Commodities roar back
Globe and Mail

Rocket-assisted nickel, uranium and lead prices, with an assist from a recovery in oil and gas, helped drive up the Bank of Nova Scotia commodity price index last month, pushing it to within less than a percentage point of its December record high, following a sharp drop in January.

The index, which tracks 32 commodities, climbed back to 178.1 from 170.8 in the first month of 2007, having ended 2006 at a high of 179.2, the bank said Tuesday, as its metals and minerals sub-index reached a new high.

Spot uranium prices hit $85 (U.S.) a pound in late February, up $10 from late January, and this month added another $10 to hit $95, more than double the previous peak of $43.40 it reached 30 years ago.

Nickel prices, meanwhile, soared to “extraordinary levels,” the bank said. Responding mostly to a combination of limited supply and burgeoning Chinese stainless steel production, the corrosion-resistant metal climbed to $18.68 a pound on the London Metal Exchange in February from $16.60 in January.

It has since hit what the bank called a “spectacular new record high” of $22.84 on March 19, more than double its previous cyclical peak of $10.84 in March 1988.

Colin Steyn, the head of Canada's LionOre Mining International Ltd. said after Anglo-Swiss miner Xstrata Plc launched a friendly $4.6-billion (Canadian) takeover offer for his company Monday that he thinks current nickel prices are unsustainable, a view shared by some other producers and analysts.

Patricia Mohr, a vice-president, economist and commodity market specialist at Scotiabank acknowledged there could be a dip.

“While stainless steel and nickel prices could edge down at some point this year, a ‘super-cycle' is likely for nickel, with prices remaining quite elevated for the next several years,” Ms. Mohr said is a statement.

More power came from the energy sector, where oil and gas prices snapped back in February, courtesy of a return to colder U.S. winter weather, and, at least where oil is concerned, mounting international tensions over Iran's nuclear ambitions and its threat to stop its oil exports, which total about 2.4 million barrels a day, in retaliation for United Nations sanctions.

Ms. Mohr said she doubts Iran will cut off its exports, adding that even if it were to do so, Saudi Arabia has enough surplus capacity to make up the difference.

However, Iran sits on the vital Strait of Hormuz, and shipments of oil through this vital waterway account for 15 million barrels a day or about one-third of globally traded oil, and, Ms. Mohr warned that this points to the “considerable vulnerability of world oil supplies should tensions increase further.”

Scotiabank's agriculture dub-index also climbed in February, as prices for canola, barley, wheat and livestock all rose.

Forest products were the laggard, with both lumber and newsprint prices slipping.