Copper traders are the most bullish in 15 months on mounting confidence that the U.S. economy will rebound at a time when China’s recovery is gaining momentum.
Twenty-five analysts surveyed by Bloomberg expect prices to rise next week and five were bearish, making the proportion of bulls the highest since Oct. 14, 2011. Copper climbed to a three-month high today after data released in January showed faster economic growth and higher profits for industrial companies in China, the biggest user of the metal.
Global equities rallied to an almost 21-month high this week after China’s expansion accelerated for the first time in two years and an index of U.S. leading indicators rose the most in three months. While the U.S. economy shrank in the fourth quarter, economists at JPMorgan Chase & Co. and Morgan Stanley say the country will bounce back in the current quarter. The Federal Reserve signaled Jan. 30 it will maintain its stimulus program to sustain growth.
“The U.S. will show at least moderate growth going forward this year and U.S. stimulus should lead to higher commodity prices,” said Daniel Briesemann, a commodities analyst at Commerzbank AG in Frankfurt. “China’s economy is definitely gaining momentum and picking up. It will be the main driver.”
Copper rose 4.5 percent to $8,290 a metric ton on the London Metal Exchange this year. The metal jumped as much as 11 percent from a two-month low set Nov. 9, reaching $8,318 today, the highest price since Oct. 5. The Standard & Poor’s GSCI gauge of 24 commodities added 5 percent this year and the MSCI All-Country World Index of equities gained 5.2 percent. Treasuries lost 1 percent, a Bank of America Corp. index shows.
The Fed said it will continue to buy securities at the rate of $85 billion a month “if the outlook for the labor market does not improve substantially.” Copper more than doubled since December 2008 as the central bank expanded asset purchases in three rounds of so-called quantitative easing.
The U.S. shrank 0.1 percent in the fourth quarter as a drop in defense spending swamped gains for consumers and businesses, data showed Jan. 30. JPMorgan, Morgan Stanley and Bank of America economists said they expect a rebound as businesses will rebuild stockpiles and consumers and companies will keep on spending. The Conference Board said Jan. 24 its gauge of the outlook for the next three to six months rose 0.5 percent in December, signaling stronger housing and job markets in the world’s biggest economy.
North America consumes 11 percent of the world’s copper and China 42 percent, Barclays Plc estimates. The Asian nation grew 7.9 percent in the fourth quarter after slowing in the previous seven periods, the government said Jan. 18. Chinese industrial companies’ profits rose for a fourth month in December, state data showed Jan. 27. A reading today from HSBC Holdings Plc and Markit Economics showed manufacturing expanding at the fastest rate in two years.
There are signs that consumption is slowing. China’s refined-copper imports slid 41 percent last year, according to customs data. While copper stockpiles monitored by the Shanghai Futures Exchange fell for a second week through Jan. 24, the drop was from the highest level since April, exchange data show.
Inventories in warehouses monitored by the LME, the largest metals bourse, are at the highest in 13 months after jumping 78 percent from an almost four-year low set Oct. 16, exchange data show. Orders to withdraw metal slumped 52 percent in the past four weeks. The stock buildup points to “weak physical demand,” Robin Bhar, an analyst at Societe Generale SA in London, said Jan. 29.
“You’ve got a lot of anticipation built into markets at the minute without there being any real, genuine improvement in demand,” said Nic Brown, head of commodity research at Natixis SA in London. China starts a weeklong Lunar New holiday Feb. 11. “Ahead of the Chinese New Year, it’s difficult to know exactly how strong that Chinese growth is going to be.”
Central banks from the U.S. to Japan have pledged more stimulus amid concern the recovery will stall. The Washington-based International Monetary Fund cut its global growth forecast for this year to 3.5 percent on Jan. 23, compared with an October projection of 3.6 percent. The 17-nation euro area will contract 0.2 percent, the lender said. Europe accounts for 18 percent of copper demand, according to Barclays, which predicted Jan. 16 that supply will beat demand by 128,000 tons this year.
A 1 percent shift in the supply and demand balance may move prices $1,000 either way, though the risk of supply disruption is greater than output expanding more than forecast, UBS AG said in a Jan. 30 report. Rio Tinto Group, the second-biggest mining company, is considering a temporary halt to construction work at its $6.2 billion Oyu Tolgoi copper and gold project in Mongolia as the government demands a greater share of profit from the mine, two people familiar with the plans said.
A spokesman in Melbourne declined to comment on whether the London-based Rio Tinto is considering a temporary halt.
Hedge funds held a net-long position, or bets on higher New York copper prices, of 16,438 futures and options in the week to Jan. 22, U.S. Commodity Futures Trading Commission data show. That’s more than twice the average over the past five years.
The metal gained in February more times than any other month in the last nine years, according to data compiled by Bloomberg. Prices advanced in February eight times since 2004, beating the next-best month of July, which registered advances seven times over the nine-year period.
Copper in China has mostly traded at a discount to the LME’s benchmark contract since November, reducing the appeal to Chinese traders to import the metal. The discount was about 1000 yuan ($161) a ton today, and includes 17 percent value-added tax and import fees, data compiled by Bloomberg.
In other commodities, eight of 17 people surveyed expect raw sugar to climb next week and six predicted a drop. The commodity slid 3.1 percent to 18.91 cents a pound on ICE Futures U.S. in New York this year.
Seventeen of 25 people surveyed anticipate higher corn prices next week and five said the grain will drop, while 16 of 26 said soybeans will climb and eight expect lower prices. Sixteen of 24 traders predicted gains in wheat and five were bearish. Corn rose 5.9 percent to $7.3925 a bushel in Chicago this year as soybeans gained 4.6 percent to $14.7475 a bushel. Wheat fell 0.8 percent to $7.7175 a bushel.
Fourteen of 29 traders and analysts surveyed said gold would advance next week, eight were bearish and seven predicted little change. Bullion fell 0.3 percent to $1,671.05 an ounce in London this year after advancing the previous 12 years, the longest run of gains in at least nine decades. The 2,612.3 tons held in exchange-traded products is 0.8 percent below the Dec. 20 record, data compiled by Bloomberg show.
Speculators raised bullish wagers across 18 commodities by the most in six months in the week ended Jan. 22, CFTC data show. The S&P GSCI gauge of raw materials reached a four-month high today. The index gained about 7 percent since mid-November, compared with a 13 percent surge in equities in the period.
“The driver is primarily the optimistic market sentiment in general,” said Filip Petersson, a commodities strategist at SEB AB in Stockholm. “While global equities have performed strongly since November, commodities have been lagging until recently. All major regions look quite encouraging at the moment.”
Gold survey results: Bullish: 14 Bearish: 8 Hold: 7 Copper survey results: Bullish: 25 Bearish: 5 Hold: 0 Corn survey results: Bullish: 17 Bearish: 5 Hold: 3 Soybean survey results: Bullish: 16 Bearish: 8 Hold: 2 Wheat survey results: Bullish: 16 Bearish: 5 Hold: 3 Raw sugar survey results: Bullish: 8 Bearish: 6 Hold: 3 White sugar survey results: Bullish: 8 Bearish: 6 Hold: 3 White sugar premium results: Widen: 8 Narrow: 2 Neutral: 7