Goldman warns on copper as war threatens global economy

Copper is vulnerable to further declines if the Strait of Hormuz remains blocked, Goldman Sachs Group warned as metals markets brace for President Donald Trump‘s deadline for Iran to agree a deal or face sweeping attacks on civilian infrastructure.

“We see the near-term risks as skewed to the downside if strait flows remain disrupted for longer than our base case, which would keep energy prices higher for longer and likely show global economic growth,” analysts including Aurelia Waltham said in a note.

Most base metals have come under growing pressure in the past month as soaring oil and gas prices threaten to stifle economic growth and erode demand for industrial commodities. There is intense uncertainty across markets on April 7 as investors weigh Trump’s escalating threats against Tehran.

While Goldman’s base case is for the strait to begin re-opening from mid-April, the analysts said that copper was already trading well above its estimated fair value of about $11 100/t. Prices have already fallen about 7% since the US and Israel launched attacks on Iran.

Copper is still getting support from a tight market outside the US and the prospect of widespread strategic stockpiling, the analysts said.

However, those factors could become less decisive in the event of the bank’s “severely adverse” scenario for the global economy, they added.

“The copper price is not being supported at the current level by fundamentals, making it vulnerable to another move lower should the economic outlook deteriorate and investors de-risk,” the analysts wrote.

The bank trimmed its base case forecast for copper this year to an average of $12 650/t, down from $12 850/t. The metal has averaged about $12 850/t so far this year.

Copper prices were up 0.3% at $12 400/t on the London Metal Exchange in the morning of April 7 in Shanghai, while other metals were mixed.