Palladium, copper, potash and uranium top commodity picks for 2011
TORONTO, Dec. 21 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, is ending 2010
on a strong note, up 3.0% month-over-month (m/m) in November. The All
Items Index has now surpassed the near-term peak in April prior to a
two-month correction last spring -- triggered by the Euro-zone 'debt
crisis' and another slowdown in the U.S. economy - and is up 36.2% from
the April 2009 cyclical low. While remaining volatile, commodity
prices should strengthen further in 2011 - boosted by ongoing strength
in 'emerging' market demand, after about a 12% gain in 2010 (from late
2009), though the increase may moderate.
In 2010, the 'Top Five' commodities posting the largest price gains were
all metals & minerals: sulphur (+153.3% since late 2009, a mineral used
in DAP fertilizers and a by-product of Western Canada's oil & gas
production), silver (+69.1%, benefitting from record ETF holdings and
its role as an 'industrial' as well as a 'precious' metal), coking coal
(+63.3%), nickel (+44.7% alongside rebounding global stainless steel
production and strike-related supply cuts in Sudbury and Voisey's Bay)
and molybdenum (+41.3%). While not covered in the Index, palladium
(+103.6% the best performing 'precious' metal) and iron ore (+103.1%)
yielded exceptional returns for investors. Grains & oilseeds (+31-40%
on drought in Russia and strong Chinese demand for U.S. corn), uranium
(+37.6%), copper (+32.6%) and lumber (up a surprising 31.3%) rounded
out the 'Top Ten' in 2010.
"Looking ahead to 2011, our top commodity picks include palladium,
silver, copper, potash & other fertilizers and uranium," said Patricia
Mohr, Vice-President, Economics and Commodity Market Specialist at
Scotiabank. "Palladium, which is primarily used in auto catalytic
converters for gasoline-fuelled vehicles, but also in electronics such
as blu-ray disks & LED panels, will benefit from rapid growth in motor
vehicle sales in 'emerging' Asia and tightening vehicle emission
control standards. Mined supplies are quite concentrated, with over
80% of output coming from Russia, as a by-product of nickel production,
and from South African platinum mines. Only two primary palladium
producers exist in North America. The world supply/demand balance is
expected to shift from a slight 'surplus' in 2010 to a significant
'deficit' in 2011, as sales from the Russian state stockpile dwindle.
This 'deficit' is likely to grow through 2015, despite a large increase
in recycled supplies.
"The capital spending cycle is beginning to swing up in mining and
energy, lifting sales for equipment & heavy truck manufacturers and
service providers," continued Ms. Mohr. "Global exploration spending
in non-ferrous minerals has rebounded this year to about US$12.1
billion from US$7.5 billion in 2009 and should surpass the previous
2008 peak of US$14.4 billion in 2011. Junior mining companies have
ready access to capital once more. Interest from China in Canadian
assets, particularly in the junior mining space, is intense.
Fertilizer producers and farm equipment manufacturers will enjoy strong
Metals & Minerals
The Metal & Mineral Index rose by 1.8% m/m in November - led by gains in
uranium and silver. China's 12th Five-Year Plan for 2011-15, shifting emphasis slightly from
industrialization to a more consumer-based economy, is likely to be
particularly positive for a number of Canadian mining sectors - uranium
for nuclear power (emitting virtually no greenhouse gases) and
fertilizers such as potash, needed to grow feedgrains (corn), as rising
household income allows greater meat consumption.
Spot uranium prices have strengthened markedly from US$52 per pound in
late October to US$61.75 in mid-December on expectations that China's
target for nuclear energy will be doubled in the 12th Five-Year Plan.
Turning to copper, while the red metal (a bellwether) only placed 8th within the 'Top Ten' best performing commodities of 2010 (+32.6%), LME
copper prices were already high in late 2009 at US$3.17 per pound and
climbed by more than US$1 to a new record high of US$4.20 on December
14, 2010, surpassing the previous peak of US$4.08 on July 3, 2008.
"As 2011 unfolds, we expect copper to touch US$5, yielding an
extraordinary 70% profit margin over average world break-even costs
including depreciation," commented Ms. Mohr.
Potash prices (FOB Vancouver) have also rallied from a low of US$342.50
per tonne last Fall to US$370 in November. While potash producers will
likely limit price increases in overseas markets in early 2011 to
accommodate buyers and not derail this year's big rebound in sales, the
current agricultural environment is one of the best ever seen for
potash and fertilizer application. Prices for the three crops using
the most potash per hectare planted - corn in the United States, palm
oil in Malaysia/Indonesia and sugar cane - are all high and should
incent farmers to dramatically step-up fertilizer application in 2011.
The Food and Agriculture Organization of the United Nations continues
to worry about the long-term trend towards higher food prices, expected
to be at record levels by late 2010.
Oil & Gas Index
The Oil & Gas Index surged in November, up 5.6% m/m. WTI oil touched an
intraday high of US$90 per barrel in early December (US$91 for Brent)
and is US$88 mid-month (+18.5% from December 2009). Global oil
consumption has advanced by a robust 2.8% in 2010, surpassing the
previous peak in 2007, with recent cold winter weather in the northern
hemisphere and China burning diesel in backup generators this fall to
offset mandated power cuts (to meet a 20% reduction in power use per
unit of GDP in the 11th Five-Year Plan). Supply/demand conditions have been largely balanced,
with OPEC production at 29.2 million barrels per day slightly below the
'call' for its crude. WTI oil is expected to climb from an average of
US$79 in 2010 to US$93 in the coming year (possibly US$95), boosted by
ongoing strength in China's petroleum demand (+13.7% yr/yr in November
to a new record high), a second round of 'strategic' stock building by
China and delays in developing U.S. Gulf of Mexico 'deepwater' fields
after the Macondo spill.
Forest Products Index
The Forest Products Index rose by 3.1% m/m in November alongside a
contra-seasonal surge in lumber and OSB prices and largely flat pulp &
paper prices. Western Spruce-Pine-Fir 2x4 lumber prices posted a solid
comeback in 2010 (+ 31.3%, rising from no more than average mill cash
costs to profitability in the B.C. Interior), despite ongoing weakness
in U.S. housing starts (a mere 592,000 units YTD; 680,000 forecast for
2011). This reflects a 56% increase in Canadian softwood lumber
exports to China and a 59% increase to Taiwan through September.
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.
SOURCE Scotiabank - Economic Reports
For further information: For further information:
Patricia Mohr, Scotia Economics, 416 866-4210 or email@example.com
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