Commodity prices climbed 19 per cent to a record last year, though their current strength won't likely continue in 2006, the Bank of Montreal said Friday.
BMO's commodity price index rose 10.7 per cent in December. Unadjusted for inflation, the index shattered the record set in 2004 and ended the year almost a third higher than the December 2004 level.
However, commodity prices, which strengthened in the first few weeks of this year, are expected to be mixed this year.
“The current strong momentum in the overall index is not expected to be sustained through 2006,” the bank said. “Elevated prices should work to slow demand growth and spur increases in production, together easing market tightness.”
He sees average prices for West Texas Intermediate crude at $55.50 (U.S.) a barrel in 2006, slightly below last year and well below their current price of $67.25.
December's prices were boosted by rising prices for natural gas. The oil and gas sub-index rose on average by 40 per cent in 2005, double the rate seen in 2004.
Overall, “the commodity rally that started in mid-2002 remained in full swing in 2005, defying earlier expectations it would slow down,” said Earl Sweet, assistant chief economist of BMO Financial Group. “By far, the main driving force in 2005 was oil and gas, followed by metals and minerals.”
In the year ahead, the bank predicted softer prices among metals and minerals, “although solid demand and limited production growth should keep them at relatively high levels.”
An expected slowing in construction in North America is expected to pressure wood product prices, although pulp and paper prices are likely to fare better.
Agricultural prices are expected to ease next year, although relatively low global inventories of key commodities should provide some support, the bank said.
© The Globe and Mail
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