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Commodity Prices Rebound After Two Month Slump, Says BMO Economic Report  


Following two consecutive monthly declines, BMO Financial Group’s Commodity Price Index rebounded 3.3 per cent in May to a level of 128.8 (1993=100) on the strength of increases in all four major commodity groups.

“Although the commodity index remains almost 8 per cent below its February peak, that peak was inflated by unusually high energy prices,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “The uptrend in commodity prices since the summer of 2002 remains in place and prices in May rose to a level almost 19 per cent higher than a year earlier.”   

In May, the Oil & Gas Index rose 4.9 per cent following a cumulative decline of 21.5 per cent during March and April.  Much of the impetus came from natural gas.  “Energy prices are still very high by historical standards and 41 per cent above their year-earlier level,” said Sweet.  Despite high levels of OPEC-10 (which excludes Iraq) production, oil prices edged up on signs of a tightening in gasoline inventories.  By the end of the month, the price of West Texas Intermediate (WTI) had risen above the US$30/ barrel mark.

“In the case of natural gas, there is growing concern that declining domestic production and potentially higher consumption in the United States will make it difficult to rebuild inventories to adequate levels prior to next winter,” said Sweet.  In May, US benchmark Henry Hub averaged US$5.78/mmbtu, more than US$3 higher than the average for that month during the previous eight years.

The Metals and Minerals Index rose roughly 5 per cent in May, as both precious and base metals recorded notable gains.  The continuing depreciation of the US dollar against other major currencies helped boost the demand for and prices of gold and silver.  “Healthy gains were also evident across base metals amid speculation that the pace of economic activity would pick up later in the year, concern about industrial disputes, and falling LME inventories,” noted Sweet. “While the pace of economic activity in North America is slated to be somewhat weaker than in 2002, the emergence of stronger growth later in 2003 and next year, facilitated by substantial monetary and fiscal stimulus, should help to push metals and minerals prices higher through 2004.”

The Forest Products Index rose marginally by 0.6 per cent in May.  This followed gains of more than 10% during the previous six months, representing the strongest rally in two years.  Pulp and paper prices paused after posting sizeable increases since the beginning of the year thanks to restrained supplies and stable or slightly improving demand.  While recent gains in pulp and paper prices are likely to come under pressure, their prospects look better than those for wood products over the next year.

“Lumber output still requires substantial curtailment to be aligned with demand,” said Sweet.  “Combined with the 27 per cent duties faced by Canadian exporters to the United States, low prices and the rise in the currency have forced many Canadian producers into operating at a loss.”

The Agricultural Index rose 2.2 per cent in May, as wet weather in key growing areas of North America held back the harvesting of wheat and delayed corn planting.  Last month’s broad-based price increases left the index approximately 18 per cent higher than a year earlier.  “Relatively low global stocks of major grains and oilseeds should continue to support prices at relatively high levels over the next year, even given the prospects of larger crops in major exporting countries,” said Sweet.

BMO Commodity Index for May 2003


May 2003 Level
1993 = 100)

Per cent change
from month ago

Per cent change
from year ago

All Commodities 128.8 3.3 18.6
Oil & Gas 213.6 4.9 41.2
Metals & Minerals 109.8 5.1 7.0
Forest Products 94.8 0.6 3.0
Agriculture 95.6 2.2 17.8

The full BMO Financial Group May 2003 Commodity Price Index report is available on the BMO website at