SINGAPORE – The global economic environment will be more supportive for commodities in mid-2023 on expectations the dollar will ease, while China's reopening from Covid-19 curbs will boost risk appetite, a Goldman Sachs analyst said on Wednesday.
Prices of commodities from oil to metals have been pummelled by a strong US dollar this year as the Federal Reserves hiked interest rates aggressively to curb inflation.
Goldman expects the US central bank to pause its monetary tightening by the second quarter of next year, weighing on the greenback and providing some relief to commodity prices, Snowdown said.
"As we move into mid-2023, the environment will become much more supportive for commodities and copper in particular," Nicholas Snowdon, metals strategist at Goldman Sachs told the CRU World Copper Conference Asia.
This year, the strong US dollar has been a key driver depressing copper price despite a deficit in metals supplies estimated at about 200,000 tonnes, Snowdon said. A strong dollar makes dollar-denominated commodities more expensive for holders of other currencies.
"We think that dollar strength has accounted for just over two-thirds of the move lower in copper price this year," he added.
While the US economy is slowing, Goldman does not expect a recession in the world's largest economy, Snowdon said.
China's reopening from Covid-19 restrictions will encourage investors to pump more money into risk assets even though it will provide just a small boost in actual copper consumption, he said.
"We think that the reopening itself will lend about half a percent to Chinese copper demand next year, but I think in terms of capital allocation into risk assets ... the reopening will be a very positive increment," he added.