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6/25/13

So tell me Otto, what's the Vampire Squid saying about copper nowadays?

Well, as you asked...

Here's the front page of the latest strategy sheet PDF from GS on copper, dated June 25th. Cut to the last paragraph for the bearish call on copper prices. Meanwhile, you know the mail address if you want the whole thing.

Chinese tightening brings forward our projected surplus
Copper prices have sold off heavily over the past three weeks, predominantly reflecting concerns about Chinese and EM economic growth. In the very near term we believe that the market is susceptible to short covering rallies given the extreme positioning, evidenced by Comex net and outright short positions reaching record highs last week. Catalysts for covering rallies include potential policy easing by the PBOC, more details of China’s plan for an urbanization renaissance, purchases of physical copper by China’s State Reserve’s Bureau, non-conventional easing by the ECB, and other global easing by policy makers in the face of deteriorating global growth prospects. 
Having said this, we believe the copper market is in a broader transition to a surplus market, and slower near-term demand growth in the world’s biggest copper consumer is likely to close the current 'window' of physical copper tightness sooner than we previously expected. In particular, the recent tightening of Chinese financial conditions resulted in our economists downgrading their China GDP forecasts to 7.4% (from 7.8%) for 2013 and 7.7% (from 8.4%) for 2014. This development, together with a sooner-than-anticipated weakening in copper-intensive late-cycle Chinese construction completions - China's biggest end-use copper market, and increased downside risks to ex-Chinese copper consumption, have led us to downgrade our global copper consumption growth forecast for 2013- from 3.8% to 2.9%. In turn, we now forecast a small copper market surplus of c.250kt (2H13 based, with 1H13 in balance to small deficit), heading into a 2014 surplus of c.400kt. Given our broader outlook of a market heading into surplus with risks to global demand growth increasingly skewed to the downside, we recommend producers take the opportunity to hedge into any near-term short covering rallies. 
While we have been forecasting a significant copper market surplus in 2014 for some time, our new 2H13 surplus forecast suggests that the 12-month price outlook is incrementally bearish (owing to a higher cumulative surplus). Specifically, our new 3-mo, 6-mo, and 12-mo forecasts are $7,000/t (from $7,500/t), $6,600/t (from $8,000/t), and $6,600/t (from $7,000/t) respectively, with our new 2013 and 2014 annual average forecasts at $7,216/t (from $7,600/t, -5.0%), and $6,600/t (from $6,925/t, - 4.7%). In our base case we expect substantial fundamental support to 'kick in' in the low-mid $6,000/t range - our 2014 forecast price low is $6,200/t.