London copper falls to more than 2-week low on China demand worries

* ShFE copper hits more than 3-month low as China property worries bite

* Comex speculators cut bearish copper positions

* Coming Up: Germany Ifo business climate at 0900 GMT

London copper fell sharply on Monday to its lowest in more than two weeks as worries about credit restrictions to China's huge property sector hurt the demand outlook for metals.

Copper prices have traded in a $200 range for most of February, finishing last week little changed. But worries about curbs to property development soured sentiment on Monday and may act to contain demand for metals, said Ivan Szpakowski, China commodities strategist at Citi.

China shares sank to a two-week low early on Monday, dragging Hong Kong markets down, led by property and banking counters as mainland news reports stoked fears that banks have stopped extending loans to property-related companies. 

"There appears to be new developments in that the banks are lending less, and some may have stopped lending for a limited amount of time to real estate developers, to companies providing raw materials for real estate development," said Szpakowski.

Three-month copper on the London Metal Exchange <CMCU3> slid 1.2 percent to $7,073 a tonne by 0309 GMT. LME copper earlier in the day hit $7,055 a tonne, its lowest since Feb. 6.

Average new home prices in China's 70 major cities rose 9.6 percent in January from a year earlier, easing from the previous month's 9.9 percent rise, according to Reuters calculations based on official data published on Monday. 

Tighter policies in China, the world's top metals user, and the United States have fanned concerns there will be less cheap liquidity on hand for industry and investors, compounding worries that stuttering growth in the world's top two economies could derail a global recovery.

In the United States, severe cold weather and a shortage of houses on the market pushed home resales to an 18-month low in January, the latest indication economic activity has hit a soft patch.

Sweeping reforms are urgently needed to boost productivity and lower barriers to trade if the world is to avoid a new era of slow growth and stubbornly high unemployment, the OECD warned on Friday.

Prices could still climb, driven by technical buying, said Barclays in a research note.

"Sizeable short positions have built in copper, zinc and nickel, leaving the market vulnerable to short-covering rallies and raising the prospect of big rises in reported inventories if metal is attracted on-warrant by tightening in time spreads."

Selling spilled across to other metals. The most active lead contract in Shanghai hit a contract low of 13,910 yuan.

Weekly Economic Data for the week 22-Feb-14 to 28-Feb-14

Exp.:	Expected or Anticipated value calculated from the recent survey conducted.
Prior:	Represents the last actual for each indicator. In case there is a revision to the last actual, the prior column reflects the prior figure as revised.
Exp. change today:	Exp. - Prior
Avg. change of last 1 year:	Average Change in Actual data calculated for last 1 year.
Expected impact on price:	This indicator shows the effect of the anticipation of data on the prices of related country’s major indices. We have categorized it as below: Very Good Good Neutral Bad Very Bad
Actual:	Refers to the actual/latest figures after its release.

Data for the week 22-Feb-14 to 28-Feb-14

Date	Time (IST)	Country	Data	Exp.	Prior	Exp. chg today	Avg. chg of last 1 year	Exp. Impact on Price
22-23 Feb-2014	-	Australia	G20 Finance Ministers, Central Bank Governors Meet in Sydney
24-28 Feb-2014	-	United Kingdom	Nationwide Housing Prices s.a (MoM)	0.5%	0.7%	-0.20%	0.87	Neutral
24-Feb-2014	02-30 PM	Germany	IFO - Business Climate	110.5	110.6	-0.10	1.26	Neutral
24-Feb-2014	02-30 PM	European Monetary Union	EU-Brazil Summit in Brussels
24-Feb-2013	03-30 PM	European Monetary Union	Consumer Price Index (MoM)	-1.10%	0.3%	-1.40%	0.65	Very Bad
24-Feb-2014	03-30 PM	European Monetary Union	Consumer Price Index - Core (YoY)	0.7%	0.7%	0.00%	0.05	Neutral
25-Feb-2014	08-30 PM	United States	Consumer Confidence	80	80.7	-0.70	4.00	Neutral
26-Feb-2014	03-00 PM	United Kingdom	Gross Domestic Product (QoQ)	0.7%	0.7%	0.00%	0.34	Neutral
26-Feb-2014	08-30 PM	United States	New Home Sales (MoM)	0.400M	0.414M	-0.01	0.01	Neutral
26-Feb-2014	09-00 PM	United States	EIA Crude Oil Stocks change		0.973M		3.45
26-Feb-2014	09-00 PM	Germany	Merkel Meets With ECB President Mario Draghi
27-Feb-2014	02-30 PM	European Monetary Union	M3 Money Supply (3m)	1.2%	1.3%	-0.10%	0.18	Neutral
27-Feb-2014	03-30 PM	European Monetary Union	Consumer Confidence	-12.7	-12.7	0.00	1.04	Neutral
27-Feb-2014	07-00 PM	United States	Durable Goods Orders	-1.50%	-4.30%	2.80%	6.72	Neutral
27-Feb-2014	08-30 PM	United States	Fed's Yellen Testifies to Senate on Monetary Policy
27-Feb-2014	09-00 PM	United States	EIA Natural Gas Storage change		-250		33.60
28-Feb-2014	00-00 AM	Germany	ECB's Draghi Speaks in Frankfurt
28-Feb-2014	03-30 PM	European Monetary Union	Unemployment Rate	12%	12%	0.00%	0.12	Neutral
28-Feb-2014	05-30 PM	India	GDP Annualized QoQ	4.8%	4.8%	0.00%	0.45	Neutral
28-Feb-2014	07-00 PM	United States	Gross Domestic Product Annualized QoQ	2.5%	3.2%	-0.70%	1.11	Neutral
28-Feb-2014	08-25 PM	United States	Reuters/Michigan Consumer Sentiment Index	81.2	81.2	0.00	2.48	Neutral
28-Feb-2014	09-00 PM	United Kingdom	BOE Governor Mark Carney Speaks in Frankfurt

Copper is odd one out on this hedge fund positioning chart.

Renewed interest by large investors has been a central feature of the turnaround in sentiment on the gold and silver market.

After turning gold into a one-way bet lower in 2013, large investors, primarily made up by hedge funds, have recently turned more bullish as evidenced by a 31% jump in net long positions – bets that prices will go up – held by so-called "managed money".

It's not just gold, up 10.3% year to date, and silver enjoying a 14.5% surge in 2014, that have attracted Wall Street speculators.

Interest in commodities from hedge funds has been spiking across the board with agriculture and energy prices the main beneficiaries.

Arabica coffee is up 20% in a single week, sugar has jumped 5%, natural gas gained 20% and New York harbor diesel added 4% over just five trading sessions.

Saxo Bank head of commodities strategy Ole Hansen has an interesting graph showing how hedge funds are positioning themselves in the sector.

This chart from the Danish bank shows among all commodities copper is the lone raw material being shunned by the smart money:

"In just six weeks, the speculative net-long position across 24 major commodities has jumped by 28 percent."Hedge funds were behind the curve at the beginning of the year and since then, they have been an important driver of the current rally.

"During this time, the grain sector exposure has gone from a net-short of 11,000 contracts to a net-long of 202,000 contracts, softs from 86,000 to 113,000, and energy from 798,000 to 840,000.

"The metal sector has seen a reduction from 106,000 to 98,000 contracts but this been caused by 51,400 contracts net-selling of copper while precious metals has risen strongly."

Supply and demand key to base metals success: Adam Low

Adam Low of Raymond James believes that the outlook is excellent for zinc, good for copper and neutral for iron ore. In this interview with The Gold Report, he argues that it comes down to supply and demand. Copper supply may soon lag demand, and zinc demand, which is increasing steadily, will soon face a 10% decline in supply. 

The Gold Report: Your 2014 prognosis for industrial metals is largely positive, correct?

Adam Low: Yes, although our view is not universal. We are most positive on copper and zinc, somewhat less enthusiastic about nickel. We're fairly neutral on iron ore, although we do expect a bit of softening in iron ore prices.

TGR: Why do you like zinc?

AL: We are starting to see fundamental changes occurring in the market. This is a supply story. Zinc has been an unloved metal for decades. As a result, there has been very little investment, which means that six major mines in operation for decades have or will soon end production.

The first two, in Canada, closed in 2013. The next major shut down, scheduled for mid-2015, is MMG Inc.'s (1208:HK) Century mine in Australia, the world's second-largest zinc mine.

TGR: How much global supply will be lost as a result?

AL: About 10%.

TGR: So prices will rise?

AL: Yes. Visible inventories on the London Metals Exchange, as well as on the Shanghai Futures Exchange, are down about 30% over the last year. And zinc demand is increasing steadily. There are some suggestions that we have a small zinc deficit already.

TGR: What are the supply and demand fundamentals in copper?

AL: I'd characterize the copper market as being infected with "short-termism." Mine supply grew quite spectacularly in 2013: between 6% and 7%. How sustainable is that growth? In a couple of years, we could easily have the same problem we had a decade ago, when mine supply lagged behind demand.

TGR: Why would this happen?

AL: One-third of global copper supply comes from Chile. This country is increasingly constrained by power and water supplies; labor rates are rising as well. Chile's state-owned copper enterprise, the Corporación Nacional del Cobre de Chile (CODELCO), produces about one-tenth of global copper, and it requires something on the order of $20–27 billion ($20–27B) in reinvestment over the next five or six years in order to maintain both current production and grow its production base. That will be quite difficult.

TGR: Why are you less enthusiastic about nickel?

AL: In the long term, we remain skeptical about that market. Indonesia, one of the world's largest nickel miners, has implemented a ban on exports of raw ore, which curtailed a major source of global supply. Nevertheless, nickel has abundant visible inventories. It also has growing supply from long-beleaguered laterite projects now finally coming to fruition: Ambatovy, Koniambo and Onça Puma.

TGR: Why are iron ore prices softening?

AL: We expect supply growth from mines to outweigh demand growth, particularly as major mines start up in Australia and Brazil. At current prices, the industry is making phenomenal margins, more than 100%. At lower prices, companies at the high end of the cost curve will struggle, but the others should continue to do very well.

TGR: To what extent are higher base metal prices dependent on positive global economic news?

AL: Growth is a key factor. The U.S. economy appears to have improved, although I'm a little bit skeptical about just how robust or sustainable this growth is, especially now that the Federal Reserve has decided to reduce its bond buying.

TGR: How do you view the short-term economic prospects of China and Europe?

AL: In Europe, the latest purchasing manufacturers' index is at its best since 2011. We are beginning to see some resurgence from some of the weakest economies, such as Greece. And Germany still looks good. Even so, I don't think we can count on Europe being the key driver for world economic growth quite yet.

TGR: And China?

AL: China is still growing and from a larger base. So while its relative growth may be less impressive than it was, its absolute growth is still quite extraordinary. Any industrialized Western nation would be incredibly envious of "only" 6–7% GDP growth per year.

TGR: There is a growing concern that the equities markets are overheated, particularly with the Fed tapering quantitative easing. If there is a significant correction, will base metals equities follow suit, or could we see instead a flight to safety in metals?

AL: If there is a significant correction, we could see base metals equities follow suit, even though they didn't enjoy the upside the rest of the market did. In the longer term, the widening gap between the growing demand and the dwindling supply of many base metals should spark a resurgence of investor interest in this sector.

TGR: Will base metals equities continue to lag prices in 2014?

AL: This trend should begin to correct. Base metals prices have been quite steady over the last year despite headlines that have generated fear and volatility. This steady price environment should provide investors with greater comfort about metals prices, which should, in turn, lead to greater confidence in investing in the equities.

LME Copper price levels may reflect growing mine supply, production growth, global inventory.

Copper inventory levels on the London Metal Exchange fell below 300,000 metric tons last week, the first time since December 2012, and canceled warrants remain close to highs of 60%, but this stock tightness does not seem to be reflected in prices, said Citi Bank.

According to Citi, LME three-month prices are trading at around $7,200 a metric ton, versus mid-December 2012 prices of over $8,050.

“Given that today’s macro environment is slightly more positive than late 2012, with clear signs of developed world recovery, although China hard landing concerns still persist, we believe current LME price levels reflect growing mine supply, expected refined production growth, and more importantly global inventory. Indeed, the LME price level is not reflecting the LME stock position, but appears to be making implicit assumptions about copper inventory elsewhere,” said David Wilson, analyst at Citi, via Kitco News.

Hedge funds add 30% to bullish bets in Gold.

The gold price ended Friday with a third week in a row of gains after bullish positions held by large investors soared again.

By the close of regular trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – hit $1,323.60 an ounce, up $6.70 from Thursday's close.

There appears to be a definite shift in sentiment this year after 2013's dismal performance with the smart money only now catching up with gold's almost 10% rise this year.

Long positions – bets that the price will go up – held by so-called managed money increased by 8% to 140,840 lots in the week to February 18 according to Commodity Futures Trading Commission data released after the close of business on Friday.

At the same time short positions were cut by 10,603 to just under 50,000, which translates on a net basis hedge funds holding 31% more bullish positions: net longs of 90,942 lots or 9.1 million ounces.

Net longs jumped 17% in the week to February 11, CFTC data showed. Net longs fell to a paltry 26,700 lots in early December when shorts held by large investors peaked at more than 80,000 lots.

That was the highest number of short positions since 2007, back when gold changed hands for $700 an ounce.

Shanghai Stocks Continued Downward Trend

At a time when many of the world's major stock indices are showing signs of topping, the Shanghai Composite Index is poised to continue the decline it began in 2009. Although there is probably a long-term buying opportunity on the horizon, in the near term we expect opportunities for two or more short trades. In this article, we describe our primary scenario for that index, showing possible price targets and a rough time frame for a decline. Readers interested in the alternate scenario, which is more bearish.

The spectacular crash in the Shanghai index in 2007 and 2008 coincided with the decline in stock indices worldwide, and Shanghai also participated in the global stock rally from late 2008. However, while many other indices continued to advance after that time, Shanghai has taken a sideways-down path to visit prices not far from its 2008 low.

We don't believe the decline is over. Traders working on a time frame of a few weeks may still find short trades from a continued series of lower highs, especially using the channel trendlines as a guide. Investors with a long-term perspective should watch for a buying opportunity sometime in late 2014 or 2015.

We admit it was difficult to assign an Elliott wave count to the decline from 2009. There have been several overlapping moves, and many of the sub-moves have corrective patterns. The whole decline is best seen as a large, downward diagonal C-wave. The factor that crystallized the count for us was the index's good behavior within the modified Schiff channel shown on the weekly chart below.

From the current price area, we expect the index to trace out a final three-wave move downward into support. If it stays within the channel, then 1,536 is an attractive target. However, 1,342 and 1,099 are also viable. In any case, if this scenario comes to pass, price probably will remain above the index's 2005 low of 998.23.

Another thing to watch for confirmation of this scenario is the index's behavior in the near-term with respect to the midline of the channel. Price should be entering the down-phase of the 44-week empirical cycle. The primary scenario would be called into question if price rises very far above the midline, and certainly if it exceeds the prior high labeled as "a" of "(iv)". At that point, the alternate scenario would probably move to the fore, and we might also consider that a cycle inversion had occurred.