Supply Curbs Could Benefit Copper Prices - Goldman

SINGAPORE, Aug 5 -- Goldman Sachs suggested investors should take profits from a rally in copper, as it closed out a long deferred copper trade at a profit of 18 percent, but said it was itself looking to re-enter the trade.

    "Given our view that supply constraints will bind the fastest and hardest for copper, we believe that risks to our copper price forecasts are skewed to the upside," the broker told clients in a recent note.

    In the metals basket trade, Goldman expects copper/zinc to outperform aluminium/nickel, fuelled by rising emerging market demand and less spare production capacity, it added.

    "Although this trade has underperformed largely owing to the investor demand for nickel as well as the ramp-up in U.S. auto production, we believe support from these factors will prove temporary given excess production capacity in these metals," it said in the note.

    Recent volatility in base metals has been fed by uncertainty over the prospects of China tightening policy and its possible large stockpiles of the metal, Goldman added.

    "Strong Chinese imports and production of copper, aluminum and zinc are broadly consistent with the underlying strength in metals-intensive end-use sectors," it said.

    Implied demand for nickel was out of line with fundamentals, Goldman said, based on its study of Chinese commodity demand indicators reflecting real end-use demand.

    This was a potential reflection of strong investor appetite for the metal that is the easiest to store and has the highest $/MT value of all base metals, it added.

    (Source: Reuters)