2013 Top Picks for investors - Lumber and OSB
Platinum metals outperform in 2012 - palladium stages a late-year rally
Restocking of raw materials will lift commodity prices in 2013
TORONTO, Dec. 20, 2012 /CNW/ - After a strong late-summer rally,
Scotiabank's Commodity Price Index inched down in October and dropped
by 2.3% month-over-month (m/m) in November, as commodity prices
contended with opposing forces in late 2012.
"We are experiencing another bout of concern over the outlook for global
growth and the potential fallout from the U.S. fiscal cliff in early
2013, dampening oil and grain prices," said Patricia Mohr, Vice
President, Economics and Commodity Market Specialist at Scotiabank.
"That's only partially offset by news that China's economy is revving
up again, lifting base metal prices, especially copper."
As a result, adds Ms. Mohr, commodity prices have dropped 8.4%
year-over-year (yr/yr) through November and are currently 16% below the
near-term peak in April 2011, just prior to the advent of concern over
excessive Eurozone sovereign debt and the negative impact on global
The Oil and Gas Sub Index (-14.4%) led the yr/yr decline in overall
commodity prices through November 2012. Lower light and heavy crude
oil prices in Alberta and considerably softer propane prices in
Edmonton and Sarnia more than swamped a slight gain in Canadian natural
gas export prices (linked to a significant late-year rally to an
estimated US$3.69 per thousand cubic feet of natural gas in November).
While international oil prices remained strong in 2012, a price discount
on Edmonton light crude oil emerged and the discount on Western
Canadian Select heavy oil (WCS) widened - largely the result of
inadequate export pipeline capacity. "The cost to the Canadian economy
of these wide oil price discounts is enormous," said Ms. Mohr. "On
heavy oil alone that's about US$9 billion in 2012 from the WCS discount
off WTI oil, taking into account a normal quality differential, plus
another US$17.7 billion due to the WTI discount off world prices, as
measured by Brent." Rail shipments are increasing, given virtual full
utilization of export pipelines.
The Metal and Mineral Index also lost ground in 2012, down 13.1% yr/yr
as of November. Most base metal prices held up well, with copper
ending 2012 on a strong note at US$3.60 per pound (45% profit margin),
up from US$3.43 in late 2011. Lead was the 5th best-performing of the 32 commodities in the Scotiabank Commodity Price
Index. However, double-digit declines in coking coal, iron ore and
steel alloying metals alongside stagnant world steel production and a
mid-summer inventory correction in China's steel industry more than
offset the relative strength in some base metals.
On a more positive note, the Forest Products Sub-Index posted a
substantial recovery in 2012 (+12.9% yr/yr through November). After a
challenging environment since 2008 - linked to a prolonged and sharp
downturn in U.S. housing - oriented strand board (OSB) and lumber
producers enjoyed a substantial recovery in earnings in 2012. A modest
recovery in U.S. housing starts is hitting a wall of tighter supply,
given substantial mill closures since 2006 (the equivalent of 140
sawmills across the U.S. and Canada).
Agriculture was another pocket of strength in 2012 (+5.2% yr/yr in
November). Canola (an oilseed) posted the 3rd largest price increase within the Scotiabank Commodity Price Index in
2012, followed by barley (a feed grain).
Top 'Picks' for Investors in 2013
In 2013, commodity prices will receive a lift from raw material
re-stocking, after liquidation or deferred orders in 2012. This is
already the case in China, where a pick-up in orders from steel
producers, after a sharp inventory correction last summer, has boosted
spot iron ore and coking coal prices.
Lumber and OSB are our top investor picks - expected to post a
multiple-year recovery through mid-decade. Western Spruce-Pine-Fir 2x4
lumber prices have climbed from an average of only US$255 per thousand
board-feet (mfbm) in 2011 to US$298 in 2012 and should reach US$340 in
2013 and US$375 in 2014. (Lumber prices peaked at US$454 in August
2004, as U.S. housing starts approached record highs in early 2005.)
Turning to uranium - a deeply discounted commodity - spot prices may
have bottomed at US$40.75 per pound in early November, rallying to
US$44.75 in mid-December. Long-term contract prices remain at US$60
prior to escalation at time of delivery.
Palladium may also be set for a rebound alongside strengthening demand
in China for auto catalysts for small-engine gasoline cars, supply
uncertainties in South Africa and the possible depletion of the Russian
Scotiabank 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.
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For more information please visit www.scotiabank.com.
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SOURCE: Scotiabank - Economic Reports
For further information:
Patricia Mohr, Scotiabank Economics, (416) 866-4210, firstname.lastname@example.org; or
Joe Konecny, Scotiabank Media Communications, (416) 933-1795, email@example.com.