Goldman remains bullish on copper
Market Watch reported that investor concerns over the deteriorating macro environment and Europe's persistent sovereign debt problems are keeping the base metals on the London Metal Exchange under pressure although a global recession or financial crisis would be needed to derail the generally positive fundamental outlook for copper and zinc.
Goldman Sachs GS +1.28% said that despite the markets' recent slide accelerated by copper's 8% plus plunge to a one year low the investment bank has lifted its outlook for the two metals, citing well supported supply and demand fundamentals.
In a note to clients, Goldman raised its three month LME copper price to USD 9,700 per tonne from last month's forecast of USD 9,450 per tonne. It also lifted its 3 month zinc forecast to USD 2,450 pert tonne from USD 2,400 per tonne. At 1523 GMT, three month copper traded at USD 7,738.50 per tonne while three month zinc traded at USD 2,009 per tonne.
The bank said that we continue to expect further upside in copper. Although the recent macro deterioration and European sovereign debt problems have increased the downside risk to our forecasts, our mainline economic views, and expectations of continued strong economic growth in emerging markets and China in particular, continue to suggest tightening copper fundamentals that will push prices higher over the next year.
It said that the ability for China to reverse or ease tightening measures introduced there over the past year is providing a strong line of defense for the industry linked commodities. Copper and zinc have wide industrial applications, and as such are sensitive to economic policy. In metals, the Shanghai-LME arbitrage [window], which is a strong indicator for Asian appetite for copper imports into the region, has been open for most of the past six weeks indicating growing demand,.
The bank added that while macro fears are still weighing on metal prices, the industrial commodities have been remarkably resilient over the past month relative to other asset classes. It put this largely down to supportive near-term fundamentals.
Goldman said that we believe that a global recession and/or financial crisis would be required to derail our current constructive commodity views on copper and zinc. While it does not expect the fundamental balance in the zinc market to be as tight as that in copper next year, a deficit is developing amid growing imports into China and the closure of key mines, and should keep the price well-supported.
It said that China is a growing net importer of zinc raw materials, like copper, setting up for sizable upside for the metal even before important mine closures are set to take place in 2013 to 2015. To be sure, downside risks remain to its forecasts given current macro turmoil.
(Sourced from Market Watch)