Copper traders most bearish in two months on China

March 30 (Bloomberg) -- Copper traders are the most bearish in two months after stockpiles tracked by the biggest metals bourse rose for the first time in five weeks and Goldman Sachs Group Inc. cut its recommendation on commodities to neutral.

Eleven of 25 analysts surveyed by Bloomberg expect copper to drop next week, the highest proportion since Jan. 6. Seven were neutral. Inventories reported by the London Metal Exchange rose 1.4% on March 27, the first gain since Feb. 22. They retreated the following two days and rose again today. Reserves in Shanghai’s bonded warehouses tripled since November and any strengthening in demand next quarter may be “tepid,” Barclays Capital said in a report March 28.

China is the biggest copper buyer, using two in every five metric tons, and Premier Wen Jiabao cut the nation’s growth target to 7.5% earlier this month, the lowest since 2004. Economists surveyed by Bloomberg anticipate a recession in Europe, which accounts for 18% of copper demand. That’s outweighing signs of an accelerating U.S. expansion and paring this year’s rally in prices of as much as 15%.

“There is a disconnect between the physical and economic evidence coming out of China and what’s happening within the industrial metals,” said Jeremy Baker, who helps manage $925 million of assets for the Belvista Commodity Fund, part of the Vontobel Group in Zurich. “The U.S. is improving, but the U.S. is still a very small proportion of a total consumption equation for metals. We need to have some kind of a shakeout.”

Commodity Research

Copper fell 3.9% from this year’s peak of $8,765 a ton on Feb. 9, paring its advance to 11%, as the LMEX index of six industrial metals dropped 7.1%. The Standard & Poor’s GSCI gauge of 24 commodities climbed 6.8% this year and the MSCI All-Country World Index of equities added 11%. Treasuries lost 1%, a Bank of America Corp. index shows.

Goldman’s commodity research team, led by Jeffrey Currie in London, reduced its three-month recommendation on raw materials to neutral from overweight on March 28. Prices already reached the bank’s targets and the economy will “soften” next quarter, they wrote in a report. They advised clients to remain overweight in commodities over a 12-month period.

Traders in China now have as much as 650,000 tons in bonded warehouses in Shanghai, which are exempt from a value-added tax and import duties, from 200,000 tons in November, Barclays estimates. That coincided with a decline of about 46% in LME stockpiles since October, suggesting not all of the metal was actually consumed, bourse data show. Growth in Chinese copper demand will slow to 5% this year, from 9.5% in 2011, Barclays estimates.

Consecutive Quarters

European consumption will drop to 3.71 million tons in 2012, from 3.78 million tons last year, the bank predicts. The 17-nation euro economy will contract for three consecutive quarters through September, the median of 18 economist estimates compiled by Bloomberg show.

Prices rallied this year on prospects for shortages, with Barclays forecasting a deficit of 323,000 tons, more than the 256,275 tons left in LME-monitored warehouses. Mining companies have failed to keep up with global demand that jumped about 38% in the past decade, according to Barclays.

Hedge funds and other money managers are getting more bullish, raising their bets on higher prices by 20% to 17,060 futures and options in the week ended March 20, Commodity Futures Trading Commission data show. That’s the biggest so- called net-long position since August. Goldman’s research team is forecasting a copper price of $9,000 in six months.

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