Goldman, Morgan Stanley Cut Copper Outlook on China’s Growth

Goldman Sachs Group Inc. and Morgan Stanley lowered their copper forecasts on concerns that slowing growth in China, the world’s biggest consumer, and the nation’s worst cash squeeze in at least a decade will curb demand.

Goldman reduced its three-month projection to $7,000 a metric ton from $7,500, six-month target to $6,600 from $8,000 and 12-month forecast to $6,600 from $7,000, analysts including London-based Max Layton said in a report. Morgan Stanley cut its 2013 estimate by 3 percent to $3.42 a pound, or $7,540 a ton.

China’s central bank said the country should fine-tune its policies as a cash squeeze in the banking system risks exacerbating an economic slowdown. Copper for delivery in three months on the London Metal Exchange traded 0.6 percent lower at $6,629.50 a ton at 1:53 p.m. in Tokyo, extending a 2.2 percent decline yesterday. Prices slumped to as low as $6,613 yesterday, the lowest since July 2010.

“The copper market is in a broader transition to a surplus market, and slower near-term demand growth in the world’s biggest copper consumer is likely to close the current window of physical copper tightness sooner than we previously expected,” Goldman said in the report.

The bank cut global copper consumption growth forecast to 2.9 percent this year from 3.8 percent earlier and projected a surplus of 250,000 tons this year, which may widen to 400,000 tons in 2014. Goldman also revised its annual average price forecast down to $7,216 from $7,600 in 2013 and to $6,600 from $6,925 in 2014.

Estimates Pared

Goldman and China International Capital Corp. yesterday joined banks from Barclays Plc to HSBC Holdings Plc in paring their growth projections for China this year to 7.4 percent, below the government’s 7.5 percent goal. The CSI 300 Index of China’s biggest companies slumped 4.8 percent, the lowest level since February 2009 and taking a five-day rout to 15 percent.

“In the very near term we believe that the market is susceptible to short-covering rallies given the extreme positioning, evidenced by Comex net and outright short positions reaching record highs last week,” Goldman said.

Catalysts for rallies also include potential policy easing by the People’s Bank of China, more details of China’s plan for an urbanization renaissance, purchases by China’s State Reserve Bureau, non-conventional easing by the European Central Bank, and other global easing by policy makers in the face of deteriorating global growth prospects, the bank said.

Headwinds Intensify

Morgan Stanley also lowered its nickel forecast for 2013 by 7 percent to $7.23 a pound and its aluminum estimate by 2 percent to 89 cents a pound, while zinc was also cut 2 percent to 89 cents a pound, analysts Peter Richardson and Joel Crane said in a report today. Tin was reduced by 7 percent to $10.08 a pound and lead was lowered 1 percent to 98 cents a pound.

“The headwinds to commodity price performance have been intensified by growing signs of deterioration in the quality of this lower growth,” Morgan Stanley said. “Strong credit growth in total social financing in China has raised some increasingly serious market concerns about the direction, composition and risks embedded in this development.”

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