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1、80,Commodities Research17 January 2013The Commodity InvestorLiquidity canard falls back to earth,If nothing else,at least the poor performance of commodity investments since QE3has undermined the claim that liquidity injections boost prices irrespective offundamentals.However,that is little compensa
2、tion for investors who saw theircommodity assets perform more weakly than any other asset class in Q4 and fallfurther behind in early 2013.Given the difficult commodities environment,it is not surprising that 2012 provedanother modest year for inflows to commodity investments.There was a smallrecove
3、ry compared with 2011.Even so,97%of last years$20bn of inflows wentsolely into precious metals(mostly gold-backed ETPs),while commodity indicessaw a small outflow for the second year running and issuance of MTNs fell by 40%.Gold was one of only two major commodities(Brent was the other)to register p
4、ricegains across 2012.However,2013 already looks quite different.Investors are takingmoney out of gold,which is unlikely to lead the pack again.We forecast a broad-based recovery in prices with US energy,as well as some of the smaller base andprecious metals markets,such as tin and palladium,making
5、the largest gains.The best trading opportunities in early 2013 lie in shorting the base metals markets(especially aluminium),shorting US gasoline and going long palladium,in our view.After a recent big decline in the Brent-WTI spread,we think it is time to take profitson this trade before considerin
6、g it again once the effect of upcoming heavy USrefinery maintenance on the oil market is clearer.In our Index Strategy section,we look at lessons learnt from the poorperformance of commodity alpha products in 2012 and how performance mightbe improved in 2013.FIGURE 1Small rebound in 2012 commodity i
7、nvestor flows,but all due to ETPs,Commodities ResearchSuki Cooper+1 212 526 Sha Luo+44(0)20 7773 Kevin Norrish+44(0)20 7773 Index Products ResearchMarcela Barreto Rivera+44(0)20 3134 Marco Corsi+44(0)20 7773 Arne Staal+44(0)20 3134,100,Inflows into commodities($bn),Commodity medium term notes issuan
8、ceExchange traded commodity productsCommodity index swaps6040200-20,2002,2004,2006,2008,2010,2012,Source:Bloomberg,MTN-i,ETP issuer data,Barclays ResearchPLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 39,2,Barclays|The Commodity Investor,TABLE OF CONTENTS,Commodity T
9、hemes and Trades.3,2013:Fewer shocks and a bit more growth.3Dont defer.4Alpha more elusive.5Q1 strategy:The long and short of it.6,Commodity Index Strategy.9,Back to normality?.9Changing drivers of index performance.9Liquidity.10Curve.12Value.15Back to normal.but with a difference.18,Investor Activi
10、ty.19,2012 investor trends:Gold denominated.19Index swaps slow bleed continues.20Exchange-traded products gold inflows dip into year-end.21Medium-term notes still lagging.22,Charts and Data.24,Commodity assets under management.24Commodity investment flows.25Trends in total commodity investments.26Co
11、mmodity index investments.27Commodity ETP investments.28CFTC data:Positions by market.29Commodity returns by index and sector(as of 11 January 2013).31Commodity returns by strategy.32Commodity risk premia returns.33Commodity returns by market.34,Price Trends.35,Price changes.35Price and return forec
12、asts.36,Calendar of Key Commodity Data Releases.38,17 January 2013,3,Barclays|The Commodity InvestorCOMMODITY THEMES AND TRADES2013:Fewer shocks and a bit more growth,Last year was a poor one formost commodity investmentstrategies undermining the theory thatliquidity injections boostcommodity prices
13、,The year 2012 was a poor one for commodity returns from just about every perspective.Following a negative year in 2011,it was bad enough that the main benchmark indices wereflat to down again.What made it even more difficult for investors was that many of the newapproaches to commodity index invest
14、ing that have supported overall returns in recentyears did even worse.Deferred strategies on the main benchmarks were down by about by1.5%,and many of the more flexible alpha approaches lost money as well,with some fallingmore than 6%(see Figure 71).At least recent price action,though it continues t
15、o disappoint,may help dispel the oldcanard that central bank liquidity injections raise commodity prices.Few commoditiesmarkets are any higher than they were just before QE3 was announced,and many are a lotlower.In contrast,the S&P500 is up more than 10%.The US fiscal cliff resolution,partialthough
16、it is,at least contributed to a positive start to the year for many risk assets,butcommodities have continued to lag behind.That is not the way we expect things to remain,however.We forecast that in contrast to2012 when with the exception of gold and Brent crude,average prices fell for all the maini
17、ndex commodities that we forecast most commodities should see price gains in 2013.After relative weakness in recent years,US energy markets are forecast to outperform asthe economy accelerates,new infrastructure helps to relieve supply bottlenecks andcuts to US shale gas capacity finally feed throug
18、h to production,helping to rebalancethe market.Our forecasts suggest WTI and US natural gas will be amongst the biggestprice gainers in 2013.In base metals,we forecast smaller markets,such as lead and tin,will rise much morethan bigger markets,such as aluminium and copper,where price upside is hampe
19、red bya combination of very high stock levels and accelerating supply growth.In contrast,supply remains tightly constrained for tin in particular.,FIGURE 2We forecast a positive outcome for most commodity pricesin 2013,FIGURE 3 though a sluggish growth outlook is a risk to price upsidein the year ah
20、ead,Commodity,Units,2012,2013(F)Change,500,Global growth and commodity prices,8%,WTITinUS Natural GasPalladiumLead,US$/bblUS$/tUS$/mmbtuUS$/ozUS$/t,94211002.836442063,115242503.257362350,22%15%15%14%14%,400300,5%avge,4.5%,3.2%Fcst,6%4%2%,Brent,US$/bbl,112,125,12%,0%,PlatinumGold,US$/ozUS$/oz,1551166
21、8,16901815,9%9%,200,DJUBS,-2%,ZincSilverNickelCopperAluminium,US$/tUS$/ozUS$/tUS$/tUS$/t,1948311752279542021,205032.51775079251988,5%4%1%0%-2%,1000Dec-00,(LHS)Dec-04,Dec-08,Growth(RHS),Dec-12,-4%-6%-8%,Source:Ecowin,Barclays Research17 January 2013,Source:Ecowin,Barclays Research,3%,2%,4,Barclays|Th
22、e Commodity Investor In base metals,we forecast smaller markets,such as lead and tin,will rise much morethan bigger markets,such as aluminium and copper,where price upside is hampered bya combination of very high stock levels,soft China balances and accelerating globalsupply growth.We forecast palla
23、dium will be the best performing precious metal due to stagnatingmine supply,lower Russian stockpile exports and recovering Chinese imports.In relativeterms,gold will perform much less well in 2013 because there will be fewer central bankinfusions of liquidity and ETP buying is likely to be less buo
24、yant.,A lack of growth remains thebig stumbling blockDeferred strategies willcontinue to do poorly,The key risk to our relatively benign price outlook across most commodities is a lack ofgrowth.The commodities track record this century suggests that for sustainable broad-based upward price trends ac
25、ross a range of markets,global growth rates must averagemore than 4%for a concerted period of time,as was the case in 2004-08 and 2009-2011.Although there has been a modest uptick in business confidence in the US and China lately,the consensus view is that global growth will remain very subdued in 2
26、013,with only asmall improvement on last years 3.1%.Dont deferLast year was very difficult for those investing in alternative index strategies or seekingcommodity alpha.The existing range of deferred strategies,plus those designed to extractrisk premia from curve,value,trend and liquidity all perfor
27、med poorly relative to their recenttrack record,with almost all approaches providing negative returns.We expect deferred strategies to continue to underperform in 2013.Firstly,the negative rollyield in oil that has been a persistent destroyer of returns since the start of the financialcrisis should
28、continue to contract and could even turn positive.For an investor rollingmonthly at the front end of the curve,the negative crude oil drag from the standard rolls onthe S&PGSCI index fell to-5%in 2012,compared with-9.5%in 2011 and-50%in 2009.That reflects the trends lower in inventories and spare cr
29、ude oil production capacity since2009.Brent crude is now trading consistently in backwardation and we expect that tocontinue into 2013.The raised share of oil weights given over to Brent at the expense ofWTI in this years index rebalancing is enough to contribute an improvement in its ownright.Howev
30、er,the start-up of new pipeline capacity to move oil out of Cushing should alsohelp time spreads for WTI tighten at the front end of the curve.,FIGURE 4Alpha strategies underperformed in 2012,FIGURE 5Index roll returns are now at their least negative since 2004,BCIS&PGSCIDJUBSCIAverageBCIS&PGSCIDJUB
31、SCIAverageCurveTrendValueLiquidityAverage,2012 returns from different commodity index strategiesIndex benchmarksDeferred strategiesAlpha strategies,1%0%-1%-2%-3%-4%-5%-6%,Monthly roll return on the S&PGSCI&12-month trend,-7%,-3%,1%,5%,Dec-02,Dec-04,Dec-06,Dec-08,Dec-10,Dec-12,Source:Ecowin,Barclays
32、Research17 January 2013,Source:Ecowin,Barclays Research,5,Barclays|The Commodity Investor,Backwardation in crude oil andother commodities isbecoming more persistent,Secondly,the likelihood of backwardations emerging in other markets has increased,especially in some agricultural commodity markets,suc
33、h as corn and soybeans,as a resultof the steep draw in inventories of recent years,which accelerated in 2012 due to big supply,shortfalls.Positive roll yields in agriculture contributed about two-fifths of the total 6.4%return on the S&PGSCI agriculture sub-index in 2012 and almost half of the 3.9%o
34、n theagriculture sub index of the DJUBSCI.Alpha more elusiveThe key message for investors seeking to gain alpha returns in commodities is that a muchmore active approach is now required.In a world where the potential for shocks fromfinancial markets,geopolitics or weather are becoming more common an
35、d investors arestarting to manage their commodity risk much more actively,the old fixed,rules-basedapproaches to harvesting commodity alpha are simply no longer flexible enough.FIGURE 6The outlook for commodity alpha in 2013,Negatives in 2012Investors becoming moreactive in the management ofcurve po
36、sitioningPrice negative macro shockse.g.European sovereign debtcrises,US fiscal cliffPrice-positive shocks suchas hot US weather leadingto sharp moves in ags andUS gas markets,Alpha impactMore difficult for staticstrategies to captureliquidity risk premium(LRP)which seeks to targetperiods where bett
37、er rollreturns can be generatedOver-rides commodityfundamentals and makesvalue strategies in individualmarkets less reliablePrice spikes prove negativefor curve risk premiumstrategies(CRP),that areshort the front end of theprice curve,2013 OutlookIn H2 2012 many investors shiftedfrom deferred to fro
38、nt end exposure.We expect to see more of this in2013 as front end roll returnscontinue to improveWe expect fewer macro-economiccrises in 2013,but risks,notablyaround US debt ceiling deadline atend Feb,are still highVery low grains inventories meanvulnerability to supply downgradesis high.Meanwhile e
39、xtremeweather risk already lookssignificant in 2013.Also,oilgeopolitics,especially around Iran,Alpha implicationsMore active approach required inorder to avoid areas on the curvewhere liquidity is in over-supplyand successfully harvest the LRPValue strategies such asbackwardation should performbette
40、r,though still with periodsof relatively high volatilityStatic CRP strategies to continueunderperforming.Modificationsthat may help include:differentrisk weighting between long andshort legs;more regularreweighting;greater flexibility in,Makes it hard for,look set to intensify in early 2013,curve po
41、sitioningAnother negative for simple CRP,Greater volatility in pricespreads and sharp changesin directionLack of clear price trends:combination of short-livedspikes and choppy sidewaystrading markets,algorithms based onhistorical data to sendtimely signals,so harmingboth curve&valuestrategiesMakes t
42、rend followingalgorithms ineffective,especially those that uselengthy lookback periods fortrend detection,Low inventories/spare capacitylooks likely to persist in somemarkets,especially crude oil,grainsand some base metals marketsAt 3-3.5%,the view on global GDPgrowth in 2013 is that it will beneith
43、er high,nor low enough tocreate strong demand driven pricetrends in either direction,strategies,though lowinventories make markets moresensitive to S/D fluctuations soperformance of value strategiescould be enhancedTrend risk premium(TRP)willcontinue to prove elusive in2013.Shorter look-back periods
44、may help,though can reducesignal reliability,Source:Barclays ResearchMore dynamic approaches are required to capture the increasing variation in returnsbetween different commodities and to seek opportunities at different points on the curve.,Index strategies need tobecome more flexible,If there are
45、fewer macroeconomic shocks in 2013,as we expect,then value strategiesshould perform better and the existing backwardation directed strategies should recover,after last years disappointing performance.However,fixed rules-based strategies to harvestliquidity and curve risk premia are set to become inc
46、reasingly marginalised,in our view.Figure 6 summarises the outlook for various alpha strategies in 2013,and we look in greaterdepth at the options facing alpha investors in the Index Strategy section of this report.17 January 2013,for now,24,35,15,6,Barclays|The Commodity InvestorQ1 strategy:The lon
47、g and short of itAlthough we are generally positive on commodities prices in 2013,we see opportunities inboth the long and short side in different markets over the months ahead.,Contraction in the Brent-WTIspread may lose momentumGasoline cracksseem overvalued,In energy markets,we caution against sh
48、orting the Brent-WTI spread from current levelsafter its recent steep fall.The$6/barrel decline from its peak of almost$24/b in earlyNovember suggests most of the positive effect on Cushing balances from the start-up of the400kbpd Seaway pipeline expansion in January is now priced in.Although we for
49、ecast anaverage of only$10 per barrel for the Brent-WTI spread this year(implying it has muchfurther to fall),we expect it to continue to trade with a lot of volatility.Moreover,in theshort term,a high level of seasonal US Midwest refinery maintenance in Q2 could contributefurther upward pressure on
50、 crude stocks at Cushing.Meanwhile,the upward revisionpublished last week in the EIAs Short-Term Energy Outlook,totalling almost 40%to UScrude oil supply growth in 2013,suggests that despite some expansions,the US crude oilpipeline system is likely to continue to struggle with the surge in US oil li
