PDAC 2015: Scotiabank’s Patricia Mohr predicts only ‘modest’ recovery (Northern Miner – March 17, 2015)

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Zinc is Mohr’s number one pick, and she forecasts prices will move up to US$1.50 per lb. in 2016.
Copper, she says, will remain flat at about US$2.75 per lb. for the next two years, but longer
term should reach US$3.50 per lb. She estimates the nickel price will reach about US$10.55 per lb.
in 2016. “I think nickel will do exceptionally well,” she predicts, “and Sudbury is going to come
back into its own in 2016.” (Patricia Mohr, Scotiabank Vice President Economics)

Commodity prices as of January this year have fallen below the previous recessionary lows of early 2009, and are now at levels not seen since January 2007, Patricia Mohr, vice president economics at Scotiabank, said during a presentation at the recent Prospectors & Developers Association of Canada conference in Toronto.

China’s massive infrastructure spending program helped lift commodity prices in 2009, but the latest dip in prices, Mohr says, is mostly due to “a fight for market share” in a very lackluster global economy. The world is entering its fourth year when global GDP growth has been just a little over 3% per annum, she warns.

“I’m beginning to realize that 3% per annum — while it is enough to turn over the global economy — it’s not high enough to really put any momentum behind global commodity prices and markets,” she says. “And when you get some capacity expansion, for example, such as in copper, and massive expansion in iron ore, and huge expansion in oil production from U.S. shales, all of this is occurring in a very lackluster market around the world, and leading prices lower.”

In the case of iron ore, specifically, while it is true China’s economy has slowed, she says, that is actually “a red herring,” because what is really going on is that the world’s four largest iron ore producers have decided to expand iron ore capability “irrespective of what happens to price.”

She calculates that Rio Tinto can produce iron ore in Western Australia and deliver it to a port in Western Australia for just over US$17 per tonne, and for another US$7 per tonne, the miner can get that iron ore all the way to northern China. Iron ore prices have dropped from US$140 per tonne in early 2014 to today’s US$63 per tonne, she notes, “and probably are not going to lift very quickly as that massive expansion continues in Western Australia and in Brazil.”

The strength of the U.S. dollar against most of the currencies around the world (with a few exceptions), meanwhile, is having a deflationary impact on global commodity prices, she points out. In Russia, for example, producers of iron ore are now discounting dollar prices in Asian markets, which is having a ripple effect in North America.

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