Scotiabank’s Commodity Price Index, which measures price trends in Canada’s major exports, rose by 1.3% in May. ThatÕs 4% above a year earlier. In May, the Forest Products Index jumped alongside surging U.S. prices for lumber and oriented strandboard, propelled by aggressive U.S. monetary policy easing, strong U.S. housing starts and big market share gains for OSB vis-a-vis plywood. A moderate gain in the Metal & Mineral Index also helped to offset declines in the Oil & Gas and Agricultural Indices. Oil and natural gas inventories have returned to normal levels in the United States.

“The U.S. economic slowdown to date has had a more limited impact on prices for a number of resource-based products such as fine paper, linerboard and newsprint than in previous slowdowns,” says Patricia Mohr, vice-president and commodities specialist, Scotia Economics. “This reflects considerable industry rationalization across North America as well as more disciplined inventory management, limiting price declines. However, economic growth across the G7 is decelerating and further price slippage over the summer months would not be surprising.”

“U.S. housing starts remained a strong 1.622 million units annualized in May, with more affordable mortgage rates boosting demand for ‘starter’ homes,” says Mohr. “However, U.S. dealers and retailers have replenished lumber stocks from very low levels earlier this year and prices have receded to a still profitable US$293 in late June.”

The Metal & Mineral Index rose in May as firmer prices for nickel, copper, aluminium, gold and uranium more than countered weaker prices for lead, zinc and cobalt. While gold remains at a slightly higher level than several months ago, base metal prices have drifted lower again in June.

“Industrial activity has recently lost considerable momentum in Germany and Italy, has been stagnating for the past six months in the United Kingdom and France and is down sharply in Japan in the second quarter,” says Mohr. “Significant interest rate declines are needed by the European Central Bank to head off a further deceleration on the Continent. Europe is beginning to be impacted by weakening growth in Asia, in turn linked to the U.S. slowdown.”

On July 3rd, OPEC will meet again to re-assess oil market conditions in view of Iraq’s decision to curtail exports, protesting proposed changes to United Nations sanctions governing ‘oil-for-food’ sales. “The ‘smart sanctions’ advocated by the United States and the United Kingdom would ease import restrictions on non-military golds into Iraq, but limit oil sales to designated trading companies to prevent Iraq from charging a surcharge outside the sanctions,” says Mohr. “However, with oil inventories building around the world, it appears unlikely that OPEC will agree to offset reduced Iraqi exports in early July. The net result, West Texas Intermediate is likely to remain in the mid-US$20’s range in coming months.”