Bloomberg News

Copper Traders Most Bullish Since October on Demand: Commodities

December 28, 2011

(For more commodity columns, click CMMKT.)

Dec. 23 (Bloomberg) -- Copper traders are the most bullish since October as global inventories at a two-year low add to signs that demand is improving.

Sixteen of 28 analysts surveyed by Bloomberg expect the metal to advance next week, the first positive outlook in three weeks and the highest proportion since Oct. 14. Global copper stockpiles monitored by exchanges in London, Shanghai and New York fell 22 percent since March and this month were at the lowest level since October 2009, Bloomberg data show.

European copper demand will rebound after this quarter and prices will climb 26 percent in the next 12 months, Goldman Sachs Group Inc. said Dec. 20. The European Central Bank awarded a record 489 billion euros ($638 billion) to euro-area banks for three years on Dec. 21 to keep credit flowing amid a debt crisis that helped wipe more than $10 trillion from the value of equities since May and pushed copper down 21 percent this year.

“Reported inventories have been declining very aggressively, and the indication suggests that the market is still tight,” said Nikos Kavalis, an analyst at Royal Bank of Scotland Group Plc in London. “Copper is going to have decent, if unspectacular, growth rates. Supply is still constrained.”

Copper’s Slump

Copper is down 25 percent from a record $10,190 a metric ton in February at $7,628.25 on the London Metal Exchange and heading for the first annual drop since 2008. The Standard & Poor’s GSCI Index of 24 commodities rose 2.2 percent as the MSCI All-Country World Index of equities fell 9.6 percent. Treasuries returned 9.3 percent, a Bank of America Corp. index shows.

Traders also anticipate gains in gold, corn and soybeans next week, while most respondents expect raw sugar to be little changed, the surveys showed.

The number of applications for U.S. unemployment benefits unexpectedly dropped last week to the lowest since April 2008, Labor Department figures showed yesterday, while Dec. 15 data showed manufacturing in the New York and Philadelphia regions accelerated more than forecast in December. The U.S. is the biggest buyer of copper after China.

Asian buying has driven a decline in copper inventories, with metal tracked by the Shanghai Futures Exchange down 54 percent since March. China accounts for 38 percent of global consumption and Europe makes up 19 percent, according to Barclays Capital. Stockpiles monitored by the LME plunged 7,300 tons on Dec. 19, the most since May 2009. Global inventories are 534,190.3 tons and fell to 523,574 tons on Dec. 1, data from exchanges show.

‘Attractive’ Prices

Prices are “looking increasingly attractive” and European buyers will probably stop relying on stockpiles as China’s demand growth accelerates in the first half, Max Layton, an analyst at Goldman in London, said in a Dec. 20 report. The bank forecasts copper to trade at $9,500 in the next 12 months. Barclays expects a 234,000-ton shortage next year as consumption increases 2.5 percent.

A three-month strike in Indonesia at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine, which has the world’s largest recoverable reserves of copper, helped support prices. Freeport said on Dec. 14 that a wage-increase agreement will end the strike, though warned of “limited” concentrate shipments until full operations are restored, probably by early 2012.

While traders are now bullish, hedge funds and other money managers remain bearish. They are holding a net-short position, or bets on lower prices, of 3,390 U.S. futures and options, according to the Commodity Futures Trading Commission. Speculators have held a net-short position since mid-September, the longest stretch since July 2009, a month after the last U.S. recession ended.

Funding Constraints

Concern about Europe’s deepening crisis last week pushed the dollar to the highest level against the euro since January. A stronger greenback makes dollar-traded metals more expensive in other monies. Standard & Poor’s put 15 euro nations on review for possible downgrade on Dec. 5, and ECB President Mario Draghi said on Dec. 19 that lenders in the region may have “very significant” funding constraints next year.

“I’m still very bearish because there have been no solutions to a number of problems,” said Mark Lewon, the president of Utah Metal Works Inc., a Salt Lake City-based company recycling industrial scrap. “China is still showing economic weakness in comparison to its recent history.”

Growth in the euro-area will slow to 1.1 percent next year from 1.6 percent this year, while expansion in China will drop to 9 percent from 9.5 percent, the International Monetary Fund estimated in a September report.

Shipping Routes

Declining demand for consumer goods in the Europe 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.

The S&P GSCI gauge of raw materials is set for the weakest performance since 2008. Goldman Sachs said in a report Dec. 1 that the world is likely to avoid a recession and predicted a 15 percent return for commodities in the next year. Barclays said on Dec. 20 it has a “positive” outlook for the first quarter.

Sixteen of 26 traders and analysts surveyed by Bloomberg expect gold to gain next week. Futures on the Comex in New York rose 13 percent to $1,612.90 an ounce this year. Holdings in gold-backed exchange-traded products at 2,321.158 tons are within 2 percent of the record set Dec. 14, even as prices slipped 16 percent from the all-time high in September.

Sugar Prices

Five of nine people surveyed expect raw-sugar prices to be little changed next week and three were bullish. The commodity fell 26 percent this year to 23.62 cents a pound on ICE Futures U.S. in New York.

Eighteen of 24 anticipate higher corn prices, while 19 of 25 said soybeans will advance. Corn slipped 1.6 percent to $6.1875 a bushel in Chicago this year, and soybeans slid 16 percent to $11.75 a bushel.

“The focus in the commodity market is centered on global growth and the European crises,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “We expect that global demand for commodities will remain robust and price supportive.”

--With assistance from Agnieszka Troszkiewicz and Isis Almeida in London, Jae Hur and Yasumasa Song in Tokyo, Glenys Sim in Singapore, Helen Sun in Shanghai, Jeff Wilson in Chicago, Marvin Perez in New York and Phoebe Sedgman in Melbourne. Editors: Claudia Carpenter, John Deane

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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