China Goes From Copper Villain to Would-Be Hero on Hoarding Bets

  • Producers already pledged cuts in production for next year
  • First Quantum and Teck Resources pace mining-shares gains

Copper had the biggest gain in more than two months and mining shares rallied on speculation that smelters in China will hoard supplies to support prices that are near a six-year low.

Producers in China, the biggest copper user, plan to hold a meeting Saturday to discuss accumulating metal as “reserved stockpiles,” industry consultancy SMM reported on its website, citing unidentified people. Smelters have already pledged to cut output next year and to stop adding new capacity.

Chinese companies and some of the biggest miners are trying to curb oversupplies that have sent a gauge of six metal prices to the lowest since 2009. China’s economic slowdown has curbed demand after years of investment led to more mine output. Smelters in the Asian nation may buy as much as 400,000 tons of copper, equal to almost 2 percent of global demand last year, Commerzbank AG estimated.

“Once you hoard something like that, it’s going to take supply out of the market,” Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida., said in a telephone interview. Such a move will “push prices higher,” he said.

Copper futures for March delivery climbed 3.4 percent to settle at $2.1125 a pound at 1:13 p.m. on the Comex in New York, marking the biggest advance for the most-active contract since Sept. 30.

On the London Metal Exchange, copper for delivery in three months gained 3.1 percent to $4,685 a metric ton ($2.13 a pound). Aluminum, lead, nickel, tin and zinc also rose in London.

The Bloomberg Americas Mining Index, which tracks 22 producers in the region, rallied 1.9 percent, led by Vancouver-based First Quantum Minerals Ltd. Freeport-McMoRan Inc., the biggest publicly traded copper produce, climbed as much as 5.9 percent before erasing gains. Shares of the Phoenix-based company are heading for a record 10th straight weekly loss.

The rally in copper may not last and the bears may regain control of the market, Michael Turek, the head of base metals at BGC Partners Inc. in New York, said in a note. The net-short position held by money managers is the biggest in more than two years, according to data from the U.S. Commodity Futures Trading Commission.

“Is the near respite from the downdraft temporary? Quite possibly, given that still there does not appear to be sufficient shock factor around to disrupt the comfort of the shorts,” Turek said.

Some investors need more evidence that the glut is set to diminish. Citrine Capital Management LLC, one of the few surviving hedge funds investing exclusively in metals, said the drop industrial metals has further to go as mining companies have failed to cut output enough to make up for slowing demand.

Refined-copper production exceeded demand by 69,000 tons in the first eight months of 2015, the International Copper Study Group said last month.

“The supply-demand situation on many metal markets will tighten noticeably next year,” Commerzbank said in a report Friday. “Many producers are no longer able to cover their costs at the current prices.”

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