Goldman Cuts Three-Month Copper, Aluminum, Zinc Target on Europe, China
Goldman Sachs Group Inc. lowered its near-term price forecasts for copper, aluminum and zinc as markets remain “fragile” on concerns that the Europe debt crisis may hamper growth and as China moves to cool its economy.
Copper will trade at $6,800 a metric ton in three months time, 16 percent lower than a previous estimate, the bank’s analysts led by Allison Nathan and Jeffrey Currie said in a report dated today. The metal will climb to $7,900 a ton in six months and to $8,050 in 12 months, gains of 1.9 percent and 2.5 percent, respectively, from the bank’s previous forecasts.
“We believe that the market is overestimating the impact of current policy and maintain that sentiment is too bearish on both the sovereign-debt risks as well as the effects of macroeconomic momentum slowing,” the analysts wrote. “We believe that the markets will remain fragile until there is further evidence that sovereign pressures are stabilizing and economic growth remains intact - both of which we expect.”
Commodities, as measured by the Reuters/Jefferies CRB Index, climbed to a five-week high yesterday after China, the world’s third-biggest economy, signaled an end to the yuan’s peg to the dollar. Still, the index has dropped 7 percent this year on European and Chinese concerns, with copper slumping 11 percent on the London Metal Exchange.
Copper for three-month delivery in London dropped as much as 2 percent to $6,470 a ton today on concern that a stronger Chinese currency will boost the cost the country’s exports. The People’s Bank of China said on June 19 it will allow greater “flexibility” in its currency, signaling it would abandon the 6.83 yuan peg to the dollar adopted during the global crisis to shield exporters.
The announcement was an “important signal of confidence in the Chinese economy and global recovery,” the analysts wrote. “Rising local exchange rates combined with rising wages, potentially more taxes and royalties on local production, and tighter environmentally-focused regulation, will likely increase the cost of new production going forward.”
Aluminum will trade at $2,000 a ton in three months time, Nathan and Currie wrote, 14 percent less than Goldman previously predicted. The metal will trade at $2,150 in six months, up 6.7 percent, and $2,210 in 12 months, up 1.4 percent.
Goldman’s lowered its three-month zinc forecast 23 percent to $2,000 a ton, and dropped its six and 12-month calls 18 percent to $2,100 and $2,225 respectively.
Its three-month nickel forecast was increased 20 percent to $21,000 a ton, while the six-month forecast was raised 28 percent to $22,000 and the 12-month forecast boosted 17 percent to $20,000.