BASE METALS

Chinese government buying has and will continue to lift base metals prices out of the cellar

China's massive infrastructure program has already boosted copper and zinc prices with more raw material demand anticipated.

RENO, NV - 

Raw material demand for metals and minerals will be boosted by China's massive infrastructure programs with base metal prices already lifting off their near-term lows in December.

In her monthly Scotiabank Commodity Price Index analysis, economist Patricia Mohr noted that "China was a big factor in boosting copper and zinc prices, as the State Reserve Bureau (SRB) bought significant volumes at bargain prices for its ‘strategic ‘ inventories and in support of China's large smelting & refining industry."

Mohr suggested that raw material demand will also benefit from China's massive infrastructure program. "Measures to bolster nine key industries-iron & steel, shipbuilding, petroleum & chemicals, textiles, non-ferrous metals, equipment manufacturing, electronics & information technology-have or will be announced ahead of the National People's Congress on March 5."

"Iron and steel will benefit the most," Mohr asserted. "However, aluminum & copper demand will also be boosted by spending on cross-country & urban electricity transmission and zinc in galvanized steel (used in highway barriers and street lamps...).

Meanwhile Scotiabank's Commodity Price Index rose in January as gains in base and precious metals, slightly higher sulphur and cobalt prices and unchanged potash prices more than offset lower uranium and molybdenum prices.

Mohr noted that LME copper prices have risen from a near-term low of $1.26/lb on December 24 to $1.46 in January and $1.50/lb in February, which, she said, is still profitable for most producers. "China's Strategic Review Bureau may buy as much as 300,000 tonnes of copper in the first half of 2009 via intermediaries from Latin American and European copper suppliers."

Spot potash prices hit a record $872.50 per tonne although new business has come to a virtual halt and the price level reflects transactions completed last year. "Nevertheless, producers have not dropped prices and are determined to hold onto the price gains of the past two years-even if this means negligible sales in the near-term," she said.

Mohr also noted spot uranium prices have drifted down from $53 per pound in late December and now stand at US$45. "Low unfilled utility requirements and tighter credit conditions for traders & funds have reduced discretionary spot buying so far this year. However, long-term base contract prices (prior to escalation) remain at a lucrative US$70," she advised.