goldman bullsih on copper sees 20% upswing

Sept. 22, 2011, 2:47 p.m. EDT

Goldman remains bullish on copper


--Goldman lifts three-month copper forecast to $9,700/ton

--Raises three-month zinc forecast to $2,450/ton

--Wall Street bank says a global recession or financial crisis needed to knock its constructive views on copper, zinc

--Downside risks remain, but selloff presents good opportunity for longer-dated purchases

LONDON -(MarketWatch)- Investor concerns over the deteriorating macro environment and Europe's persistent sovereign debt problems are keeping the base metals on the London Metal Exchange under pressure, although a global recession or financial crisis would be needed to derail the generally positive fundamental outlook for copper and zinc, Goldman Sachs /quotes/zigman/188479/quotes/nls/gs GS +0.21% said Thursday.

Despite the markets' recent slide--accelerated Thursday by copper's 8%-plus plunge to a one-year low--the investment bank has lifted its outlook for the two metals, citing well-supported supply and demand fundamentals.

In a note to clients, Goldman raised its three-month LME copper price to $9,700 a metric ton, from last month's forecast of $9,450/ton. It also lifted its three-month zinc forecast to $2,450/ton, from $2,400/ton.

At 1523 GMT, three-month copper traded at $7,738.50/ton, while three-month zinc traded at $2,009/ton.

"We continue to expect further upside in copper. Although the recent macro deterioration and European sovereign debt problems have increased the downside risk to our forecasts, our mainline economic views, and expectations of continued strong economic growth in emerging markets and China in particular, continue to suggest tightening copper fundamentals that will push prices higher over the next year," the bank said in the note.

It said the ability for China to reverse or ease tightening measures introduced there over the past year is providing a strong line of defense for the industry-linked commodities. Copper and zinc have wide industrial applications, and as such are sensitive to economic policy.

"In metals, the Shanghai-LME arbitrage [window], which is a strong indicator for Asian appetite for copper imports into the region, has been open for most of the past six weeks," indicating growing demand, it said.

The bank added that while macro fears are still weighing on metal prices, the industrial commodities have been "remarkably resilient" over the past month relative to other asset classes. It put this largely down to supportive near-term fundamentals.

"We believe that a global recession and/or financial crisis would be required to derail our current constructive commodity views on copper and zinc," Goldman said.

While it does not expect the fundamental balance in the zinc market to be as tight as that in copper next year, a deficit is developing amid growing imports into China and the closure of key mines, and should keep the price well-supported.

"China is a growing net importer of zinc raw materials, like copper, setting up for sizable upside for the metal even before important mine closures are set to take place in 2013-2015," the bank said.

To be sure, downside risks remain to its forecasts given current macro turmoil, the bank added.

Thursday, base metal prices have slumped amid a broad-based selloff across world financial markets after a downbeat outlook by the Federal Reserve renewed fears of a global economic slowdown.

However, Goldman said it believes the sell-off in the metals over the course of September "presents a relatively good opportunity for longer-dated purchases."


MNC looking oversold.
Newminer1000.