Copper Traders Diverge From Hedge Funds on Recovery: Commodities
Copper analysts are the most bullish in five weeks because of mounting optimism the global economy is strengthening, diverging from hedge funds holding their biggest wager on a retreat since August.
Thirteen analysts surveyed by Bloomberg expect prices to rise next week. Four forecast declines and three were neutral, for the highest proportion of bulls since Feb. 1. Goldman Sachs Group Inc. recommended March 1 buying the metal for a 16 percent gain in six months. Speculators are betting on a drop for the first time since November after inventories monitored by the London Metal Exchange advanced to a more-than two-year high.
Global equities rose to the highest since 2008 today on speculation central banks will continue stimulus to aid economies. China’s growth accelerated for the first time in two years in the fourth quarter and the Federal Reserve said March 6 the U.S. is expanding. While LME copper stockpiles doubled since September as supply outpaced demand, Barclays Plc forecasts a return to shortages in the next six months.
“With the U.S. improving and China coming out of its doldrums, we think copper is well supported,” said Carole Ferguson, an analyst at SP Angel Corporate Finance LLP, a broker and adviser in London. “Copper has been volatile because the stockpiles have been high. Outside the U.S. there’s still not great visibility. Europe is probably going to take a while to turn around.”
Copper fell 2.4 percent to $7,740 a metric ton on the London Metal Exchange this year, rebounding from a three-month low of $7,652 March 1. It’s still the second-best performer of the six main metals on the LME. The Standard & Poor’s GSCI gauge of 24 commodities lost 0.3 percent this year and the MSCI All- Country World Index (MXWD) of equities gained 5.8 percent. Treasuries declined 0.9 percent, a Bank of America Corp. index shows.
The U.S. economy grew at a modest to moderate pace across most of the country, the Fed said in its Beige Book business survey. Expansion will accelerate every quarter to 2.8 percent at the beginning of next year, while China’s growth will rise to 8.3 percent in the second and third quarters, from 7.9 percent at the end of 2012, economists surveyed by Bloomberg predict. China accounts for 42 percent of all copper usage and North America 11 percent, according to Barclays.
Central banks have pledged more action to spur growth as commodities rose about 2 percent since the end of 2010, compared with an 81 percent surge over the previous two years. Fed Chairman Ben S. Bernanke defended $85 billion in monthly purchases last week and the European Central Bank yesterday left interest rates at a record low. The International Monetary Fund predicts world economic growth will climb to 3.5 percent this year from 3.2 percent in 2012.
Copper demand will outpace supply by 288,000 tons in the two quarters through September, reducing this year’s surplus to 56,000 tons, according to Barclays. The drop since mid-February presents a buying opportunity and prices will reach $9,000 in six months as China imports more metal, Goldman said in a March 1 report. Chinese refined copper imports in January were up 5.4 percent from October’s 15-month low, customs data show.
Goldman’s bullish outlook contrasts with hedge funds’ expectations for further declines. Speculators held a net-short position of 7,172 futures and options as of Feb. 26, the most since Aug. 14, compared with a net-long position of 11,413 contracts the week before, U.S. Commodity Futures Trading Commission data show.
There are signs that demand may be slowing. Inventories in warehouses tracked by the LME, the largest metals bourse, are 509,425 tons, the most since April 2010, exchange data published today show. Orders to withdraw copper slumped 67 percent since Jan. 4 and reached an almost nine-month low on March 6.
This year’s oversupply may increase if the debt crisis worsens in Europe, a region that accounts for 17 percent of copper demand. The IMF expects a second year of contraction there. Budget cuts and economic reforms were rejected by more than half of voters in an Italian election last month, undermining optimism that Europe will come out of its recession.
Prices will come under pressure this year as demand slows and supply starts to increase, Steven Lewis, a senior copper analyst at Wood Mackenzie Ltd., said March 7 at a conference in Madrid. China called for higher down payments for second-home mortgages in some cities on March 1 in an attempt to cool the property market. Construction accounts for about 40 percent of usage, the Copper Development Association estimates.
China will still need 450,000 tons of new copper this year, Javier Targhetta, senior vice president of marketing and sales at Freeport-McMoran Copper & Gold Inc. (FCX), said in Madrid two days ago. The nation’s copper usage will climb as much as 5 percent in the next five years, Rodrigo Toro, corporate sales vice president at Codelco, the biggest producer, said the same day.
In other commodities, eight of 15 people surveyed expect raw sugar to rise next week and four predicted a drop. The commodity slid 3.2 percent to 18.88 cents a pound on ICE Futures U.S. in New York this year.
Ten of 25 people surveyed anticipate higher corn prices next week and nine said the grain will drop, while 14 of 26 said soybeans will climb and 10 expect lower prices. Eleven of 23 traders predicted gains in wheat and nine were bearish. Corn fell 0.7 percent to $6.935 a bushel in Chicago this year as soybeans rose 4.7 percent to $14.7575 a bushel. Wheat slipped 11 percent to $6.935 a bushel.
Twenty-three of 32 traders and analysts surveyed said gold would advance next week, five were bearish and four predicted little change. Bullion fell 6.5 percent to $1,567.15 an ounce in London this year after advancing the previous 12 years, the longest run of gains in at least nine decades. It slumped the past five months in the worst losing streak since 1997.
The S&P gauge of raw materials dropped 5.3 percent from a four-month high on Feb. 13, reaching a 10-week low March 4. U.S. President Barack Obama ordered the start of $85 billion in spending cuts on March 1, beginning a potentially decade-long wave of belt-tightening. Combined with tax increases enacted earlier this year, that will depress U.S. economic growth by about half in 2013, according to government projections.
“For many developed markets you’ve got a situation where they’re going down the route of fiscal austerity and there are significant drawbacks to that,” said Ross Strachan, a commodities economist at Capital Economics Ltd. in London “The U.S. is a little bit stronger at the moment, so they may be able to offset some of that negative effect.”
Gold survey results: Bullish: 23 Bearish: 5 Hold: 4 Copper survey results: Bullish: 13 Bearish: 4 Hold: 3 Corn survey results: Bullish: 10 Bearish: 9 Hold: 6 Soybean survey results: Bullish: 14 Bearish: 10 Hold: 2 Wheat survey results: Bullish: 11 Bearish: 9 Hold: 3 Raw sugar survey results: Bullish: 8 Bearish: 4 Hold: 3 White sugar survey results: Bullish: 11 Bearish: 3 Hold: 1 White sugar premium results: Widen: 7 Narrow: 3 Neutral: 5
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