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BMO's Commodity Price Index Finishes The Year Up 19 Per Cent Over 2004

The BMO Economics Department's Commodity Price Index rebounded by 10.7 per cent in December to 219.6 (1993 = 100), bringing an end to a year in which the Index's average grew 19 per cent above that of 2004. Unadjusted for inflation, the Index shattered the all-time high set in 2004 and ended the year almost 33 per cent above the December 2004 level.

The commodity rally that started in mid-2002 remained in full swing in 2005, defying earlier expectations it would slow down,” stated Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “By far, the main driving force in 2005 was Oil & Gas, followed by Metals & Minerals.” 

In December, the Index recovered from a short-lived correction in November.  “In keeping with the annual trends, Oil & Gas and Metals & Minerals provided most of the monthly impetus, while Forest Products rose modestly and Agriculture declined,” said Sweet.

The current strong momentum in the overall Index is not expected to be sustained through 2006.  Elevated prices should work to slow demand growth and spur increases in production, together easing market tightness.  However, performance amongst commodities is likely to be mixed.

Among the specific commodity sectors measured, the Oil & Gas Index bounced back in December from a sharp drop the previous month.  This primarily reflected a surge in natural gas prices during the first half of the month, when colder-than-normal weather raised concerns about winter supply.  The price of oil also rose in December, though more modestly.  West Texas Intermediate remained below the US$60/barrel mark for the second straight month.  However, it did push back over $60 during the first three weeks of January.   Geopolitical risks once again came to the fore amid worries about the implications of a dispute between Russia and the Ukraine over natural gas and the potential for Iran's nuclear activities leading to UN sanctions and a reduction in oil exports.

Sweet noted that the Oil & Gas Index rose on average by 40 per cent in 2005.  “That was double the growth rate seen in 2004,” he said.

The Metals & Minerals Index continued its ascent in December, with a 7.6 per cent gain reflecting strength in both precious and base metals.  Gold prices were lifted partly by inflation concerns while supply worries fueled base metals.


“December's advance took the index some 21 per cent higher than a year ago,” noted Sweet.  “Prices are generally expected to soften in 2006, although solid demand and limited production growth should keep them at relatively high levels.”

The Forest Products Index moved up a modest 1.7 per cent in December, as most components either were unchanged or posted small price increases.  Newsprint producers further implemented a price increase introduced in October, while market pulp was flat and lumber rose for the second consecutive month.

Looking forward, a projected slowing in housing construction in North America is expected to keep wood product prices on a downward course in 2006,” said Sweet.  “Pulp and paper prices are likely to hold up relatively better, although falling US consumption of newsprint will require capacity reductions.”

The Agricultural Index slipped 2.4 per cent in December, as losses in wheat and canola more than offset solid gains in corn and soybeans. While market balances have generally improved, low global stocks relative to consumption have provided support to prices,” according to Sweet.  “Agricultural prices are expected to ease during the next year although comparatively low global inventories of key commodities should provide some support.”

BMO Commodity Index for December 2005


December 2005 Level
(1993 = 100)

Per cent change

from month ago

from year ago

All Commodities




Oil & Gas




Metals & Minerals




Forest Products








The full BMO Financial Group Commodity Price Index report for December 2005 will be available at at 9:00 a.m. Eastern Time.

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