Skip navigation
Navigation skipped

News Releases

Commodity Prices Have Turned the Corner and Will Sustain Upward Trend in 2003, Says BMO Financial Group Economic Report  


A steep rise in energy prices and brisk gains for metals and forest products boosted BMO Financial Group’s Commodity Price Index in December.  BMO’s composite index of nineteen commodities important to the Canadian economy rose 5.1 per cent to 117.9 (1993 = 100) from 112.2 in November.

“Although weak economic conditions in North America during the past two years reduced most commodity prices to well below their recent highs in 2000, the corner has now been turned,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.

“The combination of generally good supply management and a strengthening North American economy should stimulate further gains in the index over the course of 2003,” said Sweet.  “Commodity prices were generally volatile in 2002, but the BMO Price Index ended the year 20.6 per cent higher than in December 2001.”

Much of the rise in BMO Financial Group’s Commodity Price Index over the twelve months of 2002 stemmed from sharp increases in its Oil & Gas Index.  Spurred by supply concerns – geopolitical in the case of oil and dwindling reserves in conventional North American basins in the case of natural gas – the energy sub-index shot up 5.1 per cent in December to a level more than 62 per cent higher than a year earlier.

The BMO economic report sees the price of the US benchmark West Texas Intermediate as averaging US$25.50/barrel in 2003, although the intra-year range could be as wide as US$15-45/barrel.

“Given the current volatile situations in Venezuela and Iraq and the potential supply responses by the rest of OPEC and Russia, there is huge uncertainty as to the future course of oil prices,” said Sweet.

Natural gas prices in western Canada are expected to average US$3.50/mmbtu, up very sharply from US$2.63 in 2002.  By December, natural gas prices in western Canada had risen to an average of US$3.97/mmbtu, while the US benchmark Henry Hub traded at US$4.65.

“As high prices in 2002 did not stimulate increased drilling activity, prices will have to rise even further in 2003 to “price out” some demand and improve the economics of imported liquefied natural gas into the US market,” said Sweet.

Prices of Metals & Minerals rose 1.1 per cent in December, sustaining a bumpy upward trend that raised the sub-index 8.3 per cent above its year-earlier level.  Over the course of the year, nickel prices recorded the strongest advance, climbing 34 per cent as the demand for stainless steel improved and supplies became tight.  The next largest price increase for metals accrued to gold, which rose 21 per cent over the twelve months of 2002.  Gains for copper, zinc, and aluminum were more restrained, held back by still-large inventories.

“We expect that a strengthening in global industrial production will further lift the sub-index for metal prices.  Once again, tight supplies for nickel are likely to sustain its position as the leader in terms of price gains,” said Sweet.  “Copper should do well as the economy strengthens, while lead, zinc, and aluminum are expected to struggle under the weight of heavy inventories and, in the case of aluminum, soft demand from manufacturers of ground and air transport equipment.”

Pricing conditions in 2002 will be remembered as among the most difficult that forest products producers ever faced.  Prices of all products but one (oriented strandboard) comprising the Forest Products Index fell in the year – some substantially.  Moreover, the majority fell to levels unseen in about a decade.   As a result, the Forest Products Index tumbled 12.5 per cent (on an annual average basis), its second steepest decline on record since 1965.

In December, an upturn in lumber prices from particularly depressed levels pulled the Forest Products Index up 1.8 per cent, which is only the second increase in the past nine months.

“For many of the Forestry group’s commodities, near-term prospects are likely to continue to be restrained by excess supply,” said Sweet.   “Nonetheless, prices in the sector should benefit gradually from the strengthening of North American economic activity and its favourable impact on demand later in 2003.”

Sweet noted that “consolidation among lumber producers is likely to contribute to higher average lumber prices in 2003, although the trade dispute between Canada and the United States will remain a source of uncertainty”.

Weak global demand and excessive inventories will likely inhibit any near-term improvement in pulp prices.  However, starting later this year, growing demand and greater supply discipline should help prices shake off their lethargy.

Similarly, resumption of the newsprint price recovery will await clearer signs of stronger consumption by end-users. Once demand picks up – likely before mid-year – the impact on prices should be fairly quick given that newsprint inventories are well contained.

The Agricultural Index’s weak result in December (down 8 per cent) belies its strength during the rest of the year.  Over the twelve months through December, the Agricultural Index jumped 24.5 per cent as poor growing conditions for grains and oilseeds in major exporting countries such as Canada, the United States, and Australia lead to a substantial tightening of global supplies.  Wheat prices soared 26 per cent, from US$3.57/bushel in December 2001, to US$4.49 a year later.  Canola and soybean prices also recorded sharp gains, climbing 25 per cent and 30 per cent, respectively, over the twelve months of 2002.  The BMO Report anticipates that low global inventories of grains relative to consumption and signs that major exporters may be prepared to reduce or restructure farm support suggest further increases in grain prices.  BMO Financial Group’s sub-index for Agriculture is expected to rise a further 10 per cent during the next 12 months.

BMO Financial Group Commodity Price Index for December 2002


Dec. 2002 Level
(1993 = 100)

Per cent change
from month ago

Per cent change
from year ago

All Commodities




Oil & Gas




Metals & Minerals




Forest Products








The full BMO Financial Group December Commodity Price Index and Report is available on the bank’s website at

- 30 -