Copper Seen by Goldman Grinding Lower as Demand in China Wanes

Jul 09, 2014 2:58 am ET

July 9 (Bloomberg) -- Copper prices will “grind lower” over the next six to 12 months as production costs decline and demand softens in China, the largest consumer, according to Goldman Sachs Group Inc.

Consumption of the metal will fall with the weakening of China’s property sector, which accounts for 50 percent of the nation’s copper demand, analysts including Jeffrey Currie and Max Layton wrote in a report dated yesterday.

Prices will also fall as commodity financing deals gradually unwind, output disruptions at smelters ease and China’s state stockpiler slows purchases, Goldman said. The bank forecasts prices at $6,200 a metric ton at the end of 2014, compared with $7,131.50 at 2:31 p.m. Hong Kong time.

Production of the metal used in wiring and pipes will exceed consumption by 385,000 tons this year and 454,000 tons in 2015, Goldman said.

The projections contrast with Morgan Stanley’s positive outlook amid what it sees as a global shortage. Morgan Stanley forecast prices to average $7,055 a ton in the second half of this year, it said in a report yesterday.

Copper has rallied 11 percent since closing at a 44-month low on March 13.

Increased state stockpiling by China is one risk to Goldman’s estimates, according to the report.