Is Goldman Sachs Too Bullish on Aluminum? – Steel, Aluminum, Copper, Stainless, Rare Earth, Metal Prices, Forecasting

Goldman Sachs has set pretty optimistic forecasts on aluminum prices. According to a recent report from CNBC, the bank expects prices to hit $2,000 per metric ton in six months and $2,100 per ton within a year.

3M LME aluminum. Source: fastmarkets.com

I’ve also been pretty bullish on aluminum since last year. Similar to what we saw in the steel industry, China put cutting aluminum capacity on the top of its agenda as the country takes air pollution seriously. In addition to supply cuts promises, China’s economic numbers were running strong at that time. However, just recently, our commodity outlook is moving from bullish to bearish, and being bullish on aluminum while commodity markets weaken is a very hard sell. Here are some reasons why Goldman Sachs might need to adjust its aluminum outlook.

Two-Month Trial: Metal Buying Outlook

Goldman expects aluminum to be the next target of supply-side reform in China. The bank expects aluminum to be the new steel this year. Sentiment in steel markets got a boost on Beijing’s announcements to cut steel capacity. But as time goes on, markets are starting to realize that capacity cuts don’t mean lower output, at least in China.

According to the latest data, for the first four months of 2017, aluminum output in China rose 12% compared to the same period last year. Chinese aluminum semi-fabricated exports jumped in April to the highest level since November 2015. For the first four months, exports are up 2%. Given these numbers, we now suspect that the announced capacity cuts will only serve to make China’s aluminum industry cleaner, but not leaner.

Robust demand from China helped push prices higher last year, but investors now anticipate a downturn in the Chinese economy in the second half.

In May, China announced intentions to halt credit growth, limiting lending for the construction of infrastructure projects, which could potentially hurt demand for industrial metals like aluminum.

In addition, some of April’s economic…

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