Scotiabank's Commodity Price Index - Year-End Review and 2013 Outlook

  • 2013 Top Picks for investors - Lumber and OSB  
  • Platinum metals outperform in 2012 - palladium stages a late-year rally
  • Restocking of raw materials will lift commodity prices in 2013

TORONTO, Dec. 20, 2012 /CNW/ - After a strong late-summer rally, Scotiabank's Commodity Price Index inched down in October and dropped by 2.3% month-over-month (m/m) in November, as commodity prices contended with opposing forces in late 2012.

"We are experiencing another bout of concern over the outlook for global growth and the potential fallout from the U.S. fiscal cliff in early 2013, dampening oil and grain prices," said Patricia Mohr, Vice President, Economics and Commodity Market Specialist at Scotiabank. "That's only partially offset by news that China's economy is revving up again, lifting base metal prices, especially copper."

As a result, adds Ms. Mohr, commodity prices have dropped 8.4% year-over-year (yr/yr) through November and are currently 16% below the near-term peak in April 2011, just prior to the advent of concern over excessive Eurozone sovereign debt and the negative impact on global growth.

The Oil and Gas Sub Index (-14.4%) led the yr/yr decline in overall commodity prices through November 2012.  Lower light and heavy crude oil prices in Alberta and considerably softer propane prices in Edmonton and Sarnia more than swamped a slight gain in Canadian natural gas export prices (linked to a significant late-year rally to an estimated US$3.69 per thousand cubic feet of natural gas in November).

While international oil prices remained strong in 2012, a price discount on Edmonton light crude oil emerged and the discount on Western Canadian Select heavy oil (WCS) widened - largely the result of inadequate export pipeline capacity. "The cost to the Canadian economy of these wide oil price discounts is enormous," said Ms. Mohr. "On heavy oil alone that's about US$9 billion in 2012 from the WCS discount off WTI oil, taking into account a normal quality differential, plus another US$17.7 billion due to the WTI discount off world prices, as measured by Brent." Rail shipments are increasing, given virtual full utilization of export pipelines.

The Metal and Mineral Index also lost ground in 2012, down 13.1% yr/yr as of November.  Most base metal prices held up well, with copper ending 2012 on a strong note at US$3.60 per pound (45% profit margin), up from US$3.43 in late 2011. Lead was the 5th best-performing of the 32 commodities in the Scotiabank Commodity Price Index.  However, double-digit declines in coking coal, iron ore and steel alloying metals alongside stagnant world steel production and a mid-summer inventory correction in China's steel industry more than offset the relative strength in some base metals.

On a more positive note, the Forest Products Sub-Index posted a substantial recovery in 2012 (+12.9% yr/yr through November).  After a challenging environment since 2008 - linked to a prolonged and sharp downturn in U.S. housing - oriented strand board (OSB) and lumber producers enjoyed a substantial recovery in earnings in 2012.  A modest recovery in U.S. housing starts is hitting a wall of tighter supply, given substantial mill closures since 2006 (the equivalent of 140 sawmills across the U.S. and Canada).

Agriculture was another pocket of strength in 2012 (+5.2% yr/yr in November).  Canola (an oilseed) posted the 3rd largest price increase within the Scotiabank Commodity Price Index in 2012, followed by barley (a feed grain).

Top 'Picks' for Investors in 2013

In 2013, commodity prices will receive a lift from raw material re-stocking, after liquidation or deferred orders in 2012.  This is already the case in China, where a pick-up in orders from steel producers, after a sharp inventory correction last summer, has boosted spot iron ore and coking coal prices.

Lumber and OSB are our top investor picks - expected to post a multiple-year recovery through mid-decade.  Western Spruce-Pine-Fir 2x4 lumber prices have climbed from an average of only US$255 per thousand board-feet (mfbm) in 2011 to US$298 in 2012 and should reach US$340 in 2013 and US$375 in 2014. (Lumber prices peaked at US$454 in August 2004, as U.S. housing starts approached record highs in early 2005.)

Turning to uranium - a deeply discounted commodity - spot prices may have bottomed at US$40.75 per pound in early November, rallying to US$44.75 in mid-December.  Long-term contract prices remain at US$60 prior to escalation at time of delivery.

Palladium may also be set for a rebound alongside strengthening demand in China for auto catalysts for small-engine gasoline cars, supply uncertainties in South Africa and the possible depletion of the Russian government stockpile.

Scotiabank 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.

Scotiabank is one of North America's premier financial institutions and Canada's most international bank. With more than 81,000 employees, Scotiabank and its affiliates serve some 19 million customers in more than 55 countries around the world. Scotiabank offers a broad range of products and services including personal, commercial, corporate and investment banking. In December 2012, Scotiabank became the first Canadian bank to be named Global Bank of the Year and Bank of the Year in the Americas by The Banker magazine, a Financial Times publication. With assets of $668 billion (as at October 31, 2012), Scotiabank trades on the Toronto (BNS) and New York Exchanges (BNS). For more information please visit

For high-resolution video clips visit For more Scotiabank economic publications visit,,3112,00.html.

SOURCE: Scotiabank - Economic Reports

For further information:

Patricia Mohr, Scotiabank Economics, (416) 866-4210,; or
Joe Konecny, Scotiabank Media Communications, (416) 933-1795,


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