Goldman has a commodity supercycle thesis so it is no surprise that it is bullish on China’s reopening for metals.
Metal’s ‘Great Expectations’.
In the past two months, growth-sensitive industrial metals have rallied, primarily as a function of a sharp upward revision in global GDP expectations (2023 GSe 2.4% vs 1.8% in Nov’22). This revision in expectations is notably metals-intensive, with China both at the centre of the growth upgrade and the dominant metals consumer. Indeed, metals demand-weighted GDP growth is set to accelerate in 2023 (3.6%, on our calculations, vs. 3.2% in 22’), compared to our economists’ expectation for a deceleration in market FX-weighted GDP (2.4% in 23’ vs 3.1% in 22’). However, it is also important to acknowledge that this expected improvement in China’s growth has not been tied to an organic acceleration, but rather to onshore policy adjustments. With these now likely priced in, we believe markets are now waiting for confirmation in the real economy. If China’s growth accelerates meaningfully into Q2, as our economists expect, then the resultant micro signals – tightening arbs, drawing inventories, downstream demand – would form the basis for the next leg higher in industrial metals. Set against already-low inventories and associated full-year metal deficits, this environment should provide strong price support, particularly for aluminium($3,750/t 12M target), copper($11,000/t 12M target) and iron ore ($150/t 3M target vs $115/t prev.). For now, investor participation in the long metals trade has remained limited; for example, current net long positioning in copper is 80% below record levels. However, that suggests the runway for further inflows is substantial, whilst also limiting potential downside in the current consolidation phase.
