Copper Traders Turn Bullish For the First Time Since October: Commodities

By Nicholas Larkin - Dec 2, 2011 1:11 PM GMT+0700

Copper traders are bullish for the first time in six weeks on signs that demand is still expanding as global inventories decline to an 11-month low and central banks cut funding costs to shore up growth.

Twelve of 24 surveyed by Bloomberg expect the metal to advance next week and two were neutral. The last time they were bullish overall, in the week ended Oct. 21, prices surged more than 14 percent in the following five days. Global stockpiles monitored by exchanges in London, New York and Shanghai fell 23 percent since March, data compiled by Bloomberg show.

Copper rallied the most in a month on Nov. 30 as China, the biggest consumer of the metal, cut the reserve requirement ratio for banks for the first time since 2008. More than $1.2 trillion was added to value of global equities that day as the central banks of the U.S., the euro region, Canada, the U.K., Japan and Switzerland agreed to cut the cost of providing dollar funding, to ease strains from Europe’s debt crisis.

“Consumption growth will be positive,” said Angus Staines, an analyst at UBS AG in London. “Credit in China will become easier to acquire and that will allow businesses to build their inventories. It will tighten the global traded copper market significantly, and that should support the price.”

Copper dropped 18 percent to $7,831.50 a metric ton on the London Metal Exchange this year, heading for the first annual decline since 2008. The Standard & Poor’s GSCI Index (MXWD) of 24 commodities advanced 4 percent as the MSCI All-Country World Index of equities retreated 8.8 percent. Treasuries returned 8.8 percent, a Bank of America Corp. index shows.

Asian Warehouses

The traders surveyed by Bloomberg anticipate gains next week in gold, sugar, corn and soybeans. It’s the first time respondents were positive on all the commodities since Oct. 14.

Asian buying is driving the decline in copper stockpiles. Inventories in Asian warehouses monitored by the LME plunged 68 percent since June. Metal tracked by the Shanghai Futures Exchange is now at the lowest level since August 2009. China accounts for 38 percent of global consumption, according to Barclays Capital.

The bank is forecasting a 5 percent gain in the nation’s demand next year, more than compensating for an anticipated 1.6 percent contraction in Europe. Global consumption growing at 2.5 percent will mean a 234,000-ton shortage next year, Barclays predicts. That’s equal to about 44 percent of all the metal held in bourse-monitored stockpiles.

Hedge Funds

While traders are turning bullish, hedge funds and other money managers remain bearish. They are a holding a net-short position, or bets on lower prices, of 7,731 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.

European lawmakers have failed to contain the region’s debt crisis and the cost of insuring European sovereign debt against default rose to a record on Nov. 25, according to the Markit iTraxx SovX Western Europe Index of credit-default swaps. Germany failed to get bids for 35 percent of the 10-year bonds offered for sale on Nov. 23.

Europe accounts for 19 percent of global copper demand and manufacturing in the euro region of 17 nations contracted to the lowest since July 2009, London-based Markit Economics said yesterday. European industrial orders declined the most in almost three years in September, the European Union’s statistics office in Luxembourg reported Nov. 23.

‘Provide Liquidity’

“Central banks intervening to provide liquidity to banks is not the same thing as fixing the underlying problems with sovereign debt in Europe,” said Mark Lewon, the president of Utah Metal Works Inc., a Salt Lake City-based company recycling industrial scrap. The rally in copper on Nov. 30 means, “I am even more bearish for next week,” he said.

Goldman Sachs Group Inc. reiterated yesterday that it expected commodities to return 15 percent in the next 12 months because global economic growth of 3.2 percent in 2012 would be enough to sustain demand. The bank’s team of commodity analysts, led by Jeffrey Currie, expects copper to trade at $9,500 in 12 months, or 22 percent more than now.

Twenty of 28 traders and analysts surveyed by Bloomberg expect gold to climb next week. Futures on the Comex in New York rose 23 percent to $1,749 an ounce this year. Holdings in exchange-traded products backed by the metal reached a record 2,356 tons on Nov. 30 and advanced 84.8 tons last month, the most since July, data compiled by Bloomberg show.

Gold Council

Gold investment jumped 33 percent to 468.1 tons in the third quarter from a year earlier as bar and coin demand in Europe more than doubled to the most since the fourth quarter of 2008, according to the London-based World Gold Council.

Six of 11 people surveyed expect raw-sugar prices to gain next week. The commodity retreated 27 percent this year to 23.60 cents a pound on ICE Futures U.S. in New York.

Nineteen of 28 anticipate higher corn prices, while 20 of 29 said soybeans will advance. Corn slipped 4.1 percent to $6.0325 a bushel in Chicago this year, and soybeans slid 19 percent to $11.3375 a bushel.

“Next year, it’s pretty much dependant on how the global economy will develop,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “If we see a recovery, which we expect in the second half, then commodity prices can go up even more pronounced.”

Gold survey results: Bullish: 20 Bearish: 6 Hold: 2
Copper survey results:  Bullish: 12 Bearish: 10 Hold: 2
Corn survey results: Bullish: 19 Bearish: 7 Hold: 2
Soybean survey results: Bullish: 20 Bearish: 7 Hold: 2
Raw sugar survey results: Bullish: 6 Bearish: 3 Hold: 2
White sugar survey results: Bullish: 5 Bearish: 3 Hold: 3
White sugar premium results: Widen: 3 Narrow: 4 Neutral: 4 

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.