LONDON (Commodity Online): Booking a profit on a long copper position, suggesting the market has moved ahead of its fundamentals for now, although any correction lower is likely to be limited, said Goldman Sachs in a research note.
According to Goldman, better-than-expected macroeconomic data together with a reduction in perceived tail risks in Europe and China led to a 16% rise in LME copper since mid-December.
Goldman had identified copper as undervalued then but says it is closed a long copper trade for a profit, with the rally too much, too soon.
LME prices are now above its three-month target and sees little evidence of any tightening in the copper supply-demand balance over the past two months. Also, the rally has not been matched by equally higher Shanghai Futures Exchange prices, given that the Chinese residential construction, consumer appliance and automotive sectors remain soft.
The bank cites a closing of the import arbitrage window, pointing to a fall in Chinese copper imports in the coming months.
“Nevertheless, further anticipated policy easing (across China, the U.S. and Europe), together with consistent LME stock draws (on the back of record-high LME copper cancellations), suggests any downside from current prices is likely to be limited. We would see any pull-back as a buying opportunity taking a 6-12 month view,” Goldman concluded.
