Commodity `Supercycle' Not Over, Morgan Stanley Says 2006-10-05 08:58 (New York)
By Saijel Kishan
Oct. 5 (Bloomberg) -- The commodities ``supercycle'' isn't over
and prices may rise because of production shortages next year, said
Morgan Stanley, the world's biggest securities firm by market value.
Global commodity supplies, which are three to five years behind
demand, may test record lows in 2007, the New York-based bank wrote
in a report today. ``The next leg upward in the commodities cycle''
will happen in the next six to 12 months, it said.
``The best-ever fundamentals for the sector remain fully in
place,'' analysts led by Wiktor Bielski said in the report. ``We
believe that we may not yet have seen the highs for commodity
prices and therefore the commodities supercycle is just pausing
for breath.''
The Reuters/Jefferies CRB commodity Index has slumped 19
percent from its May 11 record, ending a rally in prices that
began in 2001, because of concern that rising interest rates and
slower global economic growth may curb demand for raw materials.
``We believe these fears are overdone,'' Morgan Stanley
said. Consumers in Europe, Japan and other Asian countries will
replace the slowdown in U.S. consumer spending, the bank said. An
increase in company expenditures and the effects of globalization
will limit the impact of the decline in U.S. housing, it said.
Economic expansion in China, the world's most populous
country, a shortage of mining supply and investor demand for
commodities will drive prices higher for a ``number of years,
although we of course expect pauses and bumps in the road,'' the
bank said. Pension and mutual funds have invested $120 billion to
$150 billion in commodities, it said.
Forecasts Raised
Copper rose to a record $8,800 a metric ton in May. Nickel
has more than doubled this year and rose to $29,950 a ton in
August, the highest since at least 1987, based on Bloomberg data.
Commodities may gain this quarter as China increases purchases
after it ran down its own inventories, particularly of copper, over
the past six to nine months, Morgan Stanley said. Falling
inventories, the risk of strikes and the possibility of increased
investment from funds will also support prices, it said.
Morgan Stanley raised its 2007 forecast for average copper
prices by 17 percent to $3.50 a pound. It also increased this
year's forecast to $3.15 a pound, from $2.98.
The bank also increased its forecast for nickel prices next
year by 30 percent to $10.75 a pound. Iron ore prices may rise 15
percent next year, Morgan Stanley said.
The bank cut its forecasts for coking coal, used to make
steel, by 9 percent to $105 a metric ton for the Japanese
financial year 2007 and 2008.
Morgan Stanley also reduced its forecast for aluminum by 16
percent to $1.05 a pound in 2007, and forecast a ``modest
decline'' in steel prices early next year.
Bielski's views on commodities conflicts with those of
Morgan Stanley chief economist Stephen Roach who said Sept. 28
that declining economic growth in China combined with a fall in
commodity-intensive U.S. homebuilding ``will challenge the widely
held belief in the commodity supercycle.''
--Editor: Casey (kkl). |
