Scotiabank's Commodity Price Index Climbs to a New Record, As The Mining Boom Continues



    
    - Expansion of nuclear power pushes up both uranium and molybdenum prices
    

    TORONTO, April 19 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, rose to new heights in
March, up 3.8 per cent month-over-month and 3.2 per cent above the previous
record in December 2006. The All Items Index has advanced by 123.4 per cent
since the cyclical bottom in October 2001.
    The Metal and Mineral Index jumped to a new record in March, the second
in as many months, amid further strength in uranium, double-digit price gains
for molybdenum and cobalt (specialty steel additives), a strong rebound in
copper prices and a spike in nickel to US$21. High-alloy stainless steel
containing molybdenum is used in condenser tubes for nuclear power reactors,
likely a growth market for molybdenum, given the planned 38 per cent expansion
of the world's nuclear power generators by 2020.
    "The tremendous staying power of metal prices in this business expansion,
despite concern over a slowing U.S. economy, also reflects a global economy
which is less and less dominated by the United States," says Patricia Mohr,
Vice-President, Economics and commodity market specialist at Scotiabank.
"Metal markets were encouraged in March by news that China's industrial
production accelerated in the first quarter, with another 17.6 per cent
year-over-year gain announced today for March (up from 14.7 per cent in
December)."
    Molybdenum has recently attracted considerable investor interest.
Molybdenum oxide prices started the decade at US$2.56 per pound, but began to
rally with other metals in 2003, and rose to a record US$31.88 in 2005 amid
tight global supply/demand conditions, China's closure of small mines in
Laioning Province due to environmental concerns and processing bottlenecks in
the West (i.e. limited 'roasting' capacity to convert concentrates into
molybdenum oxide). While prices eased back in 2006, as Chilean and US copper
producers stepped up their molybdenum output and new 'roasting' capacity was
added in Chile, prices have rebounded to the US$28 mark in mid-April
(historically a very high level).
    Spot uranium prices climbed from US$85 per pound in late February to
US$95 in late March and surged to US$113 on April 9 (up US$18 in one week
alone). Uranium prices have already advanced by US$41 or 57 per cent since the
end of December, making uranium the top performing of the 32 commodities in
the Scotiabank Commodity Price Index. "China has announced that it will
develop a strategic reserve for uranium, a development likely pushing up
prices further," says Mohr.
    "Overall, the Metal and Mineral Index rose 73 per cent above the previous
cyclical peak in June 1988, as broad-based strength in base metals,
fertilizer-related minerals, uranium and steel alloying agents more than
offset a slight decline in gold and silver prices. This Sub-Index could post
another record in April," says Ms. Mohr.
    The new record in the All Items Index in March also reflects the recent
rejuvenation in the Agricultural Index (particularly wheat, barley and canola
prices, linked to the development of biofuels), with another 8.8 per cent gain
in March. The Oil and Gas Index also rallied further, after losing ground in
early 2007, and, while well below the peak of October 2005, is at a high
level. Only the Forest Product Index retreated in March, as lumber and
oriented strandboard (OSB) prices continued to soften with the U.S. housing
correction. Building material prices are now likely close to a cyclical
bottom.
    West Texas Intermediate (WTI) crude oil prices averaged US$60.74 per
barrel in March, up from US$59.39 in February. Prices climbed to a six-month
high of US$66.03 on March 29. The 'geopolitical risk premium' widened
substantially in the wake of Iran's capture of 15 U.K. military personnel,
raising concern that oil shipments through the Strait of Hormuz (15 million
barrels per day) might be disrupted, should tensions mount further. Traders
also feared that the March 24 imposition of a second set of United Nations
Security Council sanctions, in the hopes of dissuading Iran from uranium
enrichment, might be met by oil export cutbacks by Iran (2.4 million barrels
per day).
    While U.K. military personnel have now been returned without incident and
the 'risk premium' has narrowed, oil prices remain above US$60, underpinned by
a fairly snug global supply/demand balance and concern over lower U.S.
gasoline inventories ahead of the summer driving season.
    Western Spruce-Pine-Fir 2x4 lumber prices eased from US$249.75 per
thousand board feet in February to US$239.80 in March, and have only inched up
to US$242 in mid-April (a level just below average mill cash costs in the B.C.
Interior plus the 15 per cent export tax into the United States). It appears
that the current level of prices relative to cash costs (including the export
tax) are slightly worse than during the 1990-1991 recession, when U.S. housing
starts dipped to only 1.014 million units. Average mill cash costs are 18 per
cent higher today, though falling stumpage fees have provided some relief in
the first quarter of 2007.

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.




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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