Goldman Sachs Group Inc revised its near-term metals forecasts downward as China’s economy has “decelerated notably,” while balancing that outlook with a prediction that Beijing would respond by stoking expansion in the second half of the year, aiding a revival in copper and aluminum.
The bank — which had been consistently bullish on raw materials heading into the year — now said that it sees copper at US$6,100 per tonne in three months and US$6,400 in six, down from earlier forecasts of US$6,500 and US$7,000 respectively, it said in an e-mailed report received yesterday.
The 12-month target was held at US$7,000.
Given the political importance of the growth target in China, “policy will need to ease in order to offset the weakness in many parts of the economy,” analysts including Hui Shan said in the note published on Friday last week.
The growth of infrastructure investment is expected to accelerate to 10 percent this year, from 4 percent last year, and annualized quarterly GDP growth should increase, they said.
Metals from copper to zinc were last year battered by global trade tensions and a rising US dollar.
China’s domestic slowdown has spurred bearishness, with the official manufacturing index sliding into contraction territory last month for the first time since 2016.
Demand in Asia’s largest economy “has no doubt weakened,” Goldman said.
“We expect metals to stay under pressure in the first quarter,” the analysts said. “The experience of the 2015-2016 downturn implies that, in uncertain times, investors may want to see concrete signs of demand strengthening before taking long positions,” they said.
Goldman was also more positive on the second half of the year, as some metals, including copper are oversold and there are supportive micro developments in China, such as scrap curbs, that are ignored by the market.
Despite the downward revisions, “we remain constructive on market fundamentals,” the report said.
The People’s Bank of China announced another cut to the amount of cash that lenders must hold as reserves in a move to release a net 800 billion yuan (US$116.77 billion) of liquidity and offset a funding squeeze ahead of the Luna New Year holiday.
After the move, UBS Group AG said that it expects additional easing as growth slows, including tax cuts and increased fiscal spending.
Unless the Chinese property market slows sharply or the US-China trade spat escalates, there would not be a significant and nationwide property policy easing anytime soon, it said.
After the 100 basis point cut announced last week, Nomura Holdings Inc said that it expects China’s central bank to cut the reserve requirement ratio (RRR) by a further 150 basis points this year and add more liquidity injections through the medium-term lending facility.
China International Capital Corp (中國國際金融) said it expects another 100 to 200 basis points of RRR cuts and lower open market operation rates.
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