Chinese copper demand could catch short-sellers by surprise – by Eric Onstad (Reuters U.S. – August 5, 2013)

LONDON, Aug 5 (Reuters) – Gloom over weaker economic growth in China has led some investors to miss signs of robust underlying copper demand, which may wrong-foot those betting on a further slide in prices.

Benchmark prices in copper, viewed by many investors as a proxy for global economic health, hit the lowest levels in nearly three years at $6,602 a tonne in late June.

The price on the London Metal Exchange (LME) slid 21 percent from a peak this year in February, mainly due to worries about China, which accounts for 40 percent of copper demand. It has since rebounded modestly to trade just under $7,000 a tonne.

Despite China’s weak factory data and a credit crunch, spending on the power grid and other areas has meant copper consumption is fairly buoyant in the world’s biggest metals consuming nation.

China’s apparent copper demand, after adjusting for changes in stocks, surged over 20 percent in the second quarter, Barclays analyst Gayle Berry said.

“From a Chinese demand perspective, things are quite positive. Going into the third quarter. I think we’re going to get some strong numbers coming through for apparent consumption,” she said.

The latest U.S. data on Friday showed hedge funds and money managers nearly doubled their net shorts in copper futures and options in the week to July 30, the biggest increase in bearish bets since late February.

Wiktor Bielski, head of commodities research at VTB Capital in London, agrees. “I suspect that people have become too bearish because of this long dreary period when things have been drip, dripping weaker, and they’re missing that there’s been slow but steady change to a more positive outlook.”

Firm demand is translating into a steady decline in copper inventories, while logjams at warehouses could crimp availability if consumption picked up further.

Stocks at the Shanghai Futures Exchange have slid by a third since April, while LME stocks have declined 11 percent since late June.


Investors have been amassing record short positions in copper this year, analysts say, although the positions have fluctuated as some fund managers have locked in profits.

The LME does not provide a breakdown of short and long position holders like U.S. regulators do, but analysts say a surge of open interest and lower prices indicated a large short position built up in the first half.

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