TORONTO, Nov. 24, 2011 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, lost further
ground in October, declining 3.7 per cent month over month (m/m). The
All Items Index has fallen 9.8 per cent from its near-term peak in
April - just prior to the advent of financial market concern over
Eurozone debt challenges. While significant, the commodity price
correction remains mild compared with the 40 per cent plunge in the
second half of 2008.
"Many exchange-traded commodity prices such as copper and zinc have
edged up in November and are above the lows of early October," said
Patricia Mohr, Vice-President, Economics and Commodity Market
Specialist at Scotiabank. "However, intensifying economic and credit
concerns in Europe have contributed to renewed downward pressure on
prices in the past week. As well, the failure of the U.S. Congressional
Committee to agree on the details of a further deficit reduction
package, potentially leading to sequestration - automatic spending
reductions of US$1.2 trillion starting in 2013 over a decade - has
added to uncertainty."
The Metals and Minerals Index led the decline in October (-6.9 per cent
m/m). Broad-based declines in base and precious metals - with an
early-month selloff - and lower quarterly contract prices for Western
Canada's coking coal more than offset a moderate increase in overseas
potash prices. The price of premium-grade hard coking coal for Asian
sales declined from US$315 to US$285 per tonne (FOB Vancouver).
Iron ore spot prices delivered to Northern China may have bottomed,
after plunging in September-October. Chinese steel makers have been
cutting stocks of construction-grade steel. Prices rebounded to
US$148-151 per tonne in mid-November (+20 per cent in the past several
weeks). Potash prices (FOB Vancouver) also inched up to US$502 per
tonne in October (+43 per cent year over year), as Canpotex and BPC
implemented a price increase in Brazil and Southeast Asia. Given
uncertainty over the global economic outlook, producers may hold off on
additional price increases until next year.
The Oil and Gas Index eased by -0.6 per cent m/m, as lower Edmonton par
prices for light crude and a further decline in Canadian natural gas
export prices to the United States just offset firmer heavy crude oil
at Hardisty, Alberta and stronger propane prices. Light oil prices at
Edmonton have rebounded in November to the US$95 mark.
Oil prices remain resilient. The spot price of North Sea Brent Blend - a
world benchmark used to price some West African and Middle Eastern
crudes - has inched up from US$110 per barrel in October to US$111 to
date in November. WTI has jumped from US$86 in October to US$96 this
month - with its discount off Brent narrowing. Prospective rail and
pipeline developments will link new U.S. and Canadian oil plays to U.S.
Gulf Coast refining centres, where international prices (Light
Louisiana Sweet) prevail.
Pipeline and Rail Developments Alter North American Oil Market Dynamics
Spot WTI oil prices traded at only a slight discount to spot Brent (a
world benchmark) in 2009 and much of 2010. However, the discount
started to widen in the Fall of 2010, climbing to a record of almost
US$30 per barrel on September 6, 2011 (also over US$29 in late
September and mid-October). Oil flows from new developments were
arriving at Cushing, Oklahoma, the pricing point for the NYMEX WTI oil
contract, with limited pipeline takeaway capacity to refining centres
on the U.S. Gulf Coast.
However, the discount on WTI has narrowed again to US$9-12 in
mid-November alongside three developments:
Inventories at Cushing have dropped substantially from the April 2011
high (-23 per cent), with oil producers simply avoiding this hub and
selling in other more profitable North American markets;
Rising rail shipments of Bakken light crude oil directly from North
Dakota to St. James, Louisiana, diverting crude from Cushing; and
The November 16 announcement by a Canadian pipeline company that it will
acquire a 50 per cent interest in the Seaway Crude Pipeline System and
— together with a joint owner - will reverse its flow from Cushing to
Houston (the largest refining centre in the United States). WTI oil
prices jumped by US$3 to US$102.50 on the day of the announcement,
though prices have since eased back to US$95.87.
"Despite these positive developments, Western Canada's oil patch will
remain vulnerable to the commercial risks from selling the bulk of its
oil to just one key export market - the United States - a market likely
to post slow growth at best in coming years," noted Ms. Mohr. "This
vulnerability suggests the need to build a transportation system to
connect the Alberta oil sands to one or more export terminals on the
B.C. Coast for onward shipment to the growth markets of Asia - China,
Taiwan, South Korea, Japan, and the Philippines. Timing is important,
as Alberta crude must be placed in Asian markets ahead of other
competing international oil plays."
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; Patty Stathokostas, Scotiabank Media Communications, (416) 866-3625 or firstname.lastname@example.org