Investing in Commodities: The Outlook for 2013-14

Here’s the Morgan Stanley report rundown on eight commodities headed for price gains:

    • Aluminum: Further infrastructure- and construction-related stimulus from Chinashould move prices up in 2013. But the current level of supplies and high production capacity will put a floor on prices in 2014.

Aluminum ended 2012 at $2,087/metric ton. The projection for 2013 and 2014 is $2,300/metric ton – a 10.21% increase from the end of 2012.

    • Copper: Growth in the supply of copper will be slow over the next five years and demand should increase, especially from China as the country’s infrastructure and auto markets stabilize.

Copper ended 2012 at $3.61/pound. The 2013 projection is $3.90/pound, up 8.03% from 2012. The 2014 projection is $3.72/pound, up 3.05% from 2012.

    • Nickel: Nickel remains at mid-2009 lows due to a growing oversupply and weak demand, but should rebound over the next two years.

Nickel ended 2012 at $17,448/metric ton. The 2013 projection is $18,300/metric ton, a 4.88% increase from 2012. The 2014 projection is $19,800/metric ton, up 13.48% from 2012.

    • Zinc: A sharp drop in 2012 production in China helped cut into an oversupply of zinc that dates to the financial crisis of 2008-2009. And if China’s new leadership supports infrastructure growth, that will boost zinc prices as well.

Zinc ended 2012 at $2,040/metric ton. The 2013 projection is $2,200/metric ton, an increase of 7.84% from 2012. The 2014 projection is $2,300/metric ton, up 12.75% from 2012.

    • Gold: The Federal Reserve’s QE3, combined with the European Central Bank’s unlimited bond-purchasing program, will continue to push the yellow metal higher, but lowered demand could limit prices in 2014.

Gold ended 2012 at $1,665/ ounce. The 2013 projection is $1,853/ounce, up 11.29% from 2012. The 2014 projection is $1,800/ounce, up 8.11% from 2012.

    • Silver: Production at mines has stalled since 2011 and demand should continue to increase, especially for use in electronics and jewelry.

Silver ended 2012 at $30/ounce. The 2013 and 2014 projection is $35/ounce, an increase of 16.67% from 2012.

    • Platinum: Supply issues in South Africa that eliminated the surplus of platinum, coupled with strong industrial demand, should keep this metal moving higher.

Platinum ended 2012 at $1,524/ounce. The 2013 projection is $1,715/ ounce, up 12.53% from 2012. The 2014 projection is $1,785/ounce, up 17.13% from 2012.

    • Sugar: A global surplus of sugar, due to higher-than-expected production from Brazil and India, should prevent major changes in prices for the next two years.

Sugar ended 2012 at 19.2 cents/pound. The 2013 projection is 19 cents/pound, down 1.04% from 2012. The 2014 projection is 20 cents/pound, up 4.17% from 2012.

5 Commodities That Could Really Outperform

Krauth agrees with Morgan Stanley’s commodities team that gold is the safest and best commodity going forward.

But he expects the highest return from silver prices.

His 2013 price targets are $2,200/ounce for gold, which would be up 32.13% from the end of 2012, and $54/ounce for silver, for an 80% increase.

Both of these increases will be spurred by the inflationary actions of central banks, strong investor demand and decreased supplies. Krauth expects silver to outperform gold because of the added demand from its various industrial uses, and its low price compared with gold.

Krauth also sees higher prices for platinum and palladium.

Increased use of platinum and palladium in automobiles is expected to help drive consumption of the metals up 7% – 8% this year, Krauth said. But ongoing labor problems in Africa, which produces most of the world’s platinum and palladium, will reduce supply of the metals, he said.

Krauth predicts the price of platinum will rise to $1,850/ounce in 2013. He foresees palladium, now trading at about $725/ounce, rising to $800 this year.

Copper, Krauth forecasts, will rise above $4/pound this year.

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