Gains ‘Overdone’

The rallies may not last. Mining companies are boosting output and may swamp demand in many raw materials, Goldman Sachs Group Inc. analysts said in a July 15 report.

Copper will drop 6 percent to $6,600 a metric ton by the end of the year because of production surpluses and China’s weakening property market, the New York-based bank said. Goldman forecasts nickel will rise to $22,000 by the fourth quarter, or 17 percent above yesterday’s close, before dropping to $16,000 in 12 months.

Gains by aluminum and zinc are “overdone,” and prices may fall by at least 4 percent by the end of the fourth quarter, David Wilson, a Citigroup analyst in London, said in a telephone interview. Forecasts collected by Bloomberg show analysts expect a drop for all base metals except tin and lead by year-end.

In a report yesterday, Macquarie forecast lower prices in three to six months for copper, aluminum and zinc.

‘Tourist’ Investors

“We are of the view that prices are now running ahead of where the fundamentals would justify for a number of the metals Joseph Murphy, an analyst in London at Hermes Fund Managers Ltd., which oversees about $1.6 billion in commodities, said by e-mail July 15. ‘‘However, the recent large inflows from ‘tourist’ investors are the reason they are moving higher.’’

ETPs tracked by Bloomberg show an inflow of $75.7 million to funds linked to industrial metals this year, compared with a net outflow for all of 2013 of $51 million, or 9.3 percent of market capitalization.

Demand is showing signs of improving. The Bloomberg ECO Surprise Index for the U.S. rose to a 15-month high this month, and in June U.S. factory output capped the strongest quarter in almost four years. Manufacturing in China expanded at the fastest pace of 2014.

China’s Purchasing Managers’ Index was at 51 in June, the highest since December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said July 1. The official subindex of new orders tied for the highest in more than two years, giving momentum that will help protect the government’s growth target of about 7.5 percent in 2014.