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Copper to Outperform 2011 as Metals Diverge – Goldman

Copper to Outperform 2011 as Metals Diverge – Goldman
 
Author: Reuters
Posted: December 13, 2010

LONDON – Metals prices will diverge to follow their own fundamentals during 2011 as emerging market economies drive ahead and demand recovers in developed nations, pushing copper above $11 000, Goldman Sachs forecast on Monday.

"Metals with tighter cyclical fundamentals (copper, and zinc in the second half) will outperform those with readily available capacity (aluminium) or receding tightness (nickel)," Goldman Sachs said in a research note.

Robust demand from top consumers such as China and improved demand from developed nations against a mine supply shortfall were expected to drive up copper prices and exhaust almost all exchange stocks next year, Goldman Sachs said.

"We maintain our 12-mo ahead copper price forecast of $11 000/mt and believe that prices could spike substantially above these levels, most likely in late 2011," it said.

Exchange-based stocks in London and Shanghai sit at some 466 500 t, down by around one third since early April.

This supply scarcity is expected to set a premium for near dated copper prices that triggers demand rationing, Goldman Sachs said.

Premiums for cash copper reached their highest in over two years above $63 a tonne in early December against the benchmark contract and remain at elevated levels.

Elsewhere, the market for refined zinc is expected to remain in surplus near term, but constrained concentrate and scrap supply against growing emerging market investment demand suggest inventories will top out next year.

Against this backdrop, rising demand for higher quality steel in growth economies -- zinc is used for galvanising steel -- is expected to improve zinc's fundamental picture in 2012.

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