Goldman Forecasts Lower Commodity Prices as Cycle Ends – by Glenys Sim (Bloomberg News – July 16, 2014)

Commodities from iron ore to copper and Brent crude will drop over the next five years as global supplies climb, according to Goldman Sachs Group Inc., which highlighted oil’s recent losses as a sign of increased output.

There will be substantial declines in some metals, energy and bulk commodities, analysts including Chief Currency Strategist Robin Brooks wrote in a report. The period of continued year-on-year price rises for most commodities is over, they said in the report, which was dated yesterday.

Banks from Citigroup Inc. to Deutsche Bank AG have called an end to the commodities super-cycle, when China’s surging demand combined with supply constraints to more than double prices in the 12 years through 2010. Raw materials rallied this year from three annual losses as a lack of rain in Brazil lifted coffee and a ban of ore exports from Indonesia spurred a rally in nickel. The drop in energy prices since last month showed the impact of higher global output, Goldman said in the report.

“A prolonged period of elevated commodity prices has catalysed a supply response,” the analysts wrote. “We do not expect a collapse in global commodity prices. But we do anticipate substantial declines.”

Copper was forecast to drop to $6,600 a metric ton over five years, while iron ore was seen at $80 a ton and Brent may be $100 a barrel, according to Goldman. The steel-making raw material was at $98 a dry ton in Tianjin, China, today, and copper traded at $7,123 on the London Metal Exchange today. Brent was 33 cents higher at $106.35 on the ICE Futures Europe.

‘Looser Supply’

The Bloomberg Commodity Index of 22 raw materials climbed 3.4 percent this year. That compares with a 0.9 percent drop in the Bloomberg Dollar Spot Index and 5.3 percent advance in the MSCI All-Country World Index of equities.

“Against a looser supply backdrop, commodity prices should be much less sensitive to fluctuations in global growth than they were,” Goldman said in the report, entitled “Emerging Market Forex and the End of the Commodity Market Super-Cycle.”

Goldman said in a January report the cycle that spurred higher commodities prices is reversing as increased U.S. shale oil output keeps energy prices low, and that would eventually drive raw materials into a bear market. The new cycle would be the opposite of the super-cycle, it said then.

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