Morgan Stanley Reveals Its Commodity Predictions For 2012
Mamta Badkar
Dec. 9, 2011
Image: Flickr
"We prefer relative-value trades and commodities that perform well in low-growth environments,"
wrote analysts led by Hussein Allidina.
"However, we also believe that commodities with constrained supply will remain compelling."
Their top picks for 2012 include gold and livestock because of their resilience in past recessions.
Their top picks for 2012 include gold and livestock because of their resilience in past recessions.
Crude oil meanwhile is expected to underperform.
Here are their forecasts for 18 key commodities
Here are their forecasts for 18 key commodities
1. In a bear case Brent crude oil prices could fall to
$75 per barrel
Image: Alliance Oil
2011 average year price: $100.00 / barrel
2012 average year price: $100.00 / barrel
Oil supplies are expected to recover in 2012 with production from the North Sea and
West Africa having stabilized and production picking up in Libya. However, demand is slowing,
and prices are expected to fall in the first half of 2012. In their bear case,
Morgan Stanley analysts expect prices to fall to $75.00 / barrel,
and rise to $115.00 / barrel in their bull case.
Source: Morgan Stanley
2. Natural gas prices are expected to decline as
YoY inventories reach record levels
Image: AP
2011 average year price: $4.20 / million BTUs
2012 average year price: $3.85 / million BTUs
Natural gas is expected to be oversupplied in 2012.
Year-over-year inventories are expected to reach record levels between end-March
and end-October causing prices to ease.
3. Aluminium prices could fall as much as 12%
in 2012 from 2011 prices
Image: Century Aluminum
2011 average year price: $2,500.00 / tonne
2012 average year price: $2,300.00 / tonne
Morgan Stanley is generally cautious on base metals
but relatively optimistic on aluminum.
but relatively optimistic on aluminum.
They note that prices are below marginal cost and some
high cost producers are closing capacity.
high cost producers are closing capacity.
Source: Morgan Stanley
4. Copper tends to underperform during
global economic slowdowns but is expected to
outperform base metals
Image: AP Images
2011 average year price: $9,200.00 / tonne
2012 average year price: $8,400.00 / tonne
Copper could also be an outperforming base metal due to tight supplies.
The analysts believe it could be as late as 2014 before the supplies are sufficiently replenished.
5. Nickel prices on average are expected to decline 7%
in 2012 from a year ago
Image: Wikimedia Commons
2011 average year price: $23,700.00 / tonne
2012 average year price: $22,000.00 / tonne
Nickel prices are linked with Chinese stainless steel production and exports,
which could fall because of a decline in industrial production.
Source: Morgan Stanley
6. Zinc is in oversupply and prices could fall to
$2,100 per tonne
Image: AP Images
2011 average year price: $2,300.00 / tonne
2012 average year price: $2,100.00 / tonne
Global zinc demand stayed strong in 2011 because of
increased consumption in China and emerging markets.
increased consumption in China and emerging markets.
The global zinc market is oversupplied and demand is waning.
Source: Morgan Stanley
7. Gold's safe haven status could drive prices up to
$2,200 per ounce
Image: Mamta Badkar
2011 average year price: $1,612.00 / ounce
2012 average year price: $2,200.00 / ounce
Gold is expected to be in high demand as investors seek safe havens.
Prices should also be supported in the expected low or
negative real interest rate environment.
negative real interest rate environment.
Source: Morgan Stanley
8. Silver prices are volatile and could hit $50 an ounce
Image: AP Images
2011 average year price: $38.00 / ounce
2012 average year price: $50.00 / 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.
weak industrial demand.
Source: Morgan Stanley
9. Platinum will continue to underperform gold and
silver,but is attractive in the medium-term
2011 average year price: $1,784.00 / ounce
2012 average year price: $1,829.00 / 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.
Source: Morgan Stanley
10. Cotton prices are expected to fall 20%
because of declining demand
Image: AP
2011-2012 average year price: $1.00 / pound
2012-2013 average year price: $0.80 / pound
The decline in retail sales across developed markets has seen demand for cotton go down.
Chinese purchases are expected slow significantly in March and U.S.export demand is declining.
Furthermore, the absence of a solution to Europe's debt crisis will also put pressure on 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
11. Sugar prices will be pressured because of
increased global supplies
2011-2012 average year price: $0.22 / pound
2012-2013 average year price: $0.19 / pound
Sugar supplies in the Northern Hemisphere are expected to rise,
and Brazil's production is also expected to be stronger than expected.
After the flooding, Thailand's sugar production is also starting to recover pressuring sugar 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
12. Coffee
Image: puuikibeach via flickr
2011-2012 average year price: $2.38 / lb
2012-2013 average year price: $2.45 / lb
The supply outlook is bearish with production pulling back in Brazil, Vietnam and Columbia.
This will be bullish for prices.
This will be bullish for 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
13. Corn prices could fall an average of 17% next year
2011-2012 average year price: $7.25 / bushel
2012-2013 average year price: $6.00 / bushel
Corn prices are expected to be up at least through the beginning of 2012
as larger livestock herds suggest higher US feed demand
than currently suggested by the USDA.
But high prices are seeing production ramp up in countries like Argentina,
Brazil and the Ukraine, reducing the call on U.S. exports.
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
14. Analysts are bullish on soybean prices though
they are expected to decline 5% next year
Image: AP Images
2011-2012 average year price: $14.25 / bushel
2012-2013 average year price: $13.50 / bushel
"Weak global crushing demand and adequate Brazilian supplies
have decimated demand for US 11/12 exports,
though US crush is likely to rebound in 2012 to rebuild tightening soy oil inventories."
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
15. Average wheat prices could fall up to 7% in 2012
Image: Wikimedia Commons
2011-2012 average year price: $7.50 / bushel
2012-2013 average year price: $7.00 / bushel
Wheat production and supplies have moved from a deficit to a surplus.
There have been shortfalls in the U.S., but cheaper alternatives from the EU,
Argentina are expected to edge out U.S. exports.
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
16. Live cattle's outlook for 2012 looks bullish
Image: PhillipC via Flickr
2011 average year price: $1.14 / lb
2012 average year price: $1.24 / lb
"Continued strength in US beef export demand, coupled with high feed costs
and contracting feeder cattle supply all bode well for US cattle supply."
Source: Morgan Stanley
17. Feeder cattle prices will be susceptible
to the deep winter
Image: farms.com
2011 average year price: $1.34 / lb
2012 average year price: $1.49 / lb
Contraction of the feeder cattle supply as a result of last summer’s drought
is expected to keep prices elevated through the first half of 2012.
But prices are expected to be impacted by seasonal weakness in deep winter.
is expected to keep prices elevated through the first half of 2012.
But prices are expected to be impacted by seasonal weakness in deep winter.
Source: Morgan Stanley
18. Economic distress across the US bodes well
for trade-down demand from beef
Image: Nicholas Valentin via Flickr
2011 average year price: $0.91 / lb
2012 average year price: $0.90 / lb
"Strong pork demand and positive packer margins remain a constructive force for hog prices,
leaving us moderately constructive from here,
as long as producers remain disciplined in the face of positive margins."
Source: Morgan Stanley
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