Copper May Be 'Unimaginably' High in 3 Years, Goldman Says

Copper prices may be "unimaginably" high in three years, with China growth spurring consumption, according to Goldman Sachs Group Inc.

Copper is "our most preferred base metal for equity exposure and by a wide margin," said analyst Julian Zhu today in Beijing. The metal "is likely to reclaim levels above $9,000 a ton in the fourth quarter if China's macro policy starts to show signs of loosening." He did not give an estimate for prices in three years.

Increased Chinese consumption may help lift prices, which this week gained the most since at least 1986 after European leaders agreed on a plan to stem the debt crisis and the U.S. economy grew faster than expected. Chinese imports climbed to the highest level in 16 months in September as lower prices prompted buying.

"Even if the developed countries reduce copper consumption due to slower economic growth, we think the emerging countries will be able to more than make up for it as 75 percent of new copper demand comes from emerging markets, especially China," Zhu said. "Copper's supply is very difficult to expand." The bank doesn't favor steel and aluminum, according to slides prepared for delivery at the briefing.

Copper Deficit

The increase in copper mine production may not exceed 100,000 metric tons this year, lower than an expected increase of more than 1 million tons in planned mine expansions, Macquarie Group Ltd. has said. Prices will rebound to average $9,850 a ton next year because of a "substantial deficit," according to Natixis Commodity Markets Ltd. The shortage will be 300,000 tons this year and another deficit next year, according to Tiberius Asset Management.

"We've tracked the top 20 developing copper mines worldwide and found that costs of production are climbing while quality of mines are deteriorating," said Goldman's Zhu. "One mine in northern Peru I saw recently has cost of $9,000 a ton.

We think this is supportive of the copper market."

While copper surged as much as 16 percent this week the metal is down 20 percent from a record $10,190 a ton on Feb. 15, the common definition of a bear market. The contract dropped 0.6 percent to $8,098 a ton by 5:57 p.m. Shanghai time.