Gold­man ‘con­vinced’ com­modi­ties to rally strongly af­ter drop

Gulf Times Business - - BUSINESS -

Com­mod­ity bull Gold­man Sachs Group Inc said that raw ma­te­ri­als will re­bound from their re­cent sell-off, with a deficit seen in the global oil mar­ket this quar­ter and re­silient de­mand in China for met­als.

“We re­main con­vinced that com­modi­ties will once again rally strongly off this trough,” an­a­lysts in­clud­ing Michael Hinds and Jef­frey Cur­rie said in a note re­ceived on Thurs­day. The bank fore­casts re­turns from the S&P GSCI En­hanced Com­mod­ity In­dex of 6.5% over the com­ing 12 months.

Raw ma­te­ri­als were mauled in Oc­to­ber, with steep losses in oil and met­als, which tum­bled along with global eq­ui­ties. The driv­ers of the de­clines were a resur­gence of con­cern in en­ergy mar­kets about ex­cess sup­ply, spec­u­la­tion that global eco­nomic growth was slow­ing amid the USChina trade war, and a jump in risk aver­sion. The sell-off was rapid, and the losses may have been ex­ac­er­bated by sys­tem­atic volatil­ity strate­gies, ac­cord­ing to Gold­man.

“We be­lieve Brent is now over­sold, and con­tinue to see a deficit in the fourth quar­ter,” the an­a­lysts wrote. “The US is likely to seek to main­tain ‘max­i­mum pressure’ on Iran de­spite the re­cent waivers,” it said, re­fer­ring to sanc­tions ex­emp­tions granted by Wash­ing­ton to a hand­ful of na­tions taking Ira­nian oil. Brent is fore­cast to climb to $80 a bar­rel by year-end, al­though it’ll drop back to $65 in 2019, the bank said. On Thurs­day, the en­ergy bench­mark traded near $72. Among other tar­gets, cop­per is seen climb­ing to $6,500 a tonne in three months, while nickel will rally to $15,000 a tonne over the same time frame.

Gold­man is also bullish on alu­minium, cit­ing sup­ply risks in­clud­ing loom­ing out­put cuts in China over the win­ter, sanc­tions fac­ing Rus­sian pro­ducer United Co Rusal, and dis­rup­tion at Norsk Hy­dro ASA’s alumina re­fin­ery in Brazil. “The mar­ket is clearly in deficit and in­ven­tory con­tin­ues to draw,” it said. “In met­als, we also see too much pes­simism al­ready priced in,” the an­a­lysts said. “We view Chi­nese de­mand as re­main­ing rel­a­tively healthy; and we see prices start­ing to cut into cost curves. In agri­cul­ture, trade pol­icy re­mains the num­ber-one un­cer­tainty.” Gold­man has been con­sis­tently up­beat on raw ma­te­ri­als in re­cent months, ar­gu­ing that they stand to do well in the late stage of the eco­nomic cy­cle.

“We find that we are now even closer to mov­ing out of the mid-cy­cle and into a ‘late cy­cle – in­fla­tion over­shoot’ pe­riod,” it said.

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