Scotiabank Commodity Price Index edges up
Fri 21 Sept 2001 News Release
Ms. Patricia Mohr reports
After two months of sharp decline, Bank of Nova Scotia's Commodity Price
Index, which measures price trends in Canada's major exports, inched up by
0.3 per cent in August. Currently, the All Items Index is 5.6 per cent
below a year earlier.
"The Forest Products Index rose substantially as the lumber market priced
in a hefty 19.31 per cent preliminary duty on Canadian softwood lumber
shipments to the United States -- a duty which will reduce the availability
of some Canadian products in the U.S. market," says Patricia Mohr,
vice-president and commodities specialist, Scotia Economics. "The Oil and
Gas Index also rebounded slightly in August as stronger crude oil and
propane prices more than offset further softness in natural gas. Gains in
the oil and gas, and forest products indices, just countered substantially
weaker base metals and seasonally softer agricultural prices."
Impact of the United States tragedy on commodity markets
Oil prices will remain fairly firm, though concern over a deepening global
slowdown has removed the risk premium initially added to prices. At the
Sept. 26 meeting, OPEC will likely maintain its current output quota, but
has already indicated a willingness to lift supplies should its reference
price surge over $30 (U.S.).
The OPEC-Ten (excluding Iraq) currently has spare production capability of
5.2 million barrels per day -- greater than the 4.1 million barrels per day
at the time of the 1990-1991 Gulf War, when prices briefly surged to $40.42
(U.S.).
In meeting the objectives of President Bush's energy plan, security of
supply concerns will increase the attractiveness of energy investment in
Canada.
The impact on other industrial commodity prices will be largely
deflationary in the near term, as deteriorating consumer confidence and
transportation delays slow global growth further. Prior to the events in
New York, zinc prices had already retreated to the lowest level since June,
1986, among the most challenging U.S. market conditions for galvanized
steel in the past 20 years. This partly reflects this year's decline in
North American motor vehicle output, with producers scheduling another drop
in the fourth quarter. Significant global zinc mine and smelter capacity
expansion in 2001-2002 has added to market weakness.
Zinc is the weakest of the major base metals. Current LME prices of 35 U.S.
cents per pound are below cash costs for 25 per cent to 30 per cent of
world zinc mines. Market conditions for zinc will remain soft for the next
six to nine months. A rebound is expected in the second half of next year.
Nymex natural gas prices have weakened further following the events in New
York. Prices have dropped from $3.17 (U.S.) per million British thermal
units in July to $2.93 (U.S.) in August and were only $2.14 (U.S.) on Sept.
20 -- pushed down by weak U.S. manufacturing activity, expectations of
adequate supplies of home heating oil this winter and seasonally lackluster
residential demand in the fall shoulder period.
While lumber prices strengthened in August, prices are beginning to retreat
with concern that faltering U.S. consumer confidence will take a toll on
residential construction, despite aggressive monetary policy easing by the
Fed and very affordable mortgage rates.
Gold prices have increased moderately since the tragedy in the United
States. On Sept. 17, the London PM Fix reached an 18-month high of $293.25
(U.S.) per ounce -- up from $271.50 (U.S.) on Sept. 10. Currently gold is
trading around $291 (U.S.).
"Jittery equity markets and some shift out of U.S. dollar assets by
international investors have softened the U.S. dollar against the euro and
yen, boosting gold prices," says Ms. Mohr. "Retail investor interest in
gold has picked up in the United States -- a development not seen for some
time -- though physical demand in the Middle East has waned in response to
higher prices."
In other developments, "International pulp prices have bottomed," says Ms.
Mohr. Northern bleached softwood kraft prices have steadied in September,
after plunging from a peak of $710 (U.S.) per tonne late last year to $470
(U.S.) in the United States and $450 (U.S.) in Europe in August. Prices for
northern bleached hardwood kraft pulp have increased slightly in Europe in
September -- a positive development for Canadian producers. Norscan
manufacturers have taken substantial mill downtime in recent months in view
of low prices and European buyers stepped up their purchases in August.
Scotia Economics, part of the Scotiabank Group, provides clients with
in-depth research into the factors shaping the outlook for Canada and the
global economy, including macroeconomic developments, currency and capital
market trends, commodity and industry performance, as well as monetary,
fiscal and public policy issues. |
