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Shado Baker

Goldman Sees Downside Risk to Copper on China Property Weakness

Copper prices will face downward pressure over the next 12 months as a slump in the property sector persists in China, the world’s biggest consumer, according to Goldman Sachs Group Inc.

The weakness in the nation’s real-estate market, which accounts for half of China’s copper usage, has weighed on demand for industrial metals in the last year and the downturn is unlikely to end in 2015, analysts including Roger Yuan wrote in a report dated Jan. 20. The bank sees risks “highly skewed to the downside” for its 12-month price forecast of $6,000 a metric ton, according to Yuan.

Copper fell to a five-year low Jan. 14 amid an oil-led rout in commodities as investors turn away from raw materials on concern that supply would exceed demand. The International Monetary Fund this week joined the World Bank in cutting global growth forecasts as lower energy prices and an improving U.S. economy fail to offset a slowdown in Europe to China. The metal is down 9.9 percent this year after falling 14 percent in 2014.

“Property is still the key copper driver and it remains soft,” the analysts wrote. “We expect construction activity to remain relatively weak over the next 12 months.”

China property sales growth will remain flat this year, according to the bank’s estimates. New-home prices in December fell in 65 of the 70 Chinese cities tracked by the government, the National Bureau of Statistics said in a statement Jan. 18.

Goldman’s outlook differs from more bullish views by other banks. Copper will rebound after last week’s “surprising” selloff as oil prices stabilize, Morgan Stanley predicted in a report dated Jan. 19, while Macquarie Group Ltd. forecast prices to climb above $6,000 a ton by summer.