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BMO Financial Group Commodity Price Index Bounces Higher in August Western Forest Fires Take Their Toll as Forest Product Prices Rise 5.5 Per Cent  


Encouraging news on the U.S. economy and tighter supply conditions for several key commodity groups pushed BMO Financial Group’s Commodity Price Index up a solid 3.4 per cent in August.  The biggest rise took place in Forest Products as month-long forest fires took their toll on lumber operations. The BMO Index is now 132.1 (1993=100), 26 per cent higher than a year ago.

“The renewed strength of commodity market prices in August was broadly based and reflects restored confidence in the growth of the North American economies, particularly in the United States, combined with continued weak inventory levels in many commodities,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.

In August, the BMO Oil and Gas Index rose 2.3 per cent to 206.6 (1993=100).  “While the price of mineral fuels has remained somewhat trendless since April, it is nevertheless close to 50 per cent higher than year-ago price levels,” said Sweet.

Crude oil prices, which edged up 2.6 per cent in August, are being driven in large part by low North American commercial inventories and the still spotty supply coming out of traditionally large producers Iraq, Venezuela and Nigeria.

“Despite the above quota production levels by the OPEC 10 (OPEC excluding Iraq) and the former Soviet Union, we anticipate that commercial inventories will continue to remain tight through the balance of this year which should continue to prop up prices into 2004,” said Sweet.

Natural gas prices (Alberta Empress benchmark) held firm during the month, averaging US$4.35/mmbtu, essentially unchanged from July.  This price point is still more than double the 10-year price average of US$2/mmbtu.

The BMO Commodity Index growth leader for the month was Forest Products, which posted a robust gain of 5.5 per cent in August.  “Forest Product prices took their second biggest month-over-month jump in over two years,” said Sweet.  “This primarily reflected the dramatic toll that forest fires in British Columbia and the Northwestern United States are having on sawmill operations,” said Sweet.

The devastating forest fires in large parts of the B.C. Southern Interior and Northwestern United States significantly disrupted logging activity and forced the temporary closure of several B.C. sawmills during August.  "The specter of prolonged shutdowns fueled fears of supply shortages and drove lumber prices up 15.4 per cent in the month,” said Sweet.

Prices for Market Pulp remained unchanged for the month, while Newsprint prices edged up by a slight US$ 5/tonne to US$510/tonne.

The BMO Metals and Minerals Index continued its ascent in August – rising 1.8 per cent in the month and more than 14 per cent from a year ago.  “Industrial metal prices are continuing to track the upward movement in U.S. housing starts and generally improving US economic conditions,” said Sweet.  “Falling commodity exchange inventories and a work stoppage at a major nickel production facility also added upward pressure on prices, although the latter factor has since been removed with the resolution of the strike at Inco,” he added.

Nickel prices rose strongly in August, up 6.4 per cent, while Copper prices increased by 2.4 per cent and Aluminum by a more modest 1.0 per cent.

The Agricultural Index rebounded by 2.8 per cent in August, propelled by downward revisions in crop forecasts in key growing areas.  In particular, wheat prices rose 3.7 per cent on concerns that hot, dry weather in the European Union, Canada and the United States might aggravate an already tight global supply-demand balance.

BMO Commodity Index for August 2003

Aug. 2003 Level
(1993 = 100)

Per cent change
from month ago

Per cent change
from year ago

All Commodities 132.1 3.4 26.1
Oil & Gas 206.6 2.3 49.7
Metals & Minerals 113.8 1.8 14.2
Forest Products 104.5 5.5 17.7
Agriculture 93.7 2.8 -5.9

The full BMO Financial Group August 2003 Commodity Price Index report is available at