Commodity index in decline

The commodities index of the Bank of Nova Scotia declined by 1.3% in February after rising for six straight months.

A sharp drop in metals and minerals prices and a seasonal fall in agricultural prices more than offset stronger forest products and energy prices. The metals and minerals sub-index was off by 5.2% from January. Economist Patricia Mohr writes that the retreat in base metals reflects partial liquidation of investment fund positions following signs of slowdown in the U.S. economy.

Nickel, which hit a 4-year price high of US$4.68 per lb. in January, fell back to the US$3.50 range in late March, a level which Mohr points out is well above average break-even costs in Canada.

Copper, in the US$1.34-per-lb. range, has been supported by supply-demand conditions that are considerably tighter than those of other base metals. Contributing to copper’s strength are ongoing declines in London Metal Exchange stocks and regional shortages of some brands.

Indications are that the U.S., which displayed strong industrial activity during the first quarter, may be about to experience some slowdown. According to Mohr, metal demand this year will likely grow at a faster pace in Western Europe than in the U.S.; European orders for copper picked up quickly when prices declined in early February, and German capital goods production will continue to be strong.

The all-commodity index tracks export prices of various Canadian commodities, which are weighted according to their 1984 export values (except crude oil, for which the value of net exports is used).