Natural Gas prices Fall to a Decade Low, Triggering U.S. 'Dry' Gas
Copper Prices Rally Strongly, as Chinese Imports Surge to Record High
and Hedge Funds Switch to a Net Long Position
Fed's Ultra-Low Interest Rate Policy and Hints of QE3 Boost Gold
TORONTO, Jan. 31, 2012 /CNW/ - Scotiabank's Commodity Price Index declined 1.3 per cent month over
month (m/m) in December, ending 2011 down 0.1 per cent from a year
ago. After strengthening in early 2011, the All Items Index dropped
10.3 per cent from the near-term peak last April, prior to the advent
of financial market concern over excessive debt in weaker euro zone
"However sentiment has improved in early 2012," said Patricia Mohr,
Vice-President, Economics and Commodity Market Specialist at
Scotiabank, "with some investment and hedge funds shifting from short
to long positions in base metals, notwithstanding bouts of concern over
the euro zone.
"U.S. economic indicators have edged up, with stronger U.S. auto sales
and assemblies and orders for manufacturers, lifting prices for
industrial raw materials such as steel and base metal premia in the
U.S. Midwest, the industrial heartland," added Ms. Mohr. "While China
has to date only moderately eased monetary policy, hedge funds are
beginning to anticipate a return to pro-growth policies and are now
more inclined to believe in a 'soft-landing'. The Fed's announcement
that economic conditions will likely warrant keeping the Fed funds rate
at ultra-low levels until at least late 2014 gave a boost to gold and
industrial metal prices in mid-January."
In December, the Metal and Mineral Index fell by 1.6 per cent m/m, but
remained 2.9 per cent above a year ago. However, base metal prices
have rallied strongly in January, with London Metal Exchange (LME)
copper the 'star performer'. Copper prices climbed as high as US$3.91
per pound on January 27, yielding an exceptional profit margin of 65%
over average world breakeven costs. Chinese imports of refined copper
soared to a record in December.
The Oil and Gas Index retreated in December (-3.6 per cent m/m), led by
natural gas. Nymex near-by futures plunged as low as US$2.32 per
Million British Thermal Units (mmbtu) on January 19 - a level not seen
since 2002 - before recovering slightly to US$2.67 later in the month.
The Forest Products Index gained ground in December, rising 0.7 per cent
m/m. Stronger lumber and Oriented Strandboard (OSB) prices more than
offset a further drop in NBSK pulp prices to US$890 per tonne and a
slight decline in SC-A paper prices. Western Spruce-Pine-Fir 2x4 lumber
prices climbed from only US$230 to US$248 per Thousand Board Feet
(mfbm) in December, ending the year at a profitable US$261 - buoyed by
a slight improvement in fourth-quarter U.S. housing starts to 657,000
units annualized, holiday mill curtailments and expectations of a
pick-up in Chinese buying in early 2012, now occurring.
The Agricultural Index also edged ahead in December, rising 0.8 per cent
m/m. Stronger cattle, barley and Atlantic Coast lobster prices (the
highest-valued fish and seafood export from Canada) more than offset a
slight decline in wheat and hog prices. Cattle prices in Ontario (A1A2
steers) climbed to a record high of US$115.53 per cwt - up 20 per cent
yr/yr. While the herd is being expanded again across North America,
after multi-year liquidation, it will take time to rebuild - pointing
to even higher cattle prices ahead.
West Texas Intermediate (WTI) oil prices advanced slightly in December
to US$98.58 per barrel and have averaged US$100.38 to date in January,
a substantial jump from the US$75.67 near-term low on October 4, 2011
during a bout of extreme 'risk aversion' linked to Euro zone
challenges. Spot Brent (a better world benchmark than WTI) remains
elevated at US$111.12 in late January.
A wide 'geopolitical risk premium' has resurfaced in world oil prices in
recent months, largely related to tightening sanctions against Iran to
curb its alleged nuclear weapons ambitions. Iran has reacted by
threatening to either close the Strait of Hormuz or impose its own
embargo on the EU ahead of time.
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:
Patricia Mohr, Scotia Economics, (416) 866-4210, firstname.lastname@example.org; or
Joe Konecny, Scotiabank Media Communications, (416) 933-1795, email@example.com.