Scotiabank's Commodity Price Index Leaps in October



    
    -   Longer-term oil supply 'limits' - alluded to by major oil companies -
        unnerve markets, sending oil prices to record highs.

    -   Strong global fertilizer demand pushes up potash and sulphur prices.
    

    TORONTO, Nov. 28 /CNW/ -  Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, jumped by 4.4 per cent
month-over-month in October, to a level only 1.4 per cent below May's record
high. This year has turned out to be a favourable one for resource producers,
with overall commodity prices up 17.1 per cent year-over-year in October and
10.6 per cent in the year-to-date.
    The Oil and Gas Index led the advance in October, surging 10.7 per cent
month-over-month. West Texas Intermediate (WTI) oil prices have vaulted from
US$79.63 per barrel in September to US$85.66 in October and have climbed to
more than US$95 so far in November, up US$23 since August. A perception of
growing supply tightness has driven prices to record highs.
    "While 'peak oil' theories are unduly alarmist, the CEOs of a number of
major oil companies have recently cast doubt on the ability of world supplies
to keep pace with demand growth over the longer-term, limited by engineering
staff and capital cost escalation", says Patricia Mohr, Vice-President,
Economics and commodity market specialist at Scotiabank.
    "We are again revising up our WTI oil price forecast for 2008 to an
average of US$86 (US$85-90) compared with US$72.50 in 2007. Prices are
expected to remain high for two reasons: Firstly, non-OPEC supply developments
in 2008 appear to be shaping up in a similar fashion to 2006 and 2007. While
new field development could boost non-OPEC supplies by 1.1 million barrels per
day, centred in the Alberta oil sands, Russia & the Caspian Sea area and
Brazil, technical and political challenges could once again cut this output.
Secondly, while US$90-plus oil has slowed U.S. petroleum consumption,
consumers and industrial users in a large part of 'emerging Asia' and the
Middle East are being shielded from the full weight of record prices through
government subsidies."
    The Metal and Mineral Index surged in October. Potash and sulphur prices
at the Port of Vancouver led the way, with sulphur, a by-product of Western
Canada's oil and gas production, leaping 45 per cent month-over-month,
reflecting strong international demand for phosphate fertilizers and tight
sulphur supplies.
    Spot potash prices climbed from US$237.50 per tonne in September to a new
record high of US$252.50 in October, an increase of 44 per cent
year-over-year. Malaysia and Indonesia accepted another US$30 price hike and
China's potash imports have soared by 88 per cent through August, with
stepped-up fertilizer application to improve crop yields. Surging global
interest in biofuels is adding to price strength.
    A huge gap has opened up between prices paid for potash in
Brazil/Southeast Asia (Malaysia, Indonesia and Vietnam) and lower contract
prices negotiated with China in early 2007, pointing to a large hike for China
in early 2008 of US$80 to US$100 after only US$25 this year. Prices from
Western Canada to the United States are also increasing sharply.
    The Agricultural Index continued to advance in October, as strength in
grains and oilseeds offset weaker hog and cattle prices. Barley prices at
Lethbridge, Alberta were at record highs in both Canadian and U.S. dollars,
with feed barley recently above malting barley, boosted in part by rising
demand for meat in 'emerging' markets. However, high feedgrain costs are
squeezing margins for hog and cattle producers across Canada, adding to
challenges from currency appreciation.
    "In October, the Canadian Wheat Board's asking export price for wheat was
at a record in U.S. dollars, though currency appreciation has moderated
Canadian dollar receipts for farmers," says Ms. Mohr. "International wheat
prices retreated in late October and early November due to aggressive Russian
exports ahead of a November 12th 10 per cent export tax and with the beginning
of the harvest season in Argentina. However, a frost in the southern growing
areas of Argentina has halted the decline and U.S. grain exchange prices have
bounced back."
    Western Spruce-Pine-Fir 2x4 lumber prices retreated to US$218 per
thousand board feet in October, below average mill cash costs in the B.C.
Interior and the 15 per cent export tax to the United States. In view of mill
curtailments and with prices unlikely to move any lower, U.S. dealers have
stepped up their orders and prices are beginning to rebound, currently at
US $245. Prices should move over cash costs in the first half of 2008, though
a sustained recovery awaits stronger U.S housing starts in 2009.

    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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