20150522-高盛-The_macro_reversal_will_likely_prove_temporary_22页_530kb

Summary of the Document: "The macro reversal will likely prove temporary"

Core Content

This document provides a detailed analysis of the current state of commodity markets and outlines the firm's bearish outlook, despite recent price rallies. The key macroeconomic themes that have historically driven the bearish commodity price outlook are currently reversing but are expected to return, leading to a reassertion of downward pressure on prices. The report discusses the implications of these reversals on different commodities, including oil, copper, and metals, and offers trading recommendations based on the firm's updated forecasts.

Main Views and Key Information

1. Macro Themes and Their Reversal

• The three key macro themes that have driven the bearish commodity outlook are:

  • The New Oil Order: Shale revolution has lowered oil production costs, creating deflationary pressures.
  • US Recovery and Dollar Strength: US growth and dollar strength were expected to continue, but recent data showed weakness.
  • EM Slowdown and Deleveraging: Particularly in China, EMs have been slowing due to macro imbalances and corporate deleveraging.

• These reversals have led to a rally in commodity prices, but the firm believes the reversal is temporary and the underlying bearish themes will return.

2. Oil Market Analysis

• Fundamentals: Despite recent price increases, the oil market remains oversupplied. US production is still growing, especially from low-cost producers like Saudi Arabia, Russia, and Iraq.
• Supply and Demand: The firm expects the US to continue its production growth, and the market is not yet in balance. The oil price rally is seen as premature.
• Price Forecast:
  • 3-month forecast: $58/bbl WTI
  • 12-month forecast: Prices are expected to retrace to their 1Q 2015 lows, around $45/bbl WTI.
• Timespread Outlook: The WTI-Brent spread is expected to narrow, with WTI at $6/bbl in 2015 and $5/bbl in 2016.

3. US Dollar and Growth Outlook

• The US dollar weakness in Q1 2015 was largely due to adverse weather, not a fundamental shift.
• The firm expects the dollar to rebound, driven by underlying US growth, which is expected to accelerate in Q2 and reach 3.0% in 2015H2.
• The dollar's strength will put downward pressure on commodity prices, especially those priced in non-US currencies.

4. China and Emerging Markets

• China's economic slowdown and deleveraging are structural and long-term, not temporary.
• Policy easing in China has provided short-term support to commodity prices, particularly metals, but the firm believes this is transitory.
• China is shifting its commodity demand from capital-intensive (CAPEX) to operating (OPEX) commodities, reducing reliance on imports.
• The firm expects continued weakness in EM commodity demand, reinforcing the bearish outlook.

5. Copper: Most Vulnerable to Bearish Themes

• Copper is the most exposed to the three bearish macro themes: US dollar strength, EM slowdown, and energy deflation.
• The firm forecasts copper prices to fall by 16% over 12 months.
• The current price rally is seen as a result of short covering rather than genuine demand or improved fundamentals.

6. Trading Recommendations

• Oil Convergence Trade: A zero cost collar with:

  • Buy an ICE Europe Brent Oil August 2015 $57/bbl put
  • Sell an ICE Europe Brent Oil August 2015 $70/bbl call
  • Net: ($0.65) loss as of May 21, 2015

• Energy Deflation Hedge:

  • Long Palladium (S&P GSCI style) rolling front month index
  • Short Platinum (S&P GSCI style) rolling front month index
  • Net: 6.0% profit as of May 21, 2015

7. Commodities in a Nutshell

• Crude Oil: Fundamentals will reassert themselves, leading to a correction in prices. US inventories are expected to rise again in the fall and spring.
• RBOB Gasoline: Seasonality remains a key factor, with PADD1 stocks at seasonal highs and transatlantic arbitrage contributing to imports.
• Overall Outlook: The firm maintains a bearish view on the S&P GSCI index, with a 3-month total return forecast of -8.0% and a 12-month forecast of -7.5%.

Conclusion

The document concludes that while the recent commodity price rally is due to temporary macro reversals, the underlying structural forces remain in place. The firm expects a return to bearish fundamentals and downward pressure on prices in the coming months and years. The long-term outlook is for continued disinflation in commodities, driven by structural changes in energy, EM demand, and the US dollar.

Key Contacts

• Jeffrey Currie
  (212) 357-6801 | jeffrey.currie@gs.com | Goldman, Sachs & Co.

• Michael Hinds
  (212) 357-7528 | michael.hinds@gs.com | Goldman, Sachs & Co.

• Anamaria Pieschacon
  (917) 343-9076 | anamaria.pieschacon@gs.com | Goldman, Sachs & Co.

• Damien Courvalin
  (212) 902-3307 | damien.courvalin@gs.com | Goldman Sachs International

• Max Layton
  +44(20)7774-1105 | max.layton@gs.com | Goldman Sachs International

• Christian Lelong
  +61(2)9321-8635 | christian.lelong@gs.com | Goldman Sachs Australia Pty Ltd

• Abhisek Banerjee
  +44(20)7552-9350 | abhisek.banerjee@gs.com | Goldman Sachs International

• Daniel Quigley
  +44(20)7774-3470 | daniel.quigley@gs.com | Goldman Sachs International

• Amber Cai
  +852-2978-6602 | amber.cai@gs.com | Goldman Sachs (Asia) L.L.C.

• Raquel Ohana
  +44(20)7552-4055 | raquel.ohana@gs.com | Goldman Sachs International

• Caroline Lu
  (212) 934-0799 | caroline.lu@gs.com | Goldman, Sachs & Co.

Disclaimer

Investors should consider this report as only a single factor in making their investment decisions. For Reg AC certification and other important disclosures, see the Disclosure Appendix or visit www.gs.com/research/hedge.html.