Copper traders turned bullish for the first time in seven weeks on mounting confidence that global growth will strengthen, diminishing stockpiles after a year in which mine production fell by a record amount.
Thirteen of 25 analysts surveyed by Bloomberg expect the metal to gain next week and three were neutral. Hedge funds and other money managers are holding their biggest bet on rising prices since early August, Commodity Futures Trading Commission data show. Inventories tracked by the London Metal Exchange are already at a two-year low after global mine output dropped by 200,000 metric tons in 2011, Barclays Capital estimates.
Investments in commodities expanded at the quickest pace in six years in January on increasing confidence economies will skirt another recession, data compiled by Bloomberg show. Higher demand comes at a time when producers are struggling to keep up, as lower ore grades, strikes and slower-than-expected mine developments limit supply growth. Barclays anticipates a third consecutive copper shortage in 2012 and another one next year.
“Copper is always a forward looking indicator of where the economy is going to be,” said Dan Smith, an analyst at Standard Chartered Plc in London. “Things are improving in the financial markets, people are becoming more bullish.”
The metal rose 13 percent to $8,558 a metric ton this year on the London Metal Exchange, the best start since 2009. The Standard & Poor’s GSCI gauge of 24 commodities added 4.2 percent and MSCI All-Country World Index of equities gained 8.2 percent, as it entered a bull market from its October low. Treasuries lost 0.6 percent, a Bank of America Corp. index shows.
Investors should take on more risk because “I don’t have a view that the world is going to fall apart,” Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest money manager, said in a Feb. 8 interview in Hong Kong. The Federal Reserve last month pledged to keep interest rates low until late 2014 and the European Central Bank kept interest rates at a record low yesterday.
Inventories of copper monitored by the LME slid 34 percent since October to 312,750 tons, the lowest since September 2009, bourse data show. The International Monetary Fund forecasts global growth of 3.3 percent this year, even as Europe contends with a debt crisis. European finance ministers yesterday held back a rescue package for Greece in a rebuff that left lawmakers in Athens under government pressure to endorse a newly minted austerity plan or exit the euro.
China’s economy will expand 8.2 percent this year and 8.8 percent in 2013, the IMF predicts. The People’s Bank of China said Feb. 7 it will boost support for construction of affordable housing. China consumes about 40 percent of the world’s copper and construction accounts for about 40 percent of demand, according to the Copper Development Association.
While combined stockpiles tracked by bourses in London, New York and Shanghai tumbled 9.2 percent since October, inventories in Shanghai more than doubled this year, data compiled by Bloomberg show. Demand from Chinese buyers may slow as prices reach $4 a pound ($8,818 a ton), said Peter Hickson, the head of commodities research at UBS AG in Hong Kong.
“We’ve had a bit of a run-up in copper prices on Chinese imports, and I suspect that they will be slower while the price remains high,” Hickson said. “We are already starting to see a situation when inventories are rising in Shanghai.” Copper imports by China fell for the first time in eight months in January, customs data showed today.
Rio Tinto Group, based in London and the world’s third-biggest mining company, said yesterday its mined copper output fell 23 percent last year because of lower ore grades. Supply will fall 376,000 tons short of demand this year, even as mine production rises about 3 percent, Barclays estimates. Last year’s drop in tonnage was the biggest ever, the bank said.
Futures and Options
Speculators raised their net-long position in copper by 5.1 percent to 7,695 futures and options in the week ended Jan. 31, the most since early August, CFTC data show.
Twelve of 24 traders and analysts surveyed by Bloomberg expect gold to gain next week and seven were neutral. Futures on the Comex in New York rose 9.3 percent to $1,712.70 an ounce this year after a 10 percent increase in 2011. Holdings in gold-backed exchange-traded products stand at 2,388.1 tons, about 0.2 percent below the record set in December, data compiled by Bloomberg show.
Seven of 12 people surveyed expect raw-sugar prices to decline next week. The commodity fell 1.5 percent this year to 22.96 cents a pound on ICE Futures U.S. in New York.
Ten of 23 people surveyed anticipate lower corn prices next week, while 13 of 25 said soybeans will advance. Corn fell 2 percent to $6.3325 a bushel this year as soybeans gained 0.8 percent to $12.18 a bushel.
The number of futures contracts on 24 commodities from oil to copper rose 9.3 percent last month, the most since January 2006, according to data compiled by Bloomberg.
“From a commodity perspective it actually looks quite positive for 2012,” said Filip Petersson, an analyst at SEB AB in Stockholm. “The risk for a Chinese hard landing is easing. Commodities get less and less sensitive to the European crisis and the U.S. economy at least remains stable.”
Gold survey results: Bullish: 12 Bearish: 5 Hold: 7 Copper survey results: Bullish: 13 Bearish: 9 Hold: 3 Corn survey results: Bullish: 8 Bearish: 10 Hold: 5 Soybean survey results: Bullish: 13 Bearish: 7 Hold: 5 Raw sugar survey results: Bullish: 4 Bearish: 7 Hold: 1 White sugar survey results: Bullish: 3 Bearish: 8 Hold: 1 White sugar premium results: Widen: 4 Narrow: 5 Neutral: 3