Market instability is intensifying amid ongoing turbulence in the Middle East. Goldman Sachs Group has recently issued a warning: if the Strait of Hormuz, a critical global shipping artery, remains blocked, the price of copper faces a heightened risk of a significant decline.
The metals market is currently in a state of high anxiety. The President of the United States has delivered an ultimatum to Iran, demanding an agreement within a set deadline, or else Iran's civilian infrastructure could face large-scale attacks. As a result, surging oil and gas prices over the past month have begun to constrain global economic growth, putting widespread pressure on base metals markets.
An analyst team at Goldman Sachs, led by Aurelia Waltham, stated in a report: "We believe near-term risks for copper prices are clearly skewed to the downside. If shipping disruptions in the Strait of Hormuz last longer than anticipated, it would lead to persistently high energy prices, subsequently dragging on global economic growth rates."
Although Goldman Sachs's baseline forecast anticipates a gradual resumption of traffic through the strait from mid-April, analysts emphasized that current copper prices are significantly detached from fundamentals. According to Goldman's calculations, copper's "fair value" should be around $11,100 per tonne, whereas the current trading price is substantially higher. Since the onset of attacks on Iran, copper prices have fallen by approximately 7%.
While supply tightness in markets outside the U.S. and restocking demand from strategic national reserves provide some support for copper prices, Goldman Sachs warned that these supportive factors would become negligible if the global economy enters a "severely adverse" scenario as defined by the bank.
"Current copper prices lack fundamental support. If the economic outlook deteriorates further and investors begin selling risk assets, copper is highly vulnerable to triggering a new round of declines," Goldman Sachs stated bluntly in the report. Consequently, the firm has lowered its average price target for copper this year to $12,650 per tonne, down from a previous forecast of $12,850 per tonne.
However, UBS expressed continued optimism regarding the medium-term outlook for copper prices, stating, "With marginal improvements in geopolitical stability and the ongoing global push for grid upgrades and electrification investments, the structural demand growth narrative for copper and aluminum remains intact."
As of this morning, copper futures on the London Metal Exchange edged up 0.3% to $12,400 per tonne. Market sentiment remains fragile, with investors closely monitoring the latest developments regarding policy towards Tehran.
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