Goldman slashes 2009 commodity price forecasts
Friday December 12, 2008, 9:25 am EST
By Pratima Desai
LONDON (Reuters) - Goldman Sachs (NYSE:GS - News) slashed its commodity price forecasts on Friday, citing a collapse in global economic growth and demand because of the credit crisis.
The U.S. bank which earlier this year predicted an oil price spike to $200 a barrel now expects to see crude average $45 a barrel next year.
Forecasts for industrial metals aluminum and copper traded on the London Metal Exchange were cut substantially to $1,410 and $2,950 a tonne next year from $2,310 and $5,230, respectively.
"As time goes on, evidence continues to mount that the collapse in September and October oil and other commodity demand was not only a transient impact of the credit paralysis," Goldman said in a note.
"But instead a prelude to the wider damage that the sharp deterioration in credit conditions has inflicted on economic activity around the world."
Fears of worse to come for the global economy can be seen in the problems of the global auto industry, particularly in the United States where the U.S. Senate rejected a bailout of the sector under threat of collapse.
Goldman expects economic activity to bottom in the middle of 2009 and a return to year-on-year growth in the fourth quarter of next year.
****Demand levels have fallen far below restricted supply levels and large surpluses will need to be controlled by sharp output cuts, fueled by tumbling prices in the spot market, it said.
The need to address large surpluses means spot rather than long term prices will dominate action next year, Goldman said.
"In some markets, particularly the industrial-related markets, such as steel, petrochemicals, base metals and petroleum refining, this process is already under way," it said.
"In other markets such as oil and gas the process is only just beginning."
CONTRASTS
The intensity of the global credit crunch threatens to push oil prices below $40 a barrel in the near term, Goldman said.
"We now expect oil demand to decline by 1.7 million barrels a day in 2009, driven by a 1.0 million barrels a day decline in the OECD countries.
"As inventories reach full storage either further OPEC cuts will be required to balance the market or prices will need to decline further to force non-OPEC producers to shut-in production."
To rebalance the oil market, Goldman said an additional 2 million barrels a day of OPEC supply cuts and 600,000 barrels a day reduction from non-OPEC producers will be needed.
The story for industrial metals also involves larger surpluses as prospects for metals-intensive sectors such as construction and transport get worse.
"We believe that fundamentals are strongest for zinc and weakest for aluminum, where inventories are set to climb to extraordinary levels," Goldman said.
Aluminum stocks in London Metal Exchange warehouses at above 1.9 million tonnes are at their highest since 1994.
In contrast, Goldman thinks demand for agricultural products will be relatively insulated, even though it has drastically cut forecasts for corn and wheat.
"Expected challenges to acreage expansion in the upcoming planting seasons, suggests less downside from current levels and the potential for a moderate price rebound in late 2009."
Global gross domestic product growth would have be outright negative in 2009 to see a real fall in demand, the bank said. "Further, grain stocks remain at critically low levels, creating a much quicker recovery path."
In precious metals, Goldman expects investors looking for safety from the financial and economic crisis and a weaker dollar will boost prices of gold and silver.
Gold is used by investors as a hedge against financial turbulence and as an alternative currency to the dollar."
(Additional reporting by Jonathan Leff, Jane Merriman, Julie Crust, David Brough and Jan Harvey; editing by James Jukwey)
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