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BMO's Commodity Price Index Roars Back in April

After three months of decline, the BMO Financial Group Commodity Price Index roared back in April with a 6.9 per cent gain to 205.8 (1993=100).

“The Index benefited from contributions from all commodity groups, led by Metals & Minerals' largest monthly advance in 18 years,” said Earl Sweet, Assistant Chief Economist, BMO Financial Group.  “This was followed by Oil & Gas' first gain in 2006, while increases in Agriculture and Forest Products were comparatively modest.”

Sweet noted that BMO Economics has boosted its forecast for the overall Index for 2006.  “The Index is now projected to rise by about 7 per cent, on an annual basis, from record levels in 2005 – in recognition of the persistent strength in energy and metal prices,” he said.  “Nonetheless, this gain would still represent a significant loss of momentum in the Index, following average growth rates of 21 per cent in the previous three years.”

Among the specific industries measured, the Oil & Gas Index saw a jump in April that reversed the declining trend of the previous three months.  “A powerful rally in the price of crude oil contributed the most to the monthly rise,” said Sweet.  “Geopolitics drove oil prices upwards, as Iran flaunted its nuclear research progress.  This raised concerns that potential sanctions imposed by the United Nations could eventually reduce the flow of oil from Iran in an already supply-constrained market.”

With the Iran issue unlikely to be resolved in the near term, BMO Economics' forecast for the price of oil has been ratcheted upwards, with a predicted average for West Texas Intermediate of US$67/barrel in 2006 and US$59/barrel in 2007. 

Higher oil prices pulled North American natural gas moderately upwards in April, despite very high inventories of the commodity.  In the near term, natural gas prices are likely to retreat from their April average. 

The Metals & Minerals Index took flight in April with a 13.4 per cent increase, with large gains in both precious and industrial metals.  “Precious metals were stoked by geopolitical risk factors, inflation concerns and US dollar weakness, while base metals were lifted by accelerating demand; supply-side concerns, such as strikes; and investment fund buying,” said Sweet.    

Over the past year, the Index has advanced roughly 46 per cent.  Strong momentum and tight market conditions – low inventories, healthy demand, limited production growth and growing likelihood of industrial disputes – have prompted a boost in price forecasts.  However, metal markets will be subject to substantial volatility due to low inventory levels and higher involvement of investment funds.

The Forest Products Index continued on its mild upward trend since the beginning of the year, with a rise of 1.9 per cent in April.  “The small increase again reflected mixed performance amongst this Index's components,” noted Sweet. 

The biggest news to hit the sector came at the end of the month when Canada and the United States announced a tentative agreement on the softwood lumber dispute.  The deal lifts restrictions on Canadian lumber exports when market prices are above a threshold and calls for an export tax or a mix of a tax and quotas when prices fall below it. The deal is expected to have a small though distortional impact on prices over time, with minimal implications for our forecast,” said Sweet.

The Agricultural Index advanced 2.5 per cent in April on ongoing concerns about dry weather in the southern U.S. plains and downward revisions to plantings projections.  “While prices are likely to slip over the course of the next year, relatively low global inventories for key commodities, downward revisions to output projections, and growing concerns about the impact of adverse weather on production are expected to contain the decline,” stated Sweet.

BMO Commodity Index for April 2006


April 2006 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 April 2006 is available at

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