Rally in commodities still has plenty of room to run: Goldman and UBS

The powerful rally in commodities that’s been a standout feature of global markets as the world emerges from the pandemic has plenty of room to run, according to Goldman Sachs Group and UBS Group.
 
Raw materials are likely to surge 13.5 per cent in the next six months, Goldman Sachs said in a report, forecasting a never-seen-before jump in global oil demand and copper at a record.
 
UBS said commodities will rise another 10 per cent. “The magnitude of the coming change in the volume of demand — a change which supply cannot match — must not be understated,” Goldman analysts including Jeffrey Currie and Damien Courvalin said in the April 28 note.
 
Activity levels are rising, aided by the roll-out of vaccines, and there will also be a seasonal upswing in manufacturing and construction through June, they said.
 
Raw materials from oil to metals have soared this year as the global economy rebounded from the mauling delivered by the pandemic.
 

Energy markets have also been aided by the tough supply curbs imposed by the Organization of Petroleum Exporting Countries and its allies, although these will be gradually eased from next month. Demand is so strong that markets have “looked through” the current Covid-19 crisis in India, says Goldman.
 
There will be an unprecedented rebound in global crude demand, underpinning a forecast for higher oil prices by the summer, the bank said. Worldwide consumption is expected to swell by 5.2 million barrels a day over the next six months, driving Brent crude to $80 a barrel, it predicted.
 
Overall, raw materials are forecast to surge 13.5 per cent, with copper expected to hit $11,000 a tonne, according to the Goldman report.
 
The bellwether metal was last at $9,812 in London. The current record of $10,190 was reached in 2011.
 
Goldman highlighted near-term prices were trading above those further out for half of the commodities complex, a bullish pattern. “Sustained backwardation is showing us how commodity markets are becoming progressively tighter.”
 
UBS told Bloomberg Television that further commodity gains will be supported by strong macro-economic data, rising demand for copper, and continued supply discipline from the OPEC+ alliance.
 
“I would expect another 10 per cent upside for commodities, mainly driven by the energy side and materials,” said Dominic Schnider, an analyst at UBS Global Wealth Management.