Canada becoming world class iron ore region, copper to rally H2 - Scotiabank's Mohr

China's push to diversify its supplies away from the big three iron ore miners is propelling development that will transform Canada's Nunavut/Labrador Trough into a world-class iron ore region.

Author: Dorothy Kosich
Posted: Monday , 30 Apr 2012

RENO (MINEWEB) -

A "world class region iron region" is developing in the Nunavut/Labrador Trough that will eventually move Canada "into 8th position on the world's iron ore stage," Scotiabank economist Patricia Mohr observed in her most recent Scotiabank Commodity Price Index report.

"New mine development in the Nunavut/Labrador Trough continues to gather pace-propelled in part by China's interest in diversifying its supply sources away from the three large mining companies (Vale, Rio Tinto and BHP) who currently dominate seaborne supply (in Australia and Brazil)," she noted.

"The premium quality for Mary's River iron ore on Baffin Island in Nunavut Territory also points to its development (66% Fe) for shipment to Northern Europe (by ice-class bulk carriers to Rotterdam)."

"By 2021, Canada's iron ore production is expected to grow 72Mt from 41Mt in 2011 (76%)," Mohr said. "Canada will move into 8th position on the world iron ore stage."

In her analysis, Mohr said LME copper prices have "eased back" because China's GDP growth in the first quarter was slightly slower than expected, although fixed asset investment in the manufacturing sector remained robust.

"Given China's interest in lower rather than higher commodity prices, Chinese traders & speculators have also been ‘shorting' the market, attempting to reduce the LME ‘backwardation' (spot prices higher than futures)-in the face of a tightly held position by a Western trading company," she said.

While China restocked inventories in late 2011 and early 2012, Mohr still expects copper prices to rally in the second half of the year "as these stocks are worked down and industrial activity revs up. M&A activity could heat up in the copper sector, given the recent drop in equity valuations."

Meanwhile, Mohr observed spot potash prices adjusted down to an average of US$480 per tonne at the end of April with softer prices in Southeast Asia at US$510-520 cfr rather than the quoted levels of US$535. "However, the price of granular potash sold in Brazil will soon be going up from US$520 to US$550 cfr given the strength of Brazilian soybean plantings in 2012:Q2 and Q3."

"While contract prices between China and Canpotex were rolled over at an unchanged US$470 per tonne cfr for 2012:Q2, shipment volumes from Western Canada to China will be heavy," she forecast. "Overall, international market conditions point to steadying prices and rising volumes in the coming months."