Copper traders are the most bullish in three months as China, the biggest buyer, reduced interest rates to bolster growth, increasing expectations that prices will rebound from the longest slump in two years.
Sixteen analysts surveyed by Bloomberg said they expect prices to gain next week and seven were bearish. A further eight were neutral, making the proportion of bulls the highest since March 9. Stockpiles in warehouses monitored by the London Metal Exchange, the world’s largest metals bourse, declined 38 percent this year and Morgan Stanley is predicting at least another year of supply shortages.
China, which accounts for 41 percent of global demand, cut interest rates for the first time since 2008 yesterday after growth slowed for five consecutive quarters. Copper slid to a five month low today after Federal Reserve Chairman Ben S. Bernanke declined to specify options for further easing and German exports fell for the first time this year. Copper tripled as the Fed bought $2.3 trillion of debt in two rounds of so- called quantitative easing ending in June 2011.
“Since China is the biggest user of copper that rate cut should give a little boost,” said Donald Selkin, the New York- based chief market strategist at National Securities Corp., which manages about $3 billion of assets. “The potential for some kind of stimulus package should result in copper finally turning around.”
Copper rose as much as 2.4 percent to $7,585 a metric ton on the LME after China’s announcement. It traded as low as $7,233.25 today and was last at $7,317, taking this year’s drop to 3.7 percent. The metal fell the previous five weeks, the longest losing streak since May 2010. The MSCI All-Country World Index of equities is little changed this year and the Standard & Poor’s GSCI gauge of 24 commodities slid 9.5 percent. Treasuries returned 1.7 percent, a Bank of America Corp. index (MXWD) shows.
China’s benchmark one-year lending rate will drop to 6.31 percent from 6.56 percent from today. The People’s Bank of China delayed tightening bank capital rules to 2013 following three cuts since November in the amount of cash that banks need to set aside as reserves. The nation’s economy grew 8.1 percent in the first quarter, the slowest pace in almost three years.
Policy makers are seeking to sustain growth which the International Monetary Fund predicts will accelerate to 4.1 percent in 2013, from 3.5 percent in 2012. Bernanke said the Fed will need to assess conditions before deciding if more measures are required to stoke an economy threatened by Europe’s debt crisis and U.S. budget cuts. North America consumes about 11 percent of the world’s copper.
European Central Bank President Mario Draghi indicated the bank would act if the debt crisis worsens. Some of the ECB’s Governing Council members wanted a rate cut at their June 6 meeting, when borrowing costs were held at a record-low 1 percent, he said. German exports dropped 1.7 percent in April, the Federal Statistics Office said today. Europe accounts for about 18 percent of global copper consumption, Barclays Plc estimates.
While inventories monitored by the LME reached 215,350 tons on May 16, the lowest since October 2008, the decline may not just reflect demand. Some may be going to bonded warehouses in China that are exempt from a value-added tax and import duties. Stockpiles in warehouses across Shanghai stand at about 750,000 tons, according to Australia & New Zealand Banking Group Ltd.
Hedge funds and other speculators were still betting on lower prices in the week ended May 29, the latest data from the Commodity Futures Trading Commission show. They had a net-short position of 6,757 U.S. futures and options, from 2,808 contacts a week earlier, the most bearish holding since November.
Faster growth in China and the U.S. may be offset by an extended slump in Europe. The euro-area economy stalled in the first quarter after companies cut spending, the European Union’s statistics office said June 6. The IMF is predicting that the 17-nation monetary union will contract 0.3 percent this year. Greece holds a second election on June 17 after a vote on May 6 failed to produce a government, fanning concern the country may be forced out of the euro.
Some technical indicators are signaling that copper may be poised to rebound after slumping 17 percent from this year’s high of $8,765 on Feb. 9. The metal’s 14-day relative-strength index is at 31.2, with a level of 30 indicating a rebound to some analysts who study trading charts. Goldman Sachs Group Inc. predicts prices will climb to $9,000 in three months.
Disruptions to supply may also help prices rally. BHP Billiton Ltd. and Rio Tinto Group (RIO), the world’s biggest and third-largest mining companies by sales, said last month they will ration capital spending because of costs. Codelco, which mines more copper than any other company, produced 10 percent less in the first quarter as ores yielded less metal.
Workers at Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia threatened to strike gain after the dismissal of union members, a union official said June 5. The company halted production at the mine, which has the world’s largest copper reserves, for more than two weeks in February and March. Morgan Stanley anticipates a 130,000-ton shortage this year, widening to 170,000 tons in 2013.
Twenty-four of 31 traders and analysts surveyed by Bloomberg said gold would climb next week. Futures on the Comex exchange in New York rose 1.2 percent to $1,585.90 an ounce since the start of January, extending an 11-year bull market. Prices reached a record $1,923.70 in September.
Nine of 12 people surveyed expect raw sugar to gain next week. The sweetener slipped 15 percent to 19.79 cents a pound on ICE Futures U.S. in New York this year. Prices rallied this week as rains disrupted the harvest in Brazil, the world’s biggest producer.
Twenty of 25 people surveyed anticipate higher corn prices next week, the largest proportion since October 2010. Twenty-two of 25 said soybeans will gain, the most bullish response since 2004. Corn dropped 6.6 percent to $6.04 a bushel this year as soybeans advanced 11 percent to $13.3525 a bushel in Chicago.
“The market appears to be holding out that all the bad news is going to result in policy makers all over the world having to adopt some form of monetary stimulus,” said Carole Ferguson, an analyst at Fairfax IS in London. “Nobody knows how the European situation is going to pan out. There’s still going to be volatility in commodities.”
Gold survey results: Bullish: 24 Bearish: 4 Hold: 3 Copper survey results: Bullish: 16 Bearish: 7 Hold: 8 Corn survey results: Bullish: 20 Bearish: 2 Hold: 3 Soybean survey results: Bullish: 22 Bearish: 1 Hold: 2 Raw sugar survey results: Bullish: 9 Bearish: 2 Hold: 1 White sugar survey results: Bullish: 8 Bearish: 3 Hold: 1 White sugar premium results: Widen: 4 Narrow: 3 Neutral: 5
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