Copper Shortage Seen Extending as China Accelerates: Commodities Copper supply shortages will extend into the first half of next year as an accelerating Chinese economy more than doubles the pace of growth in global consumption even as mines extract a record amount of metal. Demand will outpace supply by 316,000 metric tons in the first six months, more than all copper in London Metal Exchange warehouses, before a surplus emerges in the second half, Barclays Plc estimates. Production has lagged behind consumption since 2010, according to the International Copper Study Group. The metal may average $8,300 a ton in the second quarter, 5.1 percent more than now and the most in a year, according to the median of 21 analyst and trader estimates compiled by Bloomberg. China, which uses 41 percent of the world’s copper, is rebounding from seven quarters of slowing growth after the government approved a $161 billion subways-to-roads construction plan in September. It’s being joined by central banks from the U.S. to Europe to Japan, who also pledged more stimulus. Housing starts in the U.S., the second-largest consumer, reached a four- year high last month and business confidence unexpectedly strengthened in Germany, Europe’s biggest economy. “U.S. growth will be moderate and Europe is stabilizing, so that drag might reverse partially, and then it all falls back to China,” said Dominic Schnider, Singapore-based global head of non-traditional assets at UBS AG’s wealth-management unit. “Economic activity doesn’t have to be that strong in China for inventories to get drawn down and you could see a rally in the first half, but then you come into the second half where mine supply comes in on the strong side.” Quarter Century Copper rose 3.9 percent to $7,899.50 a ton this year on the LME, the world’s largest metals bourse, as the LMEX gauge of six industrial metals gained 3.6 percent. The Standard & Poor’s GSCI gauge of 24 commodities added 0.6 percent, and the MSCI All- Country World Index (MXWD) of equities jumped 11 percent. Treasuries returned 2.7 percent, a Bank of America Corp. index shows. The metal averaged $7,949.43 since the start of January, headed for the second-highest level in a quarter century after last year’s record $8,825.98. Freeport-McMoRan Copper & Gold Inc. (FCX), the biggest publicly traded producer, may report a 44 percent gain in net income next year, according to the mean of 11 analyst estimates compiled by Bloomberg. Shares of the Phoenix-based company will advance 28 percent in the next 12 months, the average of 21 predictions shows. Global Shortfall Global demand will expand 3.4 percent to 20.85 million tons next year, from a 1.5 percent gain in 2012, Barclays estimates. Supply will climb 3.5 percent to an all-time high of 20.83 million tons. While that means an annual shortage of 19,000 tons, it’s driven by the projected first-half deficit, compared with a surplus of 297,000 tons in the second six months. China’s copper demand may rise 5.5 percent to 8.1 million tons, from a gain of 4.8 percent this year, according to Beijing Antaike Information Development Co., which has researched metals for two decades. The infrastructure plans approved in September include about 2,000 kilometers (1,250 miles) of roads, subway projects in 18 cities and extra spending on railways. The nation’s economy will rebound this quarter from the slowest pace in three years, and keep accelerating through at least the middle of 2013, according to the medians of as many as 37 economist estimates compiled by Bloomberg. That may not be enough to offset contractions elsewhere. European Recession The 17-nation euro-area tumbled back into recession last quarter and economists surveyed by Bloomberg expect Japan to do the same this quarter. Europe accounts for 18 percent of copper demand and Japan 5 percent. U.S. leaders have yet to resolve the so-called fiscal cliff of automatic taxes rises and spending cuts, which the Congressional Budget Office has warned risks shrinking the economy. The International Monetary Fund cut its forecast for global growth in 2013 twice since July. Hedge funds and other speculators are betting on lower prices, U.S. Commodity Futures Trading Commission data show. They held a net-short 2,649 futures and options in the week to Nov. 20, after turning negative the week before for the first time since August. While stockpiles monitored by the LME fell 33 percent to 249,975 tons this year, those in bonded warehouses in China reached a record 700,000 tons, Goldman Sachs Group Inc. said in a Nov. 8 report. Those tracked by the Shanghai Futures Exchange, which are separate from the bonded-warehouse figure, have more than doubled to 205,933 tons, bourse data show. ‘Keep Up’ “The improvement in demand will probably be capped out by the ability of supply to keep up,” said Andrew Shaw, the head of industrial-metal and bulk commodity research at Credit Suisse Group AG in Singapore. “We’re probably past the trough but it’s not very convincing.” Codelco, the largest producer, cut the premium it charges on top of the LME cash price on sales to Chinese buyers by 11 percent to $98 a ton for 2013, according to two people familiar with the talks. That compares with a 5.6 percent drop to $85 for European buyers and an 8.6 percent reduction to $85 for Japan and South Korea. Lower fees usually signal higher supply. Chinese inventories may start contracting as the economy strengthens. Exports rose in October at the fastest pace in five months and a preliminary reading of HSBC Holdings Plc and Markit Economics’ purchasing managers’ index for November signaled the first expansion in 13 months. ‘More Positive’ “Next year will be slightly more positive than this year,” Jeremy Goldwyn, director at Sucden Financial Ltd., said in an interview on Bloomberg Television from Shanghai today. “That’s predominantly based on improvement in Chinese conditions, marginally better in the U.S. and pretty much the same in Europe,” said Goldwyn, who’s worked in the industry for more than 25 years. Expectations for next year’s global supply are probably too optimistic, Macquarie Group Ltd. said in a report Nov. 6, citing constraints including power shortages in the Democratic Republic of Congo. The bank anticipates production growth of 4 percent next year and a “significant copper surplus remains unlikely.” The mining industry is contending with rising costs from labor to energy and is extracting about 19 percent less metal from every ton of rock that it was in 2000, according to Macquarie. Codelco, based in Santiago, reported a 5 percent drop in nine-month production on Nov. 22 because of declining ore grades at its Chilean mines. Freeport will report net income of $4.52 billion in 2013, from $3.14 billion in 2012, according to analyst estimates. Its shares rose 6.6 percent to $39.22 this year and will reach $50.05 in 12 months, the predictions show. Copper accounted for 78 percent of sales last year, data compiled by Bloomberg show. “We’re still relatively positive on copper with China’s economy recovering, and the U.S. as well,” said Nick Trevethan, a senior commodities strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Singapore. “Europe’s pretty much written off, but the China story’s becoming more and more about China and less and less about the rest of the world.” To contact the reporter on this story: Glenys Sim in Singapore at [email protected] To contact the editor responsible for this story: James Poole at [email protected] Find out more about Bloomberg for iPhone: http://m.bloomberg.com/iphone/