Tuesday, May 24, 2011

Goldman Sachs Says Commodity Correction Is Over


Goldman Sachs went bearish on commodities immediately following the fact that they learned they were not chosen by commodity giant Glencore as a lead broker.

Now that the Glencore placement has been completed (at a lower price thanks to Goldman's sudden bearish view on commodities) and there is no further edge in screwing Glencore (Glencore starts trading today) by being bearish, Goldman has turned bullish on commodities again.

Goldman writes:
 We remain structurally bullish commodities

Although we remain structurally bullish and have long argued the structural case for being long, timing does remain critical. This was evident in the recent market correction, which brought commodities down roughly 10% from their April highs. With prices now more in line with near-term fundamentals and price targets, we believe that the risk/reward once again favours being long commodities. Although the economy has likely shifted into a slower, but sustained, growth environment, we continue to expect that economic growth will likely be sufficient to tighten key supplyconstrained markets in 2H2011, leading to higher prices from current levels.

Raising oil price targets on persistent impacts from MENA events

We expect that the ongoing loss of Libyan crude oil production and disappointing Non-OPEC production will continue to tighten the oil market to critical levels in early 2012, with rising industry cost pressures likely to be felt this year. We are now embedding in our forecasts that Libyan production losses will lead to the effective exhaustion of OPEC spare capacity by early 2012. This raises our year-end Brent crude oil price forecast to $120/bbl from $105/bbl, our 12-month forecast to $130/bbl from $107/bbl and our end-2012 forecast to $140/bbl from $120/bbl.

Mid-cycle pause nearing a trough, creating upside to metal prices

While a sharp decline in world economic growth remains a downside risk to commodity prices, we see the current slowdown in economic growth as part of a normal mid-cycle pause, partially driven by higher commodity prices, and therefore not a reason to expect commodity prices to decline substantially. Further, we believe that the recent evidence of economic weakness represents signs of a slowdown and not a downturn, which is reinforced by signs that Chinese metal demand has already returned with the SHFE-LME copper arb opening again, exchange inventories declining and the Shanghai copper forward curve moving into backwardation.


  1. Holy flippin' crap. That was the LAST thing I wanted to hear. Goldman saying ANYTHING good is the kiss of death.

  2. This Glencore IPO smells like a short play to me. List at the top of the market and then buy everything back following the depression...

  3. Commodities say Goldman Sachs is over...