Copper to outperform as Chinese dragon breathes life - Scotiabank

As China's dragon has breathed life back into commodity prices, Scotiabank's Patricia Mohr expects copper imports to decline in the summer and rebound late this year and early 2010.

RENO, NV - 

As imports of refined copper and iron ore achieved records during the first four months of this year, Scotiabank economist Patricia Mohr noted, "China's dragon has breathed life back into commodity prices."

However, she cautioned in an analysis published Monday, China's copper imports will likely fall back in late summer, which is a normal seasonal event.  She noted prices edged down to US$2.31 late this month.

Nevertheless, Mohr predicts, "China's copper imports will rebound again in late 2009 and early 2010-driving prices forward."

Mohr forecasts Chinese production of copper products will likely expand by 10% next year although more will be met by scrap rather than primary metal. "This development, combined with the gradual return of shutdown mines, will check copper prices from time-to-time in 2010. However, a pick-up in U.S. motor vehicle production in the second half of 2009 and improving global economic conditions should underpin prices."

"The copper price forecast has been revised up to US$1.90 for 2009 and US$2.30 for 2010, with tight market conditions expected medium-term," Mohr advised. "Copper will likely outperform other base metals."

POTASH

In her analysis, Mohr noted that potash markets now await news on contract settlement with India where potash demand is still strong. "Buyers are awaiting news on annual contract negotiations between BPC (Belarusian Potash Company) & then Canpotex (representing Western Canada's three producers) and India-likely to settle before China, where contract negotiations are expected to be protracted."

"Potash demand is strong in India and inventories relatively low at an estimated 05.-0.6 million tonnes," she said.  "In today's environment, a roll-over of India's 2008 contract price of US$625 cfr (about US$600 netted back to the Port of Vancouver) would be considered a positive result for potash producers."

Mohr forecasts that while potash prices are likely to decline over the summer, "we expect a big rebound in prices in 2010, given this year's marked deferral in world fertilizer application." 

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