Commodities: Physical Re-Balancing Not Complete – Goldman Sachs
Commodities: Physical Re-Balancing Not Complete – Goldman Sachs
Research Team at Goldman Sachs, notes that the sentiment in commodity markets has clearly shifted towards being more bullish.
Key Quotes
“With
steel rebar leading the charge following robust Chinese credit data and
oil trading to the top end of our inflection phase trading range of
$45/$25 , this leaves the most important question of whether this is the
beginning of a sustainable, broad-based commodity rally that marks the
end of the inflection phase. While this recent rally has the potential
to run further to the upside, with the biggest risk that the Fed chooses
not to hike in the coming months despite improving Chinese activity, we
believe that it is not yet driven by a sustainable shift in
fundamentals. In oil, we do not anticipate a sustainable shift in
fundamentals until 3Q16, which creates near-term downside risks.
Specifically:
1) The rally has been far stronger in the oil and
steel complexes, commodity sectors that have seen near-term, transient,
supply adjustments.
2) The steel complex also benefits from a
high level of exposure to the credit led pick up in Chinese
infrastructure activity, which was put in place by Chinese policy makers
to contain fears over systemic risks earlier this year that have
passed.
3) The reflationary pressures from 1) and 2) were
reinforced by the macro backdrop of a more dovish Fed worried about
Chinese growth and commodity producers which weakened the US dollar and
reinforced a stronger China and higher commodity prices."
