New York: Base metals win out over bulks as Morgan Stanley’s top picks for next year as President-elect Donald Trump’s plans to spruce up US infrastructure may reinforce demand from China, with the outlook in the US offering potential for what the bank termed as the “American phoenix” .
“Mr. Trump’s promise to rebuild US infrastructure is a brand-new upside risk for our commodity outlook,” the bank said in a December 12 report. “Yes, we do believe China is in the mature stage of its 25-year-old materials growth cycle, and that the US may only be at the start of a new one. But the potential exists for a medium-term competitive overlap for selected commodities.”
Metals have rallied 27 per cent in 2016, with the LMEX Index heading for the first annual gain in four years, as consumption in China proved resilient and Trump’s win boosted speculation about the outlook for demand. Morgan Stanley cautioned the details of his infrastructure plans remained lacking, saying the market should be able to fully adjust for this potential growth driver once a quantified and properly-funded program is actually released.
“Most of the base metals are back at the top of our list,” analysts including Tom Price, Joel Crane and Susan Bates said in the report, listing zinc, nickel and aluminium as the leading picks, with iron ore, thermal coal and metallurgical coal least-favoured. “We are bears on toppy bulks: iron ore, coals, manganese ore are all reporting supply-side responses to high prices.
Higher Forecasts
The bank raised its 2017 forecast for zinc by 16 per cent to $2,728 (Dh10,020) a metric tonne, nickel by 13 per cent to $11,657 a tonne, aluminium by 10 per cent to $1,786 a tonne and copper by 13 per cent to $5,346 a tonne. While the iron ore forecast for next year was raised 16 per cent to $58 a tonne, that compares with Monday’s price in Qingdao of $83.58, up 92 per cent in 2016.
Zinc traded at $2,729 a tonne on the London Metal Exchange at 3:31pm in Singapore, 70 per cent higher this year, after miners including Glencore Plc shut some supply and demand rose. Glencore hasn’t yet revealed plans to ramp up output at its mines, which remain critical to the outlook, Morgan Stanley said.
The key support for iron ore in 2016 has been the China’s credit-backed, steel-intensive infrastructure programs, underpinning steel production, according to the bank. Next year, there will probably be an expanding surplus, even as the major miners underdeliver on supply growth, it said.
Morgan Stanley’s outlook for 2017 chimes with other bullish calls on commodities including metals next year. Citigroup Inc. has predicted that most raw materials are expected to perform strongly next year as global economic growth picks up and the oversupply that’s dogged markets finally dissipates.
Goldman Sachs Group Inc. said last month investors should bet on higher commodities prices as manufacturing picks up around the world, the first time the bank has recommended an overweight position for the asset class in more than four years. This month, the bank raised its copper forecasts.
