MORGAN STANLEY: This Is What 14 Key Commodities Will Do This Year And Next Year

Joy Mining Machinery, Pennsylvania

Photo: Joy Mining Machinery

Morgan Stanley is out with its latest Commodity Manual, and the outlook is decidedly mixed.Chinese supply and demand continues to dictate the world’s commodities markets. While their imports continue to bolster some key metals, declining growth is kicking others in the stomach.

Weather concerns, especially in the U.S., are also sending crop prices higher.

Meanwhile, the European debt crisis cloud continues to hang over everything.

We pulled Morgan Stanley’s price outlook for the rest of 2012 and 2013.

Brent crude oil's the path of least resistance remains downward

Projected 2012 average: $97 /bbl

2013 price: n/a

Demand will continue to disappoint, with Europe's sovereign debt issues weighing on markets. Plus, if OPEC production continues at current levels, stocks would become 'above normal' through 3Q and supply will have outstripped demand for 2012.

Source: Morgan Stanley

Natural gas markets continue to be depressed by excess supply

Projected 2012 average: $2.40 /mmBtu

2013 price: $4.00 /mmBtu

The mild '11-'12 heating season significantly curtailed heating demand and resulted in a large inventory surplus. Near term, structurally higher industrial and power demand is not keeping pace with net supply growth. 2013 should see more bullish fundamentals.

Source: Morgan Stanley

aluminium will get weighed down by too much inventory and production

Projected 2012 average: $2,134 /MT

2013 price: $2,200 /MT

Producers have not been aggressive enough in permanently reducing excess capacity. The size and sustainability of Chinese production cuts has been called into question. Demand for primary aluminium in 2012 has been revised downward from 7.2% to 5.3% after 1H12 growth disappointed.

Source: Morgan Stanley

Copper fundamentals are getting support from Chinese restocking

Projected 2012 average: $7,763 /MT

2013 price: $8,300 /MT

World mine production of copper-in-concentrate continues to stagnate, falling by 0.7% so far this year. Inventories in North America and Europe have steadily declined throughout 2012. However, world apparent usage of copper grew by 9% YoY in 1Q12, despite declines in European and Japan. China began a restocking cycle in 3Q11, which gained pace in 4Q11 and continued through 1Q12 into 2Q12.

Source: Morgan Stanley

Nickel prices will remain stable as long as China production holds up

Projected 2012 average: $17,316 /MT

2013 price: $18,300 /MT

Prices are currently subdued but supply risks from new project delays and the impact of developments in Indonesia will keep the market primed for any growth in supplies, especially if stainless steel production in China improves, as we expect, in 2H12 and 2013.

Source: Morgan Stanley

Zinc prices will remain depressed, but only the short term

Projected 2012 average: $2,040 /MT

2013 price: $2,100 /MT

Zinc refinery production growth is slowing but it will take several quarters to work through the record-high inventories at the current rates of demand.

The bullish case would require material demand improvement via a swift and convincing solution to Europe's debt crisis, a medium-term US deficit reduction plan, or above-forecast GDP growth in China in 2H12 and 2013.

Source: Morgan Stanley

Gold has room to run thanks to plummeting worldwide interest rates

Projected 2012 average: $1,719 /oz

2013 price: $1,816 /oz

The European sovereign debt crisis is yet to be wholly resolved, US real interest rates are likely to remain negative until 2014, and the probability of additional stimulus measures by major central banks to confront faltering growth is high. Continued physical demand growth from ETFs, physical bar hoarding, and coin sales are also creating upside for the market.

Silver prices also have upside potential from investment demand and low interest rates

Projected 2012 average: $32 /oz

2013 price: $35 /oz

Investment demand will be important in cushioning the physical silver market against downside price risks posed by ongoing official sector sales, increasing mine production and weak fabrication demand caused by slower global growth. Negative real interest rates will also protect the silver market from the future risk of large outflows from physically backed ETFs.

Source: Morgan Stanley

Platinum price outlook remains unfavorable due to macro forces

Projected 2012 average: $1,567 /oz

2013 price: $1,715 /oz

Platinum lacks safe haven status and has limited investment demand. With jewelry and the automotive industry as key end markets, slowing global GDP and lower discretionary spending put demand at risk.

Source: Morgan Stanley

Cotton is getting hit by falling Asian demand and increased plantings

Projected 2012 average: $0.63 /lb

2013 price: $0.80 /lb

Cotton acreage could fall up to 51% year-over-year in 2012/2013 as current economics favour grain crops. There will be continued weakness in demand, especially on a YoY basis following last year's record-high prices.

Source: Morgan Stanley

Sugar's bull run has ended and will face production pressures

Projected 2012 average: $0.17 /lb

2013 price: $0.19 /lb

There is already a global surplus, and increased production out of Thailand, Russia, and India could push supplies even higher. Chinese import demand should remain robust though thanks to last year's tight balance spilling over into 2012.

Source: Morgan Stanley

Coffee prices could go up depending on the severity of Brazil's winter

Projected 2012 average: n/a

2013 price: n/a

After a significant downward move over the past few months, the risks to prices will moderate in the coming months. Renewed draws in ICE deliverable inventories and the coming Brazilian winter (and the inevitable frost scares) join poor Colombian production as upside risks.

Source: Morgan Stanley

Corn prices will be pushed higher by drought

Projected 2012 average: $8.22 /bu

2013 price: $5.75 /bu

The USDA's projections of near-record yields are increasingly unlikely. Physical US and global corn inventories remain precariously low. Weather across the southern cornbelt will reduce US production prospects for a third year in a row.

Source: Morgan Stanley

Wheat markets will stay bullish as demand zooms higher

Projected 2012 average: n/a

2013 price: $6.30 /bu

A global supply response, brought on by the high prices in 10/11 has shifted the global market from production deficit to surplus. But poor weather and the prospect of strong corn-to-wheat feed switching in the US will likely cause US and global wheat stocks fall to near or below average levels in 2012 and 2013.

Source: Morgan Stanley

Soybean prices face volatility from weather concerns

Projected 2012 average: $11.59 /bu

2013 price: $12.70 /bu

US soybean demand has strengthened in recent months thanks to increased exports. The same weather threatening corn is increasingly seen as a risk to the health of the bean crop.

Source: Morgan Stanley

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.