Coal: The upside of the

Please forgive the annual joke, but if Santa leaves a lump of coal in your stocking, you could do a lot worse. High quality hard coking coal will be one of the best performing commodities in 2010, according to Scotiabank.

Looking ahead to 2010, the annual contract price for hard coking coal sold to Asia’s steelmakers is expected to climb from today’s US$128 per tonne to at least US$169, a gain of 32%. Oil and fertilizer inputs — potash and nitrogen — are also expected to be among the leaders.

“While this year’s gains in commodity prices have been centered in exchange-traded commodities, the spring of 2010 should see increases in negotiated prices under annual contracts for coking coal and iron ore and potash prices should start to rebound,” says Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank.

The final commodity price report for 2009 shows that the all-items list of 32 commodities tracked by the bank rose 17.3% from its cyclical low in April.

On a full-year basis, lead has posted the strongest price gains, appreciating in value by 146%, while copper has gained 126%.

“It appears increasingly unlikely that copper prices will pull back sharply in early 2009,” says Mohr. “China’s high stocks are likely ‘willingly’ held and hedge funds favour copper, given a stellar medium-term supply/demand outlook.”

On a month-over-month basis, the overall Scotiabank Commodity Price Index rose 5.3%. The oil and gas subindex gained 10.4%, while the forestry sector posted a gain of 5.6%.

“The rally in commodity prices in 2009 has been extraordinary – faster than normal and from a higher base,” said Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank.

Much of the price expansion was driven by the return of strong growth in Asia. China now accounts for 38.8% of world consumption of the four key base metals compared with the United States’ 10.3%.

China’s economy is expected to grow by 9.5% in 2010, while industrialized nations will rebuild inventories of industrial inputs. Meanwhile hedge funds are expected to move back into the commodities markets as speculative players.

(12/21/09)