Goldman Sachs Slashes 2016 Copper Forecasts, Sees Demand Faltering

Goldman Sachs analyst Eugene King penned a report this week that focused on the firm’s updated outlook for copper and copper-exposed stocks. Goldman sees both supply and demand pressures continuing to weigh on copper prices throughout 2016, and the firm reduced its price forecast for the metal.

Supply
While consensus estimates show a reduction of supply coming next year, Goldman is calling for the base copper supply to continue to grow. In fact, the firm sees about 3 Mt of supply coming online in an environment of forex weakness and cost deflation.

Demand
Goldman sees the copper demand environment as equally bearish. China currently consumes about 45 percent of the global copper supply, and Goldman believe that demand is sustainable. “Private consumers in a country with 20%/13% of global population/GDP cannot consume half the world’s copper,” King argues.

Goldman sees little demand relief coming from developed markets as well.

Outlook
Until something meaningful changed in the copper market, Goldman predicts that the world will continue to be oversupplied with copper. The firm reduced its price forecast for 2015 from $5724/t to $5670/t and its 2016 forecast from $5825/t to $4725/t.

How to play it
In addition to its reduced price forecasts, Goldman is also bearish on several copper-exposed stocks. The firm has Sell ratings on London-listed Antofagasta Plc and KAZ Minerals Plc and downgraded the stocks of Glencore PLC and First Quantum Minerals Ltd from Buy to Neutral.

The firm sees smelter exposure as the best way to profit off the copper oversupply. Goldman has Buy ratings on Aurubis AG and Boliden AB.