Commodity markets are expected to remain buoyant in 2006, with only a slight cooling from record levels seen last year, according to BMO Financial Group’s economics department. On an annual average basis, the BMO Financial Group Commodity Price Index is projected to decline marginally by 1%.
“The Index will be maintaining its level close to last year’s all-time high throughout 2006,” said Earl Sweet, assistant chief economist of BMO Financial Group. “However, this would represent a significant deceleration in the Index’s momentum, following average growth rates of 21% in the previous three years.
The Index dropped 6.7% in January to 204.9 (1993 = 100). “The Index fell last month as a result of lower prices for natural gas and wheat. Some offset was provided by price increases in metals, minerals and forest products.”
The oil and gas index continued its see-saw pattern of the past four months, turning down sharply in January. The monthly decline stemmed entirely from a steep drop in natural gas prices, brought about by warm weather.
The plunge in natural gas prices outweighed a rise in crude oil.
“Although the market is also well supplied with crude oil and products, it was roiled by geopolitical events — insurgency in Nigeria’s oil-producing region and the potential for sanctions against Iran due to its ramped-up nuclear activities,” said Sweet.
The metals and minerals index continued its ascent in January with a 5.4% rise, with solid gains in both precious and base metals. Notable was a 7.1% rise in the price of gold, resulting in its highest price in 25 years. “Metal and mineral prices are generally expected to ease in 2006, although solid demand, low inventories and limited production growth should keep them close to previous-year levels,” Sweet said.
The forest products index rose for the third straight month in January with a 1.6% gain. The advance was broadly based, with most components posting modest increases and the balance remaining unchanged.
The agricultural sub-index slipped 2.3% in January, as losses in wheat and soybeans more than offset gains in canola and corn. Weaker wheat and soybean prices were precipitated largely by increased competition in export markets and improved crop prospects in South America.