Scotiabank Commodity Price Index Year-end review and outlook for commodity prices in 2008

    - Top picks for investors in 2008 - potash and premium-grade hard coking

    TORONTO, Dec. 20 /CNW/ - Scotiabank's Commodity Price Index, which
measures price trends in 32 of Canada's major exports, jumped by 4.5 per cent
month-over-month in November to a new record high, three per cent above the
previous peak in May 2007. The All Items Index has advanced by 141.4 per cent
above the cyclical low in October 2001, the second most powerful expansion in
the post-World War II era. This year marks the sixth consecutive year of
commodity price strength.
    The Oil & Gas Index led the way in November, jumping another 13.4 per
cent month-over-month. West Texas Intermediate (WTI) crude oil prices, the
bellwether for North America, reached an intraday Nymex trading record of US
$99.29 per barrel on November 21, sending both light and heavy crude oil
skyward in Alberta. In November, the price of WTI was more than US$22 above
late-summer levels.
    While remaining relatively subdued, Canadian natural gas export prices
also moved over the US$7.00 per mcf mark in line with improving Nymex prices,
lifted by record crude oil and a waning in imported Liquid Natural Gas (LNG)
into the U.S.
    "WTI crude oil prices are expected to remain exceptionally high and
volatile in 2008, averaging US$88 - almost US$90," says Patricia Mohr,
Vice-President, Economics and commodity market specialist at Scotiabank.
"Contrary to expectations, the OPEC-Ten at its December 5, 2007 meeting
decided to leave its quota unchanged for the first quarter of 2008, with the
call for OPEC crude oil once again likely to exceed actual production, as was
the case in the fourth quarter of 2007. OPEC attributes recent record oil
prices to speculative activity by investment funds and geopolitical supply
risks rather than to inadequate oil supplies."
    The Metal and Mineral Index also edged up in November. While base metal
prices eased alongside concerns over a slowing U.S. economy and tighter credit
controls in China, potash and sulphur prices both climbed to record highs at
the Port of Vancouver. Precious metal prices were also strong, pushed up by
U.S. dollar weakness and record oil prices. With a year-over-year gain of 313
per cent, sulphur was the best performing commodity within the Scotiabank
Commodity Price Index in late 2007.
    "Potash prices will almost certainly strengthen further in early 2008,"
says Ms. Mohr. "China faces much higher potash prices from Western Canada, at
least US$125-150 per tonne, when its annual contract is renegotiated with
Canpotex for 2008. China's contract price, set in early 2007, is currently
about US$190 less than recent business concluded by IPC, representing Russian
producer Silvinit, in Southeast Asia at US$450 cfr (including the cost of
    The three crops using the most potash per hectare planted are palm oil,
sugar cane and corn - all benefitting from surging global interest in
    Hard coking coal prices will also outperform in early 2008. In annual
contract negotiations with Japanese steel mills, Western Canadian
'premium-grade hard coking coal' is expected to jump from US$94 per tonne (FOB
Vancouver) to US$140 for JFY 2008 beginning in April, surpassing the previous
US$125 peak in JFY2005.
    "The bull-run in commodities should continue through the first half of
2008. There are risks on the economic front, given the credit squeeze in the
United States, linked to sub-prime mortgage losses and credit re-pricing,"
said Mohr.

    A review of commodities in 2007

    This year's continuation of the bull-run in commodities has reflected the
following developments:
    -   Strength in base metal demand and prices through most of this year,
        linked to an acceleration in China's GDP growth to 11.9 per cent in
        2007:Q2, which more than offset slower G7 demand; the rapid expansion
        of China's stainless steel capacity has led to ongoing strength in
        demand for alloying agents such as molybdenum and cobalt as well as
        iron ore and metallurgical coal;
    -   Interest by investment/hedge funds in commodities as a hedge against
        a declining U.S. dollar;
    -   Rejuvenation in global grain/oilseed prices and farm income, linked
        to surging interest in biofuels and tight supplies, spurring
        increased fertilizer application and record prices for potash,
        sulphur, urea and diammonium phosphate (DAP); and
    -   A growing perception of tight world oil supplies, with incremental
        non-OPEC supplies again meeting only half of global demand growth in

    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,; Paula Cufre, Scotiabank Public Affairs,
(416) 933-1093,

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