November 22, 2012
TORONTO—After two months of strong gains, the Scotiabank Commodity Price Index edged down in October. Scotiabank says its All Items Index was down 0.2 percent compared with September as risk aversion returned mid-month, alongside another bout of concern over the outlook for global growth.
Scotiabank says the index now is 14 percent below its near-term peak of April 2011, a high-water mark that came just prior to the advent of financial market concern over excessive eurozone government debt. Overall, the index has fallen by 5.2 percent this year.
Among various components of the index, metal and minerals were down 3.4 percent month-over-month as a mixed performance by base metals and sharp declines in premium-grade hard coking coal and uranium more than offset slightly stronger gold prices and a rebound in spot iron ore prices delivered to China.
The Forest Product Index also edged lower in October, down 0.3 percent as oriented strand board (OSB) prices in the US north-central region eased back to “a still very lucrative” US$300 per thousand square feet, after panic buying drove OSB to US$347.50 in September.
“However, OSB has turned higher again in November and lumber prices continue to rally on expectations that stronger US housing starts in 2013 will hit a wall of limited supply, given the substantial mill closures of the past five years,” Scotiabank said.
The Agricultural Index also fell slightly in October, down 0.3 percent as lower canola prices just offset stronger wheat and barley and steadier livestock prices. Meanwhile, oil and gas prices rose across the board in October, with firmer natural gas and propane prices in Edmonton and Sarnia, as well as slight gains in light and heavy crude oil in Alberta, said Patricia Mohr, a vice-president and commodity market specialist at Scotiabank. While still low, natural gas export prices to the US market jumped from US$2.52 per thousand cubic feet in September to an estimated US$2.94 in October, after touching bottom at US$2.06 last April.
“Expectations of a return to normal winter temperatures across the US and Canada—after an abnormally warm winter last year—boosted prices despite record high US gas in storage (3,908 billion cubic feet going into the heating season in November),” Scotiabank said.
International oil prices, as measured by Brent crude, rose as high as US$115 a barrel at mid-month, before losing ground to US$110 in mid-November. Light oil prices in Edmonton also inched ahead to US$93.14 a barrel last month and Western Canadian Select heavy oil to US$79.86, with the discount on WCS relative to West Texas Intermediate crude narrowing seasonally to US$9.71.
“In addition to proposed export pipeline development to the BC coast, the reversal of Enbridge’s Line 9 from Ontario to Montreal will provide another welcome market for Western Canada’s oil, helping to narrow the large current discounts on WCS heavy oil (and even on light crudes) off WTI oil,” Mohr said.