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Scotiabank’s Commodity Price Index rallied by 2.2% month over month in May. The index, which measures price trends in 32 of Canada’s major exports, hit bottom in April, plunging 45% below its peak in July 2008.

However, China’s renewed infrastructure spending and its steady pickup in industrial activity is pushing the index out of its slump.

“China’s industrial activity has re-accelerated in the past three months, with a massive infrastructure spending program starting to kick in and an end to last year’s domestic housing correction — pushing up internal demand for metal-intensive household appliances. Commodity traders sense that elements of the Asian-led ‘super-cycle’ are returning. China’s economy has partly ‘decoupled’ with a still-weak G7 economy — a positive development for Canada, where exports of commodities and resource-based manufactured products loom large, accounting for 50.9% of Canada’s merchandise exports in 2008, of which one-quarter was energy,” said Patricia Mohr, vice-president, economics, and commodity market specialist with Scotiabank.

In May, the oil and gas index led the gain in overall commodity prices, rising up 4.4% month over month. Mohr believes the change reflects global recovery — more importantly, a bigger rebound in China. She added that “China’s drive to build its ‘strategic’ oil stocks will have profound implications for oil markets and has caused us to revise our WTI oil price forecast to US$63 for 2009 and US$90 for 2010.”

The metal and mineral index also made significant gains. In May, it was up 4.2%, month over month, with widespread gains in base metals, gold, silver and uranium. The agricultural index climbed by 3.7% in May.

Only the forest products index retreated -4.4% in May, in part due to plunging newsprint prices and lower prices in building material and fine paper, alongside weak U.S. print-media advertising.

Further evidence of China’s dominance in the command for global commodities is in its copper import; it hit a record high in May — the third record in as many months.

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Entrepreneurs remain positive in downturn

Eighty-six percent of Canadian entrepreneurs are optimistic about their companies’ growth potential than they are about their industry or the economy, according to a Business Development Bank of Canada (BDC) survey.

“Entrepreneurs see opportunities where others may see only difficulties,” said Edmée Métivier, executive vice-president, financing and consulting, at BDC. “The small and medium enterprise (SME) sector has always contributed the lion’s share of economic growth and, as a result, it will be pivotal to an economic recovery. More than ever, lenders to the SME market need to bring a flexible approach to their financing and investment decisions.”

When it came to growth elsewhere, however, they were less upbeat. The survey showed that entrepreneurs’ optimism fell to 75% when asked about their industries’ potential for growth. And for the economy as a whole, their enthusiasm dropped 60%.

According to the entrepreneurs surveyed, tightening credit was the greatest threat to business growth in the near future — 70% agreed that the credit squeeze was negative for growth, 65% said the recession, and 45% indicated increased fuel costs.

As for the positive factors for growth, the entrepreneurs indicated a stable economy, (59%), the value of the Canadian dollar (41%) and a strong labour market (41%).

(06/29/09)