Morgan Stanley is bearish on the price outlook for Australia's major commodity exports

Source: iStock

If the table below from Morgan Stanley is anything to go by, it’s clear the bank is not overly bullish when it comes to the outlook for commodity prices, with the exception of palladium, silver and gold.

It’s the bank’s Metals and Mining Commodity Thermometer, a chart that uses coloured symbols to indicate whether it is bullish or bearish on the price outlook for a particular commodity. It even provides a quick synopsis to underpin its view.

For atheistic purposes, we’ve split the table into two parts to allow all of the information to be taken in.

Here’s the first part.

Source: Morgan Stanley

And here’s the second.

Source: Morgan Stanley

Safe to say, Morgan Stanley is not a commodity bull by any stretch right now with only palladium, silver and gold sitting on the bullish side of the ledger. For all other commodities monitored, the bank is either neutral or leaning towards being bearish on the price outlook.

Of particular note for those in Australia, it’s bearish on the price outlook for iron ore, metallurgical coal and thermal coal, the nation’s three largest goods exports by dollar value.

Based on forecasts offered by the bank in mid-March, it sees iron ore spot prices averaging $54 per tonne in both 2019 and 2020, well below the $74 per tonne level is is forecasting for the current calendar year.

The news is similar on its view for both coking and thermal coal with spot prices tipped to average $61 and $98 respectively in 2019, lower than the $73 and $154 a tonne forecasts is has for 2017.

While a somewhat pessimistic view, it’s not all that unusual on the outlook for Australia’s three main commodity exports.

In a research note released last month, analysts at Macquarie Bank said that it sees prices for iron ore and thermal coal suffering “severe price declines” over a two year horizon. Its view on metallurgical coal was similar with the bank suggesting that after enduring a sharp decline prices will likely stabilise at “a low level”.

If both Macquarie and Morgan Stanley are correct when it comes to their forecasts, that will have implications on Australia’s terms of trade, and with it taxation receipts for the government and national income levels, and as a consequence the federal budget position.

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