by Ben Kibley, Platts
June 25, 2013 (TSR) – The near-term prospects for the global copper market are turning increasingly bearish, with a surplus of metal building quicker-than-expected, according to Goldman Sachs which cut its price forecasts Tuesday, with the three-months outlook cropped to $7,000/mt from $7,500/mt previously.
Behind the earlier than expected surplus of the metal is the slowdown in the world’s largest consuming country, China.
The recent tightening of Chinese financial conditions resulted in the bank’s economists downgrading their China GDP forecasts to 7.4% from 7.8% for 2013 and 7.7% from 8.4% for 2014.
As such, Goldman downgraded its global copper consumption growth forecast for 2013 to 2.9%, from 3.8%.
“We believe the copper market is in a broader transition to a surplus market, and slower near-term demand growth in the world’s biggest copper consumer is likely to close the current ‘window’ of physical copper tightness sooner than we previously expected,” Goldman’s analyst Max Layton said in a note.
The bank now forecasts a small copper market surplus of around 250,000 mt in H2 2013, with H1 2013 having been in balance to small deficit. It also sees the market heading into a 2014 surplus of some 400,000 mt.
“Given our broader outlook of a market heading into surplus with risks to global demand growth increasingly skewed to the downside, we recommend producers take the opportunity to hedge into any near-term short covering rallies,” said Layton.
“While we have been forecasting a significant copper market surplus in 2014 for some time, our new H2 2013 surplus forecast suggests that the 12-month price outlook is incrementally bearish — owing to a higher cumulative surplus,” the analyst said.
The six-months outlook was shaved to $6,600/mt from $8,000/mt with 12-months down to $6,600/mt from $7,000/mt previously.
“Our new 2013 and 2014 annual average forecasts are $7,216/mt from $7,600/mt, down 5%, and $6,600/mt from $6,925/mt, 4.7% lighter. In our base case we expect substantial fundamental support to ‘kick in’ in the low-mid $6,000/mt range — our 2014 forecast price low is $6,200/mt,” said Layton.