• Goldman Sachs analysts say the outlook for metals remains bullish
  • Supply side constraints and demand for metals from decarbonisation are painting positive near and longer term pictures
  • Savage market sell-off saw materials and energy stocks lose more than 5% of their value


Goldman Sachs (primarily its London office) are persona non grata in the battery metals sector after a demolition job via a note earlier this month that suggested lithium carbonate prices could be heading for a savage drop from US$75,000/t to just US$16,000/t.

That has been batted away by experts in the field, who were quick to mark the GS suits as interlopers in the whole kerfuffle about suggestions the lithium market was heading into oversupply.

Regardless, Goldman have been bullish on commodities in general.

Nick Snowdon, one of the commodity experts responsible for GS’ battery metals kiss of death, promptly went into full on bull mode on copper, saying on a Bloomberg podcast that the electrification narrative and a looming shortage of the metal meant prices at some point of US$100,000/t (almost 10 times last year’s all time high) weren’t out of the question.

GS’ Australian mining analysts are also bullish, writing in a note late last week that there remained “5 reasons to be positive on commodities and the Australian mining sector.”

They include the well worn argument that decarbonisation and green capex will power larger than ever demand for base metals.

“The commodities that will benefit the most over the long run from decarbonisation/green capex and will likely see long run (2026+) theoretical market deficits include copper, aluminium, zinc, nickel, rare earths, lithium, and high grade iron ore and ferrous scrap,” analysts Paul Young and Hugo Nicolaci said.

“Over the medium term, we have a preference for base metals over the bulks & lithium based on SD balance outlook.”

They also say the Aussie mining sector remains undervalued, with free cash flow still strong and earnings likely to be 20% higher than current 2023 estimates if high spot prices for commodities currently on offer prevail.


Big miners low on growth options

Another tailwind is that big miners are low on growth options, with previous sector consolidation having reduced the number of M&A opportunities for the big boys.

That means growth options are limited, adding to supply side issues that will likely push commodity prices up or keep them high.

While production from top-tier miners was growing at 5-7% per year in previous boom from 2002-2008 and 2012-2015, production growth now has stalled at around 1%.

“Low growth is now being exacerbated by capex inflation and ongoing labour availability challenges which are delaying new projects further,” Young and Nicolaci said.

“In addition to mining sector under-investment, supply side disruptions continue across key commodities such as aluminium and zinc, coal, iron ore, and copper, and inventory levels remain at historically low levels.”

With that supply side support GS are also bullish on the potential of increased demand from China as it ramps up infrastructure spending in the second half of the year (though that was before the latest lockdowns.)

Among its key sector picks GS rates BHP (ASX:BHP), Rio Tinto (ASX:RIO), South32 (ASX:S32), MinRes (ASX:MIN), Whitehaven Coal (ASX:WHC) and OZ Minerals (ASX:OZL) as buys, but has downgraded Alumina (ASX:AWC) to a sell on lower alumina prices and higher costs.


Are feeling the positivity today?

Not so much. The aforementioned lockdowns are again doing a number on commodity prices, with a savage selloff in international markets contributing to the ASX 200’s worst morning in over two years.

Materials slipped 5.46% to 4pm AEST, while energy was 5.56% lower.

The falls were headlined by the major iron ore miners as prices of the bulk commodity in China fell sharply.

Lithium explorer Lake Resources (ASX:LKE) emerged as the only large or mid cap miner to add weight in the session, pumping by 12.86% to take its market cap to ~$2.1 billion.