Rebound in Coal, Iron Ore, Potash Prices in 2010-Scotiabank


"The year 2010 will be a transition year to much stronger market conditions in 2011."

Scotiabank economist Patricia Mohr forecast commodity prices should continue higher due to ongoing strength in China's economy, some restocking of basic materials across the G-7, more active investor interest in commodities as an asset class and renewed weakness in the USD.

"While this year's gains in commodity prices have been centered in exchange-traded economies," Mohr advised, "the spring of 2010 should see increases in negotiated prices under annual contracts for coking coal & iron ore and potash prices should start to rebound."

Scotiabank's top pick for 2010 is coking coal with the price expected to climb 32% to US$169 or possibly more in the Japanese fiscal year, beginning in April.

In her analysis, Mohr noted that supplies of "premium-grade hard coking coal" are tightening. Port and rail constraints continue to inhibit Australian shipment, which has likely increased the demand for B.C. and Alberta coal.

Mohr also forecasts that firming iron ore prices should benefit Canadian iron ore miners.

As major potash producers have cut back supplies with sharply lower demand and potash prices are expected to soften in the coming weeks, nevertheless, Mohr sees "positive signs for a significant pick-up in volumes in 1Q10 and especially in 2H10.

China continued to apply potash to fruit and vegetable crops this year, but under-applied potash to grain and oilseed crops, which likely contributed to a 7% decline in this year's corn crop. The soil in China is potassium deficient and increased purchases of pink potash are needed, she advised.

Mohr also noted that Brazilian potash demand is expected to be robust in 2010.

"The net result, potash prices (FOB Vancouver) will likely average about US$375 in 2010 (assuming better prices in the second half of the year)," she forecast. "The year 2010 will be a transition year to much stronger market conditions in 2011."

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