Commodity markets roiled by turmoil from China to Greece must now brace for another shock as the US Federal Reserve prepares to raise interest rates, according to Morgan Stanley.
The bank cut its long-term price forecasts for metals by as much as 12 percent, it said in a report dated Tuesday.
Investors should avoid thermal coal and alumina in a post-supercycle world, Morgan Stanley said, referring to a previous boom in prices that had been fueled by soaring demand from China. It still prefers base metals such as nickel, copper and zinc over bulk commodities, for which it cut estimates by up to 25 percent.
Returns from raw materials fell to the least since 1999 last month amid an oversupply in everything from copper to oil and forecasts for the slowest economic growth since 1990 in China, the biggest user of energy, metals and grains.
Fed Chair Janet Yellen has signaled that an uncertain global outlook will not postpone an increase in US rates this year, a move that would curb the investment appeal of commodities because they do not pay interest or give returns like other assets such as bonds.
“A series of macroeconomic events have stunned commodity prices substantially lower” since the bank’s last price review in June, analysts Tom Price, Joel Crane and Susan Bates said in the report. “Any price upside in 4Q is constrained by at least one more exogenous shock — start of the US rate hike cycle, widely expected to occur in December.”
In the bank’s bull case, it sees potential for programs to rebuild infrastructure by the US and China, the world’s two largest economies, amid a recovery in growth. In a bear case scenario, commodity demand may ease if China’s currency further depreciates and emerging US inflation prompts higher interest rates and strengthens the US dollar.
Morgan Stanley cut its forecast for next year by 17 percent for aluminum prices to US$1,631 a tonne amid a persistent oversupply. The metal for delivery in three months traded at US$1,570 on the London Metal Exchange at 12:58pm in Singapore yesterday.
While reductions in aluminum smelters are a step toward rebalancing the market, the volume cut has been more than offset by capacity additions elsewhere in China amid a weaker outlook for demand, Morgan Stanley said.
Morgan Stanley lowered its platinum forecast for next year by 12 percent to US$1,032 an ounce. Output growth and potentially large inventories are curbing prices amid concern that demand from automakers would slow as investigations into the Volkswagen AG scandal deepen.
Volkswagen cars with diesel engines rigged to cheat on emissions tests are being pulled from markets in Spain, Switzerland, Italy, the Netherlands and Belgium, while prosecutors in Sweden consider opening an investigation on potential corruption.
About 42 percent of platinum demand comes from its use in pollution-control devices in diesel engines, according to Morgan Stanley. The metal slumped to as low as US$899 an ounce on Tuesday, the weakest level since December 2008.
Even more supply of iron ore would flood the market in the next 12 months as Chinese and global demand slows, Morgan Stanley said, cutting its price forecast next year for the commodity used to make steel by 12 percent.
The raw material would average US$58 a tonne this year and remain at about this level through 2018, the bank predicted.
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day
Thousands of parents in Singapore are furious after a Cordlife Group Ltd (康盛人生集團), a major operator of cord blood banks in Asia, irreparably damaged their children’s samples through improper handling, with some now pursuing legal action. The ongoing case, one of the worst to hit the largely untested industry, has renewed concerns over companies marketing themselves to anxious parents with mostly unproven assurances. This has implications across the region, given Cordlife’s operations in Hong Kong, Macau, Indonesia, the Philippines and India. The parents paid for years to have their infants’ cord blood stored, with the understanding that the stem cells they contained