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July 22, 2011 09:41 ET

Concerns over Strength of Global Economic Recovery Weigh on Commodities-BMO

BMO Capital Markets Commodity Price Index falls 1.4 per cent in June

TORONTO, ONTARIO--(Marketwire - July 22, 2011) - The BMO Capital Markets Commodity Price Index, weighed down by persistent fears about the strength of the global economic recovery, declined 1.4 per cent to 200.9 (2003 = 100) in June, according to The Goods: A Monthly Commodity Watch published today by BMO Capital Markets Economics.

"Soft economic data in the United States, concerns about a hard landing in China and festering European debt problems kept investors on the sidelines in June," said Kenrick Jordan, Senior Economist, BMO Capital Markets. "As the near-term commodity outlook darkened amid increased risk aversion, the Oil & Gas and Metals & Minerals indices suffered setbacks. While economic uncertainty did play a role, Agriculture slipped on increased supplies."

Looking ahead, Mr. Jordan noted that clouds continue to hang over the U.S. economy amid a flow of disappointing data on housing, manufacturing and the labour market, and sovereign debt fears are spreading within Europe and to the United States, with ratings-agency warnings and downgrades. "Near term, commodity markets are likely to be volatile and downside risks remain significant. Further out, prices should be underpinned by still-solid, if moderating, emerging-market demand and limited supply growth for many commodities."

The Oil & Gas Index fell again in June, as a sustained increase in natural gas prices was more than offset by a decline in crude oil. "Despite strong growth in natural gas output in the United States, pricing continued to firm, as inventories decreased on stronger-than-normal heating demand during the cool spring," noted Mr. Jordan. "More recently, the onset of very hot weather across much of North America is increasing gas consumption by power generators to meet air-conditioning demand."

The Metals & Minerals Index declined again in June, albeit more modestly, on concerns about the strength of demand for industrial metals. "Though the overall index fell, gold continued to benefit from economic uncertainty and inflation fears," said Mr. Jordan. "So far in July, the performance of industrial metals has been mixed, while gold has hit fresh record highs."

The Forest Products Index strengthened in June, with lumber rising on production curtailments and seasonal increases in demand. Pulp reached a record high but is likely to decline later this year. Newsprint is expected to face upward pressure from rising costs and a high ratio of shipments to capacity.

The Agricultural Index edged lower in June, ending a year-long string of monthly gains. "The decline was primarily due to wheat, which fell amid harvest pressure in the U.S., expectations of increased availability, especially from the Black Sea region, and concerns about the strength of the global economy," said Mr. Jordan.

BMO Capital Markets Commodity Price Index for June 2011
June 2011 Level Per cent change
(2003 = 100) from month ago from year ago
All Commodities 200.9 -1.4 22.3
Oil & Gas 193.8 -2.9 18.6
Metals & Minerals 304.9 -0.9 31.2
Forest Products 120.0 2.0 5.4
Agriculture 237.2 -0.8 61.6

The full report is available at www.bmocm.com/economics.

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