Soft landing in China forecast

[] — FOURTH quarter company results should support expectations of a slow down in minerals demand, some of it seasonal, but for 2012 a soft landing in China would buoy metal shares, said Goldman Sachs in a report published January 3.

Goldman Sachs Global ECS Research team estimated China’s gross domestic product will slow to 8.2% in 2012, a relatively soft landing for the economy, providing sufficient growth to remain supportive of metals.

And if there is some softening in commodity prices, it may be enough for China to launch another stimulus programme rather than risk lower growth, Goldman Sachs said.

Commenting on specific metals, the stockbrokerage and trading house said it remained “very bullish” on copper and iron ore fundamentals. The price of copper rose 6% in the fourth quarter to $3.36 per pound but many of the bulk commodities, including iron ore, were under heavy pressure.

Supply headwinds would support copper owing to a combination of labour stoppages, high capital expenditure demands and limited infrastructure. “In the case of copper there are several labour contracts coming up for renewal in South America over the next 12 years which could result in labour actions increasing supply disruptions. It expected copper to stay in deficit for 2012. Aluminum, however, would be in surplus throughout the year.

For the early part of 2012, the European crisis would sit on metal prices, Goldman Sachs said. “For bulks, iron ore and met coal prices were also affecfted by the European debt crisis and global macro concerns in 4Q,” it said.

However, these declines were also partly seasonal. Goldman Sach expected “… a recovery over coming months as steel production rises in line with seasonal trends, primarily in China, and possibly from supply disruption mainly due to rainy season in Australia”.

From a South African mining perspective, much depends on the rand/dollar exchange rate. The rand was one of the worst performing currencies in 2011 shedding 22% against the dollar.

According to a poll conducted by Reuters, the rand was likely to lose more ground in the first half of 2012 which is positive news for the miners, especially the gold producers which saw the Johannesburg gold index lose nearly 11% in December, one of the worst monthly declines in the last 10 years.

According to a Reuters poll of 34 foreign exchange analysts and economists, the rand was forecast to weaken against the dollar to R8.335 in three months from roughly R8.17 on Friday, and then recover to R8.215 in six months and climb back to R7.825 in a year.