Canada's major export commodities experienced further price declines in October thanks to ongoing European debt challenges and the failure of the U.S. Congressional Committee to agree on a deficit reduction package.
Scotiabank's Commodity Price Index, which measures price trends in 32 of Canada's major exports, lost further ground in October, declining 3.7%. The All Items Index has fallen 9.8% from its near-term peak in April. Yet this price correction remains mild compared with the Index's 40% plunge in the second half of 2008.
"Many exchange-traded commodity prices such as copper and zinc have edged up in November and are above the lows of early October," says Patricia Mohr, vice-president, economics and commodity market specialist at Scotiabank. "However, intensifying economic and credit concerns in Europe have contributed to renewed downward pressure on prices in the past week. As well, the failure of the U.S. Congressional Committee to agree on the details of a further deficit reduction package, potentially leading to sequestration — automatic spending reductions of US$1.2 trillion starting in 2013 over a decade — has added to uncertainty."
The major reasons for October's index drop include a fall in the Metals and Minerals Index (-6.9%), broad-based declines in base and precious metals, and lower quarterly contract prices for Western Canada's coking coal. A moderate increase in overseas potash prices could not compensate for these losses.
Scotiabank is optimistic iron ore spot prices delivered to Northern China have bottomed, after they plunged in September-October. However, given uncertainty over the global economic outlook, producers may hold off on additional price increases until next year.
Oil prices continue to be resilient, but "Western Canada's oil patch will remain vulnerable to the commercial risks from selling the bulk of its oil to just one key export market–the United States–a market likely to post slow growth at best in coming years," notes Mohr.
"This vulnerability suggests the need to build a transportation system to connect the Alberta oil sands to one or more export terminals on the B.C. Coast for onward shipment to the growth markets of Asia: China, Taiwan, South Korea, Japan, and the Philippines. Timing is important, as Alberta crude must be placed in Asian markets ahead of other competing international oil plays."