Scotiabank Commodity Price Index Posts Strong Rebound in February



    -   Uranium prices at US$95 are now double the previous peak in 1978

    TORONTO, March 27 /CNW/ - After a sharp drop in January, Scotiabank's
Commodity Price Index, which measures price trends in 32 of Canada's major
exports, bounced back strongly in February, to within 0.6 per cent of
December's record high.
    Despite the pullback in copper and zinc prices in early 2007, the Metal
and Mineral Index reached a new record high in February, as nickel prices
soared to extraordinary levels, uranium prices continued to climb and lead
prices reached a new record. Investment & pension fund interest in copper - as
well as other commodities - also picked up again in mid-February, with copper
prices likely over-sold earlier in the month, and growing expectations that
China's fabricators will need to restock copper, after using inventories on
hand last year. "China's industrial production accelerated in January and
February -- up 18.5% yr/yr from 14.7% in December - also bolstering
expectations", says Patricia Mohr, Vice-President, Economics and commodity
market specialist at Scotiabank.
    London Metal Exchange (LME) nickel prices climbed from US$16.60 per pound
in January to US$18.68 in February and a spectacular new record high of
US $22.84 on March 19, more than double the previous cyclical peak of US$10.84
in March 1988. Extraordinary nickel prices reflect strong global stainless
steel production, especially in China, where capacity gains will account for
67 per cent of the world increase in 2006/2007. "While stainless steel and
nickel prices could edge down at some point this year, a 'super-cycle' is
likely for nickel, with prices remaining quite elevated for the next several
years", says Mohr. The market remains concerned over only limited prospects
for new nickel supply.
    Spot uranium prices also continue to soar, rising to US$95 per pound in
late March - a 32% gain since early 2007. Aside from very tight international
supply/demand conditions, the latest price increase reflects the force majeure
on sales contracts of the Ranger mine in Australia, due to heavy rainfall from
Cyclone George, with first-quarter 2007 output expected to be 20-30% below a
year earlier.
    Annual contract negotiations for Western Canadian metallurgical coal have
just been concluded in Japan. For fiscal year 2007, prices have held up better
than expected at about US$94 per tonne for premium hard coking coal compared
with US$111 in fiscal 2006 (FOB Vancouver). After declining in the past two
years - from the US$125 record high of fiscal 2005, prices may well strengthen
again in fiscal 2008. International shipments of coking coal should pick up
this year, especially to India and Brazil, after last year's 2.4 per cent
decline related to coal de-stocking by steel companies and a reduction in
Chinese imports.
    After falling briefly just below the US$50 mark in mid-January, an
oversold position, West Texas Intermediate (WTI) crude oil prices snapped back
over US$60 per barrel in late February and are US$62.91 in late March (the
highest since December 20). Oil markets are currently assessing the risks of
supply cutbacks related to Iran, as tensions mount over a second set of United
Nations Security Council sanctions approved on March 24.
    "While we doubt that Iran will cut off its oil exports of about
2.4 million barrels per day, in protest to the U.N. sanctions, these exports
could be readily offset by surplus capability on hand in Saudi Arabia, also
about 2.4 million barrels per day," says Mohr. "Nevertheless, Arabian Gulf
shipments through the Strait of Hormuz account for 15 million barrels per day
or roughly one-third of globally traded oil, pointing to the considerable
vulnerability of world oil supplies, should tensions increase further."
    After a brief rally to US$257 per thousand board feet (mfbm) in January,
Western Spruce-Pine-Fir 2x4 lumber prices edged down to just under US$250 in
February and are US$235 in late March, below average mill cash costs in the
B.C. Interior plus the 15 per cent export tax into the United States.
    U.S. housing starts inched up from only 1.399 million units annualized in
January, the lowest in almost a decade, to 1.525 million in February, with the
gain concentrated in single-family units. However, U.S. homebuilder confidence
declined in March. Homebuilders are increasingly concerned over the impact on
their sales of tightening mortgage lending standards, particularly in the
subprime market. New home sales declined in February, with months' supply
rising to a 16-year high of 8.1. While housing starts may be bottoming, it
appears unlikely that a significant recovery will occur until early 2008.

    Scotiabank is one of North America's premier financial institutions and
Canada's most international bank. With close to 57,000 employees, the
Scotiabank Group and its affiliates serve approximately 12 million customers
in some 50 countries around the world. Scotiabank offers a diverse range of
products and services including personal, commercial, corporate and investment
banking. With $379 billion in assets (as at October 31, 2006), Scotiabank
trades on the Toronto (BNS) and New York Exchanges (BNS). For more information
please visit www.scotiabank.com.





For further information:

For further information: Patricia Mohr, Scotia Economics, (416)
866-4210, pat_mohr@scotiacapital.com; Paula Cufre, Scotiabank Public Affairs,
(416) 933-1093, paula_cufre@scotiacapital.com


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