1. Commodities Outlook For The Remainder Of 2012: Introduction
  2. Commodities Outlook For The Remainder Of 2012: Different Story In Second Half
  3. Commodities Outlook For The Remainder Of 2012: Energy
  4. Commodities Outlook For The Remainder Of 2012: Natural Gas
  5. Commodities Outlook For The Remainder Of 2012: Coal And Uranium
  6. Commodities Outlook For The Remainder Of 2012: Precious Metals
  7. Commodities Outlook For The Remainder Of 2012: Base Metals
  8. Commodities Outlook For The Remainder Of 2012: Agriculture
  9. Commodities Outlook For The Remainder Of 2012: Conclusion

Coal has had a very difficult year. The Market Vectors Coal ETF closed at $37.31 on February 6, and is now sitting at around $25 per share in September. Coal is used to generate half the electricity in the U.S., and it is also used to make steel. The amount of global steel production that uses coal is 70%. Other industrial uses are making concrete, paper, plastics, fertilizer and more. The decrease in the price of natural gas in the U.S. has placed pressure on coal. The preference of natural gas has to do with it being green in comparison. When coal is used, it gives off sulfur as a byproduct. But more importantly, China's economy has started to slow. China uses more coal than any other country, almost three times as much as the U.S. Coal will continue to have lower pricing, unless some big changes are seen in the world economy. I believe we will continue to see power generation shift to natural gas from coal in the U.S. Estimates have coal use decreasing by 10% over the next year, because of this shift. This will not last forever, as coal is the cheapest and most abundant energy source. Environmental legislation has also decreased coal usage.

The first quarter of 2012 saw a rebound in the price of steel. Over production was followed by a glut in the second quarter as too much was produced. Over the second half of this year, countries will try to draw down these inventories. Because of this China has been forced to sell its steel at big discounts while the price of coal is beginning to rebound. I think lower Btu coal used for electricity generation will have flat pricing through the end of the year. High Btu coal such as the type in Central Appalachia, should appreciate, as the soft landing in China will provide some draw down in steel inventories. Central Appalachia 12500 Btu, 1.2 SO2 had a spot price of $63.10/short ton on August 31. Look for this price to average $64 through the remainder of the year.

Uranium
Uranium is one of the most difficult commodities to understand and predict with respect to pricing. The majority of uranium is sold through contracts, with only a small portion hitting the spot market. Since the pricing of Uranium is volatile these contracts protect both the buyer and seller and help provide stability to pricing. From 2000 to 2008, the price of uranium increased from $20 to almost $140 per pound. This move was based on supply and demand. As of February this year, there were 60 reactors under construction in 13 countries, including Taiwan. Of this, the majority are being built in Asia. Other countries are doing uprates, which is an increase of capacity. This is done in countries that are negative about adding nuclear power plants, for fear of situations like Fukushima. There are 435 nuclear reactors in the world, which produce 14% of the world's electricity. A total of 150 reactors are planned and 330 proposed.

The negative perception of nuclear power will not stop its development. Increased energy demands will someday make it impossible to achieve those needs without nuclear energy as energy consumption will double from 2007 to 2030. Security of supply is also an issue, since the majority of the world's hydrocarbons are in volatile political areas. Nuclear energy can also meet base load demand without increasing the effects of global warming. Although nuclear power plants are expensive to build, the fuel is cheaper than other base load fossil fuels. These variables will support the price of uranium going forward, but means little in the short term. The current uranium spot price in September is $47/lb. and is down from $58 in May. Look for thin trading through year end and an average price of $51/lb.


Commodities Outlook For The Remainder Of 2012: Precious Metals
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