Scotiabank's Commodity Price Index Rebounds in August, With Strength in Base
& Precious Metals

TORONTO, Sept. 29 /CNW/ - After falling back in July, Scotiabank's Commodity Price Index, which measures price trends in 32 of Canada's major exports, rose 3.5 per cent month-over-month (m/m) in August. The Index has climbed 6.7 per cent above the cyclical low in April. While a modest gain, Scotiabank's Commodity Price Index bottomed at a higher-than-normal level compared with previous downturns and began to rally quickly alongside an unusually rapid recovery in industrial metal prices.

"Base metal prices have already returned to profitable 'mid-cycle' levels, a development normally taking several years following the end of a global downturn and a testimony to the resiliency and growing importance of China and 'emerging' Asia, including India, in the world economy," said Patricia Mohr, Vice-President, Economics and Commodity Market Specialist at Scotiabank.

China's imports of copper, zinc and nickel were at record levels through the first half of 2009, in the midst of a deep global recession, which not only reflects 'strategic' stockpiling by China's State Reserve Bureau, but also strength in underlying demand. China's copper consumption climbed by an extraordinary 25 per cent in volume terms in the first half of 2009, excluding inventory building by either government or fabricators, and by an even bigger 48 per cent, if inventory accumulation is included.

Gold prices, which surged to a near-term high of US $1,024 per ounce in intraday trading on September 18, are also being 'monetized' by renewed bouts of U.S. dollar weakness and calls for development of a new reserve currency.

"Interest by institutional investors, hedge funds and sovereign wealth funds in commodities as an asset class has also returned significantly since last spring - driven by the China story and US dollar weakness," said Ms. Mohr. "After falling out of favour in late 2008, passive, long-only commodity index investment has become popular once again, with long-term institutional investors and sovereign wealth funds choosing these products to provide broad-based exposure to global commodity markets; assets under management in commodity index products increased by US$23 billion to US$86 billion in the second quarter of 2009."

Metals & Minerals

The Metal & Minerals Index led the overall gain in Scotiabank's Commodity Price Index in August - surging 8.1 per cent m/m with widespread gains in base & precious metals and steel alloy prices (molybdenum and cobalt) - more than offsetting slight declines in potash, sulphur and uranium prices.

Copper is among Ms. Mohr's top commodity market picks for investors over the next five years. LME copper prices have more than doubled from a low of only US$1.26 per pound on December 24, 2008 to a peak of US$2.94 on August 28, before retreating back to US$2.67 in late September. Copper will continue to outperform other base metals, given under-investment in new capacity during the last cyclical peak in 2007-08.

"After gaining ground in August, gold prices were given an added boost in early September by news that Barrick Gold intends to close out all of its forward gold sales over the next twelve months, by purchasing gold in the open market or delivering physical gold into these hedges," said Ms. Mohr. "Silver prices have recently outperformed gold - jumping over US$17 per ounce-- benefitting from an expected pick-up in 'industrial, electronics' demand as well as silver's role as a precious metal."

Oil & Gas

WTI oil prices jumped from an average of just over US$64 per barrel in July to US$71 in August, climbing as high as US$75 in intraday trading on August 28. However, prices remain volatile and have dropped to US$66-67 in recent days, on disappointment over U.S. economic indictors, suggesting a bumpy recovery. The market has also focused on still high U.S. inventories of crude & refined products rather than the nascent year-over-year (y/y) pick-up in U.S. petroleum consumption, which got underway in August and has carried through into September (+4.4 per cent y/y). However, despite this pick-up, overall U.S. petroleum demand remains 1.2 million barrels per day below the high level of September 2007.

Global petroleum demand has also turned the corner, advancing y/y in August for the first time since July 2008. While China's 'apparent petroleum consumption' eased back in August, China's demand swung into positive territory last spring and has increased by 2.1 per cent y/y in the first eight months of 2009, a challenging comparison given last year's inventory build ahead of the Beijing Olympics.

Forest Products

The Forest Product Index rallied in August (up 2.4 per cent m/m), as a normal late-summer pick-up in U.S. building material prices (lumber & OSB) and stronger NBSK pulp prices offset further weakness in newsprint and supercalendered-A paper. A weak U.S. dollar - especially against the euro - and strong demand in China are lifting international pulp prices, with NBSK pulp delivered to the United States rising from US$700 per tonne in July to US$730 in August and US$770 in September (the highest since November 2008). Several pulp lines are being re-started on Vancouver Island.


The Agricultural Index fell by 7.1 per cent m/m in August, as lower wheat, barley, livestock and fish prices more than countered firmer canola prices. Seasonal harvest pressure pushed down the Canadian Wheat Board's asking export price for No. 1 grade milling wheat from US$291 per tonne in July to US$265 in August and US$256 in mid-September. While well below the US$367 of a year ago, prices are still above the weak levels farmers endured earlier this decade (US$179 from 2000-06).

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.

SOURCE Scotiabank - Economic Reports

For further information: For further information: Patricia Mohr, Scotia Economics, (416) 866-4210,; or Robyn Harper, Public Affairs, (416) 933-1093 or

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