LONDON, Oct. 20 -- Copper may drop this quarter, before rallying next year, because there is no evidence yet that users are rebuilding inventories, according to Galena Asset Management Ltd., the manager of a $650 million metals hedge fund.
The metal, used in wires and pipes, more than doubled this year after China, the biggest consumer, imported record amounts in the first half. The rally was also sustained by expectations that companies would expand stockpiles again after shrinking them during the worst global economic slump since the 1930s.
"People were looking for restocking to happen in the second half of the year," Galena Chief Executive Officer Jeremy Weir said in an Oct. 16 interview in London. "Now we're in the fourth quarter and there's no real evidence that restocking is taking place."
Copper supply will outpace demand by 368,000 metric tons this year, 64 percent more than last year, before the surplus expands another 46 percent next year, the International Copper Study Group estimates. Confidence in the world economy rose for a third straight month in October, a Bloomberg survey of users on six continents showed.
The copper market should "tighten" in the middle of the first quarter next year as the world economy expands and China buys more metal, Weir said. Copper is the top pick among industrial metals for Galena, part of Trafigura Group, the commodities-trading firm with sales of $73 billion last year.
The Galena Fund, managed by Duncan Letchford and Galena's largest among about $1 billion of assets under management, advanced almost 17 percent this year, Weir said. The $160 million Special Situations Fund, managed by Cedric Chone and investing in commodity-related equities and development projects, returned about 90 percent. The firm's energy fund, which started in May, has yet to make money, Weir said.
Commodity hedge funds declined by an average of 1.2 percent in September, taking losses in the first nine months to 3.2 percent, according to Chicago-based Hedge Fund Research Inc.
Hedge funds are mostly private pools of capital whose managers participate substantially in the profit from speculation on whether the price of assets will rise or fall.
Galena hired Wissem Bourbia from Natixis last month to help set up a trade-finance fund that will be introduced next year, Weir said. Bourbia has five years experience in trade finance and previously worked for Societe Generale in Paris. The fund will initially provide trade finance in energy and metals and may later expand into agricultural products, Weir said.