Scotiabank Commodity Price Index Climbs to Third Consecutive Monthly High in May



    Global interest in biofuels leads to a rejuvenation of crop prices for
    Prairie farmers, stepped-up international fertilizer application and
    record potash prices for Saskatchewan producers.

    TORONTO, June 27 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, reached another
milestone in May, climbing 0.7 per cent month-over-month to a new record high
(the third month in as many months).
    The Metal and Mineral Index advanced to new heights, 84.1 per cent above
the previous peak in June 1988, alongside record prices for uranium, nickel,
lead and potash.
    "Aside from robust global business investment in metal-intensive
processing plants and booming aircraft orders, metal and mineral prices are
being fuelled by two developments linked to environmental and energy security
concerns in an environment of high oil prices," said Patricia Mohr,
Vice-President, Economics and commodity market specialist at Scotiabank. "The
first concern is the worldwide interest in reducing greenhouse gas emissions,
which will continue to drive expansion plans in nuclear energy and secondly,
tremendous interest in grain and oil seed-based biofuels (biodiesel and
ethanol for gasoline.)"
    Energy security concerns loom large in both the United States and China,
where imports of crude oil and refined products represent almost 60 per cent
and 47.6 per cent respectively of petroleum consumption, triggering mandated
U.S. requirements for renewable fuels including ethanol in gasoline (from 4
billion gallons in 2006 to 7.5 in 2012) accompanied by huge federal and state
government subsidies. Actual U.S. capacity to produce biofuels will greatly
exceed these targets by early 2008 at 11 billion gallons. China also plans to
boost ethanol output from one billion to 1.7 billion gallons by 2010.
    The resulting improvement in grain and oil seed prices is allowing
farmers to boost fertilizer application in Asia, Brazil and North America,
pushing potash prices at the Port of Vancouver to record highs. Saskatchewan's
major potash producer is the world's largest, accounting for 22 per cent of
overall production capacity. Major mine expansion is currently underway in
Saskatchewan.
    "The global supply and demand balance for potash is currently quite
tight, with operating mines running at 91 per cent of capability," said
Ms. Mohr. "World demand for standard potassium chloride is likely to grow by
about 14 per cent in 2007, pushed up by rising fertilizer application to
improve yields in areas such as China, where rice is triple cropped in the
southeast and potash has been under-applied."
    In Malaysia, the primary demand driver for potash is palm oil. Malaysia
is the largest crude palm oil producer in the world and can afford to boost
potash application given today's lucrative palm oil prices, in turn linked to
strong Asian demand for vegetable oils and exports to the European Union for
biodiesel production. Malaysia has approved licences for 75 domestic biodiesel
plants. Fertilizer imports into Brazil have also recently been at record
levels and potash demand is strong, lifted by rising sugar cane production for
ethanol used in domestic motor vehicles as well as higher corn plantings. This
year's massive shift by U.S. farmers away from soybean plantings to corn for
ethanol has likely opened up opportunities for Brazilian soybean farmers.
Worldwide, the three crops using the most potash per hectare planted are sugar
cane, palm oil and corn, all benefitting from surging interest in biofuels.
    The global interest in biodiesel, as well as record soyoil futures prices
on the Chicago Board of Trade, has also contributed to a 45 per cent
year-over-year surge in canola prices for Western Canada's farmers.
    Spot uranium prices advanced from US$113 per pound in late April to
US$125 in late May. Prices were still zooming upwards in early June and at
US$136 mid-month have more than doubled from US$65.50 in mid-December. "While
the market is likely to turn quiet over the seasonally slow summer period, we
expect prices to rise to the US$150 mark by late 2007," said Ms. Mohr.
    London Metal Exchange (LME) nickel prices reached a spectacular record of
US$24.59 per pound on May 16, 2007, though prices have dropped back to a still
very lucrative US$17 in late June. A change in LME trading rules, requiring
major holders of long positions to lend more into the market, has resulted in
slightly higher LME inventories.
    West Texas Intermediate (WTI) oil prices edged down from US$64.15 per
barrel in April to US$63.53 in May, but climbed back to just under US$68 in
late June. OPEC production outages, in the face of upwardly revised global
demand and low gasoline stocks in the United States and Asia have lifted
prices.
    OPEC output fell by 420,000 barrels per day in May due to a 100,000
barrels per day drop in Iraqi production, exported via southern ports.
Northbound pipeline flows from Iraqi Kurdistan to Ceyhan, Turkey are still
erratic, with no tanker loadings since January. In Nigeria, political protests
over a flawed election process and attacks on oil infrastructure by MEND shut
in an additional 245,000 barrels per day of light crude oil (on top of ongoing
shut-downs of 550,000 barrels per day.)

    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.





For further information:

For further information: Patricia Mohr, Scotia Economics, (416)
866-4210, pat_mohr@scotiacapital.com; Paula Cufre, Scotiabank Public Affairs,
(416) 933-1093, paula_cufre@scotiacapital.com


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