Goldman Sachs retains confidence in commodities

Goldman Sachs Group Inc. predicts that commodities will yield better returns than other assets in the long term, writes Bloomberg.

Strong growth in global demand for commodities gives more grounds for investing in them, the bank’s report of December 11 says. Goldman expects a return of 10% in 2018 due to a market structure known as backwardation, where investors sell more expensive contracts with expiring maturities at the end of each month and buy less expensive futures.

The Bloomberg Commodity index rose by about 6% from the second half of June amid signs of a reduction in supplies and a stronger demand for raw materials, from oil to cotton. The cost of raw materials is growing, as current demand levels exceed the levels of available supplies, notes Goldman. The bank forecasts a yield of 15% next year thanks to higher prices for short-term oil futures than long-term contracts.

Goldman does not expect that the oil market will return to the contango situation in 2018, when longer-term futures are more expensive than shorter ones.

As for the broader industrial metals index, Goldman predicts that the yield will be mostly stable next year. Bank experts are most optimistic about copper prospects, and least optimistic about aluminum prospects. “In both cases, sustained and synchronous global growth will help maintain high demand for metals around the world in 2018,” the bank believes. “The difference lies in the dynamics of supply.”

In 2018 and 2019 years. expected healthy growth of supply in the copper market. However, Goldman said that the boom in this market is coming to an end, as investments dropped sharply after the sale of commodities in 2014. This means that production may slow after 2019. At the same time, a positive outlook for demand contributes to the “bullish” mood of Goldman. The bank expects prices next year at $ 7050 per ton of copper on the London Metal Exchange.

At the same time Goldman notes the growing likelihood of increasing supplies of aluminum from China, mainly from areas with limited air pollution problems, and also from outside the Asian country. In these conditions, the bank adheres to the “bear” position on aluminum.

Copper and other metals have risen in price this year amid accelerated growth in developed countries and recovery in demand in China. A number of analysts – from Goldman Sachs Group Inc. to the hedge fund Shanghai Chaos Investment Group – noted the efforts of President Xi Jinping to reduce the level of debt and limit the real estate sector as key constraints to commodity markets.