Commodities to Be `Under Pressure', Morgan Stanley's Roach Says

By Ron Harui and Arnold Gay

Nov. 13 (Bloomberg) -- Energy, base metals and industrial materials will stay under ``broad-based pressure'' as world economic growth slows, said Stephen Roach, chairman of Morgan Stanley Asia Ltd.

``The supply-demand balance, which was viewed as a permanent justification for higher highs in the super cycle of commodities, has unraveled,'' he said in an interview with Bloomberg television in Singapore today.

Commodity prices, measured by the Standard & Poor's GSCI Index of 24 raw materials, have plunged by more than half from their record on July 3 as the global credit crisis threatens to push the world into a recession, reducing demand for raw materials. Crude oil has slumped 63 percent in four months.

China's 4 trillion yuan ($586 billion) stimulus package ``puts a floor on Chinese growth of around 7 percent,'' said Roach. ``That will provide some support and limit the correction of commodity prices from being absolutely catastrophic.''

``You have to be careful in assessing'' the plan as a significant ``and as yet undetermined portion'' is for projects already approved, he said.

Commodity prices had their worst month in October, and copper is heading for its first annual decline in seven. Scrap steel buyers in Asia canceled purchases after prices tumbled more than 80 percent in four months, according to traders.

Commodity Bubble

``It was a bubble,'' Roach said. ``Commodity prices have a history of some of the most violent fluctuations of any markets in the world, and they have lived up to their reputation.''

The last raw material bubble was in the early 1970s when ``you had the same type of global growth boom that we've had in the last four and a half years,'' he said. ``The boom has gone to bust. The global economy is now growing at 2 to 2.5 percent, less than half the pace that we've been running at.''

``There are early signs'' that commodity-producing nations, such as Russia, Brazil and in the Middle East, are beginning to ``feel acute pressures,'' he said. In commodities, ``two areas where you might run against the grain would be precious metals, which would benefit from a sort of anxiety hedges, and possibly soft commodities like food,'' he said.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net