Goldman now 'more bullish' on commodities
May 24, 2011 - 3:22PM .
Goldman Sachs is turning ??more bullish?? on raw materials and recommends investors buy crude oil, copper and zinc as sustained economic growth will tighten supplies.
??We believe that the risk/reward once again favors being long commodities,?? analysts led by London-based Jeffrey Currie said in a report today. ??Economic growth will likely be sufficient to tighten key supply-constrained markets in the second half, leading to higher prices from current levels.??
The Standard & Poor??s GSCI spot index of 24 commodities has lost about 10 per cent since the New York-based bank told investors on April 11 to sell a basket of commodities including oil, copper and cotton, and in the same week recommended they stay ??underweight?? in raw materials.
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Global manufacturing activity as measured by the JPMorgan Chase & Co. index has slowed for two consecutive months and stood at 55 in April. A reading of 50 and above suggests expansion.
Prices of metals and energy have dropped to levels ??more in line with near-term fundamentals,?? the analysts said. A sustained loss of Libyan crude production because of conflict and ??disappointing?? output from non-OPEC nations will tighten the oil market to ??critical?? levels in early 2012, they said.
Goldman raised its forecasts for Brent crude futures as Libyan supply cuts lead to the ??effective exhaustion?? of spare capacity in the Organisation of Petroleum Exporting Countries. The 12-month estimate was revised to $US130 a barrel from $US107, the report said.
Morgan Stanley today raised its estimate for Brent oil by 20 per cent to $US120 a barrel this year.
Concerns over sovereign debt in Europe, the contraction in Japan??s economy and the end of the second round of quantitative easing in the US are among ??potential triggers?? for a loss of confidence that post a risk to oil, Goldman said.
Money managers reduced their net long positions in US commodity futures and options by 11 per cent in the week ended May 17 to the lowest level since July, according to data compiled by Bloomberg. They also reduced bullish bets on oil to a three-month low.
The MSCI All-Country World Index fell 2.3 per cent in the past three days and dropped 1.8 per cent yesterday to the lowest level in two months on signs Europe??s debt crisis had worsened as costs to protect Greek debt from default surged to a record.
Crude oil and gold will lead a rally in raw materials, Ray Eyles, chief executive of JPMorgan??s Asia commodity business said in an interview last week.
Copper has lost 13 per cent from its record $US10,190 a metric tonne on February 15 on the London Metal Exchange. Goldman analysts recommended buying futures for June 2012 delivery. Brent has shed 13 per cent from the highest level since 2008 on April 11.
The bank also favors zinc for delivery in December 2012, forecasting demand to outpace supply next year. The metal, used in production of galvanized steel, has dropped 13 percent this year, the biggest loser among the six major LME base metals.
??Although we do not see the zinc balance as tight as copper next year, given how low current prices are relative to industry economics, we believe that zinc price risk is substantially skewed to the upside,?? the report said.
Copper for three-month delivery added 0.9 per cent to $US8870 a tonne in Asian trade and zinc gained 1 per cent to $US2140. Brent rose 0.6 per cent to $US110.71 a barrel.
Read more: http://www.smh.com.au/business/markets/goldman-now-more-bullish-on-commodities-20110524-1f20r.html#ixzz1NGfjkJrt
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