Scotiabank’s Mohr forecasts higher copper and uranium prices, strong intl. coal prices

As potash prices continue to climb at the Port of Vancouver, Scotiabank economist Patricia Mohr is also bullish on uranium, copper, aluminum, and international steam and coking coal prices.

RENO, NV - 

Scotiabank economist Patricia Mohr forecast Wednesday that "China will likely step up its copper buying in the fall and may well announce ‘an economic stimulus package' to counter G7 weakness."

Mohr, Scotiabank vice president, economics, and commodity markets specialist, noted that "the strength in commodity prices was broad-based in July" as potash prices were up 277% and aluminum prices climbed to their highest level in two decades.

Although metals prices has subsequently unwound on news of a decline in the second quarter of this year, Mohr suggested that copper prices remained "exceptionally lucrative-buoyed by very low ‘visible' exchange stocks and supply disruptions (likely totaling about 750,000 tonnes in 2008)."

In her analysis, Mohr said Scotiabank's Metal and Mineral Index "rose significantly in July, as strong gains in potash, sulphur, lead, aluminum and copper-as well as precious metals-offset softer nickel and zinc prices." She noted that spot uranium prices rallied to US$64.50 in July and should move higher during the rest of this year.

Meanwhile, Mohr suggested that power cutbacks for Chinese aluminum smelters indicate that China will "re-emerge as a net importer of aluminum in 2009, given expected double-digit growth in domestic demand (25% in 2008 and 18% in 2009), despite some slowdown in China's economy.

A sharp correction in residential construction in Southern Europe and a significant construction slowdown in France and the United Kingdom has impacted European stainless steel output, Mohr noted. Although stainless distributors have delayed restocking in expectation that nickel surcharges will move lower, Mohr suggested, "World stainless steel output will likely pick up again and post a solid 8.5% gain for 2008 as a whole and 7% in 2009."

However, she cautioned that nickel prices "could move moderately lower in 2009:H2, as new mine supply is ramped up (from Goro in New Caledonia and Niquelandia and Onça Puma in Brazil)."

Meanwhile, Mohr noted that China has raised exports taxes on steam and coking coal in an effort to cut exports and ease a severe power shortage, which, she asserted, sets the stage for strong international prices ahead.

In her research, Mohr asserted that "recent developments in China's electricity market point to strength in international steam and coking coal prices is 2008:H2. China is experiencing a severe power shortage this summer (estimated at 30GW or 4.2% of China's totaled installed capacity) due to insufficient supplies of steam coal. Thermal power plants account for 80% of China's generating capacity, but Chinese mining companies have been shifting coal to the export market to take advantage of more lucrative prices. ...The net result, Chinese exports have recently surged to recover levels, easing back prices at Newcastle [Australia] to US$163.90 in mid-August."

As the Chinese government works to curb coal exports in the second half of the year, Mohr suggests international supply conditions will tighten, and raise spot prices for both steam and coking coal in Asian market. She added that these events are "important for Western Canadian coking coal producers in the lead-up to annual contract negotiations for JFY2009."

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