-- Positioning Canada as an Energy Superpower, Amid Shifting
Global Trade Flows
-- Spot Iron Ore Prices Rally Back in China in October
-- Equity valuations strengthen for Canadian forest products
TORONTO, Oct. 29, 2012 /CNW/ - After a strong gain in August, Scotiabank's
Commodity Price Index continued to rally in September, climbing 3.8% month
over month (m/m). The All Items Index approached levels last seen in March
2012 and is now 13.8% below the near-term peak in April 2011 - just prior to
the advent of concern over Eurozone sovereign debt and the negative fallout on
"Easier monetary policy and liquidity injections by the European Central Bank,
the Fed and the Bank of Japan - to shore up a struggling world economy -
boosted investor and business confidence in September, lifting 'riskier
assets,' such as commodities and equities," said Patricia Mohr, Vice
President, Economics and Commodity Market Specialist at Scotiabank.
Oil and gas led the gain in the Scotiabank Commodity Price Index (+8.8% m/m)
last month. International oil prices only inched up, with Brent rising from
US$112.68 per barrel in August to US$113.02, after rebounding sharply from
much lower levels of just under US$103 in June and only US$96 in July.
Similarly West Texas Intermediate (WTI) oil edged ahead to US$94.56. However
both light and heavy oil prices in Western Canada rose more than international
benchmarks, with particular strength in Western Canadian Select (WCS) heavy
oil. The WCS discount appears to narrow seasonally in the autumn alongside
less refinery maintenance in the U.S. - the destination for the vast bulk of
Canadian oil exports.
The Metal and Mineral Index bounced back in September (+2.2% m/m), as
broad-based gains in base and precious metals more than offset a slight
decline in potash and uranium prices and lower iron ore. Improved investor
risk appetite bolstered base metal prices, with copper rallying from US$3.40
per pound in August to US$3.65 in September and US$3.68 to date in October
(currently at US$3.52).
In contrast, the Forest Product Index eased back in September (-1.6% m/m)
after a strong pick-up in August. Oriented strand board (OSB) prices continued
to spike, with U.S. North Central prices climbing to a very profitable
US$347.50 per thousand square foot. U.S. linerboard producers also implemented
the first price increase since April 2010 - up US$50 to US$690 per short ton.
These gains were more than offset by a decline in Western Spruce-Pine-Fir 2x4
lumber prices from a strong US$310 per thousand board feet in August to a
still lucrative US$296. However lumber prices have snapped back in October
(currently at US$313) alongside another improvement in U.S. housing starts in
September (872,000 units annualized, up from a mere 647,000 a year earlier).
The Agricultural Index also edged down in September (-0.4% m/m). Gains in
canola, barley and wheat were countered by a temporary fall-off in hog prices
from almost US$80 per hundredweight to US$66. Inventory liquidation by hog
farmers, in response to high feed grain prices, probably accounts for this
decline, though lower farrowing intensions across North America will boost
prices next year.
"World oil prices are likely to remain at historically high levels over the
next five years," said Ms. Mohr, in a special feature on oil markets. "However
underlying developments show a dramatic change in regional oil supply and
demand balances and trade flows.
"How Canada responds to these changes will be critical in maintaining and
enhancing our position as an energy superpower," added Ms. Mohr.
According to the report, some of the underlying developments on the demand
-- Petroleum consumption in
(OECD) markets will surpass demand in the OECD industrialized
countries for the first time in 2014. Going forward, all of the
growth in world demand will be in non-OECD countries,
especially China, India, the rest of 'emerging Asia,' as well
as parts of Latin America, the Middle East and Russia.
-- U.S. petroleum demand likely peaked in 2005. For the first
time since 1949, the U.S. emerged as a significant net exporter
of petroleum products last year, mostly to Latin American
markets including Mexico and Brazil.
On the supply side, key developments include:
-- The bulk of non-Organization-of- Petroleum-Exporting-Countries
(OPEC) supply increases from 2012-17 are projected for the U.S.
and Canada (almost 75%) - centred in the development of the
Alberta oil sands, light, tight oil through horizontal,
multi-fracturing drilling technology (particularly in the U.S.)
and new sources of 'Natural Gas Liquids (NGLs such as ethane,
propane and butane) produced alongside natural gas shales.
-- U.S. oil and liquids production has posted a dramatic recovery
in the past two years due to the rapid development of light,
tight oil, such as the North Dakota Bakken - a trend likely to
continue over the next five years. The U.S. will remain a net
importer of crude oil in 2017, but its self-sufficiency will
-- In Canada, output is expected to increase from about 3.8
million barrels per day (mb/d) (including NGLs) to 4.9 mb/d,
with most of the gains in the Alberta oil sands.
-- In 2013-2015, U.S. Midwest refinery upgrades together with
Seaway and Keystone pipeline expansions (including the assumed
approval of the Keystone XL Pipeline in early 2013) will
provide additional outlets for Canada's heavy oil in the U.S.
Midwest and western Gulf Coast markets (Texas).
"However U.S. refineries in the eastern Gulf Coast currently import heavy
crude from Brazil and Colombia and competition for Western Canada from these
areas could grow," said Ms. Mohr.
Changing oil market dynamics highlight the increasing commercial risk for
Western Canada's oil patch of relying largely on one major export market - the
U.S. - and the critical need to build additional pipeline and rail capacity to
the B.C. coast to tap into the faster-growing markets of the Pacific Rim.
Scotiabank Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.
Scotiabank is one of North America's premier financial institutions and
Canada's most international bank. With more than 81,000 employees, Scotiabank
and its affiliates serve some 19 million customers in more than 55 countries
around the world. Scotiabank offers a broad range of products and services
including personal, commercial, corporate and investment banking. With assets
of $670 billion (as at July 31, 2012), Scotiabank trades on the Toronto (BNS)
and New York Exchanges (BNS). For more information please visit
Patricia Mohr, Scotiabank Economics, (416)
866-4210,email@example.com; or Devinder Lamsar, Media
Communications, (416) 933-1171,firstname.lastname@example.org.
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