Goldman Sachs lowers copper price projections, warns of tough adjustment

RIO DE JANEIRO, BRAZIL – Copper has lost one of its most influential cheerleaders after Goldman Sachs Group Inc. cut its short-term price forecasts in anticipation of a sharp drop in consumer spending and industrial activity as Europe’s energy crisis deepens.

Goldman analysts have been among the most bullish voices on commodities and warned that copper, in particular, could become one of the tightest markets ever seen. But with investors selling the metal en masse and prices now 40% below the bank’s expectations, the bank warns that the downturn could still last much longer.

Copper production falls to its lowest level in five years, and Los Pelambres, Collahuasi, and Anglo American Sur lead the decline.

The rising dollar has weighed significantly on copper, and the global energy squeeze that threatens growth is “heavily skewed toward an escalation into winter,” analysts, including Nicholas Snowdon, said in an emailed note.

The bank forecasts copper at US$6,700 a tonne over the next three months, down from a previous forecast of US$8,650.

The metal, often seen as a bellwether for the global economy, has plunged nearly 30% from a record in March. While analysts had favored copper due to tight supplies and its use in rapidly expanding green technologies, prices have plunged as Russia’s tightening of energy supplies hits economies, especially in Europe.

Former copper bull Bank of America also cut its forecasts last week, warning that in a worst-case scenario, in which Europe experiences widespread gasoline shortages, prices could fall to US$4,500 a tonne.

Copper fell 1.5% on Tuesday on the London Metal Exchange to US$7,472 a tonne and was heading for its lowest close since November 2020. Other metals were steady to lower.

The copper market faces a surplus over the next two years as demand declines and mines continue to expand, Marcus Garvey, head of the commodity strategy at Macquarie Group Ltd., said in an LME webinar on Tuesday.

In the absence of further supply shocks, the metal’s performance will come down to global growth, he said.

“The downward spiral in copper prices that has gained momentum in recent sessions reflects increasingly pessimistic growth expectations,” Goldman said in its note. “This latest leg down has been linked to increasing headwinds to European growth, particularly from the impact of rising regional natural gas prices on activity.”

Goldman also warned that lower prices might be needed to encourage producers to ration supply, although it said actual production cuts would only be necessary in a global recession.

Still, the bank said copper was on track to hit US$15,000 by 2025, citing a “clear structural bullish story” as mine supply peaks. It sees copper at US$7,600 in six months and US$9,000 in 12 months, versus previous forecasts of US$10,500 and US$12,000.

With information from Diario Financiero

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