Goldman Sachs on copperCopper May Be'Unimaginably' High in 3 Years, Goldman Says
Copper prices may be"unimaginably" high in three years, with China growth spurringconsumption, according to Goldman Sachs Group Inc.
Copper is "our mostpreferred base metal for equity exposure and by a wide margin," saidanalyst Julian Zhu today in Beijing. The metal "is likely to reclaimlevels above $9,000 a ton in the fourth quarter if China's macro policy startsto show signs of loosening." He did not give an estimate for prices inthree years.
Increased Chineseconsumption may help lift prices, which this week gained the most since atleast 1986 after European leaders agreed on a plan to stem the debt crisis andthe U.S. economy grew faster than expected. Chinese imports climbed to thehighest level in 16 months in September as lower prices prompted buying.
"Even if the developedcountries reduce copper consumption due to slower economic growth, we think theemerging countries will be able to more than make up for it as 75 percent ofnew copper demand comes from emerging markets, especially China," Zhusaid. "Copper's supply is very difficult to expand." The bank doesn'tfavor steel and aluminum, according to slides prepared for delivery at thebriefing.
Copper Deficit
The increase in copper mineproduction may not exceed 100,000 metric tons this year, lower than an expectedincrease of more than 1 million tons in planned mine expansions, MacquarieGroup Ltd. has said. Prices will rebound to average $9,850 a ton next yearbecause of a "substantial deficit," according to Natixis CommodityMarkets Ltd. The shortage will be 300,000 tons this year and another deficitnext year, according to Tiberius Asset Management.
"We've tracked the top20 developing copper mines worldwide and found that costs of production areclimbing while quality of mines are deteriorating," said Goldman's Zhu."One mine in northern Peru I saw recently has cost of $9,000 a ton.
We think this is supportiveof the copper market."
While copper surged as muchas 16 percent this week the metal is down 20 percent from a record $10,190 aton on Feb. 15, the common definition of a bear market. The contract dropped0.6 percent to $8,098 a ton by 5:57 p.m. Shanghai time.