Goldman Cuts Commodity Forecasts on Slowing Growth Outlook

By Jesse Riseborough

Oct. 10 (Bloomberg) -- Goldman Sachs JBWere Pty cut its forecasts for iron ore and coal, saying prices will remain unchanged next year as ``deteriorating'' global economic growth will curb demand for raw materials.

Goldman expects iron ore contract prices for the year starting April 1 to stay at 144.66 cents per dry metric ton unit, down from a Sept. 17 forecast for an 18 percent increase, analysts led by Melbourne-based Malcolm Southwood said in a report. Coking and thermal coal prices may also remain unchanged in 2009, down from earlier estimates for gains of 10 percent and 20 percent respectively.

Growth in industrial nations will slow to 0.5 percent next year, the lowest pace since 1982, leaving the world economy on the ``cusp'' of recession, International Monetary Fund Managing Director Dominique Strauss-Kahn said yesterday. Central banks are cutting rates and pushing cash into banking systems amid the worst credit crisis since the Great Depression.

``If next year's contract negotiations had to be finalized now, price falls for bulk commodities would be all but inevitable,'' Goldman said in the report dated yesterday. ``However, we think it is very likely that both demand and sentiment will have resumed a somewhat more buoyant complexion by mid-2009.''

Analysts from UBS AG and Australian & New Zealand Banking Group Ltd. have already cut forecasts for metals including zinc, copper, nickel and steel.

Record Price

Surging demand for iron ore from China, the world's biggest consumer of the ore, has boosted prices this decade, helping deliver record profits for BHP Billiton Ltd., Rio Tinto Group and Brazil's Cia. Vale do Rio Doce. Rio and BHP won a price increase of as much as 97 percent this year.

UBS is forecasting iron ore prices to fall 15 percent next year, the first decline in seven years. The price of the ore, used to make steel, may drop in 2009, Credit Suisse Group said Oct. 7.

Goldman lowered its 2008 forecasts for aluminum by 4.4 percent, nickel 2.8 percent, zinc 2.2 percent, and lead 2 percent. It raised its estimate for gold 2 percent to $894 an ounce. It lowered its 2009 forecasts for aluminum by 7.9 percent, copper 11 percent and platinum 37 percent.

Copper is the bank's preferred metal as supply constraints should help prices rebound in the first half of 2009, it said. Coking coal is its favored bulk commodity, Goldman said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net