MORGAN STANLEY: This Is What All The World's Commodities Will Do This Year And Next Year

copper mine

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Warm winter and excess production has hurt natural gas prices, while crude has been over $100 a barrel on account of oil supply risks stemming from Iran.Now Morgan Stanley has updated its commodity predictions. Gold remains one of their top picks for 2012. Meanwhile, they have lowered their projection for natural gas prices by nearly 30 per cent since they last published their commodities outlook in December last year. 

Here are their forecasts for 14 key commodities

In a bear case Brent crude oil prices could fall to $85 per barrel

2012 average year price:
$105.00 / barrel

2013 average year price:
N/A

Oil prices have been supported by supply outages and geopolitical concerns for the moment but in the absence of a major supply shock prices are likely to decline from here. If strategic petroleum reserves (SPRs) are released, or geopolitical tensions ease, prices are likely to fall. Current high prices are likely to slow demand and support more production by OPEC causing 'bearish inventory trends'.

Source: Morgan Stanley

Natural gas prices are expected to decline as YoY inventories reach record levels

2012 average year price:
$2.70 / million BTUs

2013 average year price:
N/A

Natural gas will likely be over-supplied in 2012 despite a slowdown in production. Slowing demand is likely however to build higher year-over-year inventories which will impact prices. Inventories are likely to reach record levels in end-March and end-October but slowing gas-directed drilling may help tighten balances towards the end of the year.

Source: Morgan Stanley

Global aluminium demand is expected to be 7% in 2012

2012 average year price:
$2,200.00 / tonne

2013 average year price:
$2,400.00 / tonne

Global demand from aluminium grew 14 per cent in 2010, 12 per cent in 2011 and is expected to grow 7 per cent this year.

Despite slower but solid demand growth, Morgan Stanley analysts are less positive towards aluminium because 'large supply overhang, reflected in the recurrent surplus and high inventory levels and the relentless growth in smelter capacity, particularly in China.'

Source: Morgan Stanley

Copper is expected to outperform base metals

2012 average year price:
$8,200.00 / tonne

2013 average year price:
$9,000.00 / tonne

Copper prices are expected to remain high because of supply side difficulties. Prices will continue to remain high until the global inventory pipeline is replenished most likely post-2014.

Source: Morgan Stanley

Nickel prices on average are expected to decline 13.46% in 2012 from a year ago

2012 average year price:
$19,800.00 / tonne

2013 average year price:
$21,800.00 / tonne

Nickel prices are linked with Chinese stainless steel production and exports, which are at risk because of a decline in industrial production. The outlook for nickel is also tied to the success of four major laterite (iron and aluminium rich oil) projects and two projects in Brazil.

Source: Morgan Stanley

Zinc prices are expected to fall 8.3% in 2012 compared to a year ago

2012 average year price:
$2,000.00 / tonne

2013 average year price:
$2,200.00 / tonne

The global zinc market is oversupplied and has been so since the first quarter of 2008 and there is unlikely to be a reprieve this year. Demand is steady but against a backdrop of growing supply.

Zinc prices are only expected to perform better if China changes policy to boost construction, and if demand from Europe increases.

Source: Morgan Stanley

Gold prices are expected to rise on a quarterly basis through Q4 2013

2012 average year price:
$1,845.00 / ounce

2013 average year price:
$2,175.00 / ounce

Investor demand for gold as a hedge is likely to keep gold prices elevated and Morgan Stanley analysts are bullish on gold in 2012.

'While the current strength in the USD is a headwind to USD gold prices, we expect aggressive Fed action, including and the likely adoption of QE3 in 1H12, to be positive for gold, even if the USD continues to strengthen.'

Source: Morgan Stanley

Silver is expected to remain volatile in 2012

2012 average year price:
$35.00 / ounce

2013 average year price:
$42.00 / ounce

Silver is another safe haven that is cheap relative to gold. However, silver prices are much more volatile and much more vulnerable to weak industrial demand.

The key risks for silver are that a weaker economic outlook in 2012 and 2013 will cut fabrication demand (manipulation of metal from one state to another), but not enough to deter production.

Source: Morgan Stanley

The slowdown in the global economy and decline in discretionary spending put platinum demand at risk

2012 average year price:
$1,599.00 / ounce

2013 average year price:
$1,765.00 / ounce

Platinum lacks safe haven status and has limited investment demand. The global economic slowdown and a decline in discretionary spending could see demand decline. Morgan Stanley is less bullish on the Platinum Group Metals (there are six platinum group metals).

Source: Morgan Stanley

The outlook for cotton in 2012-2013 is going to be bearish

2011-2012 average year price:
$0.90 / pound

2012-2013 average year price:
$0.80 / pound

The decline in retail sales across developed markets has caused a decline in demand for cotton, though this is still filtering through to emerging market manufacturers. Chinese reserve purchases are expected end in March and U.S. export demand is declining. Synthetic blending following mill reconfigurations is also expected to keep demand depressed through 2012.

World cotton acreage is expected to fall 1 per cent year-over-year in 2012 and 2013 as acerage for grain crops increases.

Note: Agriculture commodities are in US marketing years: wheat (June-May), cotton (Aug-July), corn & soybeans (Sep-Aug), sugar & coffee (Oct-Sep)

Source: Morgan Stanley

Increasing supply in the Northern Hemisphere and new Brazilian crop makes Morgan Stanley analysts bearish on sugar

2011-2012 average year price:
$0.22 / pound

2012-2013 average year price:
$0.19 / pound

'With disappointing production in Mexico and Indian exports slow to materialise, the large 11/12 global production surplus may take some time to translate into a market-pressuring trade surplus. However, with Northern Hemisphere supply increasing and some muted optimism growing over new crop Brazilian production, we remain bearish on sugar through the balance of the year.'

Note: Agriculture commodities are in US marketing years: wheat (Jun-May), cotton (Aug-Jul), corn & soybeans (Sep-Aug), sugar & coffee (Oct-Sep)

Source: Morgan Stanley

Corn prices are expected to be up through the first half of 2012

2011-2012 average year price:
$6.60 / bushel

2012-2013 average year price:
$5.75 / bushel

Larger livestock herds suggest higher US feed demand than currently suggested by the USDA, which leads Morgan Stanley analysts to expect that corn prices will be up at least through the first half of 2012. But high prices are seeing production ramp up in countries like Argentina, Brazil and the Ukraine, reducing the call on U.S. exports.

'We still believe that prices need to move higher to justify the demand rationing currently implied by the USDA's balance sheet.'

Note: Agriculture commodities are in US marketing years: wheat (Jun-May), cotton (Aug-Jul), corn & soybeans (Sep-Aug), sugar & coffee (Oct-Sep)

Source: Morgan Stanley

Analysts are bullish on soybeans in the near-term

2011-2012 average year price:
$12.75 / bushel

2012-2013 average year price:
$12.70 / bushel

Continuing drought in southern Brazil and growing production risks should support near-term demand for U.S. soybeans and soy meal.

Note: Agriculture commodities are in US marketing years: wheat (Jun-May), cotton (Aug-Jul), corn & soybeans (Sep-Aug), sugar & coffee (Oct-Sep)

Source: Morgan Stanley

Wheat is expected to underperform corn and beans

2011-2012 average year price:
$6.70 / bushel

2012-2013 average year price:
$6.30 / bushel

Wheat production and supplies have moved from a deficit to a surplus after global supplies increased following high wheat prices in 2010-2011. The chances of weak Ukrainian production in 2012 - 2013 could however bolster prices

Note: Agriculture commodities are in US marketing years: wheat (Jun-May), cotton (Aug-Jul), corn & soybeans (Sep-Aug), sugar & coffee (Oct-Sep)

Source: Morgan Stanley

But what do high commodity prices mean for the American economy?

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