Elements of Asia-led super-cycle reappearing for base metals--Scotiabank

Refined copper consumption has grown by 25% in China during the first half of the year and should increase 20% for the year as a whole.

RENO, NV - 

Scotiabank economist Patricia Mohr says base metal prices have strengthened "to quite profitable mid-cycle levels."

In her August edition of the Scotiabank Commodity Price Index, Mohr noted, "Copper and zinc prices have returned to quite lucrative levels, with elements of the Asia-led ‘super-cycle' reappearing."

"Recent months have been notable for broad-based strength in base metals," she wrote. "While prices have eased back, copper remains exceptionally lucrative at $2.86 in late August-yielding a 55% profit margin over average world break-even costs including depreciation for mining companies."

"Copper is expected to outperform in the next five years," Mohr predicted.

"Refined copper consumption is estimated to have grown by 25% in China in 2009:H1 (excluding inventory build) and should climb by 20% for the year as a whole," she said.

While demand will likely decline in the second half of this year due to substantial re-stocking by industrial users in the first half of the year, Mohr predicts, "China's copper consumption should advance by another 7% in 2010 (albeit slower than in 2009, as scrap availability improves)."

"New copper mine development will be limited in 2010, though brownfield expansion at existing mines such as Freeport and Chuquicamata will bolster output by 1 million tonnes, moderating prices," she advised.

Mohr noted that LME nickel prices currently stand at a profitable US$8.85 per pound.

 "Prices have been boosted by a surge in Chinese nickel imports in February and the strikes at Vale Inco's operations in Sudbury in July and at Voisey's Bay in August (normally accounting for 10% of world mine supply). Rockfalls at Perseverance in Australia and at Rustenburg in South Africa have also tightened supplies.  Stainless steel orders at mills across the G7 are beginning to edge up, after three years of destocking by stainless steel service centres, and should pick up further in 2009:Q4."

Meanwhile, Mohr also reported a "significant downward shift in spot potash prices (FOB Vancouver) from US$710 to US$492.50," along with "slightly lower gold and silver prices that more than offset widespread strength in base metals."

"However, with most of the downward adjustment in potash prices over and further strong gains in copper, zinc, nickel and aluminum-the Metal and Minerals Index is likely to snap back in August," she said.

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