Copper Traders Most Bearish in Two Months on European Crisis: Commodities - Bloom...

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Copper Traders Most Bearish in Two Months on European Crisis: Commodities

By Nicholas Larkin - Nov 18, 2011

Copper traders and analysts are themost bearish in almost two months because of mounting concern that Europes debt crisis will curb demandin the region that accounts for about 19 percent of global consumption. Eleven of 23 surveyed by Bloomberg expect the metal to decline, the second consecutive week that their outlook worsened and the highest proportion since Sept. 23. The last time so many werebearish, prices dropped 4.6 percent the following week. The commodity fell more than 20 percentinto a bear marketsince reaching a recordin February on signs that economic growth is slowing. Europeanindustrial production fell themost in 2 1/2 yearsin September as governments grappled with sovereign debt crises that have toppled governmentsin Greece and Italy.Copper demand contracted 0.9 percentin 2008 as economies contended with the worst recession since World War II. Theres a strong chance of Europe goinginto a recession, said William Adams, head of research at London- based Basemetals.com. Asiais getting more worried that the slowdownin Europe will mean demand for their exports will be hit and therefore thats going to impact demand for theirindustrial production. Copper declined 22 percent to $7,525 a metric ton on the London Metal Exchange this year, heading for the first annual drop since 2008. The Standard & Poors GSCIIndex of 24 commodities advanced 2.6 percent. The MSCI All-Country WorldIndex of equities retreated 11 percent and Treasuries returned 9.2 percent, a Bank of America Corp.index shows.

Commodity Futures
Speculatorsin U.S.copper futures have held a net-short position, or bet on lower prices, since midSeptember, data from the Commodity Futures Trading Commission show. Thats themost bearish theyve been since a one-year stretch through July 2009, a month after the last U.S. recession ended.

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Copper Traders Most Bearish in Two Months on European Crisis: Commodities - Bloom...

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Whileindustrial metals retreated this year because ofinvestors concerns about growth, gold is heading for its 11th consecutive annual advance, on demand for what are perceived as the safest assets.Traders surveyed by Bloomberg expect bullion to rise next week. They also predict gainsin corn and soybeans and are equally divided on raw sugar. European consumer confidencedropped to the lowestin almost two years last month, the European Commission reported Oct. 27. About 8 percent ofcopper is usedin consumer products, according to UBS AG. Growthin the euro region will drop to 1.1 percent next year, compared with 1.6 percent this year, the International Monetary Fundforecastin a September report. Consumer Goods Declining demand for consumer goodsin the region would hurt economies globally. The Asia-toEurope route is the second- biggestinter-regional trade for the container shippingindustry after Asiato-U.S., according to London-based Clarkson Plc, the worlds largest shipbroker. Containers carry everything from furniture to televisions and refrigerators. Declining ore grades and disruptions at mines may buoy prices. Growthin supply is being hampered by ores that yield less metal and higher prices for everything from labor to energy. The cost of miningcopper in Chile, the worlds biggest producer, rose 20 percent last year, according to UBS. Workers at Freeport-McMoRanCopper & GoldInc.s Grasberg minein Indonesiaextended their strike for a third month until Dec. 15, a labor union said last week. About 8,000 workers at Grasberg, which holds the worlds largest recoverable reserves ofcopper, have been on strike since Sept. 15 demanding higher wages. Freeport declared force majeure on some shipments last month, a legal clause allowing companies to miss deliveries because of circumstances beyond their control.

Developing Economies
Global demand forcopper will still expand next year, rising 2.7 percent, compared with 3.7 percentin 2011, Barclays Capitalestimates. The bank is forecasting shortages as mining companies fail to keep up with consumption. Developing economies will expand 6.1 percent, compared with 1.9 percent for advanced economies, the IMF forecasts. Demand will grow, but its not going to grow as fast as it didin 2009 and 2010, said Walter de Wet, head of commodities research at Standard Bank Plcin London. That will still supportindustrial commodities. We see the supply side lagging substantially forcopper. We still think thecopper market will bein deficit next year.

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Nineteen of 29traders and analysts surveyed by Bloomberg expect gold to climb next week. Futures on the Comex exchangein New York gained 21 percent to $1,725.10 an ounce this year. Holdingsin exchange-traded products backed by the metal are within 0.3 percent of the record 2,330 tons reachedin August, data compiled by Bloomberg show.

ICE Futures
Sixteen of 27 surveyed anticipate gainsin soybeans and 10 of 26 people said corn will advance. Corn declined 1.7 percent to $6.18 a bushelin Chicago this year, while soybeans slipped 17 percent to $11.6825 a bushel. Raw sugar retreated 25 percent this year to 23.97 cents a pound on ICE Futures U.S.in New York. Four of nine people surveyed expect prices to rise next week and the same number predicted a decline. Europe is the big question, said Bjarne Schieldrop, the Oslo-based chief commodity analyst at SEB AB. If some kind of solution is reached, commodities will be fine. If the euro zone falls apart, it will be ugly.
Gold survey results: Bullish: 19Bearish: 6 Hold: 4Copper survey results: Bullish

To contact the reporter on this story: Nicholas Larkinin London at nlarkin1@bloomberg.net. To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.
2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.

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