"Commodity leader" Goldman Sachs: "Supply shortage" in copper and aluminum, "safe-haven value" in gold

Since the beginning of this year, various bulk commodity prices have entered a "crazy surge" mode, with metals such as gold, copper, and aluminum performing particularly well. Goldman Sachs, the "commodity leader," has declared that copper, aluminum, and gold will continue to rise this year.

On March 28th, Goldman Sachs analysts Nicholas Snowdon and Lavinia Forcellese pointed out in a report that by the end of the year, copper is expected to rise to $10,000 per ton, aluminum to $2,600 per ton, and gold to $2,300 per ounce:

Copper is expected to face a 250,000-ton supply gap in the second quarter. By the second half of 2024, there will be a 450,000-ton supply gap, leading copper to rise to $10,000 per ton by the end of the year;

Similar to copper, aluminum will also enter a supply shortage phase in the second quarter, with aluminum expected to rise to $2,600 per ton by the end of the year;

With the shift in monetary policies of European and American central banks, geopolitical factors, and other multiple factors at play, gold is expected to continue its upward trend from early 2024, reaching $2,300 per ounce by the end of the year.

Demand Recovery and Supply Constraints May Push Copper Prices to New Highs

Since March, global copper prices have been on the rise. On March 16th, international copper prices (LME copper) briefly exceeded $9,000 per ton; as of now, international copper prices still remain above $8,700 per ton.

Goldman Sachs believes that the copper market is at a crucial seasonal turning point. Since the end of December last year, the refined copper market has experienced a clear seasonal surplus phase, which is now coming to an end. In the second quarter, inventory levels will gradually decrease:

We have noticed that in the past two weeks, Chinese copper inventories have started to decline after reaching 450,000 tons. We expect to enter a destocking cycle in the second quarter, with a global supply gap of 250,000 tons this quarter and a gap of about 450,000 tons in the second half of the year.

Goldman Sachs analysis indicates that with strong demand in China and continued supply constraints, the copper market will gradually shift to a supply shortage situation. Sustained supply shortages will support copper prices, with copper expected to rise to $10,000 per ton by the end of 2024:

It is expected that in the second quarter of 2024, the copper market will face a supply gap of 250,000 tons, which will expand to 450,000 tons in the second half of the year. On one hand, with strong demand recovery in China, copper demand in the first quarter is expected to grow by 12%, with terminal demand in January and February increasing by 9%. Renewable energy (solar energy demand up 80%, wind power demand up 69%) and strong grid investments are driving significant improvements in copper demand.

On the other hand, copper ore supply continues to be disrupted, with the China Copper Raw Materials Joint Negotiation Group proposing joint production cuts and suggesting a reduction of 5-10%. This implies that the reduction scale may reach 100,000 tons, directly impacting copper supply

Tight Supply in the Second Quarter Supports Aluminum Price Increase

Goldman Sachs pointed out that similar to copper, the global aluminum market will also enter a period of sustained supply shortage starting from the second quarter. This year, there is an expected supply-demand gap of 7.24 million tons in the global aluminum market. This trend will support the London Metal Exchange aluminum price to reach $2600 per ton by the end of this year. Against this backdrop, three dynamics in the current aluminum market are worth noting:

Firstly, the performance of the Chinese aluminum market has been the strongest so far this year. We expect that Chinese aluminum demand in the first quarter may increase by 11% year-on-year, similar to the copper market, mainly supported by strong investments in solar energy and the power grid. Under production capacity constraints, domestic aluminum supply in China has stabilized, driving strong growth in primary aluminum imports. Compared to 1.4 million tons in 2023, the current annualized major import volume has reached 2.7 million tons, indicating that the influence of the Chinese market on the global aluminum market is increasing.

Secondly, we have noticed increasing evidence that, except for Germany, spot aluminum demand in Europe is picking up. Destocking in most downstream sectors in Southern and Eastern Europe has ended, and order volumes are increasing. This has been reflected in the rise in European aluminum premiums, which have increased by nearly 40% from the low point in December.

Thirdly, the collapse of the Baltimore Bridge this week is an important event for the U.S. aluminum market, as over 10% of aluminum imports pass through this port. Destocking supply chains are likely to be forced to stockpile more inventory in advance, especially considering the improving trend in U.S. end demand. We have noted that aluminum premiums in the U.S. Midwest region have shown an upward response, supporting an increase in some spot trades.

Gold to Maintain Strength After Reaching Historic Highs

Driven by strong expectations of Fed rate cuts and safe-haven demand, gold frequently hit historic highs in March and achieved its best monthly performance in three years.

Data shows that on the night of March 28th, COMEX gold futures rose by 1.9% to $2254.8 per ounce, with a 9% increase in March, marking the largest monthly gain since July 2020. It is worth noting that the intraday gold price once reached a record high of $2256.9.

Goldman Sachs expects that factors such as the Fed's shift in monetary policy, the recovery of financial demand like ETFs, geopolitical risks, and China's demand for physical gold will drive the gold price to rise to $2300 per ounce by the end of 2024:

Our economists expect the Fed to start cutting rates in June this year and cut rates three times by 2024. This will end the situation where physical buying and selling pressures have offset each other's impact on the gold price, shifting towards a more consistent bullish effect.

In recent years, despite frequent geopolitical risk events, gold ETF holdings have not shown significant growth due to relatively high real interest rates. However, historical data shows that after the Fed shifts to easing, ETF buying tends to significantly increase, and rate cut expectations will boost institutional investors' demand for gold ETF allocations Geopolitical conflicts persist, driving strong demand for gold as a safe-haven asset. Additionally, with the upcoming US election, political uncertainty may further boost risk aversion sentiment, increasing the attractiveness of gold allocation