Top Analysts See Copper Rising Even as China Slows: Commodities
By Nicholas Larkin and Joe Richter on April 12, 2012
The third consecutive annual copper shortage and accelerating U.S. growth will drive prices to the highest in a year in the next quarter, according to the most accurate forecasters.
Global supply will fall 323,000 metric tons short of demand in 2012, more than Europe consumes in a month, Barclays Capital estimates. Hedge funds, which were betting on lower prices as recently as January, and are now the most bullish in eight months, Commodity Futures Trading Commission data show. The metal will average $9,000 a ton in the third quarter, 11 percent more than now, according to the median estimate of the top five analysts in Bloomberg Rankings over the past eight quarters.
Copper is rebounding from a 21 percent slump in 2011 as data showed a strengthening U.S. economy and as European leaders moved to contain the region’s debt crisis. North America and Europe account for 29 percent of demand, Barclays estimates. While China cut its growth target to the lowest in eight years last month, the world’s biggest copper buyer will still be expanding at more than twice the global pace predicted by the International Monetary Fund.
“The U.S. economy is pretty good,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion of assets. “Emerging markets should start to pick up. Some time by the end of the year we may look back at commodity prices in general and copper in particular and say this was a good time to buy.”
BHP Billiton
Copper rose 7 percent to $8,130 on the London Metal Exchange since the start of January, exceeding the 5.4 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities. The predicted $9,000 average would be the most since the second quarter of last year. The MSCI All-Country World Index of equities advanced 7.8 percent this year as Treasuries lost 0.3 percent, a Bank of America Corp. index shows.
Shares of Freeport-McMoRan Copper & Gold Inc., the biggest publicly owned copper producer, will gain 49 percent to $53.39 in the next 12 months, according to the average of 18 analyst estimates compiled by Bloomberg. Those of BHP Billiton Ltd. (BHP), the second largest, will advance 35 percent to A$45.88, the average of 13 predictions show.
Average Discount
Stockpiles (LSCA) in warehouses monitored by the LME declined 28 percent this year and those tracked by the Comex exchange in New York fell 5 percent, data from the bourses show. Metal for immediate delivery is trading at a $40-a-ton premium to the benchmark three-month contract on the LME, compared with an average discount of almost $10 in the past two years. The turnaround indicates mounting concern about near-term supply.
That concern may be limited to European and U.S. buyers. Reserves monitored by the Shanghai Futures Exchange more than tripled since the beginning of December to 222,092 tons. Traders may be holding as much as another 650,000 tons in bonded warehouses in Shanghai that aren’t tracked by the bourse, compared with 200,000 tons in November, Barclays said in a report March 28.
While China’s March copper imports rose 52 percent from a year earlier, they were 4.6 percent lower than in February, customs data showed April 10. The nation accounts for 40 percent of demand, according to Barclays. Premier Wen Jiabao cut the growth target for gross domestic product to 7.5 percent last month, the lowest since 2004. The IMF expects a 3.3 percent global expansion this year.
Federal Reserve
Copper fell to a three-month low this week after a Labor Department report showed U.S. employers added the fewest jobs in five months in March. Federal Reserve Chairman Ben S. Bernanke said in a speech April 9 that the U.S. was still “far from having fully recovered.” Sales of new U.S. homes in February unexpectedly fell to the slowest pace since October, the Commerce Department said March 23. Spain’s Economy Minister Luis de Guindos declined April 10 to rule out a rescue for his country, which is battling its second recession since 2009.
“It would take some sort of global growth to pull copper up, but it’s hard to see where that’s going to come from,” said Jeffrey Sherman, who helps manage about $30 billion of assets for DoubleLine Capital in Los Angeles. “Europe can’t do it, the U.S. has a housing overhang and the Chinese have lowered their growth forecast. Without China it’s going to be tough.”
U.S. manufacturing expanded at a faster pace in March, the Institute for Supply Management reported April 2. Growth in the world’s largest economy will accelerate this quarter and the next, according to the median of 73 economist estimates compiled by Bloomberg. Consumer confidence climbed to the highest level in four years in the week ended April 1, the Bloomberg Consumer Comfort Index (MXWD) shows.
By Nicholas Larkin and Joe Richter on April 12, 2012
The third consecutive annual copper shortage and accelerating U.S. growth will drive prices to the highest in a year in the next quarter, according to the most accurate forecasters.
Global supply will fall 323,000 metric tons short of demand in 2012, more than Europe consumes in a month, Barclays Capital estimates. Hedge funds, which were betting on lower prices as recently as January, and are now the most bullish in eight months, Commodity Futures Trading Commission data show. The metal will average $9,000 a ton in the third quarter, 11 percent more than now, according to the median estimate of the top five analysts in Bloomberg Rankings over the past eight quarters.
Copper is rebounding from a 21 percent slump in 2011 as data showed a strengthening U.S. economy and as European leaders moved to contain the region’s debt crisis. North America and Europe account for 29 percent of demand, Barclays estimates. While China cut its growth target to the lowest in eight years last month, the world’s biggest copper buyer will still be expanding at more than twice the global pace predicted by the International Monetary Fund.
“The U.S. economy is pretty good,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $333 billion of assets. “Emerging markets should start to pick up. Some time by the end of the year we may look back at commodity prices in general and copper in particular and say this was a good time to buy.”
BHP Billiton
Copper rose 7 percent to $8,130 on the London Metal Exchange since the start of January, exceeding the 5.4 percent advance in the Standard & Poor’s GSCI gauge of 24 commodities. The predicted $9,000 average would be the most since the second quarter of last year. The MSCI All-Country World Index of equities advanced 7.8 percent this year as Treasuries lost 0.3 percent, a Bank of America Corp. index shows.
Shares of Freeport-McMoRan Copper & Gold Inc., the biggest publicly owned copper producer, will gain 49 percent to $53.39 in the next 12 months, according to the average of 18 analyst estimates compiled by Bloomberg. Those of BHP Billiton Ltd. (BHP), the second largest, will advance 35 percent to A$45.88, the average of 13 predictions show.
Average Discount
Stockpiles (LSCA) in warehouses monitored by the LME declined 28 percent this year and those tracked by the Comex exchange in New York fell 5 percent, data from the bourses show. Metal for immediate delivery is trading at a $40-a-ton premium to the benchmark three-month contract on the LME, compared with an average discount of almost $10 in the past two years. The turnaround indicates mounting concern about near-term supply.
That concern may be limited to European and U.S. buyers. Reserves monitored by the Shanghai Futures Exchange more than tripled since the beginning of December to 222,092 tons. Traders may be holding as much as another 650,000 tons in bonded warehouses in Shanghai that aren’t tracked by the bourse, compared with 200,000 tons in November, Barclays said in a report March 28.
While China’s March copper imports rose 52 percent from a year earlier, they were 4.6 percent lower than in February, customs data showed April 10. The nation accounts for 40 percent of demand, according to Barclays. Premier Wen Jiabao cut the growth target for gross domestic product to 7.5 percent last month, the lowest since 2004. The IMF expects a 3.3 percent global expansion this year.
Federal Reserve
Copper fell to a three-month low this week after a Labor Department report showed U.S. employers added the fewest jobs in five months in March. Federal Reserve Chairman Ben S. Bernanke said in a speech April 9 that the U.S. was still “far from having fully recovered.” Sales of new U.S. homes in February unexpectedly fell to the slowest pace since October, the Commerce Department said March 23. Spain’s Economy Minister Luis de Guindos declined April 10 to rule out a rescue for his country, which is battling its second recession since 2009.
“It would take some sort of global growth to pull copper up, but it’s hard to see where that’s going to come from,” said Jeffrey Sherman, who helps manage about $30 billion of assets for DoubleLine Capital in Los Angeles. “Europe can’t do it, the U.S. has a housing overhang and the Chinese have lowered their growth forecast. Without China it’s going to be tough.”
U.S. manufacturing expanded at a faster pace in March, the Institute for Supply Management reported April 2. Growth in the world’s largest economy will accelerate this quarter and the next, according to the median of 73 economist estimates compiled by Bloomberg. Consumer confidence climbed to the highest level in four years in the week ended April 1, the Bloomberg Consumer Comfort Index (MXWD) shows.
