Copper emerges as star performer-Scotiabank Commodity Price Index

Scotiabank economist, Patricia Mohr, suggests the gold bull run is intact with Scotiabank's Commodity Price Index price forecast revised up to an average of $1,750 for 2012.

RENO -

In her latest edition of the Scotiabank Commodity Price Index, economist Patricia Mohr noted base metals rallied strongly in January, with copper as the star performer.

Chinese imports of copper surged to a record high in December helping prompt hedge funds to switch to a net long position in copper, after shorting the market last September, Mohr observed.

"LME copper climbed as high as US$3.91 on January 27-yielding an exceptional profit margin over average world breakeven costs; prices had fallen as low as US$3.08 in early October," she said.

"Last October, Chinese buyers purchased copper opportunistically, taking advantage of low prices and positive arbitrage between the Shanghai Futures Exchange and LME prices; these volumes arrived in China in December," said Mohr. "Much of this metal will be used as collateral for bank financing in China, given tight credit, though we expect a more fundamentally driven pick-up in fabrication demand next spring."

World copper mine supply has increased only 1% annually for the past five years. Mohr forecast that global copper mine expansion will likely be modest again this year at only 5% , keeping the supply and demand balance in deficit, and benefitting Canadian companies with significant copper production (First Quantum, Teck Resources, and Copper Mountain).

GOLD

Meanwhile, Mohr noted gold prices rebounded as high as US$1,739 on January 27 in the wake of the Fed's announcement of an ultra-low interest rate policy.

"Hints at the possibility of a QE3 [another round of monetary loosening policy are also very price supportive for gold," Mohr advised. "The Fed is particularly concerned that it may take some time to reduce today's high unemployment rate of 8.5% to more normal levels."

"In view of recent developments, the ‘Bull Run" in gold appears intact and the price forecast has been revised up to an average of US$1,750 for 2012," she said.