A storm’s about to hit the global copper market, according to Goldman Sachs Group Inc., which forecasts that the price may slump to $4,000 a metric ton over 12 months as mine supply picks up, producers enjoy lower costs and demand growth softens.
“Company guidance and our estimates suggest that copper is entering the eye of the supply storm,” analysts including Max Layton and Yubin Fu wrote in an e-mailed report received on Friday. A drop to $4,000 would be a 17% slump from Thursday’s close on the London Metal Exchange, Bloomberg reported.
Copper has lagged gains seen in other raw materials so far this year, especially zinc and nickel, which have benefited from forecasts for global shortages. For copper, there’s been solid growth in global mine supply in the first half and that trend is expected to pick up in the coming quarters, according to Goldman.
“This ‘wall of supply’ is expected to translate into higher copper smelter and refinery charges and ultimately, higher refined-copper production, set against softening demand growth,” Layton and Fu wrote. The metal is seen at $4,500 a ton in three months and $4,200 in six, they said, reiterating targets.
Pipes and Wires
Copper for delivery in three months—which last traded below $4,000 a ton in 2009—was at $4,844 on the LME in Singapore, heading for a weekly loss. The metal used in pipes and wires has risen 3% this year, while zinc has surged 41% and nickel has advanced 21%.
For Goldman, the main expansion in mine supply through to the first quarter of 2017 is expected to come from the Grasberg mine in Indonesia, Escondida in Chile and Sentinel in Zambia, according to the report. Growth from Cerro Verde and Las Bambas in Peru may also contribute, it said.
To gauge the outlook for supply, Goldman tracks 20 companies that account for about 60% of worldwide production, according to the report. These 20 raised output by 5% on-year in the first half of 2016, and are expected to increase that to as much as 15% in the coming quarters, it said.
Antofagasta Plc, which owns and operates copper mines in Chile, has lost 15% in London over the past 12 months, while Rio Tinto Group, the mining giant that produces iron ore and aluminum as well as copper, fell 5.7%. In the US, Freeport-McMoRan Inc. has gained 13% in the period, aided by asset sales and other measures to reduce debt.
