The copper market will likely be roughly 350,000-500,000 mt in surplus over 2014-2015, with the price possibly pushing as low as $6,600/mt in the next three months, Goldman Sachs said Thursday in a detailed note on commodities.
"After incorporating strong ex-China demand growth assumptions and including a significant disruption allowance, our supply and demand balance continues to point [to a] surplus market in both 2014 and 2015," the investment bank said.
"In line with this we forecast that the copper price will fall to $6,600/mt on a 3-months horizon, $6,600/mt over 6-months and $6,200/t over 12-months," analyst at the bank Max Layton said.
Reflecting Chinese State Reserve Bureau buying and low levels of visible inventory "we have pushed out our end year forecast of $6,200/mt to mid-2015. This has the effect of lowering our 2015 average price forecast to $6,400/mt from $6,600/mt."
Further out, Layton cut the 2016 forecast to $6,600/mt from $7,000/mt, "due to expectations of lower marginal production costs and early signs of a slightly easier balance in that year."
The analyst said that, with copper prices declining by around 30% over the past three years "it remains tempting to call a turn in the market. This is especially the case given the bullish outlook for global demand growth -- led by an acceleration in growth in the developed markets, which together with the recent London Metal Exchange stock draws and lack of contango continue to send a strong buy signal."
Still, the bank stuck by its bearish call, basis a heavy weighting of negative factors -- in its view.
One of these factors is that copper is so heavily exposed to Chinese property, "on which our China real estate team is bearish in 2014 and 2015." Secondly, copper prices have been affected by Chinese copper financing deals, "which have shifted visible inventory to Chinese bonded warehouses and off market."
Goldman believes that this is expected to ease over the next 6-12 months.
Three-months copper closed the LME kerb session Wednesday at $7,050/mt.
