Goldman all but says the mining supercycle is back
Concerted global economic growth could hit 4% and top commodities consumer China is set to expand at a 6.6% clip this year according to the IMF and others.
Factories around the world are buzzing – the global JP Morgan manufacturing PMI entered the year at its highest since February 2011.
The LME index of base metals has climbed to the highest since 2014. Given its widespread use copper is considered a good barometer of the global economy – measured from its early January 2016 low the metal has added two-thirds in value.
Now Goldman Sachs says it’s only the beginning.
Analysts Jeffrey Currie and Michael Hinds at the New York investment bank believe “rising commodity prices will create a virtuous circle, improving the balance sheets of producers and lenders, and expanding credit in emerging markets that will, in turn, reinforce global economic growth”:
“The environment for investing in commodities is the best since 2004-2008,” they wrote in a research note.
Goldman sees copper enjoying double digit gains to top $8,000 a tonne ($3.63/lb) over the next 12 months. For copper that constitutes a 12% jump from today’s price. The last time copper traded at $8,000 was at the beginning of 2013.
The forecast establishes Goldman as one of the most bullish Wall Street banks. Citigroup sees copper averaging $7,125 a tonne this year and Deutsche Bank at $7,175, according to data compiled by Bloomberg.
On a longer term basis Goldman is also bullish about copper saying in a earlier report that “the markets where technology hasn’t substantially shortened the supply cycle, and where cost are rising, (i.e. copper) have the greatest long-term upside in prices.”
Biggest surprise from the new Goldman report is the price of iron ore which is expected to climb to $85 a tonne over the next three months, up 17% from the current level. The previous forecast from the bank was for the steelmaking ingredient to average just $55 over the period.
The forecast for metallurgical coal is only a slight improvement over the spot price – going from $215 to $220 a tonne, but is a full third higher than Goldman’s previous prediction of $165 a tonne.