The worst is over for commodity prices say TD Bank economists.

Commodity prices took another beating in October, following a steep decline in September. The 18-item TD Commodity Price Index fell by 6% in October, following a 7% drop in the prior month and taking the index down to a 31-month low. The weakness was widespread, with all of the commodity sub-groups retreating.

However, prices stabilized in the first half of November, as the TDCI rose by a slim 0.2%. A seasonal advance in natural gas prices and a supply-driven price increase in lumber and pulp more than offset declines in precious metals and agricultural products.

“Base metal prices also perked up in mid-November, but the sharpness of the rally and the lack of any improvement in physical demand suggest that the trend is unsustainable,” says Craig Alexander, senior economist at TD Bank.

Commodity prices are languishing, with the TDCI down almost 30% from its average level in January of this year. Although the weaker Canadian dollar has ameliorated this somewhat, to just a 24% drop.

“While demand for raw materials is still falling, the downside to commodity prices from current levels is limited,” remarks Alexander. “Once a global economic recovery takes hold in mid-2002, improving world demand will set the stage for a broad-based rally in raw material prices.”