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Copper Traders Are Most Bearish Since January on China Demand

Copper traders and analysts are the most bearish in 5 1/2 months amid concern about the outlook for demand in China, the biggest consumer of the metal.

Fourteen respondents surveyed by Bloomberg expect prices to fall next week, the biggest proportion of bears since the period ended Jan. 4. Five were bullish and a further four were neutral. Most of the people in the survey predicted lower prices for a second week.

A Chinese manufacturing gauge released yesterday by HSBC Holdings Plc and Markit Economics reached 48.3 this month, from 49.2 in May. Levels below 50 indicate contraction. The U.S. Federal Reserve will probably slow its monthly debt-buying this year, Chairman Ben S. Bernanke said June 19. Copper stockpiles monitored by the London Metal Exchange doubled in 2013.

“Overall, my sense is that demand looks quite weak,” Daniel Brebner, an analyst at Deutsche Bank AG in London, said by phone yesterday. “Conditions are disappointing. There are likely to be some downgrades to consumption figures for copper in China this year.”

Copper for delivery in three months dropped 2.7 percent to $6,770 a metric ton by the close on the LME yesterday and was down 4.5 percent this week. Prices slid partly as the dollar strengthened after Bernanke’s comments, eroding demand for raw materials as an alternative investment. The metal rose 0.8 percent to $6,826 a ton by 8:26 a.m. today.

Highest Since 2003

Copper stockpiles monitored by the LME climbed for a fifth day yesterday to 643,125 tons, the highest since July 2003. Production of refined metal will exceed demand this year by 162,000 tons, more than last year’s 41,000 tons, Barclays Plc estimates.

“My advice is instead of focusing on the Fed, direct your attention toward China,” George Adcock, an analyst at Marex Spectron Group in London, said by e-mail. “Short-term financing and repo rates have exploded. Any industry that runs on trade finance is experiencing severe weakness as investors question their future viability.”

Benchmark money-market rates in China climbed to records yesterday as the central bank refrained from using reverse-repurchase agreements to address a cash crunch in the world’s second-largest economy. The rise in Chinese rates “represents a very significant tightening of monetary conditions,” Nic Brown, head of commodities research at Natixis SA, said in a report yesterday.

“We have disappointing manufacturing data in China,” Deutsche Bank’s Brebner said. “I’m seeing fairly weak consumption from fabricators. Everything is lining up to see further pressure on industrial metals generally, and copper specifically.”

To contact the reporter on this story: Agnieszka Troszkiewicz in London at atroszkiewic@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net

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