Equity Research Update: Copper Futures Drop as Goldman Sachs Lowers Forecast Amid Weak Chinese Demand
Copper futures are experiencing significant declines following a sharp revision by Goldman Sachs, which has lowered its forecast for copper prices by nearly $5,000/ton. This downward adjustment is a result of China’s faltering economic recovery, which is expected to delay the anticipated rebound in global copper demand.
Key Insights:
1. Goldman Sachs Forecast Revision:
- New Price Estimate: Goldman Sachs has revised its copper price forecast for 2025 down to $10,100/ton from its previous estimate of $15,000/ton.
- Delayed Rebound: The anticipated sharp drop in copper inventories, previously expected by year-end 2024, is now projected to occur post-2025.
2. China’s Economic Slowdown:
- Demand Softening: China’s apparent copper demand began to decline in March 2024, exacerbated by a surge in inventories, which has moved the country further away from the “stockout” scenario that supported earlier bullish forecasts.
- Property and Manufacturing Sectors: Persistent weakness in China’s property sector and rising challenges in manufacturing and exports have dampened economic prospects, making the government’s target of 5% annual growth increasingly difficult to achieve.
3. Impact on Other Commodities:
- Aluminum: Goldman Sachs also downgraded its 2025 price outlook for aluminum to $2,540/ton from $2,850/ton.
- Iron Ore and Nickel: The bank continues to hold a bearish view on both iron ore and nickel, with iron ore prices dropping below $100/ton, hitting a two-week low.
- Gold: Despite the broader commodity downturn, gold remains the most promising asset, with Goldman maintaining a bullish price target of $2,700/oz for early 2025.
Equity Impact:
The broader pessimism surrounding China’s demand outlook is pressuring equities in the mining and commodities sectors. Stocks such as Freeport-McMoRan (FCX), BHP (BHP), Rio Tinto (RIO), and Southern Copper (SCCO) have all seen substantial declines, reflecting the market’s recalibration of expectations.
- Freeport-McMoRan (FCX): -6.82%
- BHP (BHP): -4.2%
- Rio Tinto (RIO): -3.6%
- Southern Copper (SCCO): -3.5%
- Alcoa (AA): -2.7%
- Century Aluminum (CENX): -2.7%
- Vale (VALE): -2.2%
Conclusion:
The reduced outlook for China’s economic recovery and its ripple effect on global commodities markets underscore the need for a more cautious approach in the sector. Investors should monitor developments closely and consider reallocating assets in light of the ongoing uncertainty in China’s economic trajectory.
For Further Information:
Contact ArcStone Securities and Investments Corp. for a detailed analysis and tailored investment strategies.
