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Commodity prices are on the march again

0 675 Market Intelligence

World economic recovery remains fragile. This is mainly evident in established economies. Japan is struggling to escape deflation, the U.S. has ongoing mortgage foreclosures and the Euro Region is having difficulty with Greece’s deficit and debt problems. However, there is no question that emerging nations are doing their part to lift world growth. China’s latest annualized quarterly growth rate was 12% and India is expecting +8% real GDP this year. What’s the most significant offshoot? Commodity prices are on the march again to a degree that many business people are only dimly aware of. This report looks at some of the numbers.

In some respects, world economic recovery remains fragile. This is mainly evident in established economies. For example, Japan is struggling to escape deflation, the U.S. has ongoing mortgage foreclosures and the euro region is having difficulty with Greece’s deficit and debt problems. There is no question that emerging nations are doing their part to lift world growth. China’s latest annualized quarterly growth rate was 12% and India is expecting +8% real GDP this year.

What’s the most significant offshoot? Commodity prices are on the march upward again to a degree that many business people are only dimly aware of. Let’s look at some of the numbers.

In the forestry sector, remarkable percentage increases in prices are being recorded. Housing starts in Canada have been on the rebound, but starts in the U.S. are only gradually improving. Nevertheless, lumber prices are currently +69% versus their low point of March 2009. Lumber prices have recovered 43% of their peak (August 2004) to trough (March 2009) decline.

Pulp prices have moved 3% above their previous peak of August 2008. They are 43% higher than their trough level recorded in May 2009. Sawdust from sawmills is a factor in pulp and newsprint prices and with the decline in lumber production during the recession, supply dried up.

Newsprint prices have been moving higher. They now stand 30% above their low point of September 2009 and have recovered 39% of their peak (December 2008) to trough drop.

Copper prices are 85% of the way back to their previous peak level recorded in April 2008. Since their low point in December 2008, they have risen 157.5%. The strike at Inco-Vale in Sudbury has been one factor limiting supply. Infrastructure capital projects in China have played a major role in elevating demand. Many countries have embarked on stimulatory construction spending.

Nickel prices have been more restrained. They are only 37% of the way back to their previous high. However, since the price did fall so low in the recession, they are +160.4% above their trough level recorded in December 2008, the same month as the low point for copper prices.

Aluminum demand comes from the aerospace industry, motor vehicles, construction and beverage packaging. Some of these are on the upswing in North America, but it is more likely that demand growth is livelier overseas. In any event, aluminum prices are +75.7% higher than in February 2009 and they have made their way nearly 60% back from their trough position.

The number one headline commodity, oil, is now priced more than double (+116.9%) its level of a year ago. It is at about the halfway mark on its return path from trough (February 2009) to previous peak (July 2008). Coal has made almost one-third (29%) of the journey from trough (March 2009) to previous peak and is up 58.6% versus its bottomed-out position.  

Even some livestock agricultural prices have been on the move. Cattle are +19.4% versus December 2009 and hogs – earlier devastated by bad publicity from swine flu and new country-of-origin labeling in the U.S. – are now +56.2% compared with August 2009. Hogs prices have received support from government programs that encouraged culling herd sizes.

While the timeframes are different for almost all of these commodities, it is still informative to consider that the average percentage change for the 10 product categories set out in this analysis, trough to current levels, is +79%. Commodity prices are on the march again. This has obvious implications for overall prices, since commodities are the building blocks of almost everything. Also, it is good news for Canada’s Western provinces, which are somewhat more resource rich, or at least more resource dependent, than the central and eastern parts of the nation.

Five other commodities warrant some commentary. Gold and silver prices remain at or near record highs, wheat and uranium prices are restrained and natural gas is deeply depressed.

World Commodity Prices - Resource Industries
Lumber
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Lumber (random lengths framing lumber composite).
Chart: Reed Construction Data - CanaData.
Pulp
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Pulp (northern bleached softwood kraft delivered in east U.S.).
Chart: Reed Construction Data - CanaData.
Newsprint
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Newsprint (New York).
Chart: Reed Construction Data - CanaData.
Copper
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Copper (London Metal Exchange, closing cash price).
Chart: Reed Construction Data - CanaData.
Nickel
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Nickel (London Metal Exchange, closing cash price).
Chart: Reed Construction Data - CanaData.
Aluminum
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Aluminum (London Metal Exchange, closing cash price).
Chart: Reed Construction Data - CanaData.
Gold
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Gold (London fixing, cash price).
Chart: Reed Construction Data - CanaData.
Silver
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Silver (Handy & Harman base price).
Chart: Reed Construction Data - CanaData.
Uranium
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Uranium (U308).
Chart: Reed Construction Data - CanaData.
Coal
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Coal (Australian thermal).
Chart: Reed Construction Data - CanaData.
Oil
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Oil (West Texas Intermediate, domestic spot market).
Chart: Reed Construction Data - CanaData.
Natural Gas
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Natural Gas (Henry Hub, Louisiana).
Chart: Reed Construction Data - CanaData.
Wheat
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Wheat (Canada, St. Lawrence).
Chart: Reed Construction Data - CanaData.
Cattle
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Cattle (live cattle futures price, first expiring contract open).
Chart: Reed Construction Data - CanaData.
Hogs
Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.
Data source: TD Bank Financial Group.
Hogs (lean hogs futures price, first expiring contract open).
Chart: Reed Construction Data - CanaData.

by Alex Carrick

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