Goldman Sachs remains bearish on the outlook for the copper price in 2014, with a target price of $6,200/mt, the investment bank said late Wednesday.
"After selling off from $7,450/mt to $6,320/mt in mid-March, driven by Chinese property sector weakness and ongoing above-trend supply growth, London Metal Exchange copper prices have retraced a third of their losses, stabilizing around $6,700/mt. We reiterate our bearish 2014 copper view, and maintain our forecast that the price will fall to $6,200/mt this year," a research note said.
Three-months copper closed the Wednesday LME kerb session at $6,655/mt.
Copper is very heavily exposed to the Chinese property market with over 60% of consumption coming from property and property-related sectors.
"These end markets were soft in Q1 2014, with late cycle copper intensive property completions down 5% ([circa]51% of consumption), property sales down 5% ([circa]12% of consumption via consumer appliances), and new starts down 25% (a forward indicator for completions, leading by 18-24 months). We believe copper-intensive construction completions growth is set to remain weak for the rest of 2014, given the already weak new starts data," Goldman analyst Max Layton wrote in the note.
"Without a pick-up in property sales there is some downside risk to our Chinese copper demand forecasts of 6% in 2014 and 5% in 2015," Layton added.
Outside of China the analyst noted a pick-up in copper demand.
"The outlook is for further improvement, likely limiting copper price downside over the longer term," said the analyst.
Goldman believes that "while physical market indicators point to a tight market at present, we believe this owes to the seasonally strong period for demand, which began in April and ends in June/July."
Copper stocks in LME-registered warehouses dipped a further 3,925 mt Thursday to weigh in at 213,025 mt.
Looking at stocks in China Commerzbank said that "exchange-registered copper stocks on the SHFE were slashed virtually in half to 104,000 mt in April."
