The copper price dropped from 89000 yuan/ton to 70000 yuan/ton, and the crude oil price dropped from 80 US dollars/barrel to below 70 US dollars/barrel... The commodity market, which performed well in the first half of the year, is currently cooling down continuously and turning into a structural market.
For the overall trend of commodities, institutional views have mostly shifted towards caution. Goldman Sachs lowered its expectations for key industrial products such as copper in its latest research report, but continued to be bullish on gold. However, with the increasing expectation of the Federal Reserve cutting interest rates, the market situation is undergoing new changes every day.
Industrial product market under pressure
Industrial products have generally performed poorly recently.
In terms of non-ferrous metals, the South China Nonferrous Metals Index has shown a downward trend since March and reached a historic high in May, with significantly intensified price fluctuations. Currently, the South China Nonferrous Metals Index has returned to its March level. Taking copper as an example, the main contract price for copper in Shanghai is currently around 72000 yuan/ton, which is nearly 20% lower than the high point of 89000 yuan/ton in May. The stock prices of non-ferrous metal sectors have adjusted significantly in sync, with companies such as Jiangxi Copper and Zijin Mining falling more than 20% from their high points this year.
Goldman Sachs lowered its expectations for copper in its latest research report. Goldman Sachs pointed out that the significant decline in copper inventories may be much later than previously expected. Therefore, Goldman Sachs has postponed its copper price target of $12000/ton by the end of 2024 to after 2025, and predicts a copper price of $10100/ton for 2025, which is still higher than the current price but far below its previous expectation of $15000/ton.
The Nanhua Futures Research Institute believes that the significant fluctuations in non-ferrous metal prices, represented by copper prices, are a game between expectations and reality, as well as a fierce collision between funds and industries. Strong expectations have not brought about the realization of strong reality. The continuous backward shift of interest rate cut expectations and the intensified contraction of demand after price increases have pushed up inventory levels. The market has returned to weak reality trading logic. Coupled with the resurgence of the US economic recession panic in August, non-ferrous metal prices have generally given up the first half of their gains. Looking ahead to the future, the non-ferrous metal sector will continue to compete with the weak reality of economic weakness and declining demand, as well as the strong prediction period of continuously relaxing policies. It is expected that it will still be difficult to break out of the unilateral trend market within the year, and the overall probability of oscillation is relatively high.
The market also has low expectations for crude oil prices. Goldman Sachs gave a cautious attitude towards oil in its research report. This summer's data shows that China's cyclical support for commodity demand, especially for oil/copper demand, is weakening. Without strong demand from China, it is difficult to create a gap in the event of an unexpected increase in supply.
In the domestic commodity market, due to the significant weakening of crude oil on the cost side, the overall performance of the energy and chemical sector has been weak recently. Fuel oil, styrene, xylene, ethylene glycol, experienced significant declines, while glass soda ash, due to its prominent supply-demand imbalance, experienced a smooth downward trend and hit a new low. At present, the market expectation is relatively pessimistic, and the support for the market from the policy side is becoming increasingly short-lived. If the trend of the chemical industry sector wants to reverse, it still needs to wait.
In addition, black plate rebar and other varieties have been particularly weak this year, and iron ore has also been continuously declining recently, with prices hitting new lows for the year.
Goldman Sachs is bullish on gold, while Bridgewater is reducing its holdings
In Goldman Sachs' research report, gold is the only commodity that is clearly bullish. Goldman Sachs believes that gold remains the preferred tool for hedging geopolitical and financial risks, with additional support from the upcoming interest rate cuts by the Federal Reserve and ongoing purchases by emerging market central banks. Goldman Sachs maintains its target of $2700 per ounce for gold by 2025.
As of the early morning of September 7th Beijing time, the latest London spot gold price is around $2500 per ounce, with an increase of over 20% this year. The performance of RMB gold price is slightly inferior to overseas markets, with a year-on-year increase of around 18%.
While Goldman Sachs is bullish on gold, well-known hedge fund Bridgewater is already reducing its holdings of gold. According to the semi annual reports of multiple gold ETFs, Bridgewater (China), which has firmly held gold ETFs since mid-2022, sold heavily in the first half of this year. Among them, Qiaoshui (China) Investment Management Co., Ltd. - Qiaoshui 24/7 Enhanced China Private Equity Securities Investment Fund No. 3, Qiaoshui (China) Investment Management Co., Ltd. - Qiaoshui 24/7 Enhanced China Private Equity Securities Investment Fund No. 2, and Qiaoshui (China) Investment Management Co., Ltd. - Qiaoshui 24/7 Enhanced China Private Equity Securities Investment Fund No. 1 held 15.935 million, 5.7018 million, and 4.681 million ETFs of E Fund Gold ETF respectively at the end of last year. However, the latest semi annual report shows that all three of these products have been withdrawn from the top ten holders list of E Fund Gold ETF.
It is worth mentioning that agricultural products have recently experienced a rebound from the decline. In the view of Nanhua Futures Research Institute, this is mainly due to the anti discrimination investigation of Canadian rapeseed by the Ministry of Commerce, but not all agricultural product prices have been substantially affected by the event. The first to be impacted are rapeseed meal and rapeseed oil, among which rapeseed meal is mainly used for aquatic feed, and soybean meal has limited substitutability, so the price increase of rapeseed meal is much greater than that of soybean meal. However, soybean oil has a stronger substitutability for vegetable oil, while palm oil has a weaker substitutability, resulting in vegetable oil leading the way in price fluctuations and palm oil showing the weakest trend. Due to China's previous shift towards importing rapeseed oil from Russia, but Canada remains the main source of rapeseed meal imports, the impact of rapeseed meal is greater than that of rapeseed oil. Overall, rapeseed meal has the greatest impact, while other varieties are much less affected by the current weak supply and demand relationship, resulting in a much weaker upward trend.
However, the continuously rising expectation of interest rate cuts by the Federal Reserve has brought some variables to the global financial markets. Kristina Hooper, Chief Global Market Strategist at Jingshun, stated that the market expects the Federal Reserve to cut interest rates by around 200 basis points in the coming year, which may provide greater impetus for risk assets in the coming months. In this environment, the market may expect the economy to accelerate again by the end of 2024 or early 2025, or potentially drive strong performance in risk assets.