Morgan Stanley bearish on iron ore, bullish on base metals (Sydney Morning Herald – December 14, 2016)

BLOOMBERG – 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.

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