Uranium, zinc seen as top performers for 2007
ANGELA BARNES
Globe and Mail Update
Uranium, which has posted the third-best gain among Canadian commodities this year, will likely take the top spot on the performance chart in 2007, according to commodities expert Patricia Mohr, vice-president of Scotia Economics.
She expects spot uranium prices will average $80 (U.S.) a pound through 2007 but end the year at close to $90. That is up from an average $48.10 this year and a low of only $7.10 in late 2000. Ms. Mohr explained that the rise in uranium reflects a secular change in global energy markets, brought on in part by the shift by utilities from high-priced fossil fuels to nuclear power, rather than a cyclical upswing.
“Nuclear power generation emits virtually no greenhouse gases ”” another factor attracting interest in countries such as China,” she said in the latest monthly report on the Bank of Nova Scotia's commodity price index.
Zinc is Ms. Mohr's other top pick for 2007. Inventories of zinc on the London Metal Exchange have plunged by 78 per cent since late 2005, which has pushed prices of the metal to a record $2.10 a pound on Nov. 24. “Zinc is likely to move even higher in the first half of 2007 before significant mine expansion begins to trim prices in late 2007 and in 2008,” she said.
She sees the metals and minerals retaining their leadership position among commodities, but also anticipates that precious metals, especially silver, will benefit from further weakness in the U.S. dollar.
Furthermore, “potash fertilizer should yield good gains for investors,” she added. “Wheat, barley and canola should also perform quite well relative to past experience, linked to new demand for ethanol additives in gasoline and biodiesel,” she said.
Nickel was the best performer among the 32 commodities included in the commodity price index in 2006, climbing 159 per cent over the year. LME nickel prices surged to a record $16.08 a pound a week ago, buoyed by news that BHP Billiton Ltd.'s Ravensthorpe project in Australia will not come on stream until 2008 and that Inco Ltd./Companhia Vale do Rio Doce's Goro mine in New Caledonia will be delayed until late 2008. That raised concerns about supply in a time of robust global demand.
Ms. Mohr expects a “supercycle” in nickel, with prices remaining strong through 2008.
Ms. Mohr sees crude oil prices declining only modestly in 2007 from current levels. She expects the West Texas intermediate crude price will average $60 a barrel next year, which compares with an average of $66 this year and $56.56 in 2005.
The Scotia commodity price index rebounded in November, jumping 7.7 per cent from October, after declining 4.2 per cent in October and 3.3 per cent in September. That left the index, which measures price trends in Canada's major commodity exports, up 4.3 per cent from a year earlier and near its May record.
The oil and gas index increased in November as Canadian natural gas export prices recovered sharply from an oversold position relative to residual fuel oil.
Crude prices also edged higher. So far in December, they have averaged more than $62, up from the $59.40 in November and $59.14 in October.
The metal and mineral index soared to a record last month, the second record in as many months. Meanwhile, the forest products index inched higher and the agricultural products advanced in the face of surging canola prices.