Goldman Sachs 2024 Metal Outlook: Chinese demand unleashed, copper price breaks $10,000 per ton

In 2023, the industrial metals market experienced a bleak bear market, with the manufacturing industry recession caused by high interest rates spreading globally. The prices of major metals continued to decline, with the S&P GSCI Industrial Metals Index falling 6% during the year.

However, Goldman Sachs predicts that dawn is coming soon. In the next 12 months, strong demand from China is expected to drive a surge in metal demand. In addition, loose monetary policies overseas and concerns about economic recession will also push up spot prices. At the same time, frequent geopolitical supply risks make purchasing precious metals, including gold, an ideal hedge.

Copper: Chinese demand continues to support copper prices, supply crisis expected in the second half of next year

Goldman Sachs points out that for most of the past year, copper prices have been fluctuating narrowly around $8,000, slightly above the top end of the cost curve. This price curve reflects a highly balanced market.

In fact, against the backdrop of weakening overseas metal demand, most of the copper demand is driven by China. Analysts believe that in the first half of 2024, China's strong demand growth will continue to effectively offset the sluggishness in other regions, thereby limiting the downside risks to prices.

Copper demand is mainly driven by the rapid growth of China's metal-intensive green economy (renewable energy, electric vehicles) and related investments in grid upgrades. The increase in completed real estate projects is also one of the factors supporting copper prices.

Looking ahead to 2024, Goldman Sachs predicts that the total tonnage of copper mine and refined copper will tighten moderately, but given the limited destocking elasticity, more pronounced tightening effects should occur:

In terms of demand, although we expect China's copper demand growth rate to slow down next year (Goldman Sachs predicts a YoY growth of 2% next year, compared to +5% YoY in 2023), China's policy support may play an unexpected driving role.

With visible copper inventories at 260,000 tons, only enough to meet global demand for 4 days, copper will shift to a more severe supply shortage in the second half of next year, and we expect prices to rise significantly. In this context, we expect LME copper prices to accelerate upward, with target prices of $8,400/8,850/10,000 per ton for 3/6/12 months.

Iron Ore: Steel mills maintain production capacity, demand relatively rising

Under high interest rates and the global manufacturing recession, iron ore has continued to be bearish, but its fundamentals and price resilience have defied bearish expectations.

Analysts wrote:

China's production situation shows that steel mills may maintain production capacity in the first quarter of next year, supported by increased confidence in future demand and strong export orders. On the raw material front, we have noticed that the cost of producing pig iron is still lower than using scrap steel, which will continue to support the relative increase in demand for iron ore.

Due to the possibility of onshore steel mills replenishing their stocks before the Spring Festival, coupled with disappointing trends in iron ore supply from Australia and Brazil, as well as low inventory in the supply chain, the price of iron ore at the end of the year will remain resilient, with upside risks outweighing downside risks. In this context, we believe that the price of iron ore will receive better support.

Lithium: The problem of oversupply is difficult to solve, and lithium prices may decline significantly.

Goldman Sachs pointed out that the increase in lithium supply, coupled with the slowdown in China's electric vehicle retail sales, has put pressure on lithium prices this year.

The lithium market is expected to be in basic balance by 2023, but Goldman Sachs predicts that there will be oversupply next year. The main reason is the increase in lithium supply from spodumene, especially from Australia and Africa, which accounts for about 200,000 tons, or 55% of the total supply growth:

"The growth in spodumene supply, coupled with the rapid growth of China's lithium mica and brine assets, is expected to increase the supply by an average of 408kty per year during the period of 2024-25, while demand will increase by 300kty.

Although lithium prices have fallen sharply, the key issue at present is whether the supply adjustment caused by the current price level is sufficient to limit oversupply. In this context, it is expected that the price of lithium carbonate in China will fall to $15,000/ton and the price of lithium hydroxide in Asia will fall to $16,500/ton in the next 12 months.

Gold: The safe-haven characteristics are expected to be fully demonstrated next year, with a target price of $2,050.

Analysts emphasize that gold's performance this year is closely related to its attractiveness as a tail risk hedge tool and its relationship with real exchange rates and the US dollar.

Consistent with gold's historical performance during periods of high geopolitical tension, the price of gold rose sharply by 8% in the first 25 days after the outbreak of the Israel-Palestine conflict, but then fell due to the fading risk premium and strong US economic data. The decline in gold prices reflects the pressure brought by rising interest rates and a stronger US dollar.

Analysts pointed out:

"Looking ahead, the rebound in gold prices will be closely related to real interest rates and the trend of the US dollar, but we also expect strong consumer demand from China and India and central bank buying to offset the downward pressure brought by unexpected upward growth and repricing of interest rate cuts.

Overall, due to the dovish attitude of the Federal Reserve, slowing inflation, and the elasticity of central bank purchases, we expect any sell-off to be limited in scale. Strategically, we believe that any sell-off in gold is a buying opportunity, as we see the environment of increased future risk channels (geopolitical, economic recession pricing) playing out gold's safe-haven characteristics. We maintain our gold target price at $2050 per ounce for 3/6/12 months, despite the upward bias in risk.