Copper May Decline on Speculation Recent Gains Were Excessive

By Anna Stablum

July 16 (Bloomberg) -- Copper, little changed in New York and London today, may fall as slumping confidence in the world economy fans concern that recent gains were excessive.

Confidence in the global economy dropped for the first time in four months in July as government stimulus efforts showed little sign of reducing job losses, a Bloomberg survey showed. That helped to pull prices lower even after China, the world’s biggest copper user, reported second-quarter economic growth that topped economists’ estimates.

“People bought on anticipation of the very solid numbers in China,” Alex Heath, head of industrial-metals trading at RBC Capital Markets in London, said by phone today. “It all got a bit ahead of itself.”

Copper for September delivery slipped 0.1 percent to $2.3895 a pound on the New York Mercantile Exchange’s Comex division at 8:21 a.m. local time, rebounding from a slide of as much as 1.5 percent. Copper for three-month delivery lost 0.2 percent to $5,250 a metric ton on the London Metal Exchange after falling as much as 1.8 percent earlier.

The outlook for prices depends on “how quickly the rest of the world pulls out of the recessionary period,” Heath said.

China’s gross domestic product expanded by 7.9 percent in the second quarter, beating the 7.8 percent median forecast of 20 economists in a Bloomberg survey, as the nation became the first major economy to rebound from the global recession. At the same time, though, the Bloomberg Professional Global Confidence Index declined to 39.13 in July from 43.57 in June.

Chinese Imports

Copper has advanced 70 percent this year in London, bolstered by demand from China, where imports of the metal and related products climbed to a record 475,999 tons in June. Industrial output in the country rose 10.7 percent in June from a year earlier, the National Bureau of Statistics said today.

“Much of the increase in imports has been driven by restocking, as opposed to stockpiling, following sizable declines in inventories in 2007 and 2008,” Tim Bond, head of global asset allocation at Barclays Capital, said in a report. “With older-economy industrial production starting to recover, any commodity correction is likely to be shallow and short- lived.”

LME copper moved into so-called backwardation this week for the first time since May 1 as metal for nearby delivery traded at a premium to three-month copper, indicating scarce supplies. The spread narrowed to $11.50 yesterday from $21 on the previous day.

Aluminum Rises

Inventories of copper in warehouses monitored by the LME slipped to 260,875 tons today, the seventh decline in eight sessions. Stockpiles have shrunk 52 percent from their peak on Feb. 25.

Among other LME metals for three-month delivery, aluminum rose 1.1 percent to $1,673.75 a ton after climbing as high as $1,680, the highest since July 1. LME-monitored inventories of the lightweight metal, used in transportation, power and packaging, have almost doubled this year.

“In a market with poor fundamentals and 4.5 million tons of stock, it is difficult to see prices going very much higher in the short term,” Steve Hardcastle, an analyst at Sucden Financial Ltd. in London, said by phone.

Tin dropped 1.4 percent to $13,115 a ton after the premium for near-month delivery surged to $160 a ton yesterday, up 68 percent this week. Nickel added 0.1 percent to $15,950 a ton, lead was unchanged at $1,635 a ton, and zinc gained 0.2 percent to $1,544.25 a ton.

To contact the reporter on this story: Anna Stablum in London at astablum@bloomberg.net