The New York-based bank stuck to its bullish view, calling the metal a preferred commodity that will rise 24 percent to $7,049 a metric ton by the end of the year. There’s no evidence of a collapse in demand for copper, Morgan Stanley said in a report dated Jan. 19.
Copper tumbled 6.2 percent last week, the biggest rout since 2011, after the World Bank cut its forecast for the global economy. Cheaper energy prices have also dragged down metal prices by reducing the cost of production, prompting mining companies to undercut each other on price, Morgan Stanley said.
“We remain bullish on the copper outlook,” analysts including Tom Pricewrote in the report. “We really are surprised by this latest price move.”
The almost 50 percent drop in oil over the past year has reduced the cost of producing copper by about 5 percent, Morgan Stanley estimated. From July 1, 2014 to Jan. 12, 2015, 90 percent of the move in copper could be explained by the move in oil, the bank said. That relationship broke down last week and copper prices fell too far, too fast, according to the note.
Underpinning Morgan Stanley’s bullish case for copper is that demand will exceed supply. The bank said the refined copper market will be in a deficit of 70,000 to 110,000 tons from 2015 to 2017.
Futures for delivery in three months were down 0.8 percent to $5,671.50 by 4:03 p.m. on the London Metal Exchange.
To contact the reporter on this story: Laura Clarke in London atlclarke24@bloomberg.net