Goldman Sachs, a leading investment bank, warned in a recently released report that copper was slowly headed in the direction of a stockout. Barely a month ago, the metal breached the $5 mark for each pound ($11,000 for a ton). However, the price rally has since toned down, and copper futures are trading at approximately $4.7 per pound in New York.
In February this year, Goldman sounded the alarm and warned that a major supply shortage is likely to hit the copper market before the year ends. At that time, existing stocks amounted to approximately 200,000 tons, which could hardly meet the consumption volumes needed for three days.
The report released by Goldman Sachs last week pointed out that the world was entering unprecedented territory. This is because for the last decade copper supplies usually rose in March, but this time around, a decline in stocks was registered. The investment bank thinks this is an ominous sign for what lies ahead, and it is heavily bullish about what is to come later in the year with regard to the price of copper.
Previously, the bank had estimated that the global copper shortfall this year would be in the region of 374,000 tons. Its recent report has now doubled this figure in addition to making an upward adjustment to the expected deficits over the coming years.
In order for the copper market to balance, the investment bank believes that prices must rise significantly so that the supply of copper scrap can be stepped up. At the same time, the higher prices could also help to suppress the ballooning demand and thereby trigger a balance between the existing copper supplies and the demand for this metal.
The report points out that in spite of the tight supply of copper this year, price increases haven’t been that significant. This is good for investors because they have ample opportunity to get into the market and ride along when the more dramatic price increases manifest in the months to come.
It should be noted that the transition to green energy and the push to make the switch to electric vehicles have combined to increase the demand for the so-called “energy metals,” including copper, nickel and lithium. These sectors are only just getting started, and there is limited chance that the demand for copper and other needed metals will wane any time soon.
When Goldman Sachs adjusts upwards its predictions of the price of copper over the next quarter, six months, and 18 months, one is compelled to pay attention since all pointers suggest the price will trend upwards. If this prediction plays out, major copper extractors such as Freeport-McMoRan (NYSE: FCX) are likely to give their shareholders great value for the money they invested in the firm.
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