Much of the economic health of Canada is dependent on raw material prices. They certainly determine the level of economic activity in the West and the Atlantic Region. In the eyes of the rest of the world, Canada has become a petro-currency. The value of the Canadian dollar has been moving up or down in keeping with what has been happening with the international price of oil. The world recession has been hard on this nation's commodity producers. But now some glimmers of hope are starting to appear.

The Demand Side

Weaker demand has been one factor cutting into many commodity prices. The effects of recession are wide-ranging and affect many product areas. Weak housing starts and a drop in print advertising have hurt the forestry sector, with repercussions for lumber, pulp and newsprint. Falling non-residential construction and reduced industrial output have caused cutbacks in steel demand and power needs, affecting copper, coal, uranium and natural gas. Transportation sector woes, in the form of poor car sales and reduced airline travel, are having an impact in such areas as aluminum prices and oil and gasoline usage. (story continued below)

Lumber

Pulp

Newsprint

Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.

Data sources: TD Bank Financial Group — Lumber (random lengths framing lumber composite),
Pulp (northern bleached softwood kraft delivered in east U.S.), Newsprint (Pulp and Paper Weekly).
Charts: Reed Construction Data — CanaData.

The Supply Side

Supply factors also play key roles. Lower commodity prices reduce the incentive to undertake capital spending to raise capacity. When conditions do ultimately turn around, the ability to raise output levels will be restricted. Increasing capacity for an individual firm is presently coming down to financing a takeover. This is what cash-rich companies are doing, when they spot the right opportunity (e.g., Suncor's pursuit of Petrocan and Chinese government enterprises going after material suppliers around the world). (story continued below

Copper

Nickel

Aluminum

Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.

Data sources: TD Bank Financial Group — Copper, Nickel and Aluminum
(London Metal Exchange, closing cash price)/Charts: Reed Construction Data — CanaData.

The Charts

The charts below show that, for some commodity prices, the break-neck slides are beginning to ease or have leveled out. In the former category are uranium and coal. In the latter are lumber, nickel, aluminum and wheat. Then there are the commodities where the price has begun to swing back up again, led by copper and oil, since the start of this year.

Precious metal prices, gold more than silver, have stayed high through this recession. Gold has been one of the few assets that investors have had confidence in as a store of wealth. Agricultural prices (especially fertilizers such as potash) have held up because people have to eat, even in the toughest of times. Food prices have consistently been a leader among subsets of the Consumer Price Index. However, hog prices are in for a slide due to the swine flu scare and bans by some countries on pork imports from Canada. (story continued below

Gold

Silver

Uranium

Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.

Data sources: TD Bank Financial Group — Gold (London fixing, cash price),
Silver (Handy & Harman base price), Uranium (U308)/Charts: Reed Construction Data — CanaData.

The Outlook

Stronger Chinese domestic demand, better financial markets, improved optimism with respect to equity valuations and an imminent end to home price declines are factors that will contribute to a gradual pick-up in world economic activity over the remainder of this year. The correlation-effects for commodity prices and Canada's economy will be quite positive.

Coal

Oil

Natural Gas

Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.

Data sources: TD Bank Financial Group — Oil (West Texas Intermediate, domestic spot market),
Natural Gas (Henry Hub, Louisiana), Coal (Australian thermal)/Charts: Reed Construction Data — CanaData.

Wheat

Cattle

Hogs

Commodity prices reflect demand (versus available supply) and help drive expansion plans.
Prices shown are monthly averages.

Data sources: TD Bank Financial Group — Wheat (Canada, St. Lawrence), Hogs (lean hogs futures price, first expiring contract open), Cattle (live cattle futures price, first expiring contract open)/Charts: Reed Construction Data — CanaData.