Scotiabank’s Commodity Price Index plunged by -10.5% month over-month in August. It fell to 91.3, which puts it -13.9% below its 2009 low.
“Many commodity prices, including key base metals, remain well above [their] 2008 to 2009 recessionary lows,” says Patricia Mohr, vice president of Economics, and commodity market specialist at Scotiabank. “[But] current commodity market weakness is broader based, [and] financial market turbulence in China touched off fears of a hard landing in August.”
That turbulence, she adds, “opened up questions [about] the medium-term outlook for China as a growth market for raw materials, especially for oil and metals.”
But Mohr has adopted a positive view. She predicts, “Monetary and fiscal policy stimulus will allow China’s economy to grow by 6.8% in 2015—close to Beijing’s 7% target—[even] though growth will slow to 6.4% in 2016.”
And, over the medium-term, she says, “China’s potential to significantly lift world raw material demand will remain intact, even as it transitions to a consumer-and service-led economy.”
What’s more, current market trends have lifted West Texas Intermediate (WTI) oil back to US$45, she notes. That includes the Fed’s dovishness and a decline in U.S. oil-targeted drilling activity.
Additional report highlights
- Scotiabank’s Metal & Mineral Index lost ground in August, declining -1.6% month-over-month and -19.3% year-over-year. The bank says China dominates world demand for the four key base metals (copper, zinc, nickel and aluminium) and has accounted for roughly 48.6% of world demand in 2015, compared with only 9% from the United States.
- The Forest Product Index also fell (by -3.5% month-over-month in August and by -13.2% year-over-year. This seasonal decline is unusual, says Scotiabank, since there’s normally a late-summer rally in the price of lumber.
- The bank’s Agricultural Index dropped significantly in August (-5.7% month-over-month) and has fallen -12.7% year-over-year. But, on a positive note, China continues to underpin world grain markets despite its economic weakness.