Copper traders are the most bearish in four months on mounting concern that demand for industrial metals will weaken as growth slows from China to Europe.
Fourteen analysts surveyed by Bloomberg said they expect prices to drop next week and seven were bullish. A further 10 were neutral, making the proportion of bears the highest since June 1. Copper supply will outpace demand by 458,000 metric tons in 2013, the first glut in four years and the biggest in more than a decade, according to the Lisbon-based International Copper Study Group, whose members include 23 nations.
The surge in copper demand from China’s housing market probably will “crash” by 2014 as projects are completed, Goldman Sachs Group Inc. said in a report Oct. 10. Manufacturing in the country, which consumes about 40 percent of the world’s copper, contracted for a second month in September. The International Monetary Fund cut global growth forecasts this week, even after central banks from the U.S. to Japan pledged more action to bolster economies.
“What it needs from here for another rally is to see quantitative easing translate into demand for copper and I don’t think that demand will come through until we see restocking in China in February or March,” said Angus Staines, an analyst at UBS AG in London. “As long as China’s data is a bit disappointing, then that’s bad for copper.”
The metal rose 6.9 percent to $8,125 a ton this year on the London Metal Exchange and averaged $7,976, the second-highest on record. The MSCI All-Country World Index of equities gained 10 percent and the Standard & Poor’s GSCI gauge of 24 commodities added 3.1 percent. Treasuries returned 2.1 percent, a Bank of America Corp. index shows.
The analysts were surveyed before the start of LME week on Oct. 15. The annual event attracts thousands of miners, refiners and traders for talks on metals markets and supply contracts. Shareholders in the 135-year-old LME approved a $2.2 billion takeover by Hong Kong Exchanges & Clearing Ltd. in July.
The world economy will grow 3.3 percent this year, compared with a July prediction of 3.5 percent, the IMF said in a report Oct. 9. The Washington-based group also cut its 2013 estimate to 3.6 percent from 3.9 percent. The 17-country euro area’s economy will contract 0.4 percent this year, the IMF said. Standard & Poor’s lowered Spain’s credit rating on Oct. 10 amid concern Europe’s debt crisis is deepening. Europe accounts for 18 percent of global copper demand, Barclays Plc estimates.
China’s construction and housing boom that started in 2009 is in its later stages and there are “significant downside risks” to copper prices in late 2013 and in 2014, Goldman said, citing a slowdown in construction completions and rising mine supply. A 164,000-ton supply surplus this quarter will reduce the annual shortage to 51,000 tons, according to Barclays.
Refined copper imports into China slumped 38 percent since December and reached a 10-month low in June, customs data show. Net imports probably will fall for the rest of the year, according to Ana Rebelo, the ICSG’s chief statistician. The 2.39 million tons imported so far this year is still 58 percent more than a year earlier. China’s growth of 8.2 percent next year will be more than double the global pace, the IMF predicts.
The traders’ bearish outlook has yet to be reflected in bets by hedge funds. Speculators’ wagers on a rally were the highest since August 2011 in the week ended Oct. 2, U.S. Commodity Futures Trading Commission data show. They had bet on price declines from May to August. Inventories in warehouses monitored by the LME slumped 42 percent this year and fell to the lowest since October 2008 on Sept. 19, exchange data show.
There are signs the economy is improving in the U.S. The jobless rate unexpectedly fell to 7.8 percent in September from 8.1 percent the prior month, the Labor Department said Oct. 5. American service industries expanded by the most in six months. North America accounts for 11 percent of copper consumption, Barclays estimates.
Copper will average $7,850 in the fourth quarter of 2013, 3.4 percent lower than now and the worst performance among the six main industrial metals traded on the LME, a Bloomberg survey of 10 analysts showed.
In other commodities, 12 of 27 traders and analysts surveyed by Bloomberg said gold would climb next week and seven were bearish. Bullion rose 13 percent to $1,761.05 an ounce in London since the start of January, heading for a 12th annual gain. Holdings in gold-backed exchange-traded products reached a record 2,583 tons yesterday, data compiled by Bloomberg show.
Seven of 14 people surveyed expect raw sugar to increase next week and six predicted losses. The commodity slid 14 percent to 19.95 cents a pound on ICE Futures U.S. in New York this year.
Fourteen of 25 people surveyed anticipate higher corn prices next week and 10 said the grain will decline, while 14 of 26 said soybeans will fall and nine expect higher prices. Corn rose 17 percent to $7.555 a bushel this year as soybeans advanced 26 percent to $15.1675 a bushel in Chicago. Both crops surged to records since August as the U.S. endured its worst drought in more than 50 years.
The Federal Reserve said Sept. 13 it will buy $40 billion of mortgage debt a month and the European Central Bank said earlier this month it is ready to buy bonds of indebted governments that comply with rescue conditions. The Bank of Japan has said it will add to a fund that buys assets and China approved a $158 billion subways-to-roads construction plan.
“Recent easing measures in the U.S. and Europe limit the downside risks to growth, but we are not of the view that it will materially improve growth,” said Hussein Allidina, head of commodities research at Morgan Stanley. “Easing actions, as a result, have not prompted us to revise our commodity forecasts, save gold, which we see benefiting from growing fiat supply and a continued depressed real-rate environment.”
Gold survey results: Bullish: 12 Bearish: 7 Hold: 8 Copper survey results: Bullish: 7 Bearish: 14 Hold: 10 Corn survey results: Bullish: 14 Bearish: 10 Hold: 1 Soybean survey results: Bullish: 9 Bearish: 14 Hold: 3 Raw sugar survey results: Bullish: 7 Bearish: 6 Hold: 1 White sugar survey results: Bullish: 7 Bearish: 6 Hold: 1 White sugar premium results: Widen: 3 Narrow: 8 Neutral: 3