years because
rechargeable lithium batteries are increasingly being used in portable devices (laptops,
mobile phones) and electric vehicles. About 20% is used in lithium-ion batteries,
nearly 22% is used in glass and ceramic industry with another 17% of lithium used in
lubricating greases. The Bloomberg ticker for lithium is MBLILI02 <Index>.
Figure 2: Lithium uses in 2007
Figure 3: Top 10 companies in lithium mining
Company
Ceramics and glass
20%
21%
Batteries
Lubricating greases
6%
Pharmaceuticals and polymers
20%
8%
Air conditioning
Primary aluminum production
9%
Other uses
16%
Source: USGS
Global Markets Research
Country
Controlled
% of
production (000s tonnes)
world
Sons of Gw alia Ltd
Australia
6
25%
GEA Group AG
Germany
5
19%
FMC Corporation
USA
3
13%
Potash Corporation
Canada
2
8%
Yara International
Norw ay
2
8%
Cabot Corporation
USA
1
3%
Israel Chemicals Ltd
Israel
1
3%
Africa Resources Ltd
Zimbabw e
1
2%
Cia Brasileira de Litio
Brazil
0
1%
Sdada Mineira de Pegmatites
Portugal
0
1%
Source: Raw Materials Group (2007 data)
Page 71
September 2008
A User Guide To Commodities
Magnesium
History & properties
Magnesium constitutes about 2% of the Earth’s crust and is the eighth most
abundant element in the world after hydrogen, helium, oxygen, neon, nitrogen,
carbon and silicon. Magnesium and magnesium compounds are also produced from
seawater, well and lake brines and bitterns. It is a relatively strong but lightweight
metal of silvery white colour. Magnesium is a highly flammable substance most easily
ignited when powdered or shaved into thin strips. Magnesite deposits were
discovered in Austria and Greece during the latter half of the 19th century, and by
1890, magnesite was in general use in Europe for refractory linings in Bessemer and
open-hearth furnaces. Because of its bright flash point, it was used in the early days
of photography and currently used in fireworks and marine flares.
Major producers
Magnesium production has traditionally been concentrated in North America. The first
magnesium plant in the United States was constructed by General Electric at
Schenectady, New York in 1914. Magnesium production in the United States
increased steadily through the decades, peaking during World War II because of the
use of magnesium in incendiary bombs. By the mid-1990s, around half of world
production originated in the US. Since then China has become the dominate
producer. Magnesium production in China increased from 75Kt in 1996 to 534Kt by
2006. However, anti-dumping duties established in the United States have essentially
eliminated China from the United States market, which leaves Canada, Israel, and
Russia as the principal United States suppliers. Moreover with the closure of Norsk
Hydro’s plant in Canada in the first quarter of 2007, a significant source of magnesium
has been removed from the market.
Major uses
Aluminium alloying was the principal use for primary magnesium, accounting for 43%
of total demand in 2006. Aluminium-magnesium alloys have improved ductility,
enhanced resistance to saltwater corrosion, and are used in beverage cans,
automobiles and machinery. Other major uses include die-casting and iron and steel
desulphurisation.
Exchange traded & price conventions
Magnesium is not traded on a futures market. However, it is quoted on the Shanghai
Changjiang non-ferrous spot market. Its Bloomberg ticker is CCSMMGIN <Index>.
The price convention in Shanghai Changjiang market is Chinese Yuan per tonne. The
Reuters code is MGN-CHINA and is priced in US dollars per tonne.
Figure 1: Magnesium price since 2002
7000
Figure 2: Composition of magnesium demand in
2007
10%
USD/tonne
Aluminium alloying
6000
10%
5000
43%
Die-casting
4000
Others
3000
2000
Steel desulphurization
37%
1000
2002
2003
2004
Source: Reuters (Data as of end 2007)
Page 72
2005
2006
2007
Source: USGS
Global Markets Research
September 2008
A User Guide To Commodities
Manganese
History & properties
A grey-white metal that resembles iron, manganese is hard and brittle, fusible with
difficulty, but easily oxidised. Manganese is the twelfth most abundant element in the
earth’s crust. Nevertheless it is rarely found in concentrations high enough to form a
manganese ore deposit. It is designated by the symbol Mn and has an atomic number
of 25. Manganese metal and its common ions are paramagnetic, meaning that while
manganese metal does not form a permanent magnet, it does exhibit strong
magnetic properties in the presence of an external magnetic field.
The first utilization of manganese can be traced back to the Stone Age. Humans were
already using manganese dioxide as a pigment for their cave paintings during the
upper paleolithic period, 17.000 years ago. Later in Ancient Greece, the presence of
manganese in the iron ore used by the Spartans is a likely explanation as to why their
steel weapons were superior to those of their enemies. Manganese has also long
been related to glass-making. The Egyptians and the Romans used manganese ore
either to decolorize glass or to give it pink, purple and black tints. It has been
continually used for this purpose until modern times.
In the mid-17th century, the German chemist Glauber obtained permanganate, the
first usable manganese salt. Nearly a century later, manganese oxide became the
basis for the manufacture of chlorine. Yet manganese was only recognized as an
element in 1771, by the Swedish chemist Scheele. It was isolated in 1774 by one of
his collaborators, J.G. Gahn. At the beginning of the 19th century, both British and
French scientists began considering the use of manganese in steelmaking, with
patents granted in the U.K. in 1799 and 1808. In 1816, a German researcher observed
that manganese increased the hardness of iron, without reducing its malleability or
toughness.
Major producers
Manganese reserves are concentrated in Australia, Brazil, Gabon and South Africa,
supplying over 90% of the international market. Manganese ore deposits are widely
distributed in China, but they lack high grade ore and mines are generally situated far
from the end-user industries. As a consequence, China imports high grade ores to
blend with domestic material.
Figure 1: Major producers of manganese
Mine production
2007e
(Tonnes, 000s)
% of world
Reserves
(Tonnes, 000s)
Reserve base
(Tonnes, 000s)
S. Africa
2,300
20%
100,000
4,000,000
Australia
2,200
19%
62,000
160,000
China
1,600
14%
40,000
100,000
Gabon
1,550
13%
20,000
160,000
Other countries
1,360
12%
Small
Small
Brazil
1,000
9%
35,000
57,000
Ukraine
820
7%
140,000
520,000
India
650
6%
56,000
150,000
Mexico
130
1%
4,000
9,000
USA
World
11,600
460,000
5,200,000
Source: USGS
Global Markets Research
Page 73
September 2008
A User Guide To Commodities
Major uses
Manganese is essential to iron and steel production by virtue of its sulphur-fixing,
deoxidizing and alloying properties. Steelmaking, including its iron making component,
has accounted for most manganese demand, presently in the range of 85% to 90%
of the total demand. Among a variety of other uses, manganese is a key component
of low-cost stainless steel formulations and certain widely used aluminium alloys.
The metal is very occasionally used in coins; the only United States coins to use
manganese were the "wartime" nickel from 1942–1945, and since 2000 dollar coins.
The EU uses manganese in 1 and 2 Euro coins, due to its greater and cheaper
availability.
Figure 2: Manganese price since 1992
7000
Manganese price (USD/tonne)
6000
5000
4000
3000
2000
1000
0
1992
1994
1995
1996
1997
1999
2001
2003
2005
2007
Source: Bloomberg (data as of end July-08)
Exchange traded & price conventions
Manganese is not traded on any exchange although the price ticker for min. 99.7%
electrolytic manganese flake is available from Metal Bulletin and has the Bloomberg
code MBMNFMEL <Index>. The Reuters code is MNG-FERRO-LON.
Page 74
Global Markets Research
September 2008
A User Guide To Commodities
Molybdenum
History & properties
Molybdenum has the symbol Mo and atomic number 42. The most significant
naturally occurring compound containing molybdenum is molybdenite (MoS2) and
occurs in association with copper sulphide. Mining of molybdenum is therefore often
performed in conjunction with copper mining. Molybdenum ore is crushed and
ground into fine particles, combined with oil, and separated by flotation in water. The
resulting molybdenite concentrate is then heated at 600-700°C to yield molybdenum
oxide, which is then sold in powder form or as briquettes for steelmaking.
Molybdenum is used primarily as an alloying agent in steel, cast iron, and super-alloys
to enhance strength, heat and corrosion resistance. It has one of the highest melting
points of all elements. Molybdenum would have been indistinguishable from other
materials such as lead, galena and graphite in ancient times and consequently were
known collectively by their Greek word molybdos, meaning lead-like.
Major producers
The United States is world’s largest molybdenum producing country followed by
China and Chile. The US also has the largest reserves, at 5.4 million tonnes, about
28% of the world’s total reserves, located mainly in the southwest. Other reserves
are located in Canada, Central America and South America.
Figure 1: Major producers and reserves of molybdenum
Mine
Reserves
Reserves base
production
2007 (tones)
% of total
Tonnes (000s)
Tonnes (000s)
USA
59,400
32%
2,700
5,400
China
46,000
25%
3,300
8,300
Chile
41,100
22%
1,100
2,500
Peru
17,500
9%
140
230
Canada
8,000
4%
450
910
Russia
3,100
2%
240
360
Armenia
3,000
2%
200
400
Mexico
4,000
2%
135
230
Iran
2,500
1%
50
140
Mongolia
1,500
1%
30
50
Uzbekistan
500
0.3%
60
150
Kazakhstan
400
0.2%
130
200
250
0.1%
Kyrgyzstan
World
187,000
100
180
8,600
19,000
Source: USGS
Major uses
Over two-thirds of all molybdenum is used in high-strength alloys with resistance to
corrosion and stress corrosion cracking and there are few substitutes. These alloys
are used in oil refineries, oil wells, pipelines, power plants, petrochemical plants,
mechanical parts, high-speed cutting tools and construction. A steel containing 2%
molybdenum called Type 316 is used in architectural applications for its resistance to
wind-borne chlorides in coastal environments, such as Canary Wharf in London and
the Petronas Towers in Kuala Lumpur.
The ability of molybdenum to withstand extreme temperatures without significantly
expanding or softening makes it useful in applications that involve intense heat,
including the manufacture of aircraft parts, electrical contacts, industrial motors and
filaments.
Global Markets Research
Page 75
September 2008
A User Guide To Commodities
Figure 2: Molybdenum price since 1993
4000
Figure 3: Composition of molybdenum demand
by use in 2008
Molybdenum price (Usc/lb)
5%
3500
Constructional Steel
6%
6%
3000
Stainless Steels
35%
2500
Chemicals
9%
2000
Tool & Highspeed Steel
1500
Mo Metal
14%
1000
Cast Iron
500
0
1982
25%
Superalloys
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Source: Bloomberg (data as of end July 2008)
2006
2008
Source: IMOA
Exchange traded & price conventions
The Bloomberg price ticker for molybdenum from Purchasing Magazine is PURDP021
<Commodity>. Purchasing Magazine's Transaction Price data series are not producer
list prices; rather, they reflect actual prices paid by large volume industrial buyers in
the US. The Reuters code is MLY-OXIDE-LON.
Figure 4: Controlling companies in molybdenum mining in 2007
Company name
Freeport McMoran Copper & Gold Inc
Codelco
State of China
Grupo Mexico SA de CV
Rio Tinto plc
Antofagasta plc
Thompson Creek Metals Co Inc
Anglo American plc
Xstrata plc
Cronimet Mining GmbH
Country
USA
Chile
China
Mexico
UK
UK
Canada
UK
Switzerland
Germany
Controlled production (‘000 tonnes)
31.9
28.0
25.8
19.7
14.9
10.2
7.4
4.4
3.8
3.7
% of world
16.0%
14.1%
13.0%
9.9%
7.5%
5.1%
3.7%
2.2%
1.9%
1.9%
Source: Raw Materials Group
Page 76
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September 2008
A User Guide To Commodities
Rhenium
History & properties
Rhenium has the symbol Re and atomic number 75 and is one of the rarest but most
dispersed metallic elements in the Earth's crust. Molybdenite is the only significant
host mineral for rhenium. Walter Noddack, the German chemist, is generally credited
with the discovery of rhenium in 1925. At the University of Tennessee in 1942, A.D.
Melaven and J.A. Bacon developed a process for extracting the element from the
dust that accumulated in the roasting molybdenum ore.
Major producers
Rhenium mostly occurs with molybdenum in porphyry copper deposits and is
developed as a by-product. Identified U.S. resources are estimated to be about 4.5
million kilograms, and the identified resources of the rest of the world are
approximately 5.5 million kilograms, with Chile and Canada holders of major deposits.
Rhenium also exists in sedimentary copper deposits.
Figure 1: Major producers of rhenium
Reserves
Reserves
2007 (kg)
% of total
(kg)
base (kg)
Chile
22,900
46%
1,300,000
2,500,000
Kazakhstan
8,000
16%
190,000
250,000
USA
7,300
15%
390,000
4,500,000
Peru
5,000
10%
45,000
550,000
Others
2,000
4%
91,000
360,000
Canada
1,700
3%
32,000
1,500,000
Russia
1,400
3%
310,000
400,000
Armenia
1,200
2%
95,000
120,000
World
49,500
2,500,000
10,000,000
Mine production
Source: USGS
Major uses
Rhenium has an ultra-high melting point (3,186 degrees C) and is primarily used in
producing nickel-based super alloys, a vital resource for specialty metal users such as
the aerospace industry. By aiding aircraft engines to run at higher temperatures, they
become more fuel efficient. Thus in response to higher oil prices, the sector has
demanded more and more of the metal. The metal is also used in petroleumreforming catalysts for the production of high-octane hydrocarbons, which are used in
the formulation of lead-free gasoline.
Price conventions
The Bloomberg ticker is ENGHRHEN <Commodity>.
Figure 2: Rhenium price since 2001
Figure 3: Composition of rhenium demand in
2006
5000
4500
Rhenium price (USD/lb)
8%
4000
15%
3500
Superalloys & powder
metallurgy
3000
2500
Catalysts
2000
1500
Others
1000
77%
500
0
2001
2002
2003
2004
2005
Source: Bloomberg (data as of end Q2 2008)
Global Markets Research
2006
2007
2008
Source: USGS
Page 77
September 2008
A User Guide To Commodities
Tantalum
History & properties
Tantalum is a chemical element with the symbol Ta and atomic number 73. A rare,
hard, blue-gray, lustrous, ductile metal, tantalum is highly conductive of heat and
electricity. The metal is renowned for its resistance to corrosion by acids. Tantalum's
high melting point of 3,017 C is exceeded only by tungsten and rhenium.
Tantalum was discovered in 1802 by the Swedish chemist Anders Ekeberg and
named after the mythological character Tantalus because of the tantalizing problem of
dissolving the oxide in acids. It is often found with niobium, and for many years it was
believed that these two metals were actually the same element, until Heinrich Rose
in 1844 proved otherwise.
Major producers
The main source of primary ore is Australia which has the two largest mines in the
world: Greenbushes in the south of Western Australia and Wodgina in the north of
the same state. These two mines supply over one half of the world’s production.
Tantalum mining also occurs in Canada, Brazil, China, Democratic Republic of Congo,
Rwanda and Ethiopia.
Figure 1: Major producers of tantalum
Mine production
2007
(tonnes)
% of world
Reserves
(tonnes)
Reserve Base
(tonnes)
Australia
850
61%
40,000
84,000
Brazil
250
18%
88,000
90,000
Canada
70
5%
3,000
>3,000
Ethiopia
70
5%
NA
NA
Mozambique
70
5%
NA
NA
Rwanda
60
4%
NA
NA
Other countries
30
2%
NA
NA
USA
-
World
1,400
-
-
Negligible
130,000
180,000
Source: USGS
Major uses
The major use for tantalum in powder form is in the production of electronic
components, mainly capacitors and some high-power resistors. Because of the size
and weight advantages, tantalum capacitors are attractive for portable telephones,
pagers, personal computers and automotive electronics.
Tantalum is also used to produce a variety of alloys that have high melting points, are
strong and have good ductility. Alloyed with other metals, it is also used in making
carbide tools for metalworking equipment and in the production of superalloys for jet
engine components, nuclear reactors and missile parts. Due to its resistance to attack
by body fluids and is also non-irritating, tantalum is widely used in making surgical
instruments and implants.
Page 78
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A User Guide To Commodities
Thorium
History & properties
Thorium is a chemical element that has the symbol Th and atomic number 90.
Thorium was discovered in 1828 by the Swedish chemist Jons Jakob Berzelius, who
named it after Thor, the Norse god of thunder. As a naturally occurring, slightly
radioactive metal, thorium has been considered as an alternative nuclear fuel to
uranium. When pure, thorium is a silvery white metal. However, when it is exposed
to oxygen, thorium slowly tarnishes, becoming grey and eventually black. Thorium
dioxide, also called thoria, has the highest melting point of any oxide (3300°C).
Thorium has the largest liquid range of any element: 2946 K between the melting
point and boiling point.
Major producers
Large thorium reserves are found in Australia, Brazil, Canada, Greenland, India, South
Africa and the United States. The leading share is contained in placer deposits.
Resources of more than 500,000 tonnes are contained in placer, vein, and carbonatite
deposits. Disseminated deposits in various other alkaline igneous rocks contain
additional resources of more than 2 million tonnes.
Figure 1: Major thorium reserves
Country
Reserves (tonnes)
Reserve base (tonnes)
Australia
300,000
340,000
India
290,000
300,000
Norway
170,000
180,000
USA
160,000
300,000
Canada
100,000
100,000
Other countries
90,000
100,000
South Africa
35,000
39,000
Brazil
16,000
18,000
Malaysia
4,500
4,500
World
1,200,000
1,400,000
Source: USGS
Major uses
The principal use of thorium has been in mantles in portable gas lights. It is also used
to coat tungsten wire used in electronic equipment. However, the use of thorium in
the United States has decreased significantly over the past two decades as a
consequence of the high cost of disposal due to its radio-activity.
Thorium as a nuclear fuel
Like uranium, thorium can be used as nuclear fuel. It is an attractive alternative
because it is much more abundant than uranium, easier to extract from the ground
and safer to use. Unlike uranium and plutonium, thorium is not fissle and cannot
undergo nuclear fission by itself. However, there are many barriers for thorium to gain
acceptance in the nuclear industry. For one, nuclear power industry has already built
its infrastructure around uranium and has little reason to invest in changing it.
Furthermore, the technology is not available to make it economically attractive.
Because thorium cannot sustain a nuclear reaction once it starts, it needs to be
constantly exposed to enough neutrons to keep the reaction going unlike uranium
which only needs to be “zapped” once.
Exchange traded
Thorium is not traded on any exchange. However USGS sources its prices from the
domestic and international miners and processors.
Global Markets Research
Page 79
September 2008
A User Guide To Commodities
Titanium
History & properties
Titanium is a durable, lightweight metal derived from minerals such as ilmenite or
rutile. The chemical element has the symbol Ti and atomic number 22 and is grayish
in colour. It is highly valued due to its resistance to corrosion and because of it has
the highest strength-to-weight ratio of any metal. In its unalloyed condition, titanium
is as strong as some steels, but 45% lighter.
Major producers
Australia and South Africa are the largest producers of titanium and combined
account for 44% of world production. Although China is fourth in terms of annual
production, it has the largest pool of reserves, constituting more than one fourth of
total world reserves, followed by Australia and India.
Figure 1: Major producers of titanium (ilmenite and rutile)
2007
Reserves
Reserve base
(tonnes)
% of world
(tonnes)
(tonnes)
Australia
1,549
25%
149,000
191,000
South Africa
1,181
19%
71,300
244,000
Canada
816
13%
31,000
36,000
China
500
8%
200,000
350,000
Norway
380
6%
37,000
60,000
India
358
6%
92,400
230,000
Ukraine
337
6%
8,400
15,500
USA
300
5%
6,400
60,800
Vietnam
200
3%
1,600
14,000
Brazil
133
2%
44,200
86,500
Other countries
189
3%
68,900
154,600
103
2%
16,480
21,570
730,000
1,500,000
Mine production
Mozambique
World
6,100
Source: USGS
Reserves constitute of economically extractable reserves, though facilities might or might not be operative.
Reserve Base encompasses economic, marginally economic and sub economic resources.
Major uses
Titanium can be alloyed with aluminium, iron, vanadium, molybdenum among others
to produce strong lightweight materials. About two thirds of all titanium metal
produced is used in aircraft engines and frames. Due to their high tensile strength to
density ratio, high corrosion resistance, and ability to withstand moderately high
temperatures without creeping, titanium alloys are used in aircraft, armour plating,
naval ships, spacecraft, missiles, wheelchairs and sports equipment.
Exchange traded & price conventions
Titanium prices are priced off the Australian export TZMI Titanium Dioxide Pigment
Mineral Sands spot price and sourced from ABS. The Bloomberg ticker is TZMIPIGM
<Index>.
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September 2008
A User Guide To Commodities
Tungsten
History & properties
Tungsten, also known as Wolfram, is a chemical element that has the symbol W and
atomic number 74. A steel-gray metal, tungsten is found in the minerals wolframite,
scheelite, ferberite and hübnerite. It is valued for its robust physical properties as well
as possessing the highest melting point (3,422 °C) of all the non-alloyed metals and
the second highest of all the elements after carbon. Tungsten is often brittle and hard
to work in its raw state. The metal oxidizes in air and must be protected at elevated
temperatures. It also has excellent corrosion resistance.
In 1781, Carl Wilhelm Scheele ascertained that a new acid could be made from
scheelite (at the time named tungstenite): tungstic acid. Scheele and Torbern
Bergman suggested that it could be possible to obtain a new metal by reducing this
acid. In 1783 José and Fausto Elhuyar found an acid made from wolframite that was
identical to tungstic acid. In Spain later that year the brothers succeeded in isolating
tungsten through reduction of this acid with charcoal. They are credited with the
discovery of the element.
Major producers
World tungsten supply is dominated by Chinese production and exports. More than
80% of the world’s tungsten resources exist in China, much of the remainder being
supplied by Russia. Various companies worked towards developing tungsten deposits
or reopening inactive tungsten mines in Australia, Canada, China, Kyrgyzstan, Mexico,
Spain, Thailand, the United States, Uzbekistan, and Vietnam.
Figure 1: Major producers of tungsten
Reserves
Reserve Base
Mine production
(tonnes)
% of world
(tonnes)
(tonnes)
China
77,000
86%
1,800,000
4,200,000
Russia
4,400
5%
250,000
420,000
Canada
2,600
3%
260,000
490,000
Other countries
2,040
2%
420,000
740,000
2007
Austria
1,300
2%
10,000
15,000
Bolivia
870
1%
53,000
100,000
Portugal
800
1%
4,700
62,000
North Korea
600
1%
NA
35,000
USA
W*
140,000
200,000
World Total
89,600
2,900,000
6,300,000
*W: withheld to avoid disclosing company proprietary data; Source: USGS
Major uses
Tungsten is used in many extreme-temperature applications such as light bulbs,
cathode-ray tubes, vacuum tube filaments as well as nozzles on rocket engines. It is
also suitable for aerospace and other high temperature uses such as electrical,
heating, and welding applications. It is also used in electrodes and electron
microscopes. The metal is also used in X-ray targets. The hardness and density of
tungsten find uses in heavy metal alloys that are used in armament, heat sinks, and
high density applications. Tungsten, which has a similar density to gold, is sometimes
used in jewellery as an alternative to gold or platinum. Its hardness makes it ideal for
rings that will resist scratching, are hypoallergenic and will not need polishing.
Exchange traded & price conventions
Tungsten is not traded on any exchange although the price ticker for Tungsten APT
European is available from Metal Bulletin and has the Bloomberg code MBWOEUFM
<Index>. The Reuters codes are APT-CHINA and TUN-FERRO-LON.
Global Markets Research
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September 2008
A User Guide To Commodities
Vanadium
History & properties
Vanadium is a soft, silver-gray metallic element with the symbol V and atomic number
23. It is found in about 65 different minerals, phosphate rocks and certain iron ores,
and is also present in some crude oils in the form of organic complexes. Vanadium
was first discovered by Andres Manuel del Rio in 1801. However, due to an incorrect
counter-claim from a French chemist the element was rediscovered in 1830 by
Sefstrom, who named the element after the Scandinavian goddess, Vanadis, because
of its beautiful multi-coloured compounds. It was isolated in nearly pure form by
Roscoe, who in 1867 reduced the chloride with hydrogen. Vanadium has good
corrosion resistance to alkalis, sulphuric and hydrochloric acid, and salt water, but the
o
metal oxidizes above 660 C. The metal has good structural strength and a low fission
neutron cross section, making it useful in nuclear applications.
Major producers
South Africa is the world’s largest producer and exporter of vanadium. China and
Russia are also major producers. The US Geological Survey currently puts the total
world reserves of vanadium at over 63 million tonnes. Vanadium is not traded on any
exchange, although the price ticker from Metal Bulletin is available: MBVAUS80
<Index> for Ferro-Vanadium and the Reuters code for Ferro-Vanadium is VANFERRO-LON.
Figure 1: Major producers and reserves of vanadium
2007e
(tones)
Mine production
% of world
Reserves
(tonnes)
Reserve base
(tonnes)
S. Africa
23,000
39%
3,000,000
12,000,000
China
18,500
32%
5,000,000
14,000,000
Russia
16,000
27%
5,000,000
7,000,000
Other countries
1,100
2%
NA
1,000,000
USA
World
-
-
45,000
4,000,000
13,000,000
38,000,000
58,600
Source: USGS
Major uses
The key use of vanadium is as an alloying element in a number of types of steel,
where it increases strength and fatigue resistance. Over 85% of vanadium’s current
production is used as ferro-vanadium to be added to steel. These hard, strong ferrovanadium alloys are used to make armor plating for military vehicles. It is also used to
make car engine parts, such as piston rods and crank shafts. It is also used in the
steel “skeleton” or frames of high-rise buildings and oil drilling platforms. Some
vanadium is used in other industrial applications. For example, vanadium pentoxide
(V2O5) is used in the production of glass and ceramics and as a chemical catalyst.
Figure 2: Ferro-vanadium price since 1993
60
Figure 3: Vanadium uses in 2008
Ferro-Vanadium price (USD/lb)
5%
10%
50
High strength steel
40
30
Titanium, aluminium, vanadium
alloys - aerospace industry
20
10
85%
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: Bloomberg (data as of end 2007)
Page 82
2002
2003
2004
2005
2006
Catalysts, glasses & pigments,
ceramics, electronics &
batteries - chemical industry
2007
Source: http://www.stockhouse.com
Global Markets Research
September 2008
A User Guide To Commodities
Mineral Sands
History & properties
Mineral sands refer to concentrations of heavy minerals with high specific gravity,
which include minerals rich in titanium, zirconium and rare earths. The mineral sands
industry is orientated primarily towards the supply of titanium raw materials, for use
in the production of titanium dioxide pigment and titanium metals. However, zircon
and pig iron are also classified within mineral sands mining.
Mineral sands tend to accumulate in river channels or along coastal shorelines. Beach
sands contain the most important accumulations of these minerals, so they are also
sometimes known as beach sands. However, they are also found in varying levels
above the present sea level and some deposits have been located up to 35km inland.
Major producers
Australia is a major producer of heavy minerals. During 1998, deposits in Western
Australia, New South Wales and Queensland supplied 0.25 millon tonnes or 58% of
the world’s rutile concentrate, 2.4 Mt or 27% of world’s ilmenite, and 0.40 Mt or 40%
of the world’s zircon.
Major uses
The titanium dioxide pigment industry is the major end-user of titanium feedstock. A
majority of titanium dioxide pigment comes from rutile and ilmenite, as they produce
a superior pigment. About 90% of the world’s titanium mineral production is used in
the manufacture of white titanium dioxide pigment.
Titanium dioxide pigment is white in colour, with high opacity and resistance to colour
change, used primarily in paints as a whitener, and also in plastics, paper and rubber
products. Because it is non-toxic it also has minor uses in cosmetics, sun protection
creams and pharmaceuticals. About 6% is used to manufacture titanium metal, a
light, strong, corrosion-resistant metal used in aircraft, spacecraft and medical
prostheses. Other minor uses include welding rod coatings, sand blasting and water
filtration.
The group of primary mineral sands mined are:
Zircon: Zircon is the third most heavy mineral in mineral sands and is a colourless to
off-white mineral, with a specific gravity between 4.6 to 4.7,that is it is 4.6-4.7 times
heavier than water. It is used as the raw material for making refractory bricks and
furnace linings due to its melting point of over 2500 degrees Celcius. It is also used
widely in the ceramics industry as a speciality glaze and foundry medium. A small
percentage of pure zircon is used to make nuclear fuel containers. Zircon is the
world’s major source of zirconium products which are used as alloying agents in
materials that are exposed to corrosive agents such as space vehicle parts, surgical
appliances and explosive primers.
Rutile: Rutile is a red to black, naturally occurring titanium dioxide. Theoritically its
composed of 100% titatnium dioxide, but, practically impurities mean it typically
contains about 95% titanium dioxide. Rutile has a specific gravity of 4.25. Finely
powdered rutile is used in paints, plastics, papers, foods, and other applications that
call for a bright white colour.
Ilmenite: Ilmenite is the most abundant titanium mineral, theoretically containing
52.7% titanium dioxide, although in reality this figure ranges from 35-65%. Iimenite is
black and opaque with a specific gravity between 4.5 to 5.0 and it can be slightly
magnetic. Similar to rutile, ilmenite in fine powder form is a highly white substance
used as a base in high-quality paint, paper and plastics applications.
Global Markets Research
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September 2008
A User Guide To Commodities
Pig iron: Pig iron is a metallic iron containing greater than 90% iron, and is most
commonly produced from the smelting of iron ore in a blast furnace. It is relevant to
mineral sands because it is also a co-product of titanium slag production. In this
operation, iron is recovered from the smelting of ilmenite, and is collected as a high
grade molten iron. Around 500-600 kilograms of pig iron is produced per 1,000
kilograms of titanium slag produced.
Monazite: Monazite is the rarest mineral that exists as a rare earth phosphate. It
contains about 30% throrium, which makes it mildly radiocative. Monazite grains are
yellowish to brown with the specific gravity of about 4.6 to 5.4. It is used in colour
television screens, screen luminescence materials, video monitors and high efficiency
lights. Its potential also lies in futuristic computer, medical and electronic industries.
Leucoxene: Leucoxene is not a definable mineral species, but rather refers to a range
of commercial titanium-bearing products, typically containing between 65% to 92%
of titanium dioxide. If leucoxene contains higher concentrations of titanium dioxide
then it is classified as rutile. Leucoxene is physically characterised by a weak
magnetic susceptibility; and is often coated in surface impurities. The major markets
for leucoxene fall into two categories: as a direct feedstock for the production of
chlorine grade pigment; and in the manufacture of welding electrode flux.
Page 84
Global Markets Research
September 2008
A User Guide To Commodities
Rare Earth Metals
History & properties
Rare earths metals are a group of fifteen metallic elements consisting of the
Lanthanide series on the periodic table as well the element Yttrium. The rare earth
metals can be subdivided into the light or ceric elements of Cerium, Lanthanum,
Neodymium, and Praseodymium and the heavy elements of Yttrium, Samarium,
Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Ytterbium and
Lutetium. The three most important ores on a global scale are the minerals
bastnäsite, monazite and ion adsorption clays. Despite their title, some of the rare
earth metals such as cerium and lanthanum are relatively abundant in the earth’s
crust.
Major producers
According to US Geological Survey, the largest producer of rare earth metals is China
followed by India, Brazil and Malaysia. Although production has been concentrated in
these four countries in 2007, plans to boost rare earth metals production is occurring
in other countries around the world, such as the United States and Kazakhstan.
Figure 1: Major producers and reserve holders of Rare Earth Metals
Reserves
Reserves base
Producers
Tonnes
2007
% of world
Tonnes
Tonnes
China
120,000
97%
27,000,000
89,000,000
India
2,700
2%
1,100,000
1,300,000
Brazil
730
1%
48,000
84,000
Malaysia
200
30,000
35,000
Russia & CIS
19,000,000
21,000,000
Other countries
22,000,000
23,000,000
Australia
5,200,000
5,800,000
USA
13,000,000
14,000,000
87,378,000
154,219,000
World
124,000
Source: USGS
Major uses
Rare earth metals play a critical role in the automotive, electronics, environmental,
protection and petrochemical sectors. They are the world’s strongest magnets, and
have been attributable to the miniaturization of many technologies, such as iPods.
The major applications that drive the demand are:
Catalysts: Automotive catalytic converters (autocats) use rare earths particularly
cerium. Stricter environmental legislation is expected to sustain the strong demand
for rare earth metals in emission controls systems.
Cracking catalysis: Rare earth metals are also used in the petroleum refining
industry. Their applications are in the cracking process as they are able to enhance
the gasoline yield.
Glass: Rare earths, most notably cerium and lanthanum, are used in a variety of
applications in digital cameras and fibre optics.
Magnets: Rare earth magnets are the world’s strongest permanent magnets. They
are used extensively in the automotive and electronic sectors for example in hard disk
drives and hybrid car motors.
NiMH batteries: Lanthanum based batteries are used extensively for hybrid vehicles
as they are rechargeable and portable.
Phosphors: Many rare earth metals are fluorescent and have there applications for
flat screen displays and energy efficient lighting.
Polishing powders: Cerium oxide is used in the polishing industry for televisions,
silicon wafers and chips.
Global Markets Research
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September 2008
A User Guide To Commodities
Figure 2: Rare earth metals demand by use in
2006
3%
3%
Automotive catalytic
converters
6%
25%
10%
120,000
Metallurgical additives
and alloys
100,000
Lighting, televisions,
computer monitors,
radar, X-ray
Permanent magnets
22%
20%
Medical and lasers
Other
World production (tonnes, lhs)
140,000
Petroleum refining
catalysts
Glass polishing and
ceramics
11%
Figure 3: World rare earth production & prices
9,000
Price (USD/tonne)
8,000
80,000
7,000
60,000
40,000
6,000
20,000
5,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: USGS
Page 86
Source: USGS
Global Markets Research
September 2008
A User Guide To Commodities
Agriculture
The United States and China are the world’s superpowers when it comes to
agricultural production. Their combined output of corn, wheat, rice, soybeans and
sugar is approximately double that of their nearest rivals, India and the EU-27
countries. However, what distinguishes these two countries apart is that while the
US is a major exporter of agricultural commodities, China has become increasingly
dependent on agricultural imports. For example, in 2007-08, the US accounted for
30%, 41% and 63% of world exports for corn, soybeans and wheat respectively
while China has became the world’s largest importer of cotton, palm oil, rubber and
soybeans.
Of all the agricultural commodities, corn and wheat dominate in terms of world
production. However, global wheat production has declined over the past two years
in response to significant droughts in major wheat producing countries, such as
Australia. In contrast, global corn production has risen by 15% over the past two
years following an increase in US corn plantings. This has occurred to supply the US
ethanol industry, which now consumes approximately 25% of the annual US corn
harvest compared to less than 5% at the beginning of the decade.
Figure 1: The world’s top agricultural producers
Agricultural output in 2007-08 (million tonnes)
500
Sugar
Soybean
Rice
400
Wheat
Corn
300
Figure 2: Total world production of a selection of
agricultural commodities
900
World production
(million tonnes, 2007-08)
789
800
700
610
600
500
429
400
200
300
100
218
164
200
119
100
0
47
41
10
4
4
e
oc
oa
C
C
of
fe
n
ap
es
ee
d
Pa
lm
oi
l
R
ub
be
r
ot
to
C
R
Su
ga
r
R
ic
e
So
yb
ea
ns
he
at
W
C
or
n
R
us
si
a
In
do
ne
si
a
C
an
ad
a
Pa
ki
st
an
M
ex
ic
o
Th
ai
la
nd
Vi
et
na
m
-2
7
Br
az
il
Ar
ge
nt
in
a
In
di
a
EU
S
U
C
hi
na
0
Source: USDA
Source: USDA, World Cocoa Organization
Figure 3: US & world exports of a selection of
agricultural commodities in 2007-08
Figure 4: China’s trade position in agriculture
120
US exports (million
tonnes)
Rest of world exports
(million tonnes)
100
China's net trade balance in:
20000
10000
80
0
60
-10000
40
-20000
Soybeans
Corn
Wheat
Cotton
Rising net
imports
-30000
20
Tonnes (000s)
-40000
0
Wheat
Corn
Source: USDA
Global Markets Research
Soybeans
Sugar
Rice (milled)
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: USDA, DB Global Markets Research
Page 87
September 2008
A User Guide To Commodities
Global inventory-to-use ratios for many agricultural commodities have been low and
declining throughout most of this decade. This has been in response to strong
demand due to rapid population growth, strong economic growth and rising per capita
consumption of meat. Land and water constraints globally have also led to a
slowdown in agricultural production growth. During this decade rising fuel costs, the
rapid expansion of biofuels production, most notably in the United States, adverse
weather events and government policies in a number of agricultural exporting nations
to curb agricultural exports have contributed to many agricultural commodity prices
hitting all time nominal highs in 2008.
Figure 5: The world’s top agricultural futures contracts
Turnover
Turnover
2005
2007
Dalian Commodity Exchange
36.7
64.7
76%
Corn
Dalian Commodity Exchange
21.9
59.4
172%
Corn
Chicago Board of Trade
28.0
54.5
95%
No. 1 Soybeans
Dalian Commodity Exchange
40.0
47.4
18%
Rubber
Shanghai Futures Exchange
9.5
42.1
344%
Strong Gluten Wheat
Zhengzhou Exchange
16.6
39.0
135%
Soybeans
Chicago Board of Trade
20.2
31.7
57%
Sugar #11
New York Board of Trade
12.4
21.4
73%
Wheat
Chicago Board of Trade
10.1
19.6
94%
Non-GMO-Soybean
Tokyo Grain Exchange
11.0
12.3
12%
Soybean Oil
Chicago Board of Trade
7.7
13.2
72%
Soybean Meal
Chicago Board of Trade
8.3
12.2
47%
Rubber
Tokyo Commodity Exchange
7.2
7.1
-1%
Cotton #2
New York Board of Trade
3.9
6.3
65%
Coffee ‘C’
New York Board of Trade
4.0
5.1
29%
Corn
Tokyo Grain Exchange
5.2
4.7
-10%
Coffee Robusta
EURONEXT
3.3
4.4
36%
Wheat
Kansas City Board of Trade
3.7
4.3
17%
Crude Palm Oil
Malaysia Derivatives Exchange
1.2
3.5
200%
Cocoa CC
New York Board of Trade0
2.6
3.3
29%
Cotton
Zhengzhou Exchange
10.9
3.0
-72%
Canola (Rapeseed)
Winnipeg Commodity Exchange
1.7
3.0
79%
White Sugar
EURONEXT
1.5
2.1
39%
Spring Wheat
Minneapolis Grain Exchange
1.4
1.8
30%
Contract
Exchange
Soy Meal
% change
Turnover is futures only and in millions of lots. Contract sizes are typically 10 times larger in the US than China.
Source: DCE, CBT, NYBOT, ZCE, TGE, SFE, KCBT
Figure 6: Corn, soybean & wheat inventory-touse ratios
180
Total available stocks
divided by daily consumption
Figure 7: Corn, soybean & wheat prices in real
terms
Corn inventory-to-use ratio
40
Wheat inventory-to-use ratio
160
Soybean inventory-to-use ratio
140
Deflated by US PPI
35
Corn price in real terms
(2005 US dollars)
30
Soybean price in real
terms (2005 US dollars)
USD bushel
Days of use
120
100
80
60
40
Wheat price in real terms
(2005 US dollars)
25
20
15
10
20
5
0
1965
Source: USDA
Page 88
1970
1975
1980
1985
1990
1995
2000
2005
0
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Source: Bloomberg (data as of end July-08)
Global Markets Research
September 2008
A User Guide To Commodities
Cocoa
History & properties
The first traces of the consumption of cocoa appear to have been in South America
th
and specifically during the Mayan civilisation in the 6 Century. By the time of the
th
Aztecs around the 15 Century, cocoa beans had become a unit of currency across
the whole of Central America.
Cocoa derives from the cacao tree, which grows to around 12 meters (40 feet), bears
fruit or pods which are more than 30cm long. Each pod holds between 30 to 40 cocoa
beans, with approximately 400 beans required to make one pound of chocolate.
Cacao trees typically grow in hot and humid tropical climates, with an average rainfall
of 1150mm to 2500mm and a temperature range of between 18 to 32 degrees
Centigrade. Consequently production tends to occur between 10 to 20 degrees north
and south of the equator and specifically in the Ivory Coast, Ghana and Indonesia. A
cacao tree takes about five years to reach maturity, but, can live for up to 50 years
with the peak growing period lasting for around 10 years. The growing season is
continuous such that ripe pods can be found on cacao trees throughout the year.
However, the main harvesting period starts from September and can extend into the
first few months of a new year.
The fruit from the cacao tree can be classified according to three broad types: Criollo,
Forestero and Trinitario. Forestero accounts for over 85% of global cocoa production
and is largely concentrated in Africa. Criollo beans are primarily grown in Central and
South America and are generally considered superior in quality. Two-thirds of cocoa
bean production is used to make chocolate and one-third to make cocoa powder.
Major producers & consumers
While the cacao tree is a native of the Americas, today West Africa dominates the
world production of cocoa. Ivory Coast, Ghana and Indonesia account for 70% of
global cocoa production, with Ivory Coast the most dominant producer in the world.
Disease is a major factor affecting production such as witches broom, monilia and
black pod disease. Military conflict in West Africa has also been responsible for
disrupting cocoa production.
Cocoa consumption is measured by grindings or processing. The Netherlands and the
US remain the major cocoa processing countries, with grindings of more than
400,000 tonnes in 2006/07.
Major uses
Cacoa beans are fermented for up to seven days and are then sun-dried. The drying
process takes between one and two weeks. The beans are then polished by machine
and roasted at which point the shells are removed and the beans are ready to make
chocolate, chocolate paste, cocoa powder and cocoa butter.
Figure 1: The world’s top 7 cocoa producers & consumers in 2006
Producer
Tonnes (000s)
% of world
Consumer
Tonnes (000s)
% of world
Ivory Coast
1,292
38.0%
Netherlands
465
12.9%
Ghana
614.0
18.1%
USA
418
11.6%
Indonesia
490.0
14.4%
Germany
357
9.9%
Nigeria
190.0
5.6%
Ivory Coast
336
9.3%
Cameroon
166.0
4.9%
Malaysia
270
10.3%
Brazil
126.0
3.7%
Brazil
224
6.2%
Ecuador
114.0
3.4%
Indonesia
140
3.9%
World
3,380
World
3,639
Source: International Cocoa Organization; Consumers are measured by grindings/cocoa processing
Global Markets Research
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September 2008
A User Guide To Commodities
Figure 2: Cocoa turnover by exchange
Figure 3: Cocoa prices since 1957
Annual turnover in 2007 (Futures only, million lots)
4
3.3
5000
3.3
Cocoa price
(USD/tonne)
4000
3
3000
2
2000
1
1000
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
0
Cocoa (ICE)
Cocoa (EURONEXT)
Source: NYBOT, EURONEXT
Source: DB Global Markets Research, IMF monthly data as of end July-08
International organizations & exchange traded
The International Cocoa Organization (ICCO) was established in 1973 with the aim
over time to boost farm incomes and market access for major cocoa exporting
countries. The International Cocoa Council is the governing body of the ICCO and
consists of 13 cocoa exporting and 29 cocoa importing member countries.
Cocoa is traded on the New York Board of Trade and on EURONEXT. The futures
contract calls for the delivery of 10 tonnes of cocoa and is priced in US dollars per
tonne. The Bloomberg ticker for the one month generic cocoa futures contract is CC1
<Commodity>.
The Bloomberg codes for the total return and excess return DBLCI-Optimum Yield
Cocoa Index are DBLCYTCC <Index> and DBLCYECC <Index> respectively.
Figure 4: Cocoa market balance
Figure 5: Cocoa inventory-to-use ratio since 1997
4000
400
3500
300
3000
200
2500
100
2000
0
1500
-100
1000
-200
60
Inventory-to-grindings ratio (%)
55
Market balance (rhs)
500
Production (lhs)
-400
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: International Cocoa Organization
Page 90
45
40
35
-300
Grindings (lhs)
0
Tonnes (000s)
Tonnes (000s)
50
30
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source: International Cocoa Organization; Years run from September to
August such that the end of the 2007 marketing year takes place in August
2008
Global Markets Research
September 2008
A User Guide To Commodities
Coffee
History & properties
Coffee first came to prominence in Ethiopia more than 2,000 years ago. According to
legend, an Ethiopian goatherd witnessed the lively behaviour of his goats after they
consumed the berries of a coffee tree. He then enjoyed their unusual properties and
monks in a local monastery took this discovery and turned it into a beverage. The first
coffee houses sprang up in and around Mecca and pilgrims helped to spread the
beverage beyond Arabia. Coffee was then traded through Mocha, a port city on the
th
Red Sea coast of Yemen, which gave its name to a fine quality of coffee. By the 17
Century coffee houses had spread across Europe and had become an important
meeting place for traders and merchants. Both Lloyd’s of London and the London
Stock Exchange were founded in coffee houses.
Coffee is generally classified according to two types of bean: Arabica and Robusta.
The most widely produced coffee is arabica, which makes up just over 60% of world
production. It is also considered superior and trades at a premium to the robusta
bean. Robusta is the stronger of the two beans with more caffeine, a bitter taste and
is grown at lower altitudes.
Major producers & consumers
Coffee was introduced to Brazil in 1727 from French Guiana. Today, Brazil and
Colombia are the world’s largest producers of arabica coffee. 80% of all coffee
produced in Brazil is of the arabica variety. Coffee in Brazil is grown in the states of
Paraná, Espirito Santos, São Paulo, Minas Gerais, and Bahia. Vietnam, which
specializes in robusta production, has seen strong growth in its coffee production
over the past few years. Robusta coffee production is also concentrated in Indonesia
and West Africa. The EU and the US constitute 70% of world coffee consumption.
Major uses
Coffee berries are picked, defruited, dried, sorted and sometimes aged to yield the
green coffee bean. The beans are then roasted and ground before being prepared to
make coffee.
Price conventions & organisations
The International Coffee Organization was set up in London in 1962. The last
International Coffee Agreement was signed in September 2007 and outlined among
its objectives to promote not only coffee consumption, but, also its quality. Coffee is
measured in 60 kilogramme bags, with one bag equivalent to 132.3 pounds. The
coffee marketing year runs from 1 October to 30 September. The coffee price is
quoted in US cents per pound as well as US dollars per tonne. The Bloomberg ticker
for the NYBOT Coffee ‘C’ one month generic coffee futures contract is KC1
<Commodity>.
Figure 1: The world’s top 10 coffee producers, consumers, exporters and importers in 2007
% of
% of
% of
% of
Producers
000s
world
Consumers 000s
world
Exporters
000s
world
Importers
000s
world
Brazil
46,700
35.0%
US
20,667
17.2%
Brazil
28,088
29.3%
US
24,225
24.4%
Vietnam
21,250
15.9%
Brazil
16,100
13.4%
Vietnam
17,936
18.7%
Germany
19,660
19.7%
Colombia
12,164
9.1%
Germany
9,151
7.6%
Colombia
11,300
11.8%
Italy
8,027
8.1%
Indonesia
6,665
5.0%
Japan
7,268
6.1%
Indonesia
4,149
4.3%
Japan
7,086
7.1%
Ethiopia
4,800
3.6%
Italy
5,593
4.7%
Guatemala
3,726
3.9%
France
6,372
6.4%
India
4,363
3.5%
France
5,278
4.4%
Honduras
3,312
3.5%
Spain
4,946
5.0%
Mexico
4,550
3.4%
Russia
3,177
2.6%
India
3,256
3.4%
Belgium
4,014
4.0%
Guatemala
4,200
3.1%
Canada
3,097
2.6%
Mexico
2,912
3.0%
UK
3,781
3.8%
Honduras
4,050
3.0%
UK
3,057
2.5%
Peru
2,879
3.0%
Netherlands
3,449
3.5%
Peru
3,207
2.4%
Spain
3,017
2.5%
Uganda
2,693
2.8%
Poland
2,204
2.2%
Total
133,547
Total
119,901
Total
99,430
Total
95,967
Source: USDA, International Coffee Organization (Units are 60kg bags)
Global Markets Research
Page 91
September 2008
A User Guide To Commodities
Figure 2: Coffee turnover by exchange
6
Figure 3: Coffee prices since 1957
Annual turnover in 2007 (Futures only, million lots)
5.13
5
Coffee price (US cents/pound)
400
350
4.44
300
4
250
3
200
2
150
0.72
1
100
0.60
0.07
0
Coffee C
Arabica
(NYBOT)
Coffee Robusta Coffee Arabica Coffee Arabica Coffee Robusta
(EURONEXT)
(BM&F)
(TGE)
(TGE)
Source: TGE, NYBOT, EURONEXT, BM&F
50
0
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
Source: IMF, Bloomberg (monthly data as of end July-08)
Exchange traded
Coffee futures and options are traded on the Tokyo Grain Exchange (TGE), the
Coffee, Sugar and Cocoa Exchange Division of the New York Board of Trade
(NYBOT), EURONEXT London and the Brazilian Mercantile & Futures Exchange
(BM&F).
The NYBOT Coffee “C” Futures contract was first listed in 1955 and is for delivery of
arabica coffee, in a contract size of 37,500 pounds and quoted in US cents per pound.
Since October 2007, NYBOT offers a Robusta coffee futures contract. This reflects
the growing importance of robusta production, which regularly accounts for around
40% of global coffee production. The size and pricing conventions are the same as for
the Coffee “C” futures contract.
The EURONEXT London robusta coffee futures contract calls for delivery of robusta
coffee in a contract size of five tonnes, quoted in US dollars per tonne. The TGE
trades both the arabica and robusta bean futures contracts.
The Bloomberg codes for the total return and excess return DBLCI-Optimum Yield
Coffee C Index are DBLCYTKC <Index> and DBLCYEKC <Index> respectively.
Figure 4: Per capita coffee consumption
Figure 5: Coffee inventory-to-consumption ratio
2500
14
Coffee inventory-to-consumption ratio
Total available
stocks divided by
daily consumption
Per capita coffee consumption (kg, 2007)
12
2000
Days of use
10
8
6
1500
1000
4
500
2
0
Fin
Nor
Den
Neth
Swz
Source: International Coffee Organization
Page 92
Ger
Ita
USA
Japan
Russia
0
1961
1970
1979
1988
1997
2006
Source: DB Global Markets Research, USDA
Global Markets Research
September 2008
A User Guide To Commodities
Corn
History & properties
Corn or maize is a native grain of the Americas. It is part of the coarse grain family,
which also includes barley, sorghum, oats and rye. Corn is the world’s largest cereal
crop in terms of global production, amounting to 789 million tonnes in 2007,
compared to wheat production of 611 million tonnes during the same year. Fossils of
corn pollen have been found in lake sediment under Mexico City dating back over
80,000 years. Corn can be cultivated in very diverse environments from sea level to
as high as 12,000 feet. It can also grow in climates with as little as 12 inches or as
much as 400 inches of rainfall per annum.
Major producers & consumers
The United States is the world’s largest producer and exporter of corn, representing
42% of global production and 63% of world exports in 2007. The largest corn
producing states in the US are Iowa, Illinois, Nebraska, Minnesota and Indiana. After
the US, Argentina is the world’s second largest exporter of corn. China is the world’s
second largest consumer of corn while Japan is the world’s largest importer,
importing more than three times as much corn as it does wheat and soybeans. 80%
of Japan’s corn imports come from the US and their value is greater than any other
good imported from the US. In China, domestic corn consumption is rising rapidly,
particularly as an animal feed. This is in response to the increasing consumption of
meat. Strong consumption growth has been met by a significant drawdown in corn
inventories and a sharp drop in Chinese corn exports.
Major uses
Corn is used for livestock feed, human consumption and as a feedstock for ethanol
production, most notably in the US. Since 1990, corn demand for ethanol purposes
has risen from 360 million bushels to 3,230 million bushels or equivalent to 26% of
total US corn production. The United States Department of Agriculture estimates that
by 2010 the US ethanol industry will absorb 4.3 billion bushels of corn per annum,
equivalent to one-third of US corn production. Other feedstocks used for ethanol
production include sugar and sorghum.
Demand for corn as an animal feed has also been rising due to the improvement in
living standards and specifically more high protein diets across Asia. Cattle are
voracious consumers of grains, such that approximately seven pounds of feed are
required to generate an additional one pound in weight.
Figure 1: The world’s top 10 corn producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers (000s)
Tonnes
% of
world
Exporters
(000s)
world
Importers
(000s)
world
US
332,092
42.1%
US
264,044
34.1%
US
61,598
63.3%
Japan
16,600
17.4%
China
151,830
19.2%
China
149,000
19.3%
Argentina
15,500
15.9%
EU-27
13,000
13.6%
Brazil
57,500
7.3%
EU-27
61,500
8.0%
Brazil
9,000
9.3%
Mexico
9,200
9.6%
EU-27
47,324
6.0%
Brazil
42,500
5.5%
India
2,200
2.3%
Korea
9,100
9.5%
Mexico
22,650
2.9%
Mexico
32,000
4.1%
Ukraine
2,000
2.1%
Egypt
4,200
4.4%
Argentina
21,000
2.7%
India
16,900
2.2%
Paraguay
1,500
1.5%
Taiwan
4,200
4.4%
India
19,310
2.4%
Japan
16,500
2.1%
S. Africa
1,500
1.5%
Colombia
3,500
3.7%
Canada
12,000
1.5%
Canada
13,800
1.8%
Canada
600
0.6%
Canada
3,100
3.2%
S. Africa
11,650
1.5%
Egypt
10,400
1.3%
China
600
0.6%
Iran
2,700
2.8%
Indonesia
7,500
1.0%
Korea
9,100
1.2%
EU-27
600
0.5%
Malaysia
2,500
2.6%
World
789,150
World
773,369
World
97,278
World
95,473
Source: USDA (metric tons); To convert tonnes into bushels multiply by 39.367
Global Markets Research
Page 93
September 2008
A User Guide To Commodities
Figure 2: Corn turnover by exchange
Figure 3: Corn price since 1972
Annual turnover on in 2007
(Million lots 2007)
70
59.4
60
8
1st nearby corn futures price
(USD/bushel)
7
54.5
6
50
5
40
4
30
3
20
2
10
4.6
0.1
1
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
0
Corn (DCE)
Corn (CBOT)
Corn (TGE)
Corn (KCE)
Source: DCE, CBOT, Tokyo Grain Exchange, Kansai Commodity Exchange
Source: Bloomberg (data as of end July-08)
Exchange traded
The two most important commodity exchanges in terms of corn futures turnover in
2007 were the Dalian Commodity Exchange (DCE) and the Chicago Board of Trade
(CBOT). While turnover on the DCE exceeded that on CBOT last year, there is a
significant difference in terms of contract size which for the CBOT corn future is
5,000 bushels, but, for the DCE corn future is just under 400 bushels. The CBOT
futures exchange calls for the delivery No. 2 yellow corn.
Corn futures are also traded on the Tokyo Grain Exchange (TGE) as well as the Kansai
Commodity Exchange, Bolsa de Mercadarios & Futuros (BM&F) in Brazil, the
Budapest Commodity Exchange, the Mercado a Termino de Buenos Aires,
EURONEXT Paris, the Johannesburg Securities Exchange and the Minneapolis Grain
Exchange.
Price conventions
The corn price is quoted in US cents per bushel. The contract months for the Chicago
Board of Trade corn future are March, May, July, September and December. The
Bloomberg ticker for the first nearby corn futures contract is C 1 <Commodity>.
The Bloomberg ticker for the total returns and excess returns Deutsche Bank Corn
Indices are DBRCTR <Index> and DBRC <Index> respectively. The DB CornOptimum Yield total return and excess return index codes are DBLCOCNT <Index>
and DBLCOCNE <Index> respectively.
Figure 4: Global corn inventory-to-consumption
ratio
Total available stocks
divided by daily consumption
160
Corn production
160
140
Corn inventories
140
120
Corn inventory-to-use ratio
Tonnes (million)
Days of use
180
Figure 5: Chinese corn production and inventory
120
100
80
100
80
60
60
40
40
20
20
1960
1965
1970
1975
1980
1985
Source: DB Global Markets Research, USDA
Page 94
1990
1995
2000
2005
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: USDA
Global Markets Research
September 2008
A User Guide To Commodities
Cotton
History & properties
Cotton is one of the oldest fibres known to man. It has been in use for over 5,000
years and has its origins in modern day Pakistan. However, there is evidence that it
was prevalent in Mexico even earlier. The English name derives from the Arabic word
al qutun. The quality of the cloth compared to wool so impressed Europeans during
th
the 14 century that they believed cotton fibre came from lambs that grew on trees,
hence the German word “baumwolle” or “tree wool”.
Today, cotton is the most important textile fibre in the world, making up more than
40% of total world fibre production. Cotton is classified according to the staple, grade
and character of each bale. Staple refers to the fibre length. Grade ranges from
coarse to premium and is a function of colour, brightness and purity. Character refers
to the fibre’s strength and uniformity. Cotton is measured in terms of bales, with one
bale equivalent to 480 pounds in weight.
Major producers & consumers
The largest producers of cotton are China, India and the US, constituting two-thirds of
world production. China is not only the world’s largest producer, but also the largest
consumer and importer of cotton. China’s cotton needs are a result of its dominance
in the global textile industry. The majority of Chinese cotton acreage is grown on
small farms located in the Yellow River valley, Yangtze River valley and Northwest
region.
The US is the second-largest producer of cotton, but, the world’s top exporter,
making up more than a third of total world trade in cotton. The US cotton belt extends
from Florida and northern Carolina westward to California. The planting season varies
across the US from the beginning of February in Texas to as late as June is the
northern part of the US cotton belt, which extends from Texas eastwards to Georgia.
In India, the introduction of genetically engineered Bt cotton six years ago helped to
propel the country from being a net importer to the world’s second largest net
exporter of cotton. Although representing just 6% of world exports, Brazil is also
expected to move up the league table of cotton exporters in the years ahead.
Major uses
Cotton’s properties such as softness, absorbency and insulation make it suited to a
diverse range of applications. Its fibres are used to make a variety of textiles that are
used in clothing, furnishings and industry.
Figure 1: The world’s top 10 cotton producers, consumers, exporters and importers in 2007
Producers
Tonnes
% of
(000s)
world Consumers (000s)
Tonnes
% of
world
Exporters
China
35,800
30%
China
49,750
41%
US
India
24,800
21%
India
18,400
15%
US
19,207
16%
Pakistan
12,325
10%
Pakistan
8,900
7%
Turkey
6,200
Brazil
7,150
6%
US
Uzbekistan
5,500
5%
Turkey
3,100
Greece
1,325
Turkmenistan
Tonnes
% of
(000s)
world
Tonnes
Importers
13,900
36%
China
India
7,200
18%
Uzbekistan
4,450
11%
5%
Brazil
2,250
4,601
4%
Australia
Brazil
4,350
4%
Greece
3%
Bangladesh
2,760
2%
1%
Indonesia
2,275
2%
1,300
1%
Mexico
2,025
Syria
1,150
1%
Thailand
1,975
Total
119,305
Total
121,182
(000s)
% of
world
11,500
30%
Pakistan
3,700
10%
Turkey
3,200
8%
6%
Bangladesh
2,800
7%
1,150
3%
Indonesia
2,300
6%
1,050
3%
Thailand
1,950
5%
Turkmenistan
800
2%
Mexico
1,500
4%
Burkina Faso
775
2%
Russia
1,275
3%
2%
Kazakhstan
775
2%
Korea
1,050
3%
2%
Egypt
550
1%
Taiwan
1,000
3%
Total
38,945
Total
38,159
Source: USDA (metric tons)
Global Markets Research
Page 95
September 2008
A User Guide To Commodities
Figure 2: Cotton turnover by exchange
7
6.33
Figure 3: Cotton price since 1957
Annual turnover in 2007 (Futures only, million lots)
6
Cotton price (US cents/pound)
140
120
5
100
4
80
2.96
3
60
2
40
1
20
0
Cotton #2 (ICE)
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Cotton (ZCE)
Source: ZCE, NYBOT
Source: DB Global Markets Research, IMF (monthly data as of end July-08)
Exchange traded & prices
Cotton futures and options trade on the New York Board of Trade (NYBOT) as well as
the Zhengzhou Commodity Exchange. Other exchanges which have listed cotton
futures are the MCX and NCDE exchanges in India and the Bolsa de Mercadarios &
Futuros (BM&F) in Brazil.
The NYBOT Cotton No. 2 futures contract specifies delivery of 50,000 pounds net
weight, certain minimum standards of basis grade and staple length, and is quoted in
terms of US cents per pound. The five delivery months are March, May, July, October
and December. The Bloomberg ticker for the NYBOT one month generic cotton
futures contract is CT1 <Commodity>.
The Bloomberg tickers for the total returns and excess returns Deutsche Bank Cotton
Optimum Yield indices are DBLCYTCT <Index> and DBLCYECT <Index>
respectively.
Figure 4: Cotton yields since 1960 by country
7000
Cotton yields by country
China
1400
US
1200
Pakistan
India introduces
Bt cotton
5000
4000
India
1000
India's net trade balance in cotton
6000
Bales (000s)
Kg per hectare
1600
Figure 5: Biotechnology & Indian cotton exports
Brazil
800
600
3000
2000
1000
0
400
-1000
200
0
1960
Source: USDA
Page 96
India deploys GE
technology
1965
1970
1975
1980
1985
1990
1995
2000
2005
-2000
-3000
1994
1996
1998
2000
2002
2004
2006
Source: USDA
Global Markets Research
September 2008
A User Guide To Commodities
Palm Oil
History & properties
Trading in palm oil has been dated back to as early as 3,000 BC. Crude palm oil or
CPO is produced from the fruits of the oil palm plant, which is native to West Africa.
The plant thrives in humid tropical climates within 20 degrees of the equator and at
altitudes of less than 1,600 feet.
The plum-sized fruits of the oil palm grow in large bunches of between 1,000-3,000
fruits, termed fresh fruit bunches (FFB). The fruit of the oil palm produces two types
of oils, palm oil (90%) from the flesh of the fruit and palm kernel oil (10%) from the
seed of the fruit.
The oil palm has become a popular source of edible oil thanks to its superior oil yield
of four tonnes per planted hectare which is 10 times that of soybeans and six times
that of rapeseed, making it the most efficient oil-bearing crop in the world. The plant
can be harvested throughout the year and has a long productive lifespan of 25-30
years.
Major producers & consumers
Since oil palm’s introduction to Indonesia and Malaysia in the late 1800s, the two
countries have grown to become the largest palm oil producers in the world.
According to the USDA, Indonesia and Malaysia accounted for 45% and 42% global
CPO production respectively in 2007. Both countries were also the world’s largest
exporters of CPO. Oil World estimates that Indonesia’s CPO production is set to rise
further and to account for more than 50% of global production by 2011.
On the demand side, China was the largest consumer and importer of CPO in 2007,
constituting over 14% of global consumption and almost 20% of global imports.
According to Oil World, CPO is the world’s most consumed oil, forming 25% of
consumption of the 17 major oil and fats in 2007. Demand for CPO is largely driven by
its use as a relatively cheap vegetable oil and increasingly as a feedstock for biodiesel.
Major uses
There are three main areas of palm oil usage, first as a food, second in the oleochemical industry and lastly as a biofuel feedstock. In its edible form, palm oil is used
as cooking oil, margarine, confectionary fats and as a non-dairy creamer. As an oleochemical, palm oil is used in the production of soap, cosmetics, detergents and
pharmaceutical/nutraceutical products. In recent years, palm oil along with other
vegetable oils has also been used as a feedstock for biofuel.
Figure 1: The world’s top 10 palm oil producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Producers
Tonnes
(million) world
% of
Consumers
(million)
world
Exporters (million)
Tonnes
% of
world
Importers
(million)
world
Indonesia
19,300
44.5%
China
5,700
14.3%
Malaysia
13,800
46.3%
China
5,700
19.5%
Malaysia
17,400
42.3%
Indonesia
4,801
12.0%
Indonesia
13,505
45.3%
India
4,300
14.7%
Thailand
1,050
2.6%
India
4,380
11.0%
Papua NG
380
1.3%
EU-27
3,750
12.8%
Colombia
930
2.0%
EU-27
3,610
9.0%
Thailand
300
1.0%
Pakistan
2,420
8.3%
Nigeria
820
2.0%
Malaysia
3,371
8.4%
Jordan
300
1.0%
Bangladesh
1000
3.4%
Papua NG
400
1.0%
Pakistan
2,420
6.1%
Colombia
295
1.0%
USA
790
2.7%
Ecuador
340
0.8%
Nigeria
1,020
2.6%
UAE
220
0.7%
Egypt
750
2.6%
Ivory Coast
320
0.8%
Bangladesh
1,015
2.5%
Singapore
180
0.6%
Russia
700
2.4%
Costa Rica
285
0.7%
Thailand
815
2.0%
EU-27
140
0.5%
Vietnam
575
2.0%
Congo
175
0.4%
USA
779
1.9%
Ecuador
140
0.5%
Japan
530
1.8%
World
41,122
World
39,984
World
29,818
World
29,218
Source: USDA (metric tons)
Global Markets Research
Page 97
September 2008
A User Guide To Commodities
Figure 2: Palm oil turnover by exchange
Figure 3: Palm oil price since 1958
Annual turnover (mllion lots, 2007)
60
1400
Crude palm oil price (USD/tonne)
54.5
1200
50
40
1000
31.7
30
800
21.4 19.6
20
13.2 12.2
10
8.6
7.3
6.3
600
5.1
4.3
3.5
3.3
400
Co
rn
So
yb
ea
ns
Su
ga
W
r#
he
11
at
(C
BO
So
T)
yb
So ean
yb
O
il
ea
n
M
ea
Li
ve
l
Ca
ttl
Le
an e
H
og
C
s
ot
to
n
#2
C
of
W
f
he ee
‘C
at
(K ’
C
C
ru
B
de
T
pa )
lm
oi
l
C
oc
oa
0
Source: CBOT, NYBOT, CME, Bursa Malaysia
200
0
1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: Oil World Monthly of 20 June 2008
Exchange traded
The most liquid crude palm oil futures contract is traded on the Bursa Malaysia.
Contracts are denominated in Ringgit with a contract size of 25 tonnes. There are also
plans in place to introduce a US dollar denominated contract on the bursa Malaysia in
the near future. A US dollar denominated CPO futures contract is already listed on the
Joint Asian Derivatives Exchange (JADE) in Singapore. Other exchanges that trade
CPO include India’s National Commodity & Derivatives Exchange and the National
Multi-Commodity Exchange of India.
Price conventions
The CPO price is most often quoted in Malaysian Ringgits per tonne. The Bloomberg
ticker for the first nearby palm oil futures contract is KO1 <Commodity> and the
benchmark Malaysian Palm Oil Board CPO spot price ticker is PAL2MALY
<Commodity>. The Bloomberg Contract Rotterdam CPO price, which is quoted in US
dollars per tonne, is PALMROTT <Index>.
Figure 4: Oilseed production compared
3.7%
Figure 5: Land planted to various commodities
9.2%
Palm & palm kernel oil
3.5%
4.1%
Soya oil
9.2%
34.2%
Rapeseed oil
Soya
4.5%
Cotton
9.4%
40.5%
Sunflower oil
Rape
Sunflower
Cottonseed oil
Groundnut oil
15.2%
Groundnut
10.1%
Oil palm
Others
Others
11.3%
15.0%
30.1%
Source: Oil World Monthly of 20 June 2008
Page 98
Total oilseed production
in 2007/08 = 122.1 million tonnes
Total area planted in
2007/08 = 232.4 million hectares
Source: Oil World Monthly of 20 June 2008
Global Markets Research
September 2008
A User Guide To Commodities
Rapeseed
History & properties
Rapeseed production goes back 4,000 years, when it was used for cooking and as
lamp oil in China and India. Today, it is the second largest oilseed crop after soybeans,
and the third largest vegetable oil after soybean oil and palm oil. It has passed
peanut, cottonseed, and sunflower in worldwide production during the past
twenty years because of the increasing use of Canola.
Canola is a genetic variation of rapeseed and was developed in Canada. The word
canola derives from Canadian oil, low acid. Although rapeseed has been
domestically grown since World War II, its popularity increased significantly from
1985 after canola oil was granted safe as a food additive by the US Food and
Drug Administration.
Major producers & consumers
The European Union and China account for 60% of the world’s production of
rapeseed. India and Canada, the next largest producers account for 12% and 9%
respectively of global production. The major consumers are the European Union,
China, India and Canada. Although the EU and China are large producers, they are net
importers of rapeseed. In terms of exports, Canada is the world’s largest exporter
accounting for almost 70% of world’s exports, followed by Ukraine and Australia.
Major uses
Processing of rapeseed for oil production provides animal meal as a by-product, which
has a high protein content. Rapeseed is also a heavy nectar producer. A more recent
development is the use of oil in the manufacture of bio-diesel. Europe is the world’s
largest bio-diesel producer and rapeseed is its main feedstock.
Exchange traded
Rapeseed and/or canola futures and options are traded on EURONEXT, the Winnipeg
Commodities Exchange and the Australian Stock Exchange. The EURONEXT
rapeseed futures contract calls for the delivery of 50 tonnes of rapeseed. Rapeseed
oil futures are listed on the Zhengzhou Commodity Exchange.
Price conventions
The Bloomberg ticker for the WCE one month generic canola futures contract is RS1
<Commodity>. The price of canola is quoted in Canadian dollars per tonne.
Figure 1: The world’s top 10 rapeseed producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(‘000)
world
Consumers
(‘000)
world
Exporters
Tonnes % of
(‘000)
world
Importers
(‘000)
world
EU-27
18,333
38.8%
EU-27
19,040
38.9%
Canada
5,750
69.6%
Japan
2,250
28.5%
China
10,375
21.9%
China
11,224
22.9%
Ukraine
925
11.2%
Mexico
1,200
15.2%
Canada
8,750
18.5%
India
5,866
12.0%
Australia
550
6.7%
Pakistan
900
11.4%
India
5,450
11.5%
Canada
4,347
8.9%
USA
435
5.3%
USA
874
11.1%
Ukraine
1,100
2.3%
Japan
2,243
4.6%
EU-27
390
4.7%
China
850
10.8%
Australia
1,065
2.3%
Mexico
1,200
2.5%
Russia
125
1.5%
EU-27
660
8.4%
USA
659
1.4%
Pakistan
1,090
2.2%
Kazakhstan
50
0.6%
UAE
480
6.1%
Russia
632
1.3%
USA
1,075
2.2%
Paraguay
30
0.4%
Turkey
260
3.3%
Bangladesh
210
0.4%
Australia
535
1.1%
India
4
0.0%
Canada
200
2.5%
Pakistan
190
0.4%
Russia
507
1.0%
Chile
1
0.0%
Bangladesh
150
1.9%
World
47,310
World
48,909
World
8,261
Total
7,892
Source: USDA (metric tons)
Global Markets Research
Page 99
September 2008
A User Guide To Commodities
Rice
History & properties
Rice is a staple diet for half of the world’s population, especially in tropical Latin
America, and East, South and Southeast Asia. The plant, which measures 2-6 feet tall,
has long, flat leaves and stalk-bearing flowers that produce the grain called rice. Rice
is rich in genetic diversity, with thousands of varieties grown throughout the world. In
addition, it is entirely non-allergenic and gluten-free. Although it can be grown
practically anywhere, rice cultivation is well suited to regions with high rainfall and low
labour costs, as it is very labour-intensive to cultivate and requires plenty of water.
Major producers & consumers
China and India account for more than half of the world’s production, with Asia
combined constituting 90% of global rice production. The largest three exporting
countries are Thailand (33.3%), Vietnam (15.2%) and the US (13.2%), while the
largest three importers are the Philippines (7.8%), Bangladesh (6.6%) and Nigeria
(6.2%). Although, China and India are the top producers of rice in the world, both
countries consume most of the rice produced domestically leaving not much to be
traded internationally. Both countries constitute around 30% and 22% of the world’s
consumption respectively.
Global rice production is forecast to rise to a record high of 431 million tones in 200809. However, fundamentals in the global rice market have been tightening for the
past few years as US and global rice inventories have fallen to their lowest levels
since the early 1980s. The size of the global traded market in rice has contracted this
year in response to export restrictions being applied to a number of key exporting
countries, most notably Vietnam and India. This has contributed to rice prices hitting
record highs in the first half of this year.
Major uses
Apart from being a staple food, rice has other uses as well. Rice starch is used in
making ice-cream, custard powder, puddings and gel. The bran is used in
confectionary products. The defatted bran is also used as s cattle feed and organic
fertilizer. Rice bran oil is used as edible oil and in manufacturing soaps and fatty acids.
Rice husk is used as a fuel, in board and paper manufacturing, packing and building
materials and as an insulator.
Figure 1: The world’s top 10 rice producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Producers
Tonnes
(million) world
% of
Consumers
(million)
world
Exporters (million)
Tonnes
% of
world
Importers
(million)
world
China
129.8
30.3%
China
127.3
30.2%
Thailand
10.0
33.0%
Philippines
2.0
7.8%
India
96.4
22.5%
India
90.8
21.5%
Vietnam
4.8
15.7%
Nigeria
1.6
6.3%
Indonesia
35.5
8.3%
Indonesia
36.4
8.6%
India
4.1
13.5%
Bangladesh
1.4
5.5%
Bangladesh
28.6
6.7%
Bangladesh
30.2
7.2%
USA
3.4
11.2%
EU-27
1.1
4.3%
Vietnam
23.9
5.6%
Vietnam
19.0
4.5%
Pakistan
3.0
9.9%
Indonesia
1.1
4.3%
Thailand
18.5
4.3%
Philippines
12.8
3.0%
China
1.0
3.3%
S. Arabia
1.0
3.7%
Myanmar
10.7
2.5%
Myanmar
10.3
2.4%
Uruguay
0.8
2.6%
Iran
0.9
3.5%
Philippines
10.6
2.5%
Thailand
9.5
2.2%
Argentina
0.5
1.7%
Iraq
0.9
3.5%
Brazil
8.4
1.9%
Brazil
8.4
2.0%
Egypt
0.5
1.5%
S. Africa
0.9
3.3%
Japan
7.9
1.8%
Japan
8.2
1.9%
Brazil
0.4
1.4%
Malaysia
0.8
3.1%
World
429.0
World
422.0
World
30.3
Total
25.6
Source: USDA (metric tons)
Page 100
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Future trading compared
60
Figure 3: Rice price since 1989
Annual futures turnover in 2007 for various
agricultural products on US exchanges (million lots)
54.5
50
25
1st nearby rough rice futures price
(USD/cwt)
20
40
15
31.7
30
21.4
20
10
19.6
10
6.3
5
5.1
0.4
0
Corn
(CBOT)
Soybeans
(CBOT)
Sugar #11
(NYBOT)
Wheat
(CBOT)
Cotton #2
(NYBOT)
Coffee 'C' Rough Rice
(NYBOT)
(CBOT)
Source: CBOT, NYBOT
0
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Source: Bloomberg, CBOT (data as of end July 2008)
Exchange traded
Rice futures and options are traded on Chicago Board of Trade (CBOT). The
deliverable grade is US No. 2 or better long grain rough rice with a total milling yield of
not less than 65%, including head rice of not less than 48% with a contract size of
2000 cwt. Despite being one of the most important commodities in the world, futures
trading in rice is virtually non-existent. We believe the relatively inactive trading in rice
futures reflects the various grades available and the relatively small internationally
traded market in rice.
Price conventions
The price of rice is quoted in US dollars per hundred pounds (cwt). The Bloomberg
ticker for the CBOT one month rough rice futures contract is RR1 < Commodity>.
Figure 4: Global rice production & exports
500
Figure 5: Rice inventory-to consumption ratio
140
World rice production
World rice exports
Rice inventory-to-consumption ratio (days)
120
400
Tonnes (million)
100
300
80
60
200
40
100
20
0
0
1960
1965
1970
Source: USDA
Global Markets Research
1975
1980
1985
1990
1995
2000
2005
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: DB Global Markets Research, USDA
Page 101
September 2008
A User Guide To Commodities
Rubber
History & properties
The origins of rubber are in South America before it was discovered by European
th
explorers in the 15 century. The first popular use of the substance was in the late
th
18 Century as an eraser to “rub out” pencil marks, hence the name rubber.
There are two types of rubber that are in use today: natural and synthetic rubber.
Natural rubber is obtained by coagulating the latex produced by the rubber tree also
known as the Hevea Brasiliensis tree. Synthetic rubber is a petroleum product and is
almost identical to natural rubber in its physical and chemical properties.
However, it was not until WW1 when Germany developed the industrial version of
synthetic rubber that it became commercially viable. Before that time the production
of synthetic rubber was prohibitively expensive. The development of synthetic rubber
production was further accelerated when US supplies from Asia were severely
curtailed during the second world war and alternative supplies were required. The
advantages of synthetic rubber over natural rubber are the former’s great resistance
to oil, solvents, oxygen and certain chemicals, and a greater resilience over a wider
temperature range.
Major producers and consumers
The largest producers of natural rubber are Thailand, Indonesia and Malaysia,
accounting for just over 70% of global production in 2006. China, the US, EU-25 and
Japan are the largest consumers and hence importers of natural rubber. China
overtook the US to become the world’s largest consumer of natural rubber in 2000.
Since then the country’s appetite for rubber as with other commodities has increased
rapidly. Since 1999 China’s rubber consumption has nearly trebled. Today, China
constitutes about 26% of the world’s rubber consumption.
Major uses
The characteristics and properties of rubber such as elasticity, water repellence,
electrical resistance, heat tolerance and toughness make it suited for a variety of
applications. The most common use of rubber is in the production of tyres and
footwear. It is also extensively used in the production of a broad range of latex
products, gloves and electrical insulators. Resistance to abrasion also makes rubber
valuable for pump housings and piping. Thanks to the resistance of rubber to water, it
is also widely used in rainwear, diving gear and chemical and medicinal tubing.
Figure 1: The world’s top 10 rubber producers and consumers in 2006
Producers
Tonnes (‘000)
% of world
Consumers
Tonnes (‘000)
% of world
Thailand
3,137
32.4%
China
2,400
26.0%
Indonesia
2,637
27.3%
USA
1,003
10.9%
Malaysia
1,283
13.3%
Japan
873
9.5%
India
853
8.8%
India
815
8.8%
Vietnam
553
5.7%
Malaysia
383
4.2%
China
533
5.5%
Korea
363
3.9%
Ivory Cost
178
1.8%
Indonesia
355
3.8%
Sri Lanka
109
1.1%
Thailand
320
3.5%
Brazil
108
1.1%
Brazil
286
3.1%
101
1.0%
Germany
269
2.0%
Liberia
Total
9,676
Total
9,226
Source: International Rubber Study Group
Page 102
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Rubber trading by exchange
Figure 3: Rubber price since 1972
Annual turnover in 2007 (Futures only, million lots)
50
1st nearby rubber futures price (JPY/kg)
350
42.2
300
40
250
30
200
150
20
100
10
7.1
0
SFE
TOCOM
50
0.1
0.0
OME (RSS3)
OME (TSR20)
Source: SFE, TOCOM, OME
0
1988
1991
1994
1997
1999
2002
2005
2008
Source: Bloomberg (data as of end July-08)
Exchange traded
Natural rubber futures are listed on a number of exchanges around the world. The
RSS3 natural rubber (Ribbed Smoked Sheets No. 3) contracts are traded on the Osaka
Mercantile Exchange (OME), the Tokyo Commodity Exchange (TOCOM), the
Singapore Commodity Exchange (SICOM), the Agricultural Futures Exchange of
Thailand (AFE) and the Shanghai Futures Exchange (SHFE). The other exchange
traded natural rubber grades include RSS 1(SICOM), TSR 20 (SICOM, CBOT) and SCR
5 (SHFE).
The Bloomberg tickers for various RSS3 contracts are shown in Figure 4.
Figure 4: RSS3 Bloomberg Tickers
Exchange
Ticker
Agricultural Futures Exchange of Thailand
A61 <CMDTY>
Osaka Mercantile Exchange
RQ1 <CMDTY>
Singapore Commodity Exchange
RG1 <CMDTY>
Tokyo Commodity Exchange
JN1 <CMDTY>
Source: Bloomberg
Global Markets Research
Page 103
September 2008
A User Guide To Commodities
Soybeans
History & properties
The soybean is a member of the oilseed family, which also includes canola, peanuts,
rapeseed and sunflower seed. Soybeans are native to Asia and specifically China,
Japan and Korea. The English word soy is derived from the Japanese word shoyu. It
th
was introduced into the US at the end of the 18 Century.
Major producers & consumers
The United States is the largest producer of soybeans in the world. It has overtaken
wheat to be the country’s second largest production of any crop after corn. Soybean
production is concentrated in Illinois, Iowa, Minnesota, Indiana, Nebraska and Ohio.
Soybean crops in the US are planted in May or June and are harvested in autumn as
the crop typically matures between 100-150 days after planting. Brazil and Argentina
are the world’s second and third largest soybean producers and since 2002 the
combined exports of these two countries have exceeded US soybean exports.
Currently, 91% of all soybeans cultivated in the US are genetically modified.
Genetically engineered soybeans have also been deployed in Argentina and Brazil.
Consequently, of the total global area of soybeans under cultivation, 64% is
genetically modified. In Brazil, of the 15 million hectares dedicated to GE crops, 14.5
million relate to GE soybeans and the remainder to Bt corn. Part of the success of GE
soybean technology has been its ability to reduce fertilizer spraying by 50-80% and
hence lower input costs into the farming process. The USDA estimates that soybean
acreage in Brazil will grow by an average of 3% per annum into the next decade and
by 2016 the country will overtake the US to become the world’s largest producer of
soybeans.
Major uses
Soybeans are used to produce a wide variety of food products. The key value of
soybeans is their relatively high protein content without the many negative factors
associated with animal meat. Common forms of soy include soy meal used as animal
feed for poultry and swine and more recently the aquaculture of catfish. Soy milk is
used in imitation dairy products, such as soy yogurt, ice cream and soy cheese.
Soybeans are also used in the industrial production of soap, cosmetics, resins,
plastics, inks, crayons, solvents and bio-diesel. Typically the US, Brazil and Argentina
have employed soybeans as a feedstock for bio-diesel production while Indonesia,
Malaysia and the EU use palm oil and rapeseed oil.
Figure 1: The world’s top 10 soybean producers, consumers, exporters and importers in 2007
Tonnes
% of
Producers
(000s)
world
Consumers (000s)
world
Exporters (000s)
USA
70,358
32.2%
USA
51,410
22.3%
USA
31,162
40.7%
China
35,400
46.5%
Brazil
61,000
28.0%
China
48,650
21.1%
Brazil
25,650
33.5%
EU-27
14,500
19.1%
Argentina
46,500
21.3%
Argentina
37,316
16.2%
Argentina
12,200
15.9%
Japan
4,050
5.3%
China
13,500
6.2%
Brazil
35,450
15.3%
Paraguay
4,360
5.7%
Mexico
3,750
4.9%
India
9,300
4.3%
EU-27
15,381
6.7%
Canada
1,720
2.2%
Argentina
2,550
3.4%
Paraguay
6,800
3.1%
India
9,223
4.0%
Uruguay
800
1.0%
Taiwan
2,250
3.0%
Canada
2,700
1.2%
Japan
4,255
1.8%
China
350
0.5%
Thailand
1,600
2.1%
Bolivia
1,050
0.5%
Mexico
3,835
1.7%
Ukraine
200
0.3%
Indonesia
1,400
1.8%
Uruguay
830
0.4%
Paraguay
2,469
1.1%
EU-27
41
0.1%
S. Korea
1,250
1.6%
Indonesia
780
0.4%
Taiwan
2,265
1.0%
Bolivia
30
0.0%
Turkey
1,200
1.6%
Total
218,231
Tonnes
Total
230,986
% of
Tonnes
Total
76,576
% of
world
Importers
Total
Tonnes
% of
(000s)
world
76,069
Source: USDA (metric tons)
Page 104
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Soybean trading by exchange
50
47.4
Figure 3: Soybean price since 1972
18
Annual turnover in 2007 (million lots)
16
40
1st nearby soybean futures price
(USD/bushel)
14
31.7
12
30
10
8
20
12.3
6
10
4
1.2
2
0
No. 1 Soybeans
(DCE)
Soybeans (CBT)
Non-GMO
Soybeans (TGE)
Soybeans (TGE)
Source: DCE, CBT, TGE
0
1972
1976
1980
1984
1988
1992
1996
2000
2004
2008
Source: Bloomberg (data as of end July-08)
Exchange traded
Soybean futures and options are traded on the Dalian Commodity Exchange in China,
the Chicago Board of Trade (CBOT) and the Tokyo Grain Exchange (TGE). In addition,
soybean futures are also listed on the Bolsa de Mercadarios & Futuros (BM&F) in
Brazil, the Mercado a Termino in Buenos Aries, the Kansai Commodity Exchange, the
NCDEX in India and the South African Securities Exchange.
Although the futures turnover on the DCE was approximately 50% greater than that
of the CBOT soybeans futures contract in 2007, contract size is significantly lower
with the DCE calling for the delivery of less than 400 bushels. In comparison the
CBOT soybean futures contract calls for the delivery of 5,000 bushels of No. 2 yellow
soybeans. Soybean meal and soybean oil futures contracts are also listed on the DCE
and CBOT exchanges.
Price conventions
The soybean price is quoted in US cents per pound. The Bloomberg ticker for the
CBOT one month generic soybean futures contract is S 1 <Commodity>. The
Bloomberg tickers for the total returns and excess returns Deutsche Bank Soybean
Optimum Yield indices are DBLCYTSS <Index> and DBLCYESS <Index>
respectively.
Figure 4: Soybean inventory-to-use ratio
100
Figure 5: Soybean yields since 1986 by country
Soybean inventory-to-use ratio
4.0
Soybean yields by country
3.5
80
Tonne per hectare
Days of use
40
Brazil
Argentina
China
From 1996, the US, Argentina
and Brazil deploy GE technology
India
3.0
60
US
2.5
2.0
1.5
1.0
20
Total available stocks
divided by daily consumption
0
1965
1970
1975
Source: USDA
Global Markets Research
1980
1985
1990
1995
2000
2005
0.5
0.0
1986
1989
1992
1995
1998
2001
2004
2007
Source: DB Global Markets Research, USDA
Page 105
September 2008
A User Guide To Commodities
Sugar
History & properties
Sugar cane is thought to have originated in New Guinea as much as 9,000 years ago.
However, the first reported production of sugar from sugar cane took place on the
River Ganges around 2,000 years ago. The word sugar originates from the Indian
Sanskrit word sharkara, which later became al zukkar in Arabic. Sugar did not arrive in
th
Europe until the 14 Century. At the time, sugar was so expensive that one ounce of
gold could buy just 30 pounds of sugar. Today a similar amount of gold can buy 7,200
pounds of sugar.
Sugar can be derived from both sugar cane and sugar beets, the latter being more
costly to produce. There is little perceptible difference between the sugar derived
from either source. Most sugar cane comes from countries with warm climates, such
as Brazil, India, China and Australia. Beet sugar is grown in regions with cooler
climates. Of all the sugar produced, almost 80% is processed from sugar cane. The
International Sugar Organization currently has 83 members, which constitute just over
80% of world sugar production and 95% of world exports.
Major producers & consumers
Brazil is the largest producer and exporter of sugar in the world with Thailand a distant
second in terms of exports. Brazil, Thailand, Australia and India account for
approximately two-thirds of global exports. US production is evenly divided between
beet and cane sugar. The largest sugar beet producing states are Minnesota, Idaho,
North Dakota and Michigan. The largest cane producers are Florida, Louisiana, Texas
and Hawaii.
Subsidies and high import tariffs have made it difficult for other countries to export
into the EU or compete with it on world markets. The World Trade Organisation ruling
in April 2005 against EU sugar export subsidies heralded a four-year programme of
subsidy cuts, which has seen a decline in EU sugar production, such that by 2006 the
EU-27 became a net importer of sugar.
Exchange traded
The most actively traded sugar futures contract is the No. 11 (world) sugar contract
on the New York Board of Trade (NYBOT). Other exchanges which have listed sugar
futures are the Bolsa de Mercadorias & Futuros (BM&F), the Tokyo Grain Exchange
(TGE), the Kansai Commodity Exchange, the Zhengzhou Commodity Exchange,
EURONEXT and the MCX and NCDEX exchanges in India.
Figure 1: The world’s top 10 sugar producers, consumers, exporters and importers in 2007
Producers
Tonnes
% of
(000s)
world
Tonnes
Consumers (000s)
% of
world
Exporters
Tonnes
% of
(000s)
world
Importers
Tonnes
% of
(000s)
world
Brazil
31,450
19.2%
India
22,113
14.8%
Brazil
20,850
41.3%
EU-27
4,338
9.4%
India
30,780
18.7%
EU-27
18,716
12.6%
Thailand
4,705
9.3%
Russia
3,300
7.2%
EU-27
17,757
10.8%
China
13,000
8.7%
Australia
3,860
7.7%
Indonesia
2,420
5.2%
China
12,855
7.8%
Brazil
10,800
7.2%
India
2,680
5.3%
UAE
2,180
4.7%
USA
7,663
4.7%
USA
8,993
6.0%
EU-27
2,162
4.3%
USA
1,887
4.1%
Thailand
6,720
4.1%
Russia
6,100
4.1%
UAE
1,730
3.4%
Korea
1,680
3.6%
Mexico
5,633
3.4%
Mexico
5,130
3.4%
Guatemala
1,500
3.0%
Iran
1,600
3.5%
Australia
4,822
2.9%
Indonesia
4,100
2.8%
S. Africa
1,145
2.3%
Malaysia
1,515
3.3%
Pakistan
3,615
2.2%
Pakistan
3,950
2.7%
Colombia
942
1.9%
S. Arabia
1,515
3.3%
Russia
3,150
1.9%
Egypt
2,598
1.7%
Argentina
633
1.3%
China
1,465
3.2%
World
164,181
World
149,002
World
46,098
World
50,442
Source: USDA
Page 106
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Sugar turnover by exchange
25
Figure 3: Sugar price since 1957
Annual turnover in 2007 (Futures only, million lots)
21.4
20
Sugar price (US cents/lb)
60
50
15
40
10
30
20
5
2.1
10
0.4
0
Sugar #11 (ICE)
White sugar
(EURONEXT)
Raw sugar (TGE)
Source: NYBOT, EURONEXT, TGE
0
1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Source: DB Global Markets Research, IMF (monthly data as of end July-08)
The NYBOT No. 11 contract calls for the delivery of 112,000 pounds (50 long tons) of
raw cane centrifugal sugar from any of the 28 producing countries and the United
States. The majority (almost 80% of the total tonnage) delivered against NYBOT’s
sugar futures contract is accounted for by Brazilian sugars. Futures on white sugar are
traded on EURONEXT and call for the delivery of 50 metric tons of white beet sugar,
cane crystal sugar or refined sugar of any origin.
Price conventions
The sugar price is quoted in US cents per pound. The Bloomberg ticker for the one
month generic futures sugar contract is SB1 < Commodity>.
The Bloomberg tickers for the total returns and excess returns Deutsche Bank Sugar
Optimum Yield indices are DBLCYTSB <Index> and DBLCYESB <Index>
respectively.
Figure 4: Sugar inventory-to-consumption ratio
150
Figure 5: Sugar cane versus beet production
Sugar inventory-to-consumption ratio
140
Global sugar cane production
140
100
Tonnes (million)
Days of use
120
110
100
90
80
60
80
40
70
20
60
1960
Global sugar beet production
120
130
1965
1970
Source: USDA
Global Markets Research
1975
1980
1985
1990
1995
2000
2005
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: USDA
Page 107
September 2008
A User Guide To Commodities
Wheat
History & properties
Wheat is believed to have originated in the area known as the Fertile Crescent, an
area watered by the Nile, Jordan, Euphrates and Tigris rivers. The earliest
archaeological evidence for wheat cultivation comes from Syria and Turkey around
10,000 years ago. It was only introduced into the United States at the beginning of
th
the 17 Century.
Wheat is classified according to season, gluten content and grain colour. The different
growing seasons mean that there is either winter wheat or spring wheat. Winter
wheat in the United States is planted from September to December and harvested in
early July. In terms of gluten content, wheat can either be hard or soft. Hard wheat
has a high protein content while soft wheat has a high starch content. Wheat is also
classified according to grain colour such as red, white or amber. Wheat planted in the
spring is mostly red wheat while winter wheat is mostly white wheat.
Major producers & consumers
The world’s largest wheat producer is the European Union followed by China and
India. The United States is the fourth largest producer of wheat in the world, but, it is
the world’s largest exporter, representing 30% of global exports. Its share of world
exports has risen in the last few years on account of production setbacks in other key
exporting countries such as Australia. The largest US wheat producing states are
Kansas, Oklahoma, Washington and Texas.
Extreme weather events such as droughts in Australia, Russia and the Ukraine and
flooding in the UK and France were responsible for disruptions to wheat production
during 2007. For example, between 2005 and 2007 Australian wheat production fell
from 24.5 million tonnes to just 13.0 million tonnes. This pushed the country from
being the world’s second largest wheat exporter to the world’s seventh. This year,
droughts in Iran are expected to lead to a significant increase in the country’s wheat
imports, most notably from Russia.
Major uses
Wheat is a staple food used to make flour for bread, cakes, pasta and noodles as well
as for fermentation to make alcohol. The husk of the grain, separated when milling
white flour, is bran. Wheat is also planted as a forage crop for livestock while straw is
also used for roofing thatch.
Figure 1: The world’s top 10 wheat producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers (000s)
Tonnes
% of
world
Exporters
(000s)
world
Tonnes
% of
Importers
(000s)
EU-27
119,251
19.5%
EU-27
118,465
19.1%
USA
34,403
world
30.2%
Egypt
7,500
China
109,860
18.0%
China
104,000
16.8%
Canada
6.8%
16,500
14.5%
Brazil
7,000
India
75,810
12.4%
India
75,850
12.3%
6.3%
Russia
12,000
10.5%
EU-27
6,500
USA
56,247
9.2%
Russia
38,200
5.9%
6.2%
EU-27
11,000
9.7%
Japan
5,500
5.0%
Russia
49,400
8.1%
USA
Pakistan
23,300
3.8%
Pakistan
29,005
4.7%
Argentina
10,000
8.8%
Indonesia
5,300
4.8%
22,400
3.6%
Kazakhstan
8,500
7.5%
Algeria
5,200
Canada
20,050
3.3%
4.7%
Turkey
16,800
2.7%
Australia
7,470
6.6%
Morocco
4,700
Kazakhstan
16,600
4.2%
2.7%
Egypt
15,850
2.6%
China
2,800
2.5%
Mexico
3,600
Argentina
3.2%
16,000
2.6%
Iran
15,500
2.5%
Pakistan
2,200
1.9%
Iraq
3,500
3.2%
Turkey
15,500
2.5%
Ukraine
12,900
2.1%
Turkey
1,300
1.1%
USA
3,065
2.8%
World
610,537
World
619,007
World
113,958
World
110,895
Source: USDA; To convert tonnes into bushels multiply by 36.7437
Page 108
Global Markets Research
September 2008
A User Guide To Commodities
Figure 2: Wheat turnover by exchange
Figure 3: Wheat prices since 1972
Annual turnover in 2007 (Futures only, million lots)
45
12
1st nearby wheat futures price
(USD/bushel)
39.0
40
10
35
8
30
25
19.6
20
6
15
4
10
4.3
5
1.8
2
0
Wheat (ZCE)
Wheat (CBT)
Wheat (KCBT)
Wheat (MGE)
Source: CBT, KCBT, MGE, ZCE
0
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Source: Bloomberg (data as of end July 2008)
Exchange traded
Wheat futures and options are traded on the Chicago Board of Trade (CBOT), the
Kansas City Board of Trade (KCBT) and the Minneapolis Grain Exchange (MGE). In
China, the Zhengzhou Commodity Exchange trades the strong gluten wheat and the
hard winter wheat contracts. Wheat futures are traded, albeit with considerably lower
volumes on the Australian Stock Exchange, the Turkish Derivatives Exchange, the
Mercado a Termino de Buenos Aires (MAT), EURONEXT, the South African Futures
Exchange, the Budapest Commodity Exchange (BCE) and the MCX and NCDEX
exchanges. The Chicago Board of Trade’s wheat futures contract calls for the delivery
of soft red wheat (No. 1 and 2), hard red winter wheat (No. 1 and 2) and dark northern
spring wheat (No. 1 and 2). Annual turnover for the wheat futures contract on the
DCE in 2007 surpassed that of the equivalent CBOT futures contract. However, the
contract size of the CBOT wheat future is 12 times larger than the DCE futures
contract.
Price conventions
The wheat price is quoted in US cents per bushel. The Bloomberg ticker for the one
month generic futures wheat contract is W 1 <Commodity>. The Bloomberg code for
the Deutsche Bank Wheat total and excess returns indices are DBRWTR <Index>
and DBRW < Index> respectively. The Bloomberg tickers for the total returns and
excess returns Deutsche Bank Wheat Optimum Yield indices are DBLCOWTT
<INDEX> and DBLCOWTE <Index> respectively. Deutsche Bank also employs the
optimum yield technology on the Kansas City wheat contract. The Bloomberg index
codes for the total and excess return indices on this contract are DBLCYTKW
<Index> and DBLCYEKW <Index> respectively.
Figure 4: Wheat inventory-to-consumption ratio
160
Figure 5: Iran’s trade balance in wheat
Total available stocks
divided by daily consumption
Wheat inventory-to-use ratio
4
Iranian net trade balance in wheat
2
140
Tonnes (million)
Days of use
0
120
100
-2
-4
-6
80
Net imports
-8
-10
60
1980
1960
1965
1970
Source: USDA
Global Markets Research
1975
1980
1985
1990
1995
2000
1984
1988
1992
1996
2000
2004
2008
2005
Source: USDA
Page 109
September 2008
A User Guide To Commodities
Livestock
Of the five broad commodity sectors, livestock is one of the smallest in terms of
production, world trade and futures turnover. The United States is the world’s largest
producer of beef followed by Brazil and the EU-27 countries. However, the global
trade in meat products is small compared to world production. In recent years, the
internationally traded market in beef has also been negatively affected by the BSE
virus and the subsequent import bans that were introduced by many countries across
Asia and Europe. Today Brazil is the world’s leading exporter of beef while China is
the world’s largest producer and consumer of pork.
The livestock industry has had to contend with a significant increase in feedstock
prices such as grains over the past few years. However, the improvement in living
standards in many parts of the developing world is increasing the demand for more
high protein diets. For example, per capita beef consumption in China has been rising
rapidly over the past decade, but, still remains significantly below the newly
industrialised nations across Asia such as Korea.
Figure 1: Agricultural and livestock futures
turnover on US exchanges in 2007
Livestock
Annual turnover, mllion lots (2007)
60 54.5
Figure 2: Livestock & agricultural scorecard since
2006
200
Price appreciation since the end of 2005 (%)
Agriculture
50
150
40
100
31.7
30
21.4 19.6
50
0
Source: CBT, KCBT, MGE, CME, NYBOT
Source: Bloomberg (Data as of August 22, 2008)
Figure 3: Meat consumption relative to income
Figure 4: Meat consumption by type & country
Meat consumption
as a function of income
80
Beef
Pork
Chicken
China
India
Row
Turkey
12
10
China (2008)
8
6
4
Korea
2
China
Japan
Kg per capita per year
Kg pf meat (beef & veal) per capita
14
Pork bellies
Sugar
Feeder cattle
Live cattle
Coffee
Cotton
Live hogs
Cocoa
Wheat
Soybeans
-50
Corn
FCOJ
Pork Belly
Feeder Cattle
Wheat (MGE)
Cocoa
Wheat (KCBT)
Cotton #2
Soybean Meal
Soybean Oil
Wheat (CBOT)
Soybeans
Sugar #11
Corn
0
8.6 7.3
6.3 5.1
4.3 3.3
1.8 1.1 0.8 0.1
Coffee ‘C’
10
Live Cattle
13.2 12.2
Lean Hogs
20
60
40
20
0
0
5,000
10,000
15,000
20,000
25,000
GDP PPP per capita
Source: USDA, IMF
Page 110
30,000
35,000
40,000
0
US
EU
World
Source: USDA, FAO, IMF
Global Markets Research
September 2008
A User Guide To Commodities
Feeder & Live Cattle
History & properties
The beef cycle, that is the time from birth to slaughter, typically lasts two years.
Calves are born in the spring after a nine month gestation period. Weaning then takes
place for the first six to eight months of the calf’s life. Once the calf reaches between
six to eight months old, they are moved into the “stocker” operation. Calves spend
between six to ten months in this stage until they reach between 600-800 pounds. At
this point, the cattle are sent to a feedlot to become “feeder cattle” with the aim of
encouraging rapid weight gain. This is typically achieved by a diet of grains and high
protein, such as corn or wheat and soybeans. Cattle are voracious consumers of
grains, such that in the US seven pounds of feed are required to generate an
additional one pound in weight. When animals have reached a full weight of 1,200
pounds, normally after six months, they are ready for slaughter. This final stage of the
animal’s life is referred to as “live cattle”.
Major producers & consumers
Global beef consumption has increased steadily over the last few years driven by the
increased demand for beef from China. The United States is not only the largest
producer of beef in the world, but also the largest consumer and importer of beef,
accounting for 20% of the world’s production and 21% of global beef consumption.
The international traded market in beef is relative small compared to world
production. The traded market has had to contend with BSE events in a number of
countries, which has led to the imposition of bans by many importing countries. For
example, Korean and Japanese purchases of US beef had until recently fallen to 60%
of pre-2003 levels.
Major uses
While feeder cattle are weaned calves that have not yet attained optimal weight for
slaughter, live cattle have achieved an optimal weight for sale to packers. After sale to
packers, the animal is slaughtered and the meat is divided into grades by both quality
and yield, and sold boxed. This beef is used almost completely for human
consumption: 50% as steaks and roasts, 45% as hamburger and 5% as stewing
beef. The packer also sells the “drop,” or excess carcass products, which are used to
produce leather, soaps, animal feed, and other products.
Figure 1: The world’s top 10 bovine producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers (000s)
Tonnes
% of
world
Exporters
(000s)
world
Tonnes
% of
Importers
(000s)
USA
12,096
17.9%
USA
12,380
21.4%
Brazil
2,189
world
28.8%
USA
1,384
19.1%
Brazil
9,470
13.7%
EU-27
8,674
14.5%
Australia
1,400
EU-27
8,175
12.2%
China
7,404
12.3%
India
735
18.4%
Russia
1,030
14.%
9.7%
Japan
686
China
7,480
11.2%
Brazil
7,311
12.2%
USA
9.5%
649
8.5%
EU-27
638
India
3,200
5.3%
Argentina
2,673
4.5%
8.8%
Argentina
532
7.0%
Mexico
410
Argentina
2,500
4.8%
Mexico
2,568
5.7%
4.3%
N. Zealand
496
6.5%
Korea
308
4.3%
Australia
2,200
3.4%
Russia
Mexico
2,197
2.4%
India
2,392
4.0%
Canada
457
6.0%
Egypt
300
4.1%
1,765
2.9%
Uruguay
385
5.1%
Canada
242
Russia
1,370
2.4%
3.3%
Japan
1,182
2.0%
Paraguay
197
2.6%
Venezuela
210
Canada
1,310
1.9%
2.9%
Pakistan
1,119
1.9%
EU-27
139
1.8%
Malaysia
154
Total
60,423
2.1%
Total
59,985
Total
7,605
Total
7,237
Source: USDA
Global Markets Research
Page 111
September 2008
A User Guide To Commodities
Figure 2: Livestock turnover on US exchanges
10
Annual turnover, mllion lots (2007)
Figure 3: Live & feeder cattle prices since 1988
8.6
USc/pound
Live cattle
130
Feeder cattle
120
8
110
100
6
90
80
4
70
2
60
1.1
50
0
Feeder Cattle
40
1988
Live Cattle
Source: CME
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: Bloomberg (data as of end July-08)
Exchange traded
Future and options are traded for both feeder and live cattle on the Chicago
Mercantile Exchange (CME). In the mid-1960s, live cattle future contracts were
introduced to the CME such contracts for a non-storable commodity departed from
convention at the time. In 1971, feeder cattle futures were first listed on the CME,
and options were introduced in 1987. For live cattle, the contract size is for 40,000 lbs
of 55% choice, 45% select grade futures. For feeder cattle it is 50,000 lbs of 700-849
lb. steers futures.
Price conventions
Cattle are sold as units, and prices are quoted in dollars per pound. Contract months
are February, April, June, August, October, and December. The Bloomberg ticker for
the CME live cattle one month generic futures contract is LC1 <Commodity>. The
Bloomberg ticker for the CME feeder cattle one month generic futures contract is
FC1 < Commodity>.
Figure 4: World production & trade in meat
World production
120
80
International trade in meat
89.5
80
67.2
60
40
20
5
9.2
7.1
Pork
Chicken
China
India
Row
Turkey
40
20
0.9
0
US
Swine
Source: USDA
60
13.7
0
Page 112
Beef
98.8
Kg per capita per year
Tonnes (million)
100
Figure 5: Meat consumption by type & country
Poultry
Bovine
EU
World
Lamb
Source: USDA, FAO, IMF
Global Markets Research
September 2008
A User Guide To Commodities
Lean Hogs & Pork Bellies
History & properties
The pork cycle, that is the time from birth to slaughter, typically lasts for six months.
The life cycle begins with the baby piglet. Each sow is generally bred twice a year.
These breeding hogs are kept in the breeding herd for an average of two years before
being sent to slaughter. The gestation period is approximately 114 days and an
average little size if between nine to the pigs. Weaning then takes place for the first
three to four weeks of the pig’s life. The average litter size is reduced to an average
of 8-9 pigs between farrowing and weaning due to disease or weather conditions
leading to death loss. Pigs are fed a diet of grains such as corn, barley, oats and
wheat. On average, 6.5 pounds of feed are required to generate an additional one
pound in weight. When the animals have reached a full weight of approximately 250
pounds, after around six months, they are ready for slaughter. One hog yields an
average of between 85-90 pounds of lean meat.
Major producers & consumers
Approximately 41% of all meat consumed across the world is pork. Therefore, to
meet the growing demand in meat consumption, world pork production has increased
1% annually over the past five years. China is the largest producer and consumer of
pork in the world, accounting for over 45% of both the world’s production and
consumption. In China, pork is such a sensitive commodity that the government
keeps a strategic reserve to adjust pricing. The US is a relatively new player on pork
export markets. The country only became a net exporter of pork in 1995, but today it
is the world’s largest exporter, selling primarily to Japan, Mexico and Canada. After
negotiating several free trade agreements, the US is hoping to expand its market
reach in Central America and Chile.
Although Brazilian pork exports have gone mainly to Russia, it is looking into other
markets due to new Russian quotas. Pork production and consumption are expected
to rise in the EU as living standards improve in accession states. Japan is the world’s
largest importer of pork, constituting about 24% of world imports.
Major uses
Once the hog is slaughtered, approximately 21% of the carcass weight is ham, 20%
pork loin, 10% picnic, 7% Boston butt roast and blade steaks, 3% spareribs, and the
pork belly is generally about 14% of carcass weight. The pork belly is cured and put
into cold storage for up to a year to be used as bacon, which is unique among other
meat products in its lack of substitutes.
Figure 1: The world’s top 10 pork producers, consumers, exporters and importers in 2007
Tonnes
% of
Tonnes
% of
Tonnes
% of
Producers
(000s)
world
Consumers (000s)
Tonnes
% of
world
Exporters
(000s)
world
Importers
(000s)
world
China
47,016
49.2%
China
44,048
46.1%
USA
1,424
27.6%
Japan
1,210
23.8%
EU-27
22,600
23.6%
EU-27
21,257
22.2%
EU-27
1,282
24.9%
Russia
894
17.6%
USA
9,962
10.4%
USA
8,964
9.4%
Canada
1,033
20.1%
Korea
447
8.8%
Brazil
2,990
3.1%
Russia
2,803
2.9%
Brazil
730
14.2%
Mexico
445
8.8%
Russia
1,910
2%
Japan
2,472
2.6%
China
350
6.8%
USA
439
8.6%
Canada
1,850
1.9%
Brazil
2,260
2.4%
Chile
148
2.9%
Hong Kong
302
5.9%
Vietnam
1,832
1.9%
Vietnam
1,855
1.9%
Mexico
81
1.6%
China
198
3.9%
Japan
1,250
1.3%
Mexico
1,514
1.6%
Australia
54
1%
Canada
171
3.4%
Philippines
1,245
1.3%
Korea
1,270
1.3%
Vietnam
19
.3%
Australia
141
2.8%
Mexico
1,150
1.2%
Philippines
984
Korea
13
.3%
Singapore
97
1.9%
Total
95,658
Total
95,514
Total
5,152
Total
5,082
1%
Source: FAS, USDA
Global Markets Research
Page 113
September 2008
A User Guide To Commodities
Figure 2: Turnover by exchange
8
7.3
Figure 3: Live hog & pork belly prices
Annual turnover, mllion lots (2007)
140
USc/pound
Live hogs
Pork belly
120
6
100
4
80
60
2
40
0.1
0
Lean Hogs
Source: CME
Pork Belly
20
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
Source: Bloomberg (data as of end July-08)
Exchange traded
In 1961, the Chicago Mercantile Exchange (CME) began trading frozen pork belly
futures; this was the first future contract based on frozen, stored meats. It was added
to help meat packers and warehouse operators mediate the volatility of hog prices
and the price risks associated with holding processed foods in inventory. Both frozen
and fresh pork belly futures and contracts are currently listed on the CME.
The trading unit for each of these contracts is 40,000 pounds of the product. For lean
hogs, contract months are Feb, April, May, June, July, August, October and
December. For pork bellies, these are February March, May, July and August.
Price conventions
Before 1997, hogs were traded based on their weight prior to slaughter, or their ‘live
weight’. The CME then changed the hog contract to 40,000 pounds ‘lean weight,’ or
post-slaughter weight. When live hogs are sold, price is based on expected percent
lean weight. Prices are quoted in US cents per pound. The Bloomberg ticker for the
CME pork bellies one month generic futures contract is PB1 <Commodity>. For CME
lean hogs,’ the ticker for one month generic futures contract is LH1 <Commodity>.
Page 114
Global Markets Research
September 2008
A User Guide To Commodities
Commodity Exchanges & Turnover
Commodity exchanges by type of contract listed
Commodity
Energy
Metals
Electricity
Fibres
Grains & Oilseeds
Softs
Livestock
Exchange
Abbreviation
New York Mercantile Exchange
NYMEX
Intercontinental Exchange
ICE
Shanghai Futures Exchange
SHFE
Central Japan Commodity Exchange
CJCE
Tokyo Commodity Exchange
TOCOM
Dalian Commodity Exchange
DCE
London Metal Exchange
LME
New York Mercantile Exchange
COMEX
Shanghai Futures Exchange
SHFE
Philadelphia Board of Trade
PHLX
Osaka Mercantile Exchange
OME
Tokyo Commodity Exchange
TOCOM
New York Mercantile Exchange
NYMEX
Nordic Power Exchange
NORDPOOL
European Energy Exchange
EEX
UK Power Exchange
UKPX
Amsterdam Power Exchange
APX
Paris Power Exchange
POWERNEXT
Chicago Mercantile Exchange
CME
New York Cotton Exchange
NYCE
Zhengzhou Commodity Exchange
YCE
Budapest Commodity Exchange
BCE
Chicago Board of Trade
CBT
Dalian Commodity Exchange
DCE
EURONEXT
EURONEXT
Fukuoka Futures Exchange
FFE
Johannesburg Securities Exchange
JSE
Kansas City Board of Trade
KCBT
Malaysian Derivatives Exchange
MDE
Mercado a Termino de Rosaio
ROFEX
Minneapolis Grain Exchange
MGE
Tokyo Grain Exchange
TGE
Winnipeg Commodity Exchange
WCE
New York Board of Trade
NYBOT
Bolsa de Mercadorias & Futuros
BM&F
Kansai Agricultural Commodities Exchange
KANEX
Tokyo Grain Exchange
TGE
EURONEXT
EURONEXT
National Commodity & Derivatives Exchange
NCDEX
Zhengzhou Commodity Exchange
ZCE
Chicago Mercantile Exchange
CME
Bolsa de Mercadorias & Futuros
BM&F
EURONEXT, Amsterdam
EURONEXT
Sydney Futures Exchange
SFE
Source: CRB Yearbook, DB Global Markets Research
Global Markets Research
Page 115
September 2008
A User Guide To Commodities
Commodity Turnover
The world’s top commodity futures contracts in 2007
Contract
Exchange
Turnover (million lots)
WTI Crude Oil
New York Mercantile Exchange
121.5
Soy Meal
Dalian Commodity Exchange
64.7
Brent Crude Oil
Intercontinental Exchange
59.7
Corn
Dalian Commodity Exchange
59.4
Corn
Chicago Board of Trade
54.5
No. 1 Soybeans
Dalian Commodity Exchange
47.4
Rubber
Shanghai Futures Exchange
42.2
Aluminium
London Metal Exchange
40.2
Strong Gluten Wheat
Zhengzhou Commodity Exchange
39.0
Soybeans
Chicago Board of Trade
31.7
US Natural Gas
New York Mercantile Exchange
29.8
Gold
New York Mercantile Exchange
25.1
Gas Oil
Intercontinental Exchange
24.5
Copper
London Metal Exchange
21.4
Sugar #11
New York Board of Trade
21.4
Wheat
Chicago Board of Trade
19.6
Gold
Tokyo Commodity Exchange
18.2
Heating Oil No. 2
New York Mercantile Exchange
18.1
Copper
Shanghai Futures Exchange
16.2
Soybean Oil
Chicago Board of Trade
13.1
Zinc
London Metal Exchange
12.6
Non-GMO-Soybean
Tokyo Grain Exchange
12.3
Soybean Meal
Chicago Board of Trade
12.2
Fuel Oil
Shanghai Futures Exchange
12.0
Platinum
Tokyo Commodity Exchange
9.2
Live Cattle
Chicago Mercantile Exchange
8.6
Gasoline
Tokyo Commodity Exchange
7.5
Lean Hogs
Chicago Mercantile Exchange
7.3
Rubber
Tokyo Commodity Exchange
7.1
Silver
New York Mercantile Exchange
6.8
Cotton #2
New York Board of Trade
6.3
Coffee ‘C’
New York Board of Trade
5.1
Aluminium
Shanghai Futures Exchange
4.8
Lead
London Metal Exchange
4.7
Corn
Tokyo Grain Exchange
4.6
Coffee Robusta
EURONEXT
4.4
Wheat
Kansas City Board of Trade
4.3
Nickel
London Metal Exchange
3.8
Copper
New York Mercantile Exchange
3.8
Gasoline
Central Japan Commodity Exchange
3.6
Crude Palm Oil
Malaysia Derivatives Exchange
3.5
Cocoa CC
New York Board of Trade
3.3
Cocoa #7
EURONEXT
3.3
Canola (Rapessed)
Winnipeg Commodity Exchange
3.0
Cotton
Zhengzhou Commodity Exchange
3.0
Kerosene
Central Japan Commodity Exchange
2.7
Kerosene
Tokyo Commodity Exchange
2.4
White Sugar
EURONEXT
2.1
Source: NYMEX, ICE, TOCOM, SFE, CJCE, LME, OME, BM&F, DCE, CBT, NYBOT, ZCE, TGE, KCBT, EURONEXT
Page 116
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September 2008
A User Guide To Commodities
Continued: The world’s top commodity futures contracts in 2007
Contract
Exchange
Turnover (million lots)
Spring Wheat
Minneapolis Grain Exchange
1.79
Crude Oil
Tokyo Commodity Exchange
1.49
Gold
Chicago Board of Trade
1.45
Tin
London Metal Exchange
1.29
American Soybeans
Tokyo Grain Exchange
1.25
NASAAC
London Metal Exchange
1.23
US Natural Gas
Intercontinental Exchange
1.23
Feeder Cattle
Chicago Mercantile Exchange
1.10
White Maize
Johannesburg Securities Exchange
0.96
Orange Juice (FCOJ)
New York Board of Trade
0.85
Coffee Arabica
Bolsa de Mercadorias & Futuros
0.72
Coffee Arabica
Tokyo Grain Exchange
0.60
Mini Soybeans
Chicago Board of Trade
0.54
Silver
Tokyo Commodity Exchange
0.54
Platinum
New York Mercantile Exchange
0.50
Aluminium Alloy
London Metal Exchange
0.49
Raw Sugar
Tokyo Grain Exchange
0.43
Oats
Chicago Board of Trade
0.43
Palladium
New York Mercantile Exchange
0.40
Red Beans
Tokyo Grain Exchange
0.39
Class III Milk
Chicago Mercantile Exchange
0.31
Palladium
Tokyo Commodity Exchange
0.21
Corn
Fukuoka Futures Exchange
0.10
Rubber (RSS3)
Osaka Mercantile Exchange
0.09
Coffee Robusta
Tokyo Grain Exchange
0.07
Pork Belly
Chicago Mercantile Exchange
0.07
Aluminium
Tokyo Commodity Exchange
0.07
Non-GMO Soybeans
Fukuoka Futures Exchange
0.02
Aluminium
Osaka Mercantile Exchange
0.02
Rubber (TSR20)
Osaka Mercantile Exchange
0.01
Nickel
Osaka Mercantile Exchange
0.01
Source: NYMEX, ICE, TOCOM, SFE, CJCE, LME, OME, DCE, CBT, NYBOT, ZCE, TGE, KCBT, EURONEXT
Global Markets Research
Page 117
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A User Guide To Commodities
Conversion Factors
Commonly Used Weights
The troy, avoirdupois and apothecaries’ grains are identical in the U.S. and British
weight systems, equal to 0.0648 gram in the metric system. One avoirdupois ounce
equals 437.5 grains. The troy and apothecaries’ ounces equal 480 grains, and their
pounds contain 12 ounces.
Troy Weight & Conversions:
100 kilograms
=
1 quintal
24 grains
=
1 pennyweight
20 pennyweights
=
1 ounce
12 ounces
=
1 pound
1 troy ounce
=
31.103 grams
1 troy ounce
=
0.0311033 kilogram
1 troy pound
=
0.37224 kilogram
1 kilogram
=
32.151 troy ounces
1 tonne
=
32,151 troy ounces
Avoirdupois Weights & Conversions:
27 11/32 grains =
1 dram
16 drams
=
1 ounce
16 ounces
=
1 lb.
1 lb.
=
7,000 grains
14 lbs.
=
1 stone (U.K.)
100 lbs.
=
1 hundredweight (U.S.)
112lbs. = 8 stone = 1 hundredweight (U.K.)
2,000 lbs.
=
1 short ton (U.S. ton)
2,240 lbs.
=
1 long ton (U.K. ton)
160 stone
=
1 long ton
20 hundredwght =
1 ton
1 lb.
=
0.4536 kilogram
1 hundredwght =
45.359 kilograms
1 short ton
=
907.18 kilograms
1 long ton
=
1,016.05 kilograms
Metric Weights & Conversions:
1,000 grams
=
1 kilogram
1 tonne
=
1,000 kilograms=10 quintals
1 kilogram
=
2.204622 lbs.
1 quintal
=
220.462 lbs.
1 tonne
=
2204.6 lbs.
1 tonne
=
1.102 short tons
1 tonne
=
0.9842 long ton
U.S. Dry Volumes & Conversions
1 pint = 33.6 cubic inches = 0.5506 litre
2 pints = 1 quart
= 1.1012 litres
8 quarts = 1 peck
= 8.8098 litres
4 pecks = 1 bushel
= 35.2391 litres
1 cubic foot
= 28.3169 litres
U.S. Liquid Volumes & Conversions
1 ounce = 1.8047 cubic inches
= 29.6 millilitres
1 cup = 8 ounces = 0.24 litre = 237 millilitres
1 pint = 16 ounces = 0.48 litre = 473 millilitres
1 quart = 2 pints = 0.946 litre = 946 millilitres
1 gallon = 4 quarts = 231 cubic inches = 3.785 litres
1 millilitre
=
0.033815 fluid ounce
1 litre = 1.0567 quarts = 1,000 millilitres
1 litre =
33.815 fluid ounces
1 imperial gallon = 277.42 cubic inches = 1.2 U.S. gallons = 4.546 litres
Page 118
Global Markets Research
September 2008
A User Guide To Commodities
Agricultural Weights & Measurements
Bushel Weights
Wheat & soybeans
Corn, sorghum & rye
Barley grain
Oats
Barley malt
=
=
=
=
=
60 lbs.
56 lbs.
48 lbs.
38 lbs.
34 lbs.
Bushels to Tonnes:
Wheat & soybeans
Barley grain
Corn, sorghum & rye
Oats
=
=
=
=
bushels x 0.0272155
bushels x 0.021772
bushels x 0.0254
bushels x 0.0172365
1 tonne (metric ton) equals:
2204.622 lbs.
1,000 kilograms
22.046 hundredweight
10 quintals
1 tonne (metric ton) equals:
36.7437 bushels of wheat & soybeans
39.3670 bushels of corn, sorghum or rye
45.9296 bushels of barley grain
68.8944 bushels of oats
4.5929 cotton bales (the statistical bale used by the USDA and ICAC contains a net
weight of 480 pounds of lint)
Area Measurements
1 acre = 43,560 square feet = 0.040694 hectares
1 hectare = 2.4710 acres = 10,000 square metres
640 acres = 1 square mile = 259 hectares
Energy
U.S Crude Oil (average gravity)
1 U.S. barrel = 42 U.S. gallons
1 short ton = 6.65 barrels
1 tonne = 7.33 barrels
Barrels per tonne for various origins
Abu Dhabi
7.624
Australia
7.775
Canada
7.428
Dubai
7.295
Indonesia
7.348
Iran
7.37
Kuwait
7.261
Libya
7.615
Mexico
6.825
Nigeria
7.41
Norway
7.41
Saudi Arabia
7.338
United Arab Emirates
7.522
United Kingdom
7.279
United States
7.418
Former Soviet Union
7.35
Venezuela
7.005
Global Markets Research
Page 119
September 2008
A User Guide To Commodities
Barrels per tonne of refined products:
Aviation Gasoline
8.90
Motor Gasoline
8.50
Kerosene
7.75
Jet Fuel
8.00
Distillate, including diesel
7.46
Residual Fuel Oil
6.45
Lubricating Oil
7.00
Grease
6.30
White Spirits
8.50
Paraffin Oil
7.14
Paraffin Wax
7.87
Petrolatum
7.87
Asphalt & Road Oil
6.06
Petroleum Coke
5.50
Bitumen
6.06
Liquefied Petroleum Gas (LPG) 11.6
Approximate heat content of refined products:
(million Btu per barrel, 1 British thermal unit is the amount of heat required to raise
the temperature of 1 pound of water 1 degree Fahrenheit.)
Petroleum Product
Heat content
Asphalt
6.636
Aviation Gasoline
5.048
Butane
4.326
Distillate Fuel Oil
5.825
Ethane
3.082
Isobutane
3.974
Jet Fuel, kerosene
5.67
Jet Fuel, naphtha
5.355
Kerosene
5.67
Lubricants
6.065
Motor Gasoline
5.253
Natural Gasoline
4.62
Pentanes Plus
4.62
Natural Gas Conversions
Although there are approximately 1,031 Btu in a cubic foot of gas, for most
applications, the following conversions are sufficient:
Cubic Feet
1,000
1,000,000
10,000,000
1,000,000,000
1,000,000,000,000
=
=
=
=
=
MMBtu
1Mcf
1MMcf
10MMcf
1Bcf
1Tcf
Source:
CRB Commodity Yearbook 2005
US Department of Energy
Page 120
Global Markets Research
September 2008
A User Guide To Commodities
The author of this report wishes to acknowledge the contribution made by Gagan
Singh, Anupama Hubli and Monodeep Shah employees of Infosys BPO, a third-party
provider to Deutsche Bank of offshore research support services.
Global Markets Research
Page 121
September 2008
A User Guide To Commodities
Appendix 1
Important Disclosures
Additional information available upon request
For disclosures pertaining to recommendations or estimates made on a security mentioned in this report,
please see the most recently published company report or visit our global disclosure look-up page on our
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Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition,
the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation
or view in this report. Michael Lewis
Deutsche Bank debt rating key
CreditBuy (“C-B”): The total return of the
Reference Credit Instrument (bond or CDS) is
expected to outperform the credit spread of
bonds / CDS of other issuers operating in similar
sectors or rating categories over the next six
months.
CreditHold (“C-H”): The credit spread of the
Reference Credit Instrument (bond or CDS) is
expected to perform in line with the credit
spread of bonds / CDS of other issuers operating
in similar sectors or rating categories over the
next six months.
CreditSell (“C-S”): The credit spread of the
Reference Credit Instrument (bond or CDS) is
expected to underperform the credit spread of
bonds / CDS of other issuers operating in similar
sectors or rating categories over the next six
months.
CreditNoRec (“C-NR”): We have not assigned a
recommendation to this issuer. Any references
to valuation are based on an issuer’s credit
rating.
Reference Credit Instrument (“RCI”): The
Reference Credit Instrument for each issuer is
selected by the analyst as the most appropriate
valuation benchmark (whether bonds or Credit
Default Swaps) and is detailed in this report.
Recommendations on other credit instruments
of an issuer may differ from the recommendation
on the Reference Credit Instrument based on an
assessment of value relative to the Reference
Credit Instrument which might take into account
other factors such as differing covenant
language, coupon steps, liquidity and maturity.
The Reference Credit Instrument is subject to
change, at the discretion of the analyst.
Page 122
Global Markets Research
September 2008
A User Guide To Commodities
Regulatory Disclosures
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2. Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
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under
MiFiD
can
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Global Markets Research
Page 123
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