Copper prices will be hurt by a drop in crude oil, a strengthening dollar and economic cooling in China, Goldman Sachs analysts said in a report today.
The metal will lose ‘at least’ 16 percent over the next 12 months, the bank predicts. Copper is relatively highlyoil price-sensitive when compared to other commodities. The metal is also very susceptible to weakness in China, where 40 percent of all copper is consumed. Manufacturing PMI, industrial production, inflation and fixed asset investments in the world’s second economy were all logged below expectations this month.
“We believe that current prices represent a very strong selling opportunity, for producers and investors alike,” the analysts at Goldman Sachs Group Inc. said. “Despite the recent partial retracement in prices, the structural bear copper narrative remains intact.”
West Texas Intermediate crude oil is projected to fall to $45 by October, from about $60 as of today.
Copper futures for July delivery on the New York Mercantile Exchange were little changed at $2.811 per pound as of 10:24 BST today. The metal has lost nearly five percent over the past two weeks and is 10 percent in the red on an annual basis.
Goldman Sachs’ latest analysis is at odds with what many industry chiefs and other experts have been suggesting. They claim that hurdles in China are well offset in the mid-term by active intervention by the People’s Bank of China, which earlier this month lowered the central lending rate to 5.10 percent from 5.35 percent, and the deposit rate to 2.25 percent from 2.5 percent.
More importantly, the industry sees a significant deficit emerging in the copper market as early as this year.
However, LME copper spreads are seen supporting a bearish trend, Goldman Sachs’ report noted, which may reflect the weakness in the physical market evidenced by low or falling physical premiums.