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By Bloomberg

Investors are hastening their retreat from copper, unnerved by the threats to global economic growth.

The metal slumped to a six-year low last week as Greece’s efforts to reach a deal with creditors stumbled and Chinese equities plunged. Europe and China consume about two-thirds of the world’s copper. Goldman Sachs Group Inc. and Societe Generale SA see little prospect of a rebound anytime soon.

Speculators are holding their biggest bearish bet on copper in almost 16 months, with Barclays Plc forecasting that supply will flip from shortages to surpluses from this year. The International Monetary Fund cut its global economic-growth forecast and the Federal Reserve released minutes that showed policy makers saw risks to the economy from the turmoil in Europe and China.

“The weak prices are reflecting the worries that people have about global demand,” Jeff Sica, who oversees $1.5 billion as president and chief executive officer of Circle Squared Alternative Investments in Morristown, New Jersey. “We still have a little ways to go” for prices, he said.

Copper futures on the Comex in New York slumped to $2.381 on July 8, the lowest since July 2009, on the way to a weekly loss of 3.6 percent. The Bloomberg Commodity Index fell 2.5 percent, the MSCI All-Country World Index of equities slid 0.4 percent and the Bloomberg Dollar Spot Index added 0.2 percent. The equity rout in China erased $3.9 trillion of market value in less than a month.

Short Positions

Speculators increased their net-short positions in copper by 18 percent to 25,009 futures and options in the week ended July 7, Commodity Futures Trading Commission data show. Short holdings rose for a ninth straight week, the longest stretch on records going back to 2006, to the highest since June 2013.

Chile’s state copper agency last week reduced its estimate for the average price this year to $2.77 from $2.85, citing weaker Chinese demand. The Bloomberg World Mining Index of 79 producers including Freeport-McMoRan Inc. and BHP Billiton Ltd. capped a fourth straight weekly decline.

Commodities are caught in a “negative feedback loop,” where lower raw-material prices are strengthening the dollar and lowering production costs for countries with weaker currencies, Goldman analysts wrote in a report. Copper is a “bellwether” commodity that highlights the cycle, Jeffrey Currie, an analyst at the bank, said in an interview on Bloomberg Television.

Goldman forecasts London Metal Exchange prices at $5,200 a metric ton ($2.36 a pound) in 12 months, or 7 percent lower than Friday’s close. Metal for delivery in three months rose 0.7 percent to $5,628 on Monday, reversing losses of as much as 1.7 percent, after Greece struck a deal with creditors.

Dwindling Surplus

Not all analysts are as bearish. A surplus in copper will dwindle as new mining projects fail to fully make up for declining ore grades, according to Citigroup Inc. analysts led by Edward Morse. Production will trail consumption by 109,000 tons in 2016, Citigroup said in a report e-mailed July 8.

The International Copper Study Group said last month that output in March exceeded demand by 6,000 tons, down from a 126,000 surplus in February.

“Exploration takes a long time, and there are really no large mine projects that can compensate with the grade issues that we’re having and the declines in production in some of the mature fields,” said Harish Sundaresh, a portfolio manager and commodities analyst in Boston for the Loomis Sayles Alpha Strategies team, which oversees $5 billion. Prices will “generally be on an upward trend for the next three to five years,” he said.

Price Stability

The Fed is watching for signs of price increases, while turmoil in Greece and China poses the risk that the dollar will strengthen further, damping demand for U.S. exports and keeping inflation in check.

“We’re looking for stabilization in commodity prices, oil prices, and the inflation data,” Chicago Fed President Charles Evans said Thursday. “So anything that sort of adds more uncertainty” to the outlook for stability “makes things more challenging,” he said.

With China and Europe accounting for the two largest areas of global metals consumption, there is the risk of a further deterioration in demand for metals including copper, Societe Generale said in a report July 8.

“The people who were selling copper were extrapolating the meltdown in the Chinese stock market as representative” of a slowing economy, Donald Selkin, New York-based chief market strategist at National Securities Corp., which manages about $3 billion, said by phone.