BMO's top commodity picks for this year are iron ore, metallurgical coal, gold, and what Robert Friedland calls "the thinking man's base metal" -- copper.
Friedland, who addressed a luncheon crowd of 800 at the BMO Capital Markets 19th Annual Global Metals & Mining conference, gave his top three as copper, iron ore and metallurgical coal.
In a conference call from the conference, in Hollywood, Fla., co-heads of research for BMO Capital Markets David Radcliffe and Tony Robson said a shortage of copper assets is already evident.
"Companies are definitely out there looking for some new opportunities," Radcliffe said. "There probably will be some competition for any copper assets that do come up over 2010."
Radcliffe sees robust margins for copper producers this year.
Another trend, Radcliffe said, is copper companies looking to diversify into other metals, such as First Quantum Minerals (FM-T) moving into nickel with the purchase of the Ravensthorpe nickel mine and processing plant in Western Australia.
While copper inventories may appear high, Robson said the market is tighter than it may appear, and that over a 20-25-year period, inventories are actually low.
Proof of that was the jump in the copper price in the aftermath of the earthquake that hit Chile on the weekend.
"Even though it doesn't look like much more than 20,000 or 50,000 tonnes out of the copper market, it was enough to move the copper market 6% overnight," Robson said.
Robson predicted that 2010 would be a more volatile year in terms of commodities prices than 2009.
BMO's top copper majors are Freeport-McMoRan Copper & Gold (FCX-N), Ivanhoe Mines (IVN-T), First Quantum and Equinox Minerals (EQN-T).
Spirits were higher at this year's conference than last, with 2010 also bringing a change in strategy.
"One of the best ways to make money in 2009 was simply to buy financially distressed companies and watch them run as commodity prices recovered," Robson said. "The focus I was getting from a lot of investors at this conference was more of a commodity focus view and more stock picking within those commodities. In other words, the shotgun effect of investing won't work for 2010."
The conference seeks to facilitate meetings of institutional investors with mining companies, hosting about 1,300 delegates this year.
Robson offered three "cautionary points" for 2010, warning of: higher operating costs, driven by energy costs and rising currencies against the greenback; increasing capex costs, even within just the last few months; and potentially higher taxes and royalties.
"Governments of all persuasions need to rebalance their budget deficits, their fiscal deficits, and the reality is, with the exception of just a few commodities, the vast majority can withstand higher taxes and royalties."
Earlier in the week, BMO global commodity strategist Bart Melek said on a conference call that industrial commodities are expected to perform well into 2011, driven by China -- just as last year's rally was. Melek predicted iron ore and metallurgical coal will benefit from the massive infrastructure investment taking place around the world, and growing steel production -- already up 20% year on year.
China's GDP growth, which is expected to swell to more than 10% both this year and next, will be the jet fuel, but GDP growth in the U.S. reached an annualized 5.9% in the final quarter of last year and Melek said BMO expects positive demand from the U.S. for copper for the first time in years. He expects a copper deficit in 2011.
Melek also likes silver and platinum for 2010, as the precious metals are both seen as "quasi-money" and industrial metals. They also benefit from both rising demand and constraints on the supply side.
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