Patricia M. Mohr, Vice President, Economics, & Commodity Market Specialist, Scotiabank Group, said that the value of commodity assets under management soared to US$225 billion during the first quarter of this year, compared with US$175 billion in late 2007.
In a recent presentation on the Commodity Price Supercycle to the Association for Mineral Exploration BC in Vancouver, Mohr noted that the California Public Employees' Retirement System alone will increase its investment in commodities by as much as US$7.2 billion over the next two years.
Mohr said that Scotiabank forecasts a metal price outlook of $3.50/lb for copper this year and $2.75 per pound in 2009. For nickel Scotiabank Group predicts 13.00 per pound this year, declining to $11/lb next year. Gold is forecast to average $935/oz in 2008 and $900/oz in 2009. Silver is forecast at $17/oz in 2008 and ranging from $15-17/oz next year.
Zinc is predicted to be $1 per pound this year and 75-cents per pound in 2009, while moly is forecast to be $34/lb this year, declining to $32.50/lb in 2009, according to Scotiabank, which also predicted that hard coking coal will be $300/tonne this year and $200/tonne next year.
While base metals-which are more sensitive to economic conditions--have been buffeted from time-to-time since August 2007 by concern over a U.S. economic correction, most base metals rallied strong in 2008:Q1, though prices lost ground in late May, she explained. Base metals prices are expected to gradually wind down in 2008:H2 and in 2009, as new mines supplies come on stream. U.S. dollar weakness may also be less of a support for commodity prices going forward. However, base metals prices are expected to remain relatively elevated.
Mohr asserted that LME copper prices have proven to be quite resilient. After falling below US$3.00 in late 2007, copper prices have rebounded and were US$3.68 on May 30. She predicted that global copper consumption will advance by 4% this year, as a 10% gain in China more than offsets G7 demand (-1.5%).
Noting that growing emerging demand is offsetting the slowdown in the U.S. and Europe, Scotiabank forecasts that copper prices should remain elevated at an average of $3.50 in 2008-up from US$3.23 in 2007. While prices will begin to east in 2009 with new mines supplies, only a limited increase in stocks will keep prices well over US$2.00 through decade end.
The impact on zinc suppliers from the Sichuan earthquake is likely to be limited with a loss of 50,000 tonnes of both refined and mine output, plus smelter shutdowns in the adjacent provinces of Gansu and Shaanxi for safety reasons, according to Scotiabank Group.
Surging biofuel global interest as well as tight world supplies of grains and oilseeds are driving potash prices to record levels. Mohr noted that Potash prices at the Port of Vancouver increased 187% yr/yr to US$525 in May. Spot prices are likely to advance to at least US$700 in 2008:H2.
Meanwhile, spot sulphur prices jumped to US$660 per tonne in May, up 1,100% from US$55 a year ago, This represents the biggest yr/yr spike of any commodity in the Scotiabank Commodity Price Index-surpassing the Hunt Brothers' silver squeeze in 1980 and the nickel price run-up in May 2007 (in data back to 1972).
Scotiabank Group forecasts that oil prices are likely to remain exceptionally high through decade end. While OPEC will make substantial progress in bringing on stream new capability in 2008, Mohr said the organization is cautious about boosting output in view of the U.S. slowdown and lost purchasing power from a weak U.S. dollar.
However, prospects for sustained high oil prices should support gold prices, Mohr advised.
Also, the risk that the U.S. economy will deteriorate further this year, should spur further rate cuts by the Fed, renew U.S. dollar weakness, and generate another gold price rally, according to Scotiabank's analysis.
Mohr noted that tight global supplies, rapidly growing steel production in China and emerging Asian nations and strong business investment in basic processing industries account for the strengthening of iron ore prices.
The current tight market in hard coking coal will likely loosen this year and next, as Australian rail and port expansion allow exports to increase. Large steel price increases to cover higher raw material costs (over $300 per tonne in Japan) will also moderate demand, despite the need for huge infrastructure development in many emerging markets. The net result: coking coal prices will likely decline in JFY2009 and 2010, though prices should remain at historically high levels, according to Scotiabank.
Meanwhile, while molybdenum prices have lost ground since the US$37.44 near-peak of June 2005, Mohr advised that prices remain very high-and are likely to remain so until new mine capability is ramped up around 2010.