Copper traders and analysts are forecasting an end to the biggest weekly rally since at least 1986 on concern demand will slow in China while Europe’s lingering financial crisis limits growth.
Eleven of 23 people surveyed by Bloomberg say copper will drop next week, eight predicted a gain, and four said prices will be little changed. The last time respondents were mostly bearish, on Sept. 23, the metal slumped 4.6 percent in the following week. Traders also predicted lower sugar prices next week, and gains in gold, corn and soybeans.
While copper surged 14 percent this week as European leaders agreed to expand the region’s bailout fund, the metal is down 20 percent from a record on Feb. 15, the common definition of a bear market. Global output exceeded demand in the eight months through August, the World Bureau of Metal Statistics said on Oct. 19. Goldman Sachs Group Inc. and UBS AG cut their copper forecasts for 2012 this month, and economists surveyed by Bloomberg predict slower growth next year in Europe and China, the world’s largest metal user.
“We’re probably heading into a recession in the euro-region, and there are hard landing risks in China,” Michael Lewis, the head of commodities research at Deutsche Bank AG in London, said yesterday by telephone. Purchasing by Chinese manufacturers “won’t be as powerful now because prices have come back up,” Lewis said.
Copper settled at $8,175 a metric ton on the London Metal Exchange today, capping the biggest weekly advance since at least 1986. Prices reached a five-week high of $8,280 after European leaders yesterday bolstered their rescue fund to 1 trillion euros ($1.4 billion) and persuaded bondholders to take 50 percent losses on Greek debt.
“We’ve come a little bit too far, too fast, and I would be very careful about chasing the market up here,” Bill O’Neill, a partner at Logic Advisors, said yesterday by telephone from Upper Saddle River, New Jersey. “There aren’t enough specific details at this juncture to really say this is going to work,” he said of the European plan.
Even after rallying from a 14-month low of $6,635 on Oct. 3, prices are down 15 percent this year, heading for the first annual slide since 2008, when the worst global recession since World War II cut demand for raw materials. Copper, used in pipes, cables and wiring, dropped 29 percent from July to the end of September.
The LME’s index of six industrial metals fell 15 percent this year, compared with a 3.3 percent gain for the Standard & Poor’s GSCI index of 24 commodities that’s been led by gasoil and gold. The MSCI All-Country World Index of equities slid 3.5 percent, and Treasuries returned 6.7 percent, a Bank of America Corp. index shows.
Copper output this year through August exceeded demand by 312,500 tons, up from 128,000 tons for 2010, according to the World Bureau of Metal Statistics, based in Ware, England.
Goldman Sachs lowered its 2012 copper forecast by 18 percent to $8,750 a ton from $10,692, according to an Oct. 21 report from the New York-based bank. UBS, based in Zurich, on Oct. 14 reduced its 2012 estimate of copper futures on the Comex in New York by 5.4 percent to $3.50 a pound ($7,716 a ton) from $3.70.
Demand in China declined 5 percent in the first seven months of this year, the International Copper Study Group said in an Oct. 21 report. Imports of refined metal climbed in September to the highest since May 2010 as lower prices in London prompted traders to place orders. Inbound shipments climbed 17 percent to 275,499 tons last month from 235,509 tons in August, the General Administration of Customs said Oct. 24.
Growth in China will slow to 9.2 percent this year and 8.6 percent in 2012, from 10.4 percent last year, according to the median of 10 estimates compiled by Bloomberg. The country will account for 37 percent of copper demand this year, according to London-based Barclays Capital.
Expansion in the euro region will slow to 1.6 percent this year and 0.8 percent in 2012, from 1.8 percent in 2010, according to the median of 26 estimates. U.S. growth will fall to 1.7 percent this year from 3 percent, a Bloomberg survey of 81 economists showed.
Money managers have been negative on copper since September, when the metal plunged 24 percent. Speculators pared their net-short position in Comex futures by 39 percent to 5,023 contracts in the week ended Oct. 25, Commodity Futures Trading Commission data showed today. On Oct. 11, the net-short position was 9,489 contracts, the most bearish in two years.
China’s slowdown may not curb its appetite for copper. Orders to withdraw the metal from LME inventories in Asia almost doubled this month, a possible sign of increased demand, said Peter Richardson, the chief metals economist at Morgan Stanley Australia Ltd. in Melbourne. Global stockpiles in warehouses monitored by the LME are at the lowest since March.
Demand from industry may increase as central banks around the world take steps to shore up their economies. The GSCI commodity index rallied 3 percent yesterday, the biggest gain in a month, after European leaders agreed to expand their bailout fund to stem the region’s debt crisis.
Disruption at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia may support prices. The largest publicly traded copper producer declared force majeure on some sales agreements this week because of a labor stoppage at the mine. About 8,000 workers at Grasberg, which has the world’s largest recoverable reserves of copper, have been on strike for higher wages since Sept. 15.
Concern that Europe’s debt woes will linger and U.S. monetary policy may spur inflation pushed gold above $1,700 an ounce on Oct. 25 for the first time in a month, and holdings in exchange-traded products increased to a four-week high. Few investors will be willing to sell gold while Europe remains in a financial crisis, said Andrey Kryuchenkov, an analyst at VTB Capital in London.
Sixteen of 19 traders and analysts surveyed by Bloomberg expect bullion to advance next week. Futures gained 23 percent to $1,747.20 in New York this year, heading for an 11th consecutive annual advance. The metal is trading 9.2 percent below a record $1,923.70 reached on Sept. 6.
Twelve of 28 people surveyed anticipate gains in corn, and 13 of 29 expect the same for soybeans, the least bullish since September. Corn rose 4.1 percent to $6.55 a bushel in Chicago this year. Soybeans slipped 13 percent to $12.26 a bushel.
Raw-sugar futures have declined 7.8 percent since touching a one-month high on Oct. 17 to 26.15 cents a pound on ICE Futures U.S. in New York, extending this year’s loss to 19 percent. Seven of 12 surveyed expect prices to drop next week.
“Growth is still very much in question,” said Ole Hansen, the vice president of trading advisory at Saxo Bank A/S in Copenhagen. “Copper has got some strong momentum at the moment, but such a strong rally as we’ve seen in a short space of time calls for a retracement. Gold is still a safe haven amid worries about Europe.”
Gold survey results: Bullish: 16 Bearish: 2 Hold: 1 Copper survey results: Bullish: 8 Bearish: 11 Hold: 4 Corn survey results: Bullish: 12 Bearish: 11 Hold: 5 Soybean survey results: Bullish: 13 Bearish: 11 Hold: 5 Raw sugar survey results: Bullish: 2 Bearish: 7 Hold: 3 White sugar survey results: Bullish: 3 Bearish: 6 Hold: 3 White sugar premium results: Widen: 3 Narrow: 3 Neutral: 6