The Goldman Sachs Group, Inc. Goldman Sachs Research 中国金属需求之 硬着陆 China s metals hard landing 转型 - 需求 - 展望 Transition-Demand-Outlook November 2015 Yubin Fu Goldman Sachs International+ 44(20)7552-9350 yubin.fu@gs.com The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. 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. Analysts employed by non-us affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The bearish 3Ds of macro and China s metals hard landing Economy transition and metal demand re-balancing Copper demand outlook Goldman Sachs Global Investment Research 2
The bearish 3Ds of macro --- Deleveraging, Divergence, Deflation
Divergence after nearly a decade since the last interest rate hike in the US Real GDP (index, 2008Q4 = 100) 115 110 US Euro zone 105 100 95 90 04 05 06 07 08 09 10 11 12 13 14 15 Source: Haver Analytics, Goldman Sachs Global Investment Research See: FX Views: While you were Greeking June 30 2015 Goldman Sachs Global Investment Research 4
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Mining cost deflation owing to Divergence (strong dollar) and Deflation (lower energy prices, mining services costs etc.) are key to our bear thesis $/t 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 Falling cost support (dollar strength and mining cost deflation) and a surplus market is forecast to result in a major surprise relative to consensus forecasts 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 Copper price Copper marginal cost (90%ile of cost curve) Copper marginal cost (95%ile of cost curve) BBG consensus Source: Goldman Sachs Global Investment Research, Wood Mackenzie, Bloomberg, LME. Goldman Sachs Global Investment Research 5
GS China Metals Consumption Index (GS China MCI) We use data on more than 120 of the 310 available industrial production series, seasonally adjust and equally weight the components. As the components of MCI are related to metals and mining commodity consumption, our measure differs from industrial production (IP) in that it does not include value add weights reflecting technological improvements in the efficiency of production or the value-per-unit of output. Source: Goldman Sachs Global Investment Research, Wood Mackenzie. Goldman Sachs Global Investment Research 6
China metals consumption index (GS MCI) points to demand hard landing in 2015 % change yoy 40 35 30 GS China Metals Consumption Index China Industrial Production Growth 25 20 15 10 5 0-5 -10 2008 2009 2010 2011 2012 2013 2014 2015 Source: Goldman Sachs Global Investment Research, CEIC. Goldman Sachs Global Investment Research 7
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 EM ex-china copper consumption vs. EM ex-china industrial output % change yoy 0.15 0.10 0.05 0.00-0.05-0.10-0.15-0.20 EM ex China IP Copper demand Source: Goldman Sachs Global Investment Research, Wood Mackenzie. Goldman Sachs Global Investment Research 8
Economy transition and China s metals demand re-balancing
Copper and steel demand has slowed considerably, while gasoline demand has been rising Historical China commodity consumption growth (%yoy) 35% 30% 25% Motor Gasoline Copper Steel 20% 15% 10% 5% 0% -5% -10% 96 98 00 02 04 06 08 10 12 14 16 Source: CEIC, Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research 10
CapEx commodities OpEx commodities China s metal demand re-balancing: Strong demand for Opex commodities ( 消费型商品 ) Slowing demand for Capex commodities ( 投资型商品 ) China consumption growth 2015 (%yoy, 2015 ytd) Gasoline Kerosene Zinc*** Aluminium Soybean* Coffee* Nickel** Oil (total) Naptha Diesel Sugar* Corn* Copper Cotton* Wheat* Met Coal Iron Ore Steel Thermal Coal Cement Source: CEIC, Goldman Sachs Global Investment Research. -20-10 0 10 20 Goldman Sachs Global Investment Research 11
What s happening in China?
China s debt burden and the impossible trinity ( 经济三元悖论 )limit stimulating the old economy % change yoy, 3mma 40 35 Nominal GDP Debt (Total Social Financing) New Chinese government 30 25 20 15 10 5 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Goldman Sachs Investment Research, CEIC. Goldman Sachs Global Investment Research 13
Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 GS China Metals Consumption Index pointed to a sequential decline in October, and year-on-year growth remains negative % change yoy (lhs), % change mom, 3mma, sa (rhs) 40% 8% 7% 30% 6% 5% 20% 4% 3% 10% 2% 1% 0% 0% -1% -10% -2% -3% -20% -4% GS China MCI yoy (lhs) GS China MCI mom, 3mma, sa (rhs) Source: Goldman Sachs Global Investment Research, CEIC. Goldman Sachs Global Investment Research 14
Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 The recent slight pick-up in demand is unlikely to have caught up with supply, explaining sustained metals price weakness GS China MCI level, seasonally adjusted, stylized supply growth 1.7 1.65 1.6 Illustration of metals demand - GS China MCI level Illustration of trend supply 1.55 1.5 1.45 1.4 1.35 1.3 A surplus created by demand weakness requires either a major pick up in demand and / or major supply cuts to rebalance the market 1.25 1.2 Source: CEIC, Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research 15
Copper demand outlook
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E China s renewable power generation and new energy vehicles (NEVs) will grow strongly in 2015-2020 2,000 China s installed power generation capacity GW 100,000 China NEVs sales 000 units 1,800 1,600 1,400 Coal 90,000 80,000 70,000 New energy CV PHEV car 1,200 New Energy 60,000 EV car 1,000 50,000 800 40,000 600 30,000 400 20,000 200 10,000 0 0 2015 2016 2017 2018 2019 2020 Source: Goldman Sachs Global Investment Research, CEIC. Goldman Sachs Global Investment Research 17
Maximum potential copper consumption growth contribution from new energy is 0.63% per annum in 2015-2020, 1/5 of our 3% China Cu demand growth % grow th contribution Tonnage growth in 2015-2020 000t New energy vehicles 0.13% 80 New energy vehicle charging equipm ent 0.21% 120 Pow er generation shift to renew ables 0.29% 180 Total cu consumption grow th 0.63% 380 Source: Goldman Sachs Global Investment Research, CEIC. Goldman Sachs Global Investment Research 18
New starts are still falling and point to weakness in late-cycle copper-intensive construction completions over the coming years 12mma new starts (lhs) lead 22mths, 12mma completions (rhs) 2200000 1100000 2000000 1000000 1800000 1600000 900000 1400000 800000 1200000 700000 1000000 800000 600000 600000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 NS 12mma (lead 22 months, lhs) Completions 12mma (rhs) 500000 Source: CEIC, Goldman Sachs Global Investment Research. Goldman Sachs Global Investment Research 19
China s grid investment is shifting towards rural which is copper light % 400 350 300 250 200 150 100 50 0 2014 2015E 2016E 2017E 2018E 2019E 2020E Urban Rural Source: State Grid, NEA, Goldman Sachs Global Investment Research Goldman Sachs Global Investment Research 20
Copper consumption growth from grid distribution % 12% Scenario 1: same average annual growth 10% Scenario 2: ajusted annual growth based on estimate 8% 6% 4% 2% 0% 2015E 2016E 2017E 2018E 2019E 2020E Source: State Grid, NEA, Goldman Sachs Global Investment Research Goldman Sachs Global Investment Research 21
Copper balances, price outlook
Copper s bear cycle still has years to run Global refined copper supply and demand balance, 000t 2013 2014 2015E 2016E 2017E 2018E 2019E 2020E Global m ine supply 18111 18429 18673 19299 19737 20305 20808 20634 % change 8.4 1.8 1.3 3.4 2.3 2.9 2.5-0.8 Including disruption allow. (%) 0.0 0.0 2% 6% 9% 11% 14% 18% Including disruption allow. (level) 0 0 394 1125 1958 2406 3361 4462 Global ref ined supply 20589 21790 21986 22483 23013 23560 24074 23933 % change 4.2 5.8 0.9 2.3 2.4 2.4 2.2-0.6 Global refined consumption 20579 21378 21501 21952 22447 22934 23417 23905 % change 5.4 3.9 0.6 2.1 2.3 2.2 2.1 2.1 Of w hich China 9100 9627 9627 9916 10213 10520 10835 11160 % change 11.3 5.8 0.0 3.0 3.0 3.0 3.0 3.0 Of w hich World ex-china 11479 11751 11874 12036 12234 12414 12582 12744 % change 1.2 2.4 1.0 1.4 1.6 1.5 1.3 1.3 Balance 10 412 485 531 566 626 657 28 LM E Price ($/t) 7328 6863 5582 4725 4500 4500 5000 5500 Source: Goldman Sachs Global Investment Research, Wood Mackenzie, ICSG, Goldman Sachs Global Investment Research 23
Disclosure Appendix October 23, 2015
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