GUEST COMMENT: Scotiabank tracks lowest commodity prices in decade

TORONTO – Scotiabank's Commodity Price Index plunged by 10.5% month-over-month (m/m) in August 2015, ending at 91.3, which puts it 13.9% below the April 2009 bottom during the last recession and the lowest level since early 2005.

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TORONTO – Scotiabank's Commodity Price Index plunged by 10.5% month-over-month (m/m) in August 2015, ending at 91.3, which puts it 13.9% below the April 2009 bottom during the last recession and the lowest level since early 2005.

"While many commodity prices including key base metals remain well above the 2008-09 recessionary lows, current commodity market weakness is broader based," said Patricia Mohr, VP of economics and commodity market specialist at Scotiabank. "The financial market turbulence in China touched off fears of a hard landing in August and opened up questions over the medium term outlook for China as a growth market for raw materials – especially for oil and metals.

"Our view is that monetary and fiscal policy stimulus will allow China's economy to grow by 6.8% in 2015 (close to Beijing's 7% target), though growth will slow to 6.4% in 2016. Medium term, China's potential to significantly lift world raw material demand will remain intact, even as it transitions to a consumer and service led economy.

"In September, the [U.S.] Fed's decision to delay its first interest rate hike and a renewed decline in U.S. oil targeted drilling activity, after a massive short covering rally on the NYMEX late last month, has lifted West Texas Intermediate (WTI) oil back to US$45," Moir concluded.

The metal and mineral index lost ground in August, declining 1.6% m/m or 19.3% year-over-year (yr/yr). China dominates world demand for the four key base metals – copper, zinc, nickel and aluminium – accounting for an estimated 48.6% of world demand in 2015 compared with only 9.0% from the United States. While zinc prices have been pressured by fund selling, prices are still expected to show considerable strength over the medium term.

Read the full Scotiabank Commodity Price Index online at gbm.Scotiabank.com/English/bns_econ/bnscomod.pdf

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