From SCDigest's On-Target e-Magazine
Jan. 25 , 2012
Supply Chain News: What will Happen to Commodity and Input Prices in 2012?
Morgan Stanley Predicts Price Declines in Almost All Categories, as Global Demand Expected to Slow; For Materials, it All Depends on China
SDigest Editorial Staff
Where are key commodity and input costs headed in 2012?
Well, you'll get about as many answers as there are forecasters, but we wanted to share the predictions from the commodity analysts at Morgan Stanley. Of course, their forecasts are directed at investors and commodity futures traders hoping to make money on the moves, but the insight should be of some use to procurement managers and CFOs as well in estimating 2012 input costs.
SCDigest Says: |
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Morgan Stanley competitor Goldman Sachs has taken up a contrarian position and predicts commodities could rally by 15% in the next year, led by raw materials,
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What Do You Say?
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Below are Morgan Stanley's thoughts on select commodity prices for 2012:
Brent Crude Oil: Expects average price for the full year to stay flat, at about $100.00 per barrel. Notes oil supplies are expected to recover in 2012 with production from the North Sea and West Africa having stabilized and production picking up again in Libya. At the same time, demand is slowing, mostly from economic troubles in Europe, meaning price is likely to fall in 1H 2012, perhaps to as low as $75.00 per barrel. In their most bullish case, oil rises 15% to $115.00.
Aluminum: Expects average prices to fall from $2500.00 per metric ton in 2011 to $2300.00 in 2012. However, they note there is some upward pressure on aluminum prices over the longer term, as prices are below marginal cost, which can't be sustained, and some high cost producers are closing capacity.
Copper: Forecast is for copper to decline in 2012 from an average of $9200.00 per metric ton to $8400.00 in 2012, even though it says copper supplies are reasonably tight.
Nickel: Another decline is predicted, as Morgan Stanley is not at all bullish on overall metals prices. Expects nickel prices to decline from an average of $23,700.00 per tonne in 2011 to $22.000.00 in 2012. Decline in China steel production cited as key factor.
Zinc: Similar story, with prices expected to fall to $2100.00 per tonne in 2012 from an average of $2300.00 in 2011. Says global zinc demand stayed strong in 2011 because of increased consumption in China and emerging markets. But the global zinc market is oversupplied and demand is waning
Platinum: One of the few metals expected to rise in price this year, forecast to go to $1829.00 per ounce this year from $1784.00 in 2011, though a more significant economic slowdown could change that.
Cotton: Expected to fall sharply this year, from an average of about $1.00 per pound to just 80 cents in 2012. (more precisely, the averages are for 2011-12 and then 2012-13 due to the way agricultural commodities are tracked in "marketing years.") Tough retail sales environment of late, and expected reduction in demand from China starting about March, are said to be key factors.
Sugar: Forecasts is for a decline from 22 cents per pound in 2011-12 to 19 cents per pound 2012-13. Production is rising in US and Brazil, and Thai production to recover after last year's flooding.
Corn: A sharp decline is expected, from an average of $7.25 per bushel in 2011-12 to just $6.00 per bushel in 2012-13, though it says prices may be up modestly early in the year. But rising production in Brazil, Argentina and elsewhere should reverse that trend, as last year's high prices as always bring more supply into the market.
(Sourcing and Procurement Article Continues Below) |
Wheat: Also expected to take a hit, with average prices for 2011-12 of $7.50 per bushel falling to $7.00 in 2012-13. Morgan Stanley says 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.