Commodity Views 2024 Outlook Three Reasons To Go Long Commodities

12 November 2023 | 5:05PM EST
Commodity Views
2024 Outlook: Three Reasons to Go Long Commodities
n We recommend going long commodities in 2024, as we expect somewhat Samantha Dart

+1(212)357-9428 |
higher spot commodity prices, strong carry, and see hedging value against samantha.dart@gs.com
Goldman Sachs & Co. LLC
geopolitical supply disruptions. We forecast a 21% GSCI 12M total return.
Daan Struyven
+1(212)357-4172 |
n We believe that a fading monetary policy drag, receding recession fears, and daan.struyven@gs.com
reduced industrial destocking will support demand and spot prices in 2024. We
Nicholas Snowdon
now forecast Brent to rise to a 2024 average of $92/bbl (vs. $98 prior) given +44(20)7774-5436 |
nicholas.snowdon@gs.com
supply beats, with prices back up to the higher end of the $80-100 range. Goldman Sachs International
n We expect structural support to commodity returns from OPEC carry, refinery Callum Bruce, CFA
+1(212)902-3053 | callum.bruce@gs.com
tightness, and green metals demand. OPEC pricing power should drive carry as
gently declining inventories keep the market backwardated, while refining Daniel Moreno
+1(212)934-1001 |
daniel.moreno@gs.com
underinvestment supports product prices. But elevated OPEC spare capacity is Goldman Sachs & Co. LLC
also likely to limit the upside to spot prices. Aditi Rai

+44(20)7774-5179 | aditi.rai@gs.com
n In metals, rapidly rising green demand and peaking supply sets the stage for a Goldman Sachs International
sharp tightening in copper and aluminum into mid-decade, driving scarcity-driven Hongcen Wei
+1(212)934-4691 |
price appreciation from H2. That said, a final gasp of copper supply acceleration hongcen.wei@gs.com
in H1 contributes to our moderated full year price average of $9,200/t (vs. Yulia Zhestkova Grigsby
+1(646)446-3905 | yulia.grigsby@gs.com
$12,000/t prior), leaving 25% of 12M spot price upside. Goldman Sachs & Co. LLC
n Supply disruptions, a colder winter, and reduced conservation are upside risks to Lavinia Forcellese
+44(20)7774-9243 |
our forecast of flat winter European gas prices. Weaker manufacturing or higher lavinia.forcellese@gs.com
Goldman Sachs International
oil supply are downside risks to our constructive view. We are bearish on US
Blake Woods
natural gas (no 2024 net demand growth) and battery metals (supply glut). +1(972)368-9739 | blake.woods@gs.com
n Top Trades:
o 2024 Deficits: Long GSCI energy ex US natural gas, long GSCI industrial
metals ex nickel, zinc
o OPEC Power Range: Profits with Jun24 Brent in a 73-112 range
o European Winter Risk: Long Feb24 TTF
o New vs. Old Economy Metals: Long copper, aluminum vs. short nickel,
zinc
This report is intended for distribution to GS institutional clients only.
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 Views
2024 Outlook: Three Reasons to Go Long Commodities
We recommend going long commodities in 2024, as we expect somewhat higher spot

commodity prices from an improving cyclical backdrop, significant carry returns from
structural tailwinds, and see hedging value against negative supply shocks.
We forecast GSCI total returns over the next 12 months of 21% (Exhibit 1), with
significant contributions from higher spot prices (10%), roll returns (4%), and collateral
returns (5%). More specifically, we expect oil, oil products and several industrial metals
to best leverage cyclical and structural support to generate returns in 2024. Accordingly,
we recommend a ‘2024 Deficits’ basket, defined as going long the GSCI Energy Index
excluding US natural gas (we forecast a 34% 12M return) and long the GSCI Metals
Index excluding nickel and zinc (25% 12M return)1.
Exhibit 1: We Forecast an 21% GSCI® 12M Return

Dollar Historical Performance GS Forecast
S&P GSCI Commodity Index
Weight
2021 2022 2023* 3m 6m 12m
S&P GSCI 100.0 40.4 26.0 -0.8 4.9 12.9 20.9
Energy 59.4 60.7 42.3 0.8 7.8 19.6 30.9
Energy ex. Natural Gas 56.1 62.5 43.8 4.8 9.4 22.4 33.8
Industrial Metals 10.1 29.6 -7.6 -9.2 3.0 6.0 17.8
Industrial Metals ex. Nickel & Zinc 8.4 30.3 -12.8 -3.4 3.9 9.6 25.3
Precious Metals 5.2 -5.1 -0.4 4.5 4.7 5.0 4.7
Agriculture 17.5 24.7 12.1 -5.5 -1.6 1.0 -0.5
Livestock 7.8 7.9 4.8 4.2 -0.6 2.8 7.7
* YTD returns through Nov 10, 2023
Note: Given we do not currently cover agriculture and livestock, we estimate spot returns as returns implied by forwards
adjusted with the historical median risk premium. We estimate roll returns based on seasonal timespreads and the
current futures curve shape.
Source: Goldman Sachs Global Investment Research
Exhibit 2: Commodities Top Trade Ideas for 2024
Trade Description Rationale

2024 Deficits a. Long GSCI energy excluding US natural gas (50%). We see oil, oil products, and several industrial metals as best positioned
b. Long GSCI industrial metals excluding nickel and zinc (50%). to benefit from a supportive cyclical backdrop and structural factors
including OPEC pricing power, refinery tightness, and green metals
demand.
OPEC Power Range Short a Brent Jun24 80-100 strangle, long a Jun24 We believe oil prices will remain sustained in a $80-100 range supported
90-95 call-spread, long 2x a Jun24 150 call. by solid demand, low OPEC supply, and modest deficits, with ample spare
capacity limiting upside from those levels. We also see value in tail
hedges against sharp price increases from geopolitical disruptions.
European Winter Risk Long Feb 24 TTF natural gas. We see upside risks around natural gas prices from weather, supply
disruptions, and potential escalation of geopolitical risks. Notably,
tightening shocks may drive TTF prices incentivize switching vs. oil
products in the 70-100 EUR/MWh range.
Long New Economy Long copper, aluminum vs. short nickel, zinc. We expect bifurcated performance between metals with structurally bullish
Short Old Economy new economy fundamentals like aluminum and copper, and those with
persistent supply driven surplus tendencies like nickel and zinc.
Metals
1
In our forward return calculation, energy ex. natural gas includes Brent, WTI, RB gasoline, and diesel.
Industrial metals ex. nickel and zinc includes copper and aluminum.
12 November 2023 2
Reason 1: Cyclical Support: Monetary Policy Drag and Recession Fears

Fade; Manufacturing Initiates a Recovery; Resilient Services
Following the latest oil selloff, the GSCI total return index is roughly flat YTD, on
concerns about demand from rate hikes, some renewed recession fears, manufacturing
destocking, and on oil supply beats. We, however, believe that a fading monetary policy
drag, receding recession fears, reduced industrial destocking, and ongoing resilience in
services activity will support commodities demand, and spot prices.
Fading in Monetary Policy Drag and Recession Fears

Our economists have long argued that a gradual unwind of the Covid-related drivers of
this different inflation cycle meant that central banks would manage to sharply reduce
inflation without a recession. And while this view has thus far proven correct, and
pricing of recession risk across asset markets has fallen significantly since April, it is
only recently that consensus recession probability estimates have moved below 60%
(Exhibit 3).
Exhibit 3: A Growing Confidence That the US Economy Will Avoid Recession
Percent US 12-Month Ahead Recession Probability Percent

100 GS Bloomberg Consensus 100
April 2022: September 2023:
Launched GS Lowered to 15% on
Tracking at 15% March 2023:
Continued Positive
80 Raised to 35%
Labor Market and 80
October 2022: on Banking
Inflation News
Raised to 35% Stress
on Hawkish Fed
60 June 2022:
June 2023: 60
February 2023: Lowered to 25%
Raised to 30% July 2023:
Lowered to 25% on Receding
x Debt
on Higher Loweredxto
on Labor Market Limit and Banking
40 Inflation 20% on 40
Adjustment Risks
Disinflation
Progress
20 20
0 0
Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23
Source: Bloomberg, Goldman Sachs Global Investment Research
Going forward, we believe that more core disinflation implies that the Fed and ECB are
done hiking, that real disposable income will rise, and that central banks will be
increasingly willing to deliver insurance cuts if growth were to slow. This all supports our
belief that the drag from financial conditions on GDP growth is easing (Exhibit 4), which
in our view will support commodities demand growth.
12 November 2023 3
Exhibit 4: A Fading Drag on GDP Growth From Monetary Policy in the US and Europe
Percentage points, Percentage points,

annual rate Effect of Financial Conditions on Real GDP Growth annual rate
0.5 (3 Quarter Centered Moving Average) 0.5
0.0 0.0
-0.5 -0.5
-1.0 -1.0
-1.5 US Euro Area -1.5
-2.0 -2.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2022 2023 2024
Turn in Industrial and Inventory Cycle

A broad manufacturing destocking process has acted as a significant headwind to
industrial commodities demand and prices this year, especially across natural gas and
metals. This process started with a sharp rise in finished goods inventories, which has
now lasted for over two years (Exhibit 5). This rise was driven initially by the post-Covid
goods-to-services consumption rotation and supply-chain improvements, and then
exacerbated by the hit to real consumption from high inflation, high interest rates, and
tight financial conditions (Exhibit 6).
12 November 2023 4
Exhibit 5: The Rise in Finished Goods Inventories Has Depressed Energy Intensive Industrial Production in
Europe
Stocks of finished goods (% balance, left), and EU energy intensive industrial production (index, right)
Stocks of Finished Products (left) EU Energy Intensive IP (right)
25 120
115
20
110
15
105
10
100
5
95
0
90
-5
85
-10 80
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: Haver Analytics, European Commission, Eurostat, Goldman Sachs Global Investment Research
Fears that Europe’s energy crisis would cause a rationing of gas supply intensified the
preemptive accumulation of goods. This, in turn, incentivized wholesalers to
aggressively destock on primary industrial products, heavily depressing demand for
energy intensive goods at the top of the supply chain, including chemicals, metals,
paper, glass and others.
This destocking process lowered industrial demand for natural gas further in 2023, in
both the US and Europe. In Europe, this kept demand for gas especially low this year,
because exceptionally high gas prices had already depressed energy-intensive industrial
margins and, as a result, activity levels. The metals space, which is levered to the goods
sector in terms of immediate physical demand, was also directly impacted, with high
interest rates depressing downstream demand, given the relatively high capital intensity
of metal use sectors, while reinforcing the destocking effect with generally negative
carry economics for major metals.
Nonetheless, as we look into 2024, there is some cause for cautious optimism as the
destocking headwind fades. European consumer major purchases and exports to China,
two important drivers of finished goods inventories, have halted their yoy declines
(Exhibit 6), and should rise further as European real disposable income and China
manufacturing recover, with China benefiting from policy stimulus.
12 November 2023 5
Exhibit 6: Stabilizing Financial Conditions Should Reduce the Upward Pressure on Finished Goods
Inventories
Change in finished goods inventories (% balance) and model contribution by factor, yoy change
Constant Consumer major purchases (lagged) Real exports to China

20
FCI Residual Finished goods inventories
15
10
-5
-10
-15
-20
07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Source: European Commission, Eurostat, Haver Analytics, Goldman Sachs Global Investment Research
We also see signs of a turn in the destocking cycle from our conversations with several
industrial users of gas and power, including metals companies, which have suggested
that downstream demand has stabilized. Further, high-frequency data on industrial
demand for gas in North Western (NW) Europe shows demand has been up yoy since
August and increasing that gain into 4Q23 (Exhibit 7).
Exhibit 7: European Natural Gas Industrial Demand Is Picking Up

NW Europe industrial demand for gas, mcm/d
2020 2021 2022 2023 2017-2021 avg.
350
300
250
200
150
100 2020 2021 2022 2023 2017-2021 avg.
1050
950
50
850Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
12 November 2023 6
Importantly, high interest rates continue to pose a headwind to consumer demand as

well as to a restocking process that we have yet to see. But even there, we expect
conditions to improve. If US and European rates have indeed peaked as our economists
believe, this suggests yoy changes to financial conditions will soften significantly as we
go through 2024, further contributing to a yoy recovery in demand for
manufacturing-driven commodities like natural gas and metals.
Solid Demand to Push Brent Back in Higher End of the 80-100 Range
In contrast to weak demand for industrial commodities for much of 2023, which we
expect to begin to recover, demand for commodities more exposed to services activity
such as oil has been solid, especially in emerging markets.
While renewed demand fears have again contributed to the nearly $10/bbl selloff over
the past two weeks, oil demand has been strong in 2023, and is likely to remain solid in
2024 on robust services activity. In fact, we estimate that oil demand growth of 2.5mb/d
this year is on track to exceed the IEA and even our own optimistic expectations as of a
year ago by 800 and 500kb/d, respectively. We look for a moderation in oil demand
growth to a still solid 1.6mb/d in 2024 given above-consensus global GDP growth,
structural increases in oil demand across EMs (Exhibit 8, left panel), and an ongoing
recovery in Asian jet fuel demand.
Exhibit 8: EM Oil Demand Rises Further; US Producers Remain Capital Disciplined

mb/d Cumulative Change in Oil Demand Since 2023Q4 mb/d Reinvestment Rate: Capex as a Share of Operating Cash Flow
3 3 Percent of US Public Oil Producers Percent
160 160
Estimate
2 2 140 140
1 1 120 120
100 100
0 0
80 80
-1 -1
China 60 60
India
-2 Middle East -2
Rest of Non-OECD 40 40
Rest of OECD
-3 US -3 20 20
OECD Europe
Total Change in Oil Demand
0 0
-4 -4
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2022 2023 2024 2025
Source: IEA, Kpler, JODI, EIA, National Sources, Company data, Goldman Sachs Global Investment Research
This ongoing resilience in demand will contribute to a recovery in oil prices, in our view,
although we now look for a lower oil price peak. This adjustment reflects the hit to
heating demand from a warm Q4, and upside surprises to our OECD commercial
inventories nowcast, and to supply in Brazil, Canada, and Norway and a few OPEC
producers, including Venezuela and Nigeria. Taken together, we now forecast Brent to
rise to a 2024 average of $92/bbl (vs. $98 prior) with a peak in August of $95/bbl.
To be clear, we continue to believe that robust demand, slowing US supply growth, and
low OPEC supply together imply a modest 2024 deficit, and gently declining inventories.
Evidence of renewed declines in inventories, and a recovery in depressed positioning
12 November 2023 7
are likely to push oil prices back up to the higher end of the $80-100/bbl OPEC sweet
spot range in 2024, with our baseline forecast clearly above the forwards (Exhibit 9).
Specifically, we estimate that the deficit will average 0.7mb/d in 2024 (vs. 0.8mb/d
previously), driven by 1.6mb/d higher demand yoy, while slowing growth from capital
disciplined US producers (Exhibit 8, right panel), and an only gradual return of OPEC
supply limits supply growth at 1.3mb/d yoy.
Exhibit 9: We Expect Brent to Rise Again to the Higher End of the $80-100/bbl Range in 2024, Above the
Futures
$/bbl Brent Price with GS Forecast $/bbl

140 140
Realized Brent Price
Forecast
120 120
Futures
Likely Range: $80-100
100 100
80 80
60 60
40 40
20 20
Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25 Jan-26
Source: ICE, Goldman Sachs Global Investment Research
Looking at pricing across the complex, we believe a more supportive demand

environment is already priced in European natural gas (TTF) – even if the curve presently
embeds no risk premium beyond that. However, in oil, gasoline, and green metals the
tightening we expect is not fully reflected in current market prices. Ultimately, we
believe that the just over $10/bbl upside we see for oil and 25% and 15% of upside we
see for copper and aluminum will help drive spot returns in commodities of 10% over
the next 12 months.
12 November 2023 8
Reason 2: Structural Support from OPEC Carry, Refining Tightness, and

Green Metals Demand
In addition to cyclical support from above-consensus global GDP growth and a nascent
recovery in manufacturing, we also expect structural support to commodity returns from
OPEC-driven carry, refinery tightness, and strong green metals demand.
OPEC-Driven Carry
While timespreads have been volatile, we believe that OPEC has been targeting high
timespreads and low inventories with its production cuts over the last year, and will
continue to do so in 2024 by assertively exercising its higher-than-usual pricing power.
This structural rise in OPEC’s ability to raise prices without hurting its demand too much
reflects 1) the rise in market share through the formation of OPEC+, and 2) the fall in
the price elasticity of non-OPEC oil supply, including for US shale, given increased
financial discipline (Exhibit 10).
Because of the reduced non-OPEC supply response to production cuts, we estimate

that OPEC group cuts now boost Saudi oil profits. As a result, Saudi Arabia and the other
8 OPEC+ countries, which cut production by 1.7mb/d in April, are likely to keep their
group cut fully in place in 2024. We now assume that Saudi Arabia unwinds the extra
1mb/d unilateral cut only gradually starting in 2024Q3 (vs. 2024Q2 previously) by
0.25mb/d every two months because its appears determined to lower inventories and
support elevated funding needs. Our forecast for low OPEC supply is also consistent
with our statistical finding that the group is in no rush to boost production because
commercial OECD stocks remain only modestly below their historical average.
This supports our view that OPEC will keep the curve backwardated in 2024 by
leveraging robust demand growth. As a result, we anticipate that an elevated 12% roll
return (“carry”) will be a large contributor to our forecast of a 36% total return for
investing in Brent futures over the next 12 months (Exhibit 11).
Exhibit 10: We Estimate That It Would Be Profitable For Saudi Exhibit 11: A 12% Roll or Carry Return Over the Next 12 Months
Arabia to Maintain Its 500kb/d Contribution to the April 2023 Group From Investing in Brent Futures
Cut in 2024 As a Result of High Pricing Power Brent total return forecasts and component contribution, %
Percent Estimated Effect of Saudi Oil Production Cuts in 2024 Percent Price Return Roll Return Collateral Return Total Return
15 15 40%
10 10 35%
30%
5 5
25%
0 0
20%
-5 -5
15%
Maintain 500kb/d Cut as Part of 1.7mb/d Group Cut
-10 -10 10%
Extend Bilateral 1mb/d Extra Cut
-15 -15 5%
Saudi Saudi
Brent
Crude Oil 0%
Oil Price
Output Profits 3m 6m 12m
Source: OPEC, ICE, Goldman Sachs Global Investment Research Note: Total return is computed as the product of price, roll, and collateral return while the bar
size indicates each individual component.
While the significant spare capacity generated by OPEC cuts implies that the OPEC put
12 November 2023 9
is less powerful than a year ago, we think the OPEC put remains in place. We believe
that OPEC is likely to bring back its barrels to the market even more slowly if non-OPEC
balance realize softer than our baseline. Nevertheless, elevated OPEC spare capacity is
also likely to limit the upside to spot oil prices, and effectively delays the next oil super
cycle.
Refining Tightness
While there is ample spare capacity in upstream crude oil production, the downstream
refining system remains the tightest sector of the oil industry implying persistently
elevated refined product margins and timespreads.
We estimate that the global refining utilization rate sits in percentile 90 of history.
Refining is tight because of c.7mb/d of disruptions and pandemic-related closures since
the late 2010s. In contrast, global demand has reached an all time high, leaving
utilization rates c.3-4 p.p. above mid-cycle norms. While we expect some incremental
easing, utilization rates will remain structurally elevated (barring a recession) in coming
years.
The key reason for this structural tightness is that elevated long-run demand uncertainty
discourages investment in refining capacity. After all, refineries are very long-cycle
investments, with the median DM refinery now being 50 years old (Exhibit 12).
Exhibit 12: High Utilization Rates and Old Refinieries Show the Long-Cycle Refining System Is Structurally Tight
Age Median Refinery Age Age

60 60
50 50
40 40
30 30
20 20
10 10
0 0
Global DM EM
Source: IEA, BP, IIR, OGJ, Goldman Sachs Global Investment Research
We expect elevated diesel margins to narrow modestly, broadly in line with forwards.
Meanwhile, we expect gasoline refinery margins to recover as refiners switch supply
from gasoline to diesel, and depressed gasoline positioning recovers, before octane
constraints once again dictate a summer spike. As a result, we expect US retail gasoline
prices to rise back to $3.85/gal in Sum2024 from $3.50/gal currently.
Green Metals Demand

Turning to the industrial metals complex, one of the most remarkable trends so far this
12 November 2023 10
year has been the continued strength in China’s metals demand (ex-steel), despite
domestic property and global manufacturing headwinds. Indeed, onshore apparent
refined demand for aluminium (+5% y/y YTD) and copper (+10% y/y YTD) have risen
substantially ahead of expectations (Exhibit 14).
Exhibit 13: Surging China Demand for Most Commodities this Year Exhibit 14: China’s Apparent Demand for Aluminium and Especially
Copper Has Grown at Robust Rates (Even Largely Before the
Current Policy Easing Phase)
% share of YoY growth

YoY growth YTD China demand growth China apparent demand (yoy, 3m mov. avg)
global demand 25%
China's share of global demand (RHS) Aluminium
20% 80%
20% Copper
Steel
15%
15% 60%
10%
5%
10% 40%
0%
5% 20% -5%
-10%
0% 0% -15%
-20%
-5% -20%
Steel Aluminium Oil Copper Coal LNG
LHS chart: The YTD China demand growth refers to January-September 2023 for copper, Source: Goldman Sachs Global Investment Research, Wind
aluminium and coal, while it includes October 2023 for LNG and steel. As for oil, the YTD is an
average of YoY China demand growth through Q3
Underpinning these onshore demand trends has been the significant, structural strength
in China’s green economy, with marked growth in renewables and EVs. The most
significant strength has come from a jump in solar-related demand (+145% y/y YTD)
while EVs have turned out less impressive than last year. This green demand boost has
been a significant counterweight to the broader manufacturing malaise this year in
limiting softening effects on green economy tied metals and price downside.
It is in this context that there is now caution regarding the sustainability of these China
onshore green demand trends, as well as the restraining impact of higher financing
costs and the affordability of renewables and EVs in terms of the pace of prospective
green transition demand in DMs. However, we see limited risk to the current
momentum in China’s green economy, with strong policy support underpinning the
onshore green pipeline (solar projects and EV production plans). For solar, our clean
energy equity research team anticipates a rising share in the energy mix, on the back of
falling module prices and increasingly attractive economics which should be further
reinforced by the IRA. The area of concern is offshore wind which has seen cost inflation
challenges and is set to lead to delays in the near-term due to project cancellations.
However, our European utilities team highlights that the EU remains supportive of
rapidly accelerating investment needs in onshore wind, solar and power networks.
Finally, green demand for copper and aluminium has second-round effects on power-grid
related demand which remains under-invested and has room to surprise to the upside.
In this context, we continue to expect a robust green demand environment ahead. In

aggregate, global green copper demand will grow to 2.8Mt this year (from just 820kt in
2019), and will add c.600kt each year over the next three years (Exhibit 15). By 2025, we
estimate global copper green demand to amount to 4Mt (12% of global demand) which
12 November 2023 11
is equivalent to China’s property and infrastructure demand, and to increasingly offset

the fall in traditional demand sectors.
This green demand boost and increasingly stagnant supply dynamics, feed into our view
for progressively tighter aluminium and copper fundamentals over the course of
2024/25. We would note that we lower our forecast average copper price for 2024 to
$9,200/t (from $12,000/t previously), reflecting the dampening impact of a final gasp of
supply acceleration in H1, though the onset of peak supply from H2 will then generate
renewed scarcity pricing momentum in this metal. In this context, we continue to hold
3/6/12M targets for copper of $8,400/8,850/10,000/t, which point to 25% upside in price
from current levels by the end of next year, and recommend a Long New Economy
Short Old Economy Metals trade, defined as long copper and aluminium, and short
nickel and zinc. This trade reflects the bifurcated performance we expect between
metals with structurally bullish new economy fundamentals, like copper and aluminium,
and those with persistent supply driven surplus tendencies, like nickel and zinc.
Exhibit 15: Global Green Demand for Aluminium and Copper Is Set to Grow by 20+% in 2024
% of global Global green demand growth drivers YoY growth % of global

demand green demand China green demand 389kt (20%
80% 674kt LCE 40% CN demand)
Green demand share of global 2023E (LHS) 70% 611 kt LCE
70% Energy storage 35%
Wind 57 kt
60% Solar 30% 65%
EVs and charging infrastructure
50% 25% 60%
1.8Mt (11% 3.6Mt (8%
40% 73kt 20% CN demand)
CN demand)
55%
30% 15%
20% 453kt 10% 50%

5.5Mt 2.8Mt
10% 5%
45%
0% 0%
2023E 2024E 2023E 2024E 2023E 2024E 2023E 2024E 2023E 2024E
40%
Aluminium Copper Nickel Cobalt Lithium Copper Aluminium Cobalt Lithium Nickel
12 November 2023 12
Reason 3: Hedging Value

On top of cyclical and structural support to our baseline commodity returns, energy and
gold can also be an effective hedge against negative supply shocks, from geopolitical or
other developments, in scenarios where other assets (especially risk assets) suffer from
lower growth.
The Hedging Value of Energy Against Negative Supply Shocks

As we recently discussed, potential escalation of the ongoing Middle East tensions is an
example of how supply shocks could lead to significant rallies in oil and gas prices
(Exhibit 16). While we see a severe supply downside risk scenario, such as a potential
interruption of trade through the Strait of Hormuz, as highly unlikely, the physical nature
of energy markets suggests the resulting rally in energy prices would likely be sizable
and immediate. Specifically, we estimate that oil prices in this tail scenario initially rise
20% above our baseline in the first month of interruption, and may temporarily double in
the much less likely scenario of an extended disruption. In this scenario, TTF prices
would likely rise sharply into a 120-200EUR/MWh range. Further, uncertainty about the
duration of the shock typically leads prices to temporarily overshoot fundamentals-based
estimates.
Exhibit 16: Large Upside Oil Price Effects and Especially Natural Gas Price Effects in a Severe Supply
Downside Scenario
Effects of Supply Scenarios on 2024Q1 Energy
Prices (% Increase Relative to Baseline)
Severe Supply
Supply Downside1
Downside2
20% in first month of interruption;

Brent Crude Oil 5% more extreme price effects if longer disruption
and inventories fall to critically low levels
European
Up to 105% 160-330%
Natural Gas
1
The supply downside scenario assumes a reduction in 2024 Iran oil supply by 0.75 kb/d to 2.5 mb/d (a reduction of 0.75% of global supply) and a
shut-down of Israel's Leviathan gas field (8mtpa LNG-equivalent, 2% of global LNG supply).
2
The severe supply downside scenario assumes an interruption of trade through the Strait of Hormuz through which 17% of global oil production and
19% of global LNG supply flow, with the range dependent on the duration of the interruption.
We estimate that the market assigns a <1% probability of 2024Q1 Brent above
$135/bbl. While we believe that elevated OPEC spare capacity should provide a buffer in
most disruption scenarios, we see value in tail hedges against sharp oil price increases.
We have therefore added 2 long $150/bbl calls to our Brent Jun 24 four-ways option. Our
OPEC Power Range Trade (Short a Brent Jun24 80-100 strangle, long a Jun24v 90-95
call-spread, 2* long a Jun24 150 call) should perform well under our forecast where oil
prices remain sustained in a $80-100 range supported by solid demand, low OPEC
supply, and modest deficits, with ample spare capacity limiting upside from those
levels. The addition of the 150 call option insures that the trade would also perform well
in a geopolitical tail scenario, preventing deploying spare capacity.
The upside risk to European gas prices from geopolitical shocks also further supports
our long-standing recommendation of Long TTF February 2024 exposure. Additional
12 November 2023 13
European gas tightening risks include pipeline- or LNG-related disruptions, a cold winter,
and a reduction in energy conservation efforts (which amounted to 15% of normal
heating demand on a weather-adjusted basis last winter). Should any of these tightening
shocks occur, European gas prices may have to rise to incentivize switching from natural
gas to fuel oil (which would require TTF rising to around 60EUR/MWh) and/or to distillate
fuel (which requires TTF prices at around 90EUR/MWh), or even higher, in case of more
severe tightening shocks, to destroy global LNG demand above 120EUR/MWh (Exhibit
17).
Exhibit 17: Absorbing Tightening Shocks in the Still Fragile European Natural Gas Market May Require
Prices to Rise into the Oil-Switching Range or Even Higher to Destroy Global LNG Demand
TTF prices and estimated ranges that incentivize switching vs. different fuels, EUR/MWh
350.00
Oil-switching range
300.00 Hard-coal-switching range
Lignite-switching range
250.00
TTF Natural gas
200.00
150.00
100.00
50.00
0.00
Jan-21 May-21 Sep-21 Jan-22 May-22 Sep-22 Jan-23 May-23 Sep-23
Gold’s Time to Shine

Consistent with gold’s historical performance in the events of high geopolitical tension
(Exhibit 18), prices have risen substantially (5%) since the start of Israel-Hamas war. The
velocity at which this geopolitical risk premium has been priced in reflects a market that
was short entering this episode, as a result of rising US rates and falling ETF holdings.
The latest CFTC reports over October 10th - 31st showed that short-covering has
brought non-commercial net length back to August highs.
12 November 2023 14
Exhibit 18: Gold Prices Have Risen Since the Start of the Israel-Hamas War But Look High Relative to Real Rates
Indexed cumulative returns

Gold performance $/toz %
115 Gulf War Second Intifada 2500 Gold price USD 10-yr Real Yield (inverted, rhs) -2
9/11 & US invasion of Afghanistan US invasion of Iraq
Russia invasion of Ukraine Israel-Hamas War
110
2000 -1
105 1500 0
100 1000 1
95 500 2
90 0 3
-30 -20 -10 0 10 20 30 40 50 60 70
Days since conflict
Source: Goldman Sachs Global Investment Research, Bloomberg
Going forward, in the short-term the investor appetite to add length will rely on the
extent of escalation but will face headwinds from elevated US real rates. Also, whilst
the latest US job report shows some slowing, the broader US activity data has remained
strong, and should pressure gold prices if the conflict in the Middle East eases.
However, we note that active central bank buying and strong retail demand have
reduced downward pressure on gold prices from rising long-term yields (Exhibit 18). On
net, we would expect any selloff to be limited in scale due to a dovish Fed, slowing
wage growth, and resilient CB purchases. Tactically, we would view a potential selloff in
gold as a buying opportunity as we see an environment with elevated risk channels
ahead playing into gold’s hedge qualities. We maintain our 3/6/12m gold target at
$2050/t oz (vs. current spot at c.$1940/t oz).
Risks to Commodity Returns

We highlight one key upside risk and two main downside risks to our constructive view
on commodity returns for 2024.
As discussed above, supply disruptions, a colder winter, and reduced conservation

efforts are key upside risks to our forecast of flat winter European gas prices.
One key downside risk from the continued misses on global manufacturing surveys is
the possibility that activity in the goods sector does not pick up in 2024. The goods
sector malaise may extend if higher rates were to lead firms to reduce intermediate
goods inventory levels below 2019 levels, to depress demand growth for housing and
durable goods more persistently than we expect, or if still elevated US goods demand
normalizes further than we expect. This scenario would pressure European natural gas
(potential 15% downside to Sum24 prices from current levels) and metals prices (a
further delay to scarcity premium in Copper and Aluminium) in particular.
The other main risk to our view is that oil supply surprises to the upside, for instance
because of higher-than-expected price elasticity or lower OPEC cohesion. As price levels
remain quite high heading into the US election campaign, supply from countries under
international scrutiny such as Iran and Venezuela may surprise to the upside, although
we believe that underinvestment limits volume upside. High prices and some additional
easing in constraints may also boost short-cycle supply in North America more than we
12 November 2023 15
expect. Finally, a significant softening in the global ex OPEC+ balance or any political
changes in Russia may boost OPEC+ supply through a reduction in cohesion. That said,
we think this scenario is not very likely to materialize given strong Russian compliance
since the spring, and elevated and growing funding needs in both Saudi Arabia and
Russia.
Bearish on US Natural Gas and Battery Metals

While we see value in the complex in 2024, we are bearish on US natural gas (no 2024
net demand growth), and battery metals (deepening supply glut).
US Gas Market Still Waiting for LNG Demand to Relieve Oversupply

US natural gas balances grappled with oversupply this year as a warm 1Q23 led to the
accumulation of a large storage surplus. Prices declined to incentivize coal-to-gas
switching in power generation and declines in producer drilling and completion activity,
ultimately narrowing the storage surplus.
However, we believe balances remain oversupplied heading into 2024. Barring a

colder-than-average winter, we expect that current forward prices would put storage on
a path to congestion by the end of next summer. This bearish view reflects the support
to associated gas production growth from take-away capacity additions in the Permian
basin, and the drag on gas burns demand growth implied from current forward prices. To
be clear, while 2024 Henry Hub prices have come off significantly month to date on
warmer November weather forecasts, forwards remain significantly above observed
prices this past summer. With no new LNG export capacity additions until late summer
2024, we believe prices will need to move below $3 through Sum24, vs current
forwards at $3.15/$3.19/mmBtu for Win23-24/Sum24, to incentivize higher gas burn and
lower production from non-associated gas basins to manage storage to adequate levels.
Exhibit 19: We see storage on a path to congestion in 2024 under Exhibit 20: We believe prices will need to remain below $3 to
market forwards incentivize coal-to-gas switching and manage storage to adequate
US natural gas storage under different price scenarios, Bcf levels
US natural gas, PRB coal prices and estimated gas price levels that
trigger substitution against coal, $/mmBtu
20-80th %-tile since 2011 12.00 PRB coal-switching range NYMEX gas
5000
Storage under GS market forwards GS forecasts Market forwards
4500 Storage under GS price forecast
Demonstrated peak capacity 10.00
4000
3500 8.00
3000
6.00
2500
2000 4.00
1500
2.00
1000
Jan-23
Jun-23
Jul-23
Jan-24
Jun-24
Nov-22
Dec-22
Nov-23
Dec-23
Feb-23
Mar-23
Jul-24
Aug-23
Sep-23
Feb-24
Mar-24
Aug-24
Sep-24
Apr-23
Apr-24
Oct-22
Oct-23
Oct-24
May-23
May-24
0.00
Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan-24 Jan-25
Source: EIA, Goldman Sachs Global Investment Research Source: CME, S&P Global Commodity Insights, Goldman Sachs Global Investment Research
Too Early to Call the Bottom in Battery Metals Bear Market

We see continued downside in battery metals prices, and think it is too early to call an
12 November 2023 16
end to the bear market. This year, we believe a rise in supply combined with a shift
lower in retail EV volume growth in China (+2.7Mil units in 2022 vs +1.5Mil units in
2023E) has weighed on prices. However, in our view, the oversupply-led low-cycle
pricing is yet to fully arrive and the size of upcoming surpluses has not yet been fully
realized in prices. Moreover, with the phase-out of national subsidies in China and the
reduction of subsidies in some European countries, the EV market is now becoming
increasingly dependent on consumer-led adoption, but remains exposed to high
financing costs.
Whilst the lithium market is largely balanced this year, we continue to expect a
substantial surplus (202kt) over next year. For nickel, we think increasing class 1 supply
and rising refined metal supply will continue to drive prices lower until supply responses
emerge, but note that upside risk from short-covering remains given the large net-short
market. Lastly, the cobalt metal price has risen recently due to reports of strategic
stockpiling but looks overpriced for the continued glut. The supply rationing phase that
lies ahead in these commodities will likely generate more price volatility, but we remain
bearish on the battery metals complex with our 12m price targets for China lithium
carbonate at $15,000/t (-14% vs. forwards), nickel at $16,000/t (-17% vs. forwards) and
cobalt at $28,000/t (-18% vs. forwards)
Exhibit 21: We Expect Extended Surpluses to Lead to Additional Battery Metals Price Declines
kt kt
RMB/t $/t
China lithium carbonate (RMB/t, left) 350 18
45000 GS Global SD balance
600000 Cobalt standard grade, $/tonne
16
LME Nickel ($/t) 40000 300
500000 14
35000 250
12
400000 30000 200 10
25000 150 8
300000
6
20000 100
200000 4
15000 50
2
100000 10000 0 0
Lithium Lithium Nickel Nickel Cobalt (right)Cobalt (right)
2023E 2024E 2023E 2024E 2023E 2024E
RHS: Lithium balance in kt LCE
Source: Goldman Sachs Global Investment Research, Fastmarkets, SMM
The authors would like to thank Alissa Gorelova for her contributions to this report.
Alissa is an intern within the Commodities team.
12 November 2023 17
Forecasts Appendix
Exhibit 22: Bloomberg Commodity Index Forecast

Dollar Historical Performance Forecast
BCOM Index
Weight
2021 2022 2023* 3m 6m 12m
BCOM 100.0 27.1 16.1 -5.8 1.6 4.9 9.2
Energy 32.1 52.1 36.2 -13.3 1.1 8.1 17.7
Industrial Metals 15.2 30.3 -2.4 -13.3 1.5 2.4 10.9
Precious Metals 23.3 -6.1 0.1 2.7 5.0 5.9 5.8
Grains 13.5 21.0 18.0 -12.0 -2.2 1.7 0.8
Softs 9.7 44.0 -3.5 26.2 2.8 2.5 -0.7
Livestock 6.3 8.6 7.4 3.1 -1.5 1.8 7.1
¹ YTD returns through Nov 10, 2023
Note: Given we do not currently cover agriculture and livestock, we estimate spot returns as returns implied by forwards
adjusted with the historical median risk premium. We estimate roll returns based on seasonal timespreads and the current
futures curve shape.
Exhibit 23: Key Commodity Forecasts

Current GS Forecasts Forward pricing Upside vs. forward pricing
Level 3m 6m 12m 2024 3m 6m 12m 3m 6m 12m
Commodities
WTI Crude Oil ($/bbl) 77.2 82.0 88.0 89.0 88.0 76.8 76.0 74.0 7% 16% 20%
Brent Crude Oil ($/bbl) 81.4 86.0 92.0 94.0 92.0 80.8 80.0 78.1 6% 15% 20%
LME Copper ($/mt) 7,956 8,400 8,850 10,000 9,200 8,036 8,107 8,248 5% 9% 21%
LME Aluminum ($/mt) 2,204 2,300 2,400 2,600 2,500 2,214 2,252 2,326 4% 7% 12%
Iron ore 62% Fe ($/mt) 128 130 120 124 118 5% 1%
COMEX Gold ($/troy) 1,938 2,050 2,050 2,050 1,952 1,982 2,036 5% 3% 1%
TTF Natural Gas (EUR/MWh) 46.6 45 44 54 46 48 46 50 -7% -5% 7%
NYMEX Natural Gas ($/mmBtu) 3.03 2.85 2.85 3.75 3.01 3.16 3.07 3.93 -10% -7% -5%
12 November 2023 18
Disclosure Appendix
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Commodity Views 2024 Outlook Three Reasons To Go Long Commodities

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Commodity Views 2024 Outlook Three Reasons To Go Long Commodities

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12 November 2023 | 5:05PM EST

2024 Outlook: Three Reasons to Go Long Commodities

n We recommend going long commodities in 2024, as we expect somewhat Samantha Dart

also likely to limit the upside to spot prices. Aditi Rai

This report is intended for distribution to GS institutional clients only.

2024 Outlook: Three Reasons to Go Long Commodities

We recommend going long commodities in 2024, as we expect somewhat higher spot

Exhibit 1: We Forecast an 21% GSCI® 12M Return

Source: Goldman Sachs Global Investment Research

Exhibit 2: Commodities Top Trade Ideas for 2024

Trade Description Rationale

Source: Goldman Sachs Global Investment Research

Reason 1: Cyclical Support: Monetary Policy Drag and Recession Fears

Fading in Monetary Policy Drag and Recession Fears

Exhibit 3: A Growing Conﬁdence That the US Economy Will Avoid Recession

Percent US 12-Month Ahead Recession Probability Percent

Source: Bloomberg, Goldman Sachs Global Investment Research

Percentage points, Percentage points,

-1.5 US Euro Area -1.5

Source: Goldman Sachs Global Investment Research

Turn in Industrial and Inventory Cycle

Stocks of Finished Products (left) EU Energy Intensive IP (right)

Constant Consumer major purchases (lagged) Real exports to China

Exhibit 7: European Natural Gas Industrial Demand Is Picking Up

2020 2021 2022 2023 2017-2021 avg.

100 2020 2021 2022 2023 2017-2021 avg.

Source: Bloomberg, Goldman Sachs Global Investment Research

Importantly, high interest rates continue to pose a headwind to consumer demand as

Exhibit 8: EM Oil Demand Rises Further; US Producers Remain Capital Disciplined

$/bbl Brent Price with GS Forecast $/bbl

Source: ICE, Goldman Sachs Global Investment Research

Looking at pricing across the complex, we believe a more supportive demand

Reason 2: Structural Support from OPEC Carry, Reﬁning Tightness, and

Because of the reduced non-OPEC supply response to production cuts, we estimate

Source: Goldman Sachs Global Investment Research

Age Median Refinery Age Age

Green Metals Demand

% share of YoY growth

Source: Goldman Sachs Global Investment Research

In this context, we continue to expect a robust green demand environment ahead. In

is equivalent to China’s property and infrastructure demand, and to increasingly offset

% of global Global green demand growth drivers YoY growth % of global

20% 453kt 10% 50%

Source: Goldman Sachs Global Investment Research

Reason 3: Hedging Value

The Hedging Value of Energy Against Negative Supply Shocks

20% in first month of interruption;

Source: Goldman Sachs Global Investment Research

300.00 Hard-coal-switching range

Source: Bloomberg, Goldman Sachs Global Investment Research

Gold’s Time to Shine

Indexed cumulative returns

Source: Goldman Sachs Global Investment Research, Bloomberg

Risks to Commodity Returns

As discussed above, supply disruptions, a colder winter, and reduced conservation

Bearish on US Natural Gas and Battery Metals

US Gas Market Still Waiting for LNG Demand to Relieve Oversupply

However, we believe balances remain oversupplied heading into 2024. Barring a

Too Early to Call the Bottom in Battery Metals Bear Market

RHS: Lithium balance in kt LCE

Source: Goldman Sachs Global Investment Research, Fastmarkets, SMM

Exhibit 22: Bloomberg Commodity Index Forecast

Source: Goldman Sachs Global Investment Research