By Nicholas Larkin – Jun 1, 2012

Copper traders are the most bearish since September and hedge funds are betting on price declines as concern that Europe’s debt crisis is deepening drove the metal to the lowest this year.

Eighteen of 33 analysts surveyed by Bloomberg expect the metal to drop next week and six were neutral, the highest proportion since Sept. 23.Fund managers and other speculators held a net short position of 2,808 U.S. futures and options in the week ended May 22, from net-long holdings of 4,833 a week earlier, Commodity Futures Trading Commission data show. That’s the first bearish bet since January.

The metal slid the most since September in May as concern about Greece’s future in the euro and spreading of the region’s crisis grew. Economic confidence in the euro area dropped to the lowest in 2 1/2 years in May and consumer confidence fell to a four-month low in the U.S., data showed this week, while Chinese industrial companies’ profits declined in April. China accounts for about 40 percent of global copper use and Europe 18 percent.

“As long as the debt crisis is still in focus, risk aversion will remain high and copper has the potential to go even lower,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “Once we get a hard number that Europe will be in recession, then it might spread out to other regions and therefore globally.”

Copper Slumps

Copper fell 3.1 percent to $7,367.50 a metric ton this year on the London Metal Exchange and slumped 12 percent in May. It slid to $7,356 today, the lowest since Dec. 20. The Standard & Poor’s GSCI gauge of 24 commodities slipped 9.2 percent this year and the MSCI All-Country World Index (MXWD) of equities lost 1.2 percent. Treasuries returned 2.1 percent, a Bank of America Corp. index shows.

About $4.5 trillion was wiped from the value of global equities last month and the dollar climbed to the highest level in almost two years versus the euro as the turmoil in Europe spread. The European Commission challenged Germany’s remedies to the financial crisis on May 30, calling for direct euro-area aid for troubled banks. An opinion poll showed May 30 most Greeks want to see the terms of a financial rescue revised, stoking fears the nation may default and be forced to exit the euro.

While Germany helped the euro area avoid a second recession in three years in the first quarter, the International Monetary Fund predicts the region will contract 0.3 percent this year. An index of executive and consumer sentiment in the 17-nation bloc fell to 90.6 from a revised 92.9 in April, the commission said May 30. The Conference Board’s U.S. consumer index fell to 64.9 last month from a revised 68.7 in April, May 29 data show.

Global Growth

Chinese industrial companies’ earnings declined 2.2 percent from a year earlier, the National Bureau of Statistics said on its website May 27. Still, China’s 8.2 percent growth this year will help the global economy expand 3.5 percent, the IMF estimates. Goldman Sachs Group Inc. still expects Chinese demand to drive copper prices to $9,000 in three months.

Potential production losses may help sustain a supply shortage estimated by Barclays Plc at 158,000 tons this year. BHP Billiton Ltd. and Rio Tinto Group (RIO), the world’s biggest and third-biggest mining companies by sales, said last month they’ll ration capital spending because of costs. Codelco, the largest copper producer, produced 10 percent less metal in the first quarter as ore-grades decreased.

Thirteen of 28 traders and analysts surveyed by Bloomberg said gold would gain next week and five were neutral. Futures on the Comex inNew York fell 1 percent $1,551.30 an ounce since the start of January after climbing the previous 11 years.

“I have a hard time seeing commodity prices recovering in the short term,” said Filip Petersson, an analyst at SEB AB in Stockholm. “Europe is definitely back in a very difficult situation that could spin out of control quickly. The question is if politicians react to that or just try to push the solution into the future again as we have gotten used to.”

Gold survey results: Bullish: 13 Bearish: 10 Hold: 5
Copper survey results: Bullish: 9 Bearish: 18 Hold: 6
Corn survey results: Bullish: 17 Bearish: 10 Hold: 2
Soybean survey results: Bullish: 16 Bearish: 12 Hold: 2
Raw sugar survey results: Bullish: 5 Bearish: 5 Hold: 3
White sugar survey results: Bullish: 5 Bearish: 5 Hold: 3
White sugar premium results: Widen: 6 Narrow: 2 Neutral: 5

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


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