Copper analysts are the most bearish in 12 weeks as the metal extends its worst start to a year in more than a decade on mounting concern that a supply glut will build as economies weaken.
Nine analysts surveyed by Bloomberg expect prices to fall next week. Five forecast gains and four were neutral, making the proportion of bears the highest since Jan. 4. Prices reached an almost seven-month low of $7,486.25 a metric ton March 19. Hedge funds are holding the biggest ever bet on a decline, Commodity Futures Trading Commission data that begins in 2006 show.
Global copper inventories are already at a nine-year high and delays to Cyprus’s bailout prompted worries among investors that Europe’s debt crisis will worsen. China tightened curbs on the property market this month to moderate prices. The nation’s manufacturing expanded at the slowest pace in five months in February and retail-sales growth slipped. Europe and China account for about 60 percent of the world’s copper consumption.
“People built up big stockpiles in anticipation of a much stronger economic recovery than the one we’re actually seeing,” said Julian Jessop, chief international economist at Capital Economics Ltd. in London. “There’s nervousness about financial markets and a lack of risk appetite. Even if demand does pick up, it can be met by existing stocks.”
Copper fell 4.9 percent to $7,540 on the London Metal Exchange this year, the worst start since 2001. The Standard & Poor’s GSCI gauge of 24 commodities added 1.3 percent and the MSCI All-Country World Index (MXWD) of equities rose 5.9 percent. Treasuries fell 0.3 percent, a Bank of America Corp. index shows.
Speculators have been getting more bearish for the past five weeks and held a net-short position of 25,719 futures and options as of March 19, CFTC data show. They held a net-long position of 24,531 contracts in December as prices headed for a 4.4 percent annual gain.
Stockpiles in warehouse monitored by the LME, the largest metals bourse, surged 78 percent since the start of January after dropping the past three years. Inventories monitored by the exchange and those in Shanghai and New York stand at about 886,531 tons, the most since November 2003 and equal to about four months of North American demand.
Copper fell for a second straight monthly drop as the 17- nation euro area remains mired in recession and Cyprus’s 10 billion-euro ($13 billion) bailout weighed on confidence. The island nation is the fifth country to seek a rescue since the euro crisis began in 2009. Unemployment in Germany, the region’s biggest economy, unexpectedly rose in March, the Nuremberg-based Federal Labor Agency said yesterday.
China’s economy grew 7.9 percent in the fourth quarter. Expansion will accelerate to 8.3 percent in the second quarter before slowing through the end of the year, according to the median estimate of as many as 36 economists compiled by Bloomberg. Chinese refined copper imports slumped 12 percent in February to the lowest in 19 months, customs data show.
Growth in the nation’s copper usage will still accelerate to 8 percent this year, from 3 percent in 2012, and stockpiles of the metal in the country will decline in the next several months, Goldman Sachs Group Inc. said in a March 27 report. The bank expects prices to rise to $9,000 in six months.
The International Monetary Fund is predicting global growth of 3.5 percent in 2013, from 3.2 percent in 2012. Global equities are near the highest since June 2008 on mounting optimism that the American economy is strengthening. Sales of new U.S. houses in February capped the best back-to-back months in more than four years, Commerce Department data show. Construction accounts for about 40 percent of consumption, the Copper Development Association estimates.
Demand will outpace supply by 269,000 tons in the six months through September, cutting this year’s glut to 92,000 tons, Barclays Plc estimates. That’s down from a 142,000-ton surplus in 2012. There are already signs of more demand, with orders to withdraw the metal from LME warehouses jumping almost fourfold since March 6 to the highest since April.
There are also risks to supply. Workers at Codelco, the world’s largest copper miner, plan a 24-hour strike within the next month, a labor union leader said March 15. Exports may slow amid a port strike in northern Chile, the top producer, which started March 16.
Copper closed below its 200-day moving average every day since Feb. 28. The decline in prices is an opportunity to buy and the record bearish position of speculators means there’s a potential for a short squeeze, Australia & New Zealand Banking Group Ltd. (ANZ) said in a report this week. A short squeeze refers to the forced covering of bets on losses as a market moves higher.
In other commodities, three of nine people surveyed expect raw sugar to rise and the same amount predicted a drop. The commodity slid 9.5 percent to 17.66 cents a pound on ICE Futures U.S. in New York this year.
Fifteen of 21 people surveyed anticipate higher corn prices next week and five said the grain will drop, while 14 of 21 said soybeans will climb and four expect lower prices. Fourteen of 19 traders predicted gains in wheat and two were bearish. Corn fell 0.4 percent to $6.9525 a bushel in Chicago this year as soybeans retreated 0.3 percent to $14.0475 a bushel. Wheat declined 12 percent to $6.8775 a bushel.
Seventeen of 32 traders and analysts surveyed said gold would rise next week, nine were bearish and six predicted little change. Bullion fell 4.7 percent to $1,596.55 an ounce in London this year after advancing the previous 12 years, the longest run of gains in at least nine decades.
Natural gas and cotton are among this year’s best performers in the S&P GSCI gauge of raw materials, while lead and zinc are among the worst. The LMEX (LMEX) index of industrial metals is down 5.6 percent this year and set for the first back- to-back monthly decline since 2011. The measure slid 9.2 percent in 2012’s second quarter and is 5.4 percent above the two-year low set in August.
“Base metals are still all about China, with Europe in the deep freezer and the pick-up in U.S. housing activity not really having a great impact,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. “I see a potential repeat of last year with some second-quarter weakness testing the lows from the second quarter last year but that should probably be it before a recovery begins after the summer.”
Gold survey results: Bullish: 17 Bearish: 9 Hold: 6 Copper survey results: Bullish: 5 Bearish: 9 Hold: 4 Corn survey results: Bullish: 15 Bearish: 5 Hold: 1 Soybean survey results: Bullish: 14 Bearish: 4 Hold: 3 Wheat survey results: Bullish: 14 Bearish: 2 Hold: 3 Raw sugar survey results: Bullish: 3 Bearish: 3 Hold: 3 White sugar survey results: Bullish: 3 Bearish: 2 Hold: 4 White sugar premium results: Widen: 1 Narrow: 3 Neutral: 5
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