Goldman backs commodities as investors shrug off trade war shots

Copper rose 1.08 percent to $5,989.75 a tonne, touching its highest level since early March, as the economic data from top consumer China helped reinforce expectations of strong demand.

SINGAPORE: Commodity bull Goldman Sachs Group Inc. says raw materials are poised to gain into the end of the year as investors have now become used to trade-war tensions, growth in major economies remains strong, and consumers who’d put off purchases in recent months start buying again.

“This week the trade war was escalated and markets shrugged it off with copper rallying,” analysts including Jeffrey Currie said in a note received on Friday and dated Sept. 20. “The reason is the market has already factored in an extended standoff between the U.S. and China.”

Raw materials are heading for their biggest weekly gain since April, aided by advances in base metals including copper and crude oil, with Brent nearing $80 a barrel amid concern about dwindling supplies from Iran. The climb came even as the U.S. administration pledged more tariffs on $200 billion of goods from China, to kick in Monday, and Beijing responded with retaliatory levies.

“Growth in the Big Four has not slowed materially,” Goldman said, referring to the U.S., EU, China and India. “Both hard and soft macroeconomic data do not show a material slowdown in Chinese growth.” 

The bank added that the pace of expansion in the U.S. is “stronger than expected.”

The spike in global trade tensions earlier this year had prompted some users, especially in China, to defer purchases and instead draw down inventories, according to the bank. But that de-stocking can last only so long. Physical buyers “are already returning to key markets like oil and copper,” it said.

Copper was among metals hit hard by the initial trade war concerns, plunging in August to $5,773 a metric ton, the lowest price since June 2017. It’s since rebounded to $6,143 amid signs of tightness, including a drop in global stockpiles. Goldman said it’s sticking to a year-end target of $6,500.

It was positive on crude, too. “Oil has the strongest fundamental outlook going forward driven by strong U.S. demand growth, sanctioned losses and other supply disruptions and still constrained U.S. shale production,” Goldman said.

The de-stocking of raw materials “has a physical limit,” it said. In China, that process has “already created significant increases in physical premia for oil and metals -- a sign of physical shortages. This is likely the catalyst the financial markets have been looking for.” - Bloomberg