scotiabank strong potash prices 2008

One of the three main fertilizers needed by all the world's crops ... Phosphate and nitrogen the other two.

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Scotiabank predicts strong prices for potash, hard coking coal in 2008
21 Dec 2007


TORONTO - Scotiabank (TSX:BNS) says its commodity price index hit a record high in November - led by oil and gas - and the bank is predicting an especially strong 2008 for potash and top-grade hard coking coal.

"The bull-run in commodities should continue through the first half of 2008," Patricia Mohr, a vice-president and commodity market specialist at Scotiabank, said in a release Thursday.

But she also warned that there are "risks on the economic front, given the credit squeeze in the United States, linked to subprime mortgage losses and credit repricing."

The index, which measures price trends in 32 of Canada's major exports, jumped by 4.5 per cent month-over-month in November, three per cent above the previous peak hit in May 2007.

The all-items index has advanced by 141.4 per cent above the cyclical low in October 2001, the second most powerful expansion since the Second World War and the sixth consecutive year of commodity price strength.

The oil and gas Index led the way in November, jumping 13.4 per cent month-over-month.

West Texas Intermediate (WTI) crude oil prices, the bellwether for North America, reached an intraday Nymex trading record of US$99.29 per barrel on Nov. 21, sending both light and heavy crude oil higher in Alberta.

"Potash prices will almost certainly strengthen further in early 2008," Mohr said. "China faces much higher potash prices from Western Canada, at least US$125-$150 per tonne, when its annual contract is renegotiated with Canpotex for 2008."

China's contract price, set in early 2007, is about US$190 below the current maarket.

The three crops using the most potash per hectare planted are palm oil, sugar cane and corn - all benefiting from surging global interest in biofuels.

Hard coking coal prices will also outperform in early 2008, the bank says.

"In annual contract negotiations with Japanese steel mills, western Canadian premium-grade hard coking coal is expected to jump from US$94 per tonne to $140 for 2008, beginning in April, surpassing the previous $125 peak in 2005."

Canadian natural gas export prices moved above US$7 per thousand cubic feet in November, in line with improving Nymex prices, lifted by record crude oil and a waning in imported liquid natural gas into the United States.

"WTI crude oil prices are expected to remain exceptionally high and volatile in 2008, averaging US$88 - almost $90," Mohr said.

The big bank's metal and mineral Index also edged up in November.

While base metal prices eased, alongside concerns over a slowing U.S. economy and tighter credit controls in China, potash and sulphur prices both climbed to record highs at the port of Vancouver.

With a year-over-year gain of 313 per cent, sulphur was the best-performing commodity within the index in late 2007.