Copper to outperform a base metals sector already back at "mid-cycle" levels

After declining in July, Scotiabank's Commodity Price Index rose 3.5% in August, spurred on by strength in base and precious metals.

RENO, NV - 

Driven by institutional investors, hedge funds and sovereign wealth funds, commodities as an asset class has significantly rebounded since last spring-driven by Chinese imports and U.S. dollar weakness.

Scotiabank Group economist Patricia Mohr Tuesday said, ‘"Base metals prices have already returned to profitable ‘mid-cycle' levels - a development normally taking several years following the end of a global downturn and a testimony to the resilience and growing importance of China and ‘emerging' Asia (including India) in the world economy," she said.

In her Scotiabank Commodity Price Index analysis for September, Mohr noted that China's imports of copper, zinc and nickel were at record levels, reflecting not only Chinese government stockpiling but also strength in underlying demand.

Mohr predicted, "Copper will continue to outperform other base metals, given under-investment in new capacity during the last cyclical peak in 2007-08."

She advised that new copper mine development "will be needed by 2012, otherwise global mine supply will fall short of world consumption. The copper price forecast has been revised up to UD$2.30 for 2009 and to US$2.90 for 2010."

Mohr forecast China's copper consumption will increase by 20% this year (excluding inventory build), helping to limit the global decline to negative 2.8%. "Copper is among our top commodity market ‘picks' for investors over the next five years," she added.

Meanwhile Mohr found molybdenum prices posted the largest percentage price increase in August, rallying 37% to US$17.41 in August. Widespread gains in base and precious metals and steel alloy prices-more than offset slight declines in potash, sulphur and uranium prices in August.

Potash prices are steadying now, she said.  In the meantime, silver prices have outperformed gold, "benefitting from an expected pick-up in ‘industrial electronics' demand as well as silver's role as a ‘precious' metal."

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