Copper Stockpiled by China’s Pig Farmers May Be Sold (Update2)

Aug. 18 (Bloomberg) -- Copper, nickel and other base metals stockpiled by speculative Chinese investors including pig farmers may be sold when “market sentiment turns,” said Scotia Capital Inc. A price surge and easy bank credit this year encouraged pig farmers, stock brokers and businessmen to buy copper and nickel for speculation, Liu Na, an analyst with Scotia Capital, wrote in a note dated Aug. 17, citing reports from the state-owned China Central Television. Scotia Capital is a unit of Toronto- based Bank of Nova Scotia. “These stockpiles are in ‘weak hands’ as speculators have no real use for base metals,” Liu wrote. “When the market sentiment turns, they are very likely to turn into quick sellers, especially when the bank’s money is involved.” Metal prices, which have surged 66 percent this year, are looking “frothy” and increasing stockpiles are threatening the rally, Goldman Sachs JBWere Pty. said this month. Copper, aluminum and other metals shipments to China soared to a record this year as expanding loans and the government’s 4 trillion yuan ($585 billion) stimulus program boosted demand and prices. “Some of the stored metals are already flowing into the market as those investors think they’ve earned enough,” Deng Limin, a trader at Eramet SA, said by phone from Shanghai. Paris-based Eramet runs the world’s biggest ferronickel plant. Copper for November delivery was little changed in Shanghai after it fell the daily limit yesterday. Futures in London rose 1.2 percent to $6,123 a metric ton at 7:30 a.m. local time, after a 5.2 percent decline in the past two trading days on concern a recent rally overshot the pace of recovery. ‘Speculative Behaviors’ China, the world’s largest metal consumer, uses around 5 million tons of copper and 400,000 tons of nickel a year. Shanghai exchange-monitored copper stockpiles expanded to 76,107 tons last week, the highest in two years. “The scale of the speculative investment is hard to quantify, although some local observers put the number at some 200,000 tons for copper, and at 50,000 tons for nickel,” Scotia’s Liu wrote. “We regard these speculative behaviors as natural, and they will inevitably occur in a bull market, so we do not want to exaggerate the impact they have.” Pig farmers in Guangzhou province were buying copper or nickel, Liu wrote, citing CCTV. Residents in Wenzhou city of Zhejiang province, “famously investment savvy,” are reportedly using bank loans to stockpile copper scrap, with one merchant saying he has stored 20,000 tons, Liu wrote. Housewives Buying Housewives in Wenzhou may have stockpiled metals as “they just have too much cash on hand,” Eramet’s Deng said. The People’s Bank of China scrapped lending quotas in November, triggering a record 7.73 trillion yuan of new loans this year. M2, the broadest measure of money supply, rose 28.4 percent in July from a year earlier. Metal traders have reported incidents when “a rich man walked into our office and asked us what had been the lowest and highest prices of nickel,” Scotia’s Liu wrote. “After telling him those prices, he said the current price was low and he placed an order.” Copper prices may drop this week as evidence grows that the metal has reached a “top,” Barclays Capital said, citing trading patterns. The uptrend in copper is “faltering” ahead of $6,620 a ton, which represents a 62 percent retracement of the decline from July 2008 through December, using Fibonacci analysis, Barclays commodity strategists wrote in a report yesterday. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.