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The BMO Financial Group Commodity Price Index rose a slight 0.4 per cent in February to 149.0 (1993=100) as downward pressure from the Oil and Gas Index offset an average 5.2 per cent increase in other commodity groups, according to a new report released today by BMO’s Economics Department.

“Commodity prices have been marching steadily upward since late 2003 and, with the exception of Natural Gas prices, continued to rise in February, buoyed by the strengthening global economy,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “Much of the gain can be credited at this point to the ongoing boom in North American home construction, strong growth in China and other parts of Asia, and continued tight commodity inventories.”

In February, the Oil and Gas Index retreated 6.3 per cent to 224.5 (1993=100), following sharp increases in the previous two months.  The decline was concentrated entirely in Natural Gas and reflected warmer temperatures and declining concern about winter supplies.  The price of Natural Gas in Alberta fell 12.2 per cent from its January level, to an average of US$4.75/mmbtu.

“Although the approach of Spring should see Natural Gas prices fall even further from current levels, the fundamental shortfall of supply in North America should still keep them high over the next few years,” said Sweet.

Crude oil prices, by contrast, continued their upward trend in the period, rising 1.4 per cent to an average of US$34.78/barrel in February and climbing even further to US$36.50/barrel by early March.  BMO economists expect that crude oil prices will moderate in 2004 to an average of US$28.25/barrel as new supplies come onto the market from Russia, Iraq, and Africa.  However, there are upside risks to this forecast stemming from the potential for supply disruptions from terrorism or intensifying civil strife in Venezuela.

The Forest Products Index advanced strongly for the second straight month in February, rising 6.1 per cent to 117.0 (1993=100).  It is now at its highest level in four and a half years.

“Booming residential construction in North America has continued to pressure lumber inventories and many suppliers have been scrambling to fulfill demand,” said Sweet.  “Furthermore, prices of structural panels returned to the stratosphere after a correction in December interrupted the most powerful run they have ever had.”

In February, prices of lumber and oriented strandboard rose 11 per cent and 27.8 per cent, respectively, with the latter at an all-time high.  Other forest products segments were less robust.  The price of market pulp rose 3.4 per cent to US$600/tonne, while Newsprint held steady at US$530/tonne.  “The demand for and prices of newsprint are likely to rise later in 2004 when the Summer Olympics and U.S. presidential elections amplify the effect of stronger economic activity on newspaper circulation,” said Sweet.

In good news for the farming sector, Agricultural prices also strengthened in February with a gain of 5.5 per cent to 107.4 (1993=100), or 6.9 per cent higher than a year ago.  All the commodities included in the Index made substantial gains as U.S. and Asian demand put strong pressure on shrinking oilseed and grain stocks.

Wheat prices stood at an average of US$4.72/bu for the month and Canola rose to an average of C$391/tonne.

The Metals and Minerals Index continued to climb in February, rising 3.3 per cent to a level of 141.1 (1993=100).  It is now 27.1 per cent higher than a year ago.

“Industrial metal prices in February were fortified by the combination of labour strikes at mines and rising demand,” said Sweet.  “These forces are unlikely to continue for much longer and we anticipate that, although additional price gains will continue through much of the year, they will come at a much slower pace in coming months.”

Nickel prices were flat in the month averaging US$6.84/lb, a slender 0.1 per cent increase from January.  Still, average prices were 75 per cent higher than a year ago, reflecting strong demand from Asia, tight inventories, and the ongoing scarcity of scrap metal.

“Strikes in Chile and Canada and strong demand in Asia helped bolster Copper prices 14 per cent in February to a level of US$1.25/lb,” said Sweet.  “This is the highest level in more than eight years and 64 per cent higher than a year ago.  While prices are expected to retreat somewhat as the labour issues are resolved, we expect that supply shortfalls and improving global economic activity should continue to buoy Copper prices throughout the year.”

Aluminum price gains have lagged other base metals over the past twelve months as transportation equipment – a key end market – remained soft.  However, they also rose in February, climbing 5.0 per cent to US76.5¢.  Aluminum prices are close to 19 per cent higher than a year ago.

BMO Commodity Index for February 2004

The full BMO Financial Group Commodity Price Index report for February 2004, is available on the BMO website at http://www.bmo.com/economic.

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