Goldman Sachs cuts near term aluminium forecast to $2,200/mt

LONDON (Scrap Monster): Goldman Sachs has lowered its near term three months aluminium forecast to $2,200 a metric tons from $2,400/mt. The bank has left its six- and 12-month aluminium forecasts unchanged.

According to the investment bank, aluminium's current base case remains solid on the upside and the bank is forecasting a potential increase of 11% from current price levels.

The short to medium term risk reward for aluminium is attractive from current price levels, Goldman Sachs added in a commodities briefing on Monday.

Goldman Sachs is recommending reduced downside risk on expectations that policymakers will be able to contain the eurozone crisis and that the US and China will support global economic growth of 3.3% in 2012.

Analyst with Goldman Sachs stated that, "With commodity markets pricing a far more negative outlook than this, we expect that as policymakers continue to address the European debt issue and the economic data stabilizes, markets will move substantially higher."

For aluminium, the American firm expects minimal to no growth in output and says any growth in consumption will result in tighter fundamentals and higher prices.

"The overcapacity and high stock levels which would likely cap aluminium prices are not issues that would restrict a temporary but significant price rally, since inventories are tied up in 'financing deals'," they added.

Goldman Sachs supports this view with the fact that aluminium traded up to around $2,800/mt in 2011 with similar overcapacity and stock levels seen in the current market.

In addition, it would take China three to four months to ramp up capacity in response to a price rally, the bank said.

The Goldman Sachs Group, Inc. (NYSE: GS) is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients.