Copper at risk of sliding below $4,000 - Goldman

By Eric Onstad

LONDON, Oct (HKSE: 3366-OL.HK - news) 8 (Reuters) - Copper prices are at risk of tumbling below $4,000 a tonne after demand for the metal in top consumer China collapsed this year, according to an analyst from Goldman Sachs (NYSE: GS-PB - news) , a bank known for its bearish views.

Benchmark copper on the London Metal Exchange has slid nearly a fifth this year, hitting a six-year low of $4,855 a tonne in August.

Opinions on the outlook for copper are wildly different, with Goldman and other bears facing off against relative bulls such as commodity group Glencore (Xetra: A1JAGV - news) and bank Citi .

The chief executive of embattled Glencore, Ivan Glasenberg, said last week that steep output cuts by copper miners will help lift prices in the next 18 months.

Goldman's base case is that copper ends this year at $4,800 and next year at $4,500, but Max Layton, head of European commodities research, told a conference on Thursday prices could overshoot lower.

He said copper could be hit by weaker demand, climbing supply and heavy cost deflation.

"If any one of these three things happens in the next 12 months then copper's at $4,500," he told Metal Bulletin's Copper Concentrate conference in London

"But if all three of these things happen at the same time, then that's why we talk about the risks being skewed to the downside, then we think copper's going to $4,000 or below."

Goldman Sachs' own China Metals Consumption Index had slid this year, indicating Chinese demand was undergoing a hard landing, Layton said.

The index is based on 100 components of China's industrial production data that pertain to commodity consumption.

"This indicator tells you that Chinese demand this year is falling by an amount equal to 2009, equal to the global financial crisis," Layton said.

LME copper prices have rebounded from their August lows, currently trading just above $5,100 a tonne as speculators have closed out many of their short positions, some betting on a revival of demand in China.

"Our base case is that it picks up, but I think there's a real risk that it doesn't bounce," Layton said.

"I think the risk is that China doesn't pick up as much as the specs hope and we have another leg lower somewhere between November and March, that's when you get the visible inventory building up." (Reporting by Eric Onstad; editing by Susan Thomas)