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Increases in forest product and energy prices pushed the BMO Financial Group Commodity Price index to a record high in April. According to the BMO Economics Department, the index rose 3.0 per cent in April to 156.8 (1993=100), surpassing the previous high of 154.8 reached in December 2000.  Commodity prices are now 26 per cent higher than a year ago when the Index stood at 124.4 (1993=100).

“Although we have witnessed spectacular price gains over the past year in all commodity groups, we consider the pace of growth to be unsustainable and expect that downward pressure on wood product prices and energy prices should soon cool the index,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.

In April, the Oil and Gas Index rose 1.9 per cent from its already elevated March level to 237.4 (1993=100).  “The price increases for oil and natural gas reflect the ongoing concern that inventory levels and production will not be enough to meet the growing demands of a resurgent U.S. market and a booming Asian economy,” said Sweet.

Crude oil prices rose 0.8 per cent in April to a monthly average of US$36.87 and surged even higher in early May to US$40. Oil prices have remained high despite strong and growing global production of the commodity and a healthy recovery in inventories.  “U.S. commercial inventories have recovered from a deficit of about 13 per cent a year ago and international production continues to rise,” noted Sweet.  “Given these and other factors, we would be surprised if the upward price pressure would continue for much longer, barring further terrorist strikes against international oil infrastructure.”

Natural Gas prices continued to climb in April, a time when reduced demand for space heating usually takes the edge off the market. On a monthly average basis, the price of U.S. benchmark, Henry Hub, rose 8.4 per cent to US$5.70 per million British thermal units (mmbtu).

“We expect Alberta Empress to average US$4.50/mmbtu in 2004 and US$4.60 in 2005,” said Sweet.  “While that would be down moderately from the 2003 average of US$4.82, it would still be very high by historical standards.”  High prices are needed to reduce consumption and encourage major investments to expand the import infrastructure for liquefied natural gas and to build pipelines to access northern frontier supplies.

The Metals and Minerals Index slipped by just over 1.0 per cent in April to 140.2 (1993=100).  Most commodities in the index retreated amid concerns about higher interest rates in the United States and the possibility of slowing demand growth in China.  Still, the sizable gains since mid-2003 remained largely intact, with the index up by close to 36 per cent from a year ago. 

Nickel continued to lose ground in April, falling 8.4 per cent during the month to an average of US$5.73/lb.  After climbing 9 per cent in March, copper prices ceded some of those gains as they fell 3.2 per cent in April to an average of US$1.32/lb.

“The decline in copper prices was driven by concerns that tighter monetary policy in China and an anticipated tightening of policy in the United States would slow demand growth,” stated Sweet.

Aluminum escaped the general price decline among base metals in April, advancing 4.2 per cent to US78.5¢/lb. on the support of falling LME inventories. 

The Forest Products Index surged 7.1 per cent in April to 127.0 (1993=100), elevated by price increases in all its major components. This is the fourth-straight monthly rise for the sub-index, which now sits at its highest level since early 1996. 

“Lumber markets remained extremely hot in April, as the ongoing strength in North American housing construction sustained robust demand for softwood lumber, and relatively tight inventories and railway transportation problems kept many lumber consumers scrambling to fulfill their requirements,” said Sweet.

The Western SPF 2x4 benchmark rose US$50/mbf in the month to US$425/mbf, the highest level since mid-1999.

Newsprint producers finally implemented a price increase in April, which was originally intended for two months earlier, in February. However, there was wide disparity in the level of the rise, as various producers charged customers different amounts.  On average, the increase was US$15/tonne to US$545/tonne, well short of the US$50/tonne hike proposed initially. 

Agricultural prices slipped slightly by 0.5 per cent in April, to 107.8 (1993=100). Soybeans and canola lost ground amid fears that demand will shrink as the Chinese government attempts to dampen the pace of economic growth. Nonetheless, the index stood 15.3 per cent higher than a year ago, as global markets continue to receive support from solid demand and shrinking grains and oilseed stocks. 

Wheat advanced a slight 0.6 per cent in April, held back by weakness in oilseed markets and increased precipitation in key growing areas in the United States. Canola fell by roughly 3 per cent in April to C$410/tonne, although it remained close to 10 per cent higher than its level a year ago. 

BMO Commodity Index for April 2004

The full BMO Financial Group Commodity Price Index report for April 2004 is available at  www.bmo.com/economic.

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