Copper prices fall,china housing market concerns

Copper dropped 2.4 percent to $8,551 a metric ton. China is the biggest buyer of the metal. Gold declined 0.6 percent to $1,718.26 an ounce, the third consecutive drop. Brent crude was down 1.5 percent to $116.80 a barrel, ending the longest winning streak for the March futures contract since October 2009.
Concerns on Chinas housing market put downward pressure on the metal.
China is at risk of falling into a recession by 2015 that would reduce commodity prices as much as 70 percent, according to the chief executive officer at Smead Capital Management Inc.
Commodities from copper to crude oil may drop 50 percent to 70 percent from current prices in three years to five years, Bill Smead, CEO of the Seattle-based mutual fund, said in an interview in Singapore. China, the world’s biggest consumer of energy, metals and grains, has a 30 percent chance of slipping into a recession as property prices fall, hurting local banks that made loans to developers and home buyers, he said.

Smead, whose fund manages $170 million and has stakes in Starbucks Corp. (SBUX), McDonald’s Corp. (MCD) and Bank of New York Mellon Corp., doesn’t own natural-resource companies because commodity prices are “massively overvalued,” he said. The fund reported net capital appreciation of 5.2 percent last year, compared with a 0.4 percent gain of the Russell 1000 Value Total Returns Index and a 2.1 percent rise in the S&P 500 Total Returns Index.
“Commodities are currently 50 to 70 percent above their cost of production,” Smead said. “History shows prices tend to bottom near the production cost. That’s at about $50 to $55 a barrel for crude oil.”
Companies and banks that financed China’s construction boom, which started in 2008, show signs of accumulating more debt than they can pay off, he said. China’s government debt, which may have risen to 20 trillion yuan ($3.14 trillion) by the end of 2010, or about 50 percent of its gross domestic product, is becoming a major constraint on its economic growth, research firm Beijing Fost Economic Consulting Company Ltd. said in December.