SOURCE: Scotiabank

Scotiabank

August 31, 2015 07:56 ET

Commodity Prices Plunge in July and August: Scotiabank

TORONTO, ON--(Marketwired - August 31, 2015) - After rallying in the second quarter, Scotiabank's Commodity Price Index turned lower again in July, dropping -6.7% month-over-month (m/m) and -29.4% year-over-year (yr/yr).

"An ongoing battle for market share in oil -- recently exacerbated by heightened concern over a further slowing in the Chinese economy -- combined with consternation over possible Fed monetary policy tightening in September have largely accounted for commodity price weakness," said Patricia Mohr, Vice President of Economics and Commodity Market Specialist at Scotiabank.

"The strength of the trade-weighted U.S. dollar has had a notable deflationary impact on commodity prices, most of which are priced in U.S. dollars. Broad-based currency depreciation against the U.S. dollar by key commodity producing countries -- Canada, Australia, Mexico and LATAM -- will boost local currency receipts and help producers weather the storm. However, U.S. producers are at a severe competitive disadvantage.

"Concern that a slowing Chinese economy could further pull down global growth has pressured base metal prices in August. However, additional monetary policy easing by China on August 25 -- aimed at meeting its 7% GDP growth target -- has steadied base metals and most commodity prices (we expect growth of 6.8% in 2015)."

Other highlights from the report include:

  • Base metals appear 'over-sold' and should rebound moderately in coming months, as Chinese buyers take advantage of bargain prices.
  • Gold is one of the few commodities bucking the weakening trend, rallying to US$1,167 per ounce in mid-August from a low of US$1,081 on July 24 (London Bullion Market Association PM prices).
  • A prolonged battle for market share between Saudi Arabia and the U.S. shale producers, Russia and Iran appears likely to keep oil prices below US$50 over the next twelve months.

Read the full Scotiabank Commodity Price Index online at: http://www.scotiabank.com/ca/en/0,,3112,00.html.

Scotiabank 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.

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