Scotiabank’s commodity price index, which measures price trends in 32 of Canada’s major exports, surged by 5.4% month-over-month in May, reaching a new all-time record high, 113.4% above the cyclical low in October 2001.

The metal and mineral index soared by 11.9% in May, the third largest monthly gain on record (in data back to 1972). Investment/hedge funds drove copper and zinc prices to spectacular new heights on May 11-12, with nickel also approaching a record late in the month.

The oil and gas index also strengthened in May, as West Texas Intermediate crude oil averaged almost US$71 per barrel, lifting Alberta light and heavy crude oil prices to record levels. The agricultural index moved significantly higher with widespread gains in grains, oilseeds and livestock. The forest product index was the only sub-component to decline in May, as lower building material prices countered increases in pulp & paper. The all items index climbed 23.1% above a year earlier.

“The current cyclical expansion in commodity prices has been one of the most powerful since World War II, second only to the upswing from 1972 through mid-1980, in the aftermath of the Arab oil embargo and intense raw material stockpiling by Japanese trading houses, fearing resource shortages,” says Patricia Mohr, vice president and commodity market specialist, Scotia Economics. “In inflation-adjusted terms, the current expansion has outpaced the 1970s.”

LME copper prices soared from an already high US$2.90 per pound in April to US$3.65 in May (monthly averages). LME zinc prices spurted ahead to a record US$1.81 per pound on May 11, almost double the previous US$0.91 peak of February 1989. Zinc prices have unwound to US$1.35 in mid-June, though prices remain well above the long-term average of only US$0.47 from 1980-2005. A global shortage of zinc concentrates is constraining smelter output.

Spot uranium prices continue to advance, climbing to US$43 in late May from US$41.50 per pound in late April. Prices are currently US$45.00, surpassing the previous peak of US$43.40 in 1978.

WTI crude oil prices have edged up from US$70.16 per barrel in April to US$71.80 in mid-June, well above the US$65.55 average in September 2005, in the aftermath of Hurricanes Katrina and Rita. Prices have averaged US$67 in the first half of 2006.

“Prices were pushed up to the US$70 mark in the second quarter by ‘geopolitical supply risks’ related to Iran’s decision to resume uranium ‘enrichment’ and political unrest in the Niger Delta,” says Mohr. “Concern over Iran’s nuclear policy has moderated in recent weeks, with Iran indicating that it will not respond until mid-August to a package of incentives offered by the five permanent members of the U.N. Security Council plus Germany, designed to induce Iran to suspend its uranium ‘enrichment’. While prices have drifted down from the April 21 peak of US$75.17, this issue will likely heat up again. So far, progress in boosting OPEC’s ‘capacity cushion’ to offset any disruptions in the global oil supply system has been limited.”