(June 23 – 14:30 ET) – With significant decreases in the forest products and agricultural indices, Scotiabank’s Commodity Price Index declined by 0.2% in May, the second consecutive monthly fall.

Lower prices for building products reflect the beginning of a fall in U.S. housing starts alongside tighter monetary policy and higher mortgage rates. U.S. housing starts eased to 1.59 million units annualized in May — still solid — but well below the exceptional 1.73 million average of the first quarter.

In contrast, newsprint and pulp prices will continue to climb. Newsprint manufacturers in North America are expected to quickly implement another US$50 increase to US$610 per tonne in September when Fall advertising campaigns begin to heat up. Pulp producers have also announced a US$30 hike for northern bleached softwood kraft in July, taking prices to a lucrative US$710 in the United States and Europe, and US$720 in Japan.

The Agricultural Index also retreated in May as lower cattle, canola and lobster prices more than offset slight gains in wheat, barley and hogs. “The Canadian Wheat Board’s asking export price for No.1 grade wheat edged up to US$149 per tonne in May and June, but is similar to levels a year ago,” said Patricia Mohr, Vice- President and commodities specialist, Scotia Economics. “However, some price improvement is expected in the new crop year. Northern China is experiencing a drought and will boost its imports
modestly in 2000-01.”

The Oil & Gas Index rallied strongly in May. West Texas Intermediate crude oil prices surged to US$28.81 in May and US$32.19 per barrel in mid- June, after temporarily easing to US$25.54 following OPEC’s decision to boost output in April.

“At its June 21st meeting, OPEC decided to lift output by a further 708,000 barrels per day in July in a bid to keep prices below US$30. However, the increase only validated current production levels, which are already close to the new targetted level,” said Mohr.

According to Mohr, only two OPEC countries — Saudi Arabia and Kuwait — have significant excess capacity, with Algeria, Nigeria and Indonesia now bumping up against constraints. Spare capacity in Iran and Venezuela is very limited, though substantial investment in the next several years could potentially alleviate constraints. Control of OPEC is increasingly in the hands of Saudi Arabia, with Kuwait usually following the Saudi lead — a development which points to the continuation of high oil prices and record
cash flow in Canada’s oil patch.
-IE Staff