Strong commodity prices powered Teck Resources Ltd. to one of its best fourth quarters in 2009, and the company does not expect them to cool off anytime soon.

Speaking on a conference call Tuesday, chief executive Don Lindsay said Vancouver-based Teck is most excited about the seaborne metallurgical coal market in the short term. And in the medium-to-long term, the company remains bullish on prices for copper and zinc, its other two primary commodities.

The comments come amid concerns metal prices have gotten ahead of themselves because of investment inflows and temporary demand from government stimulus activities. Detractors point out base metals are generally in surplus, and inventories on the London Metals Exchange are up dramatically since last spring. In the case of copper, for example, they are up more than 100%.

Mr. Lindsay warned that another commodity crash (like the one in 2008) is always a possibility, but he does not appear worried. He pointed out that companies are making few discoveries despite pouring billions of dollars into exploration, and that Teck knows from experience how hard it is to increase output from existing mines.

Mr. Lindsay is excited about metallurgical coal because of the stunning increase in Chinese imports, which went from 3.4 million tonnes in 2008 to 34 million in 2009. And there are more Chinese steel plants being built, which will need more coal to fire their blast furnaces.

“If China keeps doing what it’s doing... and the U.S. and Western Europe and the rest of the world recovers, we think that market will be tight for the next two or three years,” he said.

Contract prices for metallurgical coal settled at about US$125 a tonne in 2009, and 2010 prices are certain to be higher. However, they are not expected to approach the record 2008 levels of almost US$300 a tonne. Teck also expects to sell some coal in a shorter price cycle than the traditional 12 months.

When it comes to copper, Mr. Lindsay acknowledged that the market is in surplus. However, he thinks the current high price (about US$3.00 a pound) is justified because there is “not much” the industry can do to keep up with demand, with grades declining at many of the world’s largest mines.

In the case of zinc, he said that it is tracking copper “about a year or two years behind.” The question is how much zinc China can produce when prices go up, he said. When prices soared a few years ago, a glut of new Chinese production came onto the market and drove them down again. Even if that does not happen, he pointed out that zinc production from the giant Antamina mine (which Teck co-owns) is declining as the mine shifts into more copper and less zinc. And the large Brunswick zinc mine in New Brunswick will deplete soon, he noted.

Financial Post

pkoven@nationalpost.com

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