Goldman Sachs bullish on commodities as global manufacturing picks up

Commodities are back in favour, boosting oil producers and miners after their annus horribilis of 2015.

The Bloomberg Commodity Index is set for its biggest three-day advance since June, led by gains in oil and industrial metals. That’s pushed shares of mining companies close to their highest this year, with Anglo American Plc and Glencore Plc gaining almost 5 per cent on Tuesday. Energy companies also rose, with Tullow Oil Plc up 2.2 per cent.

Goldman Sachs said investors should bet on higher prices in the next year as manufacturing picks up around the world, the first time the bank has recommended an overweight position for the asset class in more than four years.

Purchasing managers’ indexes strengthened in all major regions in October, helping to spur gains in iron ore, copper and other base metals. Speculation that US President-elect Donald Trump’s spending plans will boost demand has added strength to the advance. Trump mentioned building steel and car production capacity as one of his priorities for his first 100 days in power in a video posted online.

Goldman raised its iron ore price forecasts, citing an unexpected resilience in steel usage and a demand boost coming from broad restocking, as well as its oil price estimates into next year.

“A great sense of euphoria is taking hold after Trump’s election and his video last night,” Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said by phone. “It depends how much of these plans can really be implemented but it points to higher demand for metals and steel.”

Industrial metals have rallied 14 per cent in London in the past month on expectations that China’s economy is stabilising and a Trump presidency will bolster consumption.

Credit-fueled stimulus in China this year has been the primary driver of recent gains, rather than speculation surrounding the size of Trump’s infrastructure-investment plan, Goldman said.

Copper climbed 1.4 per cent to US$5,635 a tonne on the London Metal Exchange, heading for its highest close since July 2015, while zinc neared a six-year high, and iron ore and steel in China surged to their daily limits. West Texas Intermediate crude for January delivery rose as much as 2 per cent to $49.20 a barrel on the New York Mercantile Exchange before giving up the gains.

“We are seeing signs of improving manufacturing around the world, especially in China, the US and Europe,” Hong Sungki, a commodities analyst at Samsung Futures Inc., said by phone from Seoul. “Commodities including non-ferrous metals are turning brighter as there’s a possibility that Trump’s infrastructure plan will further support manufacturing in the US. Manufacturing is closely related to the performance of commodities.”

Producer shares are being swept along, with energy and resources stocks the biggest gainers on the MSCI Asia Pacific Index. BHP Billiton Ltd., the world’s biggest miner, advanced close to its highest in more than a year while Anglo American, which produces copper, coal, iron ore and diamonds, extended this year’s almost fourfold gain.

Goldman also raised its forecast for WTI crude to $55 a barrel in both the first and second quarters of next year. Oil advanced on Tuesday on speculation that the Organization of Petroleum Exporting Countries will successfully complete a deal to curb output at a meeting next week.