Copper Near Five-Year Low Defies Forecasts for Better Economy

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Economists say the world economy will do better this year. The copper market is saying that won’t be enough to eliminate a supply glut that’s lasted at least two years.

Prices of the metal traded near the lowest since October 2009 after falling 1.2 percent yesterday on concern that output is outpacing demand. China’s copper consumption will grow at the slowest pace since at least 2010, Deutsche Bank AG predicts. At the same time, global economic growth will be the best in four years, economist estimates compiled by Bloomberg show.

Copper’s plunge mirrors losses across commodities as a decade-long bull market led companies to boost production and the Federal Reserve debates when to raise interest rates. Investors last week doubled bets on more losses in copper, already the worst-performing industrial metal in the past year after plunging 18 percent.

“Copper has been historically fairly decent envisioning what’s to come in the economy,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview. “It doesn’t like what it sees.”

On the London Metal Exchange, copper for delivery in three months was at $6,025 a metric ton by 9:45 a.m. in Hong Kong. The metal settled at $6,017 a metric ton yesterday, touching $5,966 at one point, the lowest since October 2009. The commodity hasn’t posted a gain since Dec. 30.

The $6,000 price is “a psychologically and technically important level,” said Gianclaudio Torlizzi, a partner at T-Commodity in Milan, who predicted a drop to $5,800.

Bearish Traders

More traders and analysts are negative on copper than any time since August. A Bloomberg News survey on the direction of prices this week showed that among 18 respondents, 10 were bearish, six were bullish and two were neutral.

Refined production will exceed demand this year by 380,000 tons, more than double the level last year, Societe Generale SA estimates. Macquarie Group Ltd. pegs the glut at 98,000 tons.

“Slowing demand principally out of China and less financing appetite using copper could mean that demand is weak,” said Robin Bhar, an analyst at Societe Generale in London. “Copper can spend some time clearly below the $6,000 level.”

Gross domestic product globally will probably increase 2.77 percent in 2015 and top 3 percent the following year, economist estimates compiled by Bloomberg show. That compares with 2.43 percent growth in 2014.

Investors increased the net-short position in copper to 10,881 Comex contracts in the week ended Jan. 6, compared with 4,455 a week earlier, according to government data on Jan. 9.

Copper Stockpiles

Stockpiles monitored by the LME were little changed at 187,400 tons after rising 5.9 percent last week, the most since June 2013. Inventories in China tracked by the Shanghai Futures Exchange are at the highest since April.

China will use 4.9 percent more copper than last year, half the growth rate from 2013, according to Deutsche Bank.

Data this month showed China’s official manufacturing gauge fell to the lowest in 18 months as weakness in the housing market hurt growth. Financing deals using metal as collateral stalled last year after an investigation into loan fraud surfaced around Qingdao, the country’s third-largest port.

“As these headwinds from around the world and emerging markets and China hit the copper market, traders will be reluctant to get too happy about the metal,” Melek of TD Securities said. “The risk is demand may actually get worse.”

On the Comex in New York, copper futures for March delivery dropped 0.1 percent to $2.723 a pound after settling yesterday 1.1 percent lower at $2.7255. Aggregate trading yesterday was 27 percent more than the average in the past 100 days, according to data compiled by Bloomberg.

In Shanghai, the March copper contract dropped 0.8 percent to 43,610 yuan ($7,029) a ton after earlier reaching 43,240 yuan, the lowest for a most-active contract since July 2009.

Also on the LME, zinc and aluminum rose, while nickel and tin were little changed. A gauge of the six main industrial metals has declined 9.3 percent in the past 12 months to the lowest since June 7, 2010.

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