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Forest Products and Metals To Lead Commodity Price Gains in 2004, says BMO Financial Group Economics Report  


Price trends for energy and non-energy commodities are likely to track in opposite directions through 2004, with the Oil and Gas Index expected to continue trending downwards, says a new report from the BMO Financial Group’s Economics Department.

The BMO Commodity Price index barely moved in October, rising 0.6 per cent from September levels to 131.6 (1993=100) or 14.5 per cent higher than a year ago.

“Looking forward, we anticipate that the expected slippage in oil and gas prices will offset gains in the non energy commodities, leaving the BMO Financial Group Commodity Price Index essentially flat in 2004,” said Earl Sweet, Assistant Chief Economist.  “The largest gainers for next year are now projected to be in the Forest Products and Metals and Minerals groups as world economic recovery continues to raise the demand for those commodities”.

The trend in Oil and Gas prices has been distinctly downwards since their peak in February 2003, just prior to the Iraq War.  Nevertheless, in October, the Oil and Gas index stood at 197.9 (1993=100), a rise of 2.7 per cent for the month and 13.4 per cent higher than a year ago.  Oil prices rose almost seven per cent in the month while Gas prices were off by less than one per cent.  The price for crude oil is still nearly five per cent higher than a year ago and that of natural gas is still more than 50 per cent higher than its five-year average.

“Prices for the two energy commodities are expected to diverge considerably in 2004,” said Sweet.  “In North America, commercial inventories of crude oil have recovered from inadequate levels earlier in the year.  We anticipate oil prices will decline from their current high levels due to rising supply from the former Soviet Union and recovering production in Iraq.”  He also stated “while the average price of natural gas in 2004 is projected to decline from its 2003 level, fundamental supply tightness is likely to keep the price of that commodity well above historical norms.”

The BMO report notes the prices of metal and minerals are in the midst of an upswing propelled by improving global economic conditions.  In October, this sector’s sub-index jumped 3.7 per cent to 119.6 (1993=100), its highest level in almost four years.

The biggest mover for the month was Nickel with an October price gain of more than ten per cent to US$4.98/lb., marking its highest monthly average in 13 years.  Strong demand from Asian stainless steel producers, a lack of scrap metal, and limited supply production growth are expected to keep market balances tight and prices high through 2004. The average price of nickel is projected to rise from US$4.20/lb. in 2003 to US$4.95/lb. in 2004.

The Forest Products sector was alone in facing declining prices for the month, with its sub-index falling 4.2 per cent to 104.9 (1993=100).  However, the Index is still up more than 20 per cent from a year ago and BMO economists forecast a continued upward trend in prices through 2004.  The report notes that lumber prices will be pressured by excess capacity and the expected peaking of construction activity in 2004.

“Whereas most of the price gains in the year-to-date rally have come from the wood products side of the sector, most advances in 2004 are likely to come from pulp and paper as world economic growth boosts print advertising and paper consumption in general,” said Sweet.  “We see the NBSK (market pulp) benchmark rising to an average of US$640/tonne in 2004 from an estimated US$555/tonne in 2003.”

The biggest price moves for the month of October were in the Agriculture sector with its sub-index surging by 7.7 per cent to 99.1 (1993=100).  The Agricultural Index is now 20.3 per cent higher than a year ago.  Within the sector, wheat prices rose by 7.2 per cent to an average of US$4.29/bu., and Canola prices rose eight per cent to an average of C$375/tonne.

“Since drought-fueled gains in 2002 pushed the Agricultural Index to six-year highs, we have seen the Index steadily lose steam for most of the year.  This trend is about to be reversed as demand will outstrip supply in 2004 and put upward pressure on prices,” said Sweet.  He expects the average price of wheat (Minneapolis Spot) to climb from US$4.25/bushel in 2003 to US$4.45 in 2004.

BMO Commodity Index for October 2003

Oct. 2003 Level
(1993 = 100)

Per cent change
from month ago

Per cent change
from year ago

All Commodities 131.6 0.6 14.5
Oil & Gas 197.9 2.7 13.4
Metals & Minerals 119.6 3.7 18.8
Forest Products 104.9 -4.2 20.3
Agriculture 99.1 7.7 -12.3

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