Scotiabank Commodity Price Index Edges Up in January

    - Buying by China's State Reserve Bureau boosts prices for base metals
      and grains.

    TORONTO, Feb. 24 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, rose by a 1.3 per cent
month-over-month (m/m) in January, after five consecutive monthly declines.
Nevertheless, the All Items Index remains 38.2 per cent below the July 2008
peak and 19.6 per cent below a year ago.
    A big jump in the Agricultural Index, up 9.5 per cent m/m, led the way in
January. Canola prices, the highest value Canadian crop, strengthened
significantly in response to buying by China's State Reserve Bureau, which is
building up reserves of key foodstuffs to support domestic farmers and as a
hedge against the risk of steep, sudden price increases.
    "China's imports of Canadian canola are approaching the substantial
volumes shipped to Japan and could top two million tonnes in 2008-09, up
sharply from 960,000 tonnes in the previous twelve months, welcome news for
Prairie farmers who harvested a record canola crop last autumn," says Patricia
Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank.
    Most base metal prices lifted off their near-term lows in December. As
with grains, China was a big factor in boosting copper and zinc prices, as the
State Reserve Bureau (SRB) bought volumes at bargain prices for its strategic
inventories and in support of China's large smelting & refining industry.
China's overseas investment in mining & energy is heating up to secure
    Raw material demand will also be boosted by China's massive
infrastructure spending program (4.16 trillion RMB spread over
two-and-a-quarter years and equivalent to more than six per cent of nominal
GDP in each of 2009 and 2010) announced on November 9, 2008 to counter the
downturn in exports and private sector investment.
    "While the precise size of the package is difficult to gauge, with only
1.2 trillion RMB coming directly from Beijing and the balance to come from
provincial and local governments, corporations and bank financing, Beijing is
determined to revitalize its economy to counter rising unemployment and has
already expanded its spending initiatives," adds Ms. Mohr. "Measures to
bolster nine key industries have or will be announced ahead of the National
People's Congress on March 5th. The impact of these programs should start to
support industrial activity in the second half of 2009, with China potentially
leading the recovery in world growth."

    Metals & Minerals

    After five consecutive monthly declines, the Metal & Mineral Index rose
in January, as gains in base & precious metals, slightly higher sulphur and
cobalt prices and unchanged potash prices more than offset lower uranium and
molybdenum prices.
    "Nitrogen fertilizer prices are beginning to pick up, after tumbling
since last summer. While the credit crunch will continue to weigh,
particularly on sulphur and ammonia, where industrial demand looms large, the
fertilizer sector is likely to see recovery before many other industries,"
says Mohr.
    Urea prices (FOB Yuzhnyy on the Black Sea - the bellwether for urea) have
climbed back to US$275 per tonne in mid-February from a floor of US$212-215 in
early 2009 alongside a pick-up in Southeast Asian demand (Vietnam, Pakistan,
Sri Lanka). Constrained output in the Ukraine, where prices approached cash
costs of production and hurt by the cutoff of natural gas feedstock supplies
from Russia, contributed to the improvement. Prices were as high as US$830 in
July 2008.
    Spot potash prices remain unchanged in January and February 2009 at a
record US$872.50 per tonne (FOB Vancouver), though new business has come to a
virtual halt, and this price level reflects transactions completed last year.
    "Nevertheless, producers have not dropped prices and are determined to
hold onto the price gains of the past two years, even if this means negligible
sales in the near-term. Producers want to avoid undercutting fertilizer
distributors who paid high spot market prices in 2008," says Ms. Mohr. "The
contract shipments which do occur in the first half of 2009 will take place at
lucrative levels, reflecting recently negotiated contracts with Japan, South
Korea and Malaysia."
    On February 18, 2009, President Obama unveiled a modest program aimed at
bolstering U.S. mortgage availability and forestalling further home
foreclosures. A lessening of U.S. home foreclosures would allow steadier home
prices and encourage stepped-up buying by investors, bringing down the high
inventory overhang, and spurring an eventual recovery in U.S. housing.
    Private-label mortgage securitization, which funded so much of the
mid-decade U.S. building boom, is now virtually absent, with new mortgage
funding heavily reliant on financing via U.S. Government Sponsored
    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,; or Paula Cufre, Scotiabank Public
Affairs, (416) 933-1093,

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