Commodity prices rally

Scotiabank’s commodity price index climbed 4.7% month-over-month in May. That was the index’s second consecutive monthly gain, despite the bank’s All Items Index remaining -26.5% lower than a year ago.

“Global economic conditions remain lackluster, [but] international oil prices have lifted off bottom,” says Patricia Mohr, vice president of Economics at Scotiabank. “And, supply disruptions in Western Canada’s oil patch have pushed up domestic netbacks.”

Over the last two months, she adds, there has been a narrowing of the discounts on Western Canada’s light and heavy crude oil off of West Texas Intermediate, and that trend will likely continue.

Read:

• 4 ways cheap oil helps emerging markets
• Has the crude price bottomed?

Meanwhile, the Forest Product Index edged down in May by -0.2% month-over-month, and it’s still -11.5% below a year earlier. “However, strong U.S. housing permits in May and a growing backlog of sold, but not yet started units, points to stronger residential construction in coming months,” says Mohr.

Read: Forestry sector growing

The Agricultural Index also dipped in May. It dropped -0.4% month-over-month to a level that’s -16.8% below levels seen a year earlier.

Mohr says, “Topsoil moisture conditions in Saskatchewan and Alberta are the poorest for this time of year since 1988, a year of drought. Additionally, El Nino weather patterns around the world—including dryness in Australia and excessive moisture in the U.S. Midwest—may bring to an end the period of progressively lower grain and oil seed prices of recent years.”

Other report highlights

• LME zinc prices rose as high as US$1.09 per pound in early May. But they’ve unwound, alongside copper prices, to the US$0.92 mark throughout June.
• However, the closures of mines in Australia and Ireland in Q3 2015 will likely tighten world supplies and send prices higher by the end of the year.
• Chinese interest in copper and other mining investments remains strong, which signals that a bull run in base metals may return later in the decade.

Read:

Energy, copper could outperform in China

Energy funds rebound: Morningstar data

Outlook for oil and gas in North America