Goldman Sounds the China Alarm and Cuts Metals Outlook

Metals from copper to zinc were battered in 2018 by global trade tensions and a rising dollar.

Goldman Sounds the China Alarm and Cuts Metals Outlook
Copper cathodes are cooled off in water tanks at the Southern Copper Corp. refinery in Ilo, Peru. (Photographer: Dado Galdieri/Bloomberg)

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Goldman Sachs Group Inc. chopped back its near-term metals forecasts as China’s economy has “decelerated notably,” while balancing that outlook with a prediction mainland policy makers will respond by stoking expansion in the second half, aiding a revival in copper and aluminum.

The bank -- which had been consistently bullish on raw materials heading into 2019 -- now sees copper at $6,100 a metric ton in three months and $6,400 in six, down from earlier forecasts of $6,500 and $7,000, according to an emailed report received on Monday. The 12-month target was held at $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 Jan. 4 note. Infrastructure investment growth is expected to accelerate to 10 percent in 2019 from 4 percent last year, and annualized quarterly GDP growth will increase, they said.

Metals from copper to zinc were battered in 2018 by global trade tensions and a rising dollar. More recently, China’s domestic slowdown has played the leading role in spurring bearishness, with the official manufacturing index sliding into contraction territory in December for the first time since 2016. Demand in Asia’s largest economy “has no doubt weakened,” Goldman said.

Goldman Sounds the China Alarm and Cuts Metals Outlook

“We expect metals to stay under pressure in the first quarter,” the analysts said. “The experience of the 2015-2016 downturn also implies that, in uncertain times, investors may want to see concrete signs of demand strengthening before taking long positions,” they said.

Here’s a summary of Goldman’s projections (previous outlooks in brackets):

Copper$6,100  ($,6,500)$6,400  ($7,000)$7,000  (Unchanged)
Aluminum$1,900  ($2,100)$1,950  ($2,000)$2,000  (Unchanged)
Zinc$2,500  ($3,300)$2,400  ($3,000)$2,200  ($2,800)
Nickel$11,000  ($15,000)$11,500  ($16,000)$12,500  ($18,000)

Goldman was also more positive on the second half 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,” it said.

On Friday, China’s central bank announced another cut to the amount of cash lenders must hold as reserves in a move to release a net 800 billion yuan ($117 billion) of liquidity and offset a funding squeeze ahead of the Chinese New Year. After the move, UBS Group AG said it expects additional easing as growth slows, including tax cuts and increased fiscal spending.

In its nickel outlook, Goldman made substantial cuts, citing plans for low-cost Indonesian supply. “Although it remains to be seen whether these projects can be finished on time and within budget, they have the potential to be a game changer,” it said. The bank sees nickel at $12,500 in 12 months, from $18,000.

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at

To contact the editors responsible for this story: Phoebe Sedgman at, Jake Lloyd-Smith, Keith Gosman

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With assistance from Bloomberg