News Releases

The BMO Financial Group Commodity Price Index continued its ascent in March, moving further into record territory with a strong 7 per cent gain for the month to 183.6 (1993 = 100). 

“This represents the fifth time in the past six months we’ve seen an increase in the Index,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “As well, the Index now stands almost 21 per cent above its level from a year ago.”

Oil & Gas provided most of the upward thrust in the increase, with all commodity groups – with the exception of an essentially flat Forest Products Index – contributing to the rise. 

Despite the current strength in most commodity markets, the strong uptrend in prices is not expected to be sustained through 2005.  “Performance amongst commodities is likely to be mixed, with sustained strength in metals and gains for pulp and paper offsetting declines in wood products, crude oil, and agricultural products,” noted Sweet.  “By 2006, moderating global economic growth and rising production of several commodities should relieve tightness in most commodity markets and lead to generally lower prices.”

The Oil & Gas Index rose sharply in March, reflecting outsized increases for both crude oil and natural gas.  “While markets for crude oil and products are currently well supplied, there is concern that global production is near its limits and will not be able to keep up with further large increases in demand,” said Sweet.  “In turn, the rising price of oil has provided support to natural gas prices, as the two fuels compete in some markets.”

Sweet noted that sustained growth in the global oil supply should be sufficient to meet rising demand and keep inventories comfortable during the next two years.  BMO Economics projects that the price of West Texas Intermediate (WTI) will moderate from its current range above US$50 to an average of US$46.50/barrel in 2005.  “For 2006, we expect slowing demand growth and rising production capacity to take some edge off the market, with WTI falling to an average of US$41/barrel.”

The Metals & Minerals Index extended its sizeable gains over the past year with a 4 per cent rise in March.  The increase flowed from strong performances by nickel, aluminum and copper.   

“Metal prices should remain near their current levels through the remainder of 2005,” stated Sweet.  “While global economic growth is expected to moderate, it should remain strong enough to support demand and keep metal inventories low.  In 2006, rising metal production and a continuing moderation in global economic growth should result in modest price declines.”

Virtually all components of the Forest Product Index were in a holding pattern in March, causing the Index to stay essentially flat.  “This follows three successive months of increases that recovered most of the ground lost during the sharp correction that took place last autumn,” said Sweet.

Lumber and panel markets continued to benefit from robust demand and tight supplies, while pulp and paper markets were gearing up for new rounds of price increases over the coming months.  Looking ahead, an anticipated slowdown in housing construction is expected to erode market conditions for wood products in the latter part of this year.  Meanwhile, sustained economic growth and supply discipline should boost prospects for pulp and paper through most of the year.

The Agricultural Index rose 2.6 per cent in March on strong gains in oilseeds and corn, with wheat remaining largely flat during the month.  Despite the gain, agricultural prices in March remained roughly 6 per cent below their level a year ago. 

“Agricultural prices are expected to continue moving lower as large crops in key producing areas hang over global markets,” stated Sweet.

BMO Commodity Index for March 2005

The full BMO Financial Group Commodity Price Index report for March 2005 is available at www.bmo.com/economic.

- 30 -