Metals prices may find some support after their long downturn, as China's raw-materials dependent sectors begin to show some modest improvement, Goldman Sachs said.
"China's 'old economy' continued to stabilize during late 2015 (albeit at very weak levels, and well below trend growth rates)," Goldman said in a note dated Sunday, citing an uptick in the latest reading of its in-house GS China Metals Consumption Index (MCI).
"The pick-up likely reflected a reduction in de-stocking and targeted fiscal easing (most notably in the automotive sector), and sustained acceleration in credit (albeit ongoing since May)," it said.
Goldman added that the market has largely priced in weakness in Chinese demand into metals prices near term after a substantial increase in net short positions over the past three months. A short position is a bet on the price of an asset to fall.
That means that as long as the surge in oil supply doesn't overrun storage capacity and China doesn't substantially devalue its currency -- neither of which Goldman expects -- the GS China MCI stabilization, seasonal improvement in metals demand after the Lunar New Year holiday and the Chinese government's stockpiling could temporarily support metals prices near term, the bank said.