Copper likely to register a moderate surplus in 2017 – Goldman Sachs

Research Team at Goldman Sachs, suggests that in copper specifically, the pick-up in Chinese demand has left the market tighter than they anticipated, evidenced by drawing (visible) copper inventories over the past two months, and stronger than normal physical premiums in China for this time of year.

Key Quotes

“In our view copper is now likely to be broadly balanced for 2016 (c.100kt surplus), despite solid supply growth over the year to date. This has lowered the inventory build and raised the level of demand, reducing the amount of downside to copper pricing as we head in to 2017.”

“Nevertheless, despite higher demand growth assumptions, we believe that the copper price has moved too much too quickly (helped in part by investor demand on the rally in US yields), and that the outlook for copper is bearish from current levels. Indeed, we now model a moderate copper surplus of c.400kt during 2017, on a slowing in demand growth, rising supply (refined and scrap), and thus anticipate a resulting moderation in net speculative positioning which is currently near extreme levels on the LME and Comex.  At this point it is difficult to see global demand growth growing strong enough to justify prices trading well above marginal cost through 2017 - our modelling estimates suggest that the copper market is pricing a c.400kt deficit at current prices and costs, which would require global demand growth of c.6%, more than double trend growth, during 2017.”