Global rebound will boost commodities

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