Copper: Waiting for evidence of stronger demand and physical tightness – Goldman Sahs

The research team at Gokdman Sachs, explains that copper remains in the same holding pattern as it did at the end of last year, waiting for evidence of stronger demand and physical tightness.

Key Quotes

“Concerns over demand weakness have been supported, but not conclusively so, by 10-20% declines in steel and iron ore prices over the past month. But we believe this ferrous weakness can be explained by ferrous de-stocking after prices rallied to extremely high levels earlier this year, particularly as steel demand growth remains healthy. A loose copper scrap market was also widely blamed for the recent physical softness. Meanwhile, the recent supply disruptions and lack of mine supply growth evidenced by mine to trader TCs moving sub 60/t point to tightening refined supply. While the soft physical market leaves Max Layton with some cause for concern, he remains firmly of the view that the copper market is on the verge of tightening notably, as demand growth continues in the face of a slowing supply.”

“Substantial upside risk to our current 3-month price target of $6200/t comes from the Chinese property market. Should property sales volumes in the cities not subject to a crackdown on speculative activity more than offset the slowdown in sales volumes in the 40 odd cities subject to restrictions, our 1H17 tactical bullish copper view could stretch through 2H17. With capital controls increasingly successful, the probability of this occurring is rising in our view, though not our base case. We await the March nationwide sales data.”