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GOLDMAN OUT WITH SUPER BULLISH REPORT ON BASE METALS: CHINESE CREDIT EXPANSION TO PUSH METAL INVENTORIES INTO DEFICIT

It doesn’t get more bullish than this, folks. Our good friends at Goldman Ballsachs have declared the recent run in the base metals to be only the beginning of a much larger more to he upside, the single best environment for the commodities since China stimulated their economy in 2009.

It’s very important that I communicate this effectively to you. After all, I am here to help.

The Trump infrastructure bill truly does pale in comparison to what is taking place in China, as their centrally planned command economy mandates lending into old economy industrials. The increase in credit is having a profound effect on the prices of base metals and this should continue throughout the year.

If you’re a Chinese leader, you understand that relying upon foreign trade to pay your bills makes you vulnerable to harsh set backs. The best place for them to put money is their own economy, sort of like what Trump is trying to do now.

Source: Bloomberg

A rerun of China’s massive stimulus during the financial crisis is set to offer another boost to global metals prices, according to Goldman Sachs Group Inc.

Strong credit expansion has “remarkably bullish” implications for the nation’s metals-intensive industries as fixed-asset investment and manufacturing are poised to accelerate, the bank said in a report. New lending to the so-called old economy in December and January jumped by 1.1 trillion yuan ($160 billion) from a year earlier, equivalent to more than one and a half years of U.S. President Donald Trump’s mooted infrastructure package, it said.

Industrial commodities have enjoyed a rebound in the past year on improved demand from property and infrastructure in China, the world’s top metals user. The benchmark copper price in London is up 32 percent from a year ago, while iron ore has nearly doubled. This time last year, the Chinese government embarked on a massive credit-driven stimulus in response to an economic slowdown, boosting credit at a pace not seen since the 2009 financial crisis.

“The resulting acceleration in metals demand is expected to push the copper market, as well as other base metal markets such as nickel and zinc, into deficit, leading to inventory draws, a tightening of the futures curve spreads, and higher prices,” the bank’s analysts including Mikhail Sprogis and Jeffrey Currie wrote in the note dated Feb. 16.

In the note, Goldman evokes the China’s 2008-09 stimulus, when the nation embarked on massive infrastructure spending to offset cratering global growth following the western financial crisis. This time around, President Xi Jinping’s government is trying to prop up the economy, while grappling with growing debt and overcapacity. New lending to the old economy in the two months to January jumped 50 percent to 3.3 trillion yuan from a year ago, the bank said.

The pick-up in Chinese copper demand “is likely to happen during a period when inventories normally draw due to seasonal factors,” Goldman said. “This is expected to magnify the inventory draw and tighten spreads, pushing copper into backwardation.”

Copper in London traded at $6,051 a ton by 5:26 p.m. Hong Kong time, after reaching the highest price since May 2015 earlier in the week. The bank maintained its price forecast at $6,200 a ton.

In my opinion, this is extremely bullish for zinc stocks, like $VEDL, $TECK and $HBM. Iron ore and steel should get a bump. I prefer $X and $CLF.

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5 comments

  1. drdart

    TECK being taken out to the woodshed again today! Down 15% since pretty decent earnings report (or so I thought). Coal outlook seemed to be a big drag but zinc and copper should be the driver. People not buying BallSachs call?

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    • anjingbauwau

      TECK has traded back (briefly) into the 2016 -10 -19 bar… if that doesn’t hold then it will go back and test the bar from 2016-9-22.

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  2. cancel19

    Get in folks cuz it’s still early.

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  3. ironturd

    Goldman reports have historically trended to being completely wrong – and on purpose. Designed to get their folks out of positions. That’s how you #win obviously, and I deeply respect their game for it. If they put out this report a year ago, it would’ve been a different story. However, I am very bullish China LT and their stockpiling and 2016 market interventions /treasury sales are paying off bigly.

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