Copper futures slip after funds turn bearish, China reforms

Copper extended last weeks losses into Monday after data from the U.S. Commodity Futures Trading Commission showed hedge funds and other large speculators turned bearish for the first time in two months, lured by stock markets. The lack of immediate measures in Chinas reform package to boost commodities, coupled with forecasts for a higher than previously estimated global surplus, also pressured the market. The metal drew some support on expectations the Federal Reserve will maintain its accommodative monetary policy following a series of recent downbeat U.S. data and comments by Fed Vice Chairwoman Janet Yellen.

On the Comex division of the New York Mercantile Exchange, copper futures for settlement in December traded at $3.167 per pound at 13:02 GMT, down 0.20% on the day. Prices shifted in a days range between $3.175 and $3.162 a pound. The industrial metal ended higher on Friday but settled the week nearly 2.7% lower.

Copper fell after numbers by the U.S. Commodity Futures Trading Commission showed investors turned bearish on copper for the first time since September 17. Bearish bets exceeded wagers for price gains by 8 117 contracts in futures and options combined in the week ended November 12.

Daniel Briesemann, an analyst at Commerzbank AG, wrote in a report, cited by Bloomberg: “Money managers significantly cut their net long positions in copper for the third week running. Price declines since the Nov. 12 reporting date point to a further retreat on the part of speculative financial investors.”

Market sentiment was also dampened by disappointment over a lack of concrete and immediate measures to boost commodities in Chinas reform set, which was announced after the conclusion of a four-day meeting of the Asian nations Communist party. Last week, Beijing revealed a bold package of economic and social reforms, including easing of its one-child policy and giving markets more freedom in allocating resources, but the implementation of the measures may take years.

Jonathan Barratt, chief executive of commodity research firm Barratts Bulletin, commented for CNBC: “At the end of the day, we knew that the reforms would be positive, but I tend to think the markets wanted more concrete ideas. They didnt get them, therefore markets sold off.”

Also fanning negative sentiment, the global copper surplus is expected to widen further this year. According to a Reuters survey of analysts, supplies are expected to exceed demand by 182 000 tons in 2013, up from the previous forecast of 153 000 tons, before jumping to 328 000 tons next year.

Fed stimulus

The metal however drew support by a weaker dollar after a recent string of downbeat U.S. data backed Janet Yellens intentions to maintain Feds current bond purchasing pace if confirmed as next Fed Chairman until a robust economic recovery is at hand.

The U.S. dollar index, which measures the greenbacks strength against a basket of six major peers, traded at 80.76 at 13:04 GMT, down 0.14% on the day. Prices shifted in a days range between days high of 80.97 and session low of 80.69, the weakest level since November 7. Weakening of the greenback makes dollar-priced commodities cheaper for foreign currency holders and boosts their appeal as an alternative investment.

A report by the Federal Reserve showed U.S. industrial production also surprisingly contracted last month. Output fell by 0.1%, confounding projections for a 0.2% advance after it expanded by 0.7% in September. Capacity utilization disappointed and fell to 78.1%, trailing both expectations and September’s reading of 78.3%. Despite harming coppers demand prospects, the negative output data was among the first clues of how the fiscal impasse in October impacted the U.S. economy, curbing speculations for an earlier-than-expected stimulus tapering.

According to a separate report, manufacturing activity in the New York Region unexpectedly contracted by the most since January as new orders fell. The NY Empire State Manufacturing Index declined by 2.21 in November, defying analysts’ expectations for a rise to 5.00 from the preceding period’s reading of 1.52. The new orders index slumped to -5.33, down from 7.75 in October. Labor market conditions also worsened with the employment index falling to 0.00 from 3.61 in the preceding month.

Also fanning negative sentiment for the U.S. economic recovery, the Labor Department reported on Thursday that more people than expected applied for initial unemployment benefits last week. Initial jobless claims fell to 339 000 in the week ended November 9, underperforming expectations for a drop to 330 000.

Yellen said she doesn’t see evidence at this point that the current policy is inflating assets bubbles, further curbing speculations for an earlier-than-expected tapering of the stimulus.

In her prepared comments prior to the hearing, Yellen called last month’s 7.3% unemployment rate too high, noting the economy and labor market were performing short of their potential, while inflation remained well below Fed’s 2% target and provided room for easy money supply.