As base metals surge, Goldman Sachs goes against the trend and remains bearish: copper and aluminum demand shows signs of fatigue

The recent strong rise in the base metal market is facing a critical moment for fundamental verification. Although the London Metal Index (LMEX), covering six major industrial metals, has accumulated an increase of about 7% this year, Goldman Sachs has issued a warning that the current price performance has begun to significantly diverge from actual demand. On January 28, Trina Chen, co-head of equity research at Goldman Sachs, pointed out: “We have observed a negative reaction from the actual production side, and demand is beginning to decline.” The bank's latest survey on the copper market shows that customers in downstream sectors, from consumer electronics to industrial hardware, are reducing purchases, leading to a general decline in orders for processing enterprises. Notably, orders for grid construction, a traditional pillar of copper consumption, are also showing signs of slowing growth. The recent rise in metal prices is mainly driven by expectations of tightening supply, a weak dollar, and expectations of interest rate cuts by the Federal Reserve. However, as signs of weakness in demand gradually emerge, the divergence between market optimism and the fundamentals of the real economy is raising increasing caution among analysts. Goldman Sachs' latest report also points out that while it has raised its aluminum price target for the first half of 2026 to $3,150 per ton, it maintains a bearish outlook for the medium to long term, believing that with the release of new production capacity in places like Indonesia, coupled with a slowdown in demand growth in sectors such as photovoltaics and automobiles, the global aluminum market is expected to enter a structural surplus by 2026. Copper: Significant Divergence Between Price and Demand Currently, copper prices have once reached a high of $13,247 per ton, mainly supported by expectations of tight global supply, a weakening dollar, and the prospect of interest rate cuts by the Federal Reserve. However, Goldman Sachs pointed out on January 28 that its latest market survey shows that procurement activities in downstream industries, from consumer electronics to hardware manufacturing, have significantly contracted, leading to a general decline in orders for processors by 10% to 30%. Particularly noteworthy is that orders for grid construction, a long-term stable pillar of industrial metal consumption, have shown signs of slowing down, which may indicate that broader economic activity is cooling. If this trend continues, it will exert substantial pressure on the currently high metal prices. Aluminum: Short-term Expectations Upgraded and Long-term Structural Bearish Aluminum prices have recently reached a new high since April 2022. Although Goldman Sachs has raised its aluminum price target for the first half of 2026 to $3,150 per ton in its latest report, it acknowledges that short-term support comes from low inventory and demand for new energy, but clearly maintains a bearish outlook for the medium to long term. The core logic is that as new production capacity in places like Indonesia is confirmed to be released, the demand growth in the photovoltaic sector (with a decrease in aluminum consumption per unit) and the automotive sector (with a downward adjustment in the expected growth rate of electric vehicle production and sales) will structurally slow down. The global aluminum market is expected to enter a surplus cycle by 2026, with the average price possibly falling to $2,400 per ton in 2027. The report also warns that the current aluminum price already contains significant scarcity premium risk