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Copper could re-test previous record high - Scotiabank

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With Barrick's bid for Equinox Minerals, Scotiabank economist Patricia Mohr suggested Tuesday LME copper prices "could well re-test previous record highs as 2011 unfolds."

In the Scotiabank Commodity Price Index report for April, Mohr advised China's copper demands will likely strengthen seasonally again in the second quarter of this year as reconstruction in Japan will eventually lift copper demand.

"However, we acknowledge that commodity prices are now at mid-cycle, with further gains likely to be more limited," she cautioned.

In her analysis, Mohr suggested, "Copper could still retest the previous US$4.60 record of February 14."

"Chinese copper fabricators destocked copper and produced 2.1% fewer copper semis in January and February due to credit restrictions and high prices," she said. "However a big seasonal pick-up in consumption in the second quarter will lift prices."

"End-use demand in air conditioners, electronic goods, high-speed railway equipment and autos remains strong," Mohr noted.

Meanwhile, Mohr's research has found spot potash prices continue to advance, rising to US$409 per pound in March. "Prices are expected to increase another US$50 by May, with BPC already concluding sales to Brazil at higher prices, given strong demand in that market."

The Fukushima-Daiichi nuclear power plant crisis in Japan caused spot uranium prices to drop $11 to US$55.50 per pound in late April, according to Scotiabank. "Spot transactions have slowed as buyers and sellers reassess the market outlook."

"While uranium prices will likely remain soft until the Fukushima-Daiichi plant is fully stabilized, prices should start to pick up again by late 2011," Mohr forecast. "The biggest impact of this crisis will likely be the faster adoption of new reactor technology (such as passive self-regulating reactors, not requiring cooling)."

"The four major growth markets for nuclear power-China, India, Russia and South Korea-are expected to go ahead with previously planned nuclear energy expansion (totaling 106.2 GWe [Gigawatt-Electric] or 28% of current world capability of 377.8 GWe)," Mohr noted. "While there could be some delay, an official in China has indicated there may be an announcement in the late summer."

Nevertheless, she warned, "Germany's recently announced decision to phase out nuclear power (now 23% of electricity supplies) will likely prove costly and undermine industrial competitiveness, as the country shifts to much higher-cost, less reliable base-load electricity sources and becomes more dependent upon imported energy (pipeline natural gas from Russia and nuclear from France)."

"We maintain our spot price forecast of US$70-75 by 2013," Mohr advised.

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