Copper Monthly Fundamental Forecast – September 2016

Copper closed the month at 2.078 near the very bottom of its monthly trading range as the US dollar gathered momentum. Copper is a strong buy moving into September down over 5% for the month. Copper rose 5% m/m to average 2.21/lb. in July, but the outlook remains lackluster given the absence of any sustained supply response and weaker global demand prospects. Chinese demand saw mixed results in the first half of 2016, with most of the strength emanating from sectors that benefitted from state-driven credit stimulus. For example, investment in China’s copper-intensive power grid was up 33% y/y and building completions rose by 20%. Meanwhile, consumer-driven sectors didn’t fare as well, with a 6% y/y contraction in air conditioner output with a 10-15% of end-use demand and falling output of other “white goods” including refrigerators down -5%.

A storm’s about to hit the global copper market, according to Goldman Sachs Group Inc., which forecasts that the price may slump to $4,000 a metric ton over 12 months as mine supply picks up, producers enjoy lower costs and demand growth softens.

“Company guidance and our estimates suggest that copper is entering the eye of the supply storm,” analysts including Max Layton and Yuban Fu wrote in an e-mailed report received on Friday. A drop to $4,000 would be a 17 percent slump from Thursday’s close on the London Metal Exchange.

Copper has lagged gains seen in other raw materials so far this year, especially zinc and nickel, which have benefited from forecasts for global shortages. For copper, there’s been solid growth in global mine supply in the first half and that trend is expected to pick up in the coming quarters, according to Goldman.

Apart from below average disruptions at existing operations and relentless cost cutting by producers, investment bank Goldman Sachs warned as the new month started in a note discussed on Bloomberg TV that the price of copper wouldn’t withstand an expected surge in additional supply through the rest of the year and in 2017:

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