News, analysis and actionable ideas about emerging markets.
Search Emerging Markets Daily
SEARCH
November 28, 2016, 9:26 A.M. ET
Goldman Commodities Outlook: Metals & Oil Strength, Gold Suffers
By Dimitra DeFotis
Commodities analysts at Goldman Sachs raised their outlook for base metals prices on Monday with currencies as a tailwind, but lowered their gold projection and offered a mixed outlook for Australia-based metals producers as the commodities cycle peaks.
The upward revisions included prices for iron ore, hard coking coal, oil & base metals (Aluminum, Cu, Zinc, Pb & Nickel) on 3- 6- and 12-month basis. The Goldman analysts Craig Sainsbury, Meredith Schwarz and Ken Lek see strength in the Australian dollar and U.S. dollar. Select price outlook changes:
” … *We upgrade our Iron Ore CFR China forecasts to US$65/63/65/ton on a 3/6/12-month basis (from US$36/36/36/ton previously) and raise our long term forecasts to US$40/t from US$35/ton.
* Our new copper forecasts are US$5,000/4,800/4,800/t (from US$4,300/4,300/4,200/t)
* We upgrade our 4Q16/1Q17/2Q17 WTI U.S. oil price forecasts to $48/55/55/bbl from $43/45/50/bbl previously. However, we also reduce our 3Q17/ 4Q17 forecasts to $50/50/bbl from $55/60/bbl previously.
* We downgrade our 3/6 month gold price forecast to $1,200/oz as downside risks remain from potential physical ETF liquidation. However, our 12-month outlook is unchanged at $1250/oz …
… Upward revisions in bulk metals have significantly impacted BHP, RIO, FMG and S32 which all have iron ore & coal mining operations. The most exposed is FMG, followed by RIO, BHP then S32…. We continue to keep Fortescue Metals Group (FMG.Australia and FSUGY) and South32 (S32.Australia and SOUHY) on discounts to BHP Billiton (BHP) & Rio Tinto (RIO) due to their lower margin businesses and less diverse asset portfolios. We believe BHP and RIO’s more diversified and higher margin business warrants a multiple premium given the lower risk that diversity brings. Also, given single commodity companies and those with lower margins have historically traded at around a 20% multiple discount to their diversified peers, we believe a 1x multiple discount is warranted for FMG and S32.”