Global copper prices may slump to $4,000 a metric ton over 12 months, warns Goldman Sachs Group Inc.
There has been a solid growth in copper supply in the first half of the year, something which is likely to continue over the next quarters, according to Goldman.
Analysts including Max Layton and Yubin Fu wrote in an e-mailed report: “Company guidance and our estimates suggest that copper is entering the eye of the supply storm,” reported Bloomberg.
If copper prices were to drop to $4,000 it will be 17% less from Thursday’s close on the London Metal Exchange.
“This ‘wall of supply’ is expected to translate into higher copper smelter and refinery charges and ultimately, higher refined-copper production, set against softening demand growth,” Layton and Fu wrote.
They forecast the metal to reach $4,500 a ton in three months and $4,200 in six months.
The metal used in pipe and wires rose by 3% this year, while zinc surged 41% and nickel 21%.
Supply may exceed demand every year through to 2020, Barclays Plc said last month.
In June Stephen Higgins, who heads Freeport-McMoRan Sales Company Inc., said more production had come on board whilst demand growth in China had slowed down.
The main expansion in mine supply through to Q1 of next year is expected to come from the Grasberg mine in Indonesia, Escondida in Chile and Sentinel in Zambia with growth from Cerro Verde and Las Bambas in Peru also a possibility, according to the report.
Goldman tracks 20 companies which make up around 60% of worldwide production. These 20 companies saw output levels rise by 5% in the first half of this year and are expected to increase to 15% in the coming quarters, the report said.