TORONTO, May 23 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in Canada's major exports, rose by a solid 1.7% in April
- its fourth consecutive monthly gain. The All Items Index has now advanced by
11.3% since the bottom in late 2001, though the Index remains 14% below a year
ago.
"In April, a strong snap-back in the Oil and Gas Index and a slight gain
in Metals and Minerals more than offset significant declines in the
Agricultural and Forest Products Indices," says Patricia Mohr, Vice-President
and commodities specialist, Scotia Economics. "Rebounding natural gas prices
led the Oil and Gas Index higher. Gold was also a 'star performer' within
Metals and Minerals in April - boosted by a weakening U.S. dollar."
Included in the Commodity Price Index is a special feature on the 'Oil
and Gas Outlook for 2002-03', which focuses on the prospects for Canada's oil
patch.
"In the next 18 months, Canada's oil and gas sector should continue to
benefit from prices well above the consensus levels of early 2002," says Mohr.
According to the report, West Texas Intermediate crude oil has rallied
this year from a low of only US$17.97 per barrel in mid-January to US$26.26 in
April and a near-term peak of US$29.36 in mid-May. Prices are expected to
average close to US$25 in 2002 and US$25-26 next year.
"Middle East tensions, together with Iraq's 30-day oil embargo from April
8th, and calls by Iran and Libya for a one-month 'symbolic embargo' in support
of the Palestinians have recently reduced supplies and added a significant
'war premium' to crude oil prices," comments Mohr.
As of April 2002, the OPEC-Ten have been 81.4% compliant with the four
rounds of production cuts implemented since January 2001 - cutting 4.07
million barrels per day (b/d) of a pledged 5 million b/d. Going forward, OPEC
will probably remain cautious, keeping quotas for the third quarter unchanged
at its June 26 meeting in view of Russia's decision to end export curbs in
July.
"With a global recovery underway, supply and demand projections indicate
that a moderately higher level of non-OPEC as well as OPEC output can be
accommodated by the fourth quarter," says Mohr. "However, some oil price
moderation over the summer would not be surprising, before a pick-up again in
the fourth quarter."
Natural gas prices have posted a surprising recovery, after a weak start
to 2002, climbing from only US$2.19 per million British thermal units in
January to US$3.41 in April. Prices reached a high of US$3.86 on May 14,
before edging down to US$3.46 yesterday (still lower than US$4.84 a year ago).
This is a welcome development for both Western Canada and Nova Scotia.
Canada's share of the U.S. gas market has increased dramatically from only 13%
in the mid-1990s to 17.5% last year.
According to Mohr, "an analysis of comparative fuel prices for electric
utilities in the U.S. Gulf and New York indicates that natural gas prices have
been pulled up by rising petroleum product prices as well as recovering U.S.
industrial demand, after last year's slide.
"A significant decline in U.S. natural gas production noted in first-
quarter corporate financial statements has raised a red flag over declining
'deliverability' - following a sharp drop in U.S. gas-targetted drilling from
a peak of 1,058 active rigs in July 2001 to a low 612 in April and 696 in mid-
May," says Mohr. "While inventories are currently high, traders are viewing
today's surplus as temporary; Nymex natural gas prices are expected to average
a lucrative US$3.25-3.35 in 2002 and US$3.50-3.75 in 2003 compared with
US$4.18 in 2000-01 and only US$2.25 in the late 1990s."
Rapid well decline rates in the United States as well as in the Western
Canadian Sedimentary Basin have elevated natural gas prices to a higher plane
than in the 1990s.
Also included in this month's Scotiabank Commodity Price Index, the
Forest Product Index retreated in April as lumber and oriented strandboard
prices gave up some of their recent strength and newsprint prices dropped
further, more than countering a price increase for uncoated freesheet paper.
Western Spruce-Pine-Fir 2x4 lumber prices settled back from US$295 per
thousand board feet in March to US$275 in April and are US$272 in mid-May.
"After replenishing their inventories in recent months, U.S. dealers have
stepped back from the market - anticipating a flood of Canadian shipments
across the border during a brief 'duty-free period' from about April 22 to May
21, prior to yesterday's implementation of punitive U.S. countervail and anti-
dumping tariffs totaling 27.2%," says Mohr.
Punitive tariffs on Canadian shipments - normally accounting for one-
third of U.S. supplies - will ultimately guarantee high lumber prices for
American consumers and will boost sawlog prices for the timberlands owned by
major U.S. producers behind the 'Coalition for Fair Imports'.
B.C. interior producers require prices of US$300 per thousand board feet
to cover all costs as well as the 27.2% duties. Roughly 70% of the tariff is
expected to be passed along to U.S. buyers in 2002 and the full tariff in
2003. U.S. duties will cost Canadian lumber producers roughly C$2.6 billion,
given exports valued at C$9.2 billion in 2001.
On a more positive note for Canada's forest products industry, pulp
prices are picking up. Northern bleached softwood kraft prices bottomed in
March and April at US$460 per tonne in the U.S. market and producers were
successful in lifting prices to about US$475 in May.
Scotia Economics 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. |
