2018 Commodity Outlook Rates, FX and Commodities Strategy 20 November 2017 TD Securities

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1 COMMODITIES ON UPWARD TRAJECTORY BUT WON'T FLY TOO CLOSE TO THE SUN Following a respectable performance this year and despite the long-in-the-tooth expansion, the commodity complex rally is in no danger of following the fabled Icarus too close to the sun in 8. With crude oil getting strength from OPEC production discipline, US supply doubts, inventory rebalancing and synchronized global growth lifting demand, the broad commodity complex will have a powerful ally in energy over the next twelve months. Table of Contents A gentle Fed tightening cycle, at a time when the ECB, PBoC, and other central banks are set to start removing monetary accommodation, should sap some strength from the USD and help the precious metals complex into 8. The still low global real rates, along with investor desire to hedge in the face of fully valued equity markets should also buoy gold and help the broader commodity complex. Even base metals, which look toppy following their 5 percent jump so far this year, are unlikely to be a powerful force keeping the commodity complex from finishing higher next year firm China/emerging market growth will be synchronized with the industrial world for the first time since the great recession and lackluster supply growth is set to drive some metals like zinc and copper higher into 8. 8 Commodity Trades Precious Metals Markets Base Metals Markets Energy Markets TDS Forecast Table Pg. Pg. Pg. 5 Pg. Pg.3 Top Commodity Trades Long Brent Entry: $44.43/bbl (Nov 5, 6); Target: $65/bbl; Stop: $39/bbl Short Brent/WTI Spread Entry: $5.63/bbl (Sep ); Target: $.5/bbl; Stop: $8./bbl Short Aluminium Entry: $,88/t (Sep ); Target: $,96/t; Stop: $,5/t Long Pt/Pd Ratio Entry:.985x (Oct ); Target:.33x; Stop:.8x Re-enter Short Nickel Entry: $,685/t (Nov 9); Target: $,45/t; Stop: $3,3/t Long Silver Entry: $7.6/oz (Nov 4); Target: $./oz; Stop: $5.5/oz 8 Price Outlook for Key Commodities Com modity Spot 7 8 (Avg of forward month contracts) Price Q4F QF QF Q3F Q4F 8F 9F Gold $/oz,86,8,3,3,35,35,33,35 Silver $/oz Platinum $/oz ,,5,75,,56,75 Palladium $/oz ,,,5,5,9,5 Copper $/lb $/tonne 6,797 6,775 6,675 6,675 6,85 6,85 6,763 6,93 Zinc $/lb $/tonne 3,96 3,5 3,475 3,475 3,5 3,5 3,36 3,47 WTI Crude Oil $/bbl Brent Crude Oil $/bbl Notes: F = Forecast, E = Estimate, A = Actual;. London PM Fix;. LME; Bart Melek Global Head of Commodity Strategy bart.melek@tdsecurities.com Ryan McKay Commodity Strategist ryan.mckay@tdsecurities.com Daniel Ghali, CFA Commodity Strategist daniel.ghali@tdsecurities.com

2 PRECIOUS METALS MARKETS Precious Metals Have Upside Lagging Silver and Platinum of Particular Interest,8 Weakening USD To Buoy Precious Metals 5 Recommendation: Long Silver Entry Date: 4/Nov/7 Entry: $7.6/oz Target: $./oz Stop: $5.5/oz $/oz,6,4, The uncertainty surrounding the Fed's leadership and future monetary policy knocked gold, silver and platinum off their highs and continues to keep the complex from breaking out higher at the current time as traders focus on the risks of hawkish monetary policy. As such, the price action for gold and its peers has been of the range bound variety of late ($,65/oz - $,3/oz). Balance sheet reductions, likely Fed hikes in December and mid-8, stellar equity markets and uncertainty surrounding the Fed's new leadership will all likely continue to conspire to place a ceiling above precious metals for the balance of 7. The hope that the Trump Administration will eventually be able to pass a robust tax reduction legislation, which could accelerate economic growth and possibly lead to a higher than anticipated interest rate environment and still firmer equity markets, are an additional set of factors limiting the upside for gold and its peers. The relatively firm US dollar and higher rate expectations in late-7 will very likely keep both the carry and opportunity costs to hold zero-yielding assets such as gold, silver and platinum elevated, as the US central bank reduces monetary accommodation from record levels. In sharp contrast to the near-term, the USD is expected to aggressively weaken starting next year, which has traditionally been a mana for the precious complex. The expectations the, 8 6 Q/8 Q/ Q/ Q/4 Q/6 Q/8F Gold Price TDS Gold Forecast USD Index (rhs) TDS USD Index Forecast Fed will start approaching the end of its tightening cycle just as other central banks consider unwinding their uber-easy policy should be the key catalyst responsible for the greenback's weakness next year. In addition, based on the recent Fed trend of continually dropping its dot plot estimates and ongoing concerns that their models may be misspecifying inflation, there is a good chance that the world will get less than the four rate increases cited by the dots by the end of next year. Indeed, technological changes and the wide use of online shopping, telecommunications and entertainment platforms, cost reductions and precarious employment trends may continue to prompt markets to believe that wages and inflation will be contained. This could in turn lead gold traders to speculate that the FOMC may lower its terminal rate projections down from the current.75 percent, as low inflation would require low real interest Commodities Not Flying Too Close To Sun Implied Volatility (%) High Volatility Bodes Well For Silver In Positive Precious Metal Environment Gold M Vol Silver M Vol -Jan-7 -Jan-78 -Jan-86 -Jan-94 -Jan- -Jan- U.S. Recession Indicator (rhs) Real S&P GS Commodity Index Sources: Bloomberg, TD Securities

3 rates a key gold/precious metal driver thereby reducing the expected cost of holding precious metals. With equities in record territory and pricing in both low rates and earnings perfection, there will be a growing constituency who believe that there is more downside than upside risk. This historically has meant that investors beef up gold and precious metals exposure as a hedge. Lastly, if the US tax reform proposals are passed in their current form they will massively expand the US debt in absolute and relative terms. And, higher debt-to-gdp ratios have traditionally been gold and precious metals supportive. Considering silver's traditionally higher volatility and strength during periods in which investors are positive on gold, silver should outperform. This would be in stark contrast to recent trends, as the white metal has lagged even when gold has rallied. Specs did not position in silver due to the pending rate hikes and high inventories, conditions which should all reverse next year and allow for silver to outperform. Improved industrial activity and weaker mine supply should also help. Consequently, as the Fed tightens very modestly and US debt grows, we anticipate that silver will start to outperform. We also expect the very much unloved and highly gold-correlated platinum should outperform for similar reasons. Star-Studded Palladium to Give Way to the Unappreciated Platinum in 8 Recommendation: Long Pt/Pd Ratio Entry Date: /Oct/7 Entry:.985x Target:.33x Stop:.8x But there are a few key differing trends that have developed for each of them. For platinum, the trend has been negative as drivers in Europe started to switch from diesel to gasoline cars (particularly the small vehicles) because of concerns over particulate matter, NO x production and risk of driving bans in cities such as Paris and London. In sharp contrast, palladium has been benefiting from strong US and emerging markets auto sales, which typically use gasoline engines and palladium -loaded autocatalysts. An additional positive trend for palladium is the expected growth in appetite for electric vehicles (EVs), which tend to be gasoline engine hybrids and have higher loadings than traditional vehicles. Less diesels means relatively lower demand for platinum. Meanwhile, strong US and emerging auto sales, along with EVs, suggest stronger Pd demand and tighter supply-demand conditions. However, with spot palladium trading near a sky-high $,/ oz and platinum at just $95/oz, autocatalyst fabricators may Indexed [Jan 3, 7 = ] Lagging Platinum Has Upside as Gold and Industrial Demand Improve Gold Platinum Silver Palladium 9 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec After showing a gain of some forty-five percent since the beginning the year, palladium (Pd) has been a star performer, beating the well performing base metals and leaving its rival, platinum (Pt), in the dust. The strong performance has recently made palladium more valuable than its much better-known peer platinum for the first time in sixteen years, as investors looked for ways to capitalize on the developing electrification trends emerging in the automotive industry and take a position in a precious metal which is not as highly correlated to gold. At nearly $/oz, Pd is currently trading some $45/oz higher than Pt despite the fact both metals have significant primary supply constraints. Palladium and platinum are both used to reduce harmful fumes from cars powered by gasoline and diesel, respectively. YoY % 3% % % % Diverging Auto Sales Trends To Support Platinum Over Palladium -% Japan Europe -% China N.Amer EMs -3% Jun - 4 Mar - 5 Dec - 5 Sep - 6 Jun - 7 3

4 well already have the financial incentives to substitute one metal for another. This could include the re-engineering of diesel engines to emit less of the offending gases and the substitution away from palladium and towards platinum loadings in pollution control systems used in gasoline powered vehicles. Indeed, it is our understanding that industrial users who are concerned about the cost and stability of palladium supply are already doing this aggressively reducing temperatures and oxygen in diesel engines and using different designs to intensify platinum use in catalysts. Substitution away from palladium and into platinum is likely a required strategy for auto manufacturers. At the same time, vehicle demand in Europe (diesels and platinum catalysts) should continue to improve, while North American and Chinese sales (gasoline engines and palladium autocatalysts) seem to be on pause. This, along with the fact that platinum supply is also constrained implies that the platinum market will tighten at a relatively faster pace than the palladium market. On the mining side of the supply-demand equation, virtually all Pd producers are covering their all-in costs, while almost all Pt miners are not covering their costs. And, if there is a greater call on platinum miners to get the metal out of the ground in 8, prices should rise in order to provide that incentive. As such, after a long period of underperformance, these considerations could tighten the platinum market, generating a stronger performance relative to palladium. The highly goldcorrelated platinum may also get a boost from a more robust gold market into 8, as the Fed is unlikely to tighten as much as the dot plots suggest and investors look to diversify away from risk assets such as the highly valued equities. Given that Pd already had massive gains, from a value perspective it is likely that Pt should outperform Pd for a while Platinum/Palladium Ratio Falls to 6 Year Low A Catalyst For Substitution Platinum/Palladium Ratio $US/oz,9,7,5,3, Platinum Too Low Relative To Costs Pd All-in Cost - 7 Pt All-in Cost - 7 Current Pd Spot Price Current Pt Spot Price Cumulative Production % Source: Metals Focus, TD Securities 4

5 BASE METAL MARKETS Copper Outlook a Cautious One But Strong Macro Backdrop Bodes Well in 8 At the peak of 7, copper was up nearly 3% on the year and rose to levels not seen since mid-4, as strikes and mine disruptions in Chile and Indonesia, along with a betterthan-expected Chinese economy led the charge higher. Moving into 8, we are more cautious on the copper outlook. We expect a slight pullback as 7 draws to a close and into the early months of next year, before ultimately recovering back toward $6,8-7,/t levels as the year progresses. In the near-term, we judge that prices have moved too high too early relative to the fundamentals. Market expectations of demand coming from China and electric vehicles, as well as the impact of the scrap import ban are both likely overdone. The fundamental picture for the red metal remains somewhat unattractive relative to the recent price action as there is plenty of primary and above ground supply remaining and demand expectations are likely too lofty at this time. Indeed, on the supply side, inventories remain aplenty both on and off exchange, with days of consumption still above 7. On the mine supply front, many of the copper bulls state that under -investment in new projects will create shortages and lead to deep deficits in the future. Although we agree with this notion, it should not be an issue until late 9-. As it stands for 8, at current prices, essentially the whole of the cost curve is making money and it is likely that miners will keep the market well supplied. Furthermore, the import situation in China should lend support and prevent any major selloffs as the ban of category 7 imports by China could mean higher imports of refined metal for a period of time. But, this is unlikely to be a long-term continuing trend. Scrap processors in Southeast Asia have been on the rise, which means that plenty of category 7 scrap will be disassembled and processed outside China, before ultimately being shipped to the Middle Kingdom as the allowed category 6 scrap, suggesting the impact of such a ban would be fairly muted on the supply-demand balance. Also, demand may not be as robust as anticipated from certain sectors of the Chinese economy. While TD securities projects that Chinese demand for copper will continue to grow, weakening residential real estate price momentum and waning construction activity as the PBoC continues to target housing speculation and may implement a new property tax regime in the near-term, suggests that demand growth will not be robust enough to support prices above $6,8/t just yet. YoY % Index LME Equivalent Contracts ('s) 8% 6% 4% % % -% -4% -6% Jan Residential Construction To Cool Along With Housing Prices Near Term Challenge Mar - May - 9 Jul - Sep - Nov - Jan Floor Space Under Construction, Residential (lhs) Residential Buildings Sold, by Floor Space (lhs) Beijing House Prices YoY% Shanghai House Prices YoY% Mar - May Jan-5 Jul-5 Jan-6 Jul-6 Jan-7 Jul-7 3% 8% 4% % 6% % 8% 4% % -4% -8% -% YoY Source: Bloomberg, Haver, TDS Sustained Manufacturing Growth To Support Copper 7,5 Caixin China Manufacturing PMI JPMorgan Global Manufacturing PMI 7, Copper (rhs) Specs Still Quite Long Post Trump Election 9 Total Spec Longs (LME + COMEX) 7 Total Spec Shorts (LME + COMEX) 5 Aug-4 Aug-5 Aug-6 Aug-7 6,5 6, 5,5 5, 4,5 4, $/t 5

6 In addition, spec positioning has remained quite elevated throughout 7. Any sign that the market is well supplied or any indications of slower growth in China could see specs unwind their aggressive long positions and send prices lower. However, with that said, we are not anticipating these factors to lead to a major rout, but rather a mild correction and a less well defined upward trajectory for 8. Moving forward, the fundamentals are on an improving path, with the market set to be roughly balanced or in a small deficit for 8. Overall, synchronized global growth should be the main driver in pushing the red metal higher and translating to steady demand, with EMs being a particularly important catalyst. Although Chinese demand from real estate and construction are set to be less than consensus expectations, other areas such as manufacturing, infrastructure and autos should perform well and in combination with overall global economic growth should see inventories draw and prices gradually come back toward $6,8-7,/t as 8 unfolds. Aluminium New Capacity and Restarts Suggest Market Well Supplied Despite China Cuts Recommendation: Short Aluminium Entry Date: /Sep/7 Entry: $,88/t Target: $,96/t Stop: $,5/t The impact of China's winter and illegal capacity cuts to its aluminium smelters and alumina refineries will undoubtedly continue to be the focal point for traders in 8. While aluminium markets have rallied to multi-year highs in anticipation that these cuts will tighten the market and cause Restarts and New Capacity To Offset China Cuts Surplus Ahead Primary Aluminium (kt) F 8F Alumina Production 4,8,3 5,6,7 3, Total Aluminium Supply 53,66 57,43 59,373 63, 67,4 Demand Consumption 53,86 56,78 59,7 63,65 66,639 China Consumption 7,47 9,83 3,664 34,4 37, Market Balance Commercial Stocks,743 3,76,749,584 3,356 Stock Ratio (Days') Total Alumina Supply -.% 6.% 3.9% 6.% 5.9% Total Supply 6.% 6.3% 4.% 6.% 7.% Consumption 7.4% 5.3% 5.3% 5.8% 5.5% LME Spot Price (US$/lb) $.85 $.75 $.73 $.89 $.94 LME Spot Price (US$/tonne) $,867 $,664 $,64 $,967 $,83 Source: Wood Mac, TD Securities deficits, we believe that the upside from these reductions has already been achieved, and the price risks for 8 are to the downside. As such, we reiterate our short position from earlier in 7 and recommend selling into any rallies toward $,/ t, as prices are projected to retrace back to $,/t or lower. Net capacity growth in China and restarts could well derail the idea that the aluminium market will be a in a state of deep deficits next year. Volatility skews, which are pricing calls above puts at the three month tenor near record highs and with the one year skew also near the highs not seen since 4-5 all suggest that producers are likely to lock in higher prices and restart shuttered capacity. Headlines have been filled with news talking about capacity declines of as much as million tonnes due to China's pollution control actions during the winter months and another 5 million tonnes of illegal capacity shutdowns within China. For the most part, markets have ignored that it is quite likely that the actual amounts cut come in lower than the headline numbers being reported. But even more importantly, the pending large amounts of capacity coming from scheduled restarts and replacement capacity in China and globally in 8 has had very little airtime. In China alone,.7 million tonnes (excluding winter cuts) are set to restart, while 6.5 million tonnes of new/replacement capacity is set to come online by end 7, with another 4 million tonnes planned for 8. On net, aluminium output in China is set to grow roughly 3 million tonnes next year and this new capacity is coming in at the lower end of the cost curve which tends to depress prices. Furthermore, ex-china output is also projected to increase some 5 percent due to restarts. The other part of the story that has buoyed aluminium prices of late has been the large increase in the price of alumina, which is used in the aluminium smelting process. Along with clamping down on smelting capacity, the Chinese government surprised $/t Alumina Should Not Pressure Refined Prices Higher China Costs Still Significantly Lower 4 C Costs 7 C Costs % % % 3% 4% 5% 6% 7% 8% 9% % Source: Wood Mackenzie, TD Securities 6

7 Aluminium Upside in The Rearview, Set for Consolidation Around $,/t in 8 as Supply Grows higher and the environmental crackdowns in China ultimately resulted in a significant tightening in the refined zinc supplydemand fundamentals. Looking forward towards 8, we expect synchronous growth across global economies to support demand for zinc, despite some headwinds on the horizon. That being said, with the current constraints on supply keeping concentrate markets tight, smelters may remain hard pressed to produce metal for their consumers. the market by also ordering closures of some alumina refineries for the winter. This raised concern of alumina shortages and saw prices increase substantially, giving aluminium prices a further boost as apparent costs were increased. That being said, the price of alumina is unlikely to move much higher and should ease throughout 8, as Chinese refineries resume output after the winter cuts and as capacity outside China is expanded. This suggests costs faced by aluminium producers should not be materially increased this coming year and are still much lower than they were in 4, when prices were last above $,/t. Outside of China, aluminium prices could get some support and prevent a major selloff. Protectionism and import duties in the US and Europe have the potential to exacerbate the deficit ex-china, despite plenty of restarts. But, on net the primary aluminium market is set for a surplus next year, and should remain well supplied, prompting us to remain bearish for aluminium prices into 8. Zinc & Lead Keep Shining But Set To Cool As Restarts Loom During the course of the past year, zinc has often led its peers higher as the base metals complex charged on from the summer lows. After years of difficulty, zinc prices have finally recovered due to strong global demand and voluntary mine production cuts, which combined to significantly tighten concentrate and metal markets starting in 6. In turn, some smelters have struggled to procure cons for their operations. At the same time, warehouse stocks of refined metal have continued their rapid descent and have neared critical levels. Meanwhile, a red hot steel market which drove galvanization However, with prices surging to levels not seen in a decade, market observers have begun to speculate as to when certain producers may restart their operations and provide the market with the much needed concentrate. Indeed, TDS expects restarts of previously shuttered capacity in the second half of 8. There is a growing body of evidence that large producers are preparing to reopen previously shuttered mines. Jan 7 = tonnes 4 3 Zinc Leads The Base Metals Bull Higher 9 d Rolling Correlation (rhs) Peer Metals Price Index Zinc Price Index 8 Jul-7 Aug-7 Sep-7 Oct-7 Nov-7,8,,6,,4,,,,, 8, 6, 4,, Zinc Stocks Reach Critical Levels /7/ /7/5 /7/ /7/5 Sources: Bloomberg, TD Securities Global Zinc Stocks Zinc Prices (rhs) $.5.5 $ $5, $4,5 $4, $3,5 $3, $,5 $, $,5 $, Correlation $/tonne 7

8 $/t $3,4 $3, $3, $,8 Prices Near $3, Prompt Producer Mentions of Restarts reopening, which also could include the recently closed Century zinc mine. With global demand expected to remain strong and with little negative effect coming from China's winter smelting cuts on galvanizing demand, we anticipate that prices will rise to a peak near $3,475/t in the first half of the year. After that, the additional supply from mine restarts is forecasted to force prices down towards $3,5/t. $,6 $,4 $, 3-Jan-7 3-Apr-7 3-Jul-7 3-Oct Job Activity Points To Restarts In Australia -Oct-7 6-Oct-7 3-Oct-7 3-Nov-7 7-Nov-7 Sources: TD Securities Estimates Zinc Prices Producer Mention Of Restart Job Growth Index Australian Shuttered Mines TD Securities has monitored mining-related job activity in regions which include shuttered mines and has found that the number of new positions has increased significantly over the past month, which implies that firms are gearing up their workforce ahead of an eventual restart. That being said, restarts typically take six to nine months to materialize into metal, and in order to take advantage of high prices and maximize the value of their output, we expect that producers will ramp-up output gradually as to not disrupt market forces which should see prices only modestly cool in the second half of the year. We expect this to be the case considering that prices have risen enough to make these facilities profitable. The fact that zinc demand is price elastic, with galvanizers and alloy producers possessing the ability and having the financial incentives to economize on the metal at levels not above recent highs, makes us quite sure that restarts are on the way in order to prevent demand destruction over the long term. Mines in Australia are likely to be prime candidates for The outlook for lead remains quite similar to that of its sister metal zinc. Battery replacement demand should remain firm in the US, while European and Chinese autos have held strong, despite some headwinds in China. Furthermore, the growth in e-bikes in Asian and European markets, along with the gradual increase in electric vehicles should also provide additional growth demand for batteries going forward. Meanwhile, the global shortage of mine supply has led to negative treatment charges in October, which is unprecedented for this century. Considering that lead is often mined alongside of zinc, we expect that prices should follow a similar path. Considering the outlook for robust global growth, that the current price environment is conducive to restarts and that large producers could be preparing their workforce prior to reviving mothballed mines, we expect that zinc/lead prices should be supported in the first half of the year, before the additional supply sees prices somewhat cool. Nickel Electrified Nickel To Fizzle In Coming Year Recommendation: Re-enter Short Nickel Entry Date: 9/Nov/7 Entry: $,685/t Target: $,45/t Stop: $3,3/t Nickel has recorded an impressive rally of nearly 5% from the summer low of $8,7/t to the recent highs of $3,/t. The metal strengthened along with its peers during the summer base metal rally, fueled by a stronger-than-expected Chinese economy and the ramp-up in stainless steel production ahead of the winter pollution-related capacity cuts. Prices managed to show unprecedented strength even as the restrictive supply regime eased in Indonesia and Philippine supplies, making more material available from the two major exporting countries. 8

9 The intense electric vehicle (EV) demand optimism, which peaked during the LME week, prompted traders to bet long on the metal, taking prices to highs not seen since 5. The narrative went as follows: limited supply will see the market unable to satisfy the demand generated by the batteries used in EVs. Indeed, market participants agree that the electrification trend will create significant new sources of demand for batteries and nickel. As such, the conclusion was that EVs will pressure near-term market balances and see nickel prices surge in the coming year. Sadly for the aggressive longs, the demand surge from EVs is very unlikely to occur next year or even in 9. While nickel may modestly benefit from strong global macroeconomic and base metals trends in 8, TD Securities expects that the less-than-stellar supply-demand fundamentals will ultimately trump the correlations over the next twelve months. Indeed, we expect that demand growth for nickel will slow with less stainless steel smelting, while EV adoption will be slower than the bulls have anticipated. This, along with large quantities of nickel flows returning from the Philippines and Indonesia will keep the market well supplied and pressure prices lower. As such, we see nickel averaging around $,/t for the year, and favor selling any rallies in 8. Our negative outlook is driven by the view that demand from stainless steel mills will moderate amid less activity due to winter shutdowns and less total demand, high inventories and the lowering of stainless steel prices. Sky-high steel prices in the second half of 7 have led to strong margins and have given steelmakers the ability to pay high prices for feed such as iron ore and nickel. Now that stainless steel costs less and smelting activity is sliding, the pressure to pay high premia for nickel has abated a great deal. Meanwhile, less residential construction in China should translate into less demand for white goods and other household appliances which contain nickel content. Moreover, we do not expect rising demand for nickel used in EV batteries to pressure market balances just yet. While we join the market in our long-term optimism with regards to the electrification trend, the rising briquette stocks which is the product type most suited to for battery materials seem to suggest that demand from EVs has yet to add any material pressure to market balances. On the supply side of the equation, Indonesia is increasing its export permit allowance and large quantities of new ore produced in Indonesia are set to start finding their way into China again, which we expect will lead to an additional buildup in stocks. We anticipate that Indonesian ore exporters will take 5, 45, 4, 35, 3, 5,, 5,, tonnes 5, 8,, 6,, 4,,,,,, 8,, 6,, 4,,,, Stable Briquette Stocks Suggest EV Optimism Unwarranted Indonesian Nickel Ore Exports Have Ample Room To Grow 7 Cumulative Annual Ore Export Permits 7 Cumulative Chinese Nickel Ore Imports From Indonesia LME Total Nickel Stocks LME Nickel Stocks - Briquette (rhs) Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 //7 3//7 5//7 7//7 9//7 Sources: Bloomberg, Wood Mackenzie, TD Securities 4, 35, 3, 5,, 5,, 5, full advantage of their allowances before their twelve-month permits expire, and see prompt renewals thereafter. Other projects have yet to receive a permit, despite their eligibility, which suggests that more permits should be granted in the near future. At the same time, a large amount of nickel supply may return from the Philippines as well, subject to government approval, as the mining commission has reportedly voted on lifting the ban on open-pit mining, which also bodes well for future projects. In addition to the price negative primary supply-demand factors, abundant and ready for delivery inventories remain in warehouses. With stocks currently at a bloated 5 days' of consumption, there is plenty of metal to fill consumer demand. As such, it should not be surprising that we expect nickel to correct from the currently elevated levels. 9

10 ENERGY MARKETS Supply, Demand and Geopolitics All Point to a Positive Year For Oil Bulls Recommendation: Long Brent Entry Date: 5/Nov/6 Entry: $44.43/bbl Target: $65./bbl Stop: $39./bbl Recommendation: Short Brent/WTI Spread Entry Date: /Sep/7 Entry: $5.63/bbl Target: $.5/bbl Stop: $8./bbl The TD Securities oil view remains a bullish one for 8, as the WTI price is expected to top the $6/bbl mark, with Brent heading toward $64/bbl. The oil market is looking robust on all fronts in 8; demand growth looks to be firm globally (.3 million bbls/d), supply is in a position of containment and inventories are sliding lower. OPEC supply cut extensions, which are baked into the cake, lower than previously expected sky-high US production growth rates and the recent jump in geopolitical risks should all help to lift prices throughout the year. Key to the 8 outlook is the continued commitment from OPEC, Russia and others to maintain the cuts of some.8 million bpd of production (.m from OPEC and.6m from Non -OPEC) for the balance of the year. The current agreement is set to last until the end of Q, but the cartel members and other key producers are widely expected to extend this agreement for the whole of the year when they meet in Vienna on November 3th, 7. On top of an extension to the current cuts, OPEC is likely to announce further restraints on their exports to $/bbl OPEC Commitment To Cuts Should See Continued Deficits Through 8 Global Crude Oil Market Balance Crude Oil Price Q/7 Q4/8 Q3/ Q/ Q/4 Q4/5 Q3/7F Estimates (.5) (.) (.5) (.) (.5) North America and export monitoring to their production compliance measures. Saudis have already begun leading the way in this regard, as exports to the US have hit their lowest level in recorded history in late October. Since July, exports to the US have been roughly 45k bpd lower than the first six months of the year on average. Continued commitment to these cuts and lower exports should do well to precipitate a large deficit and large draws in US inventories, which should send prices higher from here. Shale oil production in the US is another key piece in the oil supply puzzle. TD Securities expects production from the US will grow robustly, but more modestly than the consensus not following a hockey stick trajectory that many project. We expect this to be the case due to the industry's poor 7 financials, slashed capital expenditures and less hedging incentive from the curve structure. This set of factors should keep MMbbl/d WTI To Join Brent Above $6/bbl in 8 5 Less Drilling Investment To Slow Production Growth ' bpd Rigs Sources: Bloomberg wk Moving Avg of Production Change - 5wk Moving Avg of Rig Count Change (rhs) -5-7 Nov - 6 Feb - 7 May - 7 Aug - 7 Nov - 7 Source: DOE, Bloomberg, TD Securities

11 Cost Structures To Challenge Shale Output Growth Backwardation In WTI Makes Hedging Less Attractive $8. $6. $4. Cost Curve, US WTI Crude Oil Price Full-Cycle Cost/bbl $. $. $8. $6. $4. $/bbl Current Month Ago 6 Month Ago yr Ago $. $. % % 3% 9% 6% 79% 84% Cmltv Production (% Total) Sources: Bloomberg, Capital IQ, TD Securities the exploration and development investment spending below levels required to generate the continued massive new production growth rates expected by many forecasters in the consensus. Indeed given the prevailing cost structure in the industry, prices above $6/bbl would naturally incentivize more capex and production in the shale patch, but this growth is likely to be more modest than many anticipate as companies will need to see these prices for a long period of time before being comfortable taking the risk. It is likely that investors and management will need to see healthier financials and reduced debt loads before they can justify investing in major new projects. At the same time, hedging is becoming increasingly less attractive due to the fact that the curve is moving further into backwardation for 8 hedging. For those reasons we expect US production not to react as aggressively to higher prices as they did in the past, and as such, production growth is set to occur at a more gradual rate. It should be noted that drilled but uncompleted wells, which have swollen in 7, could provide some unexpected upside to the US production profile, as higher prompt prices will likely see these wells being tapped into quite quickly. But given the plateauing of well productivity, legacy declines and less investment in new drilling activity, these DUCs are also unlikely to contribute to massive growth rates but will rather keep production only growing modestly. On the demand side, the often cited synchronized global growth, particularly from emerging markets such as China, should do well to keep prices moving in an upward trajectory. Global crude demand is expected to grow some.3m bpd in 8, with growth in Asia set to account for approximately 64 percent of that increase. Indeed, Chinese and Indian demand are both projected to grow by roughly 3k bpd each in Furthermore, geopolitical tensions and risks in the Middle East and in Venezuela should continue to provide a risk premium to oil prices, as they present a very real possibility that major supply disruptions occur. The economic state of Venezuela has seen the government struggling to pay its debts, which they are now looking to restructure. This has meant that the oil revenues have been used to keep the country afloat rather than being spent to improve oil capacity infrastructure. This has seen them importing less diluents for their heavy crude, which has led to production being reduced the quality of their crude being criticized and shipments ultimately cancelled. The Middle East is also prone to disruptions, as demonstrated by the Kurdish-Iraqi conflict which put 6k bpd at risk due to possible action by Turkey. The recent Saudi turmoil represents another potential supply risk, should politics in the Kingdom unravel or tensions with Iran escalate. Also, US relations with Iran have come under pressure, as President Trump did not certify the nuclear deal, leaving the possibility for the return of sanctions that crippled the Iranian oil industry just a few years ago. The strong demand growth for oil and petroleum products sets a good base for the oil markets, especially in a time where supply is set to be well contained. This, along with potential geopolitical tensions, prompts us to project a reduction of the global inventory glut and the emergence of a deficit of at least k bpd in 8, which should help send WTI crude prices above the $6/bbl mark.

12 Natural Gas to Follow the Energy Complex to Upper End of the Range Since the summer, Henry Hub natgas traded for the most part in a 4 cent range between $.8 and $3./MMBtu, and we expect prices in 8 to gravitate toward the upper end of this range. But the trajectory is unlikely to be a smooth one, as the typical volatile swings will remain as weather forecasts drive short-term trading. Among the factors we see driving natgas higher in the US are strong demand, less-than-expected supply as a result of modest US shale production, and tighter inventories. Indeed, going into the winter demand season, inventory levels are well below previous years and below the five year average. Should this winter turn out to be a cold one, inventories could tighten drastically, and slower than anticipated supply growth due to previously noted shale issues could further exaggerate this. As for AECO natgas in Canada, we also expect it to track Henry Hub higher in 8. But ultimately AECO is expected to outperform with the spread between AECO and HH closing to more normal levels due to increased pipeline capacity in Canada, which should improve demand for Canadian product and alleviate localized glut concerns in Canada's sedimentary basin. However, slashed budgets due to low AECO prices in 7, politics and environmental protection via carbon taxes could potentially delay or kill some proposed pipeline projects and prevent Canadian natural gas from improving substantially. Storage (Bcf) $/MMBtu 4,5 4, 3,5 3,,5,,5, /Dec Strong Demand and Cold Winter Could Tighten Already Below Average Inventories 7/Jan 4/Feb 4/Mar Source: EIA, TD Securities /Apr 9/May Canadian Natural Gas Could Improve If Pipeline Projects Come To Fruition 3,77 Bcf Henry Hub - AECO Spread (USD) Mar - 4 May - 5 Jul - 6 Sep - 7 Nov - 8 6/Jun 4/Jul /Aug 8/Sep 6/Oct 5yr Range 5yr Avg 6 7 3/Nov /Dec 9/Dec

13 COMMODITY PRICE FORECAST TABLE Commodity Spot (Avg of forward month contracts) Price Q4F QF QF Q3F Q4F QF QF Q3F Q4F 7F 8F 9F Precious Metals Gold $/oz,47,8,3,3,35,35,35,35,375,375,58,33,35 Silver $/oz Platinum $/oz 89 95,,5,75,,5,5,, 955,56,75 Palladium $/oz,9 975,,,5,5,,,5,5 866,9,5 Base Metals #N/A Copper $/lb $/tonne 6,547 6,775 6,675 6,675 6,85 6,85 6,875 6,875 6,95 6,95 6,58 6,763 6,93 Zinc $/lb $/tonne 3,3 3,5 3,475 3,475 3,5 3,5 3,37 3,37 3,57 3,57,864 3,36 3,47 Lead $/lb $/tonne,494,45,646,646,469,469,6,6,53,53,98,557,557 Nickel $/lb $/tonne,86,5,3,3,44,44,3,3,44,44,35,33,33 Aluminium $/lb $/tonne,99,,5,5,6,6,6,7,7,6,967,83,94 Ene rgy #N/A WTI Crude Oil $/bbl Brent Crude Oil $/bbl Heating Oil (ULSD) $/gal Gasoline $/gal NYMEX Natural Gas $/MMBtu AECO Natural Gas $/MMBtu CAD/GJ Uranium $/lb New castle Thermal 5 $/tonne Notes: F = Forecast, E = Estimate, A = Actual;. London PM Fix;. LME; 3. Molybdenum equivalent to moly oxide, FOB USA; 4. CFR China, 6% Fe, dry; 5. Japan CIF steam coal marker-newcastle Bart Melek Global Head of Commodity Strategy bart.melek@tdsecurities.com Ryan McKay Commodity Strategist ryan.mckay@tdsecurities.com Daniel Ghali, CFA Commodity Strategist daniel.ghali@tdsecurities.com This report has been prepared solely for information purposes and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. Information provided in this Report is believed to be accurate and reliable, but we cannot guarantee it is accurate or complete or current at all times and no representation is made in this regard. Conclusions and opinions do not guarantee any future event or performance. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. It is based on public information. Changes to assumptions may have a material impact on any returns detailed. Historic information or performance is not indicative of future returns. The information is subject to change without notice. Any views expressed are those of the author and do not necessarily express those of The Toronto Dominion Bank ( TD Bank ). TD Bank or an associated company may have effected or may effect transactions for its own account in the securities described herein. Any transaction entered into is in reliance only upon your judgement as to both financial and suitability criteria. No proposed customer or counterparty relationship is intended or implied between TD Bank or any of its regulated subsidiaries and a recipient of this document where that recipient is not an existing customer or counterparty of TD Bank or one of its regulated subsidiaries. COPYRIGHT 3 by TD Securities Inc. TD Securities is a trademark of the TD Bank, representing TD Securities Inc., TD Securities (USA) LLC and certain investment activities of the TD Bank. The Toronto-Dominion Bank is regulated by the FSA. 3

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