Copper bulls retreat on signs Chinese demand weaker

Copper analysts are getting less bullish for the first time in three weeks after China, the biggest consumer, said it was on “high alert” over inflation and intensified a campaign to control its property market.

Seven analysts surveyed by Bloomberg expect prices to rise next week, six forecast a decline and three were neutral. China’s monetary policy is “no longer relaxed,” People’s Bank of China Governor Zhou Xiaochuan said March 13 after inflation reached a 10-month high in February. The cabinet ordered higher down payments and stricter enforcement of sales taxes on homes March 1. Construction accounts for 60% of copper demand in China, Goldman Sachs Group Inc. estimates.

China’s industrial output had the weakest start to a year since 2009 and the nation’s copper imports tumbled to a 20-month low in February, when there was a weeklong Lunar New Year holiday. The country accounts for 42% of global demand, Barclays Plc estimates. Slower consumption comes as stockpiles of metal monitored by exchanges in London, New York and Shanghai jumped 39% since the start of the year to the highest since December 2003, data compiled by Bloomberg show.

“I expected a slightly better price at this stage of the year,” said Juan Carlos Guajardo, the executive director of the Center for Copper and Mining Studies in Santiago. “The Chinese numbers are not as strong as expected, but that could change. We need more stability and a more clear future in the financial side to sustain a stronger price.”

Hedge Funds

Copper fell 2.3% to $7,752 a metric ton on the London Metal Exchange this year as the LMEX index of the bourse’s six main metals retreated 2.9%. The Standard & Poor’s GSCI gauge of 24 commodities rose 1% and the MSCI All-Country World Index of equities gained 6.6%. Treasuries lost 1%, a Bank of America Corp. index shows.

Hedge funds and other large speculators are their most bearish on U.S. futures since 2009, data from the U.S. Commodity Futures Trading Commission show. They held a net-short position of 16,391 contracts in the week ended March 5, compared with a net-long 23,098 contracts in February.

Stockpiles tracked by the LME, Comex and Shanghai Futures Exchange reached 826,277 tons today, or more than four months of North American consumption. They fell as low as 410,189 tons in September. Barclays is forecasting that global supply will outpace demand by 92,000 tons this year, from a 142,000-ton surplus in 2012.

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