Following two consecutive commodity downgrades which killed crude and all commodities, which led many to wonder just how many pictures of Lloyd Blankfein at Scores does Bill Dudley have locked up in his office, the bank, whose primary M.O. is to push inflation, has just released one more deflationary report, this time cutting the last man, er doctor, standing: copper. From Goldman: "We are pushing out our $11,000/mt target to 2Q2012 and lowering our 2011 year-end copper price target to $9,800/mt from $11,000/mt. Accordingly, we recently closed our long December 2011 copper trade recommendation – first opened on October 4, 2010 – for a gain of $1,872/mt. We are also raising our 3-month forecast to $9,300/mt, and 6-month forecast to $9,600/mt." And with this we can now scratch Scores, and move on to The Bunny Ranch. Incidentally, this means gold and silver are next. You have been warned.
From Goldman's Joshua Crumb:
We have updated our copper balance and price forecasts for 2011 and 2012. We now believe that prices will likely remain rangebound in 2011 and that risk has become more symmetric given our view that inventories are unlikely to draw down to critically low levels before 2012. However, we believe that a price spike has been deferred, not avoided, and maintain our 12-month forecast of $11,000/mt.
Draw in inventories to critically low levels has likely been deferred
Copper prices rallied sharply in the past week, heading back toward the top of the recent trading range between $9,300/mt - $10,000/mt that has held for much of the year. While we had expected prices to move decisively out of this range to the upside heading into late 2011, we now believe that prices will most likely remain rangebound and that copper price risk has become more symmetric as opposed to skewed to the upside. Underpinning this shift is our view that modestly slower-than-expected copper demand growth owing largely to Chinese consumer destocking, tighter inventory management and the negative supply shock resulting from the earthquake in Japan will likely delay the drawdown in copper exchange inventories to critically low levels. However, as we expect demand to continue to outpace supply, we now forecast a drawdown to critically low levels during 2Q2012.
Price spikes likely no longer needed to balance the market in 2011
The avoidance of stockout suggests that price spikes will no longer be required to ration demand and balance the market this year. However, we maintain that Chinese end-use demand remains healthy, that consumers have been eager to step into the market on price dips and that the market will most likely remain in a meaningful deficit over the course of the year – all suggesting that prices are unlikely to fall significantly below the recent range on any sustainable basis.
Price spike likely deferred, but not avoided
We are pushing out our $11,000/mt target to 2Q2012 and lowering our 2011 year-end copper price target to $9,800/mt from $11,000/mt. Accordingly, we recently closed our long December 2011 copper trade recommendation – first opened on October 4, 2010 – for a gain of $1,872/mt (see Commodities Update: Target in sight, closing CCCP trade, April 11). We are also raising our 3-month forecast to $9,300/mt, and 6-month forecast to $9,600/mt.