Speculators cut positions most in 2012 as growth slows

April 16 (Bloomberg) -- Speculators cut bullish wagers on commodities by the most in 2012 on mounting concern that the slowest Chinese growth in almost three years will curb gains in demand for everything from copper to cotton.

Money managers lowered net-long positions across 18 U.S. futures and options by 9.3% to 1.01 million contracts in the week ended April 10, the biggest reduction since Dec. 20, data from the Commodity Futures Trading Commission show. Copper holdings tumbled 84%, the most since November. Hedge funds are now betting on lower cotton prices.

China’s economy, the biggest consumer of energy and metals, expanded 8.1% last quarter, less than the 8.4% anticipated by economists surveyed by Bloomberg, government data showed April 13. The World Bank cut its growth estimate for the Asian nation to a 13-year low a day earlier. Commodities will “drift lower” this quarter as central banks refrain from adding further stimulus, UBS AG said in a report last week.

“Many areas of the world that have been big sources of demand for commodities are slowing,” said Bill Greiner, who helps manage $13 billion of assets as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri. “If anything, we expect growth worldwide to be a little softer than people are looking for.”

The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 1% last week, led by natural gas, sugar and copper, and fell another 0.9% today as of 1:05 p.m. in New York. The MSCI All-Country World Index of equities retreated 1.5% last week for a second consecutive decline, to a two-month low on April 11.

Copper Tumbles

Fourteen of the raw materials tracked by the S&P GSCI retreated. Copper’s 4.4% tumble was the biggest this year. Natural gas extended a slide to a 10-year low, trading below $2 per million British thermal units. Cotton futures rose 1.3%, rebounding from a 5.3% drop the prior week.

The World Bank said the China will grow 8.2% this year, down from a January projection of 8.4% and the slowest pace since 1999. Chinese Premier Wen Jiabao cut the nation’s economic growth target to 7.5% last month, the lowest since 2004. China accounts for 40% of copper consumption and 11% of oil demand, according to Barclays Capital and the International Energy Agency.

Labor Department

Confidence among U.S. consumers cooled in April, a sign that the moderation in job growth may limit the biggest part of the economy, the Thomson Reuters/University of Michigan’s preliminary index of sentiment showed April 13. Filings for unemployment benefits rose to a two-month high in the week ended April 7, the Labor Department said April 12. North America accounts for 11% of copper demand and uses 26% of the world’s oil, Barclays and International Energy Agency data show.

Slowing growth may prompt policy makers to increase monetary easing. The People’s Bank of China reported on April 12 an unexpected surge in new yuan loans during March, showing the Communist Party may be trying to avoid a deeper decline in growth. On April 14, the Asian country widened the yuan’s trading band for the first time since 2007.

Federal Reserve Bank of New York President William C. Dudley and Fed Vice Chairman Janet Yellen endorsed the central bank’s view last week that borrowing costs are likely to stay low through late 2014. Speaking in New York on April 11, Yellen said she considers “a highly accommodative policy stance to be appropriate in present circumstances.”

Even without additional monetary easing, low interest rates and other existing policies will help support demand for commodities in the second half of the year, said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based consultant.

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