Oct 8, 2011 (Bloomberg) - Copper traders and analysts are the most bullish since August on speculation prices at a one-year low will spur China, the world’s largest buyer, to build stockpiles. Gold, sugar, corn and soybeans may also climb.
Ten of 15 respondents surveyed by Bloomberg expect copper to rise next week and 5 predicted a drop, the most bullish reading in six weeks. It’s the first time in four weeks that the separate surveys forecast gains for all five commodities.
Copper slumped to a 14-month low on Oct. 3 as commodities slid on concern that demand may wane as economies slow. Diego Hernandez, chief executive officer of Codelco, the world’s largest copper producer, said the next day that China should take advantage of the slump to restock. In 2008, during the worst global recession since World War II, China’s copper demand still jumped 4.9 percent, according to Morgan Stanley.
“The market has overshot, leaving prices more negative than the risks to growth imply,” said Nic Brown, head of commodities research at Natixis Commodity Markets Ltd. in London. “It’s likely to be choppy for a while, but looking back this will probably be seen as a good buying opportunity.”
The three-month contract for copper traded at $7,360 a metric ton today on the London Metal Exchange, cutting its loss this year to 23 percent, heading for its second-worst year in almost a quarter century. Prices dropped 54 percent in 2008. Gold futures were at $1,653.80 an ounce on the Comex in New York, for a 16 percent gain this year. Raw sugar in New York slipped 21 percent this year to 25.35 cents a pound. Corn has fallen 4.4 percent to $6.0125 a bushel and soybeans declined 17 percent to $11.635 a bushel in Chicago.
Gold is the best performer this year in the Standard & Poor’s GSCI Index of 24 commodities, which slipped 3.8 percent in 2011 and this week touched a 10-month low. The MSCI All- Country World Index of equities plunged on Oct. 4 to the lowest since July 2010 and is down 13 percent this year. Treasuries returned 8.6 percent since December, a Bank of America Corp. index shows.
Copper’s plunge this week took its 14-day relative-strength index to about 20, below a level of 30 that indicates to some investors who study technical charts that price gains may be imminent. The metal will average between $7,000 and $9,000 a ton next year, according to 55 percent of those attending an LME conference on Oct. 3. As many as 5,000 merchants were in the city this week for the exchange’s annual event for talks on metals markets and supply contracts.
The industrial metal is up 4.9 percent this week, while gold has gained 1.9 percent. Bullion has plunged 14 percent from a record $1,923.70 set a month ago as some investors sold the metal to cover losses in other markets. UBS AG this week said physical demand for bullion was “very strong.”
Sugar is little changed this week and fell to a three- month low in September on speculation supplies would improve with the start of the harvest in the Northern Hemisphere.
Corn fell 23 percent in September on concern slower growth would curb demand for grains and as the U.S. Department of Agriculture estimated inventories that were 20 percent higher than forecast by analysts in a Bloomberg survey. Soybeans fell to the lowest in almost a year on Oct. 4.
The risk to commodities, particularly industrial metals, is slowing economic growth. The Bank of England yesterday expanded its bond-purchase plan for the first time in almost two years as government budget cuts and Europe’s debt crisis jeopardize Britain’s economic recovery. German factory orders unexpectedly fell for a second month in August and Standard Bank Plc estimates the likelihood of another recession in Europe and the U.S. at greater than 50 percent.
Copper dropped 28 percent from a record $10,190 in February. Goldman Sachs Group Inc., Barclays Capital and Standard Bank cut their forecasts since last week.
“We believe that policy risk, especially in Europe, remains elevated, and the current cyclical slowdown is much more pronounced,” Walter de Wet, a Standard Bank analyst in London, said in a report e-mailed yesterday. “We therefore do not expect much upside yet for most commodities. We would look to sell base metals into rallies rather than worry, just yet, about missing a potential dip/entry point for metals such as copper.”
Concern about slowing growth and debt woes may boost demand for gold as a protection of wealth. Bullion’s in the 11th year of a bull market as governments and central banks cut borrowing costs and spent trillions of dollars to aid economies. Federal Reserve Chairman Ben S. Bernanke this week signaled willingness to step up measures to spur U.S. growth. While the Fed has no immediate plans for another round of large-scale asset purchases, it doesn’t take “anything off the table,” he said.
The Diwali religious festival later this month in India, the biggest bullion buyer, and then the traditional wedding season may increase demand. The slump to near $1,600 is attracting physical buyers “eager to pre-empt the scramble for metal at the last minute,” Edel Tully, London-based analyst at UBS, said yesterday in a report.
Sugar production in Brazil, the world’s largest producer, may be lower than initially estimated as mills are running out of cane, Newedge Group SA said in a report e-mailed Oct. 5. Cane output in the nation will fall for the first time in 10 years, according to industry group Unica, as unfavorable weather lowers yields. The harvesting season in the Center South usually lasts until December.
Soybean prices may rebound on increased demand for cheaper U.S. supplies as farmers in Brazil and Argentina, the two biggest exporters, plant less of the crop this year. The USDA will update its forecasts of U.S. production and global demand on Oct. 12 for corn and soybeans. U.S. corn exports in the last week of September were twice what exporters sold a year earlier and ethanol production jumped 2.6 percent from a week earlier.
The S&P GSCI Enhanced Commodity Index will rise 20 percent in 12 months, led by industrial metals, energy and precious metals, Jeffrey Currie, an analyst at Goldman in London, wrote in a report on Oct. 4.
“The events of 2007-08 showed us that emerging market economies, and by extension the world economy, can be relatively resilient to a slowdown in developed market economies,” Currie wrote. “If we can avoid a financial crisis, we can avoid a global recession and repeat of 2008.”
Copper survey results: Bullish: 10 Bearish: 5 Hold: 0
Gold survey results: Bullish: 20 Bearish: 5 Hold: 3
Corn survey results: Bullish: 19 Bearish: 7 Hold: 2
Soybean survey results: Bullish: 19 Bearish: 7 Hold: 2
Raw sugar survey results: Bullish: 5 Bearish: 2 Hold: 4
White sugar survey results: Bullish: 6 Bearish: 1 Hold 4
White sugar premium results: Widen: 1 Narrow: 3 Neutral: 7