Potash, aluminum, copper continue to have promise-Scotiabank

Physical supply/demand conditions in many markets remain tight-especially in copper, iron ore, grains & oilseeds and fertilizers, principally potash, says Scotiabank economic Patricia Mohr.

Posted: Thursday , 25 Aug 2011

RENO, NV -

Scotiabank Group's Patricia Mohr Wednesday predicted potash prices will tighten next year "with onward growth in world consumption in the face of only limited new mine & mill capacity expansion."

In the August edition of Scotiabank's Commodity Price Index, Mohr also predicted copper demand will likely slow in the third quarter, although "prospects for another leg up in copper prices in late 2011 remain intact."

Spot potash prices for overall sales in Southeast Asia and Brazil/Latin America are up 43% yr/yr, Mohr noted. ‘BPC and Canpotex are expected to announce a further increase of $30-$40 for the standard grade for Southeast Asia for four-quarter shipments, while prices in Brazil-a powerhouse in agricultural production-will likely rise by US$30-50 for the granular grade."

Both Canopex and BPC "are virtually sold out for 2011:Q3 and India has little stock on hand," she observed, adding that potash shipments will be available for India's Rabi [crops sown in the winter] season, which runs from October to March. Mohr suggested talks between Canpotex and Indian Potash limited-India's largest potash buyer--are probably underway.

Nonetheless, Mohr forecasts, "Supply/demand conditions should tighten further in 2012, with onward growth in world consumption in the face of only limited new mine & mill capacity expansion. Canada's largest producer will lead global mine expansion in the period through 2015, with 6.6 million tonnes of brownfield capability coming onstream."

"While the 1 mt expansion at Saskatchewan's Allan mine is scheduled to start up in 2012, it will take time to ramp up," Mohr cautioned.

In her analysis Mohr observed that Chinese fabricators have taken advantage of lower copper prices this month, stepping up purchases on the LME. However, "world supply/demand conditions for copper remain in deficit," she said.

"LME copper prices-the bellwether underpinning other base metals prices-remain exceptionally lucrative for mining companies at US$40.2 per pound on August 23, yield profit margins over average world costs of 66%," Mohr advised. "Copper remains in a supply deficit, that is world refined consumption exceeds supplies-a development expected to last through much of 2012."

China stepped up refined copper imports in both June and July and further increased buying in early August, taking advantage of lower prices on the LME than on the Shanghai Futures Exchange. Meanwhile, "Strikes at mines in Chile (Codelco including El Teniente & Minera Escondida) and at Freeport Indonesia had a significant impact on supplies in July," she said.

Mohr considers aluminum a growth sector with global consumption expected to increase 9.7% in 2011 and 8.5% in 2012, "centered in China with gains of 17% and 12%, respectively. Under the 12th Five-Year Plan, China will start 8 million affordable housing units this year and 32 million over the next five years-propelling demand for aluminum alloys in curtain walls."

"Construction of electricity transmission on the State Grid alone will consume 1.6 mt of aluminum this year," she observed.