(February 20 – 11:20 ET) – After surging in December, the Scotiabank Commodity Price Index rose by 1.5% in January to a level 16.3% above a year earlier.

“Another monthly jump in the Oil and Gas Index and firmer agricultural prices more than offset a slight decline in the Metal and Mineral Index and weaker forest products prices,” says Patricia Mohr, vice president and commodities specialist, Scotia Economics. “After slipping in December, light and heavy crude oil prices rebounded in January, and liquid propane prices soared.”

According to the Index, which measures price trends in Canada’s major exports, a number of products that have lagged the overall gain in commodity prices in recent years — including wheat, uranium and U.S. steam coal — are starting to recover. Wheat prices bottomed last summer and are expected to move moderately higher in 2001. The global stocks-to-use ratio should drop to the lowest level on record at only 18.3% by mid-year, though relatively high U.S. stocks may limit the perception of market tightness.

The Metal and Mineral Index eased in January as lower copper, zinc, nickel, gold and sulphur prices more than countered stronger aluminium, lead and uranium. “Most base metal prices slipped further in mid-February – hurt by the 20% year-over-year plunge in 2001 first-quarter U.S. motor vehicle output and a global inventory correction in nickel-containing stainless steel,” says Mohr. “However, the decline has been limited by low stocks and recent industry consolidation.”

After 20 consecutive monthly declines, U.S. spot uranium prices edged up from a low of US$7.10 per pound in early January to US$7.50 by February. “Low- cost secondary supplies have been cleared from the market,” says Mohr. “The recent announcement that a British conversion facility will be closed in 2006, a delay in the start-up of Saskatchewan’s Cigar Lake mine until 2005 and the possible contamination of some U.S. inventories are also underpinning prices.”

The turnaround in U.S. spot uranium prices should help lift some long- term contract prices for the two mining companies operating in Canada. Canada is the world’s largest uranium producer and accounts for 25% of primary mine supply.

After slipping to an average of US$28.40 per barrel in December and US$25 to US$26 late in the month, West Texas Intermediate crude oil prices rebounded to US$29.26 in January. Prices have been bolstered by OPEC’s decision to reduce output by 1.5 million barrels per day in February and lower Iraqi exports in the past two months.

“OPEC is determined to keep the OPEC basket price within a US$22-28 target range and may consider further cuts at its March 17th meeting in view of slowing global growth and only a slight increase in 2001 projected world demand,” comments Mohr.
-IE Staff