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By Simon Avery

China’s financial belt-tightening is hurting the price of commodities, as investors fret that the world’s third-largest economy will reduce its demand for everything from lead to lumber.

Prices of bases metals, such as copper, have fallen in recent days from their near-term highs at the start of the year.

Patricia Mohr, economics and commodity market specialist for the Bank of Nova Scotia (NYSE:BNS), says that prices remain quite high but could find support from rising industrial activity in the United States and re-stocking of raw material supplies across the G7.

She expects prices to be volatile throughout the year, with another pullback possible when the U.S. Federal Reserve begins its own belt-tightening, widely expected to be coming in the second half of the year.

In her latest commodity price index report, released Tuesday, Ms. Mohr has revised her forecasts for base metal prices upwards, with copper expected to average $3 (U.S.) a pound in 2010, up from $2.34 last year. It should average $3.50 a pound in 2011, she added.

Zinc, aluminum and nickel could see increases in excess of 25% over last year’s average price. But uranium will likely decrease slightly, she said.

Her forecast for oil sees prices rise from an average $61.78 a barrel last year to $75.26 in 2010, assisted by the fact that a large inventory overhang in the U.S. is now gone.

Potash likely hit its bottom price last month when Belarusian Potash Co. signed a contract with China at $350 a tonne, she said.

Source: Scotiabank: Expect Commodities to Rise in 2010