By Joanne Paulson, business editor, TheStarPhoenix.comJanuary 29, 2009 1:11 PM
Heavy crude prices in Alberta have dropped to end-2003 levels
SASKATOON — Commodity prices have shifted “from boom to bust” more rapidly than at any other time since at least 1972, when the Scotiabank Commodity Price Index was founded, Scotia Economics said Thursday.
The price index fell 5.5 per cent in December from the previous month, ending the year down 17 per cent.
However, the index plummeted 39 per cent from its record peak in July 2008.
Commodities have essentially dropped off a cliff, says the commodity report’s author Patricia Mohr, vice-president of economics for Scotiabank Group and commodity market specialist.
“(The index) usually doesn’t retreat quite that rapidly when the economy, particularly in the US, moves into recession,” said Mohr in an interview. “This time it has fallen very sharply.”
The massive drop was caused by hedge and investment funds exiting commodity markets; by problems in the American and United Kingdom financial industries; and “rapidly worsening economic conditions,” says her report.
The oil and gas component of the index fell 10.6 per cent December over November, with heavy crude prices in Alberta dropping to end-2003 levels, says the report — describing the price as “distressingly low.”
West Texas Intermediate (WTI) oil averaged $41.77 US per barrel in December, half the value of a year ago. Natural gas prices are also down considerably, ending the year at $4.48 US, down from $7.99 a year ago.
Forest products fell 5.4 per cent, largely because U.S. housing starts were the lowest since 1959, at 550,000 units.
Metals and minerals dropped 71.6 per cent over three months.
“The rapid decline in base metal prices from strength in the first half of 2008 has been unprecedented and reflects in part the forced exist of hedge funds from commodity market positions due to fund redemptions and curtailed credit in 2008 Q4,” says the report.
Spot potash prices remain firm at record levels, recording $872.50 per tonne at the port of Vancouver in January. However, new potash shipment “has come to a virtual halt,” says the report.
The only shining star in the commodity firmament is gold. Scotia Economics says gold has outperformed base metals, and may emerge as a safe haven in coming months.
Only a counter-intuitive flight to U.S. Treasury bills — normally considered a haven — in the fall has prevented gold from “re-testing” its previous high of $1,032 US.
jpaulson@sp.canwest.com
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