Goldman Cuts Copper Forecast as Global Economy, Demand Slumps

By Glenys Sim

Feb. 18 (Bloomberg) -- Goldman Sachs JBWere Pty lowered its copper price forecast as the global economy deteriorates, and projected that there will be a surplus of all industrial metals this year.

Copper, used in pipes and wires, will average $1.50 a pound ($3,308 a metric ton) this year, down 21 percent from a previous estimate, the Australian affiliate of the U.S. bank said yesterday in a report. Goldman’s revised forecast is in line with the average price so far this year of $1.50 a pound.

Goldman joins Standard Chartered Plc and Barclays Capital in lowering metals targets with the U.S., Europe and Japan in recession. David Threlkeld, president of trader Resolved Inc., forecast in November that copper may plunge to less than $1 a pound, below mining companies’ average cost of production.

“Weak demand applies across all commodities, and we expect all of the base metals to record surpluses in 2009,” analysts led by Melbourne-based Malcolm Southwood wrote in the Goldman report. Global gross domestic product would expand 0.2 percent in 2009, before rebounding to 3 percent in 2010, Goldman said.

“Such a recovery would almost certainly require a rebuild in inventories of raw materials, semi-manufactured goods, and finished products, which we assume will result in a year of above-trend growth in base metals demand,” Southwood wrote.

Copper may average $1.92 a pound in 2010, $2.35 in 2011, and $2.50 in 2012, the report said. Still, the forecasts are down 27, 22 and 24 percent respectively from earlier predictions.

Commodity Rout

Commodities plunged to their lowest level since June 2002 yesterday, led by energy and industrial metals. The Reuters/Jefferies CRB Index of 19 prices dropped for the sixth straight session, losing 4.6 percent.

If copper prices “decline sharply from current levels, it is likely to trigger a significant and quick supply response,” Natixis Commodity Markets Ltd. said yesterday in a report. “Prices are still fairly close to marginal production costs.”

Goldman Sachs JBWere cut its forecast for aluminum by 17 percent to 70 cents a pound for this year, and targeted 85 cents in 2010, 88 cents in 2011 and 91 cents in 2012. The prediction for nickel was cut by 3.5 percent to $5.47 a pound in 2009, with a call of $6 in 2010, $6.38 in 2011, and $7.15 in 2012.

Zinc may average 12 percent below a previous forecast at 53 cents a pound this year, and average 55 cents next year, 58 cents in 2011, and 68 cents in 2012. The lead forecasts were cut to 49 cents a pound this year, 50 cents next year, 54 cents in 2011, and 63 cents in 2012.

To contact the reporter on this story: Glenys Sim in Singapore at Gsim4@bloomberg.net