China could ‘surprise to the upside' of copper prices-Scotiabank

China's copper imports could ‘surprise on the upside' in the next few months following a seasonal pullback, Scotiabank economist Patricia Mohr advises.

RENO, NV - 

As China became the first major economy to emerge from the global financial crisis, Scotiabank economist Patricia Mohr noted Chinese demand propelled LME copper and nickel prices to a six-month high.

Meanwhile, contrary to expectations, China's copper imports rose to another record high in June. Nickel prices also rallied this spring and summer "alongside tightening nickel supplies in China, linked to a tentative pickup in China's stainless steel production, the recent sale of 60% of Jinchuan's monthly nickel production to China's State Reserve Bureau and the shutdown of most nickel pig iron operations in China."

Scotiabank's Metals and Mineral Index strengthened significantly last month, up 4.7%. "A strong rally in base metals, moderate gains in precious metals and higher uranium prices more than offset a slight decline in potash and lower cobalt prices," Mohr said.

In her analysis, Mohr advised, "While we still expect a seasonal pullback in China's copper imports in the next several months, following restocking by fabricators, China could ‘surprise on the upside'."

Mohr suggested stainless steel inventories are quite low in Europe and the U.S. "and some re-stocking is likely by 2009:Q4. POSCO in South Korea has also succeeded in lifting prices, aided by a large government infrastructure spending program."

"After declining by 8.5% in 2009, global stainless steel output should rise by 10% in 2010, as business capital spending begins to recover," she predicted. Mohr also advised, "A strike at Vale Inco's Sudbury operations and likely at Voisey's Bay in August will cut global nickel supplies by a significant 10%. Nickel prices will rise further, should this strike be lengthy."

In her analysis, Mohr said potash prices dropped slightly from US$712.50 to $170 per tonne, alongside higher shipping rates. "Prices will likely drop further in the next month, given the recent contract agreement between Russian producer Silvinit (represented by IPC) and India at US$460 cfr for fertilizer year 2009 (in this case from July through March 2010)," she predicted. 

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