Washington (Platts)--29Mar2011/525 pm EDT/2125 GMT

Copper prices are expected to remain at elevated levels but are unlikely to break significantly to the upside due to loss of demand from the global auto sector, global monetary tightening, and higher energy costs, US investment bank Goldman Sachs said Tuesday.

"Although we continue to see a generally strong cyclical backdrop for metal demand, the combination of escalating military action in [MENA], tightening hydrocarbon markets post the Japan events, increasing expectations of monetary tightening globally and now another negative demand shock stemming from downed Japanese manufacturing and power capacity, as well as Japan's importance in globally integrated supply chains, suggest risks have fundamentally shifted to the downside," analysts said in a report.

The loss of metal demand from the global auto sector alone is equal to or greater than the loss of demand from various industrial sectors within Japan, the report said.

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Copper and zinc prices initially were expected to break out of their recent ranges later in the year as Chinese buying resumed and supplies grew tighter. Early signs of supply shortages in some parts of Asia have already been reported, Goldman Sachs said.

The loss of refined copper production from Japan was expected to further exacerbate the supply tightness, thereby creating a 'demand pull.'

Those factors are expected to keep copper prices above $9,000/mt in London in the short term, the analysts said. But Chinese inventories have risen somewhat more than expected, with Chinese consumers continuing to operate hand-to-mouth because of high prices and tight credit.

"As a result, while we expect industrial metals prices to remain elevated at historically high levels, cyclical 'breakouts' that we have been expecting for copper and zinc in particular later this year may be pushed out, with price support this year likely shifting more toward energy-related 'cost-push' developments," Goldman Sachs analysts said.

Though Goldman Sachs still believes the risks to its near-term target of $8,800/mt in London are skewed to the upside, "we see limited near-term upside from current market levels," the bank's analysts said.

--Nick Jonson, nick_jonson@platts.com