(The opinions expressed here are those of the author, a
columnist for Reuters)
By Andy Home
LONDON Dec 13 Wall Street heavyweight Goldman
Sachs has been banging the bear drum on the copper price
since the middle of last year.
Its July 2015 research note was titled "Copper - lower for
longer", which pretty much said it all.
Copper, which was then trading in London around the
$5,500-per tonne level, would fall to $4,500 by the end of 2016
and then stay there for 2017 and 2018 as "the market adjusts to
a seven-year bear cycle" running from 2011 to 2018, the bank
Things have not worked out that way.
"The rally in copper prices over the past two months was in
sharp contrast to our more bearish expectations", it now
concedes. ("2017 copper outlook - a more bullish view", Dec. 11,
With copper currently trading around $5,770 per tonne,
Goldman is now calling for prices to rise to $6,200 over the
next six months, a major revision from its previous six-month
call of $4,800.
It may be a little unfair to single out Goldman Sachs.
The entire market has been wrong-footed by copper's dramatic
change in fortune.
At the time of the January 2016 Reuters poll of analysts,
the median price expectation for 2017 was $5,182 with only one
participant, Standard Chartered, positing a more bullish outcome
($6,500) than Goldman's latest forecast.
Then again Goldman is Goldman. And it has a habit of making
aggressive market calls, which makes its flip from super-bear to
super-bull something of a stand-out.
But its reasoning is also a neat summation of the broader
flip in consensus among metals analysts.
FROM SURPLUS TO DEFICIT
Underlying Goldman analyst Max Layton's change of mind about
copper's prospects next year is a reassessment of the market's
Layton is now forecasting a small supply deficit of around
180,000 tonnes in 2017, compared with a previous expectation
that the market would be in a moderate surplus of around 360,000
The major part of that more bullish view derives from a
recalculation of expected mine supply.
Goldman is now expecting mine supply to decline by 0.4
percent next year compared with a previous forecast for
It is not alone in rethinking the timing and nature of the
much-feared "wall of copper" supply surge.
The International Copper Study Group (ICSG) made some major
revisions to its forecasts back in October.
Compared with its previous forecast in March, the ICSG
lifted its assessment of mine supply growth this year to 4.0
percent from 1.5 percent but downgraded its 2017 forecast from
2.3 percent to zero.
The "wall of copper", it seems, arrived earlier than
expected, in part due to efficient ramp-up of new mines and in
part due to a low level of disruption in the first half of this
Next year, by contrast, there are fewer new mines due to
come onstream, while, as Goldman notes, the list of potential
disruptions from expiring labour contracts, Zambian power and
tax issues and Indonesian export permit problems looks set to
On the demand side, meanwhile, Goldman has lifted its usage
growth expectation from 1.7 percent to 2.2 percent.
"Over a very short period of six weeks we have seen data
releases pointing to a surge in global industrial activity, most
notably in China where the manufacturing (purchasing managers
index) jumped to its equal highest level in four years."
The election of Donald Trump brings with it the promise of
infrastructure spend and reflation in the United States, but the
real driver of stronger-than-expected demand for copper and
other industrial metals this year has been China.
The metal markets started the year fearing a hard landing
for metals-intensive sectors of the Chinese economy but
underestimated Beijing's willingness to pump up its flagging
growth rate using the tried-and-tested channel of infrastructure
Fixed asset investment has rebounded, the residential
property sector is once again bubbling, in the major Chinese
cities at least, and so too are the prices of just about every
industrial commodity from steel to copper to zinc.
The tail winds of China's own flip-flop on economic policy
are still blowing and can be expected to continue doing so
through the early part of 2017.
At which stage we get to see in more detail what exactly the
Trump administration's own version of fiscal stimulus looks
THE CHINESE GORILLA
The gorilla in the metals room right now is the elevated
level of speculative interest roiling Chinese commodity markets.
Make no mistake. Western investors too were starting to
reassess metals pricing in light of shifting supply-demand
But the scale and speed of the recent price increases has
largely reflected massive allocations of money by Chinese
To be fair to Goldman, its new copper forecasts are
predicated on a reevaluation of fundamental drivers rather than
the "tempting" option of blaming "this surge in speculative
But it is surely right to highlight the risks to any current
forecast from "the timing and scale of shifts in net speculative
positioning and Chinese asset allocation".
The sheer potential scale of Chinese investment appetite
"dwarfs the size of the copper market."
The bank estimates that as much as $600 billion of funds may
be seeking a new home after being chased out of property and
stock markets by the Chinese authorities.
"Were just 2.5 percent of these funds to shift into copper,
net speculative length would double from its current level of
around $15 billion."
And if it did, even Goldman's above-consensus bull copper
call might turn out to be super-conservative.
Layton is not the only analyst trying to factor in this new
Nor is he the only one reassessing copper's ever-changeable
Goldman has dramatically changed its stance. Others will
(Editing by David Evans)