20140723-高盛-Base_metals_ex-copper_to_continue_to_outperform_43页_1mb

Summary of "Base metals ex-copper to continue to outperform" Report

Core Content

This report from Goldman Sachs outlines the expected performance of base metals and other commodities over the next 12 months, emphasizing the continued outperformance of metals excluding copper. It discusses the structural shifts in supply and demand dynamics, particularly in the context of the transition from an investment phase to an exploitation phase in major commodity markets. The report highlights the impact of Chinese demand, supply constraints, and the role of production costs in shaping future price trends.

Main Views

• Base Metals Price Differentiation: Over the next 12 months, base metals are expected to show price differentiation, with copper underperforming relative to nickel, aluminium, and zinc.
• Copper Outlook: Copper is in a once-in-20-year supply cycle, with a bearish outlook due to its heavy exposure to the Chinese property market and structural supply overhang.
• Nickel, Aluminium, and Zinc: These metals are expected to outperform due to a cyclical upswing in demand, low supply growth, and the impact of domestic capacity expansions, particularly in Indonesia for nickel.
• Gold and Iron Ore: Gold and iron ore are viewed as having the greatest downside potential over the next 12 months.
• Palladium: Palladium is highlighted as a strong long-term bullish commodity.

Key Information

Price Forecasts (12-Month View)

• Nickel: +16%
• Zinc: +6%
• Aluminium: +4%
• Palladium: +3%
• Iron Ore: -21%
• Gold: -20%
• Copper: -12%

Long-Term Price Forecasts

• Gold: Raised to $1,200/oz in 2014 $ terms
• Potash: Downgraded by c. 20% to $350/t
• Iron Ore, Coal, Mineral Sands: Forecasts remain unchanged

Supply and Demand Dynamics

• Copper: Expected to remain in surplus in 2014 and 2015 due to strong supply and weak demand, especially from China.
• Aluminium: The market is shifting into deficit, driven by increased demand and reduced supply from smelter closures outside China.
• Zinc and Nickel: Both are expected to benefit from the cyclical demand pickup and low supply growth.

Structural Shifts

• Investment to Exploitation Phase: Major commodities like copper, oil, and iron ore are transitioning from an investment phase to an exploitation phase, which is characterized by strong supply growth and rising productivity.
• Cost Deflation: The exploitation phase is expected to lead to a downward shift in industry cost curves, resulting in cost deflation and margin compression.
• Productivity Growth: Rising productivity at existing mines will lead to a flatter and lower cost curve, which will impact future commodity prices.

Market Indicators

• Options Markets: Show caution on copper but bullish sentiment on zinc, aluminium, and nickel.
• China Property Market: Remains a key driver of copper demand and is expected to keep prices under pressure.
• Corporate Debt: High levels of corporate debt in China limit the upside potential for growth and thus for copper demand.
• Supply Constraints: Ex-China demand has increased, and new supply projects are expected to be completed or ramped up, contributing to a tighter market.

Forecast Changes

• Copper: 3-month forecast at $6,600/t, 6-month forecast at $6,600/t, 12-month forecast at $6,200/t
• Aluminium: 3-month forecast at $2,000/t, 6-month forecast at $2,050/t, 12-month forecast at $2,100/t
• Nickel: 3-month forecast at $22,000/t, 6-month forecast at $22,000/t, 12-month forecast at $22,000/t

Key Takeaways

• The report underscores the importance of understanding the structural changes in commodity markets, particularly the shift from investment to exploitation phases.
• Copper is expected to underperform due to its heavy exposure to the Chinese property market and a once-in-20-year supply cycle.
• Nickel, aluminium, and zinc are seen as more resilient due to demand growth and supply constraints.
• The exploitation phase is expected to lead to cost deflation and margin compression across the industry.
• Long-term forecasts have been adjusted to reflect current market conditions and structural trends.