Oil and gas prices will continue to slide next year while forest products and metals and minerals will trend higher as the global economic recovery takes hold, Bank of Montreal forecast Wednesday in its monthly commodity price index.
The bank's commodity index — which gauges prices of the 19 commodities central to Canadian exports – was unchanged in October, edging up a slim 0.6 per cent to 131.6 from 130.8 in September. It is 14.5 per cent higher from year-earlier levels.
“Looking forward, we anticipate that the expected slippage in oil and gas prices will offset gains in the non energy commodities, leaving the BMO Financial Group Commodity Price Index essentially flat in 2004,” said Earl Sweet, assistant chief economist.
Forest products and metals and minerals prices will strengthen next year “as world economic recovery continues to raise the demand for those commodities,” Mr. Sweet said.
An economic rebound in the United States and around the world, coupled with an upswing in base metal prices, boosted the price of metals and minerals to their highest level in almost four years, according to BMO. In October, that subindex rose 3.7 per cent to 119.6.
Nickel was the biggest mover among the group, with the price of the metal rising more than 10 per cent in October on strong demand from Asian stainless steel producers, a lack of scrap metal and limited supply production growth. BMO said those same factors are expected to keep prices high through 2004.
Forest products was the only subindex that fell last month, sliding 4.2 per cent from a month ago to 104.9. However, that is still 20.3 per cent higher than year-earlier levels and BMO economists expect prices will rise through next year as faster economic growth bolsters demand for pulp and paper. A peak in housing construction and overcapacity will hurt wood prices.
“Whereas most of the price gains in the year-to-date rally have come from the wood products side of the sector, most advances in 2004 are likely to come from pulp and paper as world economic growth boosts print advertising and paper consumption in general,” said Mr. Sweet.
Oil and gas prices have tumbled in recent months from highs hit in February, 2003, shortly before the start of the U.S.-led war in Iraq.
Looking ahead, BMO said oil and gas will be on different paths, with oil prices set to fall from current high levels on increased supply from the former Soviet Union and recovering production in Iraq. Meanwhile, a lack of supply will ensure that the price of natural gas remains high.
In October, the energy subindex rose 2.7 per cent to 197.9. It is 13.4 per cent higher than it was a year ago.
The price for crude oil is still nearly 5 per cent higher than a year ago and that of natural gas is still more than 50 per cent higher than its five-year average, BMO said.
The agriculture subindex soared 7.7 per cent to 99.1 in October on higher wheat and canola prices.
“Since drought-fuelled gains in 2002 pushed the agricultural index to six- year highs, we have seen the index steadily lose steam for most of the year. This trend is about to be reversed as demand will outstrip supply in 2004 and put upward pressure on prices,” said Mr. Sweet.
© The Globe and Mail
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