Weak economic growth in emerging markets, especially China, and increased supply threatens to intensify and extend the downturn in base metal prices, says Morgan Stanley analyst Joel Richardson.
The coal market is especially plagued by oversupply, writes Richardson in a research report. Australian and Canadian metallurgical coal producers are guilty of producing too much coal and Australian, Chinese and Indonesian thermal coal producers are doing the same, according to the Morgan Stanley analyst.
Iron ore producers have not produced as much as was feared, says Richardson. Chinese iron ore imports have grown despite weak demand for finished steel, he says.
In the six months to December 31 this year, Morgan Stanley estimates the spot price of iron ore will be $US126 a tonne and will be $US117 a tonne in 2014.
Morgan Stanley’s forecast for coking and thermal coal are $US143 a tonne and $US95 a tonne respectively in the six months to December 31 this year. Next year coking coal prices will rise to $US164 a tonne. Thermal coal will drop slightly to $US90 a tonne.
The price of gold in the second half of this year will be $US1288 a troy ounce, according to Morgan Stanley. Next year the price of bullion will rise to $US1313 an ounce. The price of gold has fallen about a fifth this year.
“Gold’s negative relative and absolute performance has increasingly reflected the erosion of some of the major pillars supporting the gold bull market,” says Richardson.
“The single most important of these pillars has been the rise in investment demand for physical gold,” he says. Since the beginning of this year the net outflow of all listed gold exchange traded funds has increased. Assets of the largest listed gold funds has fallen 26 per cent this year, their lowest levels since February 2009, according to Richardson.