Scotiabank Commodity Price Index retreats in June, steadies in July

Scotiabank’s Commodity Price Index (CPI) dropped by a sharp 3.7% month-over-month in June, the seventh consecutive monthly decline.

Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank, said, “A sharp loss of business confidence worldwide – linked to Euro Zone financial strains and slowing world growth – led investors to shift from riskier assets such as commodities and equities into the security and liquidity of U.S. Treasury securities.

“Oil prices – which often trade on global growth expectations rather than industry developments – were particularly dampened by poor confidence.”

Concern over a slowdown in China, with GDP decelerating to 7.6% in the second quarter of 2012 from 8.1% in the first quarter and 9.3% in 2011, also took a toll, particularly on industrial metal prices.

However, the decline in Scotiabank’s CPI in June may represent a near-term bottom, with commodity prices rallying back in July. 

The Agricultural Index edged up by 0.3% month-over-month in June and promises to strengthen further in July.

“Record U.S. soybean prices have pushed up canola at the Port of Vancouver to a record high - $671 per tonne to date in July,” said Mohr.

The Scotiabank Oil and Gas Index retreated sharply in June, down 9% month-over-month.

However, oil prices rallied in mid-July. Western Canada’s output from oil sands production as well as tight oil and conventional light and heavy oil is expected to grow by about one million barrels per day by 2015.

Regarding the proposed Northern Gateway pipeline, Mohr said, “In my view, developing adequate transportation infrastructure in a timely way to tap the fast growing markets of Asia is vital for Canada’s oil patch and the Canadian economy.”

Metals and minerals also dropped by 1.2% month-over-month in June, with broad-based declines in base metals, iron ore, steel additives (cobalt and molybdenum) and uranium, only partly offset by an edging up in gold prices.

However, on a more positive note, Scotiabank said tightness in the global market for premium-grade hard coking coal would boost contract prices for Western Canada in the July-to-September quarter, up 7% from the quarter just ended.

The Forest Products Index was largely flat in June. A significant strengthening in lumber prices is expected in 2013 as a slowly improving U.S. housing market hits a wall of limited North American supply.

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@JHarrisonBIV