There’s evidently much irritation in the house of Goldman Sachs this week as the commodities research team have been forced to cut their raw price targets across the board.
The firm accepts now that Chinese urbanisation alone cannot out weight the effects of a global recession - something that the rest of the commodities market is now busily pricing in. And so to the new GS forecasts:
There are some big cuts in there - with the exception of gold, lead and nickel. What Goldman and others are waking up to is that Chinese growth in particular would have to accelerate away from here simply to absorb raw materials no longer required in the West. As Peter Mallin-Jones and his team told clients:
We would like to be wrong, but believe it is prudent at present to prepare for an environment in which supply outstrips demand. This implies metals prices are set by marginal costs, rather than acting as a rationing mechanism. We do note that in a lower metal price environment, projects are also likely to be delayed, and if severe enough, existing mines may well be shut in rebalancing the market.
But the commodities bulls are not going to go away quietly; a hard landing will encourage a bigger, subsequent bounce, in Goldman’s view:
Perversely, this is likely to lead to a period of rapid price rises in an economic recovery, as metals demand is likely to swing markets back into deficit, returning tight market balances to a period of demand rationing.
