Hedge Funds Snapping Up Commodity Shares?
First, spent my day reading more bad news on China, the latest from some analyst at Barclays who recently came back with some bad news:
analyst Gayle Berry recently visited China, and met with various industrial firms, and came back with some grim news: are weak, and it's not just a matter of the Lunar New Year.
Here is our summary of Berry's key points:
- Demand for copper in China remains weak, and the outlook for the rest of the year doesn't look so great.
- Some manufacturers cranked up production in January/February in anticipation of a rebound in Q2, but "demand has been softer than they expected."
- Appliance demand is weak thanks to slow construction and poor real estate sales.
- Copper inventories are rising.
Overall, we believe Chinese demand in the short term is likely to disappoint before beginning on a recovery trajectory later in Q2. Subsequently, we think that imports will weaken until bonded stocks are run down to more normal levels, possibly in Q3 12. With the market already expecting a drop in Chinese imports, we doubt this alone would have a significant negative impact on LME prices.
That’s more likely to be determined by the market’s evaluation of how long imports will weaken for and whether it's the result of short-term dislocation or longer lasting core weakness. The LME backwardation meanwhile is likely to continue unless Chinese exports are big enough to begin offsetting the draws in LME inventories, in our view.