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Increases in the price of Oil, Nickel and Copper helped the BMO Financial Group Commodity Price Index to a 1.9 per cent gain in July reversing much of the previous month’s decline.  The Commodity Price Index report, released today, rose to 161.6 (1993=100), which is 26.5 per cent higher than a year ago, and 62.0 per cent higher than during mid-2002.

“The current rally has generally reflected the rising economic prospects in both North America and abroad, booming residential housing construction and declining commodity inventories,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.   “Looking forward, we expect that many commodity prices will cool from their current boiling point, although there remain substantial upside risk to energy prices, which are being roiled by a long series of international events.”

In July, the BMO Oil and Gas Index gained 3.7 per cent to 259.8 (1993=100).   It is now 28.6 per cent higher than a year ago.  Most of the gain came from Crude Oil, which rose 7.4 per cent in the month for an average of US$40.98/barrel.   During the first half of August, US benchmark West Texas Intermediate rose further to US$46/barrel.  Natural gas prices rose only slightly in July to US$5.40/mmbtu.

“Potential disruptions of Crude Oil supply continued to be the main story in July, with the Yukos affair in Russia exacerbating worries about threats to production in the usual hotspots in the Middle East, Nigeria, and Venezuela,” said Sweet.  “ In light of the highly uncertain market conditions, we have raised our forecast for Crude Oil benchmark WTI to an average annual US$38/barrel in 2004 and US$32/barrel in 2005.”

The Metals and Minerals Index also rose in July, climbing 3.0 per cent to 141.9 (1993=100).  The index is now 26.9 per cent higher than a year ago. 

Nickel proved to be the big mover for the month in the sub-index with prices up 10.3 per cent for a July average of US$6.81/lb.  Over the last 12 months, prices for the metal have soared by 70 per cent. 

Copper also gained in July, moving up by 5.0 per cent to an average of US$1.28/lb.   The strong price movement still failed to offset the nearly 10.0 per cent decline for the metal during the previous month.  Aluminum prices also advanced in July for a gain of 1.6 per cent, benefiting from reduced production in China and signs of a turnaround in the aerospace industry, a key end-user of aluminum.

“Healthy global conditions and robust demand in China and the U.S., combined with generally low inventory levels, should keep metal prices relatively high for the remainder of this year,” said Sweet. 

The BMO Agriculture Price Index continued its slump in July, falling 6.0 per cent to 97.4 (1993=100) amid improved crop levels, uncertainty about Chinese demand, increased competition in grain markets and a stronger Canadian currency.  

The biggest decline in the sub-index came from Canola, which suffered a substantial contraction in the month.  Prices fell 10.0 per cent in July to C$344/tonne, its fourth consecutive monthly decline.  Wheat prices also fell in the month, losing 5.4 per cent to a monthly average of US$4.31/bushel.

“While the Agricultural Index remained close to seven per cent higher than a year ago and should remain fairly high over the next few months, a more robust production outlook raises the likelihood of rising inventories and falling prices over the next year,” said Sweet.

The BMO Forest Products Index moved up a slight 0.5 per cent in July to 126.1 (1993=100).  It is now 27.3 per cent higher than a year ago.

Lumber prices continued to increase during the month and by early August had regained their highs of mid-May.   Strong construction markets continued to be the driving force for lumber, although the shutdown of eastern Canadian Mills also helped keep prices high by reducing supply.

On the other hand, Market Pulp and Newsprint held steady with little movement expected in the short term. 

“Looking ahead we expect that the Forest Product Index is close to a peak and that the rally which began two years ago will start to lose steam in tandem with the upcoming slowdown in North American housing construction,” said Sweet. 

BMO Commodity Index for July 2004

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

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