Special Report: The Scotiabank Commodity Price Index is re-weighted to
reflect the growing dominance of oil in Canada's net exports.
TORONTO, Feb. 28, 2012 /CNW/ - Scotiabank's Commodity Price Index -
re-designed to reflect 2010 net export weights and rebased to January
2007 equal to 100 - fell by 1.7 per cent month over month (m/m) in
January. However, the All Items Index remained 2.5 per cent above a
year earlier, given the recent strength in oil prices and the huge
dominance of crude oil and refined petroleum products in Canada's net
exports of commodities and resource-based manufactured goods -- now
almost a third of the total.
Nevertheless, the Oil and Gas Index led the All Items Index lower in
January (- 2.9 per cent m/m). Both light, sweet crude oil prices at
Edmonton and Western Canadian Select heavy oil at Hardisty, Alberta
inched down. Crude oil prices in Western Canada dropped sharply in
early February, as an unscheduled outage at a Whiting, Indiana refinery
temporarily cut demand for Canadian crude (now back on stream).
"Space on some pipelines has been apportioned for March shipments,
partly reflecting inadequate export pipeline capacity to the U.S. and
Asia to handle Canada's growing oil production - also leading to
unusually wide discounts for both light, synthetic crude and WCS
relative to WTI," said Patricia Mohr, Vice-President, Economics and
Commodity Market Specialist at Scotiabank. "World oil prices continue
to climb -- with Brent currently at US$126 per barrel and WTI oil at
US$108 -- amid heightened tensions over Iran's nuclear program and the
likely loss of some Iranian crude to world markets. As a result, we
have upwardly revised the average price forecast in 2012 for Brent to
US$125 and for WTI oil to US$110."
The Metal & Mineral Index also fell (-1.8 per cent m/m) in January.
Base metal prices rallied strongly, as investment/hedge funds shifted
from short to long positions, in light of better-than-expected U.S.
economic indicators. Copper prices will average higher in February than
in January - as will zinc, nickel and aluminium -- though copper has
eased back to a still lucrative US$3.83 per pound late-month. Spot
uranium prices remain at a low ebb, averaging US$52 per pound in
January and February. Base prices for term-contracts (prior to
escalation) dropped by US$2 to US$61 in late January. During a recent
trip to China, Prime Minister Harper announced that Canada and China
had successfully completed substantive negotiations towards an
agreement that will allow increased exports of Canadian uranium to
Scotiabank's Commodity Price Index is Re-designed To Reflect Large
Shifts in Canada's Resource-Based Economy
With this edition, the Scotiabank Commodity Price Index has been
re-designed and re-weighted to reflect recent dramatic shifts in
Canada's net exports. As of January 2012, the Index is based on 2010
net export weights -- with data re-estimated back through 2007.
The Scotiabank Commodity Price Index - the first Index designed to track
commodity prices of interest to Canadians and Canada's resource
producers - was first introduced in 1987. Index values were estimated
back to 1972 to show the impact of the 1973 Arab oil embargo. The Index
has only been re-weighted once before in April 1999, with the weight of
each component based on its export value in 1995-97, with the exception
of crude oil and refined petroleum products, uncoated freesheet paper
and linerboard, where net exports were used.
"The shift in the trade weights in the new Index is dramatic, with Oil &
Gas -- including crude oil and refined petroleum products, natural gas
and NGLs -- now accounting for 39.9 per cent of the overall Index, up
from 16.6 per cent previously," stated Ms. Mohr. "In contrast, the
weight of Forest Products -- wood products and pulp, paper and
paperboards -- has declined sharply to 14.7 per cent, from 39.8 per
"Metals & Minerals are holding up well, with the weight rising slightly
to 30.1 per cent from 26.8 per cent, partly due to the inclusion of the
rapidly expanding iron ore trade from Labrador/northern Quebec to China
as well as Europe," added Ms. Mohr. "The weight of the Agricultural
Index is relatively unchanged at 15.3 per cent -- compared with 16.8
per cent previously -- with canola gaining ground and farmers and
agribusiness benefitting from lucrative prices. The large shifts noted
above are relatively recent -- starting in 2006-07, but becoming quite
pronounced in the aftermath of the 2008-09 U.S. recession."
Structural change in Canada's resource industries account for these
Canada has emerged as an oil-dominated economy due to the substantial growth of the oil industries in Western Canada
and Newfoundland, involving not only the Alberta oil sands, but also
greenfield tight oil plays such as the Bakken in southeast
Saskatchewan. With crude oil and refined petroleum products now
accounting for a huge 28.5 per cent of Canada's net exports of
resource-based materials, building adequate pipeline infrastructure to
tap export markets -- particularly the growth markets of Asia - is
vital for the Canadian economy.
Canada remains a great mining country. Significant industry growth in potash, coking coal, gold and nickel -
as well as the inclusion of iron ore -- has boosted the weight of
Metals & Minerals within the Index. China's third-largest steel
producer has equity interests in three mining ventures in the Labrador
Trough - likely spurred by high-quality ore and a desire to diversify
supply sources away from the three large mining companies that
currently dominate over 80 per cent of world seaborne trade.
Prolonged downturn in U.S housing starts takes a toll on Lumber and
Oriented Strandboard. In contrast, the weight of lumber and wood products has dropped to a
mere 4.0 per cent (from double-digits previously). After peaking at
2.27 million units annualized in January 2006, U.S. housing starts
eased back cyclically through 2007 and then plunged during the 2008-09
recession. The recovery to date has been exceptionally slow (699,000
units in January 2012), though U.S. housing starts should rebound by
mid-decade to levels more in line with underlying demographic demand
(1.4-1.5 million units). In the meantime, industry and government
trade promotion to diversify markets for Canadian lumber --
particularly to China - is paying off. Canada emerged as the top
supplier of lumber to China in 2010 and will benefit from China's
massive social housing program in the 12th Five-Year Plan.
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, email@example.com; or
Patty Stathokostas, Scotiabank Media Communications, (416) 866-3625, firstname.lastname@example.org.