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GER - Goldman bullish on commodities

Bloomberg quoted Goldman Sachs Group Incas saying that investors should buy crude oil, copper and zinc as sustained economic growth will tighten supplies.

Analysts led by London based Mr Jeffrey Currie said that “We believe that the risk and reward once again favors being long commodities. 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% 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. Global manufacturing activity as measured by the JPMorgan Chase & Company index has slowed for two consecutive months and stood at 55 in April. A reading of 50 and above suggests expansion.

The analysts said that prices of metals and energy have dropped to levels more in line with near term fundamentals. 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 that Goldman raised its forecasts for Brent crude futures as Libyan supply cuts lead to the effective exhaustion of spare production capacity in the Organization of Petroleum Exporting Countries. The 12 month price estimate was revised up to USD 130 per barrel from USD 107.

Copper has lost 13% from its record USD 10,190 per tonne on February 15 on the London Metal Exchange. Goldman analysts recommended buying futures for June 2012 delivery. Brent shed about 13% 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% 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.

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