Investors rush to cash and U.S. Treasury securities amid an uncertain
economic outlook in the Euro zone and the United States.
The outlook for potash remains firm.
TORONTO, Sept. 30, 2011 /CNW/ - Scotiabank's Commodity Price Index,
which measures price trends in 32 of Canada's major exports, fell by
3.3 per cent month over month (m/m) in August. The All Items Index
stayed elevated — only moderately below (-5.2 per cent) last April's
near-term peak in commodity prices.
"Financial market concern over Euro-zone debt challenges and the
political gridlock in the United States — threatening to undermine
steps to bolster the economy — intensified in mid-September," said
Patricia Mohr, Vice-President, Economics and Commodity Market
Specialist at Scotiabank. "China's economy — of vital importance to
global commodity markets — also appears to be slowing, leading to some
unwinding of commodity positions by financial institutions."
The report notes that financial market concerns have recently triggered
a flight from riskier assets such as equities and commodities —
dependent upon reasonable world economic growth — to cash and the
liquidity of U.S. Treasury bonds. Expectations that U.S. growth may
remain exceptionally slow, with minimal inflation, has likely increased
the attractiveness of Treasury bonds, despite very low yields. These
developments lifted the U.S. dollar last week, dampening gold and
Gold investors were also disappointed that the Federal Reserve Board, at
its meeting on September 21, did not announce a third round of
Quantitative Easing (QE3), which would have expanded its balance sheet
and overall liquidity, and might ultimately have proven inflationary.
Spot gold dropped as low as US$1,532.72 per ounce on September 26 in
intraday trading — a drop of US$388 from the record US$1,921.15 on
September 9, though prices have since rebounded over US$1,600.
The Metal and Mineral Index edged down in August by -0.4 per cent m/m,
as moderate declines in base metals and uranium more than offset
strength in gold, silver and cobalt. LME copper prices — the bellwether
for base metals — declined from US$4.36 per pound in July to US$4.10 in
August and have lost further ground in September.
"Current copper prices at US$3.16 remain quite profitable for mining
companies, yielding a 54 per cent profit margin over average world
breakeven costs including royalties, depreciation and interest expense,
despite the correction," noted Ms. Mohr. "Recent surveys on the ground
point to soft orders for China's copper fabricators in the fourth
quarter, though global supply and demand conditions are expected to
remain largely balanced, in fact, in a slight deficit of 30,000 tonnes.
Copper prices could well rally back as 2012 unfolds."
Spot potash prices for overseas sales (FOB Vancouver) remain at an
average of US$490 per tonne in August and September — up from US$379
last December and 43 per cent above a year earlier. Prices for the
standard grade will increase by US$25 to US$535 (cfr or delivered) in
Southeast Asia in the fourth quarter, though sales have so far been
spotty, with ample inventories in Malaysia and Indonesia, built up
earlier this year. A price increase of US$30 has also been announced by
BPC for the granular grade in Brazil. Solid fertilizer application
should continue in 2012, with farmers incented by historically high
feed grain and oil seed prices and generally low stocks.
The contract price for Western Canada's premium-grade hard coking coal
in Asia is likely to decline from US$315 per tonne (FOB Vancouver) to a
still very lucrative US$285 in the fourth quarter (JFY2011:Q3). Prices
have been easing back from a record US$330 at the beginning of the
fiscal year, when severe flooding and curtailed shipments from
Queensland, Australia drove up prices. Prices will remain 36 per cent
above a year ago.
WTI oil prices (the bellwether for North America) fell from just over
US$97 per barrel in July to US$86 in August and a low of US$79.85 on
September 23, before rebounding to US$82 on the 29th. The world supply
and demand balance for crude oil tightened in the first half of 2011,
with significant production outages in the Alberta oil sands and in the
North Sea and the loss of Libyan output.
While Saudi Arabia stepped-up its production by about 1 mb/d from April
to June, largely offsetting the disruption in Libya (though not on a
quality basis) the call on OPEC oil continued to rise in the third
quarter, likely averaging 31.3 mb/d — exceeding actual OPEC output of
30.2 mb/d by more than 1 mb/d. OPEC will meet again on December 14 to
consider its output policy for 2012.
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.
SOURCE Scotiabank - Economic Reports
For further information:
Patricia Mohr, Scotia Economics, (416) 866-4210, firstname.lastname@example.org; Patty Stathokostas, Scotiabank Media Communications, (416) 866-3625 or email@example.com