London 27/06/2016 - By Charlie Dickens
As Europe enters an unexpected period of uncertainty, due to the UK voting last week to leave the EU, prices of base metals are set to decline, bank Morgan Stanley said.
This is in contrast to precious metal markets, as “uncertainty will support prices over the short-term” Morgan Stanley said in a report on Monday.
The UK only accounts for less than two percent of global commodity demand, yet the decision to exit provides a threat to the economic stability of the EU, “which consumes 10-25 percent of the world's commodities.”
Economic uncertainty is set to have an adverse effect on base metal prices, as “investors now believe the region’s industrial economic activity is set to decline”.
Morgan Stanley forecasts a five percent decline in demand for commodities within the EU over the next 12-24 months, resulting in the expected balances being altered by some 20-40 percent, exerting downward pressure on prices.
The bank currently forecasts copper to average $5,070.60 per tonne this year, which compares with the current price around $4,716.
In aluminium, prices are currently around $1,633 per tonne, and Morgan Stanley sees a 2016 average of $1,565.30. Zinc, around $2,004.50 at present, is expected to average $1,785.70.
Conversely, Brexit has been the dominant price driver in safe-haven precious metals, as gold and silver prices have both increased, amid the subsequent uncertainty.
Morgan Stanley said the sudden influx in demand for gold and silver has underpinned prices, which are around $1,326.30 and $17.80 per ounce respectively, while 2016 average forecasted prices for the year sit at $1,173.00 and $14.60.
(Editing by Martin Hayes)