Bloomberg News

Copper Traders Most Bearish in Two Months on Europe: Commodities

November 18, 2011

(For more commodity columns, click CMMKT.)

Nov. 18 (Bloomberg) -- Copper traders and analysts are the most bearish in almost two months because of mounting concern that Europe’s debt crisis will curb demand in the region that accounts for about 19 percent of global consumption.

Eleven of 23 surveyed by Bloomberg expect the metal to decline, the second consecutive week that their outlook worsened and the highest proportion since Sept. 23. The last time so many were bearish, prices dropped 4.6 percent the following week.

The commodity fell more than 20 percent into a bear market since reaching a record in February on signs that economic growth is slowing. European industrial production fell the most in 2 1/2 years in September as governments grappled with sovereign debt crises that have toppled governments in Greece and Italy. Copper demand contracted 0.9 percent in 2008 as economies contended with the worst recession since World War II.

“There’s a strong chance of Europe going into a recession,” said William Adams, head of research at London- based Basemetals.com. “Asia is getting more worried that the slowdown in Europe will mean demand for their exports will be hit and therefore that’s going to impact demand for their industrial production.”

Copper declined 22 percent to $7,525 a metric ton on the London Metal Exchange this year, heading for the first annual drop since 2008. The Standard & Poor’s GSCI Index of 24 commodities advanced 2.6 percent. The MSCI All-Country World Index of equities retreated 11 percent and Treasuries returned 9.2 percent, a Bank of America Corp. index shows.

Commodity Futures

Speculators in U.S. copper futures have held a net-short position, or bet on lower prices, since mid-September, data from the Commodity Futures Trading Commission show. That’s the most bearish they’ve been since a one-year stretch through July 2009, a month after the last U.S. recession ended.

While industrial metals retreated this year because of investors’ concerns about growth, gold is heading for its 11th consecutive annual advance, on demand for what are perceived as the safest assets. Traders surveyed by Bloomberg expect bullion to rise next week. They also predict gains in corn and soybeans and are equally divided on raw sugar.

European consumer confidence dropped to the lowest in almost two years last month, the European Commission reported Oct. 27. About 8 percent of copper is used in consumer products, according to UBS AG. Growth in the euro region will drop to 1.1 percent next year, compared with 1.6 percent this year, the International Monetary Fund forecast in a September report.

Consumer Goods

Declining demand for consumer goods in the region would hurt economies globally. The Asia-to-Europe route is the second- biggest inter-regional trade for the container shipping industry after Asia-to-U.S., according to London-based Clarkson Plc, the world’s largest shipbroker. Containers carry everything from furniture to televisions and refrigerators.

Declining ore grades and disruptions at mines may buoy prices. Growth in supply is being hampered by ores that yield less metal and higher prices for everything from labor to energy. The cost of mining copper in Chile, the world’s biggest producer, rose 20 percent last year, according to UBS.

Workers at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia extended their strike for a third month until Dec. 15, a labor union said last week. About 8,000 workers at Grasberg, which holds the world’s largest recoverable reserves of copper, have been on strike since Sept. 15 demanding higher wages. Freeport declared force majeure on some shipments last month, a legal clause allowing companies to miss deliveries because of circumstances beyond their control.

Developing Economies

Global demand for copper will still expand next year, rising 2.7 percent, compared with 3.7 percent in 2011, Barclays Capital estimates. The bank is forecasting shortages as mining companies fail to keep up with consumption. Developing economies will expand 6.1 percent, compared with 1.9 percent for advanced economies, the IMF forecasts.

“Demand will grow, but it’s not going to grow as fast as it did in 2009 and 2010,” said Walter de Wet, head of commodities research at Standard Bank Plc in London. “That will still support industrial commodities. We see the supply side lagging substantially for copper. We still think the copper market will be in deficit next year.”

Nineteen of 29 traders and analysts surveyed by Bloomberg expect gold to climb next week. Futures on the Comex exchange in New York gained 21 percent to $1,725.10 an ounce this year. Holdings in exchange-traded products backed by the metal are within 0.3 percent of the record 2,330 tons reached in August, data compiled by Bloomberg show.

ICE Futures

Sixteen of 27 surveyed anticipate gains in soybeans and 10 of 26 people said corn will advance. Corn declined 1.7 percent to $6.18 a bushel in Chicago this year, while soybeans slipped 17 percent to $11.6825 a bushel.

Raw sugar retreated 25 percent this year to 23.97 cents a pound on ICE Futures U.S. in New York. Four of nine people surveyed expect prices to rise next week and the same number predicted a decline.

“Europe is the big question,” said Bjarne Schieldrop, the Oslo-based chief commodity analyst at SEB AB. “If some kind of solution is reached, commodities will be fine. If the euro zone falls apart, it will be ugly.”

--With assistance from Agnieszka Troszkiewicz, Isis Almeida and Tony C. Dreibus in London, Jae Hur in Tokyo, Sungwoo Park in Seoul, Luzi Ann Javier in Singapore, Joe Richter and Debarati Roy in New York and Jeff Wilson in Chicago. Editors: Daniel Enoch, Patrick McKiernan.

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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