Thursday, March 7, 2013

Some Copper Analysts Getting Bullish on Alleged Recovery

Some analysts believe the media reports and scattered data are representative of an real economic recovery, and see copper prices rising in the near future; possibly as early as next week.

That is contrary to hedge funds, who have betting copper prices will continue falling. They've been betting against copper since August.

According to a Bloomberg survey, of the twenty analysts queried, thirteen of them believe copper prices will rise next week. Four of them see copper falling, while the other three are neutral on copper prices in the near term.

Traders on the other hand are betting against that positive outlook, believing the price of copper will fall after moving up since November. Inventories climbing to a two-year high is the reasoning there.

Supply of copper has pressured prices downward, as they've doubled since September. Even so, Barclays (BCS) says within the next six months stockpiles will fall and shortages will return.

According to Barclays, China and North America account for 53 percent of copper demand, so how they go, overall, so will go copper. Optimistic growth estimates of 8.3 percent in the second and third quarters for China and 2.8 percent for America, may drive up the copper demand.

The question is whether this is being far too optimistic.

In the two middle quarters, Barclays sees copper demand soaring by 288,000 tons, reducing the surplus to 56,000 tons. Goldman Sachs (GS) is also bullish on copper, predicting copper will reach $9,000 in six months.

Data from the U.S. Commodity Futures Trading Commission sow traders aren't as optimistic with copper, as they hold a net-short position of 7,172 futures and options as of February 26, the highest amount since Aug. 14, compared with a net-long position of 11,413 contracts the prior week.

As measured by warehouses tracked by LME, it appears at this time that hedge funds and speculators may be closer to the truth, as inventories jumped on Wednesday to 481,225. There was a plunge in copper withdrawal orders, which dropped 68 percent since early January 2013. On March 6 they stood at a nine-month low.

Assuming the U.S. and China do grow at projected levels, the other key player in copper demand is Europe, which accounts for 17 percent of global demand. With the recession continuing there, and another year of contraction expected by the IMF, demand could dwindle significantly which would increase supply.

As usual there are mixed signals that aren't easy to interpret. But my thought is copper supply will probably continue to outpace demand, and prices in 2013 are likely to remain under some pressure.

There is simply nothing economically to suggest the global economy is growing at a pace that contradicts that high probability. Europe is really worse than is presently being reported, and it's quite possible that's the same with China and the U.S.

We need to tread carefully with copper, keeping a skeptical eye on the reports the media seem to be trying to spin so positively.


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