Commodity prices to fall as Chinese companies return to full capacity: UOBKH
UOB Kay Hian (UOBKH) is advising investors to reduce their exposure to commodities and pivot towards consumer staples as commodity prices decline.
This comes as China’s border reopening and the relaxation of its zero-Covid policy are expected to lead to a gradual return of business activities to pre-Covid-19 levels.
In a report on Tuesday (Jan 10), analyst Stevanus Juanda said he anticipates commodity prices to decline as supply capacity ramps up with the reopening of China. The capacity ramp-up will translate to a higher supply from domestic producers and result in less imports needed, he said.
Juanda noted that this will negatively impact the commodity industry, such as coal.
Currently, coal prices have fallen below US$400 per tonne, with Fitch Ratings expecting them to drop to US$280 per tonne in 2023 and US$250 per tonne in 2024.
“We recommend selling coal names but remain bullish on cement plays as coal is a major production input,” Juanda said. He recommends investors sell their shareholdings in coal supplier Indo Tambang Raya as well as mining company United Tractor.
However, he also highlighted that the fall in commodity prices will benefit the consumer staple sector due to lower costs.
With inflation predicted to decline in late 2023 due to lower commodity costs, he believes central banks worldwide will cut interest rates, which would in turn benefit banks and property companies.
The research house also foresees a recovery in purchasing power driven by real wage increases and rising employment, leading to sales growth for consumer companies and retailers in the new year.
Top “buys” highlighted by Juanda include Bank Rakyat Indonesia as well as consumer stocks Indofood CBP and Mayora Indah.
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