Canadian commodity prices rally in May - led by lumber, nickel and gold, say TD Economists
TORONTO, June 6 /CNW/ - Commodity prices posted a strong increase in May,
with the TD Commodity Price Index (TDCI) in U.S. dollar terms rising by 1.7
per cent, building on April's 1.6 per cent increase. "Although the gains were
broadly based, the bulk of the increase was concentrated in lumber, nickel and
gold," says Craig Alexander, Senior Economist at TD Bank Financial Group.
Canadian commodity producers likely profited from the increase in prices, but
the benefits will have been limited by the 1.0 per cent appreciation in the
Canadian dollar during May, which reduced the size of the increase in the
TDCI, expressed in domestic currency terms, to a more moderate 0.7 per cent.
"While the advance in May was robust, the details of the price changes
suggest that commodities may have difficulty building on their gains in the
coming months," notes Alexander. "The rise in lumber, nickel and gold has
already proved unsustainable, with prices for all three having pulled back
well below last month's peak. Furthermore, global demand for raw materials
remains weak, reflecting the ongoing world economic slowdown."
Major commodity price developments
- Lumber prices raced ahead in May, with western spruce-pine-fir
surging from US$276 per thousand board feet at the end of April
to US$376 by May 25 -- but the rally has since run out of steam,
with the price dropping to US$362 in early June.
- Gold spiked higher last month, reaching US$288 on May 21 before
falling to below US$270 at the end of the month. Unlike past
dramatic price movements, there was no clearly identifiable factor
behind the rally. "Suggestions that rising U.S. inflation increased
investment demand for gold are of dubious validity. Instead, the
sharp rise in gold lease rates during the month hints that the main
reason for the price increase was a tightening in the availability
of gold in the market," says Alexander.
- The prices of base metals rebounded in May, following three months
of successive declines. A sharp increase in nickel and modest gains
in aluminum and copper more than offset a further retreat in zinc
and lead. "Speculation about lower nickel and aluminum supply in the
coming months offset the downward pressure on prices from softening
world industrial production," remarks Alexander.
- Crude oil prices remained firm in May, with West Texas Intermediate
oil averaging US$28.60 per barrel. Crude oil was supported by tight
U.S. inventories of gasoline, especially the clean-burning
reformulated grade. However, gasoline inventories are now above
year-earlier levels, and are unlikely to provide additional support
to crude in the coming months. Iraq's decision to suspend oil
exports in early June will place upward pressure on prices in the
near-term, but OPEC is not expected to increase production unless
there is a substantial price spike.
- Natural gas prices retreated sharply in May, with near-month futures
at the New York Mercantile Exchange falling by 18 per cent. Natural
gas prices have now dropped by more than 50 per cent from the peak
average reached in December 2000. "The pace of natural gas inventory
accumulation is on track to avoid a supply crunch similar to the one
experienced last winter, but prices will remain at historically high
levels, leaving consumers with little to cheer about," says Alexander.
- Wheat prices rose 3.2 per cent in May, following three months of
successive declines. Prices were bolstered by expectations of a poor
winter crop in the United States, where harvesting is about to begin,
and dry conditions in the Canadian Prairies. Although rain in Western
Canada in early June led grains to give up some of their gains,
moisture reserves remain extremely low, with Alberta experiencing
its driest spring in 130 years, implying that prices may rebound
unless considerable precipitation occurs in the coming days. |
