Copper Bulls Retreat on Signs Chinese Demand Weaker: Commodities

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March 15 (Bloomberg) -- Copper analysts are getting less bullish for the first time in three weeks after China, the biggest consumer, said it was on “high alert” over inflation and intensified a campaign to control its property market.

Seven analysts surveyed by Bloomberg expect prices to rise next week, six forecast a decline and three were neutral. China’s monetary policy is “no longer relaxed,” People’s Bank of China Governor Zhou Xiaochuan said March 13 after inflation reached a 10-month high in February. The cabinet ordered higher down payments and stricter enforcement of sales taxes on homes March 1. Construction accounts for 60 percent of copper demand in China, Goldman Sachs Group Inc. estimates.

China’s industrial output had the weakest start to a year since 2009 and the nation’s copper imports tumbled to a 20-month low in February, when there was a weeklong Lunar New Year holiday. The country accounts for 42 percent of global demand, Barclays Plc estimates. Slower consumption comes as stockpiles of metal monitored by exchanges in London, New York and Shanghai jumped 39 percent since the start of the year to the highest since December 2003, data compiled by Bloomberg show.

“I expected a slightly better price at this stage of the year,” said Juan Carlos Guajardo, the executive director of the Center for Copper and Mining Studies in Santiago. “The Chinese numbers are not as strong as expected, but that could change. We need more stability and a more clear future in the financial side to sustain a stronger price.”

Hedge Funds

Copper fell 2.3 percent to $7,752 a metric ton on the London Metal Exchange this year as the LMEX index of the bourse’s six main metals retreated 2.9 percent. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.9 percent and the MSCI All-Country World Index of equities gained 6.7 percent. Treasuries lost 0.7 percent, a Bank of America Corp. index shows.

Hedge funds and other large speculators are their most bearish on U.S. futures since 2009, data from the U.S. Commodity Futures Trading Commission show. They held a net-short position of 16,391 contracts in the week ended March 5, compared with a net-long 23,098 contracts in February.

Stockpiles tracked by the LME, Comex and Shanghai Futures Exchange reached 826,277 tons today, or more than four months of North American consumption. They fell as low as 410,189 tons in September. Barclays is forecasting that global supply will outpace demand by 92,000 tons this year, from a 142,000-ton surplus in 2012.

Immediate Delivery

The premium copper buyers are asked to pay in Europe fell for a second consecutive month, a sign that demand is weakening, according to estimates from six traders with direct knowledge of the market published on March 12. The premium is added to the price of cathode, a finished form of the metal, for immediate delivery on the LME at Rotterdam and includes insurance and shipping costs.

Europe accounts for more than 17 percent of world copper demand and the 17-nation euro region is already back in a recession. The International Monetary Fund has cut its estimate for this year’s global economic growth three times since July. The Washington-based group is predicting a gain of 3.5 percent this year, from 3.2 percent in 2012.

Goldman recommended investors buy copper on March 1 after prices slumped and the bank is predicting that the metal will reach $9,000 in six months. Chinese growth will improve and current prices already reflect concerns about Europe and the impact of automatic spending cuts in the U.S. budget, analysts Max Layton, Roger Yuan and Jeffrey Currie said in the report.

Economic Growth

Chinese economic growth will accelerate to 8.3 percent in the second quarter, from 8.1 percent in the first three months of the year, according to the median of as many as 27 economist estimates compiled by Bloomberg. The U.S., the second-biggest copper consumer, will expand 2 percent this quarter, from 0.1 percent in the final three months of 2012, the forecasts show.

While Barclays expects surplus supply for 2013 as a whole, it is also anticipating shortages in the second and third quarters. It is also predicting demand growth of 3.4 percent this year, from 0.9 percent in 2012.

In other commodities, six of 10 people surveyed expect raw sugar to rise next week and two predicted a drop. The commodity slid 3.6 percent to 18.81 cents a pound on ICE Futures U.S. in New York this year.

Fifteen of 27 people surveyed forecast higher corn prices and eight said the grain will drop, while 12 of 27 said soybeans will decline and eight expected higher prices. Fifteen of 24 traders predicted gains in wheat and eight were bearish. Corn gained 2.7 percent to $7.17 a bushel in Chicago this year as soybeans rose 1.2 percent to $14.26 a bushel. Wheat slipped 7.1 percent to $7.23 a bushel.

Annual Advances

Seventeen of 34 traders and analysts surveyed said gold would advance next week, 10 were bearish and seven predicted little change. Bullion fell 5 percent to $1,591.95 an ounce in London this year after 12 consecutive annual advances.

Bullion holdings in exchange-traded products fell 6.2 percent since the start of the year, data compiled by Bloomberg show, as investors chased higher returns from stocks markets.

The Dow Jones Industrial Average fell 0.2 percent today, snapping the longest rally since 1996 and the benchmark Standard & Poor’s 500 Index also dropped 0.2 percent.

“The Chinese picture has been weaker, not only in terms of economic data, but also the clampdown on real-estate market,” said Nic Brown, the London-based head of commodities research at Natixis SA. “But if the U.S. equity market is correct, can we really expect Chinese growth to disappoint again this year?”

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Gold survey results: Bullish: 17 Bearish: 10 Hold: 7
Copper survey results: Bullish: 7 Bearish: 6 Hold: 3
Corn survey results: Bullish: 15 Bearish: 8 Hold: 4
Soybean survey results: Bullish: 8 Bearish: 12 Hold: 7
Wheat survey results: Bullish: 15 Bearish: 8 Hold: 1
Raw sugar survey results: Bullish: 6 Bearish: 2 Hold: 2
White sugar survey results: Bullish: 6 Bearish: 2 Hold: 2
White sugar premium results: Widen: 3 Narrow: 1 Neutral: 6
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--With assistance from Nicholas Larkin, Agnieszka Troszkiewicz and Isis Almeida in London, Luzi Ann Javier and Glenys Sim in Singapore, Jae Hur and Yasumasa Song in Tokyo, Helen Sun in Shanghai, Jeff Wilson in Chicago and Marvin G. Perez and Thomas Galatola in New York. Editors: Thomas Galatola, Patrick McKiernan