Commodities take a tumble: report

A slowing Chinese economy, renewed concerns over European debt crisis and the dawdling U.S. recovery are wrecking havoc on Canadian exports.

Major Canadian exports tumbled for the second straight month posting a month-over-month decline of 1.9% in June, according to Scotiabank’s Commodity Price Index.

However, the June results of the SCPI, which measures price trends in 32 of Canada’s major exports, show exports to remain 21.4% above the April 2009 cyclical low.

“Prices retreated alongside the spectre of slowing growth in China — of critical importance to raw material demand — ongoing concern over the ‘sovereign debt crisis’ in Europe, reignited on June 7 by financial difficulties in Hungary, and little financial market confidence in the ‘sustainability’ of the U.S. industrial recovery, once restocking and fiscal stimulus fades,” says Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank.

Particularly weak was the mining and mineral index, which sustained a month-over-month drop of 3.6%. That’s two declines in a row after rising in April.

Base metal prices took a dive on concerns over the outlook for China, which accounts for almost 40% of world consumption of the four key base metals.

“The release of economic statistics for China on July 15 confirmed a slowing economy, with GDP up 10.3% year-over-year in Q2 after explosive growth of 11.9% in Q1,” says Mohr. “China’s economy will likely wane further in Q3, though growth should still advance by 10% in 2010, slowing to 9% in 2011. In our view, China will reflate its economy quickly should growth slow more than desired, below 8%. Sustained, albeit slower, world GDP growth lies ahead.”

She says demand for copper remained high and climbing in China through May. “While China’s copper consumption will likely ease in 2010:Q3, for seasonal as well as fundamental reasons, demand should pick up again moderately later in the year.”

According to the report, China’s copper consumption is expected to should grow by 10% in 2010 and 8% in 2011, following extraordinary growth in 2009.

The oil and gas index gained 3.4% in June as light and heavy crude oil prices in Alberta rebounded from a sharp correction in May. Natural gas prices soared on the back of a heat wave in the United States, notes the report.

The ebb and flow of investor sentiment on prospects for global growth continue to drive prices, it says.

The forest products index fell by 7.1% in June, but it was a good month for agriculture as stronger wheat, barley and canola prices pushed the agriculture index up by 3.3%.

“After sliding in recent years, world grain prices appear poised for improvement,” says Mohr attributing rising wheat prices to severe dryness across Russia’s entire spring wheat belt.

(07/21/10)