Copper, zinc, nickel prices to be higher in Feb-Scotiabank economist Mohr

As Canadian miners significantly increase iron ore and uranium exports to China, Scotiabank economist Patricia Mohr says China will benefit from higher-quality ore and diversification of supply sources.

Author: Dorothy Kosich
Posted: Wednesday , 29 Feb 2012

RENO (MINEWEB) -

In the latest edition of Scotiabank's Commodity Price Index, economist Patricia Mohr observed, "Significant industry growth in potash, coking coal, gold and nickel - as well as the inclusion of iron ore - has boosted the weight of metals and minerals within the index."

The trade weight of metals and mineral in the index has risen slightly from 26.8% to 30.1%, "partly due to the inclusion of the rapidly expanding iron ore trade from Labrador/northern Quebec to China as well as Europe," Mohr said.

A Canadian miner started to ship iron ore to China last fall from the Port of Sept-Îles in Quebec. The port is planning a major expansion that will allow it to accommodate super-iron ore carriers with a capacity of 300,000 tonnes or more by 2015.

China's Wuhan Iron and Steel has equity interests in three mining ventures in the Labrador Trough - "likely spurred by high quality ore and a desire to diversify supply sources away from the three large mining companies that that currently dominate over 80% of world seaborne trade," said Mohr.

In her analysis, Mohr noted that base metals prices "rallied strongly, as investment/hedge funds shifted from short to long positions, in light of better-than-expected U.S. economic indicators, very accommodative monetary policy in the United States (with the Fed revealing that it may keep the funds rate at rock bottom levels through late 2014) and anticipation of ‘pro-growth' policy in China."

U.S. motor vehicle assemblies are expected to lift from 8.34 million annually to 9.7 million during the first quarter of the year, increasing demand for copper, zinc, aluminum and steel.

Mohr observed that LME copper prices "surged as high as US$3.91 per pound on January 27-yielding an exception profit margin of 53.5% over average world breakeven cost including depreciation."

"Copper prices will average higher in February than in January - as will zinc, nickel and aluminum - though copper has eased back to US$3.83 late-month," she forecast. "Chinese buyers bought copper cathodes heavily last October...contributing to higher stocks. Much of this metal will be used as collateral for bank loans."

"Copper prices will likely be range bound until China's industrial demand picks up seasonally in 2012:Q2," Mohr advised.

Meanwhile, spot uranium prices "remain at a low ebb, averaging US$52 per pound in January and February," said Mohr. However, she noted, Canada and China will soon sign a protocol that will facilitate increased exports of Canadian uranium to China.

"This agreement will help Canadian uranium companies to substantially increase exports to China, the world's fastest growing market for these products," Canadian Prime Minister Stephen Harper said earlier this month.

Chinese domestic uranium production activities have experienced mixed success, prompting China to negotiate long-term supply contracts with other nations. In 2010 China imported 45 million pounds of U3O8, more than triple the amount of the previous year.

Once the protocol is implemented, "Canadian products will be permitted to export uranium concentrates(U3O8), in addition to UF6, Candu fuel bundles and UO2 to export uranium concentrates to China - a long awaited development by Canada's uranium industry (the second largest in the world)," Mohr advised. ‘China will represent a ‘growth' market for uranium in the coming decade."