Bank of Nova Scotia’s commodity price index, which measures price trends in 32 of Canada’s major exports, surged to new heights in May, climbing 3.9% month-over-month, the fifth consecutive record in as many months in 2008.

The oil and gas index led the way in May, surging 10.5% month-over-month and 65.9% year-over-year. Energy prices strengthened across the board, with Canadian natural gas export prices climbing over US$10.60 per thousand cubic feet (mcf), pushed up by record oil prices. West Texas Intermediate (WTI) oil soared to new heights of US$139.12 per barrel in intraday Nymex trading on June 6, alongside Middle East tensions, linked to Iran’s refusal to end its uranium enrichment, and a world supply system with only limited spare capacity to offset supply disruptions. Prices touched an even higher US$139.89 on June 16 alongside a soft U.S. dollar.

“In an effort to calm world oil markets, Saudi Arabia has invited major oil consumers and producers to a meeting on June 22 to discuss measures which might be taken to curb soaring oil prices,” says Patricia Mohr, vp, economics and commodity market specialist at Scotiabank.

Saudi Arabia began to boost output by 300,000 barrels per day in mid-May towards a target of 9.45 million barrels per day (mb/d) by June and is reportedly mulling a further increase to about 9.7 mb/d, possibly announced at its oil summit, for an overall increase of 500-550,000 b/d. If implemented, the country’s output will climb to 91% of its maximum sustainable production capacity (10.65 mb/d) and capacity utilization across the cartel will rise to 93.8%.

Metals & Minerals

Potash prices at the Port of Vancouver jumped to US$525 per tonne in May from US$504 in April and will likely climb to an average of more than US$800 by late 2008.

In contrast to soaring mineral-related fertilizer prices and ongoing strength in coking/steam coal prices, base metal prices have lost ground in the past two months alongside unease over prospects for slowing global growth and anticipation of new mine development, especially in zinc. Spot uranium prices have also fallen back to only US$57 per pound, likely oversold and near a bottom, while term-contract prices remain steady at US$90.

London Metal Exchange (LME) copper prices have eased back from a record high of US$4.03 per pound on April 10 to US$3.80 in May and are currently US$3.76. However, copper prices remain resilient and are very lucrative for miners.

“Important for B.C. and Quebec, LME aluminium prices are also performing well and should average about US$1.35 per pound in 2008 and 2009, up from US$1.20 in 2007,” adds Mohr. “Growth of aluminium semis production in China ballooned by 40% in 2007 and has advanced by another 35% year to date. Global demand growth will average 8% in 2008-09.”

Agriculture

The agricultural index lost ground in May for the second consecutive month, but remains 40% above a year ago.

“U.S. corn inventories at the end of the 2008-09 crop year will be cut in half, possibly more, increasing upward pressure on ethanol prices for gasoline,” says Mohr. “The spring planting season in Canada has also been unusually cold, dimming the crop outlook.”