Global re­bound will boost com­modi­ties

The Star Early Edition - - INTERNATIONAL - Stephen En­gle, Ben Sharples and Ran­jeetha Pakiam re­in­force in­fla­tion­ary pres­sures, aid­ing raw ma­te­ri­als.

COM­MOD­ITY prices will be sup­ported in the months ahead by a global re­bound span­ning the US, Europe and China that is but­tress­ing world­wide de­mand for raw ma­te­ri­als, ac­cord­ing to Gold­man Sachs Group.

“We’re see­ing a cycli­cal uptick in global eco­nomic ac­tiv­ity and that’s driv­ing de­mand, not only for oil, but all com­modi­ties,” Gold­man Sachs head of com­modi­ties re­search Jef­frey Cur­rie said in Hong Kong yes­ter­day.

“That’s the core rea­son why we up­graded our out­look on com­modi­ties to over­weight,” he said, re­fer­ring to the bank’s Novem­ber de­ci­sion.

Com­modi­ties made a come­back last year with the first an­nual gain in six years as stim­u­lus in China sta­bilised growth, and oil pro­duc­ers led by Opec re­versed course to limit sup­plies.

Cur­rie said the im­pact of China’s stim­u­lus would prob­a­bly last well into the first half of this year. He added that poli­cies from new US Pres­i­dent Don­ald Trump might

The im­pact of China’s stim­u­lus will prob­a­bly last well into the first half of 2017.

“US and China are fo­cal points where we’re see­ing the uptick, but even the out­look for Europe is much more pos­i­tive than what peo­ple would have thought six months to a year ago,” he said.

“It’s not what’s hap­pen­ing on the sup­ply side but rather what’s hap­pen­ing on the de­mand side.”

The Bloomberg com­mod­ity in­dex ad­vanced 11 per­cent last year, with zinc and Brent crude among the big­gest gain­ers. Iron ore jumped more than 80 per­cent in 2016 as the stim­u­lus in China helped to sus­tain steel pro­duc­tion in the top pro­ducer. The Bloomberg com­modi­ties gauge is up 1.7 per­cent this year.

Gold­man isn’t alone in its pos­i­tive view. Cit­i­group said last May that the worst was over for com­modi­ties, fol­low­ing with a call in De­cem­ber that most raw ma­te­ri­als were ex­pected to per­form strongly in 2017 as global eco­nomic growth picked up and mar­kets re­bal­anced.

The stim­u­lus in China “was sub­stan­tial and that has a fol­low through, it takes time,” Cur­rie said.

China’s econ­omy ac­cel­er­ated for the first time in two years in the fi­nal quar­ter of last year, ce­ment­ing the sta­bil­i­sa­tion, as gross do­mes­tic prod­uct rose 6.8 per­cent from a year ear­lier. – Bloomberg

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