Natural gas prices led Canadian commodity prices southward in September, with the TD Commodity Price Index (TDCI) falling sharply to its lowest level in more than two years.
After a brief pause in August, the 18-item TDCI fell by seven per cent in September, led by the plunge in natural gas prices and more moderate price declines in 12 other components of the index.
“The widespread weakness in commodity prices reflects deteriorating world demand and the uncertainty created by the Sept. 11 terrorist attacks on the United States,” said Craig Alexander, senior economist at the TD Bank Financial Group.
Although it is impossible to assess the full economic consequences of the attacks, the disruptions will aggravate the economic slowdown under way in the U.S., said Alexander.
“The rest of the world will not be immune to the U.S. downturn, as international trade and global corporate profits will be sharply curtailed by the weakness in the world’s largest economy,” he said.
TD economists forecast that the world economy will expand by 2.2 per cent this year – which in historical terms is tantamount to a global recession.
However, said Alexander, “the global recession is likely to be both shallow and brief. Lower interest rates and stimulative fiscal policies are expected to fuel an economic recovery next year, which should lead to a gradual rising trend in commodity prices.”
Major commodity price developments:
* Higher inventories sparked a 24-per-cent drop in natural gas prices in September. Although seasonal demand will push prices higher in the coming months, consumers can take heart in the fact that the increase will fall well short of last year’s spike.
* Despite initial concerns that the U.S. retaliation against terrorism could lead to supply problems, crude oil prices moved lower last month, dropping sharply to about $22 US per barrel in late September. Declining global demand and OPEC’s decision to leave production quotas unchanged were responsible for the lower price of crude.
* Base metals suffered in September, as the terrorist attacks postponed the prospects for a recovery in global industrial activity, which has been languishing since the start of the year.
* Lumber prices, which surged in August after the U.S. Department of Commerce’s preliminary decision to apply a 19.3-per-cent countervailing duty on Canadian softwood lumber shipments into the U.S., gave back most of those gains in September. Benchmark lumber prices averaged $280 US per thousand board feet for the month, nine per cent lower than in August.
“Although the trade dispute will put upward pressure on prices, the economic downturn will significantly reduce construction demand for lumber, preventing producers from passing along the added costs and suggesting that lumber prices will trend lower before the end of the year,” said Alexander.
* The TDCI agricultural sub-index retreated for the second consecutive month in September, as prices of canola, flaxseed, hogs and cattle fell, more than offsetting slight increases in wheat and barley.
Despite last month’s setback, however, 2001 is shaping up to be the best year since 1998 for agriculture prices, said Alexander.
The TD Commodity Price Report (including charts and detailed tables), is available in PDF format on TD Economics’ homepage at www.td.com/economics.
