Goldman Sachs came out with a bullish report to investors last week predicting a surge in the price of commodities over the 2021-2025 period, Reuters reported. The MetalMiner 2021 Annual Outlook […]
Tag: Goldman Sachs
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In this Friday’s Week in Review roundup, we look back at stories covering China’s credit rating downgrade from Moody’s, Goldman Sachs’ optimistic forecast for aluminum and Ford’s preparation for a new age of motor vehicles.
The London Metal Exchange made news this week for cutting trading fees and retroactively slapping Detroit warehouse operator Metro International with a $10 million retroactive “settlement” long load-out queues that distorted prices.
LME Will Cut Trading Fees
The London Metal Exchange is expected to cut some trading fees, in a bid to arrest sliding volumes, but lower costs are unlikely to convince those already using cheaper alternatives — such as off-warrant storage — to return, metals industry sources say.
Volumes on the 139-year-old exchange have been falling since trading fees were hiked an average 31% in January 2015. The drop has accelerated this year; in the six months to June volumes are down nearly 9% from the same period in 2015.
LME Hits Metro International $10 Million Non-Fine
Metro International Trade Services has just been hit with a $10 million “settlement” by the London Metal Exchange for its role in abetting the original load-out queue for aluminum in Detroit.
The subsequent splintering of the aluminum price between LME basis price and physical market premium caused collective outrage among manufacturers struggling to find ways to hedge the latter’s unprecedented volatility.
Some are still pursuing Metro and its owner, Goldman Sachs, through the courts. The LME insists that the $10 million payment is not a fine but, rather, a settlement Metro agreed to in negotiations about the long load-out queues at its operation in the last three years.
Goldman Sachs has revised its base metal outlook for the year and Alcoa, Inc., has opened earnings season by reporting lower-than-expected Q2 profits.
Goldman Sachs Joins Base Metal Bulls
Goldman Sachs on Monday raised its outlook for zinc, aluminum and nickel prices anticipating supply inequalities to continue across the metals sphere throughout the second half of the year.
“In our view, the impact of the prior stimulus is still set to result in sufficient demand growth such that we will continue to see supply differentiation across the metals space during the second half of 2016,” the bank said in a note to investors.
Alcoa Reports Lower-Than-Expected 2Q Profit
Alcoa, Inc. on Monday reported a lower quarterly net profit, with falling aluminum and alumina prices pressuring revenue while plant operations have been scaled back ahead of a spinoff of its traditional smelting business later this year.
Alcoa reiterated its forecast for global automotive production growth in 2016 of 1% to 4%, but said continued weakness in the North American market would offset anticipated growth in heavy-duty truck, trailer and bus production in China.
Oil prices gained further traction this week as prices climbed above $48 a barrel, the highest level in eight months. Goldman Sachs said in a report on Monday that the oil market has gone from nearing storage saturation to being in deficit much earlier than the bank expected, adding that the global oil market likely shifted into a deficit in May.[caption id="attachment_78791" align="aligncenter" width="500"] Oil prices acting strong although they could meet resistance near $50. Source: @StockCharts.com.[/caption]
Goldman Sachs gave a bearish forecast just a few months ago, some other banks even predicted oil prices as low as $10/barrel this year. So, why were these predictions so off?
The answer is simple: predicting what the price of an asset will be in the future is not possible. Well, it’s as possible as winning in the roulette game, you need a bit of lack, but you can’t do it with consistency. A smarter way to look at the markets is to forget about predictions, have a strategy with rules and react to present information.
Right or wrong, Wall Street needs its prophets. They perpetuate the myth that there is somehow a way to predict the market every time. I guess individuals need these predictions to take less responsibility for their own investment decisions. At the end of the day, you wouldn’t feel too stupid if the expert was wrong too.
Market Shifting Into Deficit
Although there is still plenty of oil in the market, most analysts agree that the world’s crude oversupply is slipping into a deficit as the oversupply has narrowed in recent weeks thanks to supply outages in Nigeria, Canada and elsewhere combined with stronger than expected demand.
Oil prices are acting strong and we previously noticed that the Doha meeting marked an inflection point. The failed Doha meeting is an indication of how strong market sentiments currently are. On another day, this failure reach a production cut deal between major energy producers would have translated into a big sell-off.
Another factor supporting oil prices is the number of bankruptcies we are witnessing in recent months. Last Sunday, Breitburn Energy Partners LP filed for bankruptcy and just a day after SandRidge Energy Inc. became the latest oil and gas company to file for bankruptcy after joining a growing list of producers that weren’t able to survive long enough to enjoy the recent rebound in oil. Sandridge was founded by former Chesapeake Energy co-founder Tom Ward who was eventually forced out of both companies.
Despite the rally this year, most industry analysts agree that oil prices remain too low for many producers to make money, so expect widespread pain in the U.S. oil industry and elsewhere to continue. In theory, this is also a good indicator that oil prices might have hit a floor this year.
Despite a the more bullish forecast from Goldman Sachs, the bank sees a surplus again in the first half of 2017 due to returning output from Nigeria and rising production in Iran and Iraq, among other reasons. That’s a prediction, sure, but we’ll stick with what we witness right now: Oil prices are acting strong, supported by a more positive sentiment on commodity markets. On top of that we have a weakening dollar, which is bullish for oil and other commodities.
The situation could reverse, but right now there is no reason not to take this rally seriously. Oil prices might need to consolidate/pull-back after rising for three consecutive months but they could continue to climb during the rest of the year which would favor higher metal prices, too. Oil prices climbing above $50/barrel would be a signal that this uptrend is due to continue.