RE: ST in the FPost
Feb 05
POTASH
When Potash Corp. of Saskatchewan CEO Bill Doyledelivered the company's fourth-quarter earnings last month, the mainpiece of data analysts anxiously awaited was the company's outlook ofpotash prices in 2011. While spot prices have risen as high as US$550in North America during the past five months, internationally, they'vebeen closer to US$400. Mr. Doyle gave investors a bright outlookhowever, predicting they would hit at least US$500 a tonne delivered bythe end of the year.
David Whetham, fund manager for ScotiaAsset Management, said despite some of the concerns prices might beovervalued, he eyes the fertilizer-component as a potential performerthis year.
"The potash market looks strong, because a couple ofyears ago when the potash market went to $1,000 a tonne, the farmersjust basically stopped buying it," he said. "And I think you have asituation where eventually, farmers have to catch up."
Soilsimply depletes after it is farmed for a period of time, andfertilizers are needed to restore nutrients used by plants. Also, manyregions in China and India have mineral deficient soils, and those twocountries have helped push potash prices up. He expects them tocontinue to be active buyers this year.
How to play it:Fertilizer companies tend to benefit when potash prices rise (except inthe case where they rise to the point to stifle demand, as was thecase a couple of years ago). The industry's top stalwarts are PotashCorp. (POT/TSX) and Mosaic Co. (MOS/NYSE). Nelson Mah, an analyst withNorthern Securities, also cites junior fertilizer companies IC PotashCorp. (ICP/TSX-V), Stonegate Agricom Ltd. (ST/TSX) and Western PotashCorp. (WPX/TSX-V) as possible alternatives.
COPPER
Coppersoared to a record of $10,000 a tonne earlier this week, and aprojected deficit in the supply this year could help that climb evenfurther.
"Last year, copper was in a deficit, although the marketdidn't realize it was in a genuine deficit until late in the year, andthen prices started to move up," said Patricia Mohr, vice-president ofeconomics and commodities specialist at Bank of Nova Scotia.
Arecent Reuters survey showed analysts expect a copper market deficit of444,000 tonnes in 2011. Ms. Mohr said that as long as demand issufficient from China -- which she expects it will be -- then copperprices have room to move up this year.
There is another aspect tocopper's potential growth this year. A few financial firms arepreparing to launch copper exchange traded funds this year, includinginvestment bank JP Morgan, which filed its prospectus for a fund inOctober.
"There is a new layer of investment demand for copper,at a time when the physical market is already tight," Ms. Mohr said."That could be another factor in price moves."
How to play it:Global X Copper Miners ETF (COPX/NYSE) is an exchange traded fund thattracks copper miners around the world. As well, investors should lookout for a copper exchange traded fund from JP Morgan, which is expectedto launch sometime this year.
CORN
As is the case for anyof the so-called soft commodities, corn will be a hard one to providean annual outlook for. The crop, which is harvested twice year -- firstin the southern hemisphere, and then later on in the year in thenorthern hemisphere-- can be impacted by drought, floods andgeopolitical instability. Sometimes it hits the first year's harvest,sometimes it only hits the northern harvest -- and other times it hitsboth.
John Kruse, managing director of agricultural services forIHS Global Insight, said that corn however has more immediate pricepressures than other grains and agricultural commodities, which couldlead to a near-term price increase.
"Corn is likely the mostsusceptible to a big move at the moment, because until everyone knowswhat the situation is in Argentina with respect to their crop size --they just had some unusually hot weather -- corn prices can move up ormove down very sharply," he said.
Already, the Buenos AiresCereals Exchange warned that Argentine corn farmers will likely harvestless this year due to water shortages. The eventual harvest will be akey driver for corn prices once the final tally comes in, given thatArgentina is the world's second-largest corn exporter.
However, given agriculture's unpredictable nature, prices and demand could change in the latter half of 2011.
How to play it: The Teucrium Corn Fund ETV (CORN/NYSE), which was launched last June, is one option.
PLATINUM
Asthe automobile industry revs up for its key spring car buying season,platinum is likely to come along for the ride. The Thackray's 2011Investor's Guide points out the metal is likely to perform well for thefirst five months of this year, and could continue to do well if theglobal auto recovery continues to take off.
That's becauseplatinum is a key component in automotive catalytic converters, and itsprice rises and falls in line with vehicular demand (catalyticconverters eat up nearly 40% of the global platinum supply).
Areport from Carlos Gomes, senior economist at Bank of Nova Scotia, said2011 could see record global auto sales, after vehicle sales increasedmore than 11% in 2010. That same year saw platinum prices jump 20% --which could be repeated in 2011 if global auto sales meet forecasts.
Howto play it: London-based ETF Securities launched ETFS PhysicalPlatinum Shares (PPLT/NYSE) in January, the first exchange-traded fundphysically backed by platinum.
URANIUM
January was a hotmonth for nuclear fuel uranium, which saw spot prices surge 17% toUS$73 a pound. And there is definitely room for it to go up, analystssay.
According to the World Nuclear Association, 60 nuclearreactors are currently being built around the world, and another 150 ormore are planned to come online during the next 10 years. Uraniummeanwhile, is still well off its record high of US$137 in 2007, givingit plenty of room to go up.
"There is a big deficit betweenworld mine production in uranium and the demand that comes fromcommercial nuclear reactors from around the world," Ms. Mohr of Bank ofNova Scotia said.
A further wrench in the uranium supply storywill drive prices even higher in the coming years. A 20-year agreementbetween Russia and the United States to convert highly-enriched uraniumfrom nuclear warheads into reactor fuel will come to an end in 2013,and Ms. Mohr does not expect it to be renewed. Right now, that uraniumaccounts for roughly half the global supply for commercial reactors.
"Marketsare already beginning to price in the fact that that supply will notbe available soon, and I expect them to continue to do that the closerwe get to 2013," she said.
How to play it: If you want exposureto uranium miners, your best bet is the Global X Uranium ETF (URA/NYSE) from Global Funds. Another option is Uranium Participation Corp.(U/TSX), an investment fund backed by physical uranium. Givenrestrictions behind holding physical uranium, this might not be anoption for all investors.
jshmuel@nationalpost.com