The third consecutive annual copper shortage and accelerating U.S. growth will drive prices to the highest in a year in the next quarter, according to the most accurate forecasters.
Supply will fall 278,000 metric tons short of demand in 2012, more than North America uses in a month, Barclays Capital estimates. Hedge funds, which were betting on lower prices as recently as January, are now the most bullish in eight months, Commodity Futures Trading Commission data show. The metal will average $9,000 a ton in the third quarter, 9.5 percent more than now, according to the median estimate of the top five analysts in Bloomberg Rankings in the past eight quarters.
Copper is rebounding from a 21 percent slump in 2011 as data showed a strengthening U.S. economy and as European leaders moved to contain the region’s debt crisis. North America and Europe account for 29 percent of demand, Barclays estimates. While China cut its growth target to the lowest in eight years last month, the world’s biggest copper buyer will still be expanding at more than twice the global pace predicted by the International Monetary Fund.
“The U.S. economy is pretty good,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion of assets. “Emerging markets should start to pick up. Some time by the end of the year we may look back at commodity prices in general and copper in particular and say this was a good time to buy.”
Copper rose 8.2 percent to $8,220 on the London Metal Exchange since the start of January, exceeding the 6.6 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities. The predicted $9,000 average would be the most since the second quarter of last year. The MSCI All-Country World Index of equities advanced 9.1 percent this year as Treasuries lost 0.3 percent, a Bank of America Corp. index shows.
Shares of Freeport-McMoRan Copper & Gold Inc., the biggest publicly owned copper producer, will gain 41 percent to $53.39 in the next 12 months, according to the average of 18 analyst estimates compiled by Bloomberg. Those of BHP Billiton Ltd., the second largest, will advance 35 percent to A$45.88, the average of 13 predictions show.
Stockpiles in warehouses monitored by the LME declined 28 percent this year and those tracked by the Comex exchange in New York fell 5 percent, data from the bourses show. Metal for immediate delivery is trading at a $45-a-ton premium to the benchmark three-month contract on the LME, compared with an average discount of almost $10 in the past two years. The turnaround indicates mounting concern about near-term supply.
That concern may be limited to European and U.S. buyers. Reserves monitored by the Shanghai Futures Exchange more than tripled since the beginning of December to 222,092 tons. Traders may be holding as much as another 650,000 tons in bonded warehouses in Shanghai that aren’t tracked by the bourse, compared with 200,000 tons in November, Barclays said in a report March 28.
While China’s March copper imports rose 52 percent from a year earlier, they were 4.6 percent lower than in February, customs data showed April 10. The nation accounts for 40 percent of demand, according to Barclays. Premier Wen Jiabao cut the growth target for gross domestic product to 7.5 percent last month, the lowest since 2004. The IMF expects a 3.3 percent global expansion this year.
Copper fell to a three-month low this week after a Labor Department report showed U.S. employers added the fewest jobs in five months in March. Federal Reserve Chairman Ben S. Bernanke said in a speech April 9 that the U.S. was still “far from having fully recovered.” Sales of new U.S. homes in February unexpectedly fell to the slowest pace since October, the Commerce Department said March 23. Spain’s Economy Minister Luis de Guindos declined April 10 to rule out a rescue for his country, which is battling its second recession since 2009.
“It would take some sort of global growth to pull copper up, but it’s hard to see where that’s going to come from,” said Jeffrey Sherman, who helps manage about $30 billion of assets for DoubleLine Capital in Los Angeles. “Europe can’t do it, the U.S. has a housing overhang and the Chinese have lowered their growth forecast. Without China it’s going to be tough.”
U.S. manufacturing expanded at a faster pace in March, the Institute for Supply Management reported April 2. Growth in the world’s largest economy will accelerate this quarter and the next, according to the median of 73 economist estimates compiled by Bloomberg. Consumer confidence climbed to the highest level in four years in the week ended April 1, the Bloomberg Consumer Comfort Index shows.
There are also signs some European economies are improving, with German factory orders increasing 0.3 percent in February, compared with a 1.8 percent contraction a month earlier, the Economy Ministry said April 4. U.K. manufacturing accelerated at the fastest pace in 10 months in March, Markit Economics said in a report April 2.
Global demand for consumer goods made with copper is also growing. Sales of cars and light vehicles will rise 5.3 percent to a record 79.3 million units this year, according to LMC Automotive Ltd., a researcher in Oxford, England. More than 50 pounds (23 kilograms) of copper are used in a typical U.S.-built vehicle, the Copper Development Association estimates.
Mining companies will struggle to keep up. Production will rise 3.2 percent this year to 20.26 million tons as demand increases 2.8 percent to 20.54 million tons, Barclays estimates. Global stockpiles will decline to 1.07 million tons, from 1.23 million tons in 2011, the bank predicts.
Barclays is forecasting a third-quarter average of $9,000. Goldman Sachs Group Inc. told clients in a report on April 3 that prices would reach $9,000 in three months. The analysts surveyed by Bloomberg -- Danske Bank A/S, TD Securities Inc., UniCredit SpA, Prestige Economics LLC and Landesbank Baden-Wuerttemberg -- predicted a fourth-quarter average of $9,039.
Speculators increased bets on higher copper prices by 25 percent to 18,642 U.S. futures and options in the week ended April 3, the most since Aug. 2, CFTC data show. They were wagering on a decline from mid-September to mid-January.
“Current demand is sufficient to move copper prices higher, and copper will rise in the back half of the year,” said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto. “Copper has better fundamentals than any other industrial metal. Physical supply is tight, and you’re looking at a market that will remain tight for at least another year.”