Commodities May Rally 20% on Emerging-Markets Growth, Goldman Sachs Says
Commodity prices may advance 20 percent over the next year as growth in emerging markets offsets the impact of the sovereign-debt crisis in Europe and a slowdown in developed economies, according to Goldman Sachs Group Inc. (GS)
The bank reiterated an “overweight” recommendation on commodities over the next 12 months, while remaining “neutral” in the near term, analysts led by Jeffrey Currie wrote in a report today. Oil and copper forecasts for 2012 were reduced.
Commodities in the three months to Sept. 30 had the worst quarter since 2008 on concern that there may be another global recession as the European debt crisis escalated. The world economy will probably expand 3.5 percent in 2012, compared with an earlier prediction of 4.2 percent, Goldman’s economists Jan Hatzius and Dominic Wilson wrote in an Oct. 3 report.
“With recent GDP revisions by our economists falling hardest on Europe but emerging market growth expectations still relatively solid, we continue to believe that demand growth in 2012 will be sufficient to tighten major commodity markets,” Currie wrote. “We now see a flatter upward trajectory for commodity prices.”
Brent oil traded in London may average $120 per barrel next year, down from an earlier call of $130, Goldman said. The bank’s 2012 estimate for three-month copper on the London Metal Exchange was lowered to $9,200 per metric ton from $10,790.
Goldman joins BNP Paribas SA and Commerzbank AG in cutting calls for the metal that some investors see as a barometer for economic activity. The bank also trimmed the 12-month target for copper to $9,500 per ton from $11,000, while zinc’s target was reduced to $2,400 per ton from $2,700.
“Sentiment regarding the economic outlook and the European sovereign-debt problems are likely to remain poor in the near term, presenting further downside risk to prices as well as our forecasts,” Currie wrote. Still, the lower prices should lure buyers from China, the world’s largest copper consumer, back into the market, he wrote.
Copper for three-month delivery declined for a fifth day in London, falling as much as 4 percent to $6,712 per ton, before trading at $6,935 at 2:58 p.m. in Singapore. Brent crude, which sank 11 percent last month, traded at $101.36 per barrel.
Barclays Capital also said the world economy may avoid a recession as emerging markets expand, which should limit further losses for commodities, according to a report today from analysts including Kevin Norrish.
“A steep rise in production costs over the past few years, plus a much greater degree of supply risk due to geopolitical and weather shocks, all suggest there should be a much greater degree of fundamentals-driven price resilience in many commodity markets,” Norrish wrote.
Weather disappointments should keep risks for soybeans “skewed to the upside,” according to the Goldman report, which expects them to trade at $13 per bushel in 12 months. The November-delivery contract last traded at $11.70 per bushel.
As soybean demand has become more sensitive to consumption in China, the commodity should be more resilient to a slowdown in developed markets as long as Chinese income growth remains robust, Currie wrote.
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