By John Morrisy, Canwest News ServiceJanuary 29, 2009 1:02 PM
The unprecedented boom-to-bust decline in commodity prices continued into its fifth straight month in December, but showed signs of slowing as forced sales by hedge funds appeared to be on the wane, Scotiabank said in its monthly commodity-price report.
The bank’s all-items commodity index has lost 5.5 per cent since November and has plunged 39 per cent in the mere six months since reaching its cyclical peak in July, the report said.
Yet “while commodity prices are not yet at bottom, the pace of decline is slowing and the forced, indiscriminate selling by funds - triggered by investor redemptions and tight credit - appears to be subsiding,” Scotiabank commodities analyst Patricia Mohr said.
“Many prices are approaching average world cash costs, triggering production cuts, new project deferral and tighter supplies.”
Compounded by the banking crisis and rapidly worsening global economic conditions, December’s sell-off was led by the oil and gas sector, falling 10.6 per cent from the month before. In December, West Texas Intermediate crude oil averaged $41.77 a barrel, in line with prices in early January.
Mohr pointed out that while demand for oil has been falling, so, too, have supplies, with output in non-OPEC countries falling by 600,000 barrels in 2008. While the world is currently awash in excess supply, Mohr expects inventories to begin to decline in the third quarter as consumption starts to grow by one to 12.5 per cent in 2010 after falling one per cent in 2009.
Historically worse yet were prices for western spruce lumber, which retreated to levels not seen in almost a quarter century, dragging the forest products index down 5.4 per cent, as U.S. housing starts of 550,000 a year were the lowest in data going back to 1959, the report said.
Mohr remains “very bullish” on gold, which has traded lately near $900 US an ounce. She said it could rise to $950, and likely higher than that, once the U.S. starts printing money in earnest later this year to fund its massive stimulus programs, which many expect will drive down the value of the U.S. dollar.
The metals and minerals index lost four per cent month over month and while likely to decline further, may soon approach cyclical lows, Mohr said.
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