Commodity Watch - Physical End Is Near

17 March 2020 | 9:21AM GMT
Commodity Watch
Physical end is near
Prices need to go below cash costs. Demand losses across the complex are now Jeffrey Currie
+44(20)7552-7410 |
unprecedented. We believe oil use is now down 8m b/d, coffee down c.10% and jeffrey.currie@gs.com
Goldman Sachs International
even gold sales to EM CBs are down. The system strain creates a physical end, even
Damien Courvalin
though when COVID-19 will end is unknown, pushing our forecasts to shut-in +1(212)902-3307 |
damien.courvalin@gs.com
economics. We now forecast 3m GSCI -25%. Goldman Sachs & Co. LLC
Samantha Dart
+1(212)357-9428 |
Second round effects of virus now drive markets. Price wars in oil and gas, samantha.dart@gs.com
Goldman Sachs & Co. LLC
For the exclusive use of TAMMY@INTERSECTPOWER.COM
liquidity constraints in precious metals and uncertain policy responses in bulks and
base metals are all a direct result of the sharp fall in demand resulting from the Sabine Schels
+44(20)7774-6112 |
sabine.schels@gs.com
COVID-19 containment measures and are driving up price volatility. Goldman Sachs International
Daniel Sharp
Lowering 2Q Brent to $20/bbl from $30/bbl. Large commitments from core-OPEC +44(20)7774-1875 |
daniel.sharp@gs.com
for April/May deliveries pushes the net supply increase near c.3m b/d, which, when Goldman Sachs International
combined with the demand losses, results in an April/May surplus of 7mb/d, which Michael Hinds
+1(212)357-7528 |
will likely breach system capacity during 2Q20. michael.hinds@gs.com
Natural gas to re-balance the quickest. Market share wars are also a feature of Alison Li
+852-2978-6088 | alison.li@gs.com
European gas where US shares went from 1% to 7%. As US LNG backs up, it is Goldman Sachs (Asia) L.L.C.
forcing US re-balancing. Recommending long Cal21. Mikhail Sprogis

+44(20)7774-2535 |
mikhail.sprogis@gs.com
Goldman Sachs International
Lowering gold forecast on reduced EM CB demand. Liquidity constraints
generated a meaningful liquidation but bullish fundamentals are intact. We Amber Cai
4d9a886718a24b1eb7cb57f43edc3a99
+852-2978-6602 | amber.cai@gs.com
Goldman Sachs (Asia) L.L.C.
downgrade our 3-/6-month forecast to $1,600/toz and $1,650/toz from $1,700 and
$1,750, but keep 12 months at $1,800/toz. Callum Bruce
+1(212)902-3053 | callum.bruce@gs.com
Metals going to cost support. The recent data has shown a China that is hesitant Huan Wei
+1(212)357-2353 | huan.wei@gs.com
to stimulate at a level on par with 2009 or 2016. Goldman Sachs & Co. LLC
Reducing agriculture and livestock forecasts. Short corn on reduced restaurant

demand and lower input costs.
Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html.
Goldman Sachs Commodity Watch
GS Commodity Views
Exhibit 1: S&P GSCI Index Forecast
Historical Performance GS Forecast
Dollar
GSCI Commodity Index
Weight 2020
2018 2019 3m 6m 12m
YTD„
S&P GSCI 100.0 -12.9 17.4 -35.9 -25.2 -13.1 7.0
Energy 62.6 -13.9 28.5 -49.3 -39.3 -21.5 6.5
Industrial Metals 11.2 -18.0 2.8 -11.9 -8.2 -0.9 5.7
Precious Metals 4.1 -3.6 17.7 -5.1 7.2 10.3 19.6
Agriculture 15.4 -7.0 -1.6 -12.9 -0.5 0.2 1.7
Livestock 6.7 -2.2 -5.4 -28.2 2.4 0.7 18.6
„ YTD returns through Mar 16, 2020
Source: Goldman Sachs Global Investment Research
Exhibit 2: BCOM Index Forecasts

Historical Performance Forecast
Dollar
BCOM Index
Weight 2020
2018 2019 3m 6m 12m
YTD„
BCOM 100.0 -11.2 7.7 -22.4 -7.9 -2.7 11.1
Energy 23.0 -12.7 11.8 -42.8 -32.3 -19.6 21.1

Industrial Metals 19.0 -19.5 7.0 -13.1 -9.4 -1.2 6.2
Precious Metals 19.8 -4.6 17.0 -8.3 7.0 10.1 19.2
Grains 24.8 -5.5 -1.1 -12.0 -1.2 0.7 3.4
Softs 7.7 -22.3 4.3 -17.3 1.5 -2.5 -7.9
Livestock 5.7 -1.7 -6.0 -29.2 2.1 0.5 18.7
„ YTD returns through Mar 16, 2020
Exhibit 3: Key Commodity Price Forecasts

Key Commodity Price Forecasts
1Q2020E 2Q2020E 3Q2020E 4Q2020E 2020E 2021E 3m 6m 12m
Energy
WTI $/bbl 39.0 22.0 28.0 37.0 31.5 48.5 20.0 28.0 41.0
Brent $/bbl 42.5 20.0 30.0 40.0 33.1 52.5 20.0 30.0 45.0
Nat Gas $/mmBtu 2.00 1.50 1.75 3.00 2.20 2.81 1.50 1.75 3.00
Industrial
Copper $/mt 5,810 5,000 5,500 5,800 5,528 6,000 4,900 5,600 6,000
Aluminum $/mt 1,700 1,600 1,625 1,650 1,644 1,740 1,575 1,600 1,700
Nickel $/mt 12,500 10,500 11,500 13,000 11,875 13,625 10,000 11,500 13,000
Zinc $/mt 2,000 1,800 1,850 1,900 1,888 2,000 1,760 1,850 2,000
Iron ore $/tmt 85 75 90 85 85 75 80 90 85
Precious
Gold $/t oz 1,600 1,650 1,800 1,550 1,638 1,800 1,600 1,650 1,800
Silver $/t oz 13.50 14.00 15.00 17.00 14.75 15.00 13.50 14.00 15.00
Note this table has been updated since original publication to show the correct 2021 aluminium forecast of $1,740/mt
17 March 2020 2
Physical end is near
1. Commodity prices need to go below cash costs

COVID-19 is driving second-order effects in both commodity and equity markets that are
creating outcomes which far exceeded our negative views from last month. In oil, this
includes a shift to a market share strategy by OPEC+, in industrial metals a tug-of-war
between economic stimulus and physical surplus, and in precious metals an extreme
lack of liquidity. The implications of lower oil prices is far reaching, driving down the input
costs of agriculture and many other goods while quarantines will further hit restaurant
and cafe demand for livestock and softs. Demand losses across the complex are now
unprecedented. We believe oil use is now down 8m b/d, coffee down c.10% and even
gold sales to EM CBs are down (see Exhibits 4 and 5). The system strain creates a
physical end even though the COVID-19 end is unknown, pushing our forecasts to
shut-in economics. On balance, we now see commodities declining by 25% on a
3-month basis, driven mainly by our downward revision in oil prices to $20/bbl for 2Q20
to reflect the realization of breaching logistical storage. Further, we have revised down
our 3-month metal forecasts to cost support with copper at $4,900/t and are taking gold
down $100/toz to $1,600/toz due to EM central banks like Russia having to sell rather
than buy gold. While financial markets are forward-looking and are likely to rebound
once the contagion stabilizes, commodity markets are spot assets and must clear the
surpluses developing today from weak demand and rising supply.
Exhibit 4: COVID-19 will cut 8m b/d from global oil demand at its Exhibit 5: Liquidity constraints are creating volatility in markets
peak like gold
Impact on global oil demand from COVID-19 (kb/d); highest monthly
average is 7m b/d despite a peak of 8m b/d at the end of March
0 80% Gold 1 week ATM implied vol Current level
-1,000 70%
-2,000 60%
-3,000 50%
-4,000
40%
-5,000
30%
-6,000
20%
-7,000
Jan Feb Mar Apr May Jun 10%
OECD (kb/d) China (kb/d) Other EM (kb/d) Total
0%
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Source: Goldman Sachs Global Investment Research Source: Bloomberg, Goldman Sachs Global Investment Research
2. ‘Price war’ was profit maximizing response to demand shock

While it is tempting to view the COVID-19 oil demand shock and the oil ‘price war’ as
separate events, we like to emphasize that OPEC+ pursuing a market share strategy is
simply a second-order effect of the virus made possible by extremely weak demand,
pushing the market far down the global supply curve. With oil demand down almost 5
million b/d at the time, a production cut was not economically feasible. In contrast, with
nearly 3.5 million b/d of OPEC+ spare capacity, the demand shock plus their spare
17 March 2020 3
capacity was now enough output to entirely undercut the 7.7 million b/d of total shale
output – an opportunity OPEC has not had since 2012. With Iran, Libya and Venezuela all
offline there was no longer the risk that production increases would simply offset these
loses. However, even without the demand shock, the production cuts from late 2016
have been a disruptive policy error, costing not only OPEC $220 billion per year in lost
market share, but also energy equity shareholders over a trillion dollars as it created an
unsustainable future for the energy industry with inefficient companies continuing to
operate (see Exhibit 6). Specifically, OPEC cut 4.4 million b/d (1.8 excluding Venezuela
and Iran) which generated a 5.7 million b/d supply response, of which 5.0 million b/d
was from shale.
With OPEC+ now pursuing a market share strategy, we believe that this will bring about
the healthy consolidation and rationalization of the industry we had hoped for in 2014/15
when we first constructed the New Oil Order lower-for-longer thesis. Our thesis was
interrupted in 2016-2018 by Chinese stimulus, OPEC production cuts and US fiscal
policy. By 2019, the industry returns were so poor due to too many inefficient indebted
producers that capital was already fleeing at $65/bbl oil, a large part of why the
international offering of Saudi Aramco struggled. Assuming this rationalization occurs
over the next year (which was one of our top themes for 2020 even before this), the
industry is likely to emerge in a much more healthy position with many of the zombie
companies that were a dead weight on returns removed, even paving the way for an
attractive international offering of Saudi Aramco.
Exhibit 6: OPEC’s strategy has wiped $1trn off of Western oil

companies’ market value
3500 8.00%
$, Bn
3000 7.00%
2500 6.00%
2000 5.00%
Dec-16: Opec abandons market
share strategy
1500 4.00%
Energy Market Cap (lhs)
Energy Market Share (rhs)

1000 3.00%
Jan-16 Aug-16 Mar-17 Oct-17 May-18 Dec-18 Jul-19 Feb-20
Source: Worldscope, Datastream, Goldman Sachs Global Investment Research
3. Lowering 2Q20 price Brent forecast to $20/bbl from $30/bbl

In the meantime, the oil market will have to contend with a record surplus driven by a
peak c.8 million b/d decline in oil demand and a peak c.3 million b/d rise in oil supplies in
the coming months. While we do not expect this to lead to a breach in storage capacity
which still has over 1 billion barrels, it will likely lead to a breach in logistical capacity,
meaning ships, pipelines, terminals and processing units. As the market hits these
constraints spot prices are likely to separate from forward prices (as the cash-and-carry
arb will cease to exist) plunging to levels to force production shut-ins, as more excess
crude will simply not be able to be delivered into the system. As it becomes increasingly
17 March 2020 4
clear that Saudi Arabia is likely to maintain output near 12.0 million b/d during 2Q20, we
are now shifting to our downside scenario of $20/bbl which is consistent with the
market breaching cash costs. There are questions recently around whether Saudi Arabia
can maintain 12.0 million b/d during 2Q20 and raise capacity to 13.0 million b/d. We
believe that because Saudi Aramco is now a public company and eager to pursue an
international offering that the accuracy of their guidance is now extremely important.
4. Production shut-ins driven by inability to deliver, not cost structure

It is important to emphasize that shut-ins during these kinds of environments are not
based upon where the producer is located on the cost curve but rather by their ability to
deliver into the system. For example, Brent and NS crudes are waterborne – giving them
the greatest flexibility – in contrast, WTI and shale crudes are landlocked, pipeline grades
with the least flexibility. This is critical when thinking about the restructured industry; if a
conventional well with substantial reserves left is shut-in, the well can be lost forever,
creating a much steeper supply curve (see Exhibit 7). This is why supplies dropped so
sharply in 1999 following the Asian Financial Crisis, also a record surplus where a
demand shock was followed by a price war. Oil consequently more than tripled from its
trough within 18 months.
While the Trump administration has indicated that they will use the SPR to buy oil, the
remaining capacity of the reserve is 78 million barrels which is small relative to global
spare storage capacity of over 1 billion barrels. More importantly, it does nothing to
alleviate the logistical problems and could even increase them with more demand for
crude to move around. Further, other potential policy aimed at the energy industry will
only delay the inevitable restructuring that needs to occur and should have occurred 5
years ago, which is why we view a market solution as the best option for robust future
returns.
Exhibit 7: Cost curve will likely be steeper after shut-in
75
65
Marginal
55 shale
Core shale
45
35
25
Saudi
15
0 2,500 5,000 7,500 10,000 12,500 15,000 17,500 20,000 22,500 25,000
Greenfield cost curve before market-share defense New Oil Order cost curve
17 March 2020 5
Exhibit 8: Logistical capacity is beginning to get stretched

Oil on water, kbbl
1150000
1100000
1050000
2017
1000000 2018
2019
2020
950000
900000
850000
01-Jan 01-Mar 01-May 01-Jul 01-Sep 01-Nov
Source: Bloomberg, Goldman Sachs Global Investment Research
5. Natural gas to re-balance the quickest: Go long Cal 2021

The same approach Russia is now taking to defend market share in the oil market also
applies to natural gas. Specifically, US LNG deliveries to Europe have more than doubled
in the past year as US liquefaction capacity grew. This has raised the Jan-Feb 2020 US
share of total gas supply in NW Europe to more than 7%, from 1% a year ago, while
Russia’s share of supplies have declined by 6 percentage points to 18% in the same
period. As a result, we see a risk that Russia increases pipeline exports to NW Europe
and/or LNG exports (see Exhibits 9 and 10). This would put further pressure on global
gas markets, which have already been exceptionally oversupplied, thereby increasing
the likelihood that US LNG exports are left uneconomic to flow. To be clear, we recently
made this summer’s cancellation of US LNG our base case, as we believe this will be
required to prevent a breach in NW European gas storage later this summer. And given
how oversupplied the US gas market has been, particularly following a very mild winter,
we have argued that US LNG cancellations will ultimately drive Henry Hub lower until
US gas production shut-ins make room for the LNG we expect to be backed up (1-3
Bcf/d) in the country this summer.
Accordingly, we recently lowered our 2Q20 and 3Q20 Henry Hub forecast to
$1.50/mmBtu and $1.75/mmBtu, respectively. We note, however, that we see upside
risk to these forecasts depending on how significant the response from oil producers is
to the recent drop in prices as well as on how quickly these responses will start to
impact natural gas balances. In other words, the larger the drop in associated gas
production resulting from lower oil prices, the lesser the need for Appalachia gas
production to shut-in to accommodate canceled US LNG as well as to offset declines in
overall natural gas demand as US economic activity slows. In addition, as the expected
cuts in associated gas production become particularly visible from 4Q2020, this will
further tighten a 2021 US gas balance that was already expected to be meaningfully
17 March 2020 6
tighter year-on-year. As a result, we believe Cal21 US natural gas prices need to rally
significantly to incentivize incremental gas production and, accordingly, we are opening
a trading recommendation to go long NYMEX Cal21, currently priced at $2.34/mmBtu.
Exhibit 9: US LNG deliveries to Europe have surged in the past year Exhibit 10: Russian LNG exports have been above our expectations
US LNG exports to Europe, mtpa for the past 3 months
Russian LNG exports to EU, mtpa
40
45.00
mtpa
40.00 35
35.00
30
30.00
25 2019
25.00
2018
20.00 20 2017
15.00 2016
15
10.00 2020
10
5.00
0.00 5
Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Jan-20
0
Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19
Source: Kpler, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research, Bloomberg
6. As stimulus disappoints, we see metals going to cost support

Economic stimulus is the other large second round effect of COVID-19. While the US
has slashed interest rates to zero with other central banks also easing, the real question
for the rest of the world is fiscal policy or other direct stimulus measures like tax
holidays that can ease pressure on those most impacted by the virus-related
shutdowns. While metal markets have been caught in a tug-of-war between surplus and
stimulus in China for several weeks now, we have recently downgraded our metals
forecasts on weaker ex-China demand and a reduced prospect for stimulus from China
(see Exhibits 11 and 12). The recent data has shown a China that is hesitant to stimulate
at a level on par with 2008/09 or 2015/16, as like in oil, these measures created
excesses that are still impacting markets negatively today. As a result, we see more
downside in metals near term, and now expect them to fall to cost support over the
next three months before stimulus-fueled demand pushes prices higher later this year.
Nonetheless, we like being long metals and short energy as metals do not have the
same logistical issues that energy has as one can simply stack ingots outside of a
smelter.
17 March 2020 7
Exhibit 11: Weak Chinese data make reaching year-end targets Exhibit 12: Chinese TSF has yet to accelerate materially
unrealistic
% YoY % YoY
China retail sales China IP data China Total Social Financing
30 28%
25 26%
20 24%
15
22%
10
20%
5
18%
0
16%
-5
-10 14%
-15 12%
-20 10%
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2008 2010 2012 2014 2016 2018 2020
Source: Haver, Goldman Sachs Global Investment Research Source: Haver Analytics, Goldman Sachs Global Investment Research
7. Short corn on reduced demand and lower input costs

Both first and second order impacts of COVID-19 are creating downside risks to
agricultural markets from both the supply and demand sides. First order demand
impacts include the extreme shutdowns in places like Europe and potentially the US,
which hurt both restaurant and coffee shop demand, negatively impacting the demand
for beef (which is disproportionately consumed in restaurants) and the demand for
coffee (which we have already seen in China). On the supply side, second order effects
include falling oil prices and EM exchange rates. Lower oil and gas prices substantially
lower the input costs to producing food stuffs. In addition, low oil prices pull down
ethanol prices, diverting sugarcane away from ethanol fermentation toward sugar mills.
Key EM producers like Brazil have also seen their exchange rates fall (the BRL is down
19.35% since the start of the year), lowering the USD sale price of commodities
produced in that country. As corn and cotton are the most energy intensive
commodities, we would expect them to be hit hardest by oil, and since corn goes into
both the feed for beef and ethanol, we would expect it to be the best market to be
short, and are recommending a short May 2020 corn position.
8. Lowering gold forecast on reduced EM CB demand

Gold – the currency of last resort – has failed to rally over the past several weeks
despite increased economic uncertainty. Gold has particularly struggled in the past few
days, with the price down 12% from a recent peak of $1,682/toz. The main driver behind
this plunge was a run for cash that generated a meaningful liquidation of net speculative
positions, which were at elevated levels. This dynamic resembles 2008 when gold fell
27.5% from $1,000/toz to $725/toz over the scope of 5 months on similar liquidity
concerns, 15% appreciation in trade-weighted USD and a plunge in global retail demand
before it began its ascent to $1,900/toz. Gold was also hurt by the fall in oil prices, as it
brought Russia’s CB purchases to a halt and could possibly trigger some selling. A
decline of Russian CB purchases from 160 tonnes last year to zero due to lower oil
prices all else equal decreases equilibrium price by $40/toz.
We didn’t anticipate such severe liquidity issues or such a demand shock from lower oil
17 March 2020 8
prices. This means that in the near term, the gold price is likely to remain volatile as it
tries to find a new equilibrium. With time, however, liquidity-related selling will ease and
‘fear’ driven demand will likely start to dominate. In 2008, the turning point was the
announcement of $600bn QE in November, following which gold began to climb despite
further weakness in equities. The fact that this time the Fed injected US$700 billion in
QE early on should help gold to be more resilient versus 2008. Also, we do not expect
the hit to EM economic growth to be as severe as it was during the Global Financial
Crisis of 2008/09, and some countries such as China and Korea are already showing
signs of improvement. In the short term, the key question is how much net speculative
length has already been cut which we should see in Friday’s trader’s commitment
report. On a longer horizon, we maintain our bullish outlook on gold, as the
larger-than-expected shock to the global economy will likely lead to greater risk aversion,
offsetting the lost EM CB demand. Therefore, we downgrade our 3-/6-month forecast to
$1,600/toz and $1,650/toz from $1,700 and $1,750, but keep 12 months at $1,800/toz.
Exhibit 13: Gold rallied in 2008 after the announement of QE

1.5 Gold US trade weighted dollar S&P 500
1.4 Fed
announes
1.3
600 Bil USD
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
0.4
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
9. Palladium likely back into surplus
Other precious metals were hit even harder than gold. In a single day, silver fell 12.5%,
platinum was down 13.5% and palladium was down 10%. For silver and platinum, such
a sharp correction reveals that the investment flows they enjoyed in 2019 were more
speculative rather than defensive as in the case of gold. Silver investment purchases
were driven by a historically high gold-silver spread and bets that it would eventually
close to normal levels. In the case of platinum, investment was attracted by its relative
cheapness vs palladium and prospects of substitution in car production. In an
environment when liquidity and uncertainty is as high as it is now, these “hot money”
flows tend to reverse quickly leading to violent corrections as we saw March 16. As
such, we do not expect an immediate bounce in prices of silver or platinum. We reduce
or 3-/6-/12-month forecasts for silver from $18.5/18.8/19/toz to $13.5/14/15/toz. The fall in
palladium prices in its turn reflects the market taking out the scarcity premium it enjoyed
due to a large structural deficit. If the hit to global growth from COVID-19 is large
enough to solve this structural deficit, which it increasingly looks like it is, than palladium
prices could continue to fall lower with cost support still a long way down.
When a market is in the demand rationing phase with low inventory cover, which was
17 March 2020 9
where palladium was pre-COVID-19, prices become extremely volatile and with spikes
increasingly to the upside to reduce increasing levels of demand. With automotive
demand down by 80% in China in February, and likely by similarly very large numbers
ex-China in places like Europe, the need for the market to ration demand has ceased to
exist which is why prices have fallen from $2,800/toz to $1,557/toz (see Exhibit 14).
Without the need to ration demand, prices are likely to fall back to cost support, which is
near $1,000/toz in South Africa. We expect prices to remain near these levels until
automotive demand recovers, which could be in 6 to 12 months.
Exhibit 14: Palladium prices have collapsed as demand drops
3000
2800 $/oz
2600
2400
2200
2000
1800
1600
1400
1200
1000
Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20
10. The revenge of the new oil order

The revenge of the old economy is how we have described the underinvestment that
has impacted commodity production historically, as in the late 1990s and in the current
environment. The recent collapse in oil prices will only accelerate this underinvestment
thesis and create supply constraints in 1-3 years that will be extremely binding, which is
why we termed the current environment the revenge of the new oil order. It is not only
oil that will be impacted, but metals as well via the negative feedback loop with
emerging markets, i.e. lower commodity prices hurt EM demand and drive up funding
costs, which in turn drives down prices further, creating a vicious cycle. This is why we
revised our metals price forecasts to cost support, which will likely fall itself as the dollar
strengthens with funding stresses. However, the silver lining in all of this is a
restructuring of commodity industries that will create a sustainable outlook that will lead
investors back into the markets after more than a decade of poor returns.
17 March 2020 10
Commodities in a Nutshell
Commodity Outlook 3/6/12m
forecasts
Energy
ICE Brent Crude The Revenge of the New Oil Order appears increasingly swift and violent with a record large oil surplus now $20/30/45/bbl
Oil expected by April of at least c. 6 mb/d. The surge in low-cost production – with Saudi’s surge now likely through May
– is significant with the collapse in demand due to COVID-19 looking increasingly sharp. While the capex cuts of US
shale producers of c. -35% have also been faster and larger than expected, we now expect that this response by
high-cost producers will not be sufficiently fast, resulting in a similar inventory accumulation in the next six months
than occurred over 18 months in 2014-16. While there exists on paper sufficient available storage capacity, the
unprecedented velocity of this inventory accumulation will likely overwhelm, in our view, the logistics of filling global
floating and onshore storage, forcing the shut-in of production from inland high-cost producers at prices near
cash-costs of c. $20/bbl, our 3-month Brent spot forecast. We continue to expect that Brent will underperform WTI
as the US export incentive will need to shut, with the differential expected to be near parity. A flattening of the
forward curve when prices reach cash-costs, as producers hedge for survival, would be a signal for the market
bottom, as was the case in each previous bear market.
CME RBOB As we had touched upon in our January note, gasoline cracks were primed for a selloff given covid-19, very elevated $0.55/0.70/1.22/ga
Gasoline positioning, and a tempered IMO impact. Bullish inventory dynamics since January due to large US FCC outages had l
supported prices but ultimately provided only temporary protection. A significant selloff occurred this week leaving
European gasoline cracks essentially zero to negative through year end with the Atlantic arb wide open to pull in
barrels to USAC. While timespreads will likely experience further weakness, risks to cracks seem more symmetric
at current levels and certainly versus distillate given a so far comparatively limited impact in the US relative to Europe
and Asia. Nevertheless, cracks and margins need to incentivize a transformation of the larger current product surplus
(than crude) into available crude storage at a time of globally plentiful refining capacity.
NYMEX Heating Heating oil spreads have weakened even as cracks have rallied driven by the too rapid sell-off in crude prices. With $0.73/0.99/1.38/ga
Oil the unprecedented demand destruction likely to impact the distillate pool most (jet, EU diesel cars, industrial activity l
including shale), we expect HO cracks to gradually underperform gasoline. We estimate global jet fuel demand is
down over 20% (>1.2 mb/d) currently, with April likely to be even lower given rising travel bans. While net speculative
length remains very low, ICE gasoil positioning suggests NYMEX can go lower. On the recovery, we also expect
distillates to lag. On the demand side, jet fuel is likely to see a slow rebound as international travel concerns linger. In
addition, this demand shock comes in the face of globally plentiful refining capacity which had been geared to
produce too much distillates in anticipation of IMO2020, further delaying the recovery in distillates once the impact
of COVID-19 starts to fade.
NYMEX Nat. Gas We recently lowered our 2Q and 3Q NYMEX gas forecast to $1.50 and $1.75 from $2.10 and 2.20, respectively, as $1.5/1.75/3.00/mm
we now have a base case that a shut-in of US LNG will be required to balance the oversupplied global market, likely Btu
triggering a price race to the bottom. However, the ongoing capex cut announcements by many oil producers
following a steep decline in oil prices pose upside risk to our summer forecasts depending on how quickly and large
the subsequent impact on associated gas production will be. In 2021, we expect these declines in production to
grow larger, further tightening a balance that was already expected to be significantly tighter year-on-year.
Accordingly, we recently raised our 2020/21 winter and 2021 summer price forecasts to $3/$2.75 from $2.50/$2.50
previously.
ICE TTF TTF has moved 39% lower so far this winter to $2.82/mmBtu currently, due to the oversupply in Northwest Europe, $2.10/2.40/4.70/m
driven by strong LNG imports and an exceptionally warm winter. The oversupply has been exacerbated by the impact mBtu
of the COVID-19 outbreak on demand and stronger-than-expected LNG supply from the US, which has prompted our
recent downward revision to 2Q20-3Q20 prices to $2.10 - $2.40, which implies the shut-in of US LNG exports. We
maintain our $4.70/mmBtu forecast for Cal21, as we expect a marginally tighter balance driven by lower LNG imports
and lower Groningen production.
ICE JKM JKM sold off 40% this winter to $3.51/mmBtu currently, as the oversupply in global gas markets has been $2.40/2.70/5.80/m
exacerbated by the impact of the virus outbreak on demand at the same time that global LNG supply has surprised mBtu
to the upside. We expect the oversupply to continue this summer with our 2Q-3Q price forecast at $2.40 - $2.70,
implying the shut-in of US LNG exports. Nevertheless, in 2021 we expect the global LNG market to tighten
marginally sequentially, mainly driven by the slowdown in global LNG supply growth. We expect JKM to hold a
slightly wider spread to TTF then with a 2020/21 winter and 2021 summer JKM forecast at $5.80/mmBtu and
$5.50/mmBtu, respectively.
Industrial Metals
LME Copper With COVID-19 now spreading rapidly in ex-China and recessionary risks rising, we view the demand shock large $4,900/5,600/6,00
enough to result in a sizable surplus for copper. We now expect a global surplus of 260 kt for 2020 vs the 140 kt 0/mt
deficit we expected before. This means the copper market will likely miss the window to get tight before the next
supply wave of 2021-2023. In addition, we see material cost deflation from lower oil, power prices and weaker
producer currencies. During bear markets, copper tends to hit the 90th percentile of the total cash cost curve which,
after assuming 5% deflation this year, we peg at $4,900/t. In our base case, we see a sharp hit to prices near term,
but assume the world economy bounces back in Q3-Q4 and so pressure on copper is reversed. We change our
3/6/12m targets to $4,900/$5,600/$6,000/t, from $5,900/$6,200/$6,500/t.
17 March 2020 11

forecasts
LME Aluminum Aluminium has shown resilience compared to other industrial metals in recent weeks. That is likely because it was $1,575/1,600/1,70
already much closer to cost support relative to other metals, at least in ex-China. SHFE, where smelter margins were 0/mt
much better, has actually underperformed prices at the LME. Nevertheless, margins are still much better than they
were in late 2018, while the market is much looser and the demand picture is significantly worse. Aluminium is also
likely to get some deflation from lower coal and alumina prices as Chinese refinery capacity comes back. At lower
prices we may see some smelter closures in Europe or Australia coupled with delays in Chinese smelter ramp-ups,
but these should not be material enough to save the market from a sizable surplus. As such, we downgrade our
3/6/12m aluminium price targets from $1,700/$1,650/$1,675/t to $1,575/$1,600/$1,700/t.
LME Nickel Going into this year, we were bullish nickel due to its positive exposure to EVs and the prospect of future deficits of $10,000/11,500/13
battery grade nickel. However, we now project a 2% contraction in nickel demand ex-China and Indonesia vs 2.4% ,000
growth we had expected before. This implies a weakening in the global balance of 40 kt, taking our expected 2020
surplus to 90 kt. This large surplus and uncertain macro environment means that investment and hedging activity,
which was a key bridge between a bright EV future and spot prices, is likely to moderate. Nickel stocks are likely to
continue to go higher further depressing sentiment. We revise our nickel 3/6/12m targets to
$10,000/$11,500/$13,000/t, from $13,500/$14,500/$15,500/t.
LME Zinc Zinc prices have been tumbling since April 2019 on a boom in zinc mine supply, a boost to smelter margins, and a $1,760/1,850/2,00
bust in zinc demand. The market finally moved to a surplus in Jan this year, later than expected, due to production 0/mt
disruptions. The switch was driven by a ramp-up in mine supply and elevated smelter margins and further
exacerbated by the demand shock and transportation disruptions due to the COVID-19 outbreak. As a result, China’s
social stocks of zinc climbed quickly to 380 kt by early Mar, the highest level in three years. We now project an even
more sizeable surplus in China and the rest of the world given our economists’ sharp revisions to global GDP growth
and reduce our 3/6/12m zinc price targets to $1,760/$1,850/$2,000/t.
Bulk
Commodities
Thermal Coal The weakness in the oil market weighed on coal prices last Monday, though the 1~2% price decline in API2 and Newcastle (6000
Newcastle (6000 kcal) front month contracts was much smaller in scale. However, we see downside risks to both kcal): $62/67/68/t
API2 and Newcastle pricing (at $48.5/t and $66.2/t respectively, as of March 16th). In Europe, the resilient API2
pricing last Monday was likely due to the existing heavy short positioning in European coal and some short covering.
However, the previous cost support to API2 pricing is eroding, given that the depreciation in producer currencies and
the declines in dry bulk freights have shifted the CIF ARA cost curve lower. Further, the spread of COVID-19 in
Europe has cast uncertainty over demand and adds to the downside risks. In Asia, Newcastle prices also face
downside risks due to the virus impact and policy curtailments of coal plant utilization. In South Korea, both weak
power generation (-3.4% ytd yoy till February) and environmental policy to halt coal plants have contributed to
significantly lower coal imports (-20% yoy in January); in Japan, our channel check suggests increased potential for
coal-to-gas substitution this year in light of the continued gas surplus and low LNG prices. Meanwhile, the recovery
in China’s coal production has been faster than the recovery of coal demand so far, with high coastal plant stocks
dampening China’s interest in seaborne coal.
Precious Metals
COMEX Gold Since the equity market rout began at the end of February, gold failed to perform as a safe haven, falling 5.4% vs the $1600/1650/1800/
27% decline in equities. Gold has particularly struggled in the past few days with prices down 10% from a regional oz
peak of $1,682/toz. The main driver behind this plunge was tje run for cash that generated a meaningful liquidation of
net speculative positions, which were at elevated levels. Gold was also hurt by the fall in oil price as it brought
Russia’s CB purchases to a halt and could possibly trigger some selling. The decline of Russian CB purchases from
160 tonnes last year to zero due to lower oil prices alone is estimated to decrease equilibrium price by $40/toz. We
didn’t anticipate such severe liquidity issues or such a demand shock from lower oil prices. This means that in the
near term, the gold price is likely to remain volatile. With time, however, liquidity-related selling will likely ease and
fear-driven demand should start to dominate. In the short term, the key question is how much net speculative length
has already been cut, which we should see in Friday’s trader’s commitment report. On a longer horizon, we maintain
our bullish outlook on gold as a larger shock to the global economy will likely lead to greater risk aversion. Therefore,
we downgrade our 3/6 month forecast to $1,600/toz and $1,650/toz from $1,700 and $1,750, but keep 12 months at
$1,800/toz.
COMEX Silver Silver was hit even more than gold, falling 12.5% in a single day. For silver, such a sharp correction reveals that the $$13.5/$14/$15/to
investment flows it enjoyed in 2019 were much more speculative vs defensive like in the case of gold. Silver z
investment purchases were driven by a historically high gold-silver ratio and bets that it will mean revert eventually. In
an environment when liquidity and uncertainty is as high as it is now, these “hot” flows tend to reverse quickly,
leading to violent corrections, as we saw March 16. As such, we do not expect an immediate bounce in silver prices.
We reduce or 3/6/12m forecasts from $18.5/$18.8/$19/toz to $13.5/$14/$15toz.
Agriculture
CBOT Corn Even before the collapse in oil prices, corn fundamentals were mixed ahead of the US planting season. While ¢340/350/400/bu
industrial demand was supported by strong US ethanol production (up 17.3% yoy in Jan/Feb according to the EIA),
US exports remained stubbornly weak (accumulated export mytd down 46% yoy) as competitors Argentina and
Ukraine saw increases in exports and expected yields in 2020. The corn outlook has, however, now deteriorated
materially, with the oil price move toward our $20/bbl target for 2Q set to hurt ethanol economics and production and
17 March 2020 12

forecasts
with ethanol stocks already at a record 24.9mn bbl. Further, the forward curve has seen a structural repricing as a
result of the deflationary impact of lower oil prices, with 2021 contracts falling by 3.5% last week. In addition, protein
demand declines related to weaker US GDP and restaurant traffic are likely headwinds to feed demand in coming
months, with a particular focus on upcoming cattle feedlot placements and broiler egg sets in the near term. From a
weather perspective, we are unlikely to see a repeat of last year’s disruption to US planting, however, with NOAA
predicting a 61% chance of ENSO-neutral conditions to persist throughout summer, typically associated with more
favourable planting and growing conditions. While we see prices remaining low for the rest of the year, we see
nearby prices facing more downside from reduced feed demand and ethanol demand, leading us to cut our forecasts
to ¢340/$350/$400/bu over the 3/6/12m horizon.
CBOT Soybean While Chinese soybean imports remained elevated at the start of the year, they have since fallen after the COVID-19 $8.25/$8.50/$8.90
disruption to Chinese shipping. US exports are likely to be further challenged as Brazilian exports to China ramp up /bu
as their bumper harvest reaches ports and get further boosted by a sharply weaker BRL (falling 17.9% to 5.00 since
the start of 2020). Yet, we see offsetting supportive developments as dryness in Southern Brazil is of particular
concern at this time, threatening close to 30% of the unharvested crop. While hopes have been pinned on Chinese
phase-one purchases of US grains for feed, COVID-19 disruptions to hog farmers have stalled Chinese restocking of
their hog herd, dampening soybeans phase-one related export outlook. We nonetheless see China honouring their
phase one commitments, albeit on a delayed timeline, leaving exports up sharply in 3-4Q20 as China’s economy
rebalances after the COVID-19 disruption. Net, despite the headwinds of a sharply weaker BRL and limited Brazilian
storage or crush capacity, we expect the more positive demand picture to help soybean prices outperform corn
prices and see near-term downside limited to $8.25/bu over the next 3 months, with our 6- and 12-mo forecasts of
$8.50 and $8.90/bu.
CBOT Wheat While global wheat trade has not lost pace during the COVID-19 outbreak (wheat tenders are up 16.4% yoy in Asia
and the Middle East), shifting export competitiveness in global wheat is creating increased uncertainty for US $5.15/$5.25/$5.30
exports going forward. Lower production outlooks for traditional competitors like Canada, Australia and Argentina /bu
should help the US capture market share in the face of growing global demand. Yet, increased export competition
from Russia, Ukraine and India has reversed recent gains in US competitiveness. Milder weather in Russia this year
increased winter wheat plantings, boosting the production and export outlook. On the demand side, wheat remains
the least cyclical grain given its consumption as a basic staple with the expanding locust swarms from the Horn of
Africa also decimating local crops and helping support seaborne trade. From a weather perspective, the drier
ENSO-neutral weather shift could further reduce expected yields of the 2020 summer crop. On balance, we see the
recent sell-off in wheat prices as overdone and forecast prices on a 3/6/12mo horizon at $5.15/$5.25/$5.30 bu.
NYBOT Cotton After rising at the start of the year – as China worked toward meeting its phase one commitments – US cotton ¢57/60/68/lb
exports have sequentially declined since the start of the COVID-19 outbreak, falling 50% since Jan 15th. Indeed, with
the virus spreading beyond China, supply-side disruption to the textile industry in Vietnam presents a tail risk to US
exports for 2Q-3Q20, as the country was the lone bright spot in US exports. Adding further downward pressure to
cotton is the virus-related weaker global growth outlook, with our economists downgrading growth expectations for
2020 from 3.4% to 2%, with the risk of a recession increasing. Further, increased Indian acreage (up to a record
13.3mn ha) presents downside risks to an already oversupplied global cotton market. On balance, we see downside
pressure to cotton in the short term, especially as lower oil prices reduce input costs. Net, we see COVID-19
disruptions to global growth alongside increased Indian acreage outweighing locusts risks to Pakistan’s cotton
harvest as swarms from Iran build in the south-eastern part of the country. Our new forecasts are c57/60/68/lb over
the 3/6/12m horizon.
NYBOT Coffee High-quality coffee supply remains tight despite average Brazilian weather, as Central American countries continue to ¢100/115/125/lb
see declines in production and exports, leading to higher physical premiums and falling on-exchange stocks. Despite
these supportive supply developments, weakness in the BRL, with 17.9% depreciation, nonetheless put downward
pressure on prices over the last 45 days. Despite this input cost deflation, Arabica remains underpinned by tighter
supplies of quality coffee, which has helped to boost premiums in physical markets and Arabica futures
outperformed the soft complex this month. While the outlook for Brazilian weather remains generally favourable,
continued declines in soil moisture in the Southern Mato Grosso region of Brazil remains a risk for bean development
prior to the summer harvest. Despite these supply supports, we believe the market focus will be on the near-term
demand risks as COVID-19 spreads across the Western world, with attendance at coffee venues in China down
dramatically during the quarantine. Net, we see short-term downside risks to prices, with adverse weather creating
supply tightness in the Brazilian harvest boosting prices at the start of 2021. Our new forecasts are now
¢100/¢115/¢125/lb.
NYBOT Cocoa Cocoa prices have had a volatile start to the year, as fears of supply shortages due to adverse weather conditions $2600/2700/2700/
dovetailed with the creation of an ‘OPEC+ like cocoa cartel’ between the top West Africa producers. Strong mt
Harmattan winds have swept into Cote d’Ivoire from the Sahara, depositing sand on cocoa leaves and lowering soil
moisture during the key pod development state, driving prices toward $2,900/t. The rally came to a halt after
disappointing grind stats in Europe and the US (down 2.1% and 5.9%, respectively) and the COVID-19 concerns
causing a sharp sell-off down below our forecast of $2,700/t. In the medium term, we see continued strength in
cocoa prices from continued growth in Asian demand (grinds up 9% in 4Q20 on greater grind capacity) and drier
weather forecast in West Africa curtailing the April-May harvest, pushing our 6/12m forecasts to $2,700/t. However,
in the near term, growth in port deliveries to the Ivory coast and uncertainty over the size of any demand shock due
to COVID-19 imply continued price volatility in the near term, keeping our 3m price forecast at $2,600/t.
NYBOT Sugar Sugar initially bucked the bear-trend in early February as the USDA’s WASDE lowered US sugar production estimates ¢12/10/8.5/lb
for the 2019/20 season down 10% and 9% for beets and cane, respectively. In addition, Thai production has
17 March 2020 13

forecasts
remained depressed with the country experiencing the worst drought in 40 years. With imports up 25% and exports
flat, near-term global supply remains tight. However, recent market moves in oil, combined with trader repositioning,
has pulled sugar prices down 29.7% off recent highs. With oil moving toward our 3m target of $20/bbl, the
ethanol-sugar spread has collapsed, incentivizing greater milling of the upcoming Brazilian cane crop for sugar,
materially increasing the Brazilian supply outlook for 2020. Compounding this, India’s sugar production this year was
revised up 2% on increased milling in Uttar Pradesh, with acreage indications for India’s Feb-Mar cane planting
suggesting large increases in production for the 2020/21 harvest. While we see upside risks to prices in the near
term, due to physical market tightness, the new wave of supply presents extensive downside risks once the Indian
and Brazilian crops are harvested. Taken together, our forecasts over the 3/6/12m horizon are ¢12/¢10/¢8.5/lb.
Livestock
CME Live Cattle Despite concerns at the start of the year over falling supply due to a higher proportion of heifers on feed in 4Q19, ¢90/95/105/lb
cattle slaughter has maintained a brisk pace in the first two months of 2019, with slaughter rates up 8.71% yoy in
January. With COVID-19 spreading rapidly in the US, we see a strong risk to restaurant-based beef demand (c.50%
of US domestic demand) in the near term, with healthy supply expected in the near term, given packer margins at
$170 as of 16 March. Falling beef demand and prices should quickly lead to slowing slaughter, with labor availability
at slaughter facilities in the space of ample live cattle supply an additional risk that could suppress demand for live
cattle in the coming months. Finally, stronger production from Brazil (forecast up 3.4% in 2020 to 10.5mn mt) creates
downward pressure on Chinese imports of US beef. Beyond these near-term bearish forces, structural forces remain
bullish on cattle once uncertainty over COVID-19’s economic impact is resolved. Australia’s cattle herd remains
severely depleted due to the recent drought, with exportable supplies expected down 20% due to herd rebuilding.
Further, China’s protein shortage has been exacerbated by logistical issues surrounding feed and livestock transport,
with piglet prices reaching record highs of Rmb90/kg in late February. Finally, further contraction of the US herd size
and lower heifer numbers will lower production capacity in the second half of the year, when we expect domestic
demand to rebound, leading to our ¢90/¢95/¢105/lb forecast for the 3/6/12m horizon.
CME Lean Hog After a year of disruption due to one virus (ASF), Chinese pork producers faced further supply restrictions due to ¢65/60/70/lb
COVID-19, and the subsequent travel ban across China. Trade disruptions around Chinese ports is leading to record
cold storage of meats in the US. Chicken in cold storage is up 12% at c.960mn, a January record, while pork is up
11%. While these cold storage increases were planned as suppliers prepared for a phase-one related surge in stocks,
lean hogs were pricing in significant increases in Chinese exports across 2Q20-3Q20 until last week’s repositioning.
Stronger-than-expected numbers of slaughter-ready hogs presented at processing plants in January and early
February necessitated the increase of 2020 commercial pork production to almost 29 bn pounds. We see this
increased production exacerbating near-term COVID-19-related disruptions to restaurant-based pork consumption in
addition to the growing risk of labour shortages at slaughterhouses. Taken together, this pulls our 3m summer
forecast down to ¢65/lb. Yet, despite increased production numbers, the USDA expects 2020 to average about 2%
above prices last year due to solid domestic and export demand. Indeed, we see US pork exports for 2020 to be 7.4
bn pounds, 17% higher than the 6.3 bn pounds shipped to foreign markets in 2019, driven largely by increased
Chinese buying as their economy rebounds and freight backlogs clear. While large near-term risks to demand remain,
we see greater upside over a 12m horizon, moving our forecasts to ¢65/$60/$70/lb for 3/6/12m (Jun/Oct/Apr
contracts).
17 March 2020 14
Individual Commodity Return Forecasts
Exhibit 15: Individual Commodity Return Forecasts

GS Forecast Return
Dollar Weight* Spot Roll Total
Commodity
GSCI BCOM 3m 6m 12m 3m 6m 12m 3m 6m 12m
WTI 19.9% 5.0% -31.0 -3.4 41.4 -9.5 -19.3 -24.7 -37.4 -21.7 7.3
Brent 14.1% 4.6% -33.4 -0.2 49.8 -16.9 -28.3 -33.9 -44.6 -28.1 -0.1
Gasoline 3.4% 1.5% -21.8 6.3 80.7 -22.1 -22.1 -46.1 -39.0 -16.9 -1.8
Heating Oil 3.5% 1.5% -31.0 -5.5 31.0 -9.2 -16.9 -21.8 -37.2 -21.1 3.4
Natural Gas 3.1% 8.6% -19.1 -5.6 61.9 -10.4 -13.6 -4.5 -27.3 -18.1 56.0
Aluminum 4.7% 4.9% -5.8 -4.3 1.7 -1.1 -2.2 -4.3 -6.6 -6.0 -1.9
Copper 5.5% 7.5% -7.3 6.0 13.5 -0.3 -0.6 -1.1 -7.4 5.8 13.3
Nickel 1.1% 3.0% -18.7 -6.5 5.6 -0.4 -0.8 -1.3 -18.9 -6.8 5.2
Zinc 1.2% 3.5% -9.3 -4.6 3.1 -0.5 -0.8 -1.1 -9.5 -5.0 2.9
Gold 6.7% 16.1% 7.5 10.8 20.9 -0.3 -0.8 -1.5 7.4 10.5 20.1
Silver 0.6% 3.7% 5.3 9.2 17.0 -0.6 -1.3 -2.3 5.0 8.3 15.3
Wheat 4.2% 3.4% 3.4 5.4 6.4 0.1 -1.4 -4.1 3.7 4.4 2.9
Corn 6.7% 6.8% -4.2 1.5 12.8 -1.1 -2.5 -6.9 -5.0 -0.6 5.9
Soybeans 4.2% 6.2% 0.4 3.4 8.3 -1.9 -2.7 -3.5 -1.3 1.1 5.4
Cotton 1.5% 1.6% -3.1 2.0 15.6 -1.7 -3.2 -5.1 -4.5 -0.8 10.8
Sugar 2.1% 3.2% 8.2 -9.8 -23.4 0.0 -6.4 -23.7 8.4 -15.2 -41.0
Coffee 1.0% 2.9% -3.8 10.7 20.3 0.6 -0.6 -2.6 -2.9 10.6 18.2
Cocoa 0.5% 0.0% 11.5 15.8 15.8 0.5 3.4 6.3 12.4 20.3 24.2
Live Cattle 4.3% 3.5% 5.6 11.4 34.9 0.0 -8.0 -13.2 5.8 3.0 18.2
Lean Hogs 3.0% 2.2% -2.7 -10.2 4.8 -1.3 7.1 13.0 -3.8 -3.4 19.5
* dollar weights as of Mar 16, 2020
17 March 2020 15
Disclosure Appendix
Reg AC
We, Jeffrey Currie, Damien Courvalin, Samantha Dart, Sabine Schels, Daniel Sharp, Michael Hinds, Alison Li, Mikhail Sprogis, Amber Cai, Callum Bruce
and Huan Wei, hereby certify that all of the views expressed in this report accurately reflect our personal views, which have not been influenced by
considerations of the firm’s business or client relationships.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
Disclosures
Regulatory disclosures
Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or
co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-managed
public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs trades or may trade as a
principal in debt securities (or in related derivatives) of issuers discussed in this report.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,
professionals reporting to analysts and members of their households from owning securities of any company in the analyst’s area of coverage.
Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst
as officer or director: Goldman Sachs policy generally prohibits its analysts, persons reporting to analysts or members of their households from
serving as an officer, director or advisor of any company in the analyst’s area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be
associated persons of Goldman Sachs & Co. LLC and therefore may not be subject to FINRA Rule 2241 or FINRA Rule 2242 restrictions on
communications with subject company, public appearances and trading securities held by the analysts.
Additional disclosures required under the laws and regulations of jurisdictions other than the United States
The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and
regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined in the
Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any access to
it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman Sachs. In
producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other
meetings hosted by the companies and other entities which are the subject of its research reports. In some instances the costs of such site visits or
meetings may be met in part or in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific
circumstances relating to the site visit or meeting. To the extent that the contents of this document contains any financial product advice, it is general
advice only and has been prepared by Goldman Sachs without taking into account a client’s objectives, financial situation or needs. A client should,
before acting on any such advice, consider the appropriateness of the advice having regard to the client’s own objectives, financial situation and needs.
A copy of certain Goldman Sachs Australia and New Zealand disclosure of interests and a copy of Goldman Sachs’ Australian Sell-Side Research
Independence Policy Statement are available at: https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html. Brazil: Disclosure
information in relation to CVM Instruction 598 is available at https://www.gs.com/worldwide/brazil/area/gir/index.html. Where applicable, the
Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 20 of CVM Instruction 598, is the first author
named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman Sachs Canada Inc. is an affiliate of The
Goldman Sachs Group Inc. and therefore is included in the company specific disclosures relating to Goldman Sachs (as defined above). Goldman Sachs
Canada Inc. has approved of, and agreed to take responsibility for, this research report in Canada if and to the extent that Goldman Sachs Canada Inc.
disseminates this research report to its clients. Hong Kong: Further information on the securities of covered companies referred to in this research
may be obtained on request from Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this
research may be obtained from Goldman Sachs (India) Securities Private Limited, Research Analyst - SEBI Registration Number INH000001493, 951-A,
Rational House, Appasaheb Marathe Marg, Prabhadevi, Mumbai 400 025, India, Corporate Identity Number U74140MH2006FTC160634, Phone +91 22
6616 9000, Fax +91 22 6616 9001. Goldman Sachs may beneficially own 1% or more of the securities (as such term is defined in clause 2 (h) the Indian
Securities Contracts (Regulation) Act, 1956) of the subject company or companies referred to in this research report. Japan: See below. Korea: This
research, and any access to it, is intended only for “professional investors” within the meaning of the Financial Services and Capital Markets Act,
unless otherwise agreed by Goldman Sachs. Further information on the subject company or companies referred to in this research may be obtained
from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither “registered banks”
nor “deposit takers” (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research, and any access to it, is intended for
“wholesale clients” (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman Sachs. A copy of certain Goldman Sachs
Australia and New Zealand disclosure of interests is available at: https://www.goldmansachs.com/disclosures/australia-new-zealand/index.html. Russia:
Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not
having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity.
Research reports do not constitute a personalized investment recommendation as defined in Russian laws and regulations, are not addressed to a
specific client, and are prepared without analyzing the financial circumstances, investment profiles or risk profiles of clients. Goldman Sachs assumes
no responsibility for any investment decisions that may be taken by a client or any other person based on this research report. Singapore: Further
information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number:
198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own
investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail
clients in the United Kingdom, as such term is defined in the rules of the Financial Conduct Authority, should read this research in conjunction with prior
Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman
Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs
International on request.
European Union: Disclosure information in relation to Article 6 (2) of the European Commission Delegated Regulation (EU) (2016/958) supplementing
Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical
arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy
and for disclosure of particular interests or indications of conflicts of interest is available at https://www.gs.com/disclosures/europeanpolicy.html which
states the European Policy for Managing Conflicts of Interest in Connection with Investment Research.
Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer registered with the Kanto Financial Bureau under registration number Kinsho
69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms Association.
17 March 2020 16
Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to
any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance
Company.
Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global basis.
Analysts based in Goldman Sachs offices around the world produce research on industries and companies, and research on macroeconomics,
currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd (ABN 21 006 797 897); in
Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; Ombudsman Goldman Sachs Brazil: 0800 727 5764 and / or
ouvidoriagoldmansachs@gs.com. Available Weekdays (except holidays), from 9am to 6pm. Ouvidoria Goldman Sachs Brasil: 0800 727 5764 e/ou
ouvidoriagoldmansachs@gs.com. Horário de funcionamento: segunda-feira à sexta-feira (exceto feriados), das 9h às 18h; in Canada by either Goldman
Sachs Canada Inc. or Goldman Sachs & Co. LLC; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities Private
Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman
Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W);
and in the United States of America by Goldman Sachs & Co. LLC. Goldman Sachs International has approved this research in connection with its
distribution in the United Kingdom and European Union.
European Union: Goldman Sachs International authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and
the Prudential Regulation Authority, has approved this research in connection with its distribution in the European Union and United Kingdom.
General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we
consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and
forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as
appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority
of reports are published at irregular intervals as appropriate in the analyst’s judgment.
Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment
banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research Division.
Goldman Sachs & Co. LLC, the United States broker dealer, is a member of SIPC (https://www.sipc.org).
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and principal
trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, principal trading desks and
investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research.
We and our affiliates, officers, directors, and employees, will from time to time have long or short positions in, act as principal in, and buy or sell, the
securities or derivatives, if any, referred to in this research, unless otherwise prohibited by regulation or Goldman Sachs policy.
The views attributed to third party presenters at Goldman Sachs arranged conferences, including individuals from other parts of Goldman Sachs, do not
necessarily reflect those of Global Investment Research and are not an official view of Goldman Sachs.
Any third party referenced herein, including any salespeople, traders and other professionals or members of their household, may have positions in the
products mentioned that are inconsistent with the views expressed by analysts named in this report.
This research is focused on investment themes across markets, industries and sectors. It does not attempt to distinguish between the prospects or
performance of, or provide analysis of, individual companies within any industry or sector we describe.
Any trading recommendation in this research relating to an equity or credit security or securities within an industry or sector is reflective of the
investment theme being discussed and is not a recommendation of any such security in isolation.
This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be
illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if
appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them
may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.
Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.
Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
Investors should review current options and futures disclosure documents which are available from Goldman Sachs sales representatives or at
https://www.theocc.com/about/publications/character-risks.jsp and
https://www.fiadocumentation.org/fia/regulatory-disclosures_1/fia-uniform-futures-and-options-on-futures-risk-disclosures-booklet-pdf-version-2018.
Transaction costs may be significant in option strategies calling for multiple purchase and sales of options such as spreads. Supporting documentation
will be supplied upon request.
Differing Levels of Service provided by Global Investment Research: The level and types of services provided to you by the Global Investment
Research division of GS may vary as compared to that provided to internal and other external clients of GS, depending on various factors including your
individual preferences as to the frequency and manner of receiving communication, your risk profile and investment focus and perspective (e.g.,
marketwide, sector specific, long term, short term), the size and scope of your overall client relationship with GS, and legal and regulatory constraints.
As an example, certain clients may request to receive notifications when research on specific securities is published, and certain clients may request
that specific data underlying analysts’ fundamental analysis available on our internal client websites be delivered to them electronically through data
feeds or otherwise. No change to an analyst’s fundamental research views (e.g., ratings, price targets, or material changes to earnings estimates for
equity securities), will be communicated to any client prior to inclusion of such information in a research report broadly disseminated through electronic
publication to our internal client websites or through other means, as necessary, to all clients who are entitled to receive such reports.
All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not all
research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of our
research by third party aggregators. For research, models or other data related to one or more securities, markets or asset classes (including related
services) that may be available to you, please contact your GS representative or go to https://research.gs.com.
Disclosure information is also available at https://www.gs.com/research/hedge.html or from Research Compliance, 200 West Street, New York, NY
10282.
© 2020 Goldman Sachs.
17 March 2020 17
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written
consent of The Goldman Sachs Group, Inc.
17 March 2020 18

Commodity Watch - Physical End Is Near

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Commodity Watch - Physical End Is Near

Uploaded by

Copyright:

Available Formats

17 March 2020 | 9:21AM GMT

Physical end is near

forcing US re-balancing. Recommending long Cal21. Mikhail Sprogis

Reducing agriculture and livestock forecasts. Short corn on reduced restaurant

Source: Goldman Sachs Global Investment Research

Exhibit 2: BCOM Index Forecasts

Energy 23.0 -12.7 11.8 -42.8 -32.3 -19.6 21.1

Source: Goldman Sachs Global Investment Research

Exhibit 3: Key Commodity Price Forecasts

Source: Goldman Sachs Global Investment Research

Physical end is near

1. Commodity prices need to go below cash costs

0 80% Gold 1 week ATM implied vol Current level

2. ‘Price war’ was proﬁt maximizing response to demand shock

Exhibit 6: OPEC’s strategy has wiped $1trn off of Western oil

Energy Market Share (rhs)

Source: Worldscope, Datastream, Goldman Sachs Global Investment Research

3. Lowering 2Q20 price Brent forecast to $20/bbl from $30/bbl

4. Production shut-ins driven by inability to deliver, not cost structure

Exhibit 7: Cost curve will likely be steeper after shut-in

Source: Goldman Sachs Global Investment Research

Exhibit 8: Logistical capacity is beginning to get stretched

Source: Bloomberg, Goldman Sachs Global Investment Research

5. Natural gas to re-balance the quickest: Go long Cal 2021

Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19

6. As stimulus disappoints, we see metals going to cost support

7. Short corn on reduced demand and lower input costs

8. Lowering gold forecast on reduced EM CB demand

Exhibit 13: Gold rallied in 2008 after the announement of QE

1.5 Gold US trade weighted dollar S&P 500

Source: Bloomberg, Goldman Sachs Global Investment Research

Exhibit 14: Palladium prices have collapsed as demand drops

Source: Bloomberg, Goldman Sachs Global Investment Research

10. The revenge of the new oil order

Commodity Outlook 3/6/12m

Commodity Outlook 3/6/12m

Commodity Outlook 3/6/12m

Individual Commodity Return Forecasts

Exhibit 15: Individual Commodity Return Forecasts

Source: Goldman Sachs Global Investment Research

Global product; distributing entities

You might also like