Dear Santa, send coal

Sometimes it pays to be naughty. That lump of coal in the stocking you were warned about in childhood could be worth more than a sock full of candy, according to Scotiabank’s Commodity Price Index.

In a year-end report, Scotia lists hard coking coal and potash as the top picks for investors in 2008. This variety of coal is used to produce coke, the fuel used in steel fabrication. The price of Western Canadian “premium-grade hard coking coal” is expected to jump in April, from $94 US per tonne to $140, due to high demand in Japan.

For those looking for something a little cleaner to put in their portfolios, commodities in general are expected to remain solid investments, at least through the first six months of 2008.

“Potash prices will almost certainly strengthen further in early 2008,” says Patricia Mohr, vice-president, economics, and commodity market specialist at Scotiabank. “China faces much higher potash prices from Western Canada, at least $125 US to $150 US per tonne, when its annual contract is renegotiated for 2008.”

Oil prices should remain high but are expected to ease back from the $100 a barrel mark, averaging between $88 and $90 US.

“Contrary to expectations, the OPEC-Ten at its December 5, 2007, meeting decided to leave its quota unchanged for the first quarter of 2008, with the call for OPEC crude oil once again likely to exceed actual production,” says Mohr. “OPEC attributes recent record oil prices to speculative activity by investment funds and geopolitical supply risks rather than to inadequate oil supplies.”

Scotia’s commodities index tracks the price trends for 32 of Canada’s major exports. In November, the index jumped 4.5% month over month, with oil and gas leading the way. Crude prices hit an all-time record of $99.29 US on November 21, marking a gain of $22 per barrel since late summer alone.

Metals and minerals as a group made gains, as rising prices for potash, sulphur and precious metals offset softer prices for base metals. Sulphur was actually the top performer this year, rising 313% year over year.

Scotia’s All Items Index has gained 141.4% above the cyclical low in October 2001, making it the second most powerful expansion in the post–World War II era.

“There are risks on the economic front, given the credit squeeze in the United States, linked to sub-prime mortgage losses and credit re-pricing,” Mohr warns.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com